Monday, February 22, 2016

Putin Hammers Another Nail In The Coffin Of The Russian Economy

As the Russian economy sinks ever lower, the Kremlin will become even more desperate. The house arrests of those with money will accelerate into a vicious circle, for by robbing those with money, there will be less money to go around, and the economy will sink even further. I guess Putin does not know the tale of the goose that laid the golden eggs. As the Russian economist, Sergey Aleksashenko writes in his February 22 Nota Bene column: If Russian authorities wanted to decisively destroy hope for a turn-around of the economy to a trajectory of growth that would be to publicly demonstrate that property in Russia is not protected by anything.

go to

Friday, February 19, 2016

Putin Favors Trump or Sanders for President. Here’s Why That Matters to You

Trump and Sanders supporters must understand that their backing of a pie-in-the-sky socialist/pacifist or an entertainer/businessman puts them in the same camp as Russia’s corrupt leader. Vladimir Putin is hoping American voters give him the opportunity to play chess against checkers amateurs as he pulls Europe apart, strengthens unsavory regimes in Iran and Syria, and seeks to restore lost Soviet territory by force.

go to

Monday, February 15, 2016

In Defense of Wall Street

Pity Wall Street. The democratic party’s presidential candidates have painted a bullseye on its back. Bernie Sanders wants, in effect, to nationalize Wall Street. Hillary Clinton joins in the anti-Wall Street feeding frenzy lest her and her husband’s ties to Goldman Sachs and other institutions become a bigger issue.

Wall Street bankers are widely portrayed as evil parasites, feeding their greed through speculation that serves no good other than to line unsavory pockets, and buying off politicians with campaign contributions and lucrative speaking fees. ``One percent’’ Wall Streeters are said to be getting mega-rich while everyone else suffers.

Republican candidates fear to come to Wall Street’s defense.  Any positive words about Wall Street will end up as a negative sound bite come election time. During the occupy Wall Street riots, I do not recall one political voice speaking up for Wall Street against the tirades of hooligan protesters.

go to Investors Business

Note: IBD got my affiliation wrong: Cullen Professor of Economics, University of Houston and Research Fellow, Hoover Institution, Stanford.

Sunday, February 14, 2016

Trump’s Tariffs Would Make the U.S. a Renegade in the World Community

In the Saturday night debate, Republican candidate Donald Trump again threatened a 35 percent tariff on goods produced in Mexico by an American company that has relocated to Mexico. No opposing candidate pointed out that such a retaliatory tariff would violate the rules of the World Trade Organization (WTO) of which the United States is a member in good standing. (It would also be in violation of the NAFTA agreement).

WTO is the international organization that sets the rules of the game in international trade that its members have agreed to follow. It has worked to reduce trade barriers among countries and has contributed to the rise of international trade across the globe.

For years, the United States opposed admitting Russia into the WTO because of its indifference to the rule of law. The United States earlier lobbied for China’s admission on the grounds that membership would make it a stable party of the world economic community.

If a President Trump carried through on his threats to impose confiscatory tariffs (the average WTO tariff rate is below five percent), the United States would be in clear violation of WTO rules and would be subject to penalties. If a Trump administration ignored the WTO penalties, it would become a renegade member, no better than Putin’s Russia.

Retaliatory tariffs carry with them a strong populist message, but they are anathema to free trade and globalization. It is a shame they hold such appeal. Economists, who rarely agree on anything, are united in their support for free trade and globalization. Although populists claim the contrary, trade expansion is a clear net win-win – the gains of the winners exceeds the losses of the losers. The problem is that those who lose are more vocal and visible than those who gain. We require a chief executive with a broad perspective, something that candidate Trump lacks.

Saturday, February 13, 2016

Antonin Scalia, RIP

The American people have lost Antonin Scalia, the Supreme Court justice with a rock solid understanding of the constitutional framers original intent of limited government. Scalia stood in the way of those justices who subscribe to a “living constitution” that should change with the times. As such, Scalia was a stalwart defender of liberty.

Scalia apparently passed away suddenly and unexpectedly at a ranch in Texas. Conspiracy theories are bound to arise; so I trust that a thorough autopsy to determine the causes of death will be conducted. Many are prone to believe that events that change the political landscape do not happen by chance. They must be satisfied to avoid endless controversy conducted on the fringes.

It is too early to know what comes next. Will President Obama have time to push through a nominee of his choice? At a minimum, Scalia’s passing brings home the importance of the 2016 election and the new president’s choice for filling Supreme Court vacancies.

Scalia’s passing could also focus attention on the replacement choices that different Republican candidates might make. Republican primary voters may consider a candidate’s core beliefs rather than showmanship. In this regard, Ted Cruz might have a stronger case than his primary opponents, in particular Donald Trump. It could also direct attention to Michael Bloomberg, whom voters might think will choose a “moderate” Justice and this avoid a national fight to the finish.

Friday, February 12, 2016

What If Vladimir Putin Has Hillary Clinton's Emails?

Those who follow Kremlin propaganda understand that it is not necessary for Putin to have Clinton’s e-mails to cause serious damage to a Clinton presidency. All he needs is that many believe he has Hillary’s e-mails.

go to

Monday, February 8, 2016

Low Energy Prices and Recession? Analysts Ignore the Supply-Side Elephant in the Corner

Gloom and doom is wreaking havoc in financial and commodity markets as oil prices probe new lows. Headlines proclaim that domestic energy producers face bankruptcy, layoffs, and can’t pay back toxic loans. Meanwhile, energy-producing countries must contend with deteriorating public finances and recession. The old reliable China is no longer around to take up the slack in energy and commodity markets. It turns out, so the business-page pundits say, that low energy prices are a curse that could push the U.S. and the rest of the world into recession. An article on the Wall Street Journal op ed pages, no less, warns that “we face the first one (recession) ever caused falling oil prices.” Student of Economics 101 learn the opposite: low energy prices, resulting from exogenous forces, stimulate the economy.  Can it be that widespread belief in bad economics can send the world economy into a nose dive?

Our media business gurus have fallen for the “that which is seen and that which is unseen” illusion of which the French economist Frederic Bastiat warned in 1850. Bastiat applied this principle to international trade, where those who lose from trade are more visible and vocal than those who gain. Business journalists write about the “visible” loss of jobs in the oil patch. They do not write about the “invisible” gains of chemicals, heavy manufacturing, transportation, and even many services from lower energy costs. At best, they use Keynesian blinkers to focus on the extra pocket money of consumers from lower pump prices, but worry that spooked households are saving their windfall, not spending (despite no evidence of an increase in the saving rate). Yes. Keynes still dominates the financial press.

There is no doubt that the Petro States are being deeply harmed by the collapse of oil prices. Russia relies on oil for more than half of its state revenue and is completing two years of recession with more likely to come. Saudi Arabia and Kazakhstan join Russia in drawing down oil funds accumulated during good times. Petro States with access to capital markets may have to sell shares of their national oil companies to survive. There is even discussion of public offerings of Aramco and Rosneft. The Venezuela of the Chavistas can no longer afford payoffs to core voters or ship subsidized oil to Cuba. Iran is returning to world oil markets just in time for historically low prices.

The Petro States account for only around ten percent of world GDP. The oil and gas sector accounts for a half of one percent of employment in the United States. Their losses are the “what is seen.” Those who gain from lower energy prices account for the bulk of world output and employment.

Returning to basic economics: There seems to be agreement that the massive negative oil price, shock is the result of the fracking revolution; e.g., the consequence of technological change. Standard macroeconomic principles texts teach that exogenously-induced lower energy prices reduce the cost of doing business throughout the economy, thereby increasing aggregate supply. More aggregate supply means higher real GDP and a lower price level. We certainly learned the negative effects of positive energy price shocks in the mid-1970s and early 1980s. Should we not expect now to sit back and enjoy the reverse? That’s not the case. For some strange reason, economic journalists and pundits have concluded that low energy prices are harmful.
Pundits complain that politicians are interested in the short run and that CEOs worry only about quarterly earnings. Economic pundits are equally handicapped by short-run thinking. The aggregate supply curve may not shift to the right immediately, but it will.

Economists work on the principle of abstraction: Economic theory aims to isolate the most important factors causing economic phenomena, brushing aside the less significant ones with the ceteris paribus assumption. Abstraction tells us that the gains from lower energy prices are widespread throughout the U.S. and world economy, whereas the losses are limited geographically and sector-wise. Financial writers should begin their analysis with the economic basics and not get distracted by other details. In this case, by ignoring the supply side, they are missing the elephant sitting in the corner.

Wednesday, February 3, 2016

The New York Times Exposes Death Panels

Sarah Palin was widely ridiculed for her use of “death panels” to describe the inevitable rationing of medical care under Obama Care. As Palin famously declared in August 2009:

“The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama's 'death panel' so his bureaucrats can decide, based on a subjective judgment of their 'level of productivity in society,' whether they are worthy of health care. Such a system is downright evil."

An outraged Politifact (a Pulitzer Prize winner, no less) pushed back.

“There is no panel in any version of the health care bills in Congress that judges a person's "level of productivity in society" to determine whether they are ‘worthy’ of health care.”
Politifact seems not to have understood that there was no need to formalize death panels under Obama Care. They will automatically come into play when bureaucratic intervention, price controls, and complicated administrative rules create shortages of surgeons, hospital rooms, imaging equipment, and medication.  With shortages that bureaucracies prevent from being eliminated by market forces, we will automatically have “death panels” or even worse procedures for allocating scarce medical resources.

Indeed, a New York Times’s exhaustive investigation reports that shortages of all sorts of drugs — anesthetics, painkillers, antibiotics, cancer treatments — have become the “new normal” in American medicine. The American Society of Health-System Pharmacists currently lists “inadequate supplies” of more than 150 drugs and therapeutics.” Per the NYT, with such shortages: “choices are …. made in ad hoc ways… resulting in contradictory conclusions, murky ethical reasoning and medically questionable practices.”

The Times delves into the various types of administrative panels that decide which patients receive life-saving medications and which do not. The Children’s Oncology Group’s guidelines (the largest international group of children’s cancer researchers) ration drugs based on added years of life, curability of a child’s cancer, improving survival chances, and participation in clinical research.  The group also advises that allocation rules be made public. The child oncologists are not happy with their foray into rationing: “We’ve been forced into what we think is a highly unethical corner.”

With widespread drug shortages, rationing rules are being applied generally in hospitals and medical centers to decide who gets drugs. The rationing panels are comprised of  physicians, ethicists, hospital administrators, insurance companies, or drug manufacturers and usually use indicators of productivity, worthiness, and even weight (obese patients require more of the drug). In many hospitals, patients are not told that their drug regimen has been changed due to shortages.

The Times seems uninterested in the causes of drug shortages. After all, if the medication is not a “shortage drug” no panel is required to determine its allocation among patients. In its 2,500 word investigative article, the Times authors devote one sentence to the reasons for the shortages, which (they say) range “from manufacturing problems to federal safety crackdowns, to drug makers abandoning low-profit products.”

There is no discussion of measures to create balances of supply and demand – perhaps by making it worthwhile for the manufacturer to produce at a profit. Instead, the focus is on administrative measures to decide who will get the medication. Why does the Times not investigate why, for example, aminocaproic acid, cheap, widely and safely used for decades in open-heart surgery, has become a shortage drug?  Has the increased involvement of the government played a role? It seems that this is a legitimate question, only one the Times ducks.

Of the three reasons given for shortages, we cannot determine the extent to which Obama Care’s bureaucratic intervention in medicine has caused “production problems,” or “safety crackdowns.” Of course, companies will abandon products due to low (or nonexistent) profit margins. But this was the original objection to Obama Care: It would dictate low drug prices, which would not be permitted to rise even with shortages. It seems that laws of economics are supposed to be suspended under Obama Care.

We do not have shortages of cars, electricity, home electronics, airline seats, and so on. Admittedly, medicine is complicated, but it is foolhardy to think that basic economic laws do not apply.

Monday, February 1, 2016

Trump Foolishly Doubles Down On Putin: “Many Say Putin Didn’t Do It”

Donald Trump doubled down on Vladimir Putin in an interview with Fox Business News as he reacted to a British court public inquiry into the 2014 poisoning death of Russian defector and British citizen, Alexander Litvinenko. The British inquiry found that two Russian agents (Lugovoi and Kovtun) were guilty of murder beyond a reasonable doubt, that they were, beyond a reasonable doubt, acting on the behalf of others. The court’s conclusion with respect to state murder was that there was a “strong probability [the murderers] did so under the direction of the FSB [Federal Security Service]” and that “the FSB operation to kill Mr. Litvinenko was probably approved by Mr. Patrushev [head of the FSB] and also by President Putin.”  According to the judge’s announced guidelines, the state murder of Litvinenko as approved by Patrushev and Putin was proved according to the civil standard of preponderance of probabilities.

Trump told Fox Business News in defense of Putin that: "They say a lot of things about me that are untrue too… First of all, he [Putin] says he didn't do it. Many people say it wasn't him. So who knows who did it? Have they found him guilty? I don't think they've found him guilty. If he did it, fine but I don't know that he did it… But in all fairness to Putin - and I'm not saying this because he says 'Trump is brilliant and leading everybody' - the fact is that he hasn't been convicted of anything.”

Trump is correct in stating that Putin has not been found guilty beyond a reasonable doubt, but he might have added that Putin’s guilt is impossible to prove given his control of Russia’s legal system. Trump might also have noted the evidence in support of state murder: that the two Russian suspects were acting on behalf of others, with a “strong probability” on behalf of Russia’s FSB, that scientific evidence points to manufacture of the polonium 210 at the Avangard/Mayak Russian nuclear facility, that Lugovoi has been granted immunity (and awards) as a new deputy in  the Duma as a member of Putin’s party, and that Russia  rejected British requests to extradite the two suspects or make them available for remote testimony.

Trump praised Putin for being “a leader.” If the Litvinenko murder was state-sponsored, as the British court concludes, but not approved by Putin, would this be, in Trump’s world, the mark of a strong leader? If the murder of a foreign citizen on foreign soil was committed without his approval, would an innocent leader grant them immunity, tolerate the hiding of evidence, and protect the murderers from extradition?

Trump’s second defense of Putin borders on the ridiculous. Of course, Putin says he did not do it and indeed “many people say it was not him.” But who are these “many people?” Does Trump not know that Putin controls the world’s most effective propaganda machine of professional “information technologists,” a troll army, and paid ‘Putin Versteher” (“Understanders”) in the West? The same sources who say “Putin did not do it” are currently declaring that the U.S. is intent on dismembering Russia, that there are no Russian troops in Ukraine, and that a mysterious Ukraine fighter plane shot down MH17 to blame the innocent Russians.

As a potential future U.S. president, Trump is right to resist a rush to judgement. After all, it would be difficult to deal with a leader he had accused of murder. But Trump should be advised to refrain from ill-informed statements like “many say he didn’t do it.” I hope that Trump understands that Putin’s guilt or innocence can never be the subject of a legitimate legal proceeding, unless there are dramatic changes in Russia.