Monday, March 11, 2019

The Philippines

I just got back from a two week visit to the Philippines. Most of my time was spent in and near Metro Manila, but we did do some island hopping--to Cebu, Bohol, and Dumaguete.
My first visit to the country was in 1988, and the last time I was there was 1995. So it's been 24 years--and gosh, the country sure has changed! It's much richer than before.

Manila traffic is still awful, but it's not as bad as I recall from my previous trips. They have expanded rail transit significantly. Just as important, they have built out the expressway and toll road system around Manila. The famous boulevard--Epifanio de los Santos Avenue, known universally by its initials, EDSA--has been converted to a full-fledged expressway. That cuts the heart out of the city, but it has hugely improved traffic flow.

EDSA, you may recall, was the site of the mass demonstrations that overthrew the Marcos dictatorship in 1986. The date, February 25th, is celebrated as Revolution Day and is a national holiday. EDSA today could not host such an event--it would be like holding a mass rally on the Dan Ryan Expressway. I'm not real clear where a revolution today might happen. Rizal Park? Triangle Park in Makati? Roxas Blvd? I'd vote for the latter.

Manila used to be very polluted--everybody wore face masks. I'd end each day with my nose, eyes and ears filled with diesel dust. Today this is much improved, largely because the country is gradually banning the diesel-burning, smoke-spewing jeepneys. These iconic vehicles are being replaced by less attractive but much cleaner, gasoline powered minibuses.
Image result for jeepney
Filipino Jeepney (Picture credit)
They've also banned smoking! There is no smoking in any mall, store, or restaurant. Indeed, apparently it's illegal to smoke on the street--I didn't see anybody doing it. I did see the occasional Jeepney driver lighting up.

Apart from the rail system (which I never used) public transit in the country is all privately owned and operated, beginning with the Jeepneys or their replacements. Bus lines are private, as are all the ferry boats. The latter are clean, punctual, safe, and cheap. Domestic air travel is also cheap, the result of competition between Philippine Airlines and Cebu Pacific. The toll roads are privately operated--I'm not sure who owns them or how the right-of-way was procured. They are in good shape, but the tolls are pretty steep. Accordingly there isn't too much traffic, and most users are trucks, buses and other commercial vehicles. By contrast, publicly-owned EDSA (which is not tolled) is a parking lot for much of the day.

Approximately 25% of all Filipinos are part of the global poor. The definition roughly corresponds to the United Nation's--less than $3/day. That means 75% of the country has moved into the global middle class, i.e., possesses some discretionary income.

Grab drivers (the Filipino equivalent of Uber) earn about $15/day (net of expenses). I think store clerks are paid similarly (there are a lot of them!). That's enough money to occasionally eat in a fast food restaurant, buy toys or cosmetics, or once in awhile take a day off and go to the beach. On the other hand, one of my wife's relatives is the director of a large Catholic school (more CEO than principal)--she earns $2,000 per month.

My wife grew up in a rural barangay ("village," or "neighborhood") 100 km south of Manila, known to locals by its initials: GKBB. It consists of a single road, lined on both sides by large, mostly unoccupied houses. The story of who built, owns, and occasionally lives in those houses is the story of the Philippine economy.

The country produces no industrial exports. Agricultural land is in short supply, and used mostly for local consumption. Regards services, since English is widely spoken many work in call centers, assisting American customers. Finally there is tourism--mostly oriented around beaches and diving.

By all rights the Philippines should be a very poor country--rather like Haiti--foreign exchange coming only from low-grade services and tourism. But it's much richer than that. It's because they export people.

One third of the world's seafarers are Filipino (source). Filipinos are favored employees for cruise lines--they're 60% of the crew on Royal Caribbean vessels (source).

While unskilled labor in the Persian Gulf comes mostly from India and Pakistan, the skilled trades and mid-level engineering jobs are held mostly by Filipinos. My wife's cousin spent 20 years in Saudi Arabia, before coming home to live off the proceeds.

Millions of Filipina women work as domestics in Hong Kong and Singapore. Hong Kong's infamous yayas (nannies) lead very hard lives, as they do also in Singapore. The movie Ilo Ilo movingly relates the story of a yaya in Singapore. Filipinas by the tens of thousands staff brothels throughout East Asia and Australia.

In the United States Filipinos are concentrated in health professions--all the way from orderly to cardiac surgeon. You will also find them in engineering and hospitality jobs. The Filipino population in the US is estimated to be around 3.4 million (source).

The Philippine diaspora is truly global. My wife, children and I spent a year in Uganda--and sure enough we found a thriving community of several hundred Filipinos already there.

All those people send money home--money that's used to build fancy houses in their ancestral home towns such as GKBB, which they'll occupy when they visit or retire. In the meantime they sit mostly empty.

Of course this works--as long as the global economy grows, the Philippine economy grows with it. It's obviously grown like gangbusters since 1995--that's why the country is so much richer today than in 1995.

The precondition for the business model is that the Philippines has enough people to export. And sure enough, it has the highest fertility rate in East Asia. About 37% of the population in the central Visayas (Cebu) is below 10 years old (source). Filipinos are rightly proud of their shopping malls, but the biggest difference between those and malls in the US is this: In the Philippines they have lots of babies, while in the United States they have lots of baby boomers. (It's an added bonus for the tourist since Filipino children are unbelievably cute!) The Philippines is today a lifeline to places like Japan and South Korea, peoples so obsessed with birth control that they can't even reproduce themselves.

While the Filipino fertility rate is still about 3.0 (source), it is down from 3.5 in 2000 (source). A continuation of that trend spells disaster for the country--you can't export people if you don't have any. Without people, the country becomes as poor as Haiti.

But, being optimistic, let's hope they maintain their birth rates. Then the future belongs to the Filipino. And that's not a bad future. Not bad at all.

This isn't a travel blog. Still, here are a few pics from my trip.
Momo Beach on Panglao Island. Cebu Island is visible in the distance.
Manila Bay and city skyline--from our hotel (TRYP at Mall of Asia).
Cross of the Holy Child--Magellan's Cross in Cebu
Magellan was killed fighting for King Humabon against the Lapu-Lapu on neighboring Mactan Island.
The Chocolate Hills, Bohol

Further Reading:

Thursday, February 7, 2019

Book Review: From Fire, By Water

Author Sohrab Ahmari's memoir is entitled From Fire, By Water: My Journey to the Catholic Faith.

I first encountered Mr. Ahmari's writing in the pages of Commentary Magazine, the only print periodical to which I still subscribe. I do so because the writing is unfailingly excellent and about topics that interest me. Mr. Ahmari's contributions were no exception. In my mind's eye I pictured him as an old, wizened Iranian Jew, highly educated and long since exiled from his homeland.

So it was a shock to learn that he was born in Tehran in 1985, and raised in a nominally Muslim, mostly secular, upper-middle class family who imagined themselves to be "intellectuals." He and his mother emigrated to America when he was 13 years old, settling in (of all places) rural Utah. There he finished high school and attended college at Utah State, eventually graduating with a degree in philosophy from the University of Washington.

So I'm a sucker for the spiritual journey memoir. The first one I read many years ago was Thomas Merton's famous Seven Storey Mountain, a book describing his journey to a Trappist monastery. I even enjoy the genre in movies--among the few films I have watched more than once is the low-brow rom-com Finding Normal. While not explicitly churchy, the lady protagonist finds love, faith and happiness in small town Normal, Louisiana.

A spiritual journey typically involves a descent into "hell" (my term) followed by a climb back into the light. That is precisely the path followed by our protagonist, including a lot of drinking and loose living. Mostly it's an intellectual journey, beginning with the faux-intellectualism of his youth and bottoming out in dissolution.

Of specific interest to this blog's readers is his stop on the way down at Trotskyism. While a student at Utah State (must've been around 2003) he contacted a grouplet in Salt Lake City called the Worker's Alliance, supposedly affiliated with the Fourth International. They published a newspaper called Equity. I have never heard of this organization before, which given the plethora of Trotskyist grouplets is not surprising. But Google doesn't help--a search for Worker's Alliance or Equity turns up no relevant results.

My hunch is that our author has changed the names so as not to embarrass anybody.

Mr. Ahmari, now committed to his new ideology, moves to Seattle where the national headquarters was located, and to complete his education at UW. The only Trotskyist organization I know of headquartered in Seattle is the Freedom Socialist Party, along with sundry splinter sects therefrom. But that group is centered more around a bespoke version of feminism than Trotskyism--a topic never mentioned in the book.

One more odd thing: Mr. Ahmari refers to his comrades as "Trotskyites," a name that in our day we found insulting and derogatory. It was the term of abuse Stalinists employed against us. Accordingly we always called ourselves "Trotskyists." Though by 2003 the Stalin/Trotsky thing may have faded into history, and perhaps that bit of political correctness was no longer necessary.

Apart from walking a few picket lines, Mr. Ahmari didn't do very much. He never reports writing for their newspaper--a natural thing for him to do. Mostly he engaged in long conversations that he perceived as indoctrination sessions. For him, Trotskyism was an intellectual waystation--there was very little about it of practical significance. In my day we would have called him a dilettante--I don't think he'd disagree with that description.

Though the book is overwhelmingly intellectual, in one episode reality breaks through. Our author is locked in a room with a bunch of very poor, very desperate men about to embark on a dangerous and illegal journey, and for whom there was no turning back. Naturally, in that environment some people behave badly. In his words:
[The] house was a kind of charnel pit or Sheol, though the people in it were yet alive. It was a void, though it existed within the boundaries of space and time. It was on fire with degradation--and sin.
I wasn't there, so I don't know. But from his account I think he overstates the case. Yes, bad things happened. But there were also small acts of heroism and charity. There was degradation--but more because of poverty, panic and desperation than sin. Describing it as "Sheol" seems uncharitable.

Rather than spiritual journey, another way to read the book is as a coming of age story. In this it is remarkably similar to Hillbilly Elegy (my review here), authored by J.D. Vance. Unlike Mr. Ahmari, Mr. Vance didn't descend into "hell," but rather was born there. And the rise wasn't spiritual as much as sociological or political. Both of them found their calling at about age 30, which I think is when the (male) personality reaches maturity. (My history is similar.)

Mr. Vance, at least, is accompanied on his journey by other people, notably his sister, Lindsay. The book is as much about his grandparents as it is about him. But he acquires a wife only at the end--she arrives as a reward for successfully coming of age.

By contrast, Mr. Ahmari travels alone. His grandparents figure in the first chapter, and his mother also during the first years in Utah. But once he leaves home we barely hear from them again. I, for one, wanted very much to know how his mother made out. Unlike Mr. Vance, he gets married midway through his sojourn. The new bride makes a cameo appearance, after which he leaves her for London where he embarks on becoming a Catholic by himself.

Mrs. Ahmari must have been present (on the most important day of his life) when he'd "have the archdiocese convalidate my civil marriage." But she's not mentioned by name, and even the grammar of the sentence suggests she wasn't even there. She plays absolutely no part in his conversion, and behaves like she's a wooden post.

Weird.

There's probably an innocent explanation. Perhaps Mrs. Ahmari enjoys her privacy and doesn't want to be in the book? Or maybe he's convinced that conversion is an internal affair of the heart--solely a matter between him and God? Whatever--he comes across as a selfish cad.

How different this is from the movie Finding Normal, where the beloved is not only a suitor, but also an agent of transformation. It's the romance that makes the movie, and the movie can then carry the underlying message of faith, hope and love.

I have one more nit to pick, and only because I'm a certified geographical pedant. Mr. Ahmari's knowledge of our country's geography is simply appalling! Brownsville is not anywhere close to the Texas panhandle, nor is California north of Texas. I'm astonished that such obvious errors got by the book editors.

The above paints too negative a picture. I actually enjoyed this book--a lot. Mr. Ahmari is a good writer, it's an engaging read, I'm a fan of the genre, and it's not too long. I read it over two or three evenings just before bedtime. Beyond journeys, spiritual or otherwise, you'll learn a lot about both Iran and Utah. My review leaves out the good stuff. In part that's on purpose--go read the book for yourself.

Further Reading:

Saturday, February 2, 2019

Book Review: Fischer Black

The book is by Perry Mehrling and the full title is Fischer Black and the Revolutionary Idea of Finance.

I loved this book. I read it like a textbook--marking up my Kindle with extensive highlights, reading several chapters multiple times, and writing detailed notes so I don't forget so much. I was even inspired to look up a couple of Mr. Black's original papers.

It's not for beginners--I've read a couple econ textbooks, which seems sufficient. A little math background will be helpful--if you know what a random variable is you'll do just fine. That said, Mr. Mehrling writes extremely well, and a close reading will be rewarded.

Fischer Black (1938 - 1995) is most famous for the Black-Scholes equation for pricing options, in collaboration with Myron Scholes, following on work by Robert Merton. In 1997 Scholes and Merton were awarded the Nobel Prize in Economics, an honor Mr. Black would surely have shared had he lived long enough.

The mechanics of his life are not dramatic. He graduated in physics from Harvard, and then went to MIT to study computer science/statistics/economics, etc. He was sufficiently smart that they let him hang around without making much progress toward a degree, but eventually he settled on a thesis in operations research, for which he had already done the work. He graduated with a PhD within a year of formally entering the program.

He was married three times and fathered five children.

The first third of his career was spent as a consultant for Arthur D. Little. The second third was in academe, initially at the University of Chicago, and then at MIT. For the last decade he worked at Goldman Sachs. He died of throat cancer.

Mr. Black became interested in finance while still a grad student, during which time he met the founder of the modern discipline, Jack Treynor, who became his muse and colleague. Unlike Mr. Treynor, however, Black saw a deep connection between finance and economics. The result is he was always the odd man out--too much of finance guy for economists to take him seriously, and too much of an economist to fit in with the finance community.

The enormous progress in finance made during the 1960s was due largely to the newly available computer technology. Prior it had been impossible to test financial theories--investing was done on the basis of a hunch and hot tip. But computers demonstrated that stock prices moved randomly around a mean, and sometimes the variance was large. A lot of people traded on the noise, confusing it with the signal. Noise trading is never profitable on average, and including transaction costs it's a guaranteed loser.

Mr. Black asked why people persisted in noise trading--and that got him interested in behavioral economics.

Three themes dominated Mr. Black's thought: 1) the Capital Asset Pricing Model (CAPM), 2) the efficient market hypothesis, and 3) equilibrium.

CAPM, inherited from Jack Treynor, is summarized by this equation,
                                    E(R_{i})=R_{f}+\beta _{{i}}(E(R_{m})-R_{f})\, ,
where E(Ri) is the expected return on the investment in an individual stock i, and E(Rm) is the expected return on some market index (e.g., the S&P 500). The equation tells you how you should price an individual stock with respect to the market index. It can be generalized to include assets other than stocks, such as real estate, precious metals, etc.

The equation contains two parameters that Mr. Black considered to be of central importance to all economics. Rf is the risk-free interest rate, i.e., the interest rate you will receive for the safest investment you can imagine (e.g., the Fed funds rate). \beta _{{i}}~~is the volatility of stock i compared to the volatility of the index. Very risky (noisy) investments have a large beta, while safe (less noisy) investments have a very small beta. Beta is a measure of risk, and can be measured by calculating the variance (or variation) of price over time. CAPM says that the higher the risk, the greater the return on investment.

The efficient market hypothesis (EMH) claims that market always prices stocks in a way consistent with CAPM. That is, the price of share i will be E(Ri) + noise. If EMH is true, then it will be impossible to profitably trade stocks, since all you could do is trade on noise.

Or, to paraphrase Warren Buffett: if EMH is true, then how come I'm so rich? Mr. Buffett--who got rich by trading stocks--did not have much use for EMH.

That brings us to equilibrium, which is a funny word. In chemistry, a system is at equilibrium when it no longer changes over time. I think Keynesian economics views the concept in a similar way; they always talk about the natural rate of interest or the natural rate of unemployment. The goal of policy is to achieve that nirvana of natural rates where (absent external shocks) the economy will be stable, i.e., in equilibrium.

Mr. Black thought about equilibrium in a completely different way. In his view, equilibrium existed when there were no arbitrage opportunities. In other words, if assets were always priced by CAPM, and markets were invariably efficient, arbitrage would be impossible. There would only be noise, but never would there be time-independent stability as predicted by Keynesian models.

But EMH isn't always true. Markets are often out of equilibrium, and that leaves the door open for traders to make money. The effect of trading will be to pull the market back to CAPM and EMH.

In some cases disequilibrium arises from human nature. In particular, human intuition about risk is not accurate: we underestimate the risk of driving a car, and overestimate the risk of flying on a commercial airline. It's the same with stocks. We tend to be loss averse, which means we overvalue safety and undervalue risk.

That's precisely the disequilibrium that made Warren Buffett's fortune. He bought low risk stocks (calling it "value investing") instead of high risk stocks. Because people consistently underestimated the risk, he got them for cheap, which means he made a killing. He arbitraged our psychological biases.

I don't think that trick works as well anymore--sophisticated program trading is all over it. The arbitrage pushes the market back to CAPM, thus minimizing trading profits.

The biggest source of disequilibrium comes from government. The IRS taxes This and doesn't tax That. For Mr. Black that's a perfect trading opportunity--go long on This while going short on That, and pocket the delta (i.e., take money away from the IRS).

Armed with these concepts, Black and Scholes derived their famous options pricing formula--something that could never have happened prior to the computing age. An ability to price options has led to a whole zoo of derivatives and hedges, but in their day the only available option was the warrant. A warrant was an option to buy a stock at a particular price at some date in the future.

The counter-intuitive result was that the warrant price did not depend on the price of the underlying stock at all. It depended only on its volatility, i.e., its beta value.

Two things need to be said about Black-Scholes. First, it assumes a simplified, cartoon model of reality. For example, it supposed that the inflation rate was zero. In doing so it revealed a basic truth about the nature of things, but one had to be careful about its application to any particular problem. Second, suitably adjusted, Black-Scholes can be applied to any option--and even to things that aren't options but behave like them.

The quants enthusiastically adopted Black-Scholes, and completely forgot that it was too simple by half. They fell in love with their computers and took the results as good coin no matter what. The outcome--much to Mr. Black's dismay--was that Black-Scholes was increasing noise rather than decreasing it. It inspired him to write an essay entitled The Holes in Black-Scholes, in an attempt to reverse the trend.

I found Mr. Black's understanding of money to be exceptionally interesting, and I now describe it here in my own words. For simplicity we imagine a cartoon world.

Consider Germany and Italy back in pre-Euro days when the Germans counted their Marks while the Italians spent their Lira. Imagine also that Germans ate bratwurst every day, for breakfast, lunch and dinner. They bought bratwurst for Marks, and because the market was so large and so steady and so liquid, the price of a bratwurst hardly changed at all. The volatility was very low. A German in Berlin, spending Marks, could buy bratwurst at the risk-free price.

Similarly, our cartoon Italians are addicted to spaghetti, which they eat every day for breakfast, lunch and dinner. They pay for it in Lira, and for identical reasons an Italian in Rome, spending Lira, can buy spaghetti at the risk-free price.

Occasionally, however, Helmut and Hilda, feeling adventurous, instead of eating bratwurst for dinner they go to an Italian restaurant to eat spaghetti. The market for spaghetti in Berlin is much smaller, less liquid, and therefore much more volatile. Sometimes spaghetti is cheap, and other times it's expensive. Unlike bratwurst, spaghetti is a risky good--on bad days the restaurateur will lose money, while on good days he'll make a killing.

Likewise, back in Rome, Mario and Maria hire a babysitter so they can go out for some bratwurst. They hope it will be cheap that day, because like spaghetti in Berlin, bratwurst in Rome is a risky good. The price varies by a lot.

In Germany, bratwurst is a risk-free good, while spaghetti is a risky good. In Italy it's the other way round. When a German uses his Marks to buy Lira, what he really is doing is purchasing an option to buy spaghetti at the risk-free price. And likewise, when an Italian buys Marks, she is really purchasing an option to buy bratwurst at the risk-free price.

Please read that last paragraph again to make sure you understand it.

Thinking of currencies as an option to buy risk-free goods means that the Black-Scholes formula (suitably modified) applies to currency transactions as well. That is, the exchange price between Marks and Lira depends on the volatility of spaghetti prices in Berlin and bratwurst prices in Rome. That is, it will depend on the price of risk.

To make the model less cartoonish, substitute for "bratwurst," a market basket of items typically purchased by German consumers in Berlin, and for "spaghetti," a market basket of items typically purchased by Italian consumers in Rome. Both of those are risk-free goods, but move them to the opposite capital they become risky. The exchange rate between Marks and Lira is proportional to the cost of that risk.

Note that this way of thinking about currencies puts the gold bugs out to pasture. The cost of bratwurst in Berlin is incommensurate with the cost of spaghetti in Rome. And if you reverse the capitals the prices are equally incomparable. There is no single price of gold that's going to measure both of them meaningfully.

The Euro won't work, either, and for the same reason. Since market baskets in Germany and Italy really are different, I think the Euro project is doomed. It's an attempt to take the risk out of risky goods by fiat.

So I really like Mr. Black's model (and kudos to Mr. Mehrling for explaining it to me). But I'm skeptical, and here's why.

Note that, in Mr. Black's model, currency fluctuations depend on different consumption baskets in different countries. So I used to live in Buffalo, where we spent greenbacks. Forty miles away is the comparably-sized city of Hamilton, Ontario, Canada, where they buy stuff with Loonie coins. For the life of me, I can't see much difference in what we consumed in Buffalo vs. what they consumed in Hamilton. We eat the same food, live in the same houses, drive the same cars, speak the same language, attend similar schools, get the same haircuts, etc. There may be small differences, but no spaghetti/bratwurst distinction.

That implies that the exchange rate between dollars and Loonies should remain about constant. So I'll remind you that in 2014 the Loonie bought US$1.05, while today it only fetches $0.76. That's a big delta for what should be a near risk-free exchange!

The common reason given for fluctuations in CAD/USD exchange rates is the price of oil--Canada is dependent on oil exports to the US. In 2014 oil cost about $100/bbl--today the price hovers around $55, which seems to explain the drop in the Loonie. And maybe that's true, but it's inconsistent with Mr. Black's model. In his account currency exchange rates are established by differences in consumption patterns, not production patterns.

That aside, Fischer Black had lots of other thought-provoking ideas, and Perry Mehrling's book explains them clearly. I highly recommend Mr. Mehrling's biography of Fischer Black.

(Apologies for exceeding my self-imposed word-count limitation. I just had too much to say.)

Further Reading:



Thursday, January 17, 2019

Socialist Action's Convention, 2018

Socialist Action's (SA) 2018 convention was held in Minneapolis on Oct. 12 - 14, with the account on their webpage delayed until January 16th. It's mostly straight Trotskyist boilerplate--why it took them three months to put the article together is a mystery to me.

The relevant article (by The Editors) is entitled Socialist Action National Convention registers gains. Precisely what has been gained is left unsaid. Commenter John B estimates they have about 100 members--which seems consistent with the only statistic offered: there were 70 contributions to the pre-convention discussion bulletin.

The showstopping news is that the Party now declares China to be a capitalist country. Wow! They finally noticed. And Russia, too. But that's not all--they've gone all out on a capitalism-shaming kick. Even Venezuela and North Korea are now put into the capitalist camp.

As late as 2017 SA classed North Korea as a "deformed workers state," similar to the former Soviet Union. They don't explain how or when the counter-revolution and capitalist restoration has since occurred.

Likewise, Venezuela, once a beacon for leftists everywhere, has now become anathema, disowned by everybody. Apparently SA uses capitalist to describe any regime it doesn't like--the term is reduced to mere epithet.

For SA capitalism is an on/off switch--there are no gradations. A country is either capitalist (apparently all countries except Cuba), or a workers state (Cuba). Of course that's not true--some countries are more capitalist than others. A good proxy for degree of capitalist is the measure of economic freedom put together by the Heritage Foundation. Hong Kong tops the list, followed by Singapore and New Zealand. The US comes in at #17.

Ironically, super-socialist Alexandria Ocasio-Cortez (AOC), often accused of "going the full Venezuela", denies it, claiming her model for socialism is Sweden. Sweden ranks #15 in economic freedom--i.e. is more capitalist than even the USA!

The countries at the bottom of the list--i.e., most likely to be non-capitalist--are (in order) Cuba, Venezuela, and North Korea. The correlation between economic freedom and per capita GDP is pretty good, especially if you exclude rent-collecting petrostates and off-shore banking havens. Capitalism is good for children and other living things.

But back to China. SA claims that a poor China is good for our economy. This is certainly not true--how can we sell things to a bunch of poor people? And further, people who can cost-effectively manufacture goods for American consumers will not remain poor for very long--300 million Chinese have been brought into the global middle class. I have discussed this issue at length in my replies to Lynn Henderson, here and here.

The Editors add a wrinkle to the argument bringing in America's defense of intellectual property rights.  They write,
China’s entry into the World Trade Organization in 2001 was conditioned on its respecting foreign corporations’ intellectual property rights—that is, agreeing not to compete by transforming its primitive factories via state-of-the-art technologies, which the U.S. today insists are protected by U.S. patents (“inviolable” intellectual property rights). As a result, for close to two decades and until recently, the level of Chinese labor productivity lagged far behind most capitalist nations.
The US (and the European Union) expected China to obey WTO intellectual property laws. This is a free market principle that the US wants to defend. It does not follow that the US wants China to be poor. No way. A poor China means a poorer United States.

But geopolitics gets in the way. Not only are we economically dependent on China, but China is a military competitor. For that reason we care very much if military technology falls into Chinese hands--and preventing that from happening is really important, even at the cost of more poverty.

Trump's trade policy is to lessen our dependence on China by moving as much "Made in China" over to "Made in Mexico." It is understood this will lower Americans' standard of living somewhat.

SA follows the Leftist lead in slandering President Trump. They write,
Yes, Trump is a billionaire businessman—an overtly racist, sexist, anti-immigrant, climate crisis denying, detention center/concentration camp crusading, homophobic, Islamophobic, warmongering, imperialist beast.
Trump may be racist (I don't think he is), but he certainly isn't "overtly racist." An overt racist would call for the restoration of Jim Crow, or claim that Blacks shouldn't be allowed to vote, or tout the superiority of white people. Trump has said nothing like that. An overt racist, eating a taco bowl, would have said "I hate Latinos" instead of (what he did say) "I love Latinos."

He's not even overtly racist against Mexicans. Here is what he actually said.
When Mexico sends its people, they're not sending their best. They're not sending you. They're not sending you. They're sending people that have lots of problems, and they're bringing those problems with us. They're bringing drugs. They're bringing crime. They're rapists. And some, I assume, are good people.
He is not saying that all Mexicans are problematic, drug-pushing rapists. Only the ones that the government is sending over the border. Now I think that statement is completely false, but it's not "overtly racist." It is a criticism of the Mexican government.

Some on the Left are smarter than our Editors. They say that Trump talks in "dog-whistles" or secret code. In other words, he's not overt, but instead a disguised racist. That position is arguable, though I don't think it's true, either. Instead he just doesn't care about race--the issue is to him completely unimportant. He's race-ignorant.

Likewise, it is hard to call Trump a "warmonger," especially now that he's pulling troops out of Syria. He's said nothing to suggest he's "homophobic," and it stretches credulity to think he advocates "concentration camps." Only the "climate crisis denying" charge sticks--and I'm down with him on that one.

Socialist Action would have a lot more credibility if it could get its own house in order. This is what they say about the Fourth International (FI).
Our delegation at the FI’s February 2018 World Congress aimed at re-orienting the FI to its historic rejection of coalition capitalist (“popular front”) politics and imperialist wars, unconditional support to the right of oppressed nations and peoples to self-determination, and the construction of disciplined revolutionary parties on the Leninist model aimed at the construction of a world socialist order.
SA is defending a strategy that has never, ever worked in world history. Despite the rewriting of history after 1917, not even the Russian Revolution was caused by a Leninist Party. Neither were the (since failed) Chinese and Cuban revolutions. The concept of a Leninist vanguard party is a total dead letter.

Compare, for example, AOC. While it's obvious that she's a major ignoramus (a problem that will solve itself in time), at least she has charm and good looks. Indeed, in a recent Rasmussen poll AOC essentially tied Trump in a hypothetical presidential match-up. So the lady has some serious charisma, along with formidable social media skills.

Compare her with Jeff Mackler--Socialist Action's 2016 presidential candidate.
Socialist Action’s decision to run our own candidate for the presidency, even as an extremely modest propaganda effort, stood us in good stead with regard to the education of our ranks along with radicalizing layers who were beginning to learn the lessons of independent working-class politics in the electoral arena.
They're not kidding about the "extremely modest propaganda effort." All they did was a five-day campaign swing through southern New England. And contrary to AOC, Mr. Mackler has all the charisma of Leonid Brezhnev.

That despite the fact that he is the Vanguard of the Vanguard, uniquely possessed of The Precisely Correct Revolutionary Program. So perspicacious, in fact, that he can tell us that North Korea is now capitalist when it wasn't in 2017. Not even AOC can compete with that!

I think an American socialist revolution is hopelessly improbable. But if I were to bet on somebody leading it, that somebody would be Ms. Ocasio-Cortez instead of Mr. Mackler. I'll put million to one odds on that.

Further Reading:

Friday, January 11, 2019

A Leftist Criticizes the Left on Immigration

I'm grateful to Socialist Action (SA) for turning me on to an intriguing article by Amanda Nagle, an author with whom I was previously unfamiliar. SA's critique by Ivan Dolphy is headlined Angela Nagle’s shoddy remedies for the ‘migrant crisis.’ Ms. Nagle's contribution, published in American Affairs, is titled The Left Case against Open Borders.

Mr. Dolphy's post suffers from the disease common to my Trotskyist friends, namely an inability to treat their interlocutors respectfully. Everything descends into ad hominem attacks, accusing others of moral turpitude or laziness. The word 'shoddy' in the title sets the tone. Ms. Nagle pens a 'diatribe', she fakes a 'leftist tinge', and she's accused of purposely taking Marx out of context (I think she's not guilty).

The closing line of Mr. Dolphy's piece sums up Ms. Nagle's supposed moral failings--pejorative terms and arguably untrue accusations included.
Given that Nagle is now officially on the payroll of a rag that changed its name from The Journal of American Greatness, it poses the question of who the useful idiot to big business might be.
It's not really a serious critique.

Ms. Nagle's key point is that open borders and free immigration are really a causes for the libertarian Right, and not the Left.

She writes,
The transformation of open borders into a “Left” position is a very new phenomenon and runs counter to the history of the organized Left in fundamental ways. Open borders has long been a rallying cry of the business and free market Right. Drawing from neoclassical economists, these groups have advocated for liberalizing migration on the grounds of market rationality and economic freedom. They oppose limits on migration for the same reasons that they oppose restrictions on the movement of capital.
She could have cited Michael Clemens' 2011 article entitled Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? The thesis is that, if the world's people could just move freely to the location where they'd earn the most money, it would immediately add trillions of dollars to global GDP.

Ms. Nagle suggests that the Leftist impulse to be kind to migrants is conflicting with what should be their loyalty to the indigenous labor movement. After all, it's hard to build a union when a whole lot of cheap, scab labor is being imported from Honduras.

In Ms. Nagle's view, the only true beneficiaries of unfettered immigration are the bosses, who get more labor at cheap prices. The fact that the migrants clearly earn more than they would in their home countries is apparently not important to her. The primary effect of immigration, claims Ms. Nagle, is to lower the wages of domestic workers. And domestic workers do suffer, no doubt.

Though Mr. Dolphy disputes her leftism, like a true Marxist Ms. Nagle sees everything as zero-sum, and ignores the primary beneficiaries of immigration--consumers. Joe Six-Pack can get his lawn mowed for $20 instead of $100, which definitely raises his standard of living. The libertarian view depends on precisely this point: a rise in GDP means that more goods and services are consumed, which is good for everybody. A trillion dollars is no small increase in consumption.

However good immigration is for the economy, completely open borders is politically impossible. The arguments against it are non-economic, and concern culture, history, demographics, and governance. For example, countries that are in serious demographic decline (e.g., Hungary, Sweden, Japan) are the least tolerant of migrants--they're afraid of being swamped. That is a factor in America's opposition to immigration as well.

Further, there is the trilemma--no less true for being old. Among the three goods--democracy, a functioning welfare state, and high rates of immigration--pick any two. Ethnic homogeneity is a precondition for democratic support for a welfare state. Lots of immigrants will be tolerated only as long as few social welfare benefits are extended to them. Or, as happens in the EU, high rates of immigration require undemocratic, dictatorial methods by the Brussels bureaucrats.

The libertarian choice is to accommodate immigration by zeroing out welfare benefits. Trump's alternative is to maintain the welfare state, but accordingly to minimize immigration. The progressive Left (including SA) defend both a generous welfare state and high immigration, but are happy to rule dictatorially (through the administrative state, or via much more totalitarian methods).

Ms. Nagle takes issue with her progressive comrades and seems to side more with Trump--at least in this context. I'm not sure she realizes that.

Ms. Nagle makes some arguments against immigration that I think are completely fallacious. For example,
According to Foreign Policy magazine, “There are more Ethiopian physicians practicing in Chicago today than in all of Ethiopia, a country of 80 million.” It is not difficult to see why the political and economic elites of the world’s richest countries would want the world to “send their best,” regardless of the consequences for the rest of the world. But why is the moralizing, pro–open borders Left providing a humanitarian face for this naked self-interest?
In other words, for the sake of Ethiopia we should prevent the immigration of Ethiopian doctors. But this makes no sense. There is no market for high-end medical care in Ethiopia, so the doctors earn a lot more money in Chicago.

Health problems in Ethiopia probably don't have much to do with doctors, but instead revolve much more about access to clean water, safe food, and appropriate sewage disposal. No doctors are required for that. What is necessary is money--and indeed, the Chicago doctors probably send more money back home than they could ever hope to earn in Addis Ababa. Also needed is good governance, which is in very short supply in Ethiopia, but has nothing to do with doctors.

Ms. Nagle asserts that NAFTA has been bad for Mexico.
Nafta forced Mexican farmers to compete with U.S. agriculture, with disastrous consequences for Mexico. Mexican imports doubled, and Mexico lost thousands of pig farms and corn growers to U.S. competition. ... By 2002, Mexican wages had dropped by 22 percent, even though worker productivity increased by 45 percent. In regions like Oaxaca, emigration devastated local economies and communities, as men emigrated to work in America’s farm labor force and slaughterhouses, leaving behind women, children, and the elderly.
She is correct that working in the US was much more lucrative for Mexican peasants than subsistence farming. I'm astonished that Leftists (including that true Luddite, Barry Sheppard) think unmechanized, backbreaking farm work represents a good future for Mexicans. In support of the "22 percent" statistic, she cites an article in People's World, a paper of the US Communist Party. That paper culls the number from a similarly dubious source.

It is certainly not true that Mexican living standards are declining. Since 2009 net migration between the US and Mexico has favored Mexico. And for good reason--the Mexican economy has been growing like gangbusters.

This past August my wife and I spent a vacation week in Mexico City. I was astonished at how rich the city was--at least as wealthy as any in Southern Europe. The notion that Mexico is being gutted by NAFTA is absurd.

The only substantive criticism that Mr. Dolphy levels against Ms. Nagle is her proposed solution to the immigration problem: a greatly strengthened e-verify. He writes,
Nagle goes on to implore the left to embrace E-verify, a policy that would place the onus on employers to verify the immigration status of all of their workers, and would punish businesses for noncompliance. Proponents of this policy claim that it’s a humane way to encourage the self-deportation of undocumented people. Basically, their reasoning is that by creating more barriers between undocumented immigrants and jobs or services it would softly encourage them to leave or not migrate in the first place.
I actually agree with him. Beyond serious privacy issues, E-verify imposes a hardship on legal workers, especially legal immigrants. Further, while illegals shouldn't be here in the first place, it's much better if they're employed than unemployed.

Here are my suggestions for an immigration policy:

  1. A generous legal immigration system (the wide front door) that preferences skilled workers who can contribute to America's economy. We need to admit people "who love us."
  2. Abolition of the H1-B visa that turns immigrants into indentured servants.
  3. A strong border that allows our country to control who moves here. Illegal immigration has to be greatly reduced. Trump's policies, while not the answer, are at least addressing the right question.
  4. We should not admit large numbers of semi-literate, unskilled people from countries like Honduras. They will not thrive in our economy and will almost inevitably end up on welfare.
Further Reading:

Friday, January 4, 2019

Socialist Action's Fund Raising Appeal


Reproduced from Socialist Action, December 31, 2018
My friends over at Socialist Action (SA) are very coy about their membership, and so I grab at any opportunity to learn something about them. Fortunately for me a recently posted fund-raising appeal included this informative photo. It's not a random sample, but it will have to do.

The demographics are much younger than I expected. Surely a similar pic from the Socialist Workers Party would feature baby boomers. SA, at least, can collect enough millennials together in one place to make a group portrait. That is an achievement--though I suppose with rising socialist stars like Alexandria Ocasio-Cortez, perhaps it shouldn't be all that surprising.

The group's agenda is nothing if not ambitious: they want to cool the planet, free Mumia, liberate women, organize hotel workers, and tear down the walls at America's southern border.

Not to mention:
Simultaneously, we have deepened our participation in the campaign to build an international party along revolutionary Leninist lines, collaborating in the Platform for a Revolutionary International with our comrades abroad. Together with our European co-thinkers, Socialist Action delegates spoke on behalf of the Platform at the 17th World Congress of the Fourth International.
The banner tells us nothing about any of those efforts--instead it strikes me as ultraleft. Back in the day when I was a Trotskyist we avoided public slogans that made us seem out of touch with reality. Apparently these young comrades are not as familiar with the Transitional Program as we supposedly were. This is the kind of banner that the Workers League or the Progressive Labor Party might have unfurled.

But back to demographics--the picture includes six men and three women. All are white but for one of the women, who looks to me like she might be South Asian. This pretty much is the way I remember the old YSA--male by a ratio of 2 to 1. And white (disproportionately Jewish) with a few "people of color" mixed in.

Something else hasn't changed, either: these comrades are dressed just as shabbily as we were back in the 1970s. While I think our hair was longer, and perhaps there were more beads, I don't think there'd be much to distinguish us versus them in a photograph. I'm embarrassed to think about it now. I'd have been so much more successful in life if I'd paid just a little bit of attention to my appearance.

It appears that only the lady on the left has any self-esteem at all. The two gentlemen on the right look like losers. The remainder mostly hide behind the banner, but they don't seem any more fashionable than the others--though perhaps the man in the middle, with the careful coiffure, is an exception.

Poor grooming doesn't make you look proletarian. No--it just makes you look incompetent. Compare our comrades with Alexandria Ocasio-Cortez, who is nothing if not fashionable. Whose party would you rather join?

Socialist Action, like all socialists, expounds at great length about how badly off the working class is. We're under constant attack, our standard of living is going down, the ruling class is perpetually trying to find way to make us poorer, the environment is dirtier than ever, and we're beset with myriad capitalist ills such as racism, war, and transphobia.

So no wonder they chose a desolate bit of commercial landscape for the photo-op: cracked pavement in a parking lot, bare trees, and is that snow in the background? In the distance I spy what might be a church--that very symbol of false consciousness. The store behind them looks like a supermarket--a cornucopia of fresh fruits and vegetables from around the world available to average people in a working-class neighborhood at cheap prices--which to socialists is nothing more than evidence of environmental destruction.

Sadly, the careful framing includes one little detail that betrays the constant litany of doom and gloom. You can see it clearly--it says "24 Hours." Why those conniving capitalists! In their efforts to impoverish us all, they can't help but keep their store open 24/7. Just so that comrades--after an arduous branch meeting--can drop by and pick up some snacks or a six-pack on their way home.

In Cuba and Venezuela they've done away with such extravagances--there stores are open for twelve hours per week, assuming they have anything to sell. And if they really do have something in stock the line outside goes around the block. Now that's the revolutionary spirit our comrades think is good for us all.

I think my friends have told us more about themselves than they intended.

Further Reading:





Friday, December 28, 2018

Henry Giroux Defends the Faculty Guild

Henry Giroux offers thoughts on the state of American higher education in Counterpunch. The piece is an interview--Mr. Giroux (now living in Canada) is interrogated by a Slovenian academic, Mitja Sardo─Ź.

I think Mr. Giroux is mostly correct on the facts:
[T]hey sought aggressively to restructure its modes of governance, undercut the power of faculty, privilege knowledge that was instrumental to the market, define students mainly as clients and consumers, and reduce the function of higher education largely to training students for the global workforce. ... 
Increasingly aligned with market forces, higher education is mostly primed for teaching business principles and corporate values, while university administrators are prized as CEOs or bureaucrats in a neoliberal-based audit culture. Many colleges and universities have been McDonalds-ized as knowledge is increasingly viewed as a commodity resulting in curricula that resemble a fast-food menu.
While I'd phrase it very differently, he hasn't said anything I think is wrong. And that's precisely the point--Mr. Giroux and I can look at the same facts and come to completely different conclusions. Our priors diverge, and therefore also our conclusions.

The key to Mr. Giroux's error (in my view) is the meaning of the word "they" at the top of the above quote. "They" refers to "neoliberals," that ill-defined boogeyman of all evil. Mr. Giroux's lede sentence sets the tone.
Neoliberalism has become the dominant ideology of the times and has established itself as a central feature of politics. Not only does it define itself as a political and economic system whose aim was to consolidate power in the hands of a corporate and financial elite, it also wages a war over ideas.
Then Mr. Giroux starts putting words in my mouth.
Advocates of neoliberalism have always recognized that education is a site of struggle over which there are very high stakes regarding how young people are educated, who is to be educated, and what vision of the present and future should be most valued and privileged.
As an advocate for "neoliberalism" (interpreted as belief in laissez-faire capitalism), that doesn't accurately express my opinion at all. Education may be a "site of struggle," but the stakes are not very high. Indeed, I think academia is gradually rendering itself inconsequential. It's an institution that is increasingly relevant only to Yankee progressives--or about 20% of the population.

Far from influencing society, academia is obsessed with political correctness, which turns it into a laughing-stock. Indeed, it's Trump's response to that trend that helped elect him. Higher ed's opposition to free speech and open inquiry further narrows its reach and influence.

Accordingly, real debate about serious issues is moving off campus, to--among other places--the intellectual dark web, or even to the pages of Counterpunch. No serious conversation about "climate change", evolutionary psychology, gender differences, sociology, or even economics can take place on a college campus. Even new technology increasingly arises off-campus--be it space flight, artificial intelligence, and (most importantly) fracking.

In a word, college is becoming a waste of time and money. It's gradually going the way of Sears, Roebuck & Co--an idea whose time has passed.

Let's consider one of Mr. Giroux's facts. He is indeed correct that colleges increasingly "define students mainly as clients and consumers." Would he have it otherwise? What does he propose instead?

He never really says. The closest he gets is this:
[N]eoliberalism undermines the ability of educators and others to create the conditions that give students the opportunity to acquire the knowledge and the civic courage necessary to make desolation and cynicism unconvincing and hope practical. As an ideology, neoliberalism is at odds with any viable notion of democracy which it sees as the enemy of the market.
Which doesn't really explain anything. It sounds like colleges should proselytize something like a religious faith--hope, as a solution to "desolation and cynicism." Of course colleges used to do that: the original mission of Harvard was to train clergy, and their motto was "For Christ and Church." Mr. Giroux seems animated by that same Yankee spirit, even if the specifics of his religion are different.

Here, as I see it, is the basic rule: Students know more about their own future than anybody else. I was a professor of chemistry, and no doubt I knew more about chemistry than the average 20-year-old. That's why they paid me to teach them. But, facing a class of 100, I knew nearly nothing about them as individuals: not their ambitions, their talents, their interests, nor their circumstances.

I can't even predict the larger future for them. I likely know less about the impact of technology than they do. I don't know who will be president in 2021, much less in 2025. I can't even predict what the stock market is gonna do tomorrow morning!

So I surely have no right to tell students "You need to know some chemistry to be prepared for the future!" My school requires all students to take two science classes on the assumption that the faculty collectively can predict the future--indeed, every student's individual future--better than students can predict it themselves. Of course that's not true. The faculty--collectively or otherwise--are completely clueless.

So I am completely against rigid distribution requirements. Students should be allowed to take what they want, which will be what they're good at, which will likely be most relevant to their future. Perhaps it's appropriate for me to say "Gee, taking a chem class is a good idea. You'll learn about how nature works, and that's useful." I can give them advice--even good advice. But I can't claim any special insight into their future.

My school requires two semesters of foreign language study. For some students that's probably a really good idea. For most it's surely a waste of time and money. Likewise, all students are required to take a class in "diversity," which cynics like me think is a course in brainwashing (and not a very successful one--on net it probably increases Trump's vote total). Again, some students will enjoy a course in "diversity," and they might even vote for Elizabeth Warren. More power to them--I'm not against "diversity" classes. They just shouldn't be required.

Of course students aren't very good at predicting the future, either. Most of them will get it wrong. But surely they're better at predicting their own futures than the faculty are. And therefore students should be treated as customers. The curriculum--the classes they actually take--has to be left up to them. Smart ones will ask for advice--and I'll tell them to take more chemistry. But the decision has to be theirs.

The customer is always right.

If students aren't customers, then, according to Mr. Giroux, the faculty should be in charge.
[F]aculty must reclaim their right to control over the nature of their labor, shape policies of governance, and be given tenure track lines with the guarantee of secure employment and protection for academic freedom and free speech.
That phrase--"shape policies of governance"--is saying that the faculty should control the curriculum. In a narrow sense I agree--the chemistry faculty should decide how chemistry is to be taught. But we have no right to tell students what they need for the future, and therefore we have no legitimate authority to impose course requirements on students (beyond narrow disciplinary prerequisites).

Mr. Giroux is granting the faculty an authority they don't deserve. His claim dates from medieval times when there was very little social change, and the only reason to attend college was to enter the clergy. In those days the faculty was a guild that guarded its privileges as tightly as any other guild.

But the world is not like that anymore. The world is too complicated to be entrusted to a self-interested guild. Mr. Giroux's plea to protect the professoriate needs to be rejected.

Further Reading: