Current Affairs

1. The situation with North Korea has moved to one of open confrontation.  That said, there are stronger commercial sanctions on North Korea than before, and the attitude of the Chinese does seem to have shifted toward recognizing North Korea as a problem needing to be solved.  For the time being, both the missile tests and the jawboning have stopped, for unknown reasons.  Note that the South Korean and Japanese markets remain high, of course the U.S. market is strong too.

2. Trump has spent a great deal of time with Prime Minister Abe, the real “pivot toward Asia.”  Abe is being treated like the most important leader of the free world — is that crazy?  Merkel is now teetering.

3. The Trump administration has recognized and encouraged a much more explicit semi-military alliance between America and India, also part of the pivot.  China-India relations could be the world’s number one issue moving forward.

4. The apparent “green light” from the Trump administration probably raised the likelihood and extremity of the Saudi purge/coup.  I give this a 20% chance of working out well, though with a big upside if it does.  Whether you like it or not, so far it appears to me this is Trump’s most important initiative.

Just to interject, much of your assessment of the Trump administration should depend on #1-4, and I am worried that is hardly ever the case for those I see around me.  While I do not view the current administration as “good executors” on foreign policy, the remaining variance on #1-4 is still very high and it is not all on the down side.

5. The Trump administration seems to think that keeping production clusters within this nation’s borders is of higher value than shaping the next generation of the world’s trade architecture.  I don’t think they will get much in return for this supposed trade-off, but there you go.

6. I am seeing deeply biased assessments of tax reform, from both sides.  I don’t favor raising the deficit by $1.5 trillion (or possibly more), I do favor cutting corporate rates and targeting some of the most egregious deductions.  I am disappointed that there is not more celebration of the very good features of the plan on the table, that said big changes in the proposed legislation still are needed.

7. In terms of regulatory reform (WSJ), the administration has done better than my most optimistic scenario.  In their worst area, carbon, progress on solar and electric cars is bigger good news than the bad policy news.  And for all practical purposes, the carbon policy of Trump is not much different from that of say Angela Merkel.

8. The suburbs are rebelling against the Republican Party.  There is a decent chance the Republicans will lose the House in 2018, as well as numerous governorships.  Soon we may get a window of a very different Trump, plus more investigations.

9. Various people connected to Trump will be nabbed for crimes and perjuries.

10. Trump has personally “gone after” many political and social norms, but it is not yet clear if they will end up weaker or stronger as a result.  His “grab them…” tape for instance seems, in the final analysis, to have empowered a major rebellion in the opposite direction.  #10 is a major reason why many commentators hate Trump as a person and president, and I can understand that response, but I am myself more focused on what the final outcomes will be and there we do not know.

11. The cultural and intellectual force of liberalism — broadly defined — has been greatly weakened by a mix of Trump and Trump-related forces.  I find this tragic and a major source of despair.

12. I do not favor “a decline in the dignity of the presidency” in the manner we are seeing, but I find many of these criticisms are stand-ins for not liking the substance of what is happening.  I don’t think we know what are the costs (or benefits) are from this transformation of the presidential image.  I could readily imagine those costs are high, but as a sociological matter I am seeing “the dignity of the office of the president has been insulted” as a stand-in for “my dignity has been insulted.”

13. The quality of discourse continues to decline.

The Berkshire Museum, yes.  They were going to sell 40 paintings at Sotheby’s, including two very special Norman Rockwells, but at the last minute a court decision halted the sale, claiming (with only thin justification) that the sale would violate the museum’s trusts.  That is the setting of my latest Bloomberg column, here is one bit:

The sad truth is that the people running the Berkshire Museum just don’t care that much about American art any more, at least not from an institutional point of view. Given that reality, it’s actually better if they are not entrusted with important artworks.

The court’s decision now means it will be hard to pull off the sale with fully clear rights to the titles, although the court’s judgment will be re-examined in December. Both the uncertainty and the surrounding negative publicity will scare off buyers and may spoil the market for a long time to come.

There is much more at the link.  The argument against selling, of course, is that in a world of frequent sales all museums will find it hard to make credibly binding commitments to their donors, who often do not want their donated works recycled in the marketplace.  But the equilibrium of zero selling is one that will destroy a great deal of value in the art world.  Note that this problem will become increasingly relevant as the clock ticks and the number and inappropriateness of past museum commitments piles up.  If nothing else, sooner or later insolvency sets in.  Rust never sleeps.  And so on.

Should churches really own all that land in the downturns of major American cities?

Acclaimed legal scholar, Harvard Professor, and New York Times bestselling author Cass R. Sunstein brings together a compelling collection of essays by our nation’s brightest minds across the political spectrum—including Eric Posner, Tyler Cowen, Noah Feldman, Jack Goldsmith, and Martha Minow—who ponder the question: Can authoritarianism take hold here?

With the election of Donald J. Trump, many people on both the left and right feared that America’s 240-year-old grand experiment in democracy was coming to an end, and that Sinclair Lewis’ satirical novel, It Can’t Happen Here, written during the dark days of the 1930s, could finally be coming true.

Is the democratic freedom that the United States symbolizes really secure? Can authoritarianism happen in America? Sunstein queried a number of the nation’s leading thinkers. In Can It Happen Here? he gathers together their diverse perspectives on these timely questions and more.

In this thought-provoking collection of essays, these distinguished thinkers and theorists explore the lessons of history, how democracies crumble, how propaganda works, and the role of the media, courts, elections, and “fake news” in the modern political landscape—and what the future of the United States may hold.

Due out in March, pre-order here.  The book also has Jon Elster, Timur Kuran, and Jonathan Haidt, dare I call it self-recommending?

Here is the transcript and podcast, I enjoyed this chat very much.  Here is part of the opening summary:

Sujatha Gidla was an untouchable in India, but moved to the United States at the age of 26 and is now the first Indian woman to be employed as a conductor on the New York City Subway. In her memoir Ants Among Elephants, she explores the antiquities of her mother, her uncles, and other members of her family against modern India’s landscape.

Our conversation considered the nature and persistence of caste, gender issues in India, her time as a revolutionary, New York City lifestyle and neighborhoods and dining, religion, living in America versus living in India, Bob Dylan and Dalit music, American identity politics, the nature of Marxism, Halldor Laxness, and why she left her job at the Bank of New York to become a New York City subway conductor, among other topics.

Here is one sequence:

GIDLA: Actually, the only relation I have with my family members is political views.

[laughter]

GIDLA: If we have to connect on familial links, we will always be fighting and killing each other. All that we talk about with my mother is politics and untouchability and caste and Modi and things like that.

It’s the same thing with my sister also. This is where we connect. Otherwise, we are like enemies. My brother, we’re completely alienated from each other, firstly because he goes to church now. We never used to go to church before. He’s into this Iacocca. Is there a name . . . ?

COWEN: Iacocca?

GIDLA: Yeah.

COWEN: Lee Iacocca?

GIDLA: Yeah.

COWEN: The former Chrysler chairman?

GIDLA: Yeah. He reads that kind of books.

COWEN: Management books.

GIDLA: He’s into that kind of stuff.

COWEN: You don’t?

GIDLA: No.

GIDLA: He read Freakonomics and he liked it. I don’t relate to that stuff.

And this toward the end:

COWEN: Your most touching memory of your mother?

GIDLA: I don’t know. When I was arrested, she was very worried. She said, “I wish I could take you back into my womb.”

Strongly recommended.  I was pleased to see that Publisher’s Weekly named Sujatha Gidla’s book as one of the ten best of 2017, you can order it here.

Seasteading, the once quixotic idea of Patri Friedman and early funder Peter Thiel, is now taking shape in French Polynesia writes David Gelles in the New York Times:

Long the stuff of science fiction, so-called “seasteading” has in recent years matured from pure fantasy into something approaching reality, and there are now companies, academics, architects and even a government working together on a prototype by 2020.

…Earlier this year, the government of French Polynesia agreed to let the Seasteading Institute begin testing in its waters. Construction could begin soon, and the first floating buildings — the nucleus of a city — might be inhabitable in just a few years.

“If you could have a floating city, it would essentially be a start-up country,” said Joe Quirk, president of the Seasteading Institute. “We can create a huge diversity of governments for a huge diversity of people.”

The future is hard to predict but I am eager to see greater experimentation in city governing rules.

Addendum: I have been a minor adviser.

The subtitle is Making Sense of the Syrian Tragedy, and the author is leading Syrian intellectual Yassin Al-Haj Saleh.  Imagine having a well-written book, totally conversant in the arguments of the social sciences, that set out to explain the Syrian tragedy to an intelligent reader.  Here is one typical bit:

The extremely decentralized nature of the Syrian revolution stemmed from nearly half a century of regime-enforced seclusion and isolation of Syrian society.  It was also occasioned by the regime’s forcible domination over all social interaction — and so a divide-and-conquer strategy was used by the Assadist oligarchy to confront the revolution right from the start.  Such strategies made any protest activities in central squares obviously impossible because this would have permitted the gathering of Syrian society’s diverse groups, and perhaps would have also allowed a degree of discussion, exchange of opinions, and general building of trust.  Keeping this in mind, it becomes clear that the extreme, forced fragmentation of the revolution’s activities is an additional factor that has facilitated the spread of the nihilist synthesis of complete distrust and a propensity for violence.

Where else can you find a book that compares and contrasts ISIS nihilism to 19th century Russian nihilism, or Sultanic principles in Syria vs. Lebanon?:

Lebanon is a neo-Sultanic state without a Sultan, and should either fill the gap and assign a Sultan with a well-developed general security shield, or turn the page of the sectarian patronage system and evolve toward a state of citizenship and equality.  In the context of present interconnections between the two Sultanates, Lebanon is the incomplete one with a large ‘security branch’ (i.e. Hezbollah) that is leaning more towards Sultanism, and the complete model is currently beset by a revolution.

Strongly recommended.  And as the author himself suggests in closing: “It is always necessary to demystify sectarian fraud…”

You can order the book here, though please note I do not sympathize with the author’s career or overall views in many respects.  He was a political prisoner from 1980-1996.  “Worthy of Gramsci…”  This book remains under-reviewed by mainstream outlets.

The sexual-harassment revolution is coming more slowly to Washington. Even the four female lawmakers who recently told the Associated Press of sexual harassment they faced from their male co-workers didn’t feel comfortable sharing the names of their harassers. “I’m not sure women in D.C. would be rewarded for their bravery [if they came forward], it’s just a different business,” Ellen says. “The thing about this town is that everyone is connected. The people who get ahead keep the peace and angle everything to their advantage.”

Add to that the tribal nature of politics: Most aides are terrified of doing anything that might bring bad press for their boss, or their side. “There’s an anti-snitch sorta thing — you don’t air your dirty laundry,” says Anne Gregory Teicher, a Democratic campaign manager. “It gives the other side power.”

And it doesn’t stop when the campaign is over. “Staffers are told from day one that they do not talk to press, full stop,” says Travis Moore, a former legislative director for the now-retired representative Henry Waxman, a California Democrat. As a Waxman aide, he says, “I spoke to a reporter once, on background, and I was incredibly nervous going into it … people are socialized not to ever talk about what’s wrong in the institution because it could reflect poorly on their member of Congress. There’s a culture that doesn’t accept criticism unless you’re talking about partisanship. It’s really bad for the institution.”

I heard similar rationales from the other women I reached out to. “We’re all a bit more scared. We don’t have platforms like big-name actresses do…”

Here is the full piece by Marin Cogan.

Here is Ali Shihabi:

In the short term, these detentions will lead, directly and indirectly (i.e., by example of what can happen to those who do not cooperate), to the recovery of substantial ill-gotten assets from many members of the elite, including, in all probability, vast tracts of urban land that were “acquired” by senior royals in decades past. The monopolization of this resource limited the amount of urban land available to the masses, pushing up land and home prices, which contributed to massive land and home shortages. Remedying this situation will reduce the cost of home ownership, thereby alleviating a major source of grievance among middle- and lower-class Saudis.

And:

More importantly, in a country beset by an extremely wide political spectrum ranging from the extreme religious right to the liberal left, achieving consensus on key issues is virtually impossible. Hence, if any reform is to take place within a reasonable time frame, it will have to be autocratically managed. Reforms such as removing the prohibition on women’s driving, combating extremism, and curbing elite entitlements would have been impossible to accomplish through deliberation and consensus. Coercive action and an authoritarian hand, rather than endless debate, discussion, and negotiation with thousands of royals and political, economic, and religious elites, was needed to drive home to these individuals that the monarchy is serious about fundamental reform and that the “old guard” needs to get with the program or face dire consequences.

Previous attempts to negotiate elite entitlements achieved negligible results. To cite just one example, relentless pushback and delay tactics scuttled a recent initiative that would have forced elites to pay full utility costs and newly introduced property taxes on undeveloped land. Arresting high-profile household names, people long considered to be untouchable, was the best way for the King and the Crown Prince to deliver the shock needed to recalibrate the behavior and expectations of the elite class.

I am not convinced by the conclusion, but here goes:

Paradoxically, the Saudi “purge” may very well secure the future of Saudi elites as a class, and even the future of the very elites who were arrested. In Dubai, the crackdown ended when convicted elites were quietly released after they had returned looted state assets. It is probable that the Kingdom will follow a similar path. For Saudi elites, succumbing to a “revolution” from above that requires them to forfeit some of their extreme wealth and privilege is still preferable to a real populist revolution from below, which would wipe them out completely and destroy the country.

Pointer is from Ahmed Al Omran.  And here is coverage from Reuters.  Here is Ian Bremmer.

Won’t Get Foiled Again

by on November 11, 2017 at 7:23 am in Current Affairs, Economics | Permalink

The Trump administration has just put crippling tariffs (97-162%) on the import of aluminium foil from China. Making America great again? It’s doubtful. Far more American firms use aluminium foil than make it. Indeed, only two US-based firms make it and one of them is owned by Swedes. Virginia Postrel has the details:

Only two companies have U.S. mills making the thin-gauge foil affected by the duties. The ones owned by Sweden-based Gränges are already selling all they can produce; the company has announced plans to expand capacity at its Tennessee mill by 2019. Converters say that JW Aluminum Co., the Mt. Holly, South Carolina-based company that lobbied strongly for the duties, isn’t offering them much, if any, additional supply.

Most of the ex-Chinese sales won’t even go to US firms but to firms in countries not affected by the tariffs, including Russia, Bulgaria, South Korea and Taiwan. Yes, Russia.

Conspiracy or coincidence? I want to say coincidence. On the other hand:

Donald Trump’s former national security adviser, Michael Flynn, is under investigation for involvement in an alleged plot to kidnap a Turkish dissident cleric living in the US and fly him to an island prison in Turkey in return for $15m, it was reported on Friday.

So who can say anymore? Excuse me while I go put on my hat.

About one-sixth of India is Dalits, or “Untouchables.”  And while Western criticisms of caste segregation are a long-standing observation about India, I hardly hear serious complaints over the last two decades or so.  In contrast, the apartheid system of South Africa met with demonstrations, boycotts, campus activism, frequent dialogue, and so on.  Why don’t we see some modified version of the same for the Indian caste system?  No matter how you compare its relative oppression to that of South Africa, it still seems like a massive system of unjust and opportunity-destroying segregation, and an efficiency-loser as well.  Here are a few hypotheses, not intended as endorsements but rather speculations:

1. The caste system is simply too difficult for most Americans to understand, whereas apartheid could be represented more readily in what I dare not call simple black and white terms.

2. Most of the Indians who migrate to the United States are higher caste or at least middling caste, and they sway American opinions of India in a way that South African migrants to the USA never did.

3. Libertarians don’t want to focus on the caste system because it persists without active government support being the main driver.  Democrats don’t want to focus on the caste system because Indian-Americans are often leading supporters and donors.  It doesn’t feel like a Republican issue either.  So who is there to push this one for domestic ideological reasons?

4. Talking about the caste system makes harder the (justified, I should add) program of raising the status of non-minority whites in America.

5. Talking about the caste system would focus light on caste-based discrimination in the United States, and distract attention from other domestic issues.

What else?  Overall I find this a disappointing topic to ponder.  Perhaps all politics, like envy, really is local after all.

I am indebted to Sujatha Gidla for a useful conversation on this topic.  My formal Conversation with her will be up in a bit, I still recommend her book on caste, Ants Among Elephants: An Untouchable Family and the Making of Modern India.

Room charges at the Ritz?

by on November 8, 2017 at 11:12 am in Current Affairs, Economics, Law | Permalink

The Saudi government is aiming to confiscate cash and other assets worth as much as $800 billion in its broadening crackdown on alleged corruption among the kingdom’s elite, according to people familiar with the matter.

Several prominent businessmen are among those who have been arrested in the days since Saudi authorities launched the crackdown on Saturday, by detaining more than 60 princes, officials and other prominent Saudis, according to those people and others.

The country’s central bank, the Saudi Arabian Monetary Authority, said late Tuesday that it has frozen the bank accounts of “persons of interest” and said the move is “in response to the Attorney General’s request pending the legal cases against them.”

Here is the WSJ piece, note that many of these people are being held at the Ritz-Carlton hotel in Riyadh, now being used as a kind of high-class detention center.

That is the topic of my latest Bloomberg column, here is one bit:

If the bill succeeds in limiting these deductions, a logic is set in motion for future tax reforms. Let’s say the Republicans eliminate tax deductions for new mortgages above $500,000. That would become a sign that the homeowner and real-estate lobbies are not as strong as we might have thought. The next time tax reform comes around, legislators will consider lowering the value of the deduction further yet. After all, the anti-deduction forces won before and, in the new battle, those who expect to have future mortgages above $500,000 don’t have a stake anymore.

In other words, any squeezed deduction will remain a vulnerable target for more squeezing, or even elimination, over successive reforms.

And then:

The exact treatment in the House plan seems to be in flux, but the top rates from President Barack Obama’s tax reform are likely to stick in some manner. There even seems to be a rateof 45.6 percent on some earners, in the range of $1.2 million to $1.6 million a year. That is a far cry from Jeb Bush’s call in the Republican presidential primaries for a 28 percent top marginal rate, in the tradition of President Ronald Reagan. Some well-off Californians could possibly face a total marginal rate, all taxes considered, of over 62 percent.

You will recall that the Republican Party had in the past pressed strongly for reductions in the capital-gains rates, but that isn’t on the agenda now. Take that as a sign that Obama’s boost to those rates will stick.

If you solve for the equilibrium over time, maybe maybe you will get:

If we look at the Republican plan as a whole, it appears to be a recipe for a future tax code with many fewer deductions, lower corporate rates, higher income tax rates for the wealthy and a continuing inheritance tax. I’m not saying that the exact mix will or should make everyone perfectly happy, but is this not what a bipartisan tax reform compromise might look like?

My fear, of course, is that those deductions will not survive the next stage of the process.  Stay tuned…

Claims about Saudi

by on November 5, 2017 at 5:07 pm in Current Affairs | Permalink

In a style of government which is unique to the kingdom, they announced the arrests first and then they announced the creation of the committee which had ordered them. This is how the young prince acts, a man who some Middle East experts persist in referring to as a Western-style reformer. He acts with total disregard to habeas corpus, due process and the rule of law. In his eyes, those arrested are guilty before they are proven guilty.

This committee is McCarthyite in its powers and scope. The first thing to note in the decree which set it up, is that it puts itself above and beyond the law. The decree states that the committee (which bin Salman chairs) is “exempt from laws, regulations, instructions, orders and decisions while the committee shall perform the following tasks: … the investigation issuance of arrest warrants, travel ban, disclosure and freezing of accounts and portfolios, tracking of funds, assets, and preventing their remittance or transfer by persons and entities who ever they might be. The committee has the right to take any precautionary measures it sees, until they are referred to the investigating authorities or judicial bodies.”

In other words, the prince can do anything he likes to anyone, seizing their assets in and outside the kingdom. Let’s just remind ourselves of what he now controls. The prince heads all three of Saudi Arabia’s armies; he heads Aramco, the world’s biggest oil company; he heads the committee in charge of all economic affairs which is just about to launch the biggest privatisation the kingdom has seen; and he now controls all of Saudi’s media chains.

This was apparent from the list of businessmen arrested. ART, MBC and Rotana Media group dominate the Arab media. These Saudi media corporations account for most of what is put out on air in the Middle East, apart from the news output of Qatari-owned Al Jazeera.

Their respective owners, Saleh Kamel, Walid al-Ibrahim and Prince Waleed bin Talal are behind bars. Presumably too their wealth has been confiscated. Forbes prices bin Talal, chairman of the Kingdom Holding Corporation, at $18bn. He owns sizeable shares in numerous companies, including Newscorp, Citigroup, 21st Century Fox and Twitter. These shares too are under new management. The head of STC, the biggest mobile operator in Saudi, was also arrested.

If previous moves bin Salman took constituted a power grab, Saturday’s moves were a wealth grab.

Quite apart from the political dangers of stripping so many very rich Saudis of their wealth, this is a bizarre way to encourage foreigners to invest in the kingdom.

Here is the full piece by David Hearst, interesting to me but I don’t feel I can evaluate it.  Via Bruno.

Find the slides here, 44 pp., very useful.  I found (what seems to be) #36 most interesting, namely to the extent interest deductibility remains, many corporations will face a negative marginal rate under the new reforms.

I do think Jason could have offered more praise to how the plan limits various inefficient deductions, a long sought-after goal.

Hat tip goes to Greg Mankiw.

You might wish to read James T. Quinlavin from 1999 (pdf), who also covers Syria and Iraq, here is one bit:

While observers have pointed to the apparent fragility of this balance for decades, the longevity of the balancing act is both a tribute to the Saudi rulers and evidence that their tools are more effective than generally recognized.

Ibn Saud’s personal conquest of Arabia, supported by a community of trust of about sixty men willing to fight against the odds, began with the recapture of the family seat in Riyadh. From there Ibn Saud went on to conquer the Nejd, the traditional heartland of Arabia, relying on both war and marriage to personalize his alliances and conquests. Marriage, even to bereaved relatives of defeated opponents, provided Ibn Saud an effective means of monitoring his enemies. The tribes of the Nejd made up the human core of Saudi Arabia, while Ibn Saud’s numerous progeny comprised the dynasty’s human core. Today the al-Sauds rule from a base within a family group that is not monolithic. Bonds of personal loyalty rather than of an “abstract notion of citizenship” extend from the family to the tribal groups. Only nontribal Saudis define their relation to the Saudi rulers in the latter terms.

Here is another:

To varying degrees, Saudi Arabia, Iraq, and Syria have come to concentrate key capabilities of offense and defense in parallel military forces. The total military power of the state is reduced, however, when these forces are not made available when needed.

Ahmed Al Omran on Twitter, a former WSJ correspondent, is monitoring current developments.  If you are wondering, Saudi stocks have rebounded.