Current Affairs

That is the topic of my latest Bloomberg column, here are parts of my analysis:

The upshot is that the possibility of conflict of interest will impose the biggest problems for those areas where a president’s legitimacy and credibility are most important, and also where the president has the most unilateral power. Those factors point to foreign policy as the most significant trouble area.

Domestic corruption is wrong, but I find it less worrying in practical terms, for instance:

Or consider the value of domestic property as a potential source of conflict of interest. If Trump really put the value of his hotel properties before the national interest, that might encourage a lot of policies to foster urban growth, travel, and tourism. Those policies might not spread their benefits efficiently, but they are hardly the worst outcome imaginable. A lot of the most scathing critiques of Trump refer to his proposed climate-change policies, but those seemed common to most of the other Republican candidates, and they are not a result of Trump’s particular asset holdings.

On the other hand:

But when it comes to foreign policy, all of these factors change for the worse, in part because the president has so much unilateral power. It’s hard for a president with perceived conflicts of interest to make credible commitments to allies because the allies can’t be confident that a president will stick to a proposed agreement or course of action. The result is an unraveling of alliances, a decline in international trust and possibly dangerous rearmament and nuclear proliferation. It’s hard for a subsequent president to reverse those losses.

Hostile powers or lukewarm neutrals also will be confused if foreign policy is not run in the usual predictable, bureaucratized fashion. That raises the risk of conflict or it makes an amelioration of tensions less likely.

Furthermore, imagine what would happen if members of the executive branch invited direct or indirect bribe payments from foreign powers. Large, corrupt, and partially hostile countries such as Russia and China – not Denmark – would probably make the biggest offerings.

Overall I find I am seeing too many “theory free” criticisms of Trump on the corruption issue.  Do read the whole thing.

The mayor-elect of Rio de Janeiro is promoting a new idea to bolster tourism in his crime-plagued city: levying a new tax on tourists, then using the proceeds to reimburse visitors who are mugged.

The mayor-elect, Marcelo Crivella, a right-wing evangelical Christian gospel singer who was elected in October, floated his call for action this week at a luncheon with business leaders. Mr. Crivella, who will take office on Jan. 1, said his “bold proposal” could be funded by assessing a new tax on airplane tickets bought by tourists.

“Rio de Janeiro cannot continue treating its tourists as if they were an afterthought,” Mr. Crivella, 59, told the audience, emphasizing the need to “shatter” Rio’s “negative image.”

Here is the full NYT story.  The muggers, it seems, do not treat Rio’s tourists as an “afterthought.”

Land speculation was a natural and common preoccupation among the Founders. For some it became an economic affliction. “Hardly a prominent man of the period failed to secure large tracts of real estate, which could be had at absurdly low prices, and to hold the lands for the natural advance which increased population would bring,” wrote Albert J. Beveridge.27 For many, such speculation would prove a hazardous preoccupation. Virginia’s Henry Lee and Pennsylvania’s Robert Morris and James Wilson ended up in jail because of their debts from speculation. Washington biographer James Thomas Flexner noted that land speculation was “a fundamental aspect of American economic life, but it had become in the last few years an extremely tricky one. General [Henry] Knox was above the knees in financial trouble because of the new settlements he had started in Maine.”28 Speculation in land became particularly rampant in the early 1790s when the stability of the new republic seemed assured. Describing the process of speculation, historian Forrest McDonald wrote: “One worked or connived to obtain a stake, then worked or connived to obtain legal title to a tract of wilderness, then sold the wilderness by the acre to the hordes of immigrants, and thereby lived and died a wealthy man. Appropriately, the most successful practitioner of this craft was George Washington, who had acquired several hundred thousand acres and was reckoned by many as the wealthiest man in America.”

And:

Washington’s land holdings clearly affected his political outlook – first regarding England, and later regarding the United States. Washington thought big and thought about the implications of thinking big. Glenn A. Phelps wrote that Washington’s “extensive land-holdings in the West, as well as his frequent surveying expeditions to the frontier, had placed him within a circle of Virginia politicians with somewhat more enterprising, expansionist, westward-looking interests than their tidewater brethren.”59 Increasingly after the Revolutionary War, Washington’s land-holdings affected his preoccupation with the development of the Potomac River and a canal through the area where it was not navigable. Washington wrote a friend in 1785 that “unless we can connect the new States which are rising to our view in those regions, with those on the Atlantic by interest (the only binding cement, and not otherwise to be effected by opening such communications as will make it easier and cheaper for them to bring the product of their labour our markets, instead of going to the Spaniards southerly, or the British northerly), they will be quite a distinct people; and ultimately may be very troublesome neighbors to us.”

And:

Washington foresaw America’s great westward migration and he foresaw potential wealth for himself. Historian Edmund S. Morgan wrote: “Washington believed that as a private citizen pursuing his own interests he could still be working for the good of the nation. He engaged without a qualm in a scheme that would benefit him financially, while it bolstered American independence in a way that he thought was crucial…

Washington also supported infrastructure projects that would increase the value of his landholdings.  Here is the source, with the tip via MR commentator g. ruqt.

Here is my earlier post on Inconvenient Questions.

The gambling market is somewhat saturated, so how can new customers be found?

One idea: skills-based games.

In Atlantic City, the Borgata added a basketball free-throw shooting contest. Other casinos are adding skill-based games to electronic slot machines — shooting, puzzles, less slot machine ding ding ding and more Angry Birds-style competition.

Maryland does not allow such games yet, but the state’s gaming agency says it is working on the issue.

That is from Michael Rosenwald, with most of the article covering D.C.’s foray into the casino genre.

Ever since busloads of Chinese tourists began arriving in this sleepy, nondescript English village this summer, the 13,723 residents of Kidlington, about five miles north of Oxford, have been variously baffled, annoyed and delighted.

The sudden influx of Chinese has also grabbed headlines and spawned a national mystery.

Why, for example, do the Chinese tourists ignore the village’s handsome 13th-century church and its thatched-roof cottages, preferring instead to peer through windows, film parked cars and traipse on the lawns of Benmead Road, a humdrum and modern residential street? One tourist asked a stunned resident if he could help mow her lawn. (She politely declined.) Another jumped joyously on a child’s trampoline in the front yard.

No one seems to know why, read more by Dan Bilefsky at the NYT.

Addendum: See this possible “limits to arbitrage” explanation.

I liked this recent Tim Duy post, the one that is everyone is talking about.  Do read the whole thing, but here is the closing bit:

We don’t have answers for these communities. Rural and semi-rural economic development is hard. Those regions have received only negative shocks for decades; the positive shocks have accrued to the urban regions. Of course, Trump doesn’t have any answers either. But he at least pretends to care.

Just pretending to care is important. At a minimum, the electoral map makes it important.

These issues apply to more than rural and semi-rural areas. Trump’s message – that firms need to consider something more than bottom line – resonates in middle and upper-middle class households as well. They know that their grip on their economic life is tenuous, that they are the future “low-skilled” workers. And they know they will be thrown under the bus for the greater good just like “low-skilled” workers before them.

The dry statistics on trade aren’t working to counter Trump. They make for good policy at one level and terrible policy (and politics) at another. The aggregate gains are irrelevant to someone suffering a personal loss. Critics need to find an effective response to Trump. I don’t think we have it yet. And here is the hardest part: My sense is that Democrats will respond by offering a bigger safety net. But people don’t want a welfare check. They want a job. And this is what Trump, wrongly or rightly, offers.

In part this is a question about helping these communities but if you read the whole post it is also about checking or preventing Trump and Trumpism.  My main disagreement is simply with the view that a solution is difficult.  It is not, rather most people are unwilling to accept the solutions on the table.  In fact I have a more or less bulletproof two-part remedy.  I’ll phrase it in backward-looking terms, but it is not hard to divine the forward-looking implications, noting that in the short term we have the president-elect we have no matter what.  Here goes:

1. In 2012, have five percent of Democratic voters switch their support to Mitt Romney, so that Romney is elected.  You don’t have to think Romney would be a better president than Obama has been, but a Romney election almost certainly would have forestalled the rise of Trump.  The worse you think Trump is, the more you should support this kind of “change we can believe in.”

If you don’t favor this retrospective change, you’re not very pragmatic (or you might really like Trump), perhaps preferring to consume your own expressive views than to improve the world.  That’s a common enough preference, and maybe it is even morally OK, but let’s recognize it for what it is: a deliberate lack of interest in solving the major problem before us, instead preferring to focus on your own feelings.  It’s not that different than the wealthy wishing to keep their tax cuts.  And if your response is something like “But the Republicans started this whole mess, why should I reward them?”, well, that is yet another sign you are far from the pragmatic, reality-oriented perspective.  At the very least, you should be regretting that you did not vote for Romney.  Unless of course you did.

A complement to this strategy, looking forward, is to have the Democrats run more conservative candidates, including those with a more conservative cultural garb.  They still can support a social safety net.  And, my friend, if you are tempted to suggest that Hillary Clinton was such a candidate, you need to attend Ross Douthat University for remedial lessons.

Another way to put this point is that Democrats (and some others) need to become more like the more sophisticated libertarians, namely to realize you won’t win but need to settle for what you can get.  At least increase your “p” that is the case, as the European left is finally starting to do.  I know that comes hard, but again our country is at stake.  And there is a lesson for libertarians too, more or less in the same direction, namely that potential backlash to libertarian ideas is stronger than we had thought, even for those with a fairly weak libertarian bent, and thus there is less absolute scope for their realization.  Sad!

Many progressives and libertarians have one thing in common, namely assuming that human affairs can be more governed by reason than ever will be the case.

2. Support a voluntary temperance movement for zero alcohol, zero drugs.  No exceptions.  Make these commodities less socially available, less widely advertised, less diverse in supply, and less glamorized on television and in the movies.  Take away the demand, and along the way praise Islam and Mormonism for their stances on this.

That’s so simple, isn’t it?  No one argues that the Rust Belt communities and the like are unacceptably “income poor” by global standards, rather they have wrenching social problems.  A temperance movement, insofar as it succeeds, would eliminate a significant share of those tragedies.  It would mean less alcoholism, fewer opioid addictions, less crime and spouse beating, and so on.  Consider the impact of this on America’s inner cities as well.  It’s hard to estimate how many of the problem users would stop if say 70 percent of America went “cold turkey,” but surely we should give this a try.  For instance, even less educated Americans smoke at much lower rates than they used to.

Do you really care about suffering Americans?  The answer is staring you right in the face, but are you brave enough, altruistic enough, and contrary enough to embrace it?  Again, you might like your evening glass of wine, or joint, but that is also like the wealthy seeking to keep their tax cuts.  It really is the same logic, like it or not.

From another direction, here are comments from Paul Krugman.  I agree with most of what he says, though I would stress the points above.

Yes, I absolutely favor enforcing clear commercial conflict of interest regulations on any president, if only for reasons of perception and legitimacy.  But may I quote Alex T. from way back when (2010, the rest of the passage is him note I am not double indenting)?

Bloomberg: Your senator learns that a much- maligned weapons system now has enough votes for funding. Before the news gets to a reporter, he buys shares in the arms manufacturer for a quick, handsome profit.

What’s wrong with this picture? Nothing, according to the law…

U.S. senators, representatives and congressional staffers routinely attend high level, closed briefings or engage in conversations where secrets are disclosed that might send shares climbing or slumping if widely known.

That access lets them buy low and sell high based on material, non-public information, and they can do it without concern that their remarkable prescience will alert federal investigators of possible wrong doing.

Insider trading in Congress is not new.  In 2004, I wrote about a study showing that the portfolios of US Senators “outperformed the market by an average of 12 per cent a year in the five years to 1998.” [TC: this result of superior returns doesn’t seem to have held up.]

Hat tip: The Browser.

TC again: From me, here is a 2013 update:

The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency.

The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates.

The House was expected to pass a similar bill on Friday.

Here is the FT article, here are other sources.  Some officials suggested that transparency “could threaten national security,” more detail on that here.  Here are some further interesting details.

Current TC again: And here is Alex’s update from 2011.  And here is a 2015 update: “Congress tells court that Congress can’t be investigated for insider trading.”  I am not sure where such cases stand as of December 2016, please tell us if you know.

On this whole matter, please don’t accuse me of asserting “false equivalence,” (one of the weakest charges you hear in current debates and usually a sign of sloppy thinking), I am not saying all these practices are equivalent.  But neither a comparison nor an analogy requires equivalence.  I find it striking how many people are discussing this issue, and treating the administration-to-come as the end of democracy and the onset of rampant corruption, without noticing…etc.

File under: Conflicts of interest for me, but not for thee…

That is the subject of my new Bloomberg column, here is one bit:

My second recommendation is to restore fully the ability of the NEA to make grants to individual artists, thereby undoing changes that were made in 1994. That would diminish the role of the middlemen and support artists rather than art museums. This too has the potential to boost creativity, as large institutions with overhead tend to be more artistically conservative than individual artists or arts groups. Such a change would take the NEA back to its earliest and arguably most effective period near its origin in 1965, when it supported creators such as Alvin Ailey, Merce Cunningham, George Segal, Ed Ruscha and William Gaddis (all grant recipients in the first year alone), among other luminaries.

You may recall that there is a reason why the NEA moved away from making grants to individual artists. The agency had supported several artists and art projects that displayed nudity or other images that many people considered pornographic or offensive. At the time, Congress did not wish to be affiliated so directly with such expressions of the human creative impulse. Therefore grants were shifted to higher-level arts institutions, with the understanding that the institutions would not embarrass the federal government in this manner.

Is it possible that, under the forthcoming administration, this embarrassment constraint has eased somewhat?

I also call for stopping the transfers of the National Endowment for the Arts to the state arts agencies, on the grounds that federal arts taste usually is superior.

Do read the whole thing.

Happy holidays to all our viewers and readers! Our holiday video covers the economics of gift giving. When is gift giving wasteful? When does gift giving generate value? What are the knowledge problem and the incentive problem and how does this apply to charity? It’s a great conversation starter for economics classes. Enjoy!

P.S. Happy Sinterklaas!

The dimensions of China’s liquidity splurge are startling. Ousmène Jacques Mandeng, formerly with the International Monetary Fund, has calculated that between 2007 and 2015 China created 63 per cent, or $16.1tn, of the growth in the world’s supply of money.

That is from James Kynge at the FT.  Italy could use some of that nominal gdp right now…

From Meg Greene, here is the clearest explainer I have seen, here is one short excerpt:

There are clear reasons to vote for and against the constitutional reform. If only most Italians were actually voting with these in mind! According to one recent survey, only one in ten Italians were going to cast their ballot in response to the actual constitutional reform proposed. Because Prime Minister Renzi said he would step down in the event of a “No” vote, many Italians are casting their vote in favor of or against the establishment. Voting against the establishment means a lot of things, but given that the main opposition party, the Five Star Movement (M5S), has polled neck-and-neck with the governing Democratic Party (PD) this year it amounts to tacit support for this populist, anti-elite, anti-European party.

There is much more at the link, here is one significant point:

If the “Yes” vote wins on Sunday, Mr. Renzi will be strengthened in the short term but, given the Italicum, could be weakened in the next election. The result may be a government led by the M5S that may pursue a referendum on Italy’s membership of the Euro.

We will soon know more…

Sex-cynicism and race-pessimism, of course, often travel in tandem.

That is from Christopher Caldwell’s excellent NYT article on Alt-Right.

Since Donald Trump has picked Betsy DeVos to be education secretary, many commentators have been pulling out their anti-school choice arguments from the closet, and for the most part it isn’t a pretty sight.  To insist on a single government-run school and trash school choice, while out of the other side of one’s mouth criticizing Trump for “authoritarianism,” and other times proclaiming “Black Lives Matter” is from my point of view a pretty poor mix.

To be sure, we’re still not sure how well vouchers work, and I would suggest continuing experimentation rather than full-on commitment.  Frankly, I find a lot of the voucher advocates unconvincing, but let’s not forget the single most overwhelming (yet neglected) empirical fact about vouchers: they improve parent satisfaction.

That result is not much contested.  For instance:

Universally, school choice parents are highly satisfied with choice schools, reporting greater discipline, more responsive staff and better educational environments than the public schools they left. That parents are satisfied with their choice schools is a valuable indicator that school choice delivers real benefits. As University of Wisconsin professor John Witte, the official evaluator of the Milwaukee choice program, recently commented on school choice research: “There’s one very consistent finding: Parental involvement is very positive, and parental satisfaction is very positive…parents are happier. The people using vouchers are mostly black and Hispanic and very poor…they deserve the same kind of options that middle-class white people have.”

Patrick J. Wolf’s survey of twelve voucher programs (pdf) supports this interpretation.  And here are strongly positive results on parental satisfaction Indiana.  I could go on, but I don’t think there is much need.

Of course parents may like school choice for reasons other than test scores.  To draw from the first link above, parents may like the academic programs, teacher skills, school discipline, safety, student respect for teachers, moral values, class size, teacher-parent relations, parental involvement, and freedom to observe religious traditions, among other facets of school choice.

Perhaps now is the time to remind you that how the buyers like the product is the fundamental standard used by economists for judging public policy?  That is not to say it is the final standard all things considered, but surely economists should at least start here and report positive parental satisfaction as a major feature of school choice programs.  In fact, I’ll say this: if you’re reading a critique of vouchers and the critic isn’t willing to tell you up front that parents typically like this form of school choice, I suspect the critic isn’t really trying to inform you.

To be sure, you still might not favor school vouchers.  You might think they cost too much, you might think they will politicize private schools too much, or you might think they weaken national unity too much, to cite a few possibilities.  (Although please, on that latter matter you can’t just say something silly like “public schools and the army made America what it is today.”  You need some actual evidence.  Won’t parents who are happy with the schooling of their children also contribute to national unity and push us away from polarization?  That effect might outweigh whatever more negative mechanism you have in mind.  Evidence please, not just sentiment.)

And as for test scores, the evidence there is still unclear.  Here are a few earlier MR posts, no cherry- or lemon-picking, please.

Scott Alexander has some excellent comments on vouchers and school choice.

El Paquete is the underground Cuban Internet; a 1tb hard disk filled with US music, films, TV shows, magazines and smartphone apps, passed around by street dealers. You can copy what you like for $8 a week. “My friends assure me, El Paquete and chill is definitely a thing” [Wil Fulton]

That is from a longer Tom Whitwell post about 26 things learned in 2016, interesting throughout.

Probably not:

But here’s the problem: There would be huge real-world impact of a repeal vote, regardless of when it actually takes effect. A repeal vote would tell the insurers that sell on Obamacare’s marketplaces to get out of the marketplace as soon as possible.

“Insurers have got to put their products together this spring, and we’re right in the middle of killing Obamacare,” says Robert Laszewski, a longtime health insurance consultant. “Are they going to submit proposals to sell in 2018? Why would they stay in the pool?”

The experts I’ve talked to over the past few days argue that a repeal vote would give health insurers good reason to quit the marketplaces — and that could leave 10.4 million Obamacare marketplace enrollees in the lurch.

That is from Sarah Kliff at Vox.