"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:

• What Marxists Don't Understand About Economics
• Book Review: Hillbilly Elegy
• Book Review: Walmart

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:

• Sex and the Alpha Male
• Book Review: The Complacent Class
• Book Review: Popper's Bitcoin Book

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:

• Tradable vs. Non-Tradable Goods
• Lynn Henderson on Donald Trump
• Book Review: The Rise & Fall of American Growth

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:

• Women are from Venus; Trotskyists are from Pluto
• Beware The Amazons
• Dorothy Day

What Marxists Don't Understand About Economics

This post is inspired by, but not directly in response to, an Open Letter by Lynn Henderson and Cindy Burke (H&B), posted on Louis Proyect's website. Their misconceptions are so common on my Beat that I think a post pointing them out is useful.

Growth

In 1956 Robert Solow and Trevor Swan published a model for economic growth that is both simple and fits real world data fairly well. Economic growth is the sum of three terms: 1) growth in the skills-adjusted labor supply; 2) growth in capital invested; and 3) growth in productivity due to technological advancement.

In today's world (unlike the future world of robots), the availability of skilled labor is the most important factor. A proxy for that is population growth, especially of the working-age population. In the US our population growth is less than 1%. During the first 60 years of the last century it was closer to 2 or 3%. Obviously fewer workers will result in a lower GDP, so it should be no surprise that our growth rates have declined from 3-4% historically to about 2% today. Absent a new baby boom or a sharp increase in immigration, our economy will not grow as fast as it did before.

Japan's workforce has been in absolute decline for several decades. So it should be no shock that their economy is barely growing at all. This has nothing to do with a "crisis" of capitalism or malfeasance by Mr. Abe, but is a matter of simple demographics.

Note that we Trumpkins will be disappointed with our president's stated immigration policy. Economically we are much better off with more immigrants rather than fewer.

Capital behaves differently, obeying the law of diminishing returns. When a company with 1000 employees buys their first computer, there is a huge jump in productivity. But after they buy the 1000th computer, productivity will barely budge. That is, initial investment in a new technology is highly profitable, but as more and more money is invested the returns diminish. Eventually the maintenance and upkeep on all those computers costs more than any profit, at which point the firm is fully capitalized. There is no point in investing more money in more computers.

It's roughly the same for national economies. In my opinion the United States is fully capitalized--there are relatively few places where investing new money makes sense. That means we have a savings glut, which implies that interest rates are low and will remain low for a very long time. This is why asset prices are being bid up--houses, art, antique cars, bitcoin, stocks & bonds, etc.--as there are no other good places to put money.

Note that we Trumpkins will be disappointed with tax reform. The stated goal is to repatriate trillions of offshore dollars and thus recapitalize and dramatically grow our economy. Sorry--it won't work. We've already got too much capital sloshing around. But it will secure very low interest rates for even longer, and people who own real estate or bitcoin will do very well. (I am generally in favor of the tax reform proposals, but not for that reason.)

Finally, productivity growth is the implementation of new technology, e.g., replacing the horse with the internal combustion engine, or the abacus with a computer. For whatever reason (there's no agreement on why) productivity growth has declined since about 1970. Robert Gordon wrote a whole book on that subject, which I reviewed here.

That our economy is growing faster than demographics is likely due entirely to productivity growth.

Trade

Money is earned only by trade and in no other way. I can buy something from you only if I have money. And the only way I can get money is by selling something to you or somebody else. Or put another way, only people with something to sell are able to buy the things I sell. A homeless, unemployed bum has no marketable skill or product to sell, and therefore has no money to buy anything from me or anybody else.

It's the same with countries. We buy toys from China, paying them in dollars. That only works if China can buy airplanes from us, also paid for in dollars. If we didn't manufacture airplanes then China would not sell us their toys since we'd have no money. (A trade deficit just means China doesn't need an airplane today, but will buy one in the future. Meanwhile it keeps its dollars invested in US Treasury bills.)

China is America's largest trading partner. That means China manufactures things that we want to buy, which perforce means that we manufacture things that they want to buy (today or in the future). So Marxists are wrong (and specifically H&B are wrong): we do not benefit from manufacturing all products in the United States. We should only manufacture those items for which we have a comparative advantage. Everything else we should buy from other countries.

This explains why our biggest trading partners are mostly rich countries. Rich countries produce things we want to buy, which means they have money to buy the things we have to sell. A country with nothing to sell also can't buy anything, and therefore is not a market for our products. Our trade with Haiti is next to zero--they've got nothing to sell to us. So Marxists have it precisely wrong: we do not want to impoverish the world. Quite the opposite--we only trade with countries that can produce valuable goods and so can afford our products.

The Marshall Plan and OBOR

The Marshall Plan was a program of loans to war-ravaged Europe after World War II. The purpose was to rebuild the European economy so that Europeans could sell into the US market, enabling them to buy things from the United States. That trade was hugely profitable to both sides of the Atlantic, generating way more than enough to pay back all the loans.

Had the Plan been a failure then US taxpayers would have been on the hook for all the loan defaults, and Europe would never have become a major trading partner to the US. As it is our total trade to European Union countries combined is larger than our trade with China.

OBOR (One Belt, One Road) is--according to H&B--a Chinese version of the Marshall Plan. That means China is lending to other countries in the hopes that they can produce something that China wants to buy, which will enable those countries to pay back the loans. So compare and contrast: during the Marshall Plan we lent money to Germany, Holland, the UK, France, etc. China is lending money to Kyrgyzstan, Uzbekistan, Azerbaijan, Greece, and Venezuela. Let me know how promising you think Chinese investments are likely to be. Hint: they've already written off Venezuela.

There are certainly geopolitical calculations in China's OBOR project, but as an economic effort it's doomed to fail. H&B, for example, point to the Greek port of Piraeus, which they claim is now the largest port in the Eastern Mediterranean. But it's a lost cause--Piraeus has no industrial or agricultural hinterland, and transport to/from the more productive parts of Europe is hopelessly difficult and expensive.

China

Henderson & Burke's letter is mostly about China. I will have more to say about that in a future post.

Further Reading:

• Where Have All The Workers Gone?
• Invention
• Immigration? Si!