The "Texas Economic Miracle", Nuclear Tests, and California

I totally forgot another fairy tale I heard from my Republican friend which needs correcting, that of the "Texas Economic Miracle" that allegedly occurred under Rick Perry.  I thought this myth died awhile ago, but I suppose it needs addressing.

The claim of the Texas Economic Miracle under Rick Perry is that Texas, with its combination of low taxes and few regulations, outstripped national economic growth, including job creation.  This was true for awhile!  However:

• The jobs created were almost entirely created in the energy sector or linked directly to the energy sector.  When oil prices were high, employment rose; when oil prices crashed, jobs left the state in large numbers.
• As the economy recovered under the Obama administration, slowly but surely, national job creation growth began to outstrip Texas' job creation growth.
• The jobs created in Texas tended to be low-wage - although, in fairness, this is true nationally as well.
• Texas isn't as famously low tax as you might think:

Taxes, though, are mixed a mixed bag. Employees enjoy the absence of a personal income tax, but the effective tax rate on businesses is above the national average at 5.3 percent. Complying with the franchise tax is expensive, even if a company doesn't have to pay it, and property taxes are punishing.

"We have very high property taxes, and we also are one of only seven states that include business inventories as part of the property tax," Craymer said.

To make up for that, Texas must offer property and sales tax abatements, he added.

"The simple truth is we're not going to be able to compete for those major investment projects if we don't offer some kind of temporary safe harbor from our incredibly high property taxes," Craymer said.

(emphases added mine throughout.)

• Texas is "big, hot and cheap" and has long outperformed other states economically, since 1939 at least (mostly since folks who have air conditioners like to move to big, hot, cheap places).  In other words, there isn't anything all that special per se about what Rick Perry did. 
• Texas has more minimum-wage workers with no health insurance than any other state.

The bête noire of conservatives is, of course, California, famously laden with regulations of all sorts, and a state which is whupping all kinds of ass in comparison with Texas economically.

Both states have diverse economies and despite this fact, both states rely heavily on factors beyond their control (the price of oil and gas in Texas, the price of real estate in California).  But it seems that when California creates jobs, they're high-wage jobs, tied predominantly to Silicon Valley, and when Texas creates jobs, they're low-wage jobs.

Gov. Perry deserves credit for diversifying Texas' economy.  That's no mean feat.  He doesn't, however, deserve credit for a "miracle" driven by high oil prices - a miracle now on the retreat due to low oil prices.

(For more on this issue, read here and here.  Oh, and by the way, whenever the name of famed malarkey-peddler Arthur Laffer pops up, just bear in mind that if your dentist told you you could eat as much candy as you want and it would actually make your teeth stronger, you would get a new dentist, yet for some reason the idea that massive tax reduction will lead to deficit reduction, popularized by Arthur Laffer, is still taken seriously.  His claims that tax reductions are responsible for economic growth are largely bunkum.)

Now how about ol' Rick, incoming Secretary of Energy?  What's new with him?  He may be pressed to resume nuclear tests.  Mr. Perry may not be as dumb as he appears to be at first glance, but if Donald Trump decides he wants nuclear tests, will Rick Perry stand up to him?  And what would be the consequence of nuclear tests?

Since 1998, when India and Pakistan conducted nuclear tests, provoking global condemnation, only North Korea is known to have undertaken tests. Some experts fear that if the United States began testing again, it would risk a new arms race by opening the door to testing for many other countries that want to improve or develop nuclear arsenals.

Maybe those experts' fears are overblown.  Call me naive, but I defer to "experts" on nuclear management issues.  Whatever happens, I'm certainly glad the man who presided over the Texas Economic Miracle is at the helm!

So that's Rick Perry.  How's California doing?  Well, for one thing, it's considering telling the Trump administration to shove it when it comes to environmental issues.  California can arguably afford to do so - it has a GDP of $2.5 trillion and is one of the 10 largest economies in the world (Texas is also on that list, behind California).  

Business leaders - well, some of them - predictably whine that excessive regulation vis-a-vis other states will kill California's growth, but as the above makes clear, that's mostly hot air.  Of course, if the Trump administration wants to make life hard on California, it can do so:

The clean-air initiatives here have become an intricate part of the economy and a source of growth and jobs. Federal cutbacks would no doubt hurt the state to some extent, but analysts say the very energy-efficiency policies that may soon come under attack by the new administration have been a significant factor in California’s economic reversal.

“If the president-elect and his administration work to undermine our climate leadership, they will hurt our economy,” Mr. de Leon said. “They will kill jobs. And ultimately, they will hurt the economy of the United States. We are 13 percent of the overall G.D.P.”

We'll see how California does, but if the past is any indication, California's going to be just fine and might well lead the nation in a cap-and-trade or similar policy.  Even the new host of Celebrity Apprentice is an aggressive environmentalist; it's hard to keep California back in this regard.  (Yes, Schwarzenegger is far from perfect, but neither is Jerry Brown, and has any other Republican in our lifetimes spoken like this?)

There's so much more I wanted to get to today - hospitals bracing for Obamacare repeal and saber-rattling in the South China Sea in particular - but this post is already too long, so that'll have to wait until tomorrow. 

Correcting the Record

Heard a couple interesting misconceptions from a Republican friend of mine over the holidays that I thought might be worth correcting here.

First of all, crime-wise, while 2016 did see an uptick in violent crimes, it wasn't the most violent year in decades.  You have to go back to the Reagan administration for the most violent year in decades.

People do seem largely unaware of that fact, however:

As Pew has reported in recent years, in fact, the American public is "unaware" that the homicide rate in the United States has fallen by 49 percent over the past twenty years. And while Pew doesn't report on it, it's also a safe bet that the public is also unaware that homicide rates have collapsed as total gun ownership in the United States has increased significantly.

(The article linked-to above will displease both the left and right.  Leftists will be unhappy to know that as gun ownership has skyrocketed, violent crime has largely diminished.  Right-wingers will be unhappy to know that crime was at historic lows under the Obama administration.  Turns out black people can be in charge and gang warfare doesn't necessarily flare up.  Sorry!)

Also, there's apparently some talk that Michelle Obama was disbarred, or that she "surrendered" her law license to avoid ethics charges.  This claim is, flatly, bullshit.  And, given that this claim is bullshit, it's possible that the people who originated this claim, or actively circulated it, are bullshit artists.  It seems to have circulated mostly via chain email.

Finally: most African-Americans prefer to be called "black" people these days, not "negroes" or "colored".  It's true that these terms used to refer to African-Americans, but they haven't applied in many decades and shouldn't be used anymore.  I don't really think this point needs a lot of elaboration, but in case you remain baffled, here's a fine article from 1967 discussing the issue.  Speaking as a white man, I have no problem referring to African-Americans by whatever term they prefer be used, and should, within my lifetime, black people no longer prefer to be known as "black people", I will extend very basic human respect, adopt whatever term they prefer for themselves, and not lose a moment of sleep over it. 

Tomorrow I'll return to economics, the ecology, foreign policy, or something along those lines.  For today, I hope this post is helpful to those who are confused.

Financial Scandals and Nuclear Arms Race

It's my last paid "personal day" of the year.  My beloved bride is at work, errands have been done;  I'm going to have a dark beer or two and work on some music.  But before I do that, lest I drop the ball like I did yesterday, imma hit you with some BLOG.

How's Goldman Sachs doing?

Even as Goldman Sachs is gaining a more prominent profile in the administration of Donald J. Trump, the Wall Street investment firm is undergoing scrutiny in an investigation in a sprawling international money laundering and embezzlement scheme.

How's Deutsche Bank doing?

Deutsche Bank announced late on Thursday that it had reached a tentative $7.2 billion deal to resolve a federal investigation into its sale of toxic mortgage securities, capping months of negotiations that weighed heavily on the bank’s stock price and reputation.

(Once they've settled that, they can get back to business helping Russians smuggle money out of their own country.  Russia, led by strong leader!  Much we can learn from them!)

How's Credit Suisse doing?

Credit Suisse said on Friday that it had agreed to pay $5.3 billion to settle an investigation by the United States authorities into the packaging and sale of mortgages ahead of the global financial crisis eight years ago.

How's Wells Fargo doing?

The failure of the bank’s so-called living will test, even as four other big banks passed, kicked off the latest crisis for Wells Fargo, which is still reeling from its sales-tactics scandal. And it poses yet another challenge for [Wells Fargo Chief Timothy] Sloan, who only took the bank’s helm in October after the abrupt retirement of former CEO John Stumpf.

(God, remember this?  Almost certainly, what the finance sector needs is less regulation.)

Um... well, what's the future of our country's nuclear arsenal?

“Let it be an arms race,” Mr. Trump said, according to Ms. Brzezinski, who described her conversation with the president-elect on the morning news program moments later. Mr. Trump added: “We will outmatch them at every pass and outlast them all.”

Great! A nuclear arms race.

Happy holidays everyone!!!

Inflation, Economic Multipliers, and Syria

I was a little distressed to see an anti-war friend of mine posting rhetorical defenses of Bashar al-Assad, essentially arguing that Assad hadn't done anything unjustified in the war on Syria.  I don't want to dwell at that at length.  Suffice it to say: one's opposition to imperial entanglements shouldn't include the enemy of my enemy is my friend moral calculations to let people who authorize this sort of behavior off the hook.  The article linked-to is long but worth a read if you like to be depressed.

Anyways, today I wanted to mostly touch on what Dean Baker and Paul Krugman were saying.  Let's start with Dean Baker, who has an informative take on inflation in which he rips a new one to the Chair of the San Francisco Fed.

The Fed recently voted to raise interest rates, thus increasing borrowing costs in the economy, thus slowing business down, thus fighting inflation.  You're not really supposed to slow the economy down unless you're at near full employment, i.e., everyone who wants a job has got a job.  Emphases added mine throughout:

We have numerous pieces raising serious questions about whether the labor market is really at full employment, noting for example the sharp drop in employment rates (for all groups) from pre-recession levels and the high rate of involuntary part-time employment.

So right off the bat, not everyone who wants a job has got a job (at least not a full-time job).  So how's inflation lookin'?

A close look at the data does not provide much evidence of accelerating inflation. The core PCE deflator, the Fed's main measure of inflation, has risen 1.7 percent over the last year, which is still under the 2.0 percent target. This target is an average, which means that the Fed should be prepared to allow the inflation rate to rise somewhat above 2.0 percent, with the idea that inflation will drop in the next recession.

Anyhow, the 1.7 percent rate is slightly higher than a low of 1.3 percent reached in the third quarter of 2015, but it is exactly the same as the rate we saw in the third quarter of 2014. In other words, there has been zero acceleration in the rate of inflation over the last two years.

Furthermore, even this modest acceleration has been entirely due to the more rapid increase in rent over the last two years. The inflation rate in the core consumer price index, stripped of its shelter component, actually has been falling slightly over the last year. It now stands at 1.1 percent over the last year.

It is reasonable to pull shelter out of the CPI because rents do not follow the same dynamic as most goods and services. In fact, higher interest rates, by reducing construction, are likely to increase the pace of increase in rents rather than reduce them.

Hey! Well! If you're a fan of people being hired and salaries/wages going up, that all sounds... uh, well, kind of bad! 

(And, of course, Baker makes clear that those folks who are likely to be left behind in the job market when the Fed's increase in rates slow the economy are likely to be predominantly African-American and Hispanic.  Who could've guessed?)

But, hey, ok.  Trump is coming into office, and he's got this big infrastructure plan to roll out!  That'll be expansionary, and make up for the hikes in interest rates, surely.  Oh... but what if it resembles previous Republican budgets?

I was able to find matching analyses by the good folks at CBPP of tax and spending cuts in [Speaker of the House] Paul Ryan’s 2014 budget, which may be a useful model of things to come.

If you leave out the magic asterisks — closing of unspecified tax loopholes — that budget was a deficit-hiker: $5.7 trillion in tax cuts over 10 years, versus $5 trillion in spending cuts. The spending cuts involved cuts in discretionary spending plus huge cuts in programs that serve the poor and middle class; the tax cuts were, of course, very targeted on high incomes. 

The pluses and minuses here would have quite different effects on demand. Cutting taxes on high incomes probably has a low multiplier: the wealthy are unlikely to be cash-constrained, and will save a large part of their windfall. Cutting discretionary spending has a large multiplier, because it directly cuts government purchases of goods and services; cutting programs for the poor probably has a pretty high multiplier too, because it reduces the income of many people who are living more or less hand to mouth.

Taking all this into account, that old Ryan plan would almost surely have been contractionary, not expansionary.

Well, rest assured Donald Trump is his own man, will buck GOP orthodoxy and introduce a genuinely expansionary budget that will lift the middle class out of its malaise and Make America Great Again.

Right?

Turkey

Let's delve into Turkey a little bit more today.

First, a little backstory for those who don't know their Russia/Turkey basics: Russia has long coveted a warm-water port on the Mediterranean.  (Yes, they have Vladivostok on the Pacific, but that's not enough to be a truly global power.)  For that reason, Russia has long coveted Istanbul.  Syria and the Ukraine both have warm-water ports - Tartus in Syria, Sevastopol amongst others in the Ukraine.  This brief article is a very good run down on the topic.

Look at a map: Turkey is right in the way of Russia's access to the Mediterranean (even a Russia that includes the Ukraine, as the USSR did).  Throw a little Orthodox Christianity vs. Islam in there for flavor, and you have all the makings of one of the world's oldest and most enduring rivalries.

Now let's look at the present day.  The NY Times has a good summary of the issues.  In a nutshell: when the civil war began in Syria, Prime Minister (and de facto dictator) Erdogan in Turkey saw it as a good opportunity to install a friendly, pro-Turkey regime on its very border - and who can blame him?  A fairly rational national security choice, even if many have to die to attain this end - and as such began aiding anti-Assad rebels, some of whom are democrats but many of whom are not very good people.  (Assad is also a tremendous monster.)

Russia, however, has long stood by the Assad regime, and in order to get access to Tartus and also tweak the nipples of both Turkey and the United States, has been bombing the daylights out of the Syrian rebels, with the end result that Assad is likely to finally win the battle in Aleppo.

So, when a Turkish national shoots the Russian ambassador to Turkey calling for jihad and urging people not to forget Aleppo, it should come as no big surprise to anyone, even when the event itself is quite shocking.

Since it's become clear that Assad is likely not going anywhere in Syria, Erdogan has shifted his aims from dislodging Assad to dealing with those pesky Kurds.  The War Nerd talks about the Kurds a little bit.  It's a good read.  (More here. The War Nerd is a must-read, always.)  The Kurds are hanging tough with no country to call their own, on their own, at the mercy of the powers around them.  The analogy to the Zionists in Palestine before the creation of Israel isn't perfect, but it isn't bad, either.  Assad, Erdogan, and the Iranians would all rather there be no Kurds.  My opinion?  Support the Kurds.

Erdogan is going to quit attacking Assad and instead focus on taking care of his Kurdish problem.  Meanwhile, the Russians don't want the Turks to start backing the Syrian rebels again: they want to mop up in Syria.  So Russia isn't going to make a big stink over one l'il assassination, and Turkey's going to do it's best to play nice, say sorry, and move on.  Russia and  Turkey might even grow closer as a result of the assassination (though we'll see).

Meanwhile, who was the assassin?  Was he a Gulenist?  Boy.  How do I succinctly describe the Gulenists?  Imagine a dictatorship was using the omen of a organized conspiracy directed by one man living abroad as an excuse to round up political opponents and up the level of suppression generally, and it turned out the conspiracy in question was real honest-to-goodness conspiracy.  That's more or less the situation you have with the Gulenists.

Fethullah Gülen, who lives in Pennyslvania, has long spearheaded a movement of Islamists who have attempted to infiltrate the judiciary and other state organs of Turkey and take over the country from within.  Meanwhile, a completely different set of Islamists, operating publicly under Erdogan's leadership, having previously worked alongside the Gulenists to attack the common enemy - the secularists, who have a long history of committing coups themselves - have now turned against them, the Gulenists having dealt the initial blow.  If you have time, just read that New Yorker article.  The fact that the U.S. harbors Fethullah Gülen is a source of tension in the Turkey-U.S. relationship, as you could imagine.

Well, anyhow... I've rambled here, but I hope you have a slightly greater appreciation of what's going on between Turkey, Russia and the others than you did before.  Just be aware that Turkey has a terrorism problem, NATO has a major base for Middle East operations in Turkey, Incirlik, which Turkey could in theory open to Russia, and that... God, there's so much to say.

It's all going to be very interesting to watch unfold.

Assassination in Turkey

I've been so busy I missed blogging two days in a row.  I continue to be very swamped.  I hope that changes soon.

So all I have for now is breaking news: the Russian ambassador to Turkey has been assassinated.

There's a lot to be said here, but for now I leave you simply with that.

If you're bored or disappointed by the lack of insight found in today's post, well, I can't blame you.  Read Dean Baker's contrarian take on the Great Recession instead! It's great food for thought:

In any case, the argument that we would have faced a decade of double-digit unemployment had we not rescued Wall Street rested on a political assessment, not an economic one. There was no economic reason that large amounts of spending following a financial collapse would not have boosted the economy back towards full employment and without the albatross of an incredibly bloated financial sector.

Sounds like socialism to me!

Short Econ Talk

I sure let today slip away from me! I'm just gonna hit you up with some links I think you should read.

First of all, eat your veggies, and read your Dean Baker.  He tells us that everyone is suffering, but whites not especially so, employment-wise, contrary to a NY Times column.  He also knocks the WaPo down a peg by pointing out that neither job openings nor wage growth in manufacturing currently are all that impressive.  Always good to double-check the narrative.

I'd like to know what he has to say about this little wrap-up of the Obama economy by the NY Times.  It's a brief and interesting read that contains one glaring, possibly inaccurate, piece of speculation:

Income inequality is the second weak spot the White House economists identify, arguing that the Obama administration has made progress in spreading the gains from a growing economy more widely but not enough.

...

If Hillary Clinton had won the election, this approach to thinking about inequality would most likely have formed a central role in her economic agenda.

Maaaaaaaybe it would have.  A lot of folks didn't turn out to vote for Clinton precisely because they didn't trust her to emphasize issues such as inequality, the high, seemingly permanent, drop-out rate in the labor force, and so forth.  It's likely that for political reasons she would have had to at least rhetorically address the issue.  Who knows: maybe she would in fact have been a devoted progressive.  We'll never know.  What we do know  is that we've got an incoming GOP administration, and it would be jaw-dropping if it dedicated one iota of effort to income inequality.

The above said, the NY Times article is still worth your time.  Here are the points it makes, summed up:

• Productivity growth has been weak.  This could be caused by a slowing rate of technological advancement, insufficient demand (and subsequently, investment), or what conservatives are always bitching about, excessive regulation, which seems pretty ridiculous when you look at this survey of small business concerns conducted by the NY Fed ("cash flow," "cost of running business" and "credit availability" all outweighing "government regulations").
• Income inequality is getting worse.  This points bears little elaboration here; most of you, conservative or liberal, know that the rich are far richer than they've ever been and that the middle class and (heaven forfend we discuss them) the lower classes and poor are being left behind.
• Labor force participation is down.  Basically, huge swaths of people are so discouraged by the job market that they're not even bothering to look for work.  Kudos in advance to Donald Trump if he can actually solve this problem.
• Economic sustainability still remains a looming threat.  Can our economy cope with spiraling health care costs? Global climate change? The next big market correction (i.e., recession)? Regarding that last point: the Fed normally fights recessions by cutting interest rates, thereby giving people more of an incentive to invest/spend, thus generating economic activity and alleviating the recession.  But rates are pretty close to zero currently.  Should another recession hit, it's on the public sector to step in and spend money.  And will a Republican government do such a thing?  It certain goes against their stated ideology.  Let's not even get started on global climate change.  Who knows, maybe the Trump admin will rise to meet these challenges.  We will see, we will see.

Anyways all three links above are good, short reads.  Read them and then be on your merry way into the weekend.  Sláinte!