Tuesday, January 16, 2018

Bitcoin & Big Box Stores

The current issue of The Militant contains two articles of economic interest. One, by Terry Evans, is about bitcoin, while the other, by Brian Williams, covers the travails of big box retail. The paper is alone on my Beat in paying any attention to the economy at all. Further, they're the first to make any comment about bitcoin. While I'll take a smidge of credit given that my recent posts about bitcoin may have been a prompt, they still deserve praise.

Both articles suffer from the same fundamental flaw: they assume that capitalism is in a crisis.

Obviously that's completely wrong. The global economy is running strong, with no recession on the immediate horizon.

Mr. Evans writes,
For decades, as capitalist profit rates have tended to decline, the bosses have been plowing their cash into speculation — or hoarding — rather than investing in capacity-expanding plant equipment and employment.
There's a contradiction here: where does the cash hoard come from if profits are declining? Putting more cash into "speculation" requires cash to begin with, which can only come from profits and/or wages.

As I've said many times, "profit rates" is an ambiguous concept, and in no meaningful way can they "tend to decline." They're certainly not declining now! Still, Mr. Evans is correct after a fashion--there are relatively few opportunities for investment today and therefore there is a savings glut (Larry Summer's term). This leads to low interest rates and a corresponding rise in asset prices, including bitcoin.

But this has nothing to do with a crisis in capitalism. There are at least two other explanations.

1) Demographics. The American population is barely growing at all, and arguably our labor force is shrinking. Fewer workers require less capital, and thus because of continued high profits there is more spare cash left over.

2) Technology. More industries are being computerized. Moving parts (and labor) are being replaced by computer chips--e.g., carburetors supplanted by electronic fuel injection. Computer chips are cheap, which means much less capital is required.

To buttress his case Mr. Evans cites that financial whiz kid, Jack Barnes, specifically a piece written in 2002. Mr. Barnes
explains speculative bubbles are “a manifestation of what Marx called commodity fetishism, the illusion that commodities and capital somehow have a social meaning in their own right, independent of the social labor that went into creating them, a life of their own.”
I think that's gibberish. It sounds like Mr. Barnes advocates a return to a barter economy.

The value of any object is a collective hallucination. A dollar is worth a donut only if a donut is worth a dollar. Both Dunkin' and I imagine that to be true, and hence a market is made in donuts. If they don't want to sell me a donut at that price, or if I don't want to buy one, then donuts will no longer "have a social meaning in their own right," whatever that means.

A Loonie coin is a token, sustained by collective hallucination. However, only Canadians share that imagery. Bring Loonies south of the border and you'll find they won't buy you a donut or anything else. We don't hallucinate about Loonies down here, and per Mr. Barnes we have a better grasp on reality. Does that mean Canadians don't "have a social meaning in their own right?"

Bitcoin is also a token. It has value as long as people believe it has value. There are reasons for people to hallucinate that, which I detailed in my previous post. I do not believe bitcoin's value will go to zero.

By the way, today bitcoin touched $10,000, or nearly a 50% drop from its all-time high. If bitcoin was in a bubble, then it certainly isn't in one now.

Here is Mr. Williams' lede:
While the big-business media has boasted that retail sales were up during the 2017 holiday season — 3.8 percent higher than the year before — the crisis of the bosses in the retail industry continues to unfold as growing numbers of U.S. retail and apparel companies face increasing debt, bankruptcy and competition.
On the one hand he acknowledges consumers are doing well--we got 3.8% more stuff than we got last year. Hurray!

Yet the retail industry is supposedly in crisis, suffocating under debt, bankruptcy and competition.

Later in the article he cites leveraged buyouts as a major culprit, by which speculators took companies private by foisting on them enormous debts. These capitalists, he tells us, made short-term gains while somehow (mysteriously) escaping the long-term losses.

There are two ways of financing any business: debt and/or equity. How capital is structured makes a big difference to the investor, but on net it makes little difference to the firm. The Coase Theorem says that financing via debt or equity or some combination won't matter at all except insofar as transaction costs are different.

That is, an insolvent firm will go bankrupt no matter how it's financed. Either the company will default on its bonds, or the share price will head towards zero. The net outcome is precisely the same. Conversely, a successful company will have a growing share price, or be able to float new bonds at very favorable rates.

So the problems in the retail industry have nothing to do with leveraged buyouts--they'd be just as much in trouble if they relied on selling shares. Toys "R" Us went bankrupt only because technology rendered the company's business model obsolete. A big-box toy store can't compete against Walmart on price, nor against Amazon on selection and convenience, nor with the corner Ma & Pa store on sales of high-end, bespoke items for a niche market.

When was the last time Mr. Williams has ever been to a Toys "R" Us store? I'll hazard never. Even I, when my children were still children, never went to Toys "R" Us. So why should a whole bunch of employees sit around all day waiting for no customers to walk through the door? It is surely much better--for them and for society alike--if their labor is invested in something useful. Or, in Mr. Barnes' precious phrase, doing something that has "a social meaning in [its] own right."

This is the problem with socialists: they're Luddites. No progress is allowed. However novel and revolutionary Sears, Roebuck or Toys "R" Us may have been in the past, we now need to keep them on no matter what--frozen in amber.

Let the companies go bankrupt. So what of the bondholders lose their fortune. Surely Mr. Williams doesn't feel sorry for them--and neither do I. In today's economy (4.1% unemployment) the former employees of those companies will be instantly reemployed more productively. The workers will make out just fine.

The big winner will be consumers--people with children who like to buy quality toys at cheap prices and maximum convenience.

Further Reading:

Thursday, January 11, 2018

"The Militant" Gets One Right

The Militant has long come to the defense of Cliven Bundy and colleagues, who are cattle ranchers in Oregon and Nevada. They were prosecuted by the Feds for grazing cattle on federal land without the necessary permission. I have not followed the case at all, and figured they were a bunch of crackpots.

But in the past week the judge ruled a mistrial, and then in a further move dismissed all charges against the clan. They've been set free after 700 days in jail.

Good for them. The Libertarian in me says that the government owns way too much land out west, especially in Nevada. It should be sold off wholesale.

I have no idea what relevance the Bundy case has for the "revolution." But whatever--The Militant picked a winning issue, stood by it, and has been vindicated. Kudos.

Further Reading:

Thursday, January 4, 2018

If Everybody is a Racist, Then Nobody is a Racist

A two-part series in Solidarity by Malik Miah is worth the read. The first article is entitled White Supremacy/Identity Politics, while the second is Black Nationalism, Black Solidarity. These describe the two sides of the race war that Mr. Miah tentatively predicts for our nation's future.

That Mr. Miah, a Black man, thinks race is the most important issue of our time is perhaps not surprising. I think he has a better understanding of Black folks than he does of us whites, so let me start there.

Surprisingly, I agree with him on many points.

He writes:
Blacks would be happy to drop the hyphenated “African-American” and redefine the term “American” as meaning all of its peoples. Most whites, however, don’t support that change if it means seriously coming to grips with the legacy of slavery, genocide and persistent racism.
I certainly agree with that first sentence--if any group is American it's Black people. They've been on these shores far longer than any of my ancestors, or those who came later through Ellis Island. Blacks' impact on our national culture is disproportionately large. They deserve to be called Americans.

By the way, that's what Mr. Trump wants to call them.

But I don't know what Mr. Miah means by the second sentence. How can he put such conditions on the use of a label? What's he gonna do: interview us to discover if we're sufficiently "woke" to call Black people Americans?

Mr. Miah quotes a New Yorker article, saying that a FBI report
...coins the category “black-identity extremist,” which is poorly defined but features the three-word rhythm of other usefully ambiguous terms, such as “radical Islamic terrorist.” The authors argue that people sympathetic to the Sovereign Citizens movement and to the Moorish Science Temple of America, both of which reject the authority of the federal government, warrant vigilance, even though violence conducted by any such sympathizers “has been rare over the past twenty years.” To ground their conclusions in history, the authors point to radical organizations of the nineteen-seventies, such as the Black Liberation Army, which has been defunct for longer than Johnson had been alive, and for which they offer scant connection to the B.I.E. cause.
Mr. Miah maintains that such radical Black extremism is hopelessly rare and is not a political threat. I think he is absolutely correct, and beyond some ill-chosen rhetoric from groups like Black Lives Matter, there's no evidence for "black-identity extremism." (It is a criminal threat to police officers--it only takes one crackpot to start shooting at people. In that sense the FBI's interest might be justified.)

Indeed, I'll go further and suggest that racial tensions are diminishing since Trump's election. It's not that we like each other more; it's just that we're better able to live together. Mr. Miah cherry-picks some examples to illustrate the contrary (e.g., a white Georgia woman stopped for a traffic violation was told by a cop that her fear was unfounded because they only shoot Blacks). So I'll give a counter-anecdote of my own.

I live in a neighborhood that is about 50% Black (many of whom are Jamaican immigrants). I didn't know that before I moved here. Yes, I drove around the neighborhood and saw well-tended yards, newish SUVs in the driveways, no abandoned homes, and no grafitti. Looked like a middle class neighborhood to me, and so I moved in. Indeed, it IS a middle class, American neighborhood. If we're on the verge of a race war, nobody has told my neighbors about that.

I think Mr. Miah exaggerates "voter suppression" efforts by Republicans. He attributes it to racial animus, though I think it's more likely partisan. But he is understandably mistrustful. So I suggest that Trump and Republicans abandon such efforts save for egregious fraud. It makes very little difference in electoral outcomes, and dropping it will remove a needless thorn from racial politics.

Further, I'll second a suggestion from Scott Adams and recommend that voting rights be restored to felons--even while they're still in prison. Mr. Adams makes a convincing case that election results won't change by much, and it's a small act of generosity toward both prisoners and (by perception at least) Black people. I hope Mr. Miah will approve of this idea.

The last half of Mr. Miah's essay on Black people is about Black nationhood, or lack thereof. He quotes from Trotsky, of course, who sounds like he knew very little about the subject. To me it seems incontrovertible that Blacks are an ethnic group--certainly no longer African, but yet distinct from other Americans. They make up about 12% of the population, and by themselves will never have national political power. They currently are a big part of the Democrat's coalition.

Mr. Miah seems to think that Blacks are going to lead a demographic coalition of non-whites against whites. I think he's wrong there. There are too many differences between non-whites for them to cohere into a single political movement. And indeed, there is no coherent "white" coalition, either.

If Mr. Miah's description of Black people makes some sense, his view of white folks is completely bonkers, as this quote indicates.
If you are not completely opposed to white supremacy, you are quietly supporting it. If you continue to draw equivalencies between white supremacists and the people who oppose them — as Trump did once again last week — you have crossed the racial Rubicon and moved beyond quiet support to vocal support. You have made an allegiance and dug a trench in the war of racial hostilities.
Either Trump is himself a white supremacist or he is a fan and defender of white supremacists, and I quite honestly am unable to separate the two designations.
The ubiquity of "white supremacy" is new to our discourse--before people were just called "racist." But that word has lost its sting. Everybody--George Bush, John McCain, Mitt Romney, etc.--was labeled "racist," and nobody takes it seriously anymore. It no longer distinguishes between the KKK and Paul Ryan, and so the term is rendered useless.

Thus the drive to replace it with the supposedly more horrific "white supremacist." But Mr. Miah is now including everybody under that umbrella, too. Not just Trump (who by no reasonable definition is anything close to being a white supremacist) but also anybody who voted for him (48% of the electorate, and a majority of all white people). Mr. Miah's explanation for this is that "white supremacy" has gone undercover. While its substance has supposedly remained the same, it disguises itself today much better than any KKK hood.

Thus "white supremacy" is reduced to being an epithet and it will lose its punch very quickly. Indeed, it probably already has.

So here is the difference between Trump and Obama. For Obama, race was an important issue, just as it is for Mr. Miah. Trump, on the other hand, is completely indifferent--his remarks following Charlottesville indicate as much. (See my comments here.) This comes as a shock to people like Mr. Miah who think about race every single day--how can somebody not care?

Not only does Trump not care, but neither do most of his supporters. Take, for example, Chicago, where I lived when I was Mr. Miah's comrade, and where my son lives today. The North side of town is the global city, headquarters of Fortune 500 companies. The South side is the murder capital of America. The two parts are completely distinct--they have almost no connection to each other. For just as Mr. Miah doesn't wake up in the morning worrying about children in Yemen, North side Chicagoans don't spend any part of their day thinking about West Englewood.

That's not good. Mr. Miah really should care more about Yemen's youngsters. And global-city Chicagoans should worry about their South side neighbors. But that's not human nature. We're all wrapped up in our own lives.

Further Reading:

Thursday, December 28, 2017

"The Lenin of Libertarianism"

The title (quoted above) is magnificent, but that's the only thing I like about Cliff Conner's article in Socialist Action. The essay is commentary on Nancy MacLean's hit piece on James M. Buchanan, a Nobel-Prize-winning economist who died in 2013 at age 93. Her book, published in 2017, Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America, is such a slander that I refuse to provide a link to it.

It's even earned its own Wikipedia section, the first paragraph of which is worth quoting in full:
In 2017, Duke University historian Nancy MacLean published Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America. Her book claims that Buchanan saw a conflict between "economic freedom and political liberty", and that he sought (in his own words) "conspiratorial secrecy" in pursuit of what George Monbiot has described as "a hidden programme for suppressing democracy on behalf of the very rich". The book has garnered heavy criticism from both libertarian and non-libertarian writers for its perceived flaws in the use of quotes, sources, and the accuracy of its overall thesis. In particular, the claim that Buchanan supported segregation has been disputed as untrue and contradicted by evidence that MacLean's book omits. Buchanan played a key role in bringing prominent South African apartheid critic W.H. Hutt as guest lecturer to the University of Virginia in 1965, during which he also sharply condemned Jim Crow laws.
Also, "Legal scholar Jonathan H. Adler alleges a pattern of misrepresentation in MacLean's book, including truncating quotes to present them as saying the opposite of their original meanings ..." Mr. Conner, who apparently has never read anything by Mr. Buchanan, accepts everything Nancy says as gospel truth.

Whatever opinions he attributes to Mr. Buchanan are likely not accurate and not worth arguing about. So let's focus on Mr. Conner's expression of his own opinions.

There's this.
If you still think of libertarianism as the quaintly eccentric blend of laissez faire economics with concerns such as privacy rights, civil liberties, and antimilitarism, you are behind the times. That old-time libertarianism has been marginalized by a hardcore, right-wing, enemy-of-humanity libertarianism fashioned by Buchanan and the Koch Brothers.
So the mud that supposedly sticks to Mr. Buchanan is now attached to the Koch brothers--on the basis of no other evidence. News for Mr. Conner: the Koch brothers support abortion rights, the legalization of marijuana (and probably other narcotics), gay marriage, and a prohibition on government spying on citizens. Are these opinions that Mr. Conner classes as "enemy-of-humanity libertarianism"?

It gets worse. Mr. Connor apparently has a telepathic connection with the Kochs and knows what they are thinking. They "want above all else to decrease their taxes and minimize governmental regulation of their businesses." Really? How does he know that? How does he reconcile that with the opinions listed above?

Then, of course, there's Pinochet and Chile. Mr. Conner asserts,
If there is any lingering confusion regarding libertarian commitment to genuine individual freedom, it should be laid to rest by their interpretation of the 1973 Pinochet coup in Chile. To this day libertarian polemicists continue to hail that abominable crime against humanity as an “economic miracle” confirming the wisdom of free-market economic policy.
...The “miracle” they wrought was built upon the destruction of a vital labor movement requiring the murder and torture of tens of thousands of trade-unionists and their supporters. It was liberty for wealthy investors and property owners at the expense of the life, liberty, and happiness of the majority of the Chilean people.
So granted, Pinochet was a brutal guy who murdered lots of people. But he was hardly alone: similar brutality reigned over much of Latin America at the time: Guatemala, El Salvador, Colombia, Brazil, Uruguay and Argentina, to name a few. All of those governments have a lot of blood on their hands.

But only Chile experienced sustained economic revival. As Wikipedia puts it,
The economy of Chile is ranked as a high-income economy by the World Bank, and is considered one of South America's most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, globalization, economic freedom, and low perception of corruption. Although Chile has high economic inequality, as measured by the Gini index, it is close to the regional mean.
In 2006, Chile became the country with the highest nominal GDP per capita in Latin America.
Mr. Conner blames "los Chicago Boys" (including Buchanan) for all the murders, while not giving them any credit for the economic success story. Yet free market economics has clearly and unambiguously succeeded in Chile, despite the crimes committed by Mr. Pinochet (not Mr. Buchanan).

Then Mr. Conner reduces Buchanan's economic thought to a caricature (boldface mine).
As for reductionism, Buchanan’s “Public Choice Theory” reduces real-world economic decision-making to the sterile abstractions of mathematical game theory. In a universe where human beings always act like purely self-interested automatons, game theory could perhaps offer some useful insights into economic behavior. But Buchanan applies mathematical models based on misanthropic assumptions about human nature to complex social interactions. 
Mr. Buchanan almost certainly never said any such thing--surely he wasn't that stupid. But if you replace the word always with often or on average, then you'd probably get closer to what he actually thought. Or it might be more accurate to say that while humans do not always make decisions based on economic reasoning, when they do they tend to maximize their economic outcomes. And so game theory does offer useful, empirically-validated insights about economics.

Though it's odd that a self-proclaimed Marxist is arguing against the supremacy of economics. Didn't Marx say something about all of history being about economic class struggle?

Finally we get to the makers and takers shtick. Mr. Conner attributes to Buchanan the notion that entrepreneurs are the makers, while workers and poor people are the takers. Again, this supposes that Mr. Buchanan is an idiot.

More likely, both the entrepreneur and his employees are all members of the maker class. They, after all, produce all the goods and services we consume. And I suppose we can reluctantly agree that poor, disabled, sick welfare recipients are in the taker class, though I doubt that's who Mr. Buchanan was talking about.

The most egregious takers are not poor people, but rather government bureaucrats, public employees, and their tax-supported sycophants and hangers-on. I'd certainly put Nancy in the sycophant category. Despite her private school affiliation, her salary is paid for substantially by taxpayers (in the form of student loans, research grants, and tax exemptions granted to universities).

Nancy, who advertises herself as the William H. Chafe Professor of History and Public Policy (is that her preferred pronoun?), has clearly established a new low for the quality of "research" at Duke University. Since when does a dishonest book slandering a dead economist count as "scholarship"?

Compare Nancy, for example, with Jennifer Burns, professor of history at Stanford and biographer of Ayn Rand. It's an excellent book, but by reading it you will never discover Ms. Burns' opinions about either her subject or her subject's beliefs. It is that honest and fair-minded.

That's what scholarship should be.

Further Reading:

Monday, December 18, 2017

The Future of Bitcoin

Bitcoin is all the rage now. Many people think it is a bubble. While they might be right, much of what is said about bitcoin is nonsense.

Briefly, bitcoin is the world's first cryptocurrency, invented in 2009 by somebody or some group who went by the name Satoshi Nakamoto. Nobody knows who Satoshi really is--he disappeared from public view in 2010.

All bitcoin transactions are kept in a public record called the blockchain, copies of which are spread on thousands of computers around the world. The fact that the blockchain is massively copied guarantees the security of bitcoin since no hacker can hack into all the globe's computers (or even a small fraction of them). Accordingly, bitcoin itself has never been hacked, though various exchanges and individuals have been hacked.

Bitcoin is produced by mining. Miners solve cryptographic puzzles, the purpose of which is to update the blockchain to reflect any new transactions. As a reward for assuming this transaction cost, miners receive payment in new bitcoins. This will continue until the middle of the next century, after which all bitcoins will have been mined. Then miners will have to charge a fee in exchange for their services. Meanwhile, the actual transaction cost is the electricity used to power the many thousands of computers that work on mining bitcoin. This is substantial, and today bitcoin is mined primarily in places with cheap electricity.

So now some basic facts follow:

Bitcoin is not anonymous, but merely pseudonymous. If you or I open a bitcoin wallet, it will have a public key that I have to distribute to anybody I want to trade bitcoin with. That key is a pseudonym for my name. Given that key, then all transactions to or from that wallet are public record as part of the blockchain.

Ross Ulbricht--the founder of the Silk Road drug market, using bitcoin as the medium of exchange--didn't understand that. By using good old fashioned shoe-leather, the police eventually connected his wallet to his name, and then of course they knew exactly who he'd sent money to and from. For that he is now serving a life sentence without parole. Since then the criminals have gotten smarter. They undoubtedly know how to launder bitcoin on the dark web, so the old shoe-leather trick won't work anymore.

Thus bitcoin, as a substitute for cash, becomes an important tool for many a criminal enterprise. That, of course, is a disadvantage for those of us who wish to live in a civilized world, but it is a use-value for bitcoin that won't be going away anytime soon.

Bitcoin is not very useful as a currency. Because mining is so expensive, it typically takes about 10 minutes for any transaction to clear. These days, with bitcoin so popular, it can take considerably longer. Nobody is gonna go to Starbucks and wait ten minutes for their cup of coffee, which is why Starbucks doesn't accept bitcoin.

Simply put, the transaction costs for bitcoin are too expensive to justify using it for small amounts of money. However, the cost is per transaction, and is not proportional to the amount of money transferred. So bitcoin is impractical for $1.85, but for $1.85 million it's another story. For large amounts the transaction costs become irrelevant.

This is very much like gold. Try taking your Krugerrand to Starbucks and see how far that gets you. For just as with bitcoin, transaction costs for gold are very high--you have to weigh it, judge it's purity, ship it, and so on. But unlike bitcoin, gold transactions don't get that much cheaper with volume. So while bitcoin is nowhere near as convenient as paper currency or a credit card, it is much more convenient than gold.

Bitcoin will steal some of gold's luster. Yes, gold is a shiny metal that you can hold in your hand, while bitcoin is a public/private key combination that you can store in your safe. Gold is more tangible, but that very tangibility is what makes it less useful. Perhaps a better analogy for bitcoin is GLD (a gold-based ETF), rather than gold itself. Though--and here's the big deal--bitcoin is much more secure than GLD.

Gold has historically been used to settle transactions across international borders. Because the shipping costs are so high, in recent times international trade has been settled in eurodollars (dollars held in bank accounts outside the United States). This is not satisfactory to many participants (China, Russia, Iran, to name but a few), and I predict that bitcoin will eventually become a medium for international settlements. This is a second use-value for bitcoin.

It's worth noting that both China and Russia are very schizophrenic about bitcoin. On the one hand they see it as an avenue for capital flight, and thus they want to prevent citizens from using the currency, much the same as the US for many years prohibited citizens from owning gold. On the other hand, they both recognize the potential bitcoin has to free them from the dollar, and both countries have invested in significant mining capacity.

Meanwhile, many citizens around the world have every incentive to get their money the hell out of Dodge. Most recently that appears to be happening in South Korea, which is now the biggest bitcoin market in the world (or so I'm led to believe). The Chinese have been no slouches either, and are likely still crypto-sneaking money out of their country. Venezuela and Zimbabwe are big markets for bitcoin, for obvious reasons. (In Venezuela electricity is heavily subsidized, making mining very profitable, albeit illegal.)

Volatility, Schmolatility. Doesn't matter. There is no better way to transport money outside your falling-apart country with relative speed, liquidity, safety and anonymity than bitcoin. This is a third major use-value for bitcoin.

What are some of the disadvantages of bitcoin? There are a few.

First, many bitcoins have been lost. Since there is no central authority, there is no way of recovering your private key if you lose it. Many people have lost it. And then many others have died before revealing the secret to any of their heirs. Satoshi himself, at the beginning of bitcoin-time, mined himself about a million bitcoins, today worth nearly $20 billion. None of them have ever been spent (we know that from the blockchain), and Satoshi would give himself away if he ever tried to spend one. Perhaps that's a reason to leave $20 billion sitting on the table untouched.

Or, possibly, maybe Satoshi is dead, in which case all those bitcoins are gone for good. If there is one shortcoming in his design, it was not allowing for the replacement of lost bitcoins. Only 21 million will ever be mined, but over time more and more of them will be lost. Eventually there will be so few bitcoins in the world that they'll become a collector's item rather than a currency.

I don't know what fraction of the currently extant 17 million bitcoins have been lost. I read somewhere that it was 50%--I think that's too high. But suppose it's only 25%--that means the total capitalization is not the top-line $325 billion, but instead only $244 billion. So if bitcoin is in a bubble, it's not as big a bubble as everybody thinks.

A second threat to bitcoin is the development of a rival cryptocurrency that adds significant value and so displaces bitcoin. There are lots of cryptocurrencies already out there, but the main ones all do something different than bitcoin. BCH, for example, tries to speed up the transaction speed. ETH is primarily about trading assets rather than currency. Etc. There is a place under the sun for these species. But bitcoin is the most gold-like precisely because it's transaction time is relatively slow (and thus secure), and it is the most liquid. I think it will be hard to displace, but not impossible.

So is bitcoin in a bubble? I don't know. There is nothing written here that says it ain't so. But I will claim this: bitcoin has use-value. It's not just a speculative bubble. The price will not to fall to zero, and the equilibrium price is probably higher than it is now--though it's unlikely to get there in a straight line.

It's worth pointing out that Bitcoin is not primarily an American phenomenon. Predicting its value based only on sentiment within the United States is not reliable.

Further Reading:

Wednesday, December 13, 2017

China & the United States

There are two extreme but commonly held opinions about China. The China Bulls, typified by NYT columnist Thomas Friedman (e.g., here), believe that China will leap from strength to strength, eventually far surpassing the United States in both wealth and power.

The China Bears, meanwhile (represented ably by Peter Zeihan, whose work I have reviewed here, here and here), think China is approaching a precipice beyond which lies disastrous decline. Mr. Zeihan, for example, thinks the country is unstable as a unitary state.

Lynn Henderson (who often writes for Socialist Viewpoint) sent an Open Letter to Dave Gilbert, kindly including me on the copy list. The full text of the letter is posted at Louis Proyect's site, here. Despite its length, it is cogent, well-written, and very much worth the read.

Mr. Henderson did not title his piece. Mr. Proyect headlines it as Trump, Russia vs China and China Industrialization. Fair enough, but I'd prefer another: China's Threat to American Capitalist Hegemony. That reveals him as a China Bull, and further, he subscribes to the common corollary: that the United States is in secular decline (a view shared by Mr. Friedman).

Mr. Henderson tells a history of Chinese-American relations that doesn't make much sense to me. The 1949 revolution threw the imperialists out of China, but then in 1980 Deng Xiaoping invited them back in as foreign direct investment*. My take is that China wasted 30 years murdering tens of millions of its own people before they finally got their economic act together. Somehow Mr. Henderson sees the "revolution" as an advantage.

He attributes too much credit to Nixon and Kissinger--figures who were bit players in the whole drama. The real stars were people like Malcom McLean and Sam Walton. The former "invented" the shipping container, reducing the cost of freight transport by 90%--a technology that came to full fruition by 1970. The latter (who in 1970 owned a few stores in NW Arkansas) took advantage of that savings, along with cheap labor availability in China, to build the world's largest retail chain.

Mr. Henderson gets that last point. A key paragraph is this.
Handed down from the pre-revolutionary past, the new China possessed a gigantic peasantry numbering in the hundreds of millions accustomed to a very low standard of living and hard manual labor. This peasantry served as the source for an industrial proletariat willing to put up with a much higher rate of surplus value than the workers of North—and even Latin—America, Western Europe or modern Japan. Huge amounts of foreign investment, especially U.S. investment flowed into China. What the United States—or rather the United States capitalists—wanted most of all from China was the lion’s share of the surplus value produced by the Chinese working class. Russian workers produce very little surplus value compared to what the U.S. capitalists could appropriate from Chinese workers in the form of profit, interest and dividends.
Let's ignore the unnecessary term "surplus value" and acknowledge that trade with China was hugely profitable--for both Americans and Chinese. We got everything from toys to hand tools to smartphones at sharply reduced prices. Indeed, though Mr. Henderson credits Paul Volcker with ending inflation, it's just as likely that cheap imports from China did the trick. China, initially through Walmart, dramatically raised the standard of living of every American, especially poorer ones.

In return 400 million Chinese were pulled out of poverty and became part of the global middle class. They used the proceeds of their labor to buy grain (there's no more starvation in China), airplanes (jumbo jets fly hourly schedules between Shanghai and Beijing), and the construction of superhighways and bullet trains (Tom Friedman's favorite toys), among many other things.

Though somehow Mr. Henderson thinks this is a problem.
The problem from the viewpoint of the U.S. capitalist class and its political representatives—the Party of Order of both Democrats and Republicans and the emerging Trump America First gang—is that the U.S. capitalists in squeezing huge amounts of surplus value out of the Chinese have been forced to develop China’s productive forces at the same time.
Mysteriously, he thinks we'd be better off if China remained poor. Just how are those poor, starving Chinese supposed to buy grain, airplanes, and everything else from the USA? They have to sell something to us first--as I said in a previous post, it's all about trade. The USA can't trade with countries that have nothing to sell. Fortunately for all of us, Sam Walton enabled China to sell lots of stuff to Americans.

Mr. Henderson buttresses his argument with one big factual error. He claims that because production increased in China, US industrial production has been declining.
In order to make the empire last for even 70 years—a very short period historically—the U.S. had to give up much of its domestic industrial production.
But this is manifestly not true--US industrial production has more than doubled since 1980! Don't believe me? Then listen to that Marxist economist of (deserved) renown, Kim Moody (my review here):
The problem with trade-based explanations [for the decline in manufacturing employment--ed] is that manufacturing output hadn’t shown a decline, but had grown in real terms by 131% from 1982 to 2007 just before the Great Recession reduced output. At an annual average of 5% this is only slightly less than the 6% annual growth of the 1960s.
So both China and the USA were successful from 1980 through 2010. But the world moves on; this is how Mr. Henderson sees the future.
China on the other hand, as the world’s most rapidly expanding manufacturing power, is now its strongest proponent for globalization, “free trade”, open markets and multinational trade agreements. Under China’s “One Belt, One Road” initiative, which is aimed at creating a modern version of the Silk Road, a network of trading routes from China to Africa and Europe, it has launched a massive economic outreach dwarfing even the Marshall Plan of U.S. imperialism following WWII.
Let's take this apart.
  • China is not "the world's most rapidly expanding manufacturing power." The United States is, by far. Robots and AI have reduced the value of low-wage labor, and sharply increased the advantage of cheap electricity. Thanks to fracking, the US has by a good margin among the cheapest electricity prices of any country in the world.
  • OBOR ain't gonna work--see my previous post. The only advantage is it gives China a back door to Persian Gulf oil. Though shipping oil over the top of the world won't be cheap.
  • Yes--China is a strong proponent of globalization and free trade, for obvious reasons. But see my reviews of Peter Zeihan's books for more about that.
I tend to be a China Bear, though not as pessimistic as Mr. Zeihan. Here are some of the important problems China faces.
  • Chinese population growth is slowing, and the size of its labor force is actually shrinking. Since labor force growth is the biggest component in overall economic growth, this will severely limit the Chinese economy going forward.
  • The economy is too big to be primarily export-oriented. Global markets simply can't absorb all that stuff. Exports will have to decline as a fraction of GDP.
  • China is dependent on foreign oil, which will put it at a significant disadvantage to the US.
  • Increasing personal consumption--and therefore income--is absolutely crucial to sustain the economy. That means Chinese citizens have to get a lot richer, which means productivity has to increase--dramatically. I'm not sure they can do that.
  • China has a huge debt burden, which is a drag on future growth.
So I think the best case scenario for China is growth at global rates, i.e., around 2%. Personally, I'm skeptical if they can sustain that. Then it becomes an issue of whether or not the country remains politically stable.

*Not sure I buy the "foreign investment" argument. I don't believe the US ever ran a trade surplus with China, which means net foreign investment must have flowed toward the US, not toward China.

Further Reading:

Tuesday, December 12, 2017

Sex and the Alpha Male

What the mainstream media has to say about the slew of sexual harassment scandals is silly. In their telling women have finally had the "courage" to call out "unacceptable" behavior on the part of "men." We are now at a turning point, they claim, where the male psyche has been sufficiently tamed such that we stand on the precipice of a different world.

Hogwash! "Courage" is not a new attribute among women, but rather a function of new media. It's easy to be courageous in an era of Facebook, Twitter, and cell phone cameras. In an earlier day the best you could do is go to the New York Times and plead for coverage (which mostly didn't happen). Nor has the male psyche changed--it's just that any expectation of privacy is now non-existent. Whatever they do is likely to become public, much to the embarrassment of Alphas who preferred their failed efforts at conquest remained secret.

The world will adjust, and not by a decrease in sexual hijinks. Instead the constant scandals will wear on the public, they'll tire of them, and soon enough tune them out. This, too, shall pass.

The most perceptive post on the kerfuffle that I have read so far surprisingly comes from a music professor. Kristi Brown-Montesano (B-M) is on the faculty at Colburn Conservatory of Music, has authored a book entitled The Women of Mozart's Operas, and pens a piece entitled Holding Don Giovanni Accountable.* (h/t Tyler Cowen)

The opera revolves around three women, two aristocrats and a peasant girl. Donna Elvira is in love with Don Giovanni and feels betrayed by his infidelity. Donna Anna was either raped or seduced by him. Her father came to defend her honor and was murdered by Don Giovanni. Finally, Zerlina was also raped or seduced by the Don.

Professor B-M is convinced that rape is the appropriate descriptor in the latter two cases. Maybe. Though if I were Mr. Giovanni's defense attorney I could at least raise reasonable doubt.

For starters, rape isn't really an operatic subject, while seduction certainly is. If my client were intent on simply forcing himself on Zerlina, why did he sing her such a beautiful aria beforehand (Là ci darem la mano)? To which her reply was roughly I want to, but I shouldn't.

She eventually succumbs, after which she is deeply ashamed. She goes to her fiance begging forgiveness with what I think is the most beautiful aria in the whole opera (Batti, batti, o bel Masetto). Forgiveness is soon granted.

The professor has a stronger argument in the other case. According to Donna Anna (echoed by Lepporello), Giovanni sneaked into her bedroom and raped her, after which he murdered her father. We don't know for certain what happened--the events occurred off-stage before the opera even begins.

Donna Anna loudly proclaims her victimhood, and feels not ashamed but rather humiliated. Instead of seeking forgiveness, she goes to her hopelessly feckless boyfriend--Don Ottavio, a Beta male if there ever was one--and demands that he avenge the crime. He comically touts his pathetically unsuccessful efforts to redeem her honor.

And maybe a crime it was. But why? Giovanni is obviously very successful with the ladies and doesn't really need to force himself on anybody. She, meanwhile, has every reason to lie about it. That's my lawyerly response, and maybe it's true.

Were I producing Don Giovanni, I'd cast Anita Hill as Donna Elvira. She always struck me as the woman scorned, and had she become the Mrs. Clarence Thomas we'd never have heard another word from her.

Monica Lewinsky will get Zerlina's role, an innocent seduced by a charming man. She never claimed otherwise, and I don't recall her ever saying a bad word about Bill Clinton. Like Zerlina, all she sought from the public was forgiveness, which she never received. We were too mean-spirited.

Finally, I'd assign Juanita Broaddrick the role of Donna Anna. She claims she was raped by Bill Clinton, and perhaps that's true. Again, though, why? Rape is usually the last resort of low-status males who can't get it any other way. Bill certainly doesn't fall into that category--why would he force himself on somebody when there were any number of others eager for the privilege? So I don't believe her, just as I don't believe Donna Anna.

Mozart's opera is about a male predator and not a female manipulator (for that, listen to Bizet's Carmen). Women have a career option not open to most men--they can spread their legs in return for promotion. When men offer that bargain it is considered a fireable offense. But surely as often as not the offer comes from the woman. In the current environment the man is damned if he accepts her offer and damned if he doesn't. It's always his fault, no matter what the circumstances. That's what makes it an unfair witch-hunt.

So we need some rules about sex in the workplace. It's just that I don't know what they should be. Perhaps we should go by the Mike Pence standard: no man should ever be alone with a woman not his wife? That would end sexual harassment, albeit at the cost of putting the kibosh on most women's careers. Though we're headed toward a rule like that on college campuses.

Or perhaps it's a prohibition against sex in the workplace? My former campus recently instituted something very similar to that. I'm not opposed to it, but it has to be enforced against both genders--not just men.

I can tell you what the solution is not: the females in Congress want all men to behave like Don Ottavio--cowardly, weak, ineffectual. Alpha males are supposed to sacrifice their Alpha-ness and become wallpaper. It won't happen, and surely we don't want it to happen. What a boring world!

So I think (based only on what I know, which may not be enough) that Al Franken has done nothing to deserve losing his Senate seat. The Democratic women are stupid. John Conyers is on the bubble, but he's so old he should probably retire anyway. Donald Trump behaved in precisely the way you'd expect Donald to behave, and as far as I can tell has done nothing worse than Al Franken. He should not be impeached for sexual misconduct (or for any other reason).

Roy Moore's transgressions are much worse and if true are literally criminal. Though they happened a very long time ago. I surely wish that Luther Strange had won the primary. The fact that the allegations were made public only after the primary speaks to the dishonesty of Alabama Democrats, and also is a reason to doubt the whole story.

Still, I wish the guy would just disappear. Having said that (were I an Alabaman) I'd vote for him. He's a bastard, but he's our bastard.

The final scene in Don Giovanni is like the ending to a cheap, dance-hall rom-com. It's a we all lived happily ever after epilogue. The Human Comedy is indeed just that: a comedy. Complicated humans will rarely interact in straightforward, good/evil ways, especially when it comes to sex.

Shit happens. Get over it. Get a life. Enjoy the passing scene.

* Don Giovanni is an opera by Mozart about an aristocratic playboy (also known as Don Juan) whose mission in life is to f**k as many women as possible. A short synopsis of the plot is here.

Further Reading: