Back to the Future

“When steam power will be perfected, when, together with telegraphy and railways, it will have made distances disappear, it will not only be commodities which travel, but also ideas which will have wings. When fiscal and commercial barriers have been abolished between different states, as they have already been between the provinces of the same state; when different countries, in daily relations, tend toward the unity of peoples, how will you be able to revive the old mode of separation?”

Francois-René de Chateaubriand, 1841

Voodoo economics 2.0

Well, well. Here we go again. From the Boston Globe:

WASHINGTON — A white cloth napkin, now displayed in the National Museum of American History, helped change the course of modern economics. On it, the economist Arthur Laffer in 1974 sketched a curve meant to illustrate his theory that cutting taxes would spur enough economic growth to generate new tax revenue.

More than 40 years after those scribblings, President Donald Trump is reviving the so-called Laffer curve as he is set to announce the broad outlines of a tax overhaul on Wednesday. What the first President George Bush once called “voodoo economics” is back, as Trump’s advisers argue that deep cuts in corporate taxes will ultimately pay for themselves with an explosion of new business and job creation.

Wikipedia says:

The Laffer curve postulates that no tax revenue will be raised at the extreme tax rates of 0% and 100% and that there must be at least one rate which maximizes government taxation revenue. The Laffer curve is typically represented as a graph which starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. The shape of the curve is uncertain and disputed.1

One implication of the Laffer curve is that increasing tax rates beyond a certain point will be counter-productive for raising further tax revenue…

As the Globe observes:

what the president has called a tax reform plan is looking more like a tax cut plan, showering taxpayers with rate reductions without offsetting the full cost by closing loopholes or raising taxes elsewhere. In the short run, such a plan would add many billions of dollars to the national deficit. Trump contends that it will be worth it in the long run.

“The tax plan will pay for itself with economic growth,” Steven Mnuchin, the Treasury secretary and main architect of the plan, told reporters this week.)

Questions: does any serious economist believe this? And isn’t it interesting that the proposed tax cuts will — coincidentally — benefit the Trump family and its subsidiaries?

Shattering the mask of the benevolent tech company

My Observer review of Jonathan Taplin’s Move Fast and Break Things:

Much has been made in previous histories of Silicon Valley’s counter-cultural origins. Taplin finds other, less agreeable roots, notably in the writings of Ayn Rand, a flake of Cadbury proportions who had an astonishing impact on many otherwise intelligent individuals. These include Alan Greenspan, the Federal Reserve chairman who presided over events leading to the banking collapse of 2008, and [Peter] Thiel, who made an early fortune out of PayPal and was the first investor in Facebook. Rand believed that “achievement of your happiness is the only moral purpose of your life”. She had no time for altruism, government or anything else that might interfere with capitalism red in tooth and claw.

Neither does Thiel. For him, “competition is for losers”. He believes in investing only in companies that have the potential to become monopolies and he thinks monopolies are good for society. “Americans mythologise competition and credit it with saving us from socialist bread lines,” he once wrote. “Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away.”

The three great monopolies of the digital world have followed the Thiel playbook and Taplin does a good job of explaining how each of them works and how, strangely, their vast profits are never “competed away”. He also punctures the public image so assiduously fostered by Google and Facebook – that they are basically cool tech companies run by good chaps (and they are still mainly chaps, btw) who are hellbent on making the world a better place – whereas, in fact, they are increasingly hard to distinguish from the older brutes of the capitalist jungle…

Read on

What happens when free trade’s ‘losers’ realise that Trump can’t help them?

Sombre column by Dani Rodrik on the new conventional wisdom that’s evolved as a response to the populist surge. “Gone are the confident assertions”, he writes, “that globalization benefits everyone: we must, the elites now concede, accept that globalization produces both winners and losers”. He quotes Nouriel Roubini’s assertion that the backlash against globalization “can be contained and managed through policies that compensate workers for its collateral damage and costs. Only by enacting such policies will globalization’s losers begin to think that they may eventually join the ranks of its winners.”

The problem is that even if one accepts that Trump was genuinely concerned by the plight of the victims of globalisation who voted for him (a big ‘if’, given his narcissism), he cannot actually do anything to help because he is himself a prisoner of a Republican Congress that has no intention of doing anything other than buttressing the interests of the wealthy.

Conventional wisdom about finding ways of helping those ‘left behind’ by globalization, writes Rodrik,

presumes that the winners are motivated by enlightened self-interest – that they believe buy-in from the losers is essential to maintain economic openness. Trump’s presidency has revealed an alternative perspective: globalization, at least as currently construed, tilts the balance of political power toward those with the skills and assets to benefit from openness, undermining whatever organized influence the losers might have had in the first place. Inchoate discontent about globalization, Trump has shown, can easily be channeled to serve an altogether different agenda, more in line with elites’ interests.

As far as the US is concerned, the game’s up. What happens, one wonders, when the angry brigade realise that they have been royally screwed?

Sexism and gender bias in Silicon Valley

Even the Economist gets it:

For a set of people who finance disruptive firms, venture capitalists are surprisingly averse to disrupting their own tried-and-tested way of doing things. They sit in small groups, meet entrepreneurs and repeat a single formula for investing whenever possible. John Doerr, who backed companies like Google, summed up his philosophy thus: “Invest in white male nerds who’ve dropped out of Harvard or Stanford.”

Defenders of the valley have two retorts. One is that throwing stones at the most successful business cluster on Earth makes no sense. Market forces ensure that the best ideas win funding, irrespective of gender. The data suggest a different story. Only 7% of the founders of tech startups in America that raised $20m or more are women, according to recent research by Bloomberg. Yet nobody would argue that men make the best founders nine times out of ten. On average, firms founded by women obtain less funding ($77m) than those founded by men ($100m). The VC industry has been successful enough to ward off the pressure to change. That does not make it perfect.

A second defence is that VCs rely on tight-knit relationships, in which trust is essential. Call this the “dinner with Mike Pence” gambit, after the American vice-president’s reported refusal to eat alone with a woman other than his wife. On this argument, any outsider, particularly one lacking a Y chromosome, is liable to upset the club’s precious dynamic. Venture capital is indeed a strange mix of capital and contacts, and peculiarly hard to industrialise as a result. But as a justification for sexism, clubbiness is an argument that is as old as it is thin…

Yep. But when will society wake up to the fact that a technology that is changing everyone’s lives — male and female — is designed and financed by a tiny male only elite?

Donald Rodham Clinton

Nice Politico column by Jack Shafer:

Observers have been waiting for more than a year for Donald Trump to stop acting like a beer hall bouncer and start acting more presidential. On Wednesday, that wish came true, as Baby Donald completed his transformation into a standard chief executive of the United States by espousing many of the hallmark policies one would have associated with President Hillary Clinton.

My Politico Playbook colleagues discerned Trump’s recent policy shift in their Thursday tipsheet. Previously, Trump said NATO was obsolete. Now, he salutes it, Clinton-style, as a “great alliance.” Previously, he lavished kisses on Vladimir Putin and Russia. Now Trump and Secretary of State Rex Tillerson have taken a Clintonesque stand against Russia, admitting to low levels of trust between the two nations. Then: No war in Syria. Now, Trump is bombing Syria with the sort of glee Clinton would have brought to the mission. And on and on it goes, with Trump adopting Clintonian stances on Chinese currency manipulation (doesn’t exist!) and the Export-Import Bank (for it).

Hillary Clinton’s presidency would have been a family affair, with Bill and Chelsea mobbing the White House with their advice; Trump has seated daughter Ivanka and son-in-law Jared Kushner at on his roundtable and acts on their guidance. Hillary Clinton would have recruited pros from Goldman Sachs; Trump has brushed the rafters of his administration a beaming gold with guys from Goldman. Hillary Clinton would have gone to war with the Republican Congress, vowing to campaign against them once they refused to pass her legislation; Trump has come close to realizing that goal, telling the leader of the troublesome House Freedom Caucus, “Mark, I’m coming after you.”

Lots more in that vein. Almost enough to make one relax. Almost.

Lessons of (German) history

From Christopher Browning’s NYRB review of Volker Ullrich’s Hitler: Ascent 1889–1939:

Hitler and National Socialism should not be seen as the normal historical template for authoritarian rule, risky foreign policy, and persecution of minorities, for they constitute an extreme case of totalitarian dictatorship, limitless aggression, and genocide. They should not be lightly invoked or trivialized through facile comparison. Nonetheless, even if there are many significant differences between Hitler and Trump and their respective historical circumstances, what conclusions can the reader of Volker Ullrich’s new biography reach that offer insight into our current situation?

First, there is a high price to pay for consistently underestimating a charismatic political outsider just because one finds by one’s own standards and assumptions (in my case those of a liberal academic) his character flawed, his ideas repulsive, and his appeal incomprehensible. And that is important not only for the period of his improbable rise to power but even more so once he has attained it. Second, putting economically desperate people back to work by any means will purchase a leader considerable forgiveness for whatever other shortcomings emerge and at least passive support for any other goals he pursues. As James Carville advised the 1992 Clinton campaign, “It’s the economy, stupid.” Third, the assumption that conservative, traditionalist allies—however indispensable initially—will hold such upstart leaders in check is dangerously wishful thinking. If conservatives cannot gain power on their own without the partnership and popular support of such upstarts, their subsequent capacity to control these upstarts is dubious at best.

Fourth, the best line of defense of a democracy must be at the first point of attack. Weimar parliamentary government had been supplanted by presidentially appointed chancellors ruling through the emergency decree powers of an antidemocratic president since 1930. In 1933 Hitler simply used this post-democratic stopgap system to install a totalitarian dictatorship with incredible speed and without serious opposition. If we can still effectively protect American democracy from dictatorship, then certainly one lesson from the study of the demise of Weimar and the ascent of Hitler is how important it is to do it early.

Dreaming in Zero Gravity

From Frank Pasquale’s review of Peter Frase’s Four Futures: Life after Capitalism.

The assumption of abundance that drives half of Four Futures reminds me of a critical discussion of dance under conditions of zero gravity. It’s fun to imagine what might happen if choreographers could devise movements unbounded by the risk of hard falls, broken bones, and twisted knees. But whatever art of human movement was devised in space would quickly diverge in its standards of excellence from the standards governing dance here on earth. Weightless artistic movement relates to present dance as Frase’s political economy of abundance relates to ordinary political economy. Given that the primary economic problem is scarcity, it may not be a form of political economy at all, but rather, pure politics.

How our German friends see Brexit

Nice summary from today’s ei newsletter:

In The Times Edward Lucas says the Brexit vote hit anglophile Germans especially hard. We seem to regard leaving the European Union as something like getting out of an unsatisfactory flat-share: too many arguments about the bills and washing up, not enough control over house guests. Move out, move on; sad in a sense, and our new living arrangements may not be quite as convenient, but that’s life. Germans see it differently. For them, the past 44 years were not a flat-share, but a shared life.

That squares with what I hear from my German friends and colleagues.

From Great Britain to Little England

Interesting insights from Michael O’Sullivan and David Skilling into what lies ahead for the UK:

Britain chose to leave the EU because it had an outsized opinion of itself. But it will soon have to follow a small-country model, like that of Switzerland or Norway. Forty years after leaving New Zealand in the lurch to join the European Economic Community, the UK might soon have less access to the European market than New Zealand does. Its journey from Great Britain to Little England may well be complete.

The general thrust of the article is that if the UK is to recover from Brexit, then it will have to become a very different country. It’s not like Switzerland or Norway or Singapore. And to date no G20 economy has had to make such a dramatic pivot.