Author: ontheoutside

Two Views of Government

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It seems to be taken for granted that everyone knows the objective of government:  it exists for the good of the country.  However it’s not obvious what the “good of the country” means, and that ambiguity leaves plenty of room for confusion.  There are two models.

Model number one is more or less derived from the family.  The good of the family is the well-being of its members.  Government exits for the well-being of the population. Reasonable enough.

Model number two is a business.  The goal of a business is returns to its investors.  The employees are a cost center, and every dollar earned by the workforce is a dollar lost to investors.  The population is at best a necessary evil, with fewer and fewer really required for business operations and with available slave substitutes (who can’t quit or change jobs) as Musk’s beloved H1B’s.

We are currently seeing model two in full operation.  Everything has to be sacrificed to the 4.5 trillion dollar tax cut for rich people and businesses. Despite all the rhetoric about a golden era, all the money from the cuts and firings ends there.  It’s golden for the people with the gold.

And that’s not the end of the story. As even Adam Smith understood perfectly, the private sector is actually not good at providing for its own success. Left to its own devices it rutherlessly sacrifices everything to immediate profit, which leads to longer-term collapse. Think about the cuts to education, research, and climate change. So as far as the two models of government are concerned, we’re running headlong into a worst of both worlds–sacrificing both the population and the economy.

Do We Neeed More Proof that Dictators are Bad for the Economy?

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When dictators make bad decisions no one can stop them. Here are a few:

  • Trump likes oil, so we’re doing everything possible to push fossil fuels in the economy, and eliminating anything to support sustainable energy.   We are even so petty as to take out installed car charging stations for government employees.  So we’ve pegged our economy and everything in it to fossil fuels, a future that is going away–not tomorrow but necessarily soon, whether we like it or not.  We’re not just a non-player in the coming economy (presumably the US auto manufacturers will be lucky if they’re picked up–instead of closed down–by the dominant Chinese players), we’re tying a weight around the neck of all our industrial production.
  • We’re killing any kind of government supported research.  We have made ourselves non-players in anything beyond current mainstream production.  If you ask business leaders how much basic research is done by the private sector they will tell you the answer is pretty much none.  Business deals with current and coming product.  We as a country will no longer be inventing the future.  We can ask the Chinese for help when we need it.
  • We have decided there is no need for competence in government employees.  Instead for the entire federal government all that matters in loyalty.  There are no more real government jobs—just political appointees.  If these are the rules of the game, there will be no more competence or help from Washington.  If you don’t think that matters you should look at the mess today.  That’s the tiniest piece of what is coming.
  • We have decided to convert all of our alliances to protection rackets.  Unfortunately we’re not the only game in town.  We have opponents in China and Russia.  They, not us, have understood there is strength in numbers.  We have given them an enormous present with no positives in return.  For Russia we have even descended to flattery.
  • Our now to be jettisoned international order was established to provide stability and reduce the danger of war. It wasn’t perfect but it gave us many years of growth and peace. The danger to growth has been much talked about, but the danger to peace less so. In this new era of every land for itself, all efforts to manage nuclear proliferation are now out the window. On the contrary, every country had better get its own nuclear weapons fast–or be prepared to face defeat. In our glorification of selfish greed we’re stupidly asking for disaster.

Many people have figured out these are mistakes.  But as long as this dictatorship continues, we as a nation we have no way to fix it.

My Letter to the Democrats After the Election

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For what it’s worth, I think the single most important thing that needs to happen in the Democratic Party is to fire everyone associated with the disastrously-mismanaged Harris campaign.  For now all I see are excuses, including in a much-discussed podcast.  If the Democrats can’t come to terms with what they did wrong, it’s hard to imagine them ever doing anything right. The campaign validated the charge that Democrats are arrogant elitists with no respect for the people they claim to represent. In so doing they didn’t just lose the election, they discredited everything they stand for.

If Biden had run, he would have run on his record.  While Biden’s favorability rating was low, the Biden economy was the envy of the Western world, inflation was lowest here, and the country had taken important steps for climate and infrastructure.  Biden was replaced not because he was unsuccessful but because he was no longer up to the demands of campaigning.  We had expected him to lead the fight on his record in the first debate, and were shocked when he wasn’t up to it.  Harris was put in place to address that problem.

Harris had a tough job, to put together her own campaign with only a few months before the election.  So she had to rely on party regulars to make that happen.  Poor Harris.  Poor all of us.

Harris’ genius handlers threw all of that out for a new approach.  Because of the low Biden numbers, we wouldn’t defend any of Biden’s accomplishments.  Instead Harris would become a brand new candidate, not linked to Biden’s problems, and exciting for the future.

There were two obvious problems with that:

–        It was an outright lie.  If you want to be the adult in the room, you can start by not lying.

–        It didn’t address the reasons for Biden’s low rating—in particular the pain of inflation with higher prices continuing to the present day.  In answer to the pressing question—who is to blame for my pain?—the answer was Biden, but he’s not here, so let’s just move on.  Who were we kidding?  That was acceptable to Democrats, because we believed in Biden’s economy, but for anyone else it was an infuriating punting of responsibility.

The geniuses presumably decided they were so much smarter than the voters that no one would notice.  But in fact it was the geniuses who were morons, and the voters knew exactly what was going on.  The core of the Harris campaign was an insulting and infuriating lie.

I went door-to-door with the campaign, and ran into this problem constantly.  I and other people tried to point this out to the campaign, but we were informed by campaign organizers that there were no channels up to the campaign from the field.   No one cared about all those people talking to voters.

The geniuses had a few other equally brilliant contributions:

–        Since they weren’t defending Biden’s record on the economy, they didn’t want to talk about inflation at all.  In particular no one was making the point (that you read everywhere now that the election is over!) that all three of Trump’s major measures (tariffs, tax cuts, and deportations) are wildly inflationary.  So virtually none of Trump voters thought there was any risk to their vote.

–        They repeated Hillary Clinton’s mistake of counting on big Republican defections, to the point that they went out of the way to tone down anything that might offend Republicans.  One terrible mistake was to moderate Walz’s behavior in the Vice Presidential debate—where the Harris campaign lost momentum that it never recovered.  The debate served no purpose other than to “sanewash” truly hateful Vance. Further no one ever mentioned George Bush’s disastrous 2008 crash—which is certainly relevant for Trump’s proposed policies.

This election ultimately came down to a contest of dishonesty and arrogance on both sides.  We need to recognize that the Democrats were not better than Trump in that respect.  Who knows if an honest campaign would have won, but in our eagerness for dishonesty we lost big with the people most hurt by inflation, as shown by this exit poll:

I’m not claiming there were no other issues–after all Netanyahu and Trump made sure we had a mess in the Middle East with even an October surprise in Lebanon.  But mistakes need to be acknowledged.  After this disaster there needs to be an accounting for consultants and anyone in the campaign organization making $500K or more. If we don’t fire them all we deserve what we get.

This election reminds me of experiences I’ve had in business.  A bunch of people in a room are working on a serious problem, and someone (usually in sales) gets up and announces “we need to think outside the box.”  What followed invariably was something impossibly unethical, some way of cheating customers where they couldn’t figure out what happened until too late.  Here the problem is inflation.  Let’s think outside the box—we’ll put all that awful stuff on Biden and walk away scott free!

La Clemenza di Tito

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This Mozart opera is an odd piece with an odd history. It was composed at the end of his life, simultanous with the Magic Flute. But it was an obligation, not a choice. It had an imposed libretto and was intended for a major Esterhazy event. Haydn would have been obliged to do it if he hadn’t been in England, and many other composers turned it down. Mozart’s finances did not permit him to say no. If I remember he had only a few weeks to do it.

The opera has some very good parts, but a lot of filler, so it is hard to get into. It occurred to me that it might be possible to make a workable version. (Years ago I did something for the sequence of items in act II of the Magic Flute.) When I started working, it was surprisingly clear what had to happen. So clear that you might say that Mozart intended it to be fixed. In any case, this hangs together surprisingly well and helps make a case for the opera. Perhaps many other people have already done this, but I have no way to know. What I hacked up was the Jean-Pierre Ponnelle version on Unitel. Please try this link.

The Only Thing New is That They’re Getting Away with It

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I need to return to Adam Smith’s quote from last time.  It’s so accurate it’s incredible.  First the quote:

“The proposal of any new law or regulation of commerce which comes from this order [merchants and manufacturers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”  (Wealth of Nations, Book 1, Chapter 3)

All by itself this stands as rebuttal to the Republican Party’s standard argument: “We’re businessmen, so we’re good for the economy.” It seems businessmen are not so benevolent. Let’s look at the record—Adam Smith could hardly have been more to the point.

I’ll start with Obama’s first term.  George W. Bush left a mess so bad that it is only partially acknowledged.  The stock market crashed and the economy was shutting down (basically from what amounted to misguided deregulation of the overall banking system through mortgage-backed securities).  But that wasn’t the whole story.  Hidden behind the smokescreen of “neoliberalism” was the fact that essentially all of the job loss to China occurred either during Bush’s administration or with their crash. Just look:

That’s no accident. The Bush people refused to resist China’s WTO-prohibited trade practices (e.g. currency manipulation), because they were actively promoting off-shoring—since that’s what business wanted (e.g. about 70-80% of Walmart suppliers were in China).  In this case it’s tempting to say “deceived and oppressed” was coupled with pure incompetence, but that actually misrepresents a situation that Adam Smith understood perfectly.  Both the deregulation and the off-shoring were cases of business getting what it wanted without the necessary “suspicious attention”.

Obama’s job was to get us out of that mess, and he was well-underway when Republican decided that he might succeed.  That could not be allowed, since there was an election coming up.  So with the fabricated excuse of the “balanced budget amendment” rhetoric they essentially shut down government including all stimulus to the economy.  That meant jobs and income for many people.  They also blocked any aid to the millions of people who lost jobs from Bush’s off-shoring.  “Deceived and oppressed” is right on.

Now we get to Trump.  The “balanced budget amendment” rhetoric disappears instantly, and was replaced by a tax cut funded by a 2 trillion dollar deficit.  That was going to cure the last part of the recovery they had sabotaged.  However the economy was actually in pretty good shape, and as we noted last time the only stimulus that Obama ever got past the Republicans (in his first term) was on the order of $500 billion.  This needs to be emphasized.  We read articles about governments in Africa where department heads steal millions by handling their budgets as personal slush funds.  We in the US don’t do things like that.  We’re much more civilized.  Using the “balanced budget” ploy the Republican Party took 1.5 trillion dollars of benefits for its owners quite legally from the American people. If you want stumulus you’ve got to pay us first. “Deceived” is the very least you could say.

That money went straight to Wall Street.  It inflated corporate profits, so stocks went up.  But the companies didn’t spend that money on employees or the business, they used it for stock buybacks—a second kick in the pants for the market.  For the people in Adam Smith’s quote all you can say is—what a wonderful world this is!   

And they’re ready to do it again.  They’ve made up the fiction that inflation is all due to spending money for the benefit of the population.  Can’t do that.  Bad idea. Have to give it to us, and it will be Nirvana.

The next deficit is estimated at $4T.  Republicans have signed-on salivating—Will wonders never cease? (And that’s before the sweetheart deals with individual billionaires!) But that’s not the end of it. Trump’s new set of proposals (tariffs, deportations, tax cuts) is wildy inflationary, potential as damaging as what trashed the economy under George W. Bush—again what you get without “suspicious attention”. (It may be a side issue, but we even have a potential repeat of Bush’s banking debacle with all the cryptocurrency money behind Trump.) All of us have to hope it doesn’t happen.

Adam Smith did his job.  Can’t say we weren’t warned.

A Real Comparison of Economic Policies

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Since both Biden and Trump have records as President, the press is full of articles like this one attempting to compare their economic policies and evaluate the results.  Now that Harris has replaced Biden and announced a few measures, she’s in the game too.  Unfortunately most such articles completely miss the mark.

The reason is that you cannot judge anyone’s economic policy except in the context of the problems he or she faced.  And you cannot make any judgment of how good he or she would be as President now without assessing the problems we face today and comparing our needs against the candidates’ demonstrated approaches.

That may sound obvious, but I haven’t seen a single article that tried hard enough to be serious.  Let’s start with Trump.  Obama left the country in pretty good shape, but one has to understand that his whole Presidency was spent trying to recover from the 2008 crash.  In that he had done pretty well (compared to other western countries), but he had one serious problem:  particularly in his second term the Republican Party decided to sabotage the recovery.  Looking ahead to the 2016 election they essentially shut down government—promoting a “balanced budget amendment” as a reason to block all stimulus spending.  That left some work to be done with unemployment, for example. So that’s what Trump inherited—a good economy that had been throttled short of complete recovery.

As soon as Trump took office the “balanced budget amendment” discussion vanished, and Trump stimulated the economy with a 2 trillion dollar budget deficit.  That completed Obama’s recovery at enormous cost to the country. For comparison, the largest stimulus Obama was able to get through Congress (in his first term) was about $500 M.  The vast part of Trump’s $2 T did not go into jobs or corporate investment; it went into stock buybacks.  Trump bought maybe $500 M of progress with a $1.5T contribution to inequality in the US.  Further, despite all the talk of reviving manufacturing, US manufacturing (as a sector) was in recession before Covid hit.  Once Covid happened, Trump simply retreated from running the country.

Biden inherited a mess.  First we had to recover from Covid, so there was much time and effort spent on getting the vaccine to everyone.  In this the biggest single problem was sabotage by misinformation from Republicans in general and Trump in particular.  During Covid there was a series of bipartisan deficit-funded bills to keep the country running with progressively less Republican support.  Once recovery started, however, there were some big surprises.  In key areas supply and demand were badly mismatched—there was a massive shortfall in computer chips needed for cars and other big-ticket products, new patterns of demand appeared for housing reflecting living arrangements during the pandemic, and the shipping industry took many months to be fully back in business—causing shortages of all kinds of imported products.  There were also shorter-term spot shortages, which led to longer-term price increases from major suppliers happy to take the chance.

Biden’s last (Democrat-only) stimulus has been blamed for all inflation that followed Covid.  Many articles have been written about his terrible mistake—the money delivered to US families didn’t even cover the inflation of the following year!  That conclusion ranks with the “balanced budget amendment” for self-serving dishonesty.  Given the magnitude of those other inflationary pressures, there is no question that the stimulus payments covered considerably more than any inflationary effects of the stimulus itself (and inflation in the US was lower than anywhere else in the Western world—stimulus or not).  Biden was correct in deciding that there was a fair chance that the post-Covid recovery would not be painless, and that stimulus money was needed to help people. In so doing he violated the mantra that the Republican Party is most desperate to defend: “you can’t spend money to help people”.  Help only comes top-down, from money spent on us.  The best commentary on this subject comes from Adam Smith himself:

“The proposal of any new law or regulation of commerce which comes from this order [merchants and manufacturers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”  (Wealth of Nations, Book 1, Chapter 3)

Before we leave this subject of inflation there is one more question that needs to be answered:  why, despite the huge budget deficit, was there no inflation under Trump?  The main part of the answer has already been noted—the country was not yet completely out of the 2008 crash.   There was no wage pressure, and people were not ready to spend.  Furthermore we had actual downward pressure on prices from those evil Chinese—all that cheap stuff in Walmart was keeping prices low.  By Trump’s third year there were signs of a rise in wages, but then Covid hit and that was the end of that.  As far as inflation was concerned, Trump was “saved by the bell”.  As we noted at the beginning, you cannot say anything sensible about a President’s economic policy without putting it in the context of the time.  Trump did not prove that he knew how to run up a huge deficit without inflation any more than he proved he could fight Covid with bleach.

Biden got the country going again and finally started rebuilding the country’s decaying infrastructure and  undertaking changes that will be required (whether we like it or not) for climate change.  He recognized the importance of education, although he was blocked from doing as much as is needed to provide opportunities for all (and the costs of his programs were hugely exaggerated).  Manufacturing is now in vastly better shape than under Trump.  He has also started with the task of finally doing something about decades of consolidations and monopolies during our period of non-enforcement of anti-trust laws.  It needs to be emphasized that anti-trust activities are NOT examples of overreach of government against the free market.  Even Adam Smith (again) emphasized the need to combat monopolies, and not just because they make things more expensive—they block innovative new businesses, make the country less competitive, and even weaken a nation’s military strength.

At this point it’s time to stop describing the historical context and consider where to go from here.  The first conclusion is probably the most important:  there is nothing in Trump’s historical performance that shows competence in managing the economy.  He gave himself (and his ilk) a big tax cut, that helped an artificially-stunted recovery (at very high cost), and avoided inflation only because of the incomplete recovery and because Covid bailed him out. That history is no recommendation.  We cannot let ourselves be tricked by the blindness of all of those economic analyses without context:  “Trump’s tax cuts led to full employment last time, so maybe they’ll be good this time too.”  ARGH!!

So the question of Trump’s economic competence comes down to his economic plans.  While Trump has been vague about many things, there are three items about which he has been absolutely clear:

  • A complete tariff wall around the US protecting all US industry, 10% overall and 60% on imports from China.
  • Deporting all undocumented immigrants, amounting to at least 11 million people
  • A huge tax cut modeled on his last one, currently estimated to cost $4 T.

The attitude of economists on this subject was summarized in a recent NY Times article:  not just bad but catastrophic.  We have to get used to that idea.  The fact that Trump got through his first term is not proof that he knows what he’s doing.  The plan can really be completely crazy.  Remember Trump’s six bankruptcies. Also, we have to get used to the idea that economic stability is not guaranteed.  The Brits voted for Brexit, and their standard of living took an immediate hit from which it may never recover.  This plan is actually worse.

We’ll go briefly through the items one-by-one

The Tariff Wall

Tariffs (including Trump’s tariffs from last time) are effectively a tax paid by the buyer in higher prices.  A universal tariff like this one is therefore massively inflationary and not just for imported goods.  Historically (and in Trump’s last term) domestic producers also have taken the chance to raise prices. Universal tariffs also invite retaliation and diminished US clout worldwide.  Given the level of consolidation in the US economy, the tariffs will significantly reduce competition and dynamism of business domestically, as many markets will be monopoly or cartel controlled.  And by isolating the US from developments elsewhere, it guarantees that the US will be left behind for any developments that don’t originate here, making us a second-class power.

Deporting 11 million people

These people are working today.  We’re eliminating the lowest tier of the workforce, with no obvious new population to take over.   Both the loss and the disruption are massively inflationary.  Many of those jobs may never be filled.  The Brexit people found that they had to import a whole new bunch of foreigners to replace the ones they were so happy to get rid of.

The $4T tax cut

The huge deficit is again massively inflationary.  The only reason that didn’t happen last time is that the economy was still short of recovery—which is not the case now.  Further the huge deficit would be on top of all other spending issues we will have to face, including for climate change and defense.  Businesses didn’t need it last time–they spent it on stock buybacks, not on investment in the business or on the employees. Last time’s claim that it would pay for itself proved completely untrue.

We are talking about a real hit to everyone’s well-being with no short-term path to recovery.  And that’s before even thinking about the threats to democracy.

Finally we need to end this with a look  at the other side.  If that’s what we’re getting from Trump what would we be getting from Harris?  After all we’re told she’s a wild-eyed radical.  Her running mate was so far left that he spent government money giving meals to school kids!

There’s nothing in the Democrats plans that talks about anything close to a 4 trillion dollar deficit.   There’s nothing in the Democrats plans that talks about engineering of people’s lives the way Vance is so eager to do.  Isn’t freedom from that sort of thing what made us different from the hated communists?

What is different is positive.   There is a role for government in making people’s lives better.  That means education, jobs, a future.  Harris’s initial proposal talks about aid for families with children and combating the kind of post-Covid price-fixing mentioned earlier. There is also a role for government in helping the private sector with things it doesn’t do well—like anti-trust, like educating the population for the jobs that need to be filled, like preventing business from croaking on climate change because doing something reduces immediate profits.  No one is talking about hurting business competitiveness, but it is the task of government to act in the interest of everyone.

This is an election where the country needs to reject what is radical egomania and return to what are in fact our long-time values.

The Riots in Britain are a Lesson

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(from a NY Times article comment)

Post-Brexit Britain is a cautionary tale for the US: Britain is a nation whose bad choices made it dramatically weaker and poorer based on lies and rosy-colored dreams of past glory. Under such circumstances it not surprising that people will grasp for scapegoats. The British far right certainly has every incentive to whip up its supporters and try to sidestep blame.

I want to say more about the parallels to Brexit. Trump is proposing a US behind trade barriers and totally self-sufficient in its imperial power—just like the good old days. Kick out the foreigners and we don’t need anyone else. But we can’t be a world power out of selling over-priced cheap stuff to one another. We are a world power because of what we represent at a world scale. Our standard of living and our military power are both based on economic and technological power at world scale. Trump’s isolationism is retreat.

That’s not to say people don’t get hurt by foreign competition (or other changes), but we can’t fix those problems by running away from them. Taking care of people is the real job to do. Hiding behind nativism and xenophobia is Brexit, and just like Brexit it will leave its enthusiastic supporters worse off than ever. And ready, as in Britain, to jump on the next scapegoat bandwagon.

Algebra in the Eighth Grade

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This piece somehow never got into the NY Times as a comment to one of many articles about algebra in the eighth grade. For anyone who has missed this battle, the state school board in California at one time issued a prohibition on algebra in the eighth grade as an anti-racism measure. More generally, the over-representation of black kids in remedial math classes and white kids in college-prep math classes has been taken in some circles as prima facie evidence of racism, to be rooted out by all means.

Algebra in the eighth grade has become a key issue for both sides. The battle is not just over whether kids should be able to take a subject when they’re ready for it. Some selective colleges have upped the ante by requiring calculus as prerequisite for all applicants, something hard to schedule if kids can’t take algebra in the eighth grade. Here’s the piece.

This article misses the point. The real problem is that by the eighth grade children differ drastically in math preparation. There are lots of reasons for that—and it’s certainly not just a question of ability. However it is a fact, and it affects whether they are ready to take algebra in the eighth grade. Making up for that difference is not a little something to be done on the side. Focusing on the eight grade trivializes the problem. 

Having different classes for students with different backgrounds is not a bad idea. Taking a class where you can’t understand what is going on will make you hate math forever. However one should never mistake lack of background for lack of ability. Kids should not be tracked; courses should have prerequisites. This isn’t easy, but I’ve worked in schools where that is done. 

That may not get every kid ready for algebra in the eighth grade, but that was never really the problem to begin with. As you would never guess from the article, the vast majority of colleges teach basic calculus to lots of students as part of the curriculum. The admission process to selective colleges is badly screwed up, so some of them require early calculus in the same way they want kids to have cured cancer—it’s just nuts. But that isn’t the main problem to be solved. The main problem is teaching kids math, and most of that problem is earlier than the eighth grade.