Sunday, August 24, 2014

Do we know how an economy works and do we need to know? No. 000071

Professor Noah Smith, author of Noahpinion had two interesting tweets this afternoon.

First, however, I think it important to note that about the Autor paper which was the basis of my post No. 000068 on China being the cause of FERGUSON Professor Smith wrote on Friday, "MIT prof and economic policy advisor David Autor has written an excellent new paper about labor market polarization, which you should read."

First he wrote:

He continued:

My answer to Professor Smith is that we do know well enough how the economy works and have known at least since the great American Economists Hamilton, Franklin, and Morris used that understanding to write the Constitution and ask the First Congress to replace state Revolutionary War debt with U.S. Government debt and also asked the First Congress to create the Bank of the United States.

In fact, we know so well have the economy works---and that all distribution of income is a political question---that millions if not billions of dollars are raised and spent each year on political campaigns and lobbying for the express purpose of passing legislation that will use known economic principles to the favor of one faction and the loss or another.

What we do not know how to do is perform acts of Alchemy with Economics.

For example, it is not possible to have a trade deficit and a fiscal deficit in the United States and over time have meaningful job growth. Economists lie through their teeth when they said free trade will create jobs, as I point out in No. 000068. Instead, under those circumstances you will have job losses and income declines in the United States.

I put this question to Professor Smith, Doesn't Professor Autor show that to be our knowledge about economics of international trade in his "excellent new paper about labor market polarization?" (page 33).

In closing, let me be clear that I am using Alchemy both literally and metaphorically. I am using the term literally in talking about whether you can create jobs while having both substantial trade and fiscal deficits.

Alchemy also has many metaphorical applications but particularly this applies to Monetary Policy in its sundry forms. Here, I am talking about Alchemy being a lazy way to sound public policy---we can turn the Economy over to the control of the Federal Reserve. One cannot do that any more than one can push string for what we do know about Economics is that there is no law of Economics that says the amount of money available to be lent is equal to the amount of good loans that can be made. There are many reasons why but technology is a prime one. Tomorrow, someone can invent a new technology that completely disrupts the technology on which you relied in making a loan today. It is very easy to understand that when you have a series of new technologies summed up as the Internet, the personal computer, tablets, and smart phones that do disrupts every method of doing business that capital will exceed the good loans that can be made.

The failure then becomes one of imagination. Great Britain became great because it had the imagination to create maritime insurance against the risk of loss of shipwrecks. We, by contrast, have failed to use our imagination to insure against the risk of loss from the storms of new disrupting technology.

In sum, what may be the real problem with Economics is its moral hazard. The existence of the learning and the sincere belief of people that Government will work for the favor of the boarder public good lulls people into believing they may disregard politics and disregard their need to participate in the political process to assure that the Economics we know and understand is applied to their favor.

Saturday, August 23, 2014

Ferguson and Al Gore: The most important video you can watch? No. 000070

Watch this video carefully but not for the reasons you might think, although this 25 minutes presentation may be the most useful single resource on the Internet.

Jeff Smith asks:

At 5:38 you will hear an Al Gore no one ever heard in his entire political career (Senator, Vice President and candidate for President).

Then watch Tony Robbins's explanation why.

Ferguson happened because neither Bill Clinton nor Al Gore were capable of speaking for Democrats.

In No. 000068 we went into the economic literature that explains there are no jobs for our citizens in Ferguson because they have been exported to China and Mexico.

Jeff Faux explains:

Nevertheless, Clinton and his Republican successor, George Bush II, then used the NAFTA template to design the World Trade Organization, more than a dozen bilateral trade treaties, and the deal that opened the American market to China -- which alone has cost the U.S. another net 2.7 million jobs. The result has been 20 years of relentless outsourcing of jobs and technology. 
He continues explaining that Clinton and Gore were providing access for foreign policy reasons (implicitly to raise the standard of living of the Chinese at the expense of America's middle and lower income workers)
Given this dismal history, why would a smart "liberal" Democratic president who says he cares about the middle class continue to plunge ahead with more NAFTA-type trade de-regulation? One explanation is that providing more access to the U.S. market for other countries is a way of shoring up the fading influence of the U.S. political class in world politics.

Ross Perot predicted Ferguson in 1992, a Giant Sucking Sound No. 000069

Friday, August 22, 2014

Why Ferguson in three words: China, Clinton and NAFTA No. 000068

This Friday in August is an important, really important, day in Economics.

The Federal Reserve Bank of Kansas City holds its Annual Jackson Hole Economic Policy Symposium and the attendant papers are released from embargo.


The theme this year: Re-Evaluating Labor Market Dynamics.

You or I would use this title: Why there are no jobs, why this has been a jobless recovery?

At 9:30 a.m., Professor David Autor, MIT, throws a major league bean ball at the entire economics profession. Why are their no jobs? Who knew except every man, woman, and child on Main Street. Why we gave those away to China.  The money quote, on the last page of the paper:
A second is the employment dislocations in the U.S. labor market brought about by rapid globalization, particularly the sharp rise of import penetration from China following its accession to the World Trade Organization in 2001. As documented by Autor, Dorn and Hanson (2013), Pierce and Schott (2013) and Acemoglu et al. (2014), China's rapid rise to a premier manufacturing exporter had far-reaching impacts on U.S. workers, reducing employment in directly import-competing U.S. manufacturing industries and depressing labor demand in both manufacturing and non manufacturing sectors that that served as upstream suppliers to these industries. Globalization, like technological change, is not typically Pareto improving, particularly in the short run. While the long-run effects of these developments should in theory be positive, the adjustment process, as with technological adaptation, is frequently slow, costly, and disruptive.
"[N]ot Pareto improving" means many are going to lose their jobs and they won't find new ones. Wages will fall. Home values will collapse; mortgages will be foreclosed. Families will separate and divorce follows Children will miss meals at worst and college or trade school at best. You know: #FERGUSON

Note the rest of story is in the phrase, "the long-run effects of these developments should in theory be positive." Why do economists in 2014 argue for free trade based only on theory?

Because in the entire history of economics no one has every been able to conduct a study showing, in fact, free trade is a good thing. But the literature is flooded with first class studies all showing that free trade reduces jobs and cuts income in the United States.

A sampling of the literature. David H. Autor,  in the American Economic Review, China Syndrome: Local Labor Market Effects of Import Competition in the United States.

Clinton and NAFTA

I am unable to find a Democratic economist who is a free trader now that Larry Summers has based a substantial part of his theory of Stagnation on our trade deficit.

The last hold out appears to be Professor Brad Delong who impeaches himself with his own chart.

In the upper right corner you will see that Exports are a major component of aggregate demand, i.e., the sum of all demand for workers (jobs).

That means the inverse. Imports destroy aggregate demand and jobs.

Professor Delong admits to his credit that may have been wrong on Clinton's NAFTA, which is very admirable since he was a member of the Clinton Administration and supported NAFTA's passage:
3. Well, it seems that my letting my neoliberal freak flag fly on NAFTA has annoyed Robert Scott and Jeff Faux of the EPI. Lots to think about here...
Follow the links!

Here are the bloody awful facts about NAFTA from Jeff Faux writing about NAFTA's Impact on U.S. Workers, at the Economic Policy Institute Blog:

NAFTA affected U.S. workers in four principal ways. First, it caused the loss of some 700,000 jobs as production moved to Mexico. Most of these losses came in California, Texas, Michigan, and other states where manufacturing is concentrated. To be sure, there were some job gains along the border in service and retail sectors resulting from increased trucking activity, but these gains are small in relation to the loses, and are in lower paying occupations. The vast majority of workers who lost jobs from NAFTA suffered a permanent loss of income.
Second, NAFTA strengthened the ability of U.S. employers to force workers to accept lower wages and benefits. As soon as NAFTA became law, corporate managers began telling their workers that their companies intended to move to Mexico unless the workers lowered the cost of their labor. In the midst of collective bargaining negotiations with unions, some companies would even start loading machinery into trucks that they said were bound for Mexico. The same threats were used to fight union organizing efforts. The message was: “If you vote in a union, we will move south of the border.” With NAFTA, corporations also could more easily blackmail local governments into giving them tax reductions and other subsidies.
Third, the destructive effect of NAFTA on the Mexican agricultural and small business sectors dislocated several million Mexican workers and their families, and was a major cause in the dramatic increase in undocumented workers flowing into the U.S. labor market. This put further downward pressure on U.S. wages, especially in the already lower paying market for less skilled labor.
Fourth, and ultimately most important, NAFTA was the template for rules of the emerging global economy, in which the benefits would flow to capital and the costs to labor. The U.S. governing class—in alliance with the financial elites of its trading partners—applied NAFTA’s principles to the World Trade Organization, to the policies of the World Bank and IMF, and to the deal under which employers of China’s huge supply of low-wage workers were allowed access to U.S. markets in exchange for allowing American multinational corporations the right to invest there

Sum of it All.

Ross Perot was right and the election in 1992 was what created Ferguson.

Tuesday, August 19, 2014

No. 000067 To Investigate the incompetence of the Ferguson police. The best reason for an independent prosecutor

We expressed our agreement in Post No. 65 that the fault for all this mess lay, as explained by the Wall Street Journal, with the Tea Party politics of  Ferguson. Ferguson is a city of low taxes, forced to collect 25% of its revenue from traffic fines and court costs, limited poor quality government.

In the words of the Walls Street Journal:
"…policing in Ferguson has been a total failure."
Regardless  of whether Prosecuting Attorney Robert McCulloch has sufficient emotional detachment to investigate Officer Wilson, he and his office, using the resources of the Saint Louis County Police Department, cannot be expected to investigate the total failure of the Ferguson Police Department that lead to #Ferguson and the death of #MikeBrown.

Saint Louis County police officers cannot investigate Ferguson police officers by day and stand with them shoulder to shoulder at night.

No. 000066 WSJ Fault lies with Ferguson Police Department

Bret Stephens repudiates the Tea Party, low taxes, and limited government:

"…policing in Ferguson has been a total failure."


Because Ferguson is a poor city with low taxes, and limited government, unable to hire the professionals it needs to run a police department that can meet its challenges.

Read the piece here.

Of Ferguson and Fallujah

To get around the firewall Google: Of Ferguson and Fallujah

No. 000065 People--those Journalist buy ink by the barrel and paper by the rail car (and now it is free)

Ferguson now has a new front, an entirely separate war between journalists from around the World and the police.

This, too, is a war we cannot win. In 20 years these journalists are going to have a reunion with t-shirts reading, "Gassed and arrested in St. Louis." 

The leaders will give speeches and toasts on having guns pointed and waved in their faces.

They will recall, "Saint Louis, first time I was gassed."

They are not going to report on the beauty of a sunrise over The Arch or the laughter at the show at the Sea Lion Arena or an Italian Dinner at Cunetto's House of Pasta after driving down Elizabeth Avenue.

There are now 1000 or more of them here, most all with 40 or 50 year careers before them. 

They are not going to leave town as friends of Jay Nixon, who apparently has returned to his people at the Missouri State Fair, leaving them penned away from the action (but still being gassed and arrested).

They are going to be writing and talking about Saint Louis using free digital ink by the barrel and paper by the railcar for the rest of their professional lives.

Monday, August 18, 2014

No. 000064 It is time to Drone Ferguson with the First Amendment?

Watch the video. Isn't a drone a superior tool for reporting on a protest?

Sunday, August 17, 2014

No. 000063 The Michael Brown case is going to prove how failed our criminal justice system has become

Saint Louis has not had such a bad week since the Civil War. The reason is our criminal justice system in the hands of Robert McCulloch has become a complete failure.

The Mike Brown homicide case is, like most criminal cases, not CSI. It is about what the eyewitnesses in the case say happened.

We know there were several eyewitnesses. At least one had an account on Twitter with real time tweets. In the next few hours or days I anticipate it is going to emerge there were others.

Why, do I write such?

Because immediately after the shooting people walked out of their homes and started photographing and videotaping the scene. I will not be surprised if a voice can be heard of one or more additional eyewitnesses as the gathering crowd asks each other what happened. These may be partial accounts---I heard and I looked---but there will be accounts, additional eyewitnesses, perhaps second hand, but there will be more eyewitnesses. 

Since there events have happened I have called for the arrest of Wilson and an immediate public open trial starting Monday, August 18, 2014, because, based on experience (and with a general knowledge of the location)  I anticipated there would be several witnesses and that it was imperative that the public hear these witnesses and their testimony, immediately. 

Why? Only the truth will stop the protests by the protestors and the riots by the rioters in Ferguson.

Further, only from a prompt public trial could Wilson get his life back, at all, if that should be the proper outcome.

Mr. Wilson's distrust of the system and his failure to demand his arrest and immediate public trial means that, regardless of the evidence, his normal life is over. He made that choice, trusting his chief's plan to deflect attention from Wilson to Brown and "race riots." Don't ever bother me with some injustice being visited on Officer Wilson.

Further, even if the law permitted him to use deadly force, it did not command such. The Twitter timeline is explicit that Brown ran away. Regardless of what happened initially, Wilson exercise of discretion was so flawed that he deserves his fate. He showed no appreciation for the life of another and has never been a focus of my concern for he has always been in control of events and his life.

Here is a short further explanation why a public trial should be starting tomorrow.

First, contrary to other types of testimony, event fact witnesses testifying close to the event (thus not needing help in recollection) don't need preparation to tell the truth.

There probably isn't a better trial lawyer than Mark Lanier

Mr. Lanier made this point immediately after the closing argument of the Defendant Merck in the first Vioxx Trial. He called a Vioxx employee as a witness to which counsel for Vioxx objected on the ground that the witness had not yet been prepared or "horse shedded." 

Mr. Lanier responded, "Your honor, I wasn't aware that a witness needed to be prepared in order to tell the truth."

Events witnesses in most criminal cases do not need to be prepared to tell the truth, if their testimony is given promptly and in open court. What needs to be protected against is the loss of memory. Within a few days witnesses will not recall was it a sunny or overcast afternoon. What were you doing when you heard … What was on your mind that afternoon before you say . . . What time quickly erodes is the richness of the memory leading to embarrassment over details without consequence.

There is a great irony in this as much of Mr. Lanier's success may be due to his trial preparation with especial attention to courtroom graphics

Second, the other evidence in this case isn't going to tell us what happened. It may tend to corroborate the testimony of one or more witnesses but, unlike the Kennedy assassination, the autopsy is not going to tell us much more than how many times Mike Brown was struck by a bullet from Officer Wilson's gun. The sequence will have to come from the eyewitnesses.

Last, a small comment on Missouri criminal procedure. Missouri law permits the prosecuting attorney to file an information. Had this been done, instead of a jury trial, a preliminary hearing could start tomorrow. The eyewitnesses could testify on the issue of probable cause. There is no reason for any of the pain to which St. Louis is being subjected save the tactical and strategic considerations of the prosecuting attorney who is transparently favoring Officer Wilson.


I do not know what the evidence will be in the case or the result. Of what I am confident is that, after the case is over, there will not be anyone who will say that the system under the control of Robert McCulloch worked. Everyone will cynically and bittering being saying to themselves, Why didn't we hear the eyewitnesses testify immediately? All that we went through since could have been avoided.

Thursday, August 14, 2014

No. 000062 Governor Nixon Searches Within Himself

It is said Gaius Julius Caesar wept when he stood at the base of the statute of Alexander III of Macedon, Alexander the Great.

Often, this is part of a metaphor about Caesar's ambition (but Caesar was less a man driven by ambition than the instinct to survive). 

What we do know from the Poets is that once any man or woman reaches a certain maturity there are moments where we must stand from time-to-time before some place, alone, with our own thoughts, in this moment of metaphor as old as human kind.

It can first be when a pet passes or a grandparent. It can be at an alter for Communion. It can be a battlefield monument of some forgotten regiment, filling a rainy afternoon away from the beach. 

We have built magnificent monuments—for Washington, Lincoln, Jefferson—or a handsome sculptures of generals on horseback or General Grant's tomb or cemeteries, anticipating such moments.

Or is can be entirely makeshift, as it is for Michael Brown, telling us that even the last of us is equal to the first, equally entitled to his or her statute or monument.

So here Governor Jay Nixon stands within the metaphor that will come to define him and his life. 

No Hollywood director or screen writer or novelist could ever have story booked this scene. A perfect Missouri August afternoon, mild and cooled by a breeze, without a cloud.

A young man passed here, from a family and community so threadbare …

From what we know about Governor Jay Nixon it is not easy to imagine that he ever thought that such a moment could come to him. He doubtless never scripted out that the last two years of his public life would be dominated by Twitter's social media hashtags of #MikeBrown and #Ferguson.

And, he now carries the knowledge within that when he reaches Saint Peter or whomever now gate keeps eternity he will be cross examined about this moment, the implicit promises being made here.