Tariffs and Trade

Two Articles on tariffs and trade, with consideration of Trump’s recent move: 


Why Trump Is So Clumsy About Fighting ‘Free Trade’, 
by Marshall Auerback  

Here's a summary of the points:

• Our trade deficit means that we are buying more from other countries than they are from us.
• Thus, money is leaving the country instead of circulating here.
• The Chinese and other countries enable this by accumulating (hoarding) US dollars (including Treasury bonds) as foreign exchange reserves.  This is a form of mercantilism.
• Foreign central banks use local currencies (e.g. yuan, yen) to purchase U.S. dollars which are then invested in Treasury bonds. 
• By reducing US dollars from circulation and increasing the amounts of other currencies in circulation, the value of the U.S. dollar is propped up, and the value of other currencies such as yuan and yen is kept down.
• U.S. consumers are strapped for cash because money is leaving the country.  (This is only partially offset by our government’s fiscal deficit, which puts additional money into the economy.)
• U.S. consumers are encouraged to accumulate private debt to keep consuming at high levels.
• Uncle Sam and foreign investors financed the housing market, resulting in an historic housing bubble. That housing bubble resulted in a false signal of a wealth gains that were then invested in the stock market leading to a stock market bubble, both of which financed over-consumption, and the buildup of yet more trade imbalances, until the entire system came crashing down in 2008, destroyed the savings of millions of Americans (including among others, Steve Bannon’s father)
• re-emergence of the trends that led to the 2008 crisis: a capitalism characterized by securitization, globalization, the proliferation of complex financial derivatives, deregulation and a corresponding reduction in supervision and legal oversight
• vendor financing (China investing money in U.S. to keep U.S. consumer spending)
• even the modest regulations introduced via Dodd-Frank are steadily being gutted a mere 10 years later

In sum, trade deficits cause leakages of money (and consumer demand) which in turn require private debt to sustain consumption levels.  Eventually, the private debt becomes unsustainable.  One way to deal with this is to discourage imports via measures such as tariffs.  Another way (preferable to the author and to me) is to regulate the financial industry so that consumers are not encouraged to spend beyond their means (by accumulating debt).  This tightening can be offset by government spending where no private debt is incurred.  The public “debt” will lower the value of the dollar, offsetting the mercantilism of our trading partners. 

Of course, they are many possible alternatives for dealing with the problems caused by the trade deficit.  But the status quo perspective, that currently existing trade deficits are not a problem, is wrong according to this perspective.

Trump’s Travesty of Protectionism,

by Michael Hudson

Summary:  Protectionism has historically been used to build developed (industrial) economies.  However, once a country such as the U.K. or U.S. becomes industrialized, then it generally tries to import basic goods such as steel and aluminum as cheaply as possible, while promoting high value added industries.  Trump's tariffs do just the opposite and will accordingly have an overall negative effect on the U.S. economy.

Trump himself has a history of breaking deals, and now the U.S. he leads is getting that reputation.  Ultimately at issue is how much policy asymmetry the rest of the world is willing to tolerate. Can the United States still push other countries around as it has done for so many years? How far can America push its one-sided agreements before other countries break away?

Money, Cryptocurrencies, and the Law

Overview

Money is a form of debt.  If you have lots of money, the issuer of that money is indebted to you in some fashion.  Typically that means that your money can be used to: 

1. Fulfill your tax obligation
2. Pay back your debt to government chartered bank, or 
3. Traded to others in exchange for goods or services  

Use 3 above is backstopped by uses 1 and 2.  This is discussed in detail below.  The key point is that our civilization tracks credits and debts, and that money is a primary way of keeping track of where you stand.  Crucially, use of money is enforced by laws.  

Cryptocurrencies were invented as a way of circumventing laws.  The underlying blockchain technology promises to change the very way economies are organized: to eliminate centralized third parties such as governments, central banks, commercial banks, and other busybodies.  Of course, crypto currenices have their own rules (laws), which are mostly embedded in the software and thus resistant to corruption.

To cut to the chase, money is a social construct for keeping track of who owes whom and how much.  Without laws to enforce these uses of money, it is worthless. This is the case for cryptocurrencies, where the "laws" embedded in the software are insufficient to deal with the types of issues that arise wth money, contracts, and transactions.  Details follow.

Money and Debt

Here are some of my favorite explanations of money and its history:

• Randy Wray: American Colonial Currency (Debt Free Money, Part 4)  Excerpt (in colorful prose):

To be sure, debt is much older than money. No human has ever escaped debt. At birth, you are indebted to your parents, your kin, and your gods. You spend your lifetime incurring new debts and repaying old debts and accumulating credits that are the debts of others. If you earn enough credits, you join the Redeemer and make it to the Promised Land after death; if you don’t you join Satan—the original tax collector–in hell.

Our modern rituals and accounting and terminology evolved from these ancient origins. Debts began to be monetized and recorded at least six millennia ago. The monetization probably grew out of the Tribal practice called Wergild–the assessment and collection of fines paid for transgressions—with the rise of class society and the emergence of authorities. Writing was apparently invented to keep track of debts; in other words, it was an accounting invention.

Over time, the technology used for accounting changed—from scratches on rocks and bones, to chalk tallies on slate, to tokens pushed into clay balls, to clay shubati tablets, to notched tally sticks, to stamped and milled coins, to paper notes, and finally to entries on computer tapes. Part—but not all–of the impetus for technological evolution was to keep up with the counterfeiters.

What we call “money” (coins, tally sticks, paper notes, electronic entries on bank balance sheets) is simply the record of debt, “accounted for” in the money of account. The line between what we want to count as “money” debts or merely as “money denominated” debts is and always has been arbitrary. Most will include a checkable bank deposit in their definition of “money”; most will not include a non-checkable certificate of deposit in that definition…

Let us back up a bit. Our word “to pay” comes from “pacify”, reflecting payment of Wergild fines owed to victims in order to avoid blood feuds…

• Reviews of David Graeber's book: Debt - Updated and Expanded: The First 5,000 Years (addresses issue of “not fitting in” as a minority that we discussed at lunch)

Graeber's work a classic in economic anthropology.

Following quotes from comments By Hans G. Despain on January 4, 2012:

What does one find in Graeber's book? The primary thesis can be identified as `the duality of debt' (my term not Graeber's). On the one hand debt has a type of ontological expression, i.e. debt is what binds us as a species, e.g. we are indebted to our parents, family, culture, society for our well-being and personal development, and more theologically an indebtedness to the Cosmos/God. This side of debt is found in its expression (i.e. language) and development. On the other hand debt has an historical existential tendency to be employed to enslave or create circumstances of debt peonage...

If the primary thesis can be expressed as "the duality of debt" there are several other major theses of considerable interest. I identify six major theses...  I attempt to divide the book into six major theses, in so doing it can be seen that the first five theses are historical and scientific, only the last is political. In other words, the politics and science can be logically separated....

(1) Debt predates money 
(2) Government construct national markets
(3) Primordial debt theory -- Money is invented to quantify certain types of debt.
(4) Military-coinage-slavery complex -- Historically the emergence of coinage (i.e. money) is linked with military efforts
(5) Historical attitudes toward debt/World cycles -- attitudes toward debt not only change over time (he identifies four the Axial Age 800 BC - 600 AD, Middle Ages 600 - 1450, Capitalistic Age 1450 - 1971, Something Yet to Be Determined Age 1971 - future), but attitudes are also cyclical and global (Europe, China, India, Africa, etc.).
(6) History removes the veil of debt as road to servitude and peonage

The problem is that anthropologists assume, via economic postulates of universal human nature, competitive market activity whenever there seems to be exchange and interaction. The great economist Karl Polanyi demonstrated this is a major mistake in anthropology. For example, if a future anthropologist were to assume monetary exchange relations in contemporary American households, there would be great misunderstanding of family relationships of 2012, between spouse and spouse and between parent and child. Contemporary family relationships have little to do with monetary exchange relations. 

(1) The historical emergence of money is to mark a social debt relationship (e.g. somebody owes someone else something)
(2) This was an historical process that almost always included some public institution (e.g. the State) to keep track of, and enforce, the social debt relationship.
(3) This means money was not invited for market exchange (what economist call a "medium of exchange") but rather money functioned merely as a "unit of account". 
(4) Public officials would quickly understand these social debt tokens (as units of account) functioned as a means of power (what economists call "a store of value"), i.e. the social debt tokens meant that someone could get someone else to do something.
(5) The historical presence of currency in this "Chartalist" view does not mean "market-exchange", but the presence of specific State Power. First, the power to levy taxes on its subjects, and second the power to demand payment in a specific form (e.g. state coin).

 I am interested in any reviews or evaluation you may have on books of the greenbackers, S. Zarlenga, The Lost Science of Money, and E. Brown, The Web of Debt....

I fully endorse both books. We need to begin to understand that the "Big Squeeze" on American households is not merely from the government, indeed Federal and State taxes have gone down in the last four decades, but the interest paid to the banks (which has gone up significantly in the last four decades). Second the symbiotic relationship between banks and government. Third how protecting big banks is a serious "national security" issue. These three issues suggest rather strongly, in concert with the politics of Greenbackers, Zarlenga, and Brown, --- Banks and money are a public good. 

This is primarily because of the power of the institution of money (Randall Wray's work on Modern Money Theory being the most important underscoring a better science ofmoney).

Where I might take issue with Zarlenga and Brown is that the history of money has been in the hands of the state, and the results not always any better, debt-peonage, slavery, etc (Graeber's, Wray's and Polanyi's history of money support this statement). This means that not only must the intitution of money be understood as a public good, but the relationship between citizens and government needs to be changed in rather radical ways. 

This means it is not merely a monetary issue, but understanding the relationship between Individual Citizens - Production (especially Big Business) - Big Finance - Government

The review by Aaron Brown, below Despain's, is also brilliant. It points out that money/debt also have advantages, which may in fact outweigh the disadvantages in the big picture. Also, this:

Finally, one of the author's key points is that debt can have the effect of ripping a person out of social context to be treated as a source of repayment rather than a friend, neighbor, son and so on. This is a brilliant point, well-argued and important. But it has an obverse side the author misrepresents. Some people run away from traditional societies and small towns for the anonymity of a city. They shed what they consider the burdens of social ties to create and join less personal organizations. Debt in its quantified and impersonal form was undoubtedly created by these types of people.

The author treats social refugees as either evil or deluded. If unsuccessful, they are caught in a debt trap that destroyed everything of meaning in their lives. If successful, they are addicted to the pursuit of money, which cannot buy them happiness. In fact, many people have at least some tendencies in these directions at some points in their lives. Some are mainly escaping intolerable or suffocating situations. Others are looking for excitement and adventure. Or they may want to pursue ideas that require wider contacts (and therefore relatively impersonal and rational human relations) than their traditional social ties can provide. Not everyone who flees the family farm is after world domination or mindless stockpiling of gold. You'd think someone who didn't understand this would spend his time arguing with his friends and teaching his children, not writing a book.

Cryptocurrencies and Blockchain

Here are a couple of articles that I’ve seen lately that make the case against cryptocurrencies and blockchain being useful in the near future:

• The blockchain paradox: Why distributed ledger technologies may do little to transform the economy.  Excerpt:“The reason that blockchain is making waves is that it promises to change the very way economies are organized: to eliminate centralized third parties…  once you address the problem of governance, you no longer need blockchain; you can just as well use conventional technology that assumes a trusted central party to enforce the rules, because you’re already trusting somebody (or some organization/process) to make the rules…  I’m very happy to be challenged on this, if you can point out a place in my reasoning where I’ve made an error. Understanding grows via debate.”
• Ten years in, nobody has come up with a use for blockchain  Excerpt:“Each purported use case — from payments to legal documents, from escrow to voting systems—amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, ten years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?”
  
  
• Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin  Excerpt:

The monetary systems of nations operate on two types of balance sheet expansion:

1.    National, where the government spends into the economy expanding a national balance sheet

2.    (The sum of) banks’ balance sheet expansions, where bank loans create deposits

The liability side of both of the above are traded around as “money”…

Bitcoin is not the result of a balance sheet expansion. There is no inherent obligation for repayment of bitcoin to any government (taxes) or to extinguish private debt (banking system). There is no in-built demand for bitcoin (or any cryptocurrency).

• Crypto Crackdown: Bitcoin is a “Combination of Bubble, Ponzi Scheme, Environmental Disaster”  Excerpt:“We are seeing the type of cracks and cheating that brought down other private currencies starting to appear in the House of Bitcoin.”

Debasement.

“In Bitcoin, these take the form of forks, a type of spin-off in which developers clone Bitcoin’s software, release it with a new name and a new coin, after possibly adding a few new features or tinkering with the algorithms’ parameters. Often, the objective is to capitalize on the public’s familiarity with Bitcoin to make some serious money, at least virtually.”

“Last year alone, 19 Bitcoin forks came out, including Bitcoin Cash, Bitcoin Gold and Bitcoin Diamond. Forks can fork again, and many more could happen. After all, it just takes a bunch of smart programmers and a catchy name.”

These multiplying cryptos “dilute the value of existing ones, to the extent such cryptocurrencies have any economic value at all,” he said. There are now over 1,500 cryptocurrencies, up from just a handful several years ago.

“Even if the supply of one type of cryptocurrency is limited, the mushrooming of so many of them means that the total supply of all forms of cryptocurrency is unlimited. Given the experience with currency debasement that has peppered history, the proliferation of such private monies should give everyone pause for thought.” …

“In practice, central bank experiments show that [distributed leger technology] based systems are very expensive to run and slower and much less efficient to operate than conventional payment and settlement systems. The electricity used in the process of mining bitcoins is staggering…”

The Complete and Utter Hypocrisy of Kevin Drum

Reading this: Crime Didn’t Drop In New York City Because of CompStat, reminded me of Kevin Drum's complete and utter hypocrisy.

He makes the good point that the follow graph shows that crime began dropping well before NYC implemented a new computerized crime-tracking system.

However, he has many times claimed that James Comey's letter handed the 2016 election to Trump over Clinton, never acknowledging that Clinton began dropping in the polls well before the letter was released:

You can look at the original here: NY Times: A 2016 Review: There’s Reason to Be Skeptical of a Comey Effect.  I've posted this countless times on his site, but Drum hasn't acknowledged.  He's continued to repeat periodically that Trump won because of Comey.  (He's also blamed the Russians and Bernie Sanders, never acknowledged that he and other recipients of vast quantities of  Clinton campaign cash may bear some responsibility.)

Our Newspaper of Record

This is a continuation of a subject we've been discussing for awhile.  Ongoing dialog over the course of years is a cool thing that you can do with friends.

Back in May, after the Times hired Bret Stephens, I sent you guys a link to this article:  SIX WAYS THE NEW YORK TIMES COULD GENUINELY MAKE ITS OP-ED PAGE MORE REPRESENTATIVE OF AMERICA.  As the author Zaid Jilani said:

Public Editor Liz Spayd responded to readers’ complaints about Stephens by writing that the Times is looking “to include a wider range of views, not just on the Opinion pages but in its news columns.”
But hiring another prominent writer whose ideology hems close to that of the nation’s elites — in this case, fossil fuel corporations who are polluting the world and advocates of Western military might — is hardly adding intellectual diversity to the pages of the Times.

Since then, I have read more complaints about the NY Times Opinion pages, and shared this recent article on the subject;   Leak: How NYT Editor James Bennet Justifies The Op-Ed Page To His Own Paper.  This article makes the point that not only do the Opinion writers lack diversity, but they are sometimes hacks who distort the facts.  Here is an example of this:

On Feb. 12, two days before the massacre in Parkland, Florida, Bennet’s section ran a piece titled “Background Checks Are Not the Answer to Gun Violence.” The author was John Lott, a man famous for distorting data to push the pro-gun agenda from which he makes his money. This would certainly seem like an astounding oversight from the paper of record.  On Feb. 17, however, a Times editorial included this paragraph: “In a speech last month, [Attorney General Jeff] Sessions said undocumented immigrants are far more likely than American citizens to commit crimes, a claim he found in a paper by John Lott, the disreputable economist best known for misusing statistics to suit his own ideological ends. In this case, it appears Mr. Lott misread his own data, which came from Arizona and in fact showed the opposite of what he claimed...

So the Times published an op-ed by a "disreputable economist best know for misusing statistics" (their words), although they don't acknowledge their mistake in publishing his op-ed.  I'm confident that I can find many more examples.  Remember, this whole conversation started in April 2017 when they hired Bret Stephens who questioned climate science in his first column, then was forced to correct the only line containing any reference to actual science three days later.

Now, in response to comment set #1:

• "I’ve read the Bennet slam piece in HuffPost"The HuffPost article is just one of many reporting on the dissatisfaction.  Here is one from VanityFair:  “THE NEWSROOM FEELS EMBARRASSED”: BACKFIRES AND EXPLOSIONS AT THE NEW YORK TIMES AS A POSSIBLE FUTURE CHIEF RE-INVENTS THE PAPER’S OPINION PAGES
  
• "Bennet has a thankless job.  Those of us who appreciate the page’s liberal bent like the result, in general.  But the white man predominance will cause much flack, for perhaps good reasons."
  The issue is lack of diversity in range of views, not in identity of writers.  As Glenn Greenwald says:
  

  If your goal were to wage war on media diversity in all of its forms, and to offer the narrowest range of views possible, it would be hard to top the roster of columnists the paper has assembled . . . literally every one of them fits squarely within the narrow, establishment, center-right to center-left range of opinion that prevails in elite opinion-making circles 

   
• " 'Erosion of trust in what the NYT does'?  Oh please.  The news slant of the NYT and the slant of the op-ed page are basically together.  If you don’t like the slant, read or write for a rag of your persuasion.  Not enough people of color, women, women of color, etc.?  Of course. Not enough conservatives?  Of course.  The damn page has only so much space."
• My friends and relatives read the the NYT.  So even though it is not my choice to read regularly, it is important to people I care about, and therefore matters to me.
• The NYT is a newspaper of record, i.e. a major newspaper that has a large circulation and whose editorial and news-gathering functions are considered professional and typically authoritative.  Perhaps when a newspaper of record goes off the rails, societal problems follow?  The NY Times famously bungled the major issue of the 21st century, the 2003 war in Iraq, for example.
  
• "If more diversity were wanted, I would suggest Bennet might consider adding Stephen Henderson, late of the Detroit Free Press (probably turfed out from the Freep more because he was too expensive than because he harassed a would-be girlfriend after his divorce) or Leonard Pitts of the Miami Herald.  Both African Americans but both, oops, of the same political/liberal persuasion as most of the guys on the current NYT op-ed page."I like both Henderson and Pitts, though I'm not sure if they would address the diversity of opinion issue.
  
• "I happen to like Krugman, Brooks (usually), Friedman, Douthat, Bruni (gay guy), Kristof, Dowd, Blow, etc."I don't read any of these people except when someone has a problem with one of their articles.  So please feel free to share any of their articles which you think are good.  The writer I'm most familiar with is Krugman, and I've written about some of his mistakes as an economist:  Is Paul Krugman Ever Wrong?. 
  
• " If the newsroom of the NYT feels embarrassed by the op-ed page, they might want to know that some of us who read the NYT read the op-ed page even before we read their stuff.  Their stuff is not 'fake news', and is well researched and well written, but in this polarized world, I want to see first what the whiners of my persuasion have to say about the messes in the world."
  I also read the "whiners of my persuasion" first, in general.  I just happen to have a different set of opinion writers that I follow.  My number one opinion writer at the present timehappens to be on an anti-NY Times kick.  According to his perspective, the NY Times is partially responsible for this moment of Trump.  One thing he points out is that the Times (along with the Washington Post) uses unnamed sources who are often government insiders.  They are sometimes fed false information, such as the infamous Judith Miller affair leading up to the war in Iraq.  Miller invoked reporter's privilege and refused to reveal her sources in the Central Intelligence Agency leak and spent 85 days in jail protecting her source, Scooter Libby. 
       Anyway, reasonable people can differ on who they trust to filter the news.  I used to rely more on NY Times columnists, but have migrated to others in recent years. 
  
• "Grumpy Bill M. who is proud of what he’s saying"Everyone's entitled to his or her own opinion!  

In response to comment set #2:

one of the purposes of paper like the New York Times or the Washington Post is to take on major investigative efforts to root out and expose serious societal problems.  And, to express well-reasoned editorial opinions.  This is less likely to occur within the realm of blogs where personal opinions tend to drive the written word. I see the purpose of the New York Times as providing an enlightened viewpoint in the editorial pages, and a well-researched news analysis in the news sections. They won't be right all the time in the editorial portions of the paper, but they are worth supporting for the high frequency of getting it right.   These are both critically important functions to the ongoing process of a functional democracy (and we have reason to be concerned about the "functionality" of our democracy with a President such as Trump who seeks to undermine what our Constitutional democracy is about without really understanding what it is -- or should be -- in the first place).

That is very well said, in my opinion and fits in well with my comments above on the NY Times being a newspaper of record .  My perspective is a little bit different in that I see the Times and Post as being complicit in an ongoing basis with regard to our societal dysfunction.  They are pushing very hard to make the case that Trump is an aberration, whereas I feel that the Republican party has been off the rails for most of my lifetime.  

David Brooks provides a very clear example of this as a serious Republican who supported the war in Iraq and Sarah Palin, while repeatedly bashing Obama for not compromising enough with the Republicans in Congress.  See Obama in Winter:

White House officials are often misinformed on what Republicans are privately discussing, so they don’t understand that many in the Republican Party are trying to find a way to get immigration reform out of the way.

He also dismisses Sanders supporters such as myself as extremists comparable to neo-Nazis.    

The most important caucus formation will be in the ideological center. There’s a lot of room between the alt-right and the alt-left, between Trumpian authoritarianism and Sanders socialism.

Paul Krugman is the most liberal of the times columnists, and he likewise considered Sanders' policy positions, which basically represent the status quo in all other developed countries (e.g. universal health care) as too extreme.

Well meaning people want to believe in the country and the newspapers of record as anchors in an increasingly frightening world.  But anyone can see that the United States is far behind other developed countries in many measures of societal health -- poverty and income inequality, health care, education, the environment, guns, military and intelligence spending, etc. There is something wrong with a newspaper of record that considers a political leader who points this out as beyond the pale, while treating seriously the likes of Sarah Palin, Newt Gingrich, Paul Ryan, Mitch McConnell, and John McCain.  As Bill might say, the newspapers of record are in a difficult position given the powers behind the scenes in American society.  But I will thank them when they start getting things right according to my values.

Again, reasonable people can have differing opinions!  Thanks for the thoughtful responses.