Los Pollos Coming Home to Roost

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When President Trump — El Jefe, as he is known to his precious few Mexican devotees — started his jihad against the NAFTA treaty two years ago, some of us predicted trouble. NAFTA — conceived by President Reagan, negotiated by President Bush the Elder, and signed in 1994 by President Clinton, never was a “bad deal” for the US. It dramatically increased North American trade, and while we ran trade deficits with other North American countries, they were small in comparison to our major deficits (with Germany, Japan, and China — none with which we ever bothered to do free trade agreements), and were matched by counterflows of investment.

But the protectionist populist Trump believed his own propaganda that free trade “costs” Americans their jobs. He still maintains this, as our unemployment rate approaches a miniscule 3%. And his method of negotiation was as crude as it was thuggish. He repeatedly attacked Canada and Mexico, both their leaders and — in the case of Mexico — their citizens.

There were two results.

First, he was able to get a new deal. But it is worse than the original, at least from the view of the classical liberal. In exchange for a few tariff reductions, Trump’s new NAFTA forces regulations on Mexico to pay its autoworkers more — so they won’t be so competitive against US autoworkers. But while that satisfies Trump’s union supporters, it screws the rest of us, who will now have to pay more for cars.

NAFTA was never a “bad deal” for the United States.

In other words, the man who claims we need fewer regulations just jacked them up. Yes, the Boss is the Master of the Deal — the Raw Deal.

But the other effect of the Boss’s infantile bullying is to have driven anti-American sentiment through the roof in both Canada and Mexico. This sentiment helped elect the extreme leftist Andres Manuel Lopez Obrador — aka “AMLO” — to the presidency of Mexico. AMLO took office on December 1, and a few recent reports in the Wall Street Journal indicate that the chickens — los pollos! — are coming home to roost with their afterburners on.

One report is a sketch by the Journal’s Latin America expert — the estimable Mary Anastasia O’Grady — on just what this inaugural is inaugurating. For one thing, AMLO had as special guests Venezuela’s Marxist dictator Nicolas Maduro and Bolivia’s caudillo Evo Morales, both Fidel Castro wannabes.

For another thing, AMLO is reverting to his demagogic character (he was known for his fierce leftist philippics and for summoning forth his myrmidons to march in the streets). And he has already shown an inclination to disregard existing contracts and rule by diktat. For example, he opposes the new Mexico City International Airport, $6 billion in bonds for the construction of which have already been sold. He prefers to expand the existing location, which just by chance is located in the district where he has traditionally held power, thus funneling the funding to his supporters.

The new deal is worse than the original, at least from the view of the classical liberal.

As a consequence, bond investors appear to be getting ready to sue, in case of default. For this reason, three of the five worst performing quasi-sovereign bonds in the world this quarter are Mexican. These include bonds for the airport, the Mexican Federal Electricity Commission, and Pemex, the Mexican national oil company. The drop in Pemex bonds especially indicates a fear among investors that AMLO will undercut or even repeal the game-changing 2013 revision of the Mexican constitution that allows outside — read “gringo” — investment. AMLO’s energy advisors are all long-standing opponents of the reform; they are all Mexico-first protectionists. In other words, they are all Trumps-in-Pancho-Villa costumes.

Add to this two other AMLO policies, and investors have every right to revolt. First, he wants to spend money freely to “create” jobs — rather like Trump’s own advocacy of infrastructure spending. AMLO would start by spending nearly $20 billion on a new refinery (in his home state, of course), a new thousand-mile train in the Yucatan, and a jobs bill for the youth. Like Trump, AMLO has no fear of deficits.

Second, AMLO proposes to fight the high crime rate in his country by creating a new “National Guard” combining regular army soldiers, marines, and federal police to fight the cartels. Of course, this standing AMLO army would be a perfect SS, should he decide to go into full Hugo Chavez mode.

Lopez-Obrador's energy advisors are all long-standing opponents of free-market reform; they are all Mexico-first protectionists.

Just the thought of a toto-AMLO government has sent the Mexican IPC stock index and the peso itself down into the tank with the bonds.

The death of Bush the Elder came at an ironic time. Bush 41 was a masterful conciliator and international diplomat. He maintained our alliances while overseeing the peaceful dissolution of the Soviet Union. By contrast, Trump the Infantile has managed to alienate our former allies, and so antagonize the Mexican people that they elected a populist leftist radical.

The result is shaping up with astounding rapidity. Mexico has elected an extremist leftist, who will likely turn Mexico into a veritable Venezuela. The result of that will be a wave of Mexican immigration that will dwarf any prior waves. Consider this. So far, three million Venezuelans have fled their country to avoid the economic disaster. Mexico has four times the population of Venezuela, so if a like number flee Mexico we can expect about 12 million more immigrants. The irony is breathtaking: Trump’s policies creating a massive wave of his least favorite people moving in.

A further irony inheres in Trump’s attempt to protect American autoworkers.GM has just announced that it will be getting rid of 15% of its salaried workforce in North America, and will be shuttering five plants. The total loss will be almost 15,000 jobs. GM will focus on its more profitable cars, especially pickup trucks and SUVs.

Mexico has four times the population of Venezuela, so if a like number flee Mexico we can expect about 12 million more immigrants.

The news cheered investors but enraged Trump, who immediately blasted the company and threatened to remove GM’s continuing subsidies — which immediately lowered the value of GM’s share by 2.6%. The anger was shared by other politicians, who remember the nearly $50 billion the taxpayers gave the company to rescue it from bankruptcy less than a decade ago — not to mention the continuing tax credit of $7,500 for each of its electric vehicles sold. The bad publicity resulted in GM’s announcing, a few days later, that it will be adding about 2,700 jobs at some plants in other states, and that some laid-off employees could apply for those jobs. But it still means a major drop in high-paying jobs.

I am not merely saying that Trump’s protectionism didn’t help GM enough to stop its layoffs, though that’s bad enough. I am saying that his actions are going to make it harder to prevent future layoffs. To avoid them, GM would have to sell more cars, but there is a limit to how many expensive SUVs and pickups it can sell. So it would need to increase sales of lower-end cars. But given the high US labor costs, this would require moving more of the supply chain to lower-cost venues, such as Mexico. By blocking that, therefore, Trump won’t protect highly paid American workers making low-end cars, using components manufactured in low-cost Mexico) he will force the automakers simply to stop making low-end cars, thus eliminating jobs.

Clearly, we cannot say whether the Trump renegotiation of NAFTA played any role in GM’s recent decision. After all, we cannot read minds. But just as clearly, the USMCA will make it hard for American automakers to save on labor costs.

I am not merely saying that Trump’s protectionism didn’t help GM enough to stop its layoffs, though that’s bad enough. I am saying that his actions are going to make it harder to prevent future layoffs.

So there you have Trump’s magisterial strongman running of the economy. He bullies two of our closest allies to get only trivial benefits in tariff concessions, but at the cost of electing an anti-American in our southern neighbor. The main thing he got was a regulation placed on plants in another country to pay inflated prices with the intention of protecting highly paid American union jobs. But the result isn’t likely to be a gain in American jobs; it’s likely to be a loss, as the heavily regulated US automakers struggle to make a reliable profit. The only probable gain will be a massive new wave of immigration, as lower wage Mexicans get priced out of their jobs.

Why anyone would suppose that Trump or anyone else can run American industry by divine fiat is beyond me. But people crave the Strong Man who will guide the economy like a god. And that, dear readers, is in my view goddamned stupid.




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The Boss Finally Discovers the Real Enemies!

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President Trump — The Boss, the man of steel — has an improbable target for his incandescent ire: the Koch brothers, billionaires famous (or infamous, depending upon your political predilections) for funding free-market-oriented Republicans.

What triggered The Boss was the fact that the Koch brothers have refused to support a Trump puppet Republican — one Kevin Cramer — in his fight to defeat Democrat Heidi Heitkamp for the North Dakota Senate seat. The Kochs use a PAC they help fund — Americans for Prosperity, or AFP — to support free-market Republicans. You know traditional liberal free-market thinking: free movement of goods, capital, and labor. That sort of view is antipathetic not just to high taxes and regulation but to protectionism, nativism, and unbounded government spending as well. It once was the defining ideology of the Republican Party (full disclosure here: I have in the past donated to the AFP). Cramer supports “fair trade” (which typically means “trade under tariffs and non-tariff barriers until we have equal trade balances”), and fully backs The Boss’s plan to provide $12 billion in subsidies to American farmers who are casualties in this administration’s worldwide trade war.

Trump played the nativist card by accusing the Kochs of being against “strong borders,” and bragged that he has never needed their money.

The Kochs have launched radio ads opposing this policy of subsidizing farmers to make up for the business they have lost from the tariff war. This lost business is the unseen economic downside of tariffs that protectionists can never quite grasp: tariffs may save some jobs, but they cost other jobs, elsewhere in the economy. When those jobs are lost, you then have to subsidize the people who were screwed over to save the original jobs — hell, you could have just subsidized the original companies that lost jobs!

Besides refusing to back Cramer, the Kochs have indicated that they are looking at several other close Senate races to see whom to support (if anyone).

The Boss is not amused at all this. In one of his signature blitzkrieg tweet attacks, he railed against the Kochs, calling them “globalists” — which is the current epithet that has replaced the old rightest term “cosmopolitans,” meaning people who have no patriotic loyalty to their own country, but only to the world — or their ethnic group spread out around the world, or their secret clan (the Illuminati!). He also called them a “joke in real Republican circles.” He played the nativist card by accusing them of being against “strong borders,” and bragged that he has never needed their money. The boss also crowed that the Koch brothers’ network is “overrated” and claimed, “I have beaten them at every turn.” Naturally, he suggested that the Kochs oppose tariffs because of selfishness: they don’t want their foreign operations taxed.

Oh, those rootless cosmopolitans! Such traitors, and all for money!

All this is insufferably rich. Trump — who has himself made a fair amount of money in business done abroad — is attacking a group of pro-business, pro-free-market Republicans who believe in free trade and balanced budgets. A group, please note, that has been supporting Republican candidates far longer than The Boss — who, until a few years ago, almost always gave his political donations to Democrats, including to “Crooked” Hillary Clinton. And The Boss had no problem with the Kochs’ spending millions to help get his tax bill passed.

This lost business is the unseen economic downside of tariffs that protectionists can never quite grasp: tariffs may save some jobs, but they cost other jobs, elsewhere in the economy.

The Kochs and their AFP organization should be commended for standing on principle and opposing the trade war, increasing government deficits, and nativism that The Boss represents. They were consistent when they supported his drive to cut regulations and taxes, and they are consistent now in opposing his protectionism, nativism, and indifference to deficit spending.

But The Boss, who cannot bring himself to view Vladimir Putin and Xi Jinping as enemies, now views these decent Americans as precisely that. This is puzzling, until one recalls Proverbs 29:27, which tells us that “an unjust man is an abomination to the righteous, but one whose way is straight is an abomination to the wicked.” This explains what we see here with perfect clarity.




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The Perils of Mexico-Bashing

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As I have noted before, in a number of ways President Trump resembles President Obama. Both hate free trade, oppose immigration (Obama covertly, Trump ostentatiously), favor unions over consumers, and so on. Trump’s mania against free trade is on display in its most virulent form in his war on NAFTA.

NAFTA was a truly bipartisan accomplishment. Conceived and promulgated by President Reagan, the free trade agreement (FTA) between Canada, Mexico, and the United States was negotiated under Bush the Elder, approved by a large, bipartisan vote in the Senate, and ratified by Bill Clinton. And it has seen trade blossom: as of last year, US trade exports to Mexico and Canada were four times what our trade exports are to China.

But even in the primaries, Trump singled out this one FTA for a torrent of abuse, accusing both Canada and Mexico of cheating, because we have a balance of trade deficit with each. Along the way, Trump’s heavy-handed and accusatory style has helped drive Canadian and Mexican opinion of him — and the rest of us, since we elected the bird — to new lows.

NAFTA has seen trade blossom: as of last year, US trade exports to Mexico and Canada were four times what our trade exports are to China.

The renegotiations have dragged on, mainly because America keeps trying to impose onerous restrictions on its neighbors. This is another trait shared by Obama and Trump: disdain for our own allies. Love Russia, hate Canada and Mexico — how daffy can you get?

A recent Wall Street Journal article reports the latest on the NAFTA fight. The chief American negotiator, Robert Lighthizer, is introducing new absurd demands. He now wants to require that at least 40% of the content of all cars crossing the American border must come from workers earning at least $16 per hour. This is at least double the existing wages of auto-assembly workers, and four times that of Mexican auto-parts workers! Cars that don’t meet that criterion will be heavily tariffed at the border.

Trump’s intention is crystal clear: pay off his union supporters by forcing Mexico to surrender its comparative advantage (lower cost labor). This is his populist-autarkist idea of “fair trade”: make the other party do things as stupidly as you do, rather than doing things smarter yourself. Add to this his demands for a periodic renewal vote on staying in the agreement, and you have a one in-your-face-F-off-and-die populist ultimatum.

Trump’s intention is crystal clear: pay off his union supporters by forcing Mexico to surrender its comparative advantage.

This ultra-protectionist ploy is arousing opposition, both here and (more ominously) in Mexico. Free-trade Republicans — what pathetically few of them are left — are not amused. In a piece he wrote for the WSJ, Sen. Pat Toomey (R-PA) expressed annoyance with the Trumpian tactics. Trump has told the Senate — in true bossman style — which had lawfully ratified the NAFTA agreement during Clinton’s term in office — either to ratify a new, eviscerated NAFTA or see him unilaterally withdraw the US from it. Toomey says that if this ultimatum is put to him, he will vote against it and oppose in federal court the cancelation of the treaty.

Recently, Trump withdrew the US from the Iran deal negotiated by the feckless Obama. That’s constitutional, because that deal was explicitly not put forward as a treaty. But NAFTA was, and as Toomey rightly observes, the Constitution delegates the framing of trade policy expressly to Congress. The rare prior cases of a president unilaterally withdrawing from a ratified treaty never concerned a commercial treaty. I would observe that the Declaration of Independence should be consulted. I refer to the parts in which the king is accused of “cutting off our trade with all parts of the world,” not to mention “obstructing the laws for the naturalization of foreigners” and “refusing to pass others to encourage their migrations hither.”

Trump and his foolish followers clearly want to stick it to the Mexicans, and have done so since his first campaign appearances.

Holding out an olive branch, the estimable Toomey suggests that Trump focus on correcting obvious problems, such as ending Canada’s tariffs on cheese, and solidifying Mexico’s recent moves to open up its energy sector to US fracking investment. Add to that correcting a (relatively minor) sin, the current Mexican practice of putting low caps on duty-free sales of American stuff, and you pretty much have perfected the agreement; and have done so quickly, without arousing countervailing populist rage.

But Trump and his foolish followers clearly want to stick it to the Mexicans, and have done so since his first campaign appearances. The countervailing rage is rising in Mexico, where the frontrunner for the next presidential election is a populist leftist — one Andres Manuel López Obrador (AMLO), close friend of Britain’s leftist Jeremy Corbyn.

Mexico is clearly being driven to its own populist extreme — AMLO now leads by 18%, much better than he has registered before. A radicalized Mexico could easily allow Russia to set up naval bases in its waters, and allow Chinese troops to move in to help “train” Mexican troops. The Russians have shown every desire to extend their world influence, and Mexico would be an even better vehicle for that than Cuba. As to the Chinese, their recent building of bases in the South China sea, their behavior on the Indian border, their rush to build a blue-water navy, and their clearly strategically planned moves to increase their influence in Latin America all indicate a long-term game plan that is anything but tame.

A lot of good a wall would do then.




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Profound and Destructive

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President Trump’s destructiveness requires few words here. Consider how world stock and currency markets have been shaken by the resignation on March 6 of Gary Cohn, regarded until then as Trump’s chief economic adviser. Although not a trained economist, Cohn apparently had some sound instincts derived from years of financial experience. His departure apparently and ominously leaves more influence, or echo, to Peter Navarro — look him up with Google.

This latest example of destructiveness follows the one touched off by Trump’s March 2 tweet bewailing America’s loss of “many billions of dollars on trade with virtually every country it does business with” and heralding trade wars as “good, and easy to win.”

Trump views international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

I’ll spend more words on how profound Trump’s ignorance is. He considers a country’s excess of imports over exports a measure of loss. This measure applies even to trade with each foreign country separately. He counts China and Mexico among the worst offenders, deserving punishment. He does not understand the multilateral aspect of beneficial trade.

Nor does he understand how we gain in buying goods cheap from abroad. What difference does it make if steel and aluminum are cheap because of low foreign prices or because they grow cheaply on bushes at home? Money cost is a measure of opportunity cost, which means the loss of other goods when resources go instead to make the particular good in question. Opportunity cost reflects scarcity. Scarcity applies even to prosperous America, where we could enjoy still higher standards of living if food, clothing, shelter, entertainment, and other goods and services came costlessly and miraculously from heaven. Scarcity and how gains from domestic and foreign trade alleviate it are fundamentals of economics. The principle of comparative advantage goes far in explaining how.

The profundity of Trump’s ignorance goes beyond economics, extending even to the behavior of a decent human being.

Without understanding the academic presentation of the “absorption approach to the balance of payments,” everyone should be able to grasp its central idea, which is sheer arithmetic. If we as a country use more output for consumption and real investment than we produce, then the difference must come from somewhere — from abroad in the form of more imports than exports. A big item in this excess absorption, alias national undersaving, is government deficits. Yet Trump and Congress are complacent about increasing the deficit and debt by taxing less and spending more.

All too many politicians say that they are in favor of free trade if it is “fair trade” played on a “level playing field.” These slogans express Trump’s view of international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

Trump does not understand how the price system coordinates economic activity, making most government planning about jobs and industries unnecessary and harmful.

The profundity of Trump’s ignorance goes beyond economics. It extends to diplomacy in domestic and foreign relations and even to the behavior of a decent human being. Yet his destructive economic ignorance remains prominent.




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Frackin’ . . . Like the Doo-Dah Man

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Recent stories in the wonderful Wall Street Journal give us the happy news that (while receiving no coverage from the mainstream media, of course) the fracking revolution rolls on.

The first story reports that American crude oil exports are accelerating to new highs, rapidly approaching as much as Kuwait currently exports. Amazing. As of last month, we were exporting 1,984,000 barrels per day (BPD), an increase of nearly 500,000 BPD from the week before, and up an astounding 684,000 BPD in May. Considering that Kuwait ships about two million BPD, this is great news.

Admittedly, the US is still a net oil importer. But we import almost all the decreasing amount of foreign oil we need from our great ally Canada — our great ally, unless President Trump pulls out of NAFTA.

This exporting craze will only continue to build — if we don’t try to destroy our fracking industry, and allow it to flourish.

The reason for this surge in US crude oil exportation is that American crude is relatively cheap. In the week in which the record in exports was set, the US crude price was nearly $7 per barrel cheaper than the world standard. This is a new record low during the period since the 50-year-old ban on oil exports was lifted a couple of years ago, thanks to the much-maligned Congressman Paul Ryan.

In the irony that is the mother and father of all ironies, the second biggest buyer of America’s crude oil is our devoted enemy, China, which now takes about 180,000 BPD from us, up almost 900% from last year.

This exporting craze will only continue to build — if we don’t try to destroy our fracking industry, and allow it to flourish. All it needs is to be left alone in the free market. If so, it will guarantee that we never see $100 a barrel oil again ever. Here I must give Trump his props — he has allowed fracking to go unmolested.

What the frackers have shown is a profound and continuing ability to innovate and lower costs, in the face of an attempt by OPEC, that rent-seeking cesspool of corruption, to drive them out of business by lowering prices. But it was the OPEC companies that were driven to the wall.

This is just more of the daffy Malthusian “peak oil” thinking we’ve heard before.

The Wall Street Journal reports that one of the biggest natural gas fields from a decade ago, the Haynesville Shale field in Louisiana, has been reborn. Ten years ago it was productive, but five years ago it was nearly played out. Yet this field has come roaring back to life. The number of drilling rigs has tripled in the past year, and the current amount of natural gas is up by 17% in the same period.

What has allowed this resurrection of gas fields is “refracking” — the process of using more sand and extending the wells further. In fact, the US Geological Survey now estimates that the Haynesville, Louisiana and adjacent fields hold 300 trillion cubic feet of natural gas. That is a 430% increase over its 2010 estimate.

Helping the process is investor recognition that natural gas has a bright future. The US Department of Energy projects that over the next quarter of a century or so, use of natural gas will outstrip that of all other fossil fuels, especially coal. Cheniere Energy has a large liquefied natural gas (LNG) plant and export facility in Louisiana. Additional LNG plants are being built in Louisiana, Mississippi, Texas, and even Maryland.

Natural gas is the “feedstock” in many industries — petrochemicals, plastics, and fertilizers, to name the biggest. Nearly 80 petrochemical plants are being built in the Gulf Coast region alone, where they will result in jobs, and the continued resurrection of Dixieland.

The major hurdles are an apparent fall in innovation in the fracking industry, wariness among investors, and rising labor costs.

The WSJ notes that some “experts” are worried that the export market will siphon off so much natural gas that prices will rise, hurting manufacturers that are now ramping up. This is just more of the daffy Malthusian “peak oil” thinking we’ve heard before. We can simply increase production of natural gas from all over the US — from the Dakotas to Pennsylvania to Texas — to meet the demand. All the while good paying jobs will be created, and our adversaries (such as Iran, Russia, Saudi Arabia, Qatar, and Venezuela) will be kicked in their teeth.

When will the “experts” finally wake up and realize that in a free market there is no “peak” anything — least of all oil and natural gas?

In fact, during the past year, Castleton Commodities International spent more than a billion bucks to buy 160,000 acres of Anadarko’s Haynesville land. For that it got an infusion of capital from Tokyo Gas America, the largest utility in Japan. This shows the true expert assessment of fracking’s value.

A third WSJ article amplifies the idea that the glut of US production is spooking producers. In other words, it’s such a bitch that prices are set by supply and demand! The piece notes that the growth in the number of rigs — typically used as a measure of future activity &‐ dropped from 20% for the preceding four quarters to “only” 6% in the third quarter of this year.

Many of the OPEC states (especially Saudi Arabia) need oil to be around $100 per barrel to keep their economies stable and their citizens quiet.

This shouldn’t cause any pain. With the buildout of American industry and the roaring appetite of East Asian consumers, demand will just keep increasing. The Journal notes that US oil production may surpass the supposed “peak oil” production of 9.6 million BPD set in 1970. The major hurdles are an apparent fall in innovation in the fracking industry, wariness among investors, and rising labor costs. But despite the slowdown in the increase of production, there is no decrease in production, and the Energy Information Agency expects American oil production to hit 9.69 million BPD at the end of the year. This, despite oil prices stuck at about $50 per barrel.

The last WSJ story that I want to mention points to the continuing geopolitical fallout from the growth of US oil production. It reports that continued low prices on world oil markets have led Saudi Arabia, Venezuela, and other OPEC members to push Russia — which, while not technically an OPEC member, is surely a fellow traveler — to continue to agree to the current limits on production.

The narrative here is as simple as it is delicious. In the face of the American fracking revolution — which dropped world oil prices from over $100 per barrel a few years ago to $50 and below — OPEC has tried to figure out what to do. Many of the OPEC states (especially Saudi Arabia) need oil to be around $100 per barrel to keep their economies stable and their citizens quiet. But Putin’s regime has used Russia’s oil wealth for a huge military buildup, and kept Russian citizens happy by using military power to conquer the Crimea and threaten the rest of the former Soviet empire. To keep this up, Putin is prepared to sell as much oil as possible, even at lower prices, to fund his mechanisms of corruption.

In 2017 Russia agreed with the OPEC strategy to cut back production by 2% to keep prices from plummeting further. While this production cut helped raise the world price of oil by about 13%, American fracking has kept the world price well below $60 per barrel. But Russia’s participation in continuing the cuts is unclear, to say the least. The current agreement ends in March 2018, and OPEC is pushing the wily Putin to agree to extend it. The Saudis are offering to set up a billion-dollar fund to invest in energy projects.

The US should open all the spigots and end net importation of foreign oil once and for all.

Putin so far remains noncommittal. He can see what is obvious, which the WSJ article notes: if OPEC succeeds in raising prices, American shale companies can immediately crank up their output, rapidly driving the price back down.

Now, whether the Russians are bluffing OPEC to get more concessions, or simply intend to cover their drop in revenue by increasing their own production, we will have to wait to see. But I think the US should open all the spigots and end net importation of foreign oil once and for all. The US should make our own oil a major export. This means: opening up more federal land for fracking and offshore drilling, opening up ANWR in Alaska, opening the East Coast for offshore drilling, and pushing to open up the Arctic for the rapid exploitation of the region’s resources.

I would suggest to Trump that he get over his fears about free trade agreements and cut a deal that would allow him to sign the TPP agreement, but with one new provision: the TPP members should agree that if the US can sell them oil and LNG at world market prices, they will buy from us. That would eliminate the trade imbalances that so anger Trump (though not economists, of course). It is, alas, very doubtful that Trump can grow that much in strategic thinking.

that the export market will siphon off so much natural gas that prices will rise, hurting manufacturers that are now ramping up. This is just more of the daffy Malthusian ‐




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Imitating Obama?

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I confess that I am no fan of Trump. Actually, that dramatically understates it. I regard him as a dangerous populist ignoramus whose crudity of character makes him unfit for office. When he won the nomination, I sent the Republican National Committee a letter of resignation from the party to which I had belonged for four decades, and re-registered Libertarian. (I did this despite my impression that Gary Johnson was either a hopeless dope or congenitally loopy.)

It was for me, in short, a completely miserable election.

My only hope was that Trump, once in office, would at least pretend to be presidential, and would drop his nativist and protectionist stances, having decisively won the populist vote. And I admit I was cheered when he appointed a good judge to the Supreme Court, talked about repealing and replacing Obamacare, and also talked about lowering at least corporate taxes. He has so far been unable to deliver.

Nativists fear even legal immigrants, not seeing how beneficial they are to the economy.

But unfortunately he has pursued his nativist and protectionist agendas. On the nativist agenda, he killed DACA — setting up the deportation of upwards of a million young people brought here involuntarily, and raised with scant knowledge of the countries of their births. Not only did he refuse to increase the H-1B visa and other programs that legally allow in college-trained STEM and medical professionals, but he has actually proposed cutting all legal immigration by half. He continues demanding that a wall be built on the border with Mexico, even though illegal immigration from Mexico has been steadily dropping for a decade — indeed, for the last few years, more Mexican immigrants have returned home than have come north. (That’s because Mexico has a good growth rate, and is now in the top ten manufacturing countries on earth). Nativists fear even legal immigrants, not seeing how beneficial they are to the economy. For example, immigrants and immigrants alone are the reason we don’t face the same demographic implosion that the European countries and Japan face, and immigrants are disproportionately likely to open new businesses.

On Trump’s protectionist agenda, after killing the Trans-Pacific Partnership Agreement, Trump has set his sights on killing NAFTA. Several recent Wall Street Journal articles report on the administration’s attempt to renegotiate this deal, signed back in 1994. Trump’s curious hatred of Mexico and Canada is as bizarre as his love of Russia. In this he imitates Obama, who bashed NAFTA in his primary fight with America’s Sweetheart Hillary Clinton. At the time, most commentators assumed that this was just “Bubba bait” — that is, demagogic talk aimed at arousing nativism and protectionism by telling the economically illiterate that Evil Foreigners have “stolen” American jobs, jobs that usually have been automated away.

But to many people’s amazement, Obama — Trump’s match in protectionism — started trade wars with both Mexico and Canada shortly after assuming office. He stopped only when those countries fought back and kicked our economic behinds. For example, Obama violated NAFTA to “save” 200 trucking jobs (at the behest of one of his supporters, the Teamsters Union), but when Mexico retaliated with stiff tariffs against our farmers, 25,000 American jobs disappeared, whereupon Obama cancelled his policy with limited publicity.

After killing the Trans-Pacific Partnership Agreement, Trump has set his sights on killing NAFTA.

To his credit — and as readers of this estimable journal know, I was a consistent critic of Obama’s regime — Obama slowly but surely came to understand why more than 90% of economists favor free trade. Obama eventually approved of the three free-trade agreements left to him by George Bush, and late in his second term negotiated the TPP. Who knows, perhaps Obama finally read that Econ 101 text that he was too negligent to read as an undergrad.

But Trump is even more of a populist fool. He immediately killed the TPP, and has now targeted NAFTA. He is apparently surprised that both Mexico and Canada are fighting back. A bully is always amazed when the smaller boy he chooses to pick on hauls off and smacks him.

The Wall Street Journal reports just how close to a collapse of the NAFTA talks we are. We have seen record highs in the stock market, but this would almost surely change quickly should the talks collapse. One economic consulting firm, the Colorado-based ImpactECON, has put the net job losses at 125,000 for Canada, 256,000 for the US, and a whopping 961,000 for Mexico over the next three to five years.

Trump is apparently surprised that both Mexico and Canada are fighting back.

For those populists who will cheer the disproportionate job losses to Mexico, well, they may want to ask themselves whether their protectionism trumps their nativism here. That is, if we move to destroy nearly a million Mexican jobs, where oh where will all those newly unemployed Mexicans go to avoid starvation? Trump had better be prepared to build his wall quickly.

If NAFTA does get repealed, tariffs would undoubtedly result. At a minimum, the three member states would revert to their average tariffs rates: 3.5% for the US; 4.2% for Canada; and 7.5% for Mexico. But there is good reason to think that the tariffs will be much higher. Both Canada and Mexico will be furious at seeing the US dump the deal and will likely raise tariffs enormously. Moreover, the collapse of NAFTA and the Mexican job market will be the result. The American Automobile Policy Council estimates that the rise of the price of domestic auto parts from the tariffs will cost 50,000 US jobs. Another economic thinktank, Boston Consulting Group, gives the same estimate.

The ImpactECON study says the small gains in US employment in production of machinery and chemical industries will be swamped by losses in the agricultural, auto, and apparel industries.

Mexico could simply embargo products from the US — it just ordered its first shipment of wheat from Argentina, no doubt in anticipation of the looming trade war.

This last is a nice point — a point that Frédéric Bastiat would have underscored. What average Americans — including Trump — expect to see after NAFTA is some US manufacturing jobs disappearing while trade flourishes between us and our natural neighbors. They assume the trade will cause the job losses, which is debatable. But worse, they don’t see the gain in jobs in farming and other industries.

Under NAFTA, our agricultural exports to Mexico and Canada have risen fourfold, hitting $38 billion last year. If NAFTA is junked, the Mexicans could revert to their pre-NAFTA tariff levels of 75% on US chicken and corn syrup, 45% on turkey, potatoes, and dairy products, and 15% on wheat. You see, protectionism works both ways: Mexico pre-NAFTA was trying to protect its farmers from competition from American farmers. In fact, Mexico could simply embargo these products from the US — it just ordered its first shipment of wheat from Argentina (30,000 tons), no doubt in anticipation of the looming trade war.

The Mexicans, by the way, are especially angry. All major candidates for the upcoming presidential election there are opposed to what Trump is doing, but the one who is poised to make the most gains is the ultra-leftist Lopez Obrador. If Mexicans, in their righteous indignation, elect him, we could have a Cuba right on our border. For instance, Mexico could retaliate by cutting a free trade agreement with China, and allowing the Chinese to set up naval and army bases on its soil — which it is completely free to do under international law.

Talk about a “game-changer”: for the first time in US history, we would face a military threat from one of its long borders.

Even the author of the 2011 report by the leftist thinktank Economic Policy Institute, Robert Scott, has changed his mind. The report purported to show that NAFTA cost 700,000 US jobs, and was widely cited by protectionists of all political stripes. Scott now says that if NAFTA is abandoned, manufacturers will just “move” jobs to Asia.

The real “culprit” behind manufacturing job loss is not international trade; it is automation and creative destruction.

The NAFTA talks are approaching crisis phase, because the US is making unreasonable demands. For example, the US negotiator Robert Lighthizer wants a “sunset clause” requiring the agreement to be renewed every five years, and a watering down of the provision for arbitrating disputes.

Of course, the joke in all this is that the US was losing manufacturing jobs long before NAFTA. As early as 1974 sociologist Daniel Bell discussed the shift from industrial work to high-tech and service sectors in his book The Coming of Post-Industrial Economy, and the term “rust belt” was coined in 1982, more than a decade before NAFTA came into being. In fact, over the last decade all of the top ten manufacturing countries in the world lost manufacturing jobs. The real “culprit” is not international trade; it is automation and creative destruction. We don’t hand-bolt wheels on cars anymore, not because the Mexicans do it, but because robotic arms do. And we don’t make buggy whips anymore, not because the Chinese make them cheaper, but because we don’t have buggies.

The failure of many American workers to adjust to the shift from low-knowledge to high-tech factories results primarily from the pathetically poor average education they receive. I mean, you can’t read the instructions manual for the new computer-aided machinery if you can’t read to begin with. While other countries are reacting to the evolution of the industrial economy by building new colleges and trade schools, cranking out engineers, doctors, scientists and skilled workers, we struggle with risible high school and college dropout rates, a proliferation of humanities and social science majors, and vanishing trade schools.

We don’t make buggy whips anymore, not because the Chinese make them cheaper, but because we don’t have buggies.

All of this could be cured if we did what supposedly socialist Sweden did over a quarter century ago: immediately adopt a universal voucher program — that is, require all public schools in America to adopt perfectly pro-rata voucher systems within one year. But this would arouse the teachers’ unions like nothing else. They will protect the cushy jobs of mediocre and even positively bad teachers, forcing parents to keep their kids in failing schools.

Rising protectionism and fear of trade don’t just run the risk of depression and trade wars — which in turn run the risk of military war. They also distract us from the real cause of long-term blue-collar unemployment: a horribly broken educational system.




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Gas Expands!

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An amazing and welcome development has been achieved. As the Wall Street Journal just reported, for the first time in six decades, America exported more natural gas than it imported. It has once again become a net exporter of natural gas, and this new export sector will grow rapidly.

The net export volume is starting modestly: in November we exported 7.4 billion cubic feet (BCF) per day, while still importing 7.0 BCF per day. But no one doubts that from this modest start the volume of exports will grow. American gas exports have gone up by 50% over the past six years, and the Energy Department projects that we will be the third-largest exporter of liquefied natural gas (LNG) by 2020 — behind only Australia and Qatar. Citigroup estimates that by 2020 the US will be supplying to the rest of the world about 20% of the natural gas it produces.

No one doubts that from this modest start the volume of natural gas exports will grow.

To cite one example of success: Cheniere Energy opened a facility in the Sabine Pass (on the border of Texas and Louisiana). It was originally intended to import LNG, but the fracking revolution so decreased the price of natural gas that the plant was quickly “reverse-designed” to export it. Since February, when the plant started shipments of LNG, its output has grown to an average of 1.5 BCF exported per day. Not surprisingly, Cheniere is expanding the Sabine Pass plant rapidly, and will open more export facilities over the next two years.

Three years ago, the Freeport LNG facility at Quintana Island, Texas, got approval to export LNG, and it will begin exporting massive quantities of LNG in two years. Next year, Dominion Resources will start exporting LNG to India and Japan.

The only way this US export industry won’t grow is if the government — intentionally or by simple bungling — stops it.

So this trend toward America becoming the dominant reliable supplier of LNG for the whole damn planet will not just continue — it will accelerate. Thank you again, free market: remarkably shrewd private individuals, acting primarily out of self-interest, came up with a way — fracking — to make domestic oil and natural gas plentiful again, and plentiful indefinitely. Government subsidized losers — technologies such as wind and solar energy — but the free market found the efficient answer.

In fact, the only way this US export industry won’t grow is if the government — intentionally or by simple bungling — stops it. The progressive liberal Democrats hate fracking, of course. Obama did everything he could to impede it — such as taking an unprecedented amount of land out of public use — although most of the land upon which fracking operations are happening is private. Hillary Clinton repeatedly stated her total opposition to fracking (not to mention coal), which likely was a major factor in her ignominious loss to Donald Trump.

Speaking of Trump, he may ironically set back the natural gas export boom brought by fracking. For while he certainly claims to support it, the largest customers of our natural gas are, outside of ourselves, our NAFTA partners, Canada and Mexico. Together they are buying a record high of our total output. But Trump — a populist to the core — hates free trade, and has targeted NAFTA as a “bad deal” for America. His bungling trade policy could well get us into trade wars with the very countries that could become our biggest future energy export markets.




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The Space Aliens Have Finally Come

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Movie reviews took a back seat at Liberty while the election dominated our pages. This was the most divisive election in recent history, with three flawed candidates being nominated by the three major parties. (Yes, I consider the LP a major party at this point, even if the chance of winning is still nonexistent.) The divisiveness only worsened after the surprise election of Donald Trump, with protests that quickly escalated into riots and derisive epithets of “Racist! Homophobe! Sexist!” that escalated into accusations (sometimes false) of personal attacks. College students, whimpering and wailing, were issued blankets, tissues, and even puppies by administrators more anxious to comfort their fears than to teach them how to cope with disappointment.

Sheesh.

As I decided to write my first review for Liberty in over a month, I wondered: which current film would provide the best opportunity to address these issues? Arrival seemed like a sure bet.

Most of us want to be kind, but we also want to know, “Why are they here?”

In this movie, 12 alien spacecraft enter the earth’s atmosphere and hover above locations around the globe, virtually knocking at the door and asking to be let in. But what is their purpose? Do they come in peace, or as galactic imperialists? That’s the question asked in every alien-oriented movie, and it was the key issue that drove Trump’s rise to the presidency. Do we build a wall — a yuge wall — to keep everyone out (at least until a thorough vetting has been performed), or do we open the doors and admit workers from Mexico, refugees from Syria, boat-people from southeast Asia, and anyone else who wants to come in? Most of us want to be kind, but we also want to know, “Why are they here?” Fittingly, that is the tagline of Arrival.

The opening moments of the film reinforced my intent to write a timely political review. I like the fact that the writers chose the neutral term “arrival” rather than the usual “invasion.” People react to the arrival of the alien ships with stunned silence and disbelief, followed by newscasters reporting riots, looting, and school closings — reminding me of what was happening not far from my movie theater in New York City. Our main character even references Fox News Channel while trying to calm her hysterical mother, saying, “Why are you watching that channel? How many times have I told you not to listen to those idiots?” She also admits to strategic lying in order to get her way: “The story isn’t true, but it proves my point, “ she mutters her sly justification.

But, as so often happens when I come to a movie already thinking about how I’m going to write my review, I soon let go of my preconceived plan and let the actual film envelop me. The film is slow for the alien invasion genre, more Close Encounters of the Third Kind than Independence Day. Leaders in the 12 nations where the spacecraft are hovering do bring in their military, but they do so cautiously. They have learned to be wary of Greeks bearing gifts, but they won’t slam the gates or start shooting the arrows until they’ve seen what’s inside this Trojan horse. What is the purpose of these uninvited arrivals?

Tension develops not so much from fear of attack as from an agonizing slowness that affects our perception of time; unnatural gravity that affects our perception of nature; a 60-beat, pulsating percussion that affects our perception of the aliens; and discordant, dissonant music that simply grates on our nerves.

People react to the arrival of the alien ships with stunned silence and disbelief, followed by newscasters reporting riots, looting, and school closings — reminding me of what was happening not far from my movie theater.

Louise Banks (Amy Adams), a respected linguist, and Ian Donnelly (Jeremy Renner), a first-rate mathematician, are called in to see whether they can communicate with the beings. An academic argument ensues over which is the core of civilization, language or math, but the film does not ask us to endure a cutesy, hormone-driven competition between the two attractive academicians. This is serious business, and they are serious partners in their mission to discover why the aliens have come and whether their intent is peaceful.

Guided by thoughts of her daughter’s birth and childhood, Louise turns to such non-verbal communications as touch, eye contact, body language, and facial expressions as she and Ian work out the “Heptoid” vocabulary. She points out the ambiguity inherent in words, and the consequent importance of understanding context in order to discover intent. “The Sanskrit word for war,” she offers as an example, “is desire for more cows.” Soldiers and bullets, she suggests, are a symptom of war, not the definition of it. I couldn’t help but think of the quote attributed to Frederic Bastiat: “When goods don’t cross borders, soldiers will.” And I again thought of our president-elect and his misguided determination to limit international trade.

For a film about language and communication, there is surprisingly little dialogue. Instead, the actors are asked to communicate their thoughts and emotions to the audience in the way their characters are communicating with the aliens — through body language, movement, and facial expressions. Director Denis Villeneuve couldn’t have asked for a better actress for this task than the brilliantly talented Amy Adams. She approaches the aliens with the same wonder and engagement as she expresses in her interactions with the daughter of her thoughts. We know how she feels about language, and about these aliens, because we know what it’s like to interact with a baby or a child. Language becomes a tool and an emotion. Linguistics become exciting and engaging. And the denouement of the film is wondrous because of all this.

This is a film that surprises you with unexpected stillness, unexpected wonder, unexpected fulfillment. It asks us to embrace life, even when it includes inevitable trauma or sorrow. In the end, I discovered, it is the right film for right now. But not for the reasons I expected. Go see it before you hear any more about it.


Editor's Note: Review of "Arrival," directed by Denis Villeneuve. 21 Laps Entertainment / FilmNation Entertainment, 2016, 115 minutes.



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Ideas Have Consequences

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It probably couldn’t be any worse. The current presidential candidates are about as bad as bad can be.

Just look at them.

  • Ted Cruz, who called a press conference to say that he would not “copulate” with a rat like Donald Trump.
  • Donald Trump, who had every opportunity to gather all anti-establishment voters into his fold but insisted, instead, on alienating as many as possible — e.g., stipulating that in some hypothetical world in which abortion was outlawed, women who had abortions should be “punished,” then putting out a press release saying that he didn’t really mean that, and then saying what he didn’t mean again.
  • Bernie Sanders, spouting non-facts 24/7.
  • Hillary Clinton — say no more.

The temptation is to attribute the horror of 2016 to the candidates’ abominable personalities, or at most to the failures of the electoral system, which is warmly responsive to televisable personalities (Trump), and to the indefatigable pressure groups that gave us Clinton and Sanders (and Jeb Bush and a few other sparklers).

I think that those factors are important, but they are as nothing when compared with the ideas that are insisted upon by the pressure groups and are projected so abominably by the personalities.

All the problems that are used to justify the literally insane campaigns now being waged were the direct results of unlimited government.

The ideas aren’t many. We’re not dealing with the intellectual intricacy of the questions that Lincoln and Douglas debated. Most of what passes for ideas in today’s campaigning results from a handful of crude, outdated assumptions, as follows:

1. The idea that work produces wealth, and therefore ought to be rewarded — an idea that had the stuffing knocked out of it by the discovery of the principle of marginal utility, a mere 14 decades ago.

2. The age-old idea that wealth should be apportioned by political means; i.e., by force.

These two ideas provide most of Bernie Sanders’ intellectual equipment, if you want to call it that.

3. The pre-1830s idea that free trade is bad for the economy.

Here you will recognize Donald Trump’s motivating idea, and one of Sanders’.

4. The 1970s idea that racial — and “racial” — sensitivities have rights that government must enforce.

This belief, which is merely the flipside of the much older belief that white racial sensitivities must be enforced by government, is the basis of the grievance industry which fuels both Sanders and Clinton, and without which their candidacies might not be able to exist.

5. The idea that, as H.L. Mencken said, “the people know what they want and deserve to get it, good and hard.”

This is populism, which fuels the preposterous windbaggery of Trump and Sanders, and to a degree that of Cruz. It was adequately discredited by the idiotic behavior of the ancient, direct democracies, if not of modern Detroit, Chicago, and New York City.

Now, you may say, and you would be right to say to it, these fallacious notions get a lot of their steam from the true, or sort of true, ideas that are associated with them. Sanders’ people and Trump’s people are right in believing that the financial system is rigged against the majority of Americans. Trump’s people and Cruz’s people are right in thinking that the country is being run into the ground by small groups of wealthy, or otherwise privileged, self-serving apostles of political correctness, seemingly bent on outraging all feelings but their own. Trump’s people are right in thinking that a welfare state cannot admit hordes of immigrants without grossly disadvantaging its own citizens. Clinton’s people are right in their visceral aversion to populism.

It’s remarkable that Clinton’s supporters, though undoubtedly the best “educated” of any of these groups, has the fewest ideas, right or wrong. It’s certainly a commentary on elite education.

But the most remarkable fact is that all the problems that are used to justify the literally insane campaigns now being waged were the direct results of unlimited government. If the American people had voted to increase income inequality, strangle the middle class, create racial tensions, ship jobs overseas, enlarge the permanent underclass, and grant a permanent veto power to an unelected class of well-paid parasites, they couldn’t have gotten better results from their decades of votes for people who wished to expand the government.

Now people of common sense and what used to be common knowledge are seeing (the cliché is unavoidable) the chickens coming home to roost. Are you happy? I’m not.




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Unfair Competition from Robotland

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This campaign season brings many complaints about “shipping jobs overseas.” Candidates promise to crack down on the offending corporations. American workers and the United States as a whole must compete on a slanted playing field against foreigners paid much below a dollar an hour. Moreover, the foreigners manipulate their currencies. They buy less from us than we from them, putting the US into a trade deficit (more exactly, a current-account deficit) costing us many billions of dollars a year. China, Japan, and Mexico count among the worst offenders. Free trade is fine, but only when it is fair.

In a similar but imaginary scenario, technology has advanced so far that “Robots” (in a stretched sense of the word) displace American workers at costs equivalent to Robot wages of 50 cents an hour. What is the difference between shipping jobs to Bangladesh and shipping jobs to Robotland? Well, Robotland does not have a balance of payments, so it cannot be accused of buying less from us than we from it, fleecing us of the difference. In the real world, automatic market mechanisms, if allowed to operate, forestall worrisome trade deficits and surpluses; and if the foreigners do make unbalanced sales to us, what can they do with the money? They acquire American bank accounts, securities, and properties, so supplying us with financial capital on advantageous terms.

What sense does the notion of one country competing with others have? Does it mean that international trade is a zero-sum game, with countries squabbling over shares in a fixed total of gains? On the contrary, international trade and advanced technology are alike in making desired goods more abundant. One country’s relatively low standard of living would trace to technological and entrepreneurial backwardness and perhaps to bad government. It would be absurd to blame its relative poverty on incompetent trade-policy negotiators.

One country’s relatively low standard of living would trace to technological and entrepreneurial backwardness and perhaps to bad government.

In the real world, conceivably, Robotland technology might displace many American workers, inviting Luddite arguments. I do not want to get into that issue here. I merely ask what the difference is between the scenarios of foreign competition and robots.

I wish that today’s vapid political debates could give way to ones with candidates testing one another’s policy-relevant understanding by posing questions like the one about robots. Other questions might be: How do your trade-policy proposals square with the principle of comparative advantage? What light might the absorption approach to balance-of-payments analysis shed on a connection between a trade deficit and a government budget deficit? In what sense is the Social Security trust fund a reassuring reality and in what sense a deceptive farce?

Unfortunately, such questions would not faze Donald Trump. He would respond with vicious personal insults and with reiterations of his own excellence. Anyway, allowing such questions could be entertaining. They might even enlighten some voters.




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