Mitchell's Musings

  • 11 Apr 2018 4:07 PM | Daniel Mitchell (Administrator)

    Mitchell’s Musings 4-16-2018: Labeling What is Abnormal as the New Normal


    Daniel J.B. Mitchell


    In recent weeks, there have been some very large swings in the stock market. So what do we read about these developments?


    …The era of calm markets and small price swings is over. The new normal on Wall Street is all about wild fluctuations, mammoth moves like the Dow Jones industrial average's 1,000-point drops earlier this year, and rapid-fire price reversals that can shift the mood of the market from optimism to pessimism in a matter of minutes — and sometime seconds…[1]


    The implication of the phrase “new normal” as used in the quote above is that the big fluctuations, which seem to be a departure from what has been the case in the past, will go on indefinitely or at least for a long time. And that proposition raises a question: Whatever happened to such notions as regression to the mean? Regression to the mean suggests that things that deviate from the way they have been in the past are just aberrations that will disappear. Why not assume that the recent “wild fluctuations” on Wall Street are destined to diminish?


    I have no special insight as to whether there is or isn’t a new normal on Wall Street, but my predilection would be that the current fluctuations will not go on indefinitely. Of course, there are breaks in history in which things that seem unusual based on past history in fact herald a new situation that will endure. But my sense is that the “payoffs” for predicting a break in trend that actually occurs are large compared to the payoff for calling an abnormal development a blip. There is a bigger payoff in predicting a new normal, and then hoping that your prediction turns out to be true.


    It’s like the reward system in economic forecasting. If you predict a recession – and one actually develops – you will be remembered as the genius who called it correctly, at least until the next recession. On the other hand, saying quarter after quarter that there won’t be a recession will be correct most of the time, but not something that will enhance your reputation for prognostication. Breaks in trend are unusual (or we wouldn’t call what was happening before a trend). So there are only a few opportunities to be seen as a genius. Getting it right most of the time – saying that there won’t be a recession – is easy and boring and not notable. It won’t get headlines and recognition.


    Now let’s think back about the labor market discussion that characterized the aftermath of the Great Recession. We were told that high unemployment was the new normal. All kinds of explanations were offered for that conclusion. Employers wanted skills that the workforce didn’t offer, so the unemployment was largely structural. Exactly why the burst in a structural problem just happened to coincide with a financial crisis was never entirely clear. The fact that the recovery was slow – so the unemployment rate remained high relative to trend – gave the new normal stories some surface validity. Here’s an example from 2012 (when the unemployment rate averaged over 8%):


    Bill Gross, manager of the world’s largest mutual fund, said U.S. unemployment is now a structural, and not cyclical, problem stemming from technology advances and the lack of retraining. “Jobs are being structurally destroyed,” Gross said in an interview today with Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.” Employment figures released today reflect “the inability of the U.S. economy to provide jobs...”[2]


    But now the unemployment rate has somehow arrived at a low level, a little over 4%, despite the structural/new normal stories. And what do we read about employer behavior? Here’s a recent anecdote from Springfield, Massachusetts:


    Long before MGM Resorts International got the green light to build a nearly $1 billion casino and hotel downtown, it analyzed the local labor market to figure out what it would take to fill 3,000 jobs in a state new to gambling. The socioeconomic snapshot that emerged became a road map for creating a workforce from scratch.


    Census data and labor reports revealed a higher-than-average number of single parents and former offenders. So MGM Springfield added federally funded day care to the resort and lobbied to loosen a state law that restricts casinos from hiring people with criminal records. A lack of experienced blackjack and poker dealers in the area led to the creation of a gaming school.


    Managers also fanned out to senior centers, veterans clubs, vocational high schools, even churches to talk up casino jobs. They pored over layoff data from the state, including from a Springfield hospital and a nearby Sam’s Club that had recently closed, to pursue workers who might be good fits.


    Now, months before its scheduled opening in late summer, MGM Springfield is embarking on a major hiring spree to staff its hotel, restaurants, bowling alley, movie theater, spa, retail shops, and 125,000 square feet of gambling space, all of which take up three city blocks.


    On Monday, the resort is set to announce openings for about 1,000 of its 3,000 jobs, mainly in food and beverage service. Just over 100 employees have been hired so far.


    Overall, roughly 80 percent of MGM’s jobs will be full time, with the company helping to provide local training for many of them. Given MGM’s good relationship with organized labor at its other resorts, a fair share will probably have union protections.


    Wynn Boston Harbor has been undertaking similar workforce development efforts, including analyzing demographics and partnering with nonprofits and community colleges, as it looks toward opening in Everett next year…[3]


    The current story is that with low unemployment, employers are being less picky about who they choose to hire than they were in 2012, and are providing training for those whose skills are lacking. Is this a surprise? It is a new normal? Not really. Brookings economist Arthur M. Okun described what happens in such circumstances back in 1972. He also noted then that when unemployment is high (as it was for several years after the Great Recession), “society (is able to) salve its conscience by concluding that the fault of the unemployed and the underemployed lay in themselves and not in the economic system.”[4]


    In short, what happened after the Great Recession wasn’t the new normal. It was the old normal. When the unemployment rate is high and has been so for a few years, experts will declare it to be structural. The potential payoff was small at that time for saying that eventually the unemployment rate would fall and that when that that day arrived, employers would cease to be picky about who they hired. Making a more dramatic prediction and structural interpretation of what had happened got the headlines. Nothing new about that result, either.

    ====

    Footnotes:

    [1] https://www.usatoday.com/story/money/2018/04/08/stock-market-2018-expect-dow-jones-volatility-trade-war-trump-talk/493234002/

    [2] http://www.atlantatribune.com/2012/10/02/bill-gross-u-s-economy-suffering-from-structural-unemployment/

    [3] https://www.bostonglobe.com/business/2018/04/01/mgm-springfield-embarks-hiring-spree/fLAXdBSOIul4ydsobAfKqK/story.html

    [4] https://www.brookings.edu/wp-content/uploads/1973/01/1973a_bpea_okun_fellner_greenspan.pdf. The quote is from p. 245. 

  • 03 Apr 2018 4:08 PM | Daniel Mitchell (Administrator)

    Mitchell’s Musings 4-9-2018: Seems Reasonable, But Isn’t


    Daniel J.B. Mitchell


    Let’s start with some data points. As the charts below show, the U.S. ended the calendar year 2017 with gross liabilities to the world of $35.5 trillion.[1] But it held gross claims on the world of $27.6 trillion. The difference between U.S. liabilities to the world and U.S. assets abroad was $7.8 trillion, a negative net international investment position. As the charts also show, all these figures bounce around, but all have generally risen over the past decade (and before).

    ===

    Current capacity limit on EPRN prevents charts from being included here. To see the two charts, go to:

    https://issuu.com/danieljbmitchell/docs/mitchellmusing4-9-18

    ===

    Much of international investment involves portfolio investment, official reserves, and other such assets and liabilities that do not involve controlling ownership or real assets (such as real estate). Direct investment, however, does involve controlling ownership and real assets. The U.S. had such direct investments abroad to the tune of $8.9 trillion at the end of 2017. Foreign direct investment in the U.S. was also $8.9 trillion. In short, there is lots of investment, including direct investment, in both directions.


    At the time of the recent tax cuts, you probably read news accounts such as this one:


    President Donald Trump's new tax plan could cause a tidal wave of internationally held cash to flood back into the US. The repatriation tax holiday outlined in the plan, which has officially passed both chambers of Congress and is awaiting Trump's signature, is designed to incentivize US-based companies that do big business overseas to bring those profits back home. By Goldman Sachs' calculation, S&P 500 companies hold $920 billion of untaxed overseas cash, and the firm estimates that $250 billion of that would be repatriated. Looking at all US-based companies, Citigroup says there's a whopping $2.5 trillion of capital stashed internationally…[2]


    The implication was that the tax system was inducing firms to arrange their affairs so that profits would appear abroad rather than in the U.S. and thus escape U.S. taxation. Clever lawyers and accountants put these arrangements together. That part of the story was undoubtedly true. It’s hardly controversial that firms seek to be “tax efficient.” If you change their tax incentives, the same clever lawyers and accountants will now advise firms to alter their arrangements. The advice could well be to repatriate some of the assets that were held abroad.


    But what is the implication if they do? The assumption, particularly of the president, seemed to be that these were funds that would go into real investment in the U.S. There would be a real investment boom in the U.S. that would create lots of jobs, if only all that money abroad would return to the U.S. So let’s look at that idea.


    When people talk about money stashed abroad, it sounds as if there was a vault stuffed with dollar bills somewhere across the sea. In fact, assets held abroad are largely investments in securities and claims of various types. For example, the assets could be claims on a financial institution (a bank) which in turn invests the assets around the world including in the U.S. And we know that at the end of the day in 2017, the U.S. had a net international debt of $7.8 trillion, as per the data and charts noted earlier. There is nothing in the new tax law that says that, as a first approximation, had the law been in effect in 2017, the net debt of the U.S. would have been any different (although as perhaps the gross assets and liabilities would have been different).


    Would there have been more real investment in the U.S.? Let’s consider Apple, since it figured prominently in the discussion of tax avoidance:


    When Apple’s efforts to reduce its taxes around the world came under fire in Congress a few years ago, CEO Tim Cook fired back. “We do not depend on tax gimmicks,” Cook said. “We do not stash money on some Caribbean island.” The first statement depends on the definition of a “gimmick.” Apple was certainly using loopholes and openings in different countries’ tax laws to minimize its own obligations. But he was telling the truth in saying the iPhone maker had no money stashed in the Caribbean. The company didn’t need to – its funds were stashed in subsidiaries incorporated in Ireland, but that, on paper at least, had no home country for tax purposes…[3]


    Let’s suppose Apple really wanted to produce iPhones in, say, Detroit instead of contracting out the task to Chinese and other foreign manufacturers (as it does). Would the fact that it has made accounting arrangements so that its profits show up in Ireland – or anywhere else – have prevented it from opening a Detroit plant? A firm’s investment in a new plant does not have to be financed directly from accumulated past profits. It can borrow the necessary funds locally from financial institutions. And one suspects that if Apple wanted to finance its hypothetical Detroit plant out of its own past profits in Ireland, the same clever lawyers and accountants that made those profits show up in Ireland could find a way to funnel the funds to Detroit through some sort of dummy intermediary.


    The reason Apple doesn’t produce the iPhones it sells in the U.S. in a Detroit plant is that it is cheaper to make them in places such as China and then import them into the U.S. Giving Apple tax incentives to make profits show up in the U.S. is unlikely to change that calculation. If it were the case that where profits show up determines production location, then iPhones would be produced in Ireland, not China. Researchers who have traced iPhone parts manufacturing and assembly have found production sites all over the world. But Ireland doesn’t appear on the list.[4]


    In short, it may seem reasonable to think that if past profits are repatriated to the U.S., there will be more manufacturing in the U.S. by the firms affected. It may seem reasonable to think that where accounting profits are, so goes production. But, sadly, it just happens not to be so.

    ===

    Footnotes:

    [1] Source:

    https://www.bea.gov/newsreleases/international/intinv/2018/pdf/intinv417.pdf.  

    [2] http://www.businessinsider.com/trump-tax-reform-plan-repatriation-14-us-companies-with-most-cash-overseas-2017-9

    [3] http://fortune.com/2017/11/06/apple-tax-avoidance-jersey/.  

    [4] https://www.lifewire.com/where-is-the-iphone-made-1999503

  • 28 Mar 2018 9:57 PM | Daniel Mitchell (Administrator)

    Mitchell’s Musings 4-2-2018: Identity vs. Behavior


    Daniel J.B. Mitchell


    As we resume these musings after the end of the winter quarter at UCLA (when I am teaching and too busy to write them), it’s worth looking back at events of that period. And it’s worth looking back at some confusions that arose in that period, too. One of those events was the announced imposition of steel and aluminum tariffs. Let’s put aside the question of whether those tariffs were a good idea, either politically or economically. There has been much confusion in the popular news media as experts – who generally opposed the tariffs - were interviewed. From Forbes:


    …Our deficit will not be reduced by enforcing trade rules, renegotiating existing trade pacts, or forming new ones. While these policies might shuffle the deck and alter the bilateral trade balances the U.S. has with other countries, they will not alter the overall U.S. trade balance. Indeed, policies aimed at eliminating so-called “unfair trade practices” — while attractive to many businessmen, trade unionists, most progressive activists and all who harbor mercantilist sentiments — are wrongheaded and futile.


    Why? The simple analytics of the trade deficit prove the utter futility of the Trump administration’s trade policies. In economics, identities play an important role. These identities are obtained by equating two different breakdowns of a single aggregate. Identities are interesting, and usually important, by definition. In national income accounting, the following identity can be derived. It is the key to understanding the trade deficit:


    (Imports - Exports) ≡ (Private Investment - Private Savings) + (Government Spending - Taxes)


    Given this identity, which must hold, the trade deficit is equal to the excess of private sector investment over savings, plus the excess of government spending over tax revenue. So the counterpart of the trade deficit is the sum of the private sector deficit and the government deficit (federal + state and local). Therefore, the U.S. trade deficit is just the mirror image of what is happening in the U.S. domestic economy. If expenditures in the U.S. exceed the incomes produced in the U.S., which they do, the excess expenditures will be met by an excess of imports over exports (read: a trade deficit)…[1]


    The implication of this observation seems to be that if the ultimate objective of the Trump administration was to improve the U.S. trade balance (make it less negative than it is), raising tariffs is a fool’s errand. If you don’t change saving and investment behavior, the trade deficit will remain the same. Similar objections have been raised when the question of doing something with exchange rates is the issue.


    It is true that as a matter of national income accounting, the balance of saving vs. investment is the reverse of the trade balance. One is the mirror image of the other. So it is true that if you raise tariffs while saving and investment remain the same, the trade balance will be unaltered. If the tariffs you raise cut down on imports, but the trade balance is unaltered, then it must be the case that exports will have (somehow) dropped by the same amount. Again, this observation is pure accounting. The observation is true by construction.


    You can say the same thing about exchange rates. If the dollar is devalued and imports fall as a result – and if saving and investment are unaltered – then it must be the case that exports will fall by the same amount.


    But there is a fundamental problem here. Who says that changing tariffs in a big way, or changing exchange rates in a big way, will leave saving behavior and investment behavior unchanged? Perhaps a thought experiment will be helpful. Imagine we raise tariffs on everything and keep raising them higher and higher. Imported goods and their domestic substitutes are thus becoming more and more expensive, both relative to non-traded goods, e.g., haircuts, and relative to exported goods. And imagine that saving and investment are unaltered. Surely, at some point – maybe a 500% tariff, maybe a 1000% tariff – imports become prohibitive. If we started with a negative trade balance and now imports are reduced to zero, in order to preserve the negative trade balance, exports would have to be negative! But there is no such thing as a negative export. Something is clearly wrong here. And what is wrong is the idea that tariffs (or exchange rates) don’t affect saving and investment.


    Here’s a different scenario, one more realistic than the extreme case above, but also more realistic than the assumption that saving and investment are immutable. Suppose there is a big increase in tariffs (or a big dollar devaluation). Prices tend to rise a result. Particularly if the economy is at or near full employment (as it currently is), the Federal Reserve will raise interest rates to resist the price effect. Investment will likely fall. It’s likely that saving will rise.


    In past musings and elsewhere, I have noted that if the Trump administration really wants a zero-trade balance, it could achieve it with the Warren Buffett plan – a kind of cap-and-trade approach that relies on a market mechanism to bring about balanced trade.[2] If that were done – and there is no sign that my advice is being taken – since exports would be equal to imports – there would also be behavioral responses in saving behavior and investment behavior such that in the end, saving would = investment.


    To repeat, this musing is not focused on whether Trump policies with regard to tariffs on steel and aluminum are wise. However, I will say that those tariffs appear to be based more on political symbolism than anything else. And I am not saying that pointing to national accounting identities is useless. For example, you can certainly argue, based on the identities, that the Trump tax cuts – which create governmental dissaving – will tend to worsen the trade balance. For them not to do so, they would have to raise private saving (by some magic) or reduce investment (which Trump doesn’t want). But that is another story. The simple point here is that in evaluating any major policy change, you can’t assume that key macro variables such as the rates of saving and investment are going to be unaffected. Nor can you ignore likely responses from policy actors such as the Fed.

    ---------------

    Footnotes:

    [1] https://www.forbes.com/sites/stevehanke/2018/03/02/trumps-tariffs-ive-seen-this-horror-show-before-reagans-terrible-trade-policies/#3d8bd21a7329.

    [2] http://www.zocalopublicsquare.org/2017/01/09/cap-trade-solution-trade-dispute-china/ideas/nexus/

  • 21 Dec 2017 7:29 PM | Daniel Mitchell (Administrator)

    Mitchell’s Musings 12-25-2017: At the Margin


    Daniel J.B. Mitchell

    ===

    NOTE TO READERS OF THIS BLOG: I have become aware of a quirk in the EPRN system that can cause incorrect graphics to appear in past musings. Essentially, if an image file was used with a filename such as "Figure 1," and then a later post uses a different image file with the same name, the most recent version ends up in both musings. I will try to correct past errors that may have accumulated in past musings, if time permits. However, all past musings are also posted at:

    https://issuu.com/danieljbmitchell/stacks/fa21c67c714745f79a0ab2fc5c6d6ff7.

    You should be able to find a correct version at that link.

    ===

    Note: As was the case last year, there will be no further musings until April 2018, since I teach January-March and time is a limited resource.

    ===

    Economists in the late 19th and early 20th centuries developed the idea of marginal analysis. It explained basic concepts that are now routinely presented in Economics 1 such as demand and supply curves. In essence, it distinguishes between average and marginal.


    For example, when gasoline prices shoot up because of some disturbance in world oil markets, reporters will routinely interview consumers who say that they have to get to work, that they have no alternative but to pay the higher price, that they can’t take the bus because it’s too slow, etc. But somehow, transit usage inevitably goes up, despite these interviews. [https://www.youtube.com/watch?v=MPtPQPGlbyI] And if the high prices persist for an extended period, people start buying smaller, gas-efficient cars and making other cost-saving adjustments.


    Why? Because at the margin, there are people for whom the choice between driving and taking the bus is not so dramatically different. They could go one way or the other. They are different in that respect from the average driver. And the high price of gasoline tilts them toward public transit. Not everyone responds. But some folks do. And, over time, the response is bigger as the opportunity to change behavior becomes greater. In economics terminology, the price elasticity is higher in the long-run than immediately.


    Similarly, journalists have been in the habit of interviewing people about their political preferences and then noting that some folks won’t – and seemingly can’t - change their minds despite extreme contradictions to their beliefs. It’s partially that people don’t like admitting past error and partly confirmation bias. They believe messages that confirm their beliefs and filter out contradictory messages. So particularly with Trump supporters during the past year, journalists find lack of movement in his “base” of average, not marginal, supporters.


    The problem with that kind of analysis is that the electorate also contains “swing” voters – people at the margin who can move one way or the other. The fact that some people are immovable doesn’t mean that everyone is. And following the gasoline price example, over the long term – if there is a stream of contradictory information – more people will change their minds than in the short run. The challenge for the opposition is to influence the marginal voter. But that task may be more difficult than some folks imagine.


    In prior posts, I have noted that there is no reason to expect a faltering economy between now and the November 2018 elections. Of course, some world crisis could change that outlook so any forecast has to be qualified. Still, real GDP has been growing at something like 3%/annum. You can argue about measurement. But as we measure it, all that it takes to grow at 3% is labor force growth at around 1% and productivity growth around 2%. There is nothing outlandish about either figure. (Of course, the much higher numbers used to justify the idea that the tax cuts recently enacted will pay for themselves are not plausible.)


    The outlook for 2020 is less clear, but only because forecasting out that far has too many unknowns. If you want to justify a substantial slowdown or even recession by then, you have to sketch out some scenario of an overheated economy leading to inflation and a Federal Reserve reaction that goes too far. But inflation has not been behaving as expected for some time. So counting on such a scenario would be risky at best.


    Reasonable performance of the economy tends to reward incumbents. So the idea that President Trump’s low poll ratings will hand Congress or even the Senate to Democrats represents excess optimism on the part of Trump opponents. For there to be change, those folks at the margin in swing districts and states have to be persuaded that they made a mistake in 2016.


    Persuasion of that type is a delicate balance. It is surely not accomplished by alienating potential allies. Excessive identity politics are not going to have the desired effect. Such politics don’t stop at making folks proud of their heritage; instead they castigate others – particularly the others who made the Trump victory in 2016 possible (and carried along the Senate with him). Even the current focus on sexual harassment and assault, as noted in a prior post, has led to excesses and a potential backlash. You can argue that the excesses are rare, but one thing of which you can be sure is that they will be highlighted on the right.


    Here is a recent example of excess. Actor Matt Damon opined that there are gradations between Weinstein-type sexual assault and predation and just coarse behavior. Minnie Driver, another movie celebrity, castigated him for his remarks. Because of the prominence of both individuals, their spat received notable publicity. The essence of the complaints against Damon was that men shouldn’t talk about the issue. But as Joan Vennochi, a Boston Globe columnist pointed out, “for the first time, we are talking about male behavior with colleagues and family members. Why shut it down with across-the-board man-shaming?”[1] Ask yourself, on the margin, does this Hollywood tempest make voters in critical districts net more or less likely to vote for politically-correct Democrats? Under what set of assumptions does castigating potential allies attract their support (and votes)?


    Do you think the Hollywood upheaval is irrelevant for political outcomes? In a musing two weeks ago, I wrote about Senator Al Franken and what could be the result of his forced resignation; that was a clear case of Hollywood spillover into politics. Here’s another: Democrat Doug Jones recently beat Roy Moore – a candidate with extreme negatives in the sexual harassment area – in Alabama by a small margin.  Jones – who has yet to take office - was promptly criticized on the left for not calling for Trump to be removed based on his (Trump’s) harassment allegations.[2]


    Jones – it must be emphasized – is from Alabama, i.e., Trump-land. It was a miracle he was elected, and yet he is apparently not to be allowed leeway to consolidate support. If that pattern of internal conflict persists, and if the economy continues as it is, is a dramatic political shift to the left really likely between now and November? Sometimes, if you want to win, you need to rise above principle.


    There is a lesson from California that might be relevant. In 2003, Republican Arnold Schwarzenegger won a recall election against incumbent Governor (and Democrat) Gray Davis. The main issue in Davis’ demise was a state budget crisis.


    Schwarzenegger had considerable popularity from his film career and promised to make California great again in a nonpartisan way.[3] He temporarily dealt with the budget crisis by borrowing and got the electorate to endorse his solution via ballot propositions needed to accomplish his “fix” in 2004. But in 2005, he called a special election and put on the ballot four propositions that essentially mirrored Republican priorities at the time. It’s a long story and the details are not important here.[4]


    In the end, however, all of the Schwarzenegger propositions were defeated. How did that result come about? It did not come about by alienating voters who, only two years before, had voted for Schwarzenegger in the recall election. The battle was largely fought on TV and consisted of ads that focused on the idea that Schwarzenegger was at fault for not doing what voters had expected of him back in 2003. In other words, it was not the voters’ fault; it was the governor’s fault. Voters were not deficient. The new governor was deficient. There were many ads aired, but take a look at this one:


    https://www.youtube.com/watch?v=jgK2JJFJ2pA


    In short, for potential voters: no blame, no shame, and a simple message back in 2005 in California changed a political outcome. Can Democrats do it again in the national context in 2018 (or 2020)? Their contemporary problem is having constituencies that are not focused on the election or that, because of group-think, can’t imagine others with contrary views (or don’t care if they offend them). There is the old Will Rogers quote which seems applicable: "I'm not a member of any organized political party... I'm a Democrat."[5]


    In contrast, Republicans have long been seen as the party of business. And the business of politics is winning. So the notion that Trump’s low poll ratings, or the recent tax legislation, or the undermining of Obamacare, or changing national demographics is guaranteed to upend the political scene in 2018 (or 2020) is wishful thinking. It will require an organized no-blame/no-shame, focused campaign aimed at appealing to those voters on the margin and on not offending them.


    Of course, I could be wrong. And there is the Russia-thing. But can you count on it?

    ===

    Footnotes:

    [1] http://www.bostonglobe.com/opinion/2017/12/19/matt-damon-right-about-sexual-misconduct/tQeemaoxJXV2283pg3TPMK/story.html

    [2] https://www.gq.com/story/jones-damon-opinion-harassment

    [3] See the first TV ad at https://www.youtube.com/watch?v=CkE11Egb_7Q

    [4] For those details, see http://www.anderson.ucla.edu/documents/areas/fac/hrob/mitchell_califwusa.pdf

    [5] https://www.willrogerstoday.com/will_rogers_quotes/quotes.cfm?qID=4

  • 15 Dec 2017 1:16 PM | Daniel Mitchell (Administrator)

    NOTE TO READERS OF THIS BLOG: I have become aware of a quirk in the EPRN system that can cause incorrect graphics to appear in past musings. Essentially, if an image file was used with a filename such as "Figure 1," and then a later post uses a different image file with the same name, the most recent version ends up in both musings. I will try to correct past errors that may have accumulated in past musings, if time permits. However, all past musings are also posted at:

    https://issuu.com/danieljbmitchell/stacks/fa21c67c714745f79a0ab2fc5c6d6ff7.

    You should be able to find a correct version at that link.

    ===

    Mitchell’s Musings: 12-18-2017: Benefits and Losses and Uncertain Results


    Daniel J.B. Mitchell


    As we have noted in earlier musings, the leadership of the Federal Reserve is changing. And it appears that the Trump replacements on the Fed are likely to tilt toward non-economists, mainly banker/business types. That outcome may turn out to be a Good Thing, even if an accidental result, compared with what could have happened. (Obviously, the Fed’s research staffs, both at the Board of Governors and the regional banks, will continue to be professional economists.) The danger with Trump was that he might have picked either an ideologue economist – perhaps an old-fashioned monetarist still puzzled why there isn’t a roaring inflation and convinced it is about to happen – or a wacko with a leaning toward the gold standard and/or who-knows-what-else. That’s the benefit of the choice he actually made recently. Not an ideologue. Not a wacko.


    The best choice would have been to continue with incumbent chair Janet Yellen.[1] That’s the loss. President Trump instead went with another member of the Fed’s Board of Governors as the new chair, a lawyer and banker, Jerome Powell.[2] Most recently, the administration has assured us that there won’t be a recession anyway so not-to-worry.[3] And, of course, none is forecast at present by outside economists within a reasonable forecasting horizon (which isn’t all that long). There are some signs of a potential bubble in the making in financial markets, some real estate markets, and the fraud-prone/fraud-encouraging bitcoin market. But there are some challenges, even assuming that no recession is looming.

    ===


    ===

    One challenge is that – since the old economic models aren’t working – the Fed itself will make a mistake and cause a recession. To old-fashioned monetarists, the fact that the monetary base substantially increased due to the Fed’s response to the Great Recession means, as noted above, that the inflation rate should have (substantially) responded. Other economists, who are less ideological, tend to fall back on the notion of a natural rate of unemployment which will produce wage and price inflation once the actual rate falls below it. You would have to go back to the late 1960s or even to the Korean War – both periods with notable inflationary pressures – to find unemployment rates well below the current levels. So the conventional wisdom – and the seeming external consensus – is that the Fed should do a classic taking-away-the-punch-bowl-just-as-the-party-starts. That is, it should be slowly raising interest rates (which it has been doing). But overly-aggressive punch bowl grabbing could cause a reversal, particularly if some markets are verging on bubbles.

    ===


    ===

    There is also a seeming consensus that because the Fed acquired substantial financial assets in response to the Great Recession and its aftermath in an attempt to stimulate the economy, it should now be selling off those assets because the size of its portfolio is abnormal. But it is unclear why a central bank holding more assets than usual is a Bad Thing. More importantly, if acquiring those assets was seen as a stimulus, wouldn’t selling them be contractionary? No one seems to be asking such questions. Will a lawyer/banker Fed chair ask them? Will he question the consensus?


    One had the sense that, at least behind the scenes, Chair Yellen was more pragmatic about what the Fed should be doing than the external consensus that seems fixated on some notion of getting the Fed back to “normal.” The Fed is a central bank, and so it is not a normal institution with normal constraints that an ordinary bank would have. Of course, it might be argued that having non-economists in charge of the Fed will actually lead to pragmatic questioning of the consensus. But the reverse could also be true.


    We do know that as the economy began to falter in 2008, Yellen’s predecessor as Fed chair – academic economist Ben Bernanke, a student of the Great Depression – ended up being a key player in stemming the collapse. Would a lawyer/banker as Fed chair be able to play that role? No one knows. Only if you assume that a recession at some point during the new chair’s reign is impossible is the answer to that question irrelevant.

    ===

    Footnotes:

    [1] https://mobile.nytimes.com/2017/12/09/business/janet-yellen-didnt-set-out-to-be-a-feminist-hero.html

    [2] https://www.nytimes.com/2017/11/02/business/economy/jerome-powell-federal-reserve-trump.html

    [3] https://finance.yahoo.com/news/trump-recession-will-never-happen-195223605.html.  

  • 09 Dec 2017 8:22 AM | Daniel Mitchell (Administrator)

    NOTE TO READERS OF THIS BLOG: I have become aware of a quirk in the EPRN system that can cause incorrect graphics to appear in past musings. Essentially, if an image file was used with a filename such as "Figure 1," and then a later post uses a different image file with the same name, the most recent version ends up in both musings. I will try to correct past errors that may have accumulated in past musings, if time permits. However, all past musings are also posted at:

    https://issuu.com/danieljbmitchell/stacks/fa21c67c714745f79a0ab2fc5c6d6ff7.

    You should be able to find a correct version at that link.

    ===


    Mitchell’s Musings 12-11-2017: Be Careful What You Wish (and Incentivize) For


    Daniel J.B. Mitchell


    I want to start by drawing on two labor market and labor relations observations and then move to lessons from them for the world of contemporary politics.

    First, there is the Wells Fargo scandal in which the bank’s employees created accounts for customers without their consent. Their employer wanted its employees to “sell” customers on additional accounts and rewarded employees who appeared to do so (and penalized those who didn’t). Of course, incentives for sales personnel are often found in the retail world. But obviously, with hindsight, something went awry in this case. Presumably, Wells Fargo – had it foreseen the eventual consequences (reputational damage, lawsuits, fines and penalties) - would have designed its reward-and-penalty system differently.


    However, Wells Fargo is not the first, nor will it be the last, retail employer to see perverse results arise from a so-called pay-for-performance system. Pay-for-performance is an abstract concept that sounds good. It seems to solve what economists call the principal-agent problem. How does the principal (in this case the employer/bank) ensure that its agents (employees) do what it wants? In practice, it turns out that the details of the system matter. Just setting up an incentive system and putting it on auto-pilot without adequate monitoring and control can easily produce bad behavior. But monitoring and controlling add to the cost of administering the system. And even with use of monitoring and controls, there are problems.


    It was known by the late 19th century (if not before) that a simple piece rate system can produce incentives for quantity over quality. “Scientific management” – which came along in part to correct that problem – introduced time-and-motion studies to exercise detailed monitoring and control over what workers were doing. But for such controls to work, those conducting the studies had to determine what pace could normally be expected from workers. However, armed with the knowledge that the studies could lead to a faster pace of work, there were incentives for workers to collude and slow down when the inspector came around so that easier norms could be established.


    The bottom line is that all incentive systems, no matter how they are designed, have flaws and can lead to perverse behavior. And the notion of what are incentive systems has to be expanded beyond just pay and bonus formulas. All organizations have practices and institutions – whether or not they are outlined in official personnel handbooks – that determine how individuals “get ahead.” A new employee will do well to figure out what those arrangements are, and then act accordingly. Whether intentionally or not, typically employees are in some sense competing with one another within organizations for promotions and other benefits. Under such circumstances, there are incentives to upgrade yourself, possibly at the expense of others. Office politics and related perverse practices that can undermine team cooperation to the ultimate detriment of the employer may be the result.


    Lesson #1: Always pay attention to the structure of incentives, broadly defined. Incentive systems always have the potential to lead to bad behavior.


    My second observation comes from union-management relations and specifically the arbitration of grievances (“rights” arbitration). Almost all union contracts contain some form of arbitration to deal with disputes over the meaning of contractual terms. And almost all contracts require some form of due process in cases of employee discipline (including terminations). If there is a dispute over whether discipline in particular case was “for cause,” the matter can ultimately be taken to arbitration.


    Under arbitration clauses, a neutral arbitrator – who is selected by mutual agreement of union and management – hears complaints that the contract has been violated. The arbitrator receives evidence from both sides, written and oral, and then makes a binding decision. In the case of employee discipline, the arbitrator determines, based on the specifics of the contract and other evidence, whether the discipline was justified. The arbitrator can uphold the employer’s disciplinary action, prescribe a lesser form of discipline, or simply void the discipline entirely.


    An important element in the arbitration process is that the arbitrator is neutral. He or she is neutral, not only in the sense that there is no connection with either the employer or the union, but also in pay. The fee and expenses of the arbitrator are split 50-50 between the two sides. So, in principle, the arbitrator is not indebted to either party.


    Lesson #2: When someone is accused of bad behavior and disputes the accusation, it is useful, where possible, to have a process for review, especially by a neutral outsider.


    Okay. Armed with these two observations on incentives and arbitration, let us add a third observation related to politics and to the current circumstances in which various prominent (male) politicians are being charged with improper acts ranging from sexual harassment to various forms of sexual assault. A number of politicians have resigned after such allegations were made. Some of the accused have simply admitted that the allegations are true. But others have resisted resigning and have denied the allegations. Or they have given other interpretations of their reported encounters.


    One case in particular involves Roy Moore, the Republican candidate for U.S. senator in Alabama. At this writing, I do not know what the outcome of that special election will be. But Moore has denied the allegations made against him and has continued in the race despite calls for him to drop out. In connection with the Moore contest, there was a recent situation in which a woman reported to the Washington Post that Moore had impregnated her when she was a teenager.

    There is a lot at stake in the Alabama election including continued Republican control of the Senate. So the incentives (there’s that word again!) for discrediting the Washington Post are very high. There are those who would like to see the Post discredited, both in connection to the Moore election and with regard to various reports in that newspaper in connection with President Trump and the Russia affair.

    It turned out that the woman who approached the Post was an agent of a group that was hoping the Post would accept her word without investigating and publish the story. Evidently, the plot was to get the allegation published and then to reveal it was phony, thus discrediting the newspaper. But the reporters at the Post looked for evidence, found that the allegation was suspicious, and determined its source. The plot failed because the reporters followed good journalistic practice, did not assume that the allegation was genuine, and looked instead for evidence. They followed a process.


    There have been arguments that when women have made allegations of sexual misbehavior in the past, both in Hollywood and politics, their stories were disbelieved and therefore now we should switch to a regime in which the default should be belief. In fact, neither automatic belief nor disbelief will produce good results. The argument that no one would lie about being the victim of sexual misbehavior may well have been an approximation of the truth in the past, but it isn’t true now – as the Washington Post episode clearly demonstrates. Institutions and incentives have changed.


    In the past, the institutional arrangements were such that women who were victims risked further victimization in terms of career advancement if they talked. And they were sometimes offered money in exchange for silence. Or they were threatened by lawyers and others. So past allegations – which would have been made despite the incentives that existed then – had particular credibility. But we have entered a world now in which that assumption cannot be made. Coming forward now produces different results, at least in Hollywood and in politics. It now often leads to the end of the career for the alleged perpetrator, not the victim. Once the institutions change, the incentives are different.


    If we enter a world in which evidence is not required, the results will be perverse. There is no substitute for evidence. And the determiner of evidence should be as neutral as possible. For the accused and terminated Hollywood types, at least some of the resolution may eventually take place in court. As noted in a prior musing, it’s hard to believe that the celebrities whose careers came to an abrupt end didn’t have contracts that spelled out what would be required for early termination. However, I am less worried about Hollywood celebrities than about politicians; the fate of the nation does not hang on TV and movie personalities.


    One notion that has been put forward is that if several women make similar allegations, that similarity is the default proof of truth. But, again, in the current high stakes world, if that standard becomes the rule, the new rule becomes known also to groups such as the one that sent the one lying woman to the Washington Post. All they would have to do to bring down a politician is send two or three women making allegations instead of just one. There is little doubt that – if the stakes are high enough (control of the U.S. Senate, for example) – the money will be there to hire as many people making allegations as the standard seems to require. The incentives now and in the future have changed from what they were in the past. What was credible in the past is not necessarily credible in the new regime.


    As decades of arbitration practice demonstrate (and as years of good journalistic practice demonstrate), there needs to be a process and a standard of proof that is more than just an allegation. It doesn’t have to be as extreme as the oft-cited “innocent until proved guilty,” the standard used in criminal cases. But whatever the standard, it should involve more evidence than an allegation. And the determiner of evidence should be as neutral as possible.


    Now let’s get even more specific. Although both Democratic and Republican politicians have stepped down after sex-related allegations, based on recent events, it appears that the evolving rule of stepping down after allegations are made is going to favor Republicans. In the Moore case, for example, although top Republicans have called for him to step down, he has continued in the race. The president – who himself did not step down when allegations were made against him – continues in office and has endorsed Moore. Meanwhile, Democrats have forced the resignation of Minnesota Senator Al Franken.


    Franken at first did not want to step down and wanted instead to have the Senate ethics committee investigate his case, i.e., to use the process available, but the Democratic leadership nonetheless forced him out. (It would be a Good Thing if the internal processes in the House and Senate were reformed to use an outside neutral as decision-maker, but that is the topic of some other essay.) Franken represents a potential swing state where the seat he now occupies could eventually go Republican. In contrast, if Moore had dropped out, it would have left only a Democrat on the state ballot. Moore gets to use a process with the result determined by outsiders – the election. Franken doesn’t get any process.


    There is less at stake in the House than in the Senate. So, not surprisingly, it is there where we see resignations of both parties – e.g., John Conyers as a Democrat and Trent Franks as a Republican. Neither resignation will affect control of the House. Both individuals will likely be replaced by members of their respective parties.


    It looks as if only one political party understands the incentives that are now in place and knows how to weigh them against the stakes involved. Republicans resign if it doesn’t matter. Democrats resign whether it matters or not in the hope that somehow doing so will shame the other party into doing the same. But there is no shame. Republican officially distance themselves from candidates such as Moore, but provide him with de facto support and, in the case of the president, explicit support.


    If those are the arrangements and incentives that have been created, the same interests that sent the lying woman to the Washington Post will undoubtedly take note and will act accordingly in the future. If you think that state of affairs is fine, so be it. If you believe it is a problem, but you think that Democrats should be consistent and moral above all other considerations, so be that, too. But is it really moral when someone denies an allegation to provide no process for examining the evidence? And isn’t there a famous quote about consistency, hobgoblins, and small minds?

  • 02 Dec 2017 10:22 AM | Daniel Mitchell (Administrator)

    NOTE TO READERS OF THIS BLOG: I have become aware of a quirk in the EPRN system that can cause incorrect graphics to appear in past musings. Essentially, if an image file was used with a filename such as "Figure 1," and then a later post uses a different image file with the same name, the most recent version ends up in both musings. I will try to correct past errors that may have accumulated in past musings, if time permits. However, all past musings are also posted at:

    https://issuu.com/danieljbmitchell/stacks/fa21c67c714745f79a0ab2fc5c6d6ff7.

    You should be able to find a correct version at that link.

    ===

    Mitchell’s Musings 12-4-2017: I have a bad feeling about all of this


    Daniel J.B. Mitchell


    Here’s a news item from Newsweek, 11-24-2017:


    STUDENT ACCUSED OF SNATCHING MAGA HAT FROM TRUMP SUPPORTER MAY FACE YEAR IN JAIL

    A student accused of snatching a MAGA hat from a Trump supporter could face a year in prison over the alleged misdemeanor. Edith Macias was charged with grand theft this week after allegedly taking the hat from fellow University of California, Riverside student Matthew Vitale at a campus meeting on September 27. Footage of the incident was posted to Facebook, showing Macias lambasting Vitale for his decision to wear the hat — a video that went viral:

    https://www.youtube.com/watch?v=K3zpTKg3IIw


     “This is mine. You do not get to take other people’s property that is legally theirs in this county,” Vitale told Macias after his hat was allegedly taken. “Man, fuck your laws,” Macias replied, also telling Vitale in the footage:  “Your fucking freedom of speech is genocide, homeboy! Is that what you are trying to represent?” then refusing to give the hat back, prompting intervention from police officers.


    According to the Riverside County District Attorney’s Office, Macias could face up to one year in jail after being arrested over the incident because Macias is being charged with a higher misdemeanor than a normal petit theft because she allegedly swiped the hat off Vitale, Fox News reported.


    The arrest warrant says Macias claimed to one of the police officers she wanted to burn the MAGA hat because she felt the words “Make America Great Again” were symbolic of the “genocide of a bunch of people.” Vitale, who is a member of the college’s Republican Club, pressed charges following the incident and explained that he was “excited” to see the district attorney’s office had taken the complaint seriously.


    “I do, very proudly, wear my MAGA hat,” Vitale told Fox News. “I’m not doing this to be punitive or see her rot in jail. I want people my age to realize that things like this aren’t tolerated in America. We just want to have our rights guaranteed and that’s what it’s all about,” he added.[1]


    Despite the headline, the chance that the defendant will spend a year in jail for her offense is nil. Unless she has other issues on her record, some deal will be cut. Anger management training, community service, taking a course on the constitution, or something like that is my guess as to the outcome (if the case isn’t entirely dropped).


    On one hand, you can see the confrontation as a dialog of the deaf, with an empty hat slogan vs. empty return rhetoric. But if you look at the upcoming 2018 elections, or even 2020, you don’t have to guess which side benefited. It’s the one that appears on the side of free speech and calm reason. The hat wearer may or may not have wanted to provoke a confrontation. But either way, he knew just what to do. Make a video of the event, refrain from grabbing the hat back or physically confronting his adversary, insist on his constitutional rights, etc. In fact, it’s a classic non-violent strategy of the type used by civil rights workers in the 1950s and 1960s to combat segregation: allow the other side act unreasonably and let an electronic medium spread the images. Back then it was TV that carried the images; now it’s YouTube.


    And don’t think that the fact that this particular confrontation occurred in blue-state California provides insulation from political ramifications. Newsweek is a national source of information distributed outside California. And, as it happens, some of the relatively few House seats that are up for grabs in 2018 are found in California, thanks to its changing demographics and political trends. UC-Riverside is located in a general area in which there are some House seats that could go either way. Moreover, there have been a stream of related events on other campuses in recent years that are in red states or which received national attention.


    Inside Higher Ed carries an article about a college newspaper in Texas that carried inflammatory rhetoric:

    ===


    ===

    I could reproduce the full article on the Texas story. But the picture above tells the story well enough.[2] And the issue goes beyond elections over the next few years and to the longer-term future of higher education itself, as a recent Pew poll suggested.[3] If you think it’s an accident that the Republican tax bill has features that aim at universities and students, look at the graphic from that poll below and think again.

    ===


    ===

    And then there are the revelations about sexual harassment and assault in Hollywood and politics, about which I mused recently from just a labor-market perspective.[4] Progress in the workplace that hopefully will occur as a result may not produce progress in the political realm, particularly a realm in which the president on tape was heard by the electorate confessing to similar deeds - but won an election anyway.


    The problem is that even as the revelations move to improve the workplace climate for women, every action has a reaction. The harassment cases that make the news are those involving big names for obvious reasons; the public is not interested in what Joe in the mailroom may have done or Harry on the assembly line.[5] But some observers have noted that it can’t be the case that the misbehavior in Hollywood and politics was confined only to high-profile personalities in those two sectors. There have to be many more men employed in less visible jobs and industries who now feel threatened, perhaps based on past behavior.


    You can say that’s too bad for them. That is the kind of thinking that produced the outcome of the 2016 election that pollsters missed. But who gets more votes in 2018 and 2020 if threatened voters act on their fears? It’s likely that the bad-male-behavior-in-the-workplace issue will be kept alive, not just by new exposures but also by what seems to me to be inevitable litigation resulting from the big-buck contract terminations. Up to now, the revelations have produced apologies of various degrees of sincerity from the celebrities and politicos involved. But not all of them will go quietly into the night when substantial sums of money are at stake.


    And then there is the Steinle case in San Francisco, a women shot by a undocumented man who was deported several times, had a criminal record, and seemed to be protected from deportation by San Francisco’s “sanctuary city” policies.[6] He was acquitted of murder after a jury trial and convicted only of having a gun illegally. Yes, evidence was presented that convinced the jury that he was not aiming at the women and that the bullet ricocheted into her. But the headlines are what they are, and not just in right-wing news media. To the extent that votes are influenced by this event, where do you think they go in in 2018 and 2020?

    ===


    ===

    As we have noted in earlier musings, there is nothing on the economic horizon that suggests a recession (which would be bad for the ruling party). But there do seem to be a number of unrelated and unplanned events occurring that work to benefit the incumbents in Congress, in the Senate, and ultimately the president.


    Of course, there is the Russia-thing…

    ===

    Footnotes:

    [1] http://www.newsweek.com/student-accused-snatching-maga-hat-trump-supporter-may-face-year-jail-721945 

    [2] https://www.insidehighered.com/news/2017/12/01/texas-state-president-blasts-racist-student-column 

    [3] http://www.pewresearch.org/fact-tank/2017/07/20/republicans-skeptical-of-colleges-impact-on-u-s-but-most-see-benefits-for-workforce-preparation/ 

    [4] http://employmentpolicy.org/page-1775968/5592725#sthash.SKHduQYX.dpbs  

    https://www.theguardian.com/world/2017/nov/22/sexual-harassment-doesnt-just-happen-to-actors-or-journalists-talk-to-a-waitress-or-a-cleaner  

    [5] https://www.nbcnews.com/news/us-news/kathryn-steinle-killing-san-francisco-defends-sanctuary-city-status-amid-n825836  

    [6] https://www.nbcnews.com/news/us-news/kathryn-steinle-killing-san-francisco-defends-sanctuary-city-status-amid-n825836  

  • 25 Nov 2017 1:39 PM | Daniel Mitchell (Administrator)

    NOTE TO READERS OF THIS BLOG: I have become aware of a quirk in the EPRN system that can cause incorrect graphics to appear in past musings. Essentially, if an image file was used with a filename such as "Figure 1," and then a later post uses a different image file with the same name, the most recent version ends up in both musings. I will try to correct past errors that may have accumulated in past musings, if time permits. However, all past musings are also posted at:

    https://issuu.com/danieljbmitchell/stacks/fa21c67c714745f79a0ab2fc5c6d6ff7.

    You should be able to find a correct version at that link.

    ===

    Mitchell's Musings 11-27-2017: Maybe not so mysterious


    Daniel J.B. Mitchell


    I have no idea how the Alabama U.S. Senate race will come out. The post-primary GOP candidate – Roy Moore – has been credibly accused of pursuing teenage girls in shopping malls when he was in his 30s. This is the same Roy Moore whose support especially comes from Evangelicals and is noted for insisting on having the Ten Commandments in his courtroom. The accusations come at a time where various Hollywood and political figures have been found to be, or have been accused of being, sexual harassers and – in some cases – assaulters, and have suffered severe career setbacks as a result. Moore has been urged to drop out of the contest by the Republican leaders of both the House and Senate, Paul Ryan and Mitch McConnell, but he plans to stay in the race and he denies the accusations.


    As a result of the Moore case, the LA Times ran an article with the headline "Roy Moore's Senate campaign is a train wreck. So why does he still have a decent shot at winning?"[1] Oddly, the article mainly says that Alabama is a red state and really doesn’t go much beyond that obvious fact. It quotes the state’s governor – Kay Ivey - as saying that she believes the allegations (despite Moore rejection of them), but will vote for Moore anyway because he would be a GOP vote in the Senate. (President Trump has said more or less the same thing.) You might see that rationale as a calculation in which the morality issue is weighed against the political outcome and found to be less important in the balance.


    Another article in The Atlantic tries to tackle the religious contradiction issue more directly: "Christian Support for Roy Moore ‘Looks Like Hypocrisy to the Outside World’."[2] It resolves the contradiction mainly by suggesting selective beliefs of voters. In this case, Moore’s denial is accepted as truthful and thus there is no moral issue weighing in the balance. People just believe what they want about the allegations in that interpretation. The New York Times ran a rather learned op ed dealing with the theology of the issue of political conservatism’s link to religion. It notes that some conservative religious scholars are now proposing a retreat back to separation of church and state.[3] But apparently such a retreat is not happening in Alabama.


    I am no expert in the theology involved, but it seems to me that such discussions are unlikely to produce the political outcome which the authors of such pieces implicitly or explicitly desire. If you start from a fundamentalist premise that God, who is all-powerful, is greatly concerned with the day-to-day events of this world, you are immediately faced with the problem of evil in the world. There are apparently unjust outcomes happening on a daily basis: children dying of disease, natural disasters that equally affect good and bad people, etc. (Note that natural disasters are often termed “Acts of God.”) The ultimate solution to the riddle of why bad things happen despite the existence of a caring God is that “God Moves in a Mysterious Way,” as the Christian hymn goes.[4] Strange and unfathomable things may be taking place, but there is a Plan behind it – albeit one which is not immediately apparent.


    After all, not all Biblical figures act correctly. King David impregnates the wife of a soldier and then arranges for the soldier to be killed in battle. Jacob deceives his blind father Isaac by pretending to be Esau and through this deception receives a death-bed blessing. Moses – a stutterer – was not an obvious candidate for persuasive leadership, but is nonetheless chosen by God to lead the Israelites.


    It’s only a small step from the view that God moves in mysterious ways – but always has an unseen reason - to believe that even if President Trump did what he said on the “Access Hollywood” tape released on the eve of the election, he should nevertheless be voted into office. Even if there is no evidence that Trump had a deep religious belief before running for president, his election could nonetheless part of The Plan. So even if Roy Moore did misbehave in shopping malls, his election could also be part of The Plan.


    Those of a more secular persuasion will at best see this approach to personal political decision-making as a variant of “the end justifies the means,” more akin to the pragmatic support for Moore voiced by Governor Ivey and President Trump. But the idea that God can move in unfathomable ways really comes down to saying that God’s means are always ultimately justified no matter how strange or contradictory they may seem; you just have to figure out what those divine means are and then get behind them.


    Of course, the key challenge in the God-moves-in-mysterious-ways approach is that YOU, if you are a believer, have to determine what God’s means are, and then act accordingly to produce God’s ends. If you want to persuade someone who follows such reasoning to rethink the political ramifications of that approach, calling him or her a hypocrite is unlikely to do the trick. It isn’t even an accurate accusation, given the underlying premise of God moving in mysterious ways through the American political system. I suspect a better approach for dialog lies in the idea that even if one presumes the perfection of The Plan, it is still possible that imperfect people can misinterpret what that Plan actually is. And bad actors have every incentive to encourage such misinterpretation.


    Is anyone considering that approach as the Alabama election approaches?

    ===

    Footnotes:

    [1] http://www.latimes.com/politics/la-na-pol-roy-moore-democrats-20171122-story.html

    [2] https://www.theatlantic.com/politics/archive/2017/11/evangelicals-sexual-politics-roy-moore/546089/ 

    [3] https://www.nytimes.com/2017/11/17/opinion/sunday/escape-roy-moores-evangelicalism.html 

    [4] God Moves in a Mysterious Way (hymn), by William Cowper, 1773 or 1774

    God moves in a mysterious way

    His wonders to perform;

    He plants His footsteps in the sea

    And rides upon the storm.

    Deep in unfathomable mines

    Of never failing skill

    He treasures up His bright designs

    And works His sov’reign will.

    Ye fearful saints, fresh courage take;

    The clouds ye so much dread

    Are big with mercy and shall break

    In blessings on your head.

    Judge not the Lord by feeble sense,

    But trust Him for His grace;

    Behind a frowning providence

    He hides a smiling face.

    His purposes will ripen fast,

    Unfolding every hour;

    The bud may have a bitter taste,

    But sweet will be the flow’r.

    Blind unbelief is sure to err

    And scan His work in vain;

    God is His own interpreter,

    And He will make it plain.

  • 18 Nov 2017 11:10 AM | Daniel Mitchell (Administrator)

    NOTE TO READERS OF THIS BLOG: I have become aware of a quirk in the EPRN system that can cause incorrect graphics to appear in past musings. Essentially, if an image file was used with a filename such as "Figure 1," and then a later post uses a different image file with the same name, the most recent version ends up in both musings. I will try to correct past errors that may have accumulated in past musings, if time permits. However, all past musings are also posted at:

    https://issuu.com/danieljbmitchell/stacks/fa21c67c714745f79a0ab2fc5c6d6ff7.

    You should be able to find a correct version at that link.

    ===

    Mitchell’s Musings 11-20-2017: Earthquake of Harassment


    Daniel J.B. Mitchell


    It’s not clear exactly when to date the start of the current rush of allegations of sexual harassment and assault. If you went by the general news media, you might well focus on Hollywood celebrities and the Harvey Weinstein scandal as the beginning. But in fact, the issue has simmered within academia for several years. A typical academic case would be a senior (male) professor harassing a (generally female) graduate student. The academic cases – or at least the substantial attention paid to them within academia – might be dated as starting with the Title 9 “Dear Colleague” letter of 2011 from the U.S. Department of Education. That letter was recently withdrawn by the Trump administration, but the cases it started continue.


    We might therefore draw a line from academia to Hollywood and now to politics, as various prominent individuals in all three fields have been accused of misconduct, in some cases misconduct going back as far as the 1980s. The point is that there is now an ongoing phenomenon occurring that wasn’t there in the not-so-distant past. And it raises an interesting series of questions. How do you separate a talent from the person who possesses that talent? Someone could be a very good academic, or actor, or elected official, but also act badly in other facets of life. In addition, there is the issue of the evaluation of the veracity of allegations, particularly when the accused individual denies them. At present, there is much discussion of these various issues, triggered by the many accusations.


    As interesting as those questions are, I want to pose another one. Why now? That is, given that the allegations go back as far as the 1980s, why are they coming out now? Why not ten years ago? Or, for that matter, why not ten years in the future? The issue of timing seems – at least to a Californian – as something reminiscent of an earthquake. Pressure builds up over time. There may be some minor shocks along the way. But then there is a large quake followed by aftershocks. Once a fault is identified by geologists as being under pressure and active, it can be predicted that at some time in the future there will be a quake. But no one has yet been able to predict the precise timing.


    It may be that something like the earthquake process was involved in the current rush of complaints of sexual misconduct. Pressure built up over time. At some point, it was going to be released, although no one could forecast the timing precisely. But that explanation raises another question. Why was the pressure building up? It may be a bias of mine, but in considering that issue, I look for labor market trends as a source and explanation.


    An obvious point is that the allegations tend to have workplace connections. We have people who are employees or applicants to be employees as the complainants. Even in the academic complaints, the graduate students often were teaching assistants or research assistants or, at least, were pursuing their education in order to enter an occupation. Typically, graduate students look to their professors to help them obtain future employment. A second obvious point is that most of the complainants – not all – are women.

    ===

    Figure 1: Both Sexes 25-54 Civilian Labor Force Participation Rate


    ===

    It is well known that the labor force participation rate generally rose in the post-World War II period and that the rising trend leveled off in the 1990s. Figure 1 above shows the trend, focused on ages 25-54 to remove effects of changes in educational attainment and retirement. The participation rate began to decline in the 2000s, and only recently – as the slow recovery from the Great Recession finally approached full employment – showed some increase. But the rate still remains below its peak.


    The male rate has generally declined since the 1950s. [Figure 2 below] So all the action – indeed, one could say more than all the action – involves the female participation rate. [Figure 3] The participation rate for women is not the only index of progress that one might use. But it certainly is one measure. So the rate’s stagnation of the 1990s - and then decline in the rate that began in the 2000s - suggests a stalling and then partial unraveling of progress. Note that the Trump phenomenon has been popularly attributed to declining opportunities in the labor market for men. So why shouldn’t we expect some kind of reaction from women when their expectations are not met?

    ===

    Figure 2: Males 25-54 Civilian Labor Force Participation Rate


    ===

    Figure 3 Females 25-54 Civilian Labor Force Participation Rate


    ===
    As Figure 4 below shows, the net effect of the movements in male and female participation over the long term was a rise in women as a proportion of the labor force until the late 1990s. The fact that more women were in the workforce and were seeking to enter occupations that had traditionally been male-dominated is surely part of the story of pressure building. With more women in employment-related situations, there were more targets for misconduct. As long as women were making gains within the workforce, however, there was some release of the pressure. There are problems now, it could be rationalized, but change for the better and new opportunities lie ahead. When the gains stopped, that release of pressure also stopped. Then, as with earthquakes, you could say that something would eventually happen, but not precisely when.


    The Title 9/Dear Colleague letter in academia produced a kind of foreshock. It also brought attention to the subject of sexual misconduct, at least in certain circles, as various op eds discussed whether universities were handling matters appropriately, whether there was sufficient due process in systems set up by universities, etc. The big quake first hit Hollywood and now has created aftershocks in the political realm.

    ===

    Figure 4


    ===

    What about pay for women relative to men? Figure 5 shows the ratio of female-to-male median usual weekly earnings. Much of the movement in the ratio is due to changes in occupational mix, i.e., as women’s occupational distribution becomes more similar to the male distribution, the ratio tends to rise. The period of big gain comes in the 1980s when the ratio rose from the low sixties to the upper seventies. The 1990s saw little change. There were modest gains in the early 2000s, when the ratio rose from the upper seventies to the low eighties. But in the period of the Great Recession and its aftermath, there has been little change. Basically, the ratio bounces around in a narrow range of 80-83%. The pay story – like the participation story – is one of notable gains early on, but a flattening out more recently (around the time of the sexual misconduct earthquake).

    ===

    Figure 5


    ===

    It’s true that many complainants who have received media attention are themselves prominent persons, not typical female employees. But the fact that the larger world has responded to their complaints suggests that the stories have a resonance which now makes it difficult to cover up past and current misconduct and thus requires action. Both Hollywood and electoral politics ultimately depend on broad public opinion. Both sectors are in the business of selling their “product” to the general public. The phrase “glass ceiling” in the past has been mainly applied to unseen barriers to women obtaining top management positions. Compared to the overall workforce, the number of potential candidates for top management posts is small. But it seems that a more widespread glass ceiling – the slowdown of women’s progress in the labor force – is having a wider effect. At least that’s my hypothesis. Have you got a better one?

  • 09 Nov 2017 3:30 PM | Daniel Mitchell (Administrator)

    Mitchell’s Musing 11-13-2017: Clean for Gene


    Daniel J.B. Mitchell


    In 1968, with the Vietnam War raging and other cultural clashes (civil rights, drugs, hippies, etc.), a group of college students decided to back Senator Eugene McCarthy’s bid for the Democratic nomination for president. Their goal was to unseat incumbent Lyndon Johnson and the New Hampshire primary was going to be important in that endeavor. In campaigning for McCarthy, the students famously went “Clean for Gene.” Although McCarthy didn’t win the primary, he did make a strong enough showing to convince Johnson to drop out of the race. What the students did was to acknowledge that they had to avoid behaviors that - even though they seemed appropriate within their circle - would be offensive to potential New Hampshire voters. An NPR retrospective tells the tale:


    That Johnson won the New Hampshire primary was not a surprise; he had the party machinery, the money and the endorsements all in his favor. That he won with just 49 percent of the vote — compared to McCarthy's 42 percent — was a surprise. In fact, it was a stunning repudiation of a president and his war policy. And it was carried out by the unlikeliest of political figures, leading an unlikely army of college students who decided to "Clean for Gene" — shave, shower, clean up their acts — and toil in the snows of New Hampshire to spread their message.[1]


    The idea that if you want to influence someone to do something (such as vote for a particular candidate or come around to your viewpoint), you should avoid behaviors that might offend does not seem terribly controversial. It was on display in the swing state of Virginia during the recent gubernatorial campaign in which the (winning) Democrat took relatively conservative positions on issues such as “sanctuary cities.” But, of course, candidate Trump in 2016 seemed to be an exception to the usual political rule. He offended many potential voters. But he nonetheless succeeded in turning out just enough of his “base” in critical states to win the presidency.


    Indeed, the general rule of not offending has a proviso. If by offending, and thereby losing some voters, you can gain still more offsetting votes from another subset, then offending can be a winning tactic. Of course, you might not be interested in convincing anyone or in winning elections and, instead, be seeking the benefits of self-expression or of self-promotion in taking unpopular positions.[2] Or you might not appreciate that what you are doing would be offensive to many people because the folks you know all agree with you, i.e., some version of Group-Think. Where winning/convincing are not an objective, you can offend at will without consequences that you care about.


    With that preamble in mind, I reproduce below a headline – “State NAACP urges removing ‘Star Spangled Banner’ as national anthem” - from the liberal and Democratic-leaning Sacramento Bee. Of course, the large-type headline to the story attracts the primary attention of readers. There is an explanation within the article about a stanza of the national anthem (that no one ever sings) and about the political views of Francis Scott Key during the War of 1812. Suffice it to say, many readers may not make it beyond a headline. In internet versions especially, readers often see only the headlines or only the headlines and a brief excerpt.

    ===


    ===

    Once the article appeared in the Sacramento Bee, it predictably started making the internet rounds. Within California, conservative sources such as the news aggregator “Flashreport” reproduced the headline. Flashreport added a comment: “What So Shamefully Assailed.” Of course, one might argue that a typical reader of Flashreport would not be moved by arguments over unsung stanzas or over Francis Scott Key’s political orientation or that they wouldn’t be especially receptive to views of the NAACP.

    ===


    ===

    But apart from news aggregators with a deliberate conservative bent, what would someone find who just searched in Google with key words such as NAACP and anthem? Many links in fact turn up in such a search as can be seen below. One main stream news medium, CBS, tries to put some nuance into the headline by having it refer to the lyrics argument. But most sources just follow the Sacramento Bee’s headline style, regardless of their political leaning.


    So what was the thinking of the leadership of the California NAACP in adopting a resolution which was likely to be offensive to an external news readership that goes well beyond conservatives? Would that potential readership likely be receptive to the assertion that the national anthem is “one of the most racist, pro-slavery, anti-black songs in the American lexicon”?[3] Was the leadership adopting the idea – perhaps encouraged by the Trump success in 2016 – that you win support by attracting attention through statements that are likely to offend? But as noted, that approach only works if you gain more support in some audience than you lose in others. So was the anthem resolution a calculation that even if offensive to some, enough others would be attracted by the anthem issue to offset the negatives? If so, who would those others be?


    There was the background issue for the NAACP of mainly African-American football players who kneeled rather than stood for the national anthem. But the two issues are not quite the same. Poll results, such as they are, suggest there is an opinion divide on the kneeling issue.[4] There are no polls on the anthem issue, but one suspects that scrapping the national anthem would not be a popular position, particularly in those swing states where the 2016 election was decided. So was the anthem resolution a product of Group-Think, self-expression, self-promotion, or what?


    Maybe those promoting the anthem resolution were unconcerned about the current external political scene. But the lead sentence in the text of the original Sacramento Bee article says that there will be a campaign by the California NAACP to push members of the state legislature to adopt the anti-anthem position. So the resolution seems to have a wider political motivation. Note that despite California’s generally “blue” political coloration, there are swing seats in the legislature that are critical to the Democrats maintaining their existing two-thirds supermajority (which allows certain legislative discretion). And from a national perspective, several of the swing GOP congressional districts that could be won by Democrats are in California.

    ===


    ===

    In short, there’s much to be said for an updated version of the old 1968 strategy of going “Clean for Gene” as the 2018 elections approach (and beyond that date, too). But many in the “progressive” camp seem not to be receptive to that idea. The late 1960s also produced the Rolling Stones’ song, “You Can’t Always Get What You Want.”


    No, you can't always get what you want

    You can't always get what you want

    You can't always get what you want

    But if you try sometime you find

    You get what you need.[6]

     

    It’s another good idea from that era.

    ---

    Footnotes:

    [1] https://www.npr.org/templates/story/story.php?storyId=5049072. The McCarthy campaign, in addition, was often framed as a form of patriotism: https://www.youtube.com/watch?v=N7pR0yTGOiA.  

    [2] The various Milo Yiannopoulos campus events fall into this category.

    [3] http://www.sacbee.com/news/politics-government/capitol-alert/article183262411.html.  

    [4] https://www.cnbc.com/2017/09/29/a-majority-of-americans-disagree-with-trump-on-firing-nfl-players.html and http://www.cnn.com/2017/09/29/politics/national-anthem-nfl-cnn-poll/index.html.  

    [5] One Democratic member of the legislature from a swing district is currently the target of a Republican-led recall campaign for voting for a hike in the gas tax to be used for transportation purposes. See http://www.ocregister.com/2017/06/27/gas-tax-triggers-85000-signatures-to-recall-orange-county-sen-josh-newman/. Another in a similar district is also at risk for the vote. See https://calmatters.org/articles/millennial-legislator-turned-red-district-purple-now-prime-target/.  

    [6] https://www.youtube.com/watch?v=yPS9MpRLCd0.

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