About Robert Shuler

Robert combines 50 year of investing experience, and 42 years of aerospace & software fault tolerant systems design, verification and management, with a knack for finding hidden principles. He has half a dozen patents and numerous publications in fields ranging from economics (corporate risk compensation, the equity premium) to physics (inertia & quantum gravity), and is the author of several books. He lives in Texas with his wife Natasha.

Tariffs are 40 times less than sales tax

 

tariff cost 2018A whole LOT of news stories talk about adverse impacts of the 2018 “trade war” with China on U.S. consumers, and also how businesses will “suffer”.  We throw a fresh light on these two issues.

IMPACT ON CONSUMERS

US consumers spend 12 trillion dollars a year.  That’s 12,000 billion.  Not all of it is subject to sales tax, but if it were, and the rate were 8% as where I live, that would be around 960 billion dollars.  The TOTAL value of a 10% tariff on 250 billion of Chinese imports is 25 billion dollars.  This is one 40th of the sales tax.  Consumers aren’t actually going to notice.  They give 15 times that much to charity.

IMPACT ON BUSINESSES

Some businesses will be adversely affected.  Let’s establish that up front.  Nearly every research paper on cooperation since the 1980s has found that “tit-for-tat” is the most common reliable cooperation strategy.  Only a few strategies undermine it.  A good many papers study the “costs” of tit-for-tat.  The costs are the punishment of non-cooperators.  If someone doesn’t cooperate, then you get into the “tat” phase where you don’t cooperate with them, and this costs both of you.

But if you aren’t willing to suffer the short term loss, then the other side will continue to take advantage of you until you are bankrupt and their slave.  Hundreds of papers have shown this.  The idea there is some magic negotiating bullet that will produce cooperation without willingness to suffer costs of punishing the other side is a utopian fantasy which does not exist in the actual world, outside of ultra-liberal think tanks and dreamy Christmas movies.

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American Love-Hate of Free Speech, Elections & Russians

milo-protest-1920-1180x787

Protesters toppled a mobile spotlight and set it on fire during a demonstration against the scheduled appearance of Milo Yiannopoulos at UC Berkeley on Feb. 1, 2017. The event was canceled after demonstrators removed police barricades and occupied Sproul Plaza. (Bert Johnson/KQED) Story here.

 

The above photo depicts actions which are not free speech, and are not constitutionally protected.  There are examples which are a bit more ambiguous, which will be interesting discuss.  With the photo I just propose a limit up front to what I’m not going to consider “speech.”  I’m going to call it violence.  Seems pretty obviously so.  It appears intended against property, but things get out of hand intentionally or not.  It is the damage of something by force.
No matter your currently political position, I hope to challenge you with cases that you have no easy answer for, and surprise you with the [likely] disagreement between what you think you believe if asked offhand, and what actions of others you might sympathize with.  We’ll start with free speech from three points of view:
  1. Your view of your own speech.
  2. Opinions about free speech generally when it is not specified who is talking or what they are saying.
  3. Actions (which we assume reflect real opinions, not conversation when asked about opinions) in response to speech to which one is strongly opposed, perhaps about which one has some strong beliefs that aren’t triggered by conversations about general speech.

Not all speech is protected.  Advocating overthrow of the US government is against the law.  See 18 U.S. Code § 2385.  However, it is only advocating the overthrow (or destruction) of the government by violence that is illegal.

 

You can advocate changing the government or disbanding it through lawful elections, and that is perfectly fine under our constitution.

 

Do you believe in free speech when you are expressing your opinion?  Well, obviously yes.  Do you ever withhold your opinion, and why?  One might withhold one’s opinion out of fear of losing friends, losing a job, or mob retaliation.  You might think of yourself as merely expedient, or truly cowardly.  I merely point out these possibilities.

 

Do you believe in free speech generally?  Here is how to tell.  Do you vote for politicians who complain about the speech of others, or protect it even when they disagree strongly?  Do you become upset and perhaps cease communication when someone disagrees with you and seems immune to your reason or logical arguments?  If you answered yes to anything other than voting for politicians who protect it, you do not actually believe in free speech.  If so, I am not saying this is bad, just pointing it out.  It could be good or bad depending on a lot of other factors.  Whether you are “right” or not is only one of those factors, and not really a very big one.  If there were a clearly determinable “right” (or left?) arguable by logic, we wouldn’t be having this discussion.

 

Do you believe in free speech when people you think are dangerous or have dangerous ideas are speaking, provided they are not in violation of 18 U.S. Code § 2385?

 

Milo Yiannopoulos is a despicable fellow.  He has been kicked out of every institution of higher learning he ever attended and so has no degree.  He was even kicked out of Brietbart news (for saying sex between 13 year old boys could be a positive thing).  He does not advocate non-electoral changes to the US Government.  He might have been guilty of advocating harassment (online harassment), but that was not the incitement for the photo above.  It was the perceived threat of his political views.

 

Really? Could a human with Milo’s record convince anyone of anything they did not already believe?  Highly doubtful.  I suspect the people who were responsible for burning the trailer above might not really have been afraid of Milo, but of others who would come after him.  Ann Coulter perhaps.  They wanted to send a message.

 

Since I’m asking you questions, here are my answers.  I’m always in favor of my speech, but find I often get in trouble for it.  I try to keep my mouth shut sometimes, but here is this blog to prove I don’t.  I do not actually believe in free speech generally.  But my reasoning is not easily understood within the usual context of political debate.  I believe, for example, that a group of people have the right to govern themselves as they see fit, including not allowing that government to be changed by those they feel are outsiders, even (especially) by political processes.  This is a freedom.  Take it away and what you have is eventually totalitarianism, because when sufficiently many views accumulate in the population there will be no other way to govern.  But lacking much hope of changing the US Constitution to that effect, especially lacking a convenient definition of insiders and outsiders, and finding myself not in agreement with many who would be insiders, I’ll stick to the constitution for now.

 

Now lets discuss elections.  This is where it gets dicey.

 

Do you believe in elections?  When your party wins?  The other?  Someone you consider dangerous in some way wins, but they seem to have broken no laws, you just really don’t like what they say and do, even though their followers approve?  (I could be talking about John Kennedy as easily as Donald Trump.)
What about elections in foreign countries?  Should we try to influence them?  What should we do when someone we think is dangerous is elected?  Should we back non-constitutional removals of foreign governments.
The US has caused removal of foreign governments by covert means many times.  In 1953 Churchill and Eisenhower decided to overthrow the democratically elected government of Iran.  That didn’t end well for us.  I’m sure you can find many more examples.  Presidents of both parties have engaged in this risky behavior which undermines elections and usually results in military rule for a while, and a backlash later.
The US advocated that governments resign during the Arab Spring.  Although this is obviously non-electoral, it was done in the name of supporting democracy.  Later, when the citizens of Egypt voted in an election to change their government back, the US opposed that electoral process.  The US demanded the “removal” of Assad in Syria, and this led to a bloody 9 year civil war and gave ISIS a chance to become established in the country.  So even non-covert interference in other nations has blow-back.
The US this week voiced support for an election in Zimbabwe which appears likely to cause turmoil in the country.  Does that indicated we have learned a lesson?  Consider that:
  • Obama went to England during the Brexit campaign and made threats regarding trade with the US unless Brexit was defeated.
  • Trump went to England during the Brexit negotiations and made threats regarding trade with the US unless Brexit was fully implemented.

 

Hardly seems we have learned any lesson.

Are the public pronouncements of presidents a more ethical and less damaging way to interfere in the affairs of other countries?  They are more like “free speech” than covert operations.  But they seem to have bad outcomes in most cases.

 

Should private US citizens interfere in or even express opinions regarding elections in other countries?  Soros brags about causing the change of several East European countries toward more open Western style liberal democracies.  Every one of them is not changing back of their own accord, even though most are already in the EU.  In other words, it simply didn’t work.  And in Ukraine his results had disastrous effects.

 

Should US foundations which are fronts for government funds operate pro-democracy movements in other countries?  Many have done this, e.g. McCain’s foundation in Russia, now barred for meddling in 2012.  The result appears to have been covert Russian meddling in a US election, so that didn’t really work either, in fact it totally blew up on us because the Russians are hard to thwart.  I should know, I’m married to one.

 

Let’s talk about Russians and fake news.

 

So, do you believe in free speech for Russians?

 

Now that is really the question, isn’t it?  This thing with liberals and conservatives in the US is just politics as usual.  Now that it is benign, it has erupted into riots on occasion and one Civil War, but the Russians pose a moral conundrum.  We cannot justify our covert interference, whether through the CIA or various foundations, while criticizing theirs.

 

One of the complaints was they were promoting fake news.  There has been fake news in every US election I’ve ever seen.  It used to be last minute flyers direct mailed by the opposition candidate, allowing no time for denial, creating doubt.  It is not criminally illegal to lie if not under oath.  Libel is a matter for civil courts.  It is typically illegal to lie to an arm of the government, or give false information in a contract or financial transaction or when selling something (fraud), but it is not illegal to make up news or rumors.  If someone is damaged, they have recourse to the civil courts.  Otherwise it is just free speech, in which you probably said you believed, but about now you are having doubts.

 

Now lets talk about the constitution vs what you believe…

 

What exactly is free speech in the Constitution?  Does it apply only to citizens, or to Russians lying about their identity on the internet?  It is actually tied up with the protection of lying and says nothing about citizenship.  Here is the first amendment, word for word:

 

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

 

Point by point analysis:

  1. It only constrains Congress, not states or cities.  While most state constitutions have similar provisions, the question of whether the restriction on Congress can be applied to the states is not established.  See here.
  2. Of first concern is that no religion may be prevented.  However, you can bet that 18 U.S. Code § 2385 and various laws about weapons possession, bigamy and child sex laws, and so forth are actively enforced against religions.  This is interesting in the case of Federal laws, but perfectly reasonable in the case of state laws  I personally would like to see prevention of religions such as Islam, not anticipated by the people who wrote the First Amendment, from taking control in elections, regardless of the views of individuals, because I believe they will eventually rearrange the government to make Islam supreme.  This is what the Koran advocates (yes, I have read it, at least enough to make that clear).  We  have enough trouble accommodating different Christian views on death penalty, abortion, etc. without getting into Islam.  It seems perfectly reasonable to do this with state law.
  3. Free speech is covered in the same clause with free press. So, we have established free speech includes the ability to lie, subject to restrictions on fraud and libel.  Does free press include constitutionally protected ability to create fake news?  Apparently so.  Hearst did it to incite the Spanish-American war.  No one put him in jail.  There might be some checks in state law, but not Federal.  If we had a law against fake news, then in ambiguous or disputed situations, who would decide what is fake?  A government censor, appointed by the current supreme leader of course.  This is why we have constitutional protection for lying.  No one knows how to make the slope not slippery.  Is Trump exercising his right to free speech when he complains about the free press exercising theirs and creating fake news?  (Any one with the right to lie invariably does it.)  Of course.  Does he advocate violence?  Of course not.  But the NY Times would like to portray it as resulting in violence, because that might give them a lever to shut him up.  Is this just more fake news?  Probably.  Did violence occur at Berkeley as a result of the left exercising their right to free speech in opposition of Milo?  Definitely.  Will it occur because Trump complains of fake news?  I doubt it, but if it does we will address it, the culprits will be jailed or killed, and a message will be sent no one will forget anytime soon.  Vague and contested predictions of the future are not a basis for legal action.  There can be neither evidence nor proof until time has passed.
  4. Peaceably assemble and petition government is also one clause.  So Berkeley left wing intervention is not protected as it is not peaceable.  A Berkeley professor wrote a blog defending a protest in which white students were blocked from classes.  He defined a protest as creating an inconvenience.  The Constitution does not offer such a definition, and by use of “peaceably assemble and petition” I infer no right to obstruct.  Otherwise “obstruct” or some similar word would be in there.  Even the word “protest” is not in there.  The word used is “petition.”  Ha!  Protests are not protected by the Constitution.  They could be outlawed by states or cities, and in fact “demonstrations” are regulated, require a license, and police control them to minimize “inconvenience.”  If they won’t be controlled, they are declared a riot and people are arrested, sometimes even shot (Kent State).

 

Having read that, does the organization Patriot Prayer have the right to assemble and petition and engage in other free speech activities, without legal action or non-peaceful (including “inconvenient”) private action against it?  It might help to review the mission statement of PP here.  “Patriot prayer is about using the power of love and prayer to fight the corruption both in the government and citizen levels that seek to gain power through division and deception.

 

The right to self-defense.

 

The problem is, when one side dislikes the other so much (i.e. thinks the other side is dangerous in a way that overrides the Constitutional protections) and starts taking “inconvenience” to the level of physical intimidation, pushing, shoving, and all that follows from that including carrying licensed firearms with the attendant possibly of using them if feeling overwhelmed physically and threatened.  What appears to have developed is the following pattern:

  1. Right espouses speech that left considers dangerous and unacceptable.
  2. Left uses a liberal interpretation of free speech including “right to protest to the point of inconvenience and physical intimidation” to discourage and cancel right-wing events.
  3. Right-wingers, unwilling to give up their right to free speech, resort to their right of self-defense.
    .
    .

     N. After some number of steps, violent overthrow of the government results.

 

Conclusion.

 

The First Amendment applies to “people” acting within the jurisdiction of the US, which includes Russians.  It guarantees the right to lie and create fake news (and to complain about it).  As long as violence is not advocated, it guarantees the right to advocate governmental change.  As long as no campaign contributions are made, there is no requirement to reveal true identities or pass any other ethical tests.  Therefore we may concede every charge leveled at the Russians in connection with recent elections, and even every charge leveled at Trump, and none of them are illegal.  Accepting money and not declaring it (to the election commission if a contribution, to the IRS if income) is illegal, and if those charges are proved people will go to jail.  Paying money to someone to influence their speech, without other coercion?  Merely a business contract.  I am under all sorts of restrictions from my employer about what I can say, specifically about elections.  Generally I ignore it, just as Stormy Daniels did.  The person paying the money may be a fool, but not a criminal.

 

But the larger issue we were discussing is, do Americans really believe in free speech, and accept its consequences?  Apparently, only their own speech, or only when convenient.

Science & religion – is there a difference?

An open letter to Adam Becker

wormhole-shutle

On 5 April 2018 Adam Becker,  “freelance astrophysicist”  according to his webpage, published an essay on Aeon titled: “What is good science? Demanding that a theory is falsifiable or observable, without any subtlety, will hold science back. We need madcap ideas“.

The article was called to my attention by Firefox Pocket.

Aeon is, according to its about page, “a registered charity committed to the spread of knowledge and a cosmopolitan worldview“.  It is not a news organization and there is no peer review so it is not a scientific journal.  Authors are not generally solicited but hand picked by the editor, so there is no democratic (or actually even cosmopolitan) aspect of article selection.  I have nothing at this point against Aeon, just clarifying that it is a sort of edited collection of blogs founded by Paul and Brigid Hains of London, and that being a registered charity it is tax exempt, so it escapes the tax burden that you and I pay when expressing our ideas.  It can completely write off its expenses.  I cannot write off any of my idea-expressing activities, not even the very high paper publication fees which can run to $3000.  Brigid is the editor, and is an “environmental historian” according to an interview with Frost Magazine.

I wondered exactly what “cosmopolitan worldview” is.  According to Wikipedia, cosmopolitanism is an “ideology that all human beings belong to a single community, based on a shared morality“.  In other words, it is a kind of religion (aka ideology), which supports something closely akin to globalism.

That was my complaint about Becker’s article.  Allowing unverifiable scientific theories makes science indistinguishable from religion.  Religion is just a theory about how the world came to be and our role in it which cannot be verified by scientific experiment.  This means the gatekeepers are priests and dogma, ultimately.  The gatekeepers of science are anyone who can scrape together a credible, repeatable experiment.

You do not have to have a  PhD to be a scientist.  Albert Einstein had only a bachelor’s degree, and barely got that.  When he came up with Special Relativity and the basis of quantum theory in 1905, it was terribly embarrassing and “the establishment” quickly set up a program for him to get a PhD.  If you don’t have a priesthood and you start having visions within most religions, they don’t set up a program to get you qualified as a priest.  You are branded a heretic.  Ask Joan of Arc about that.

I quickly wrote an email to adam@freelanceastro.com.  Here it is.

Subject: about your Aeon article

Adam,

You are a little late to the party. GR went into unverifiable territory with the metric assumption in 1915 and almost no one every looks back. Unless someone can produce a working wormhole with both ends accessible in the present epoch, there is theoretically no way to verify the metric assumption. Everything else is embeddable on a homogeneous space in which momentum is conserved, and the only accessible regions (outside horizons) are embeddable in homogeneous time where energy is conserved. The damage is immense, a public waiting on “magic” like wormholes before investing seriously in space travel (eccentric billionaires excepted, thankfully). I have spent ten years researching this and my tour-de-force paper has been accepted and will appear shortly. Drop me a note back if you would like a link to it. Science without verifiability is religion, pure and simple. There is, unfortunately, no space to comment on your article. I think that is cowardly.

If you are happy with science being religion, I have already annoyed you enough.  If you think it should be different, then express your thoughts via email to Adam at the above address, and tweet @BrigidHains.

 

Bridge Collapse: Is “What went wrong?” the Wrong Question?

FIU bridge collapseOn March 10th 2018 a one-kiloton bridge was privately constructed across an 8-lane freeway in Miami in a record 6 hours.

On March 15th it established several new records, failing catastrophically after only 5 days, killing 6 (the toll may rise) by crushing them and their cars on the freeway below.  The blame game and finger pointing has now begun.

As author of a book on crash rate theory, I realized I should make a comment.  So I waited for the first signs of data.  No, I will not wait for every last scrap of data.  For two reasons:

  1. You do not have every last scrap of data when designing and constructing the bridge, and that is the time to act, before the disaster not after.
  2. No NTSB investigation ever prevented a crash.  Something else does, and it is not operative here.

I realize my #2 statement is shocking, but bear with me.  I’m going to take #1 first.

Crashes can only be prevented beforehand.  There are no dead bodies and crying relatives and grandstanding politicians (Marco Rubio in this case) giving urgency to the cause.  There are only accountants taking away duly budgeted funds for margin and testing, and managers and customers calling for the highest value at the least impact.  Solid data to prove there will be a crash is non-existent.  Designers, constructors and customers need to have methods that survive the accountants and managers, in short the economic pressures.

A dramatically valuable technology like 6-hour construction of an 8-lane spanning bridge might itself increase risk of a crash, or virtually guarantee it, and countermeasures have to be deployed.  If you leave valuables on the street, thieves will take them.  If you use a lot of energy, entropy will increase.  If you have great ideas, they will fail.  These are laws of nature, despite the insistence by our culture that no idea is bad and no feature or cost-saving has consequences.  Read the book to see what you can do about it.  In fact, the company that understands this will reach the optimal risk operating point first, and make the most money.  That is why the book has the awkward title of Economic Optimization of Innovation and Risk.  Yes, I linked my book twice in one blog post.  This is a book blog, in case you didn’t get that.

The book emphasizes test and inspection as cost effective means of achieving the optimal risk goal, much cheaper than paying for crashes or just paying too much for capabilities.  It mentions continuing to test after deployment, and that is what prompted this blog post.  The bridge in question seems to have failed during a stress test applied after it was built and the road underneath opened to traffic.

What I said in the book was to leave test data gathering systems in place, and continue to look at the data and make appropriate adjustments.  Not to place artificial test loads on an operational vehicle or structure or system while endangering the public.  There is a very great difference.  And I didn’t want my statement to be misinterpreted.

Ok, enough of that, on to my inflammatory statement about the NTSB.  An NTSB investigation cannot prevent a crash because they only investigate afterward.  Duh.

Hold on.  I know you think they make recommendations and airline operators and manufacturers implement those recommendations, and that prevents future crashes.

It certainly does not.  Quite frequently recommendations, even required ones, are not implemented.  Failure to implement old recommendations is a frequent finding in future crash investigations.  But the airline industry does have a better safety record by some measures than other forms of transportation.  What gives?

What prevents future crashes is fear.  Fear on the part of the public of traveling with operators or on equipment that has had a couple of major crashes.  This fear causes the bad operators or manufacturers from Value Jet to de Havilland to go out of business one way or another.  (Value Jet’s assets were acquired by AirTran, which was later acquired by SouthWest.  Thank about that for a minute.)

Inspections that happen before a crash can prevent a crash.  But only if the results are heeded.  Inspections revealed erosion of the O-ring seals of Shuttle booster rockets, but no corrective action was taken, and the missions were deemed so valuable one was launched on a cold day in January.  That is how feature or mission value impacts crash rate.

In fact, NASA’s three worst disasters in its manned space program, the Apollo I fire, Challenger explosion killing the “Teacher in Space,” and Columbia failure due to ice hitting tiles which had been known for a long time, occurred on January 27th, January 28th and February 1st respectively.

Ice?  February 1st?  So the investigation into Challenger produced what?  Nothing, apparently.  No insight that cold weather affects high performance space vehicles.

Post-crash investigations make people feel better, but they do not prevent crashes.

Regulatory action penalizing operators and manufacturers do not prevent crashes either.  My good friend’s wife was killed by a drunk driver whose license had been suspended for … wait for it … drunk driving.

Test and inspection works.  Breathalyzers that lockout the car’s ignition are imposed by many judges in Texas, but they do not seem harsh enough for MADD, or some Texas judges, and weren’t used in the case of the driver who killed my friend’s wife.  So she is, well, dead.

For quantitative answers, even lacking precise data, about how much to do, read the book.  Why are quantitative answers needed?  Why don’t you just do everything possible?

Try that with any engineering organization.  Engineers and managers quickly figure out they can raise a safety issue and get funding, promotions, etc.  This is why “everybody stay vigilant” doesn’t work.  People only stay vigilant if their vigilance is heeded.  Heeding all vigilance produces a cost bloat and you go out of business that way instead of from public reaction to a crash.  So a mathematical (quantitative) theory is essential.

Is there Logic to Trade Tariffs?

US Trade Balance 2010-2014

Is a trade imbalance harmful and what are the ways to correct it?

How harmful is a trade war?  What can they do, and what else will we do?

You will not find any Ted Talks or sound bites here with carefully selected statistics to prove an emotional point – most likely to mislead, influence and control you.  But I will take the tabular data provided by sources such as the U.S. International Trade Commission (from which data for the above chart was taken) and place it in graphical form so you can make some sense out of it and decide for yourself.  If you dare to make up your own mind, that is.  It might not be safe to disagree with your friends now days.  People might think you support someone they hate, or think is an idiot.

I’m not saying decision makers aren’t idiots.  But idiots given three alternatives are right one time out of three.  Intelligent people lacking data and models of how things develop in the future, making decisions instead based on received wisdom or ideology, can be wrong every time.

In what industries are the trade imbalances?  Who are winners and losers?

Oddly this is rarely mentioned.  Instead reporters mention countries, which allows them to make obscure statements about who benefits from trade.  Is anyone benefiting?  Only one group.  Is it a general problem common to all industries?  Not by a long shot and the largest problem is already fixed, but the next two problems are entirely different.  Take a minute to look at the chart above.

First thing you notice is that the biggest trade deficit is for energy, but that it is rapidly coming up toward the breakeven mark.  This data stops at 2014, and by 2018 we are nearly ready to become a net exporter.  This was done with technology and productivity, not by employing a lot of people.  Before leaving the subject of energy, I want to point out that Saudi Arabia and the United Arab Emirates are trading partners with which we have a surplus, not a deficit.  For energy partners, we have deficits with Indonesia and Russia.  With Canada we are very nearly balanced, so it is a fair swap.

Electronics, clothing and automobiles are big offenders.  This has changed since the early 1960s when we led the world in making all three.  Warren Buffet’s claim to fame is that he shut down a textile mill (Berkshire-Hathaway) and converted it to a financial services firm, effectively a big proprietary mutual fund.  Most of the electronics now come from China, Thailand, and similar countries.  The autos come from Japan, Korea and Germany.

The next three biggest negatives are metals (such as the steel and aluminum in the news this week), machinery of various sorts, and believe it or not … footwear.  More than $20 billion a year of it.

The only industry in which we have a net export is agriculture, or food, around $30 billion.  Whatever you think of other people in the world, we feed them.

If you shut down all trade there would be a lot of disruption.  But on the whole, only one industry would be harmed, and not nearly by the staggering numbers by which a dozen other industries would be helped.  Prices of some things would be higher.  Those dollars would be spent here in the U.S., so it’s really not a problem.  Your neighbors would have jobs instead of unemployment benefits, and your taxes would be lower.

Are there particular countries with which we have an egregious trade imbalance?  Yes, see chart below:

top 10 trading partners

It looks like China accounts for 2.5 times the trade deficit of any other region, with the EU second, followed by Japan, Mexico, India and South Korea.  (Germany and France are included in the EU total.)  Although the deficit with India is about the size of the one with South Korea, it is much more egregiously unbalanced so I put India earlier in my list.  Mexico is not that badly unbalanced, actually, but is just a large trading partner with a degree of unbalance.

Which of these countries have deliberate policies of restricting U.S. imports?  China, Japan and the EU are very hostile to imported goods and services, even though all three have wealthy populations.  India might plausibly argue it is not a wealthy country, but in fact the attitudes of young Indians is quite anti-American.  They view western nations as targets for exploitation.  The U.K. and Mexico are very fair trading partners.

Is a trade imbalance a problem?

In my book on The Equity Premium Puzzle, I classify trade as to whether it is based on uneven distribution of resources between the trading parties, or on the cost of labor.  Trade based on uneven resources is helpful, I concluded.  Trade based on cost of labor is not, in the long run.  I will not repeat those rather complex arguments here, just reminding you of them.

If you become overly dependent on foreign sources for key industries, you can be controlled through trade sanctions and threats.  It would be unwise to depend on Chinese steel, aluminum and computers for our military equipment, or even in our economy to such a degree that China could dictate our foreign policy.  And they would.  We do it to people all the time, and China already does it to nations like the Philippines.

If foreigners accumulate enough money to buy your land and corporations, and you let them, then they control you just as surely as if you had a strategic dependence.  Your culture also becomes overly influenced by foreign ideas and values.

How do you correct a trade imbalance?

Normally a long term trade imbalance would weaken your currency, which would correct the imbalance by making your goods and services cheaper.  If this does not happen, either because other countries don’t have a trust factor to build up value in their currency, or have profligate expenses, or policies of excessive stimulus (e.g. China, the EU) which hold their currencies low, then you might need to do something else.

Here are the alternatives for fixing a trade imbalance:

  1. Let free markets take their course, and let your currency decline in value.  If others are manipulating their currency with stimulus, you will have to match them or this will not work.  In the U.S. we don’t tolerate inflation well, and are backing off of stimulus at the moment.  Our president has said he doesn’t want a weak currency, probably because it is inflationary.  So in the current case, we will not match their fiscal policy and letting free markets take their course is not going to help.
  2. Develop alternative sources for materials imbalances.  Oil is a classic example of this, and we have developed fracking technology, partly through government incentives to do so, and sure enough, the energy imbalance has dropped, and caused disruption around the world.  Since we were not previously doing a lot of new domestic drilling, this did not manifest as a displacement of jobs by productivity.  Notice that this does not apply to steel and aluminum.  China, for example, is not a great source of either.  They buy the raw materials from other countries, many of them in this hemisphere, sometimes from thieves or those who don’t mind destroying the environment to get them.
  3. Increase productivity to lower prices of the things you do export.  You have to be already exporting something for this to work, so it works with agriculture and financial services, but not with electronics and textiles because we have long ago abandoned those industries.  There are two problems:  First, it can reduce the number of jobs in those industries, since the main emphasis is on productivity.  Second, if your trading partner simply blocks your imports with rules and regulations, this doesn’t work.  Our fastest growing companies like Facebook, Google and Amazon are simply blocked by China’s totalitarian government.
  4. Impose tariffs on goods from countries with which you have a trade imbalance, in industries in which you have a trade imbalance, preferably in industries for which you have a critical need.  No point in picking fights over something unimportant.

To sum up, we already did number 2 in a big way, and strategies 1 and 3 are blocked by the policies and behavior of other countries.  That leaves 4, the tariff thing.

Will tariffs create a trade war?  Possibly.  There is nothing wrong with a trade war if you can win it, and it is a simple matter of adding up the numbers.  We have massive deficits with China and the EU.  As long as:

  • we only target industries in which we have large deficits with those two countries,
  • we are willing to match any retaliatory tariffs they impose,

then we will win any such trade war.  They simply have much more to lose than we do.  If trade with them stops altogether, fine.  I say we don’t even look back.  China would become a 3rd world country again.  The EU is already headed that way through mismanagement and unrestrained immigration.

How harmful is a trade war?  What can they do, and what else will we do?

The existing trade war.

In case you hadn’t noticed, there is already a trade war going on which is extremely vicious.  It is often illegal and targets any business that sells by mail order, whether it’s a mom and pop operation with a new kitchen widget, or the sleek products of our latest tech companies.

The small company products are the ones targeted illegally, sometimes aided and abetted by Amazon.  Chinese manufacturers clone a proprietary product and sell it as the original.  See well documented example of Elevation Lab’s under desk headphone holder.  For a broad based report including the kitchen widgets, see article on CNBC.

Large company products are copied in style, are usually not exact clones, and are sold under other brand names.  As far as what appears on the surface (I don’t know about the insides) this seems legal.  It is buyer beware.  Some devices don’t work.  Others work quite well.  I have bought a number of under-$100 tablets.  Half of them didn’t work or didn’t last and I threw them away.  The remaining ones work well, and even with losses were half the price of big names like Samsung and Apple.  I’m currently pondering whether to buy a laptop this way.  Here are examples of some current choices:

  • $999 Macbook 13″ directly from Apple
  • $399 refurbished (grade C) Macbook from Double Dex sold through Walmart
  • $289 new Jumper EZ book (note name and style similarity, see photos) directly from China on Banggood.com

macbook 13 from applemacbook 11 refurb

jumper 13 from banggood

The next steps in a China trade war.

I took the list of possible steps China would take from a BBC Business News article:

  1. File complaints to the WTO.  The World Trade Organization, successor to GATT, started after WWII, was designed to make it more profitable for countries to trade than fight.  Further, it was designed to give countries leverage to control one another without fighting.  Members of the WTO, in theory, must give every other member “most favored nation” status, not charging higher tariffs to one nation than another.  If they go to war, they can be sanctioned and trade blocked or tariffs imposed.  The WTO has not really been successful.  Russia joined only in 2012, and invaded Ukraine in 2014.  Some deterrent.  China has claimed an entire ocean region (probably for oil) of waters adjacent to major nations like The Philippines.  The WTO is rendered less effective by bilateral and regional trade unions, like the EU and NAFTA and the TPP, at better-than most favored nation trading terms, which is exempted under WTO rules.  In other words, the WTO has no teeth.  If you are already in a trade war, it does not affect your bilateral and regional trade agreements.
  2. Limit U.S. beef imports.  This is presented as if it were important.  They’ve only recently been allowed after being banned for more than a decade, so very little impact.
  3. Tell Chinese customers not to buy American cars.  GM does sell a good many cars in China.  But you don’t really think those are manufactured here and shipped there do you?  Of course not.  Here is a picture of GM manufacturing plant in Shanghai:
    GM Cadillac plant in Shanghai
    The real trend is toward Chinese manufacturing of cars sold in the U.S.  A Chinese company now owns Volvo.  As for GM, 32,000 Buick Envison models have been produced in Shanghai and sold in the U.S.  That is the tip of the coming iceberg.  Even Russia gets ripped off by China, with a contract for fighter jets canceled half way through as clones started rolling off Chinese assembly lines.  It’s not just China.  Take a look at 13 popular “American” models manufactured overseas.  GM is destined to become not a seller of American-made products in China, but yet another gateway for selling Chinese products in the U.S.
  4. Tell tourists to stop visiting the U.S.  The first problem I have with that is the idea of a country “telling” its citizens where to go.  We should not even be trading with such countries.  It is aiding and abetting totalitarianism.  The second problem I have with that is, well, let’s put it this way.  If you want your town to become a 3rd world tourist trap for wealthy Chinese, go ahead.  I’m not interested.  I’d rather be wealthy myself.  And I certainly don’t want my livelihood subject to the whims of a totalitarian government, long time strategic enemy of the United States, which uses the spending power of its citizens whom I’ve made wealthy as a strategic weapon.
  5. Sell some U.S. bonds.  Even the BBC reporter admits this is not much of a threat.  They would be picked up by other countries.  We are already raising interest rates, which is the effect of bond sales.  And since we have our own currency, we can create it through the Federal Reserve to buy bonds at any time, lowering the value of our currency and making our exports more attractive.  In other words, if the Chinese sell U.S. bonds, they merely give up the leverage they have used to make gains in the already-on-going trade war to begin with, and the U.S. trade imbalance with the entire world will self-correct by currency value changes as it should have long ago.

Conclusions.

A trade war really is a kind of war.  The thing is, it’s like Pearl Harbor.  If you have been attacked, even if it is a sneak attack over time, you have to respond, or fold as a country.

Most likely, as the BBC reporter suggests, China will do nothing serious.  But the reasons are not given.  Here they are.  First, current trade policy moves will be seen as political posturing by Republicans who want to win (or avoid losing) in the fall 2018 mid-term elections.  Second, China will not so easily give up its strategic goal of being the [sole] manufacturer to the world, thus controlling the world.  It wants to capture the U.S. car market.  It is emulating Japan, and that’s what Japan did as a next step after capturing the U.S. electronics market.  It can’t do that if there is a trade war going on.

How did we respond to Japan?  Reagan imposed selective tariffs, and forced them to revalue their currency upward, which produced a deflationary catastrophe in Japan that cost them their leadership position in world trade.

 

 

Today v. Tomorrow: The Running Ostrich

running ostrich

Jobs that focus on short-term fixes today, at the possible expense of many tomorrows, outnumber jobs that focus on long-term outcomes by as much as 16 to 1.  I call this the strategy of the running ostrich, as pictured above with a bucket on his head.  See table:

Discipline Definition Jobs available
(LinkedIn, 1/1/2018)
Sociology the study of human society at a given period in time 7760
Anthropology the study of human beings and their ancestors through time 1405
Clinical and medical genetics provides counseling or treatment for genetic diseases prevalent today 7760 + 2216
Population genetics study of how population traits will change in the future based on selective pressures today 567

The running ostriches (engineers, physicians, politicians, military strategists, sociologists, etc.) are fascinated by how things work, and want things to work or “run” very well.  Today.  It is an affront to their efforts that things might work differently tomorrow and no longer run well.  That is at worst just another in a long line of challenges they will “solve.”

To suggest that the well running of things today might actually cause them to run poorly tomorrow is a fighting insult, whether one is talking about climate change or population growth or social upheaval.  It is long forgotten that originally oil-based power was orders of magnitude cleaner than wood-soot and horse manure for the same amount of heat, light or travel.  And rarely considered that solar power and electric cars may have some even greater consequences unforeseen by opportunistic social planners today.  And certainly don’t mention that treating genetic diseases will harm the genome, or paying for poverty will buy more poverty.

The Problem

The trouble is, even those who study the evolution of the future fail to account for themselves.  They fail to see they ignore the fact that they must ensure their own success to have any impact on the future.  They do not seize material or political power, assuming they stand “outside” the system they are studying.  But they are part of it.

An Example

A case in point is the famous Carthaginian general Hannibal.  He saw that the Roman Empire was destroying all the “barbarian” tribes.  Carthage did not.  It’s colonies merely traded with them.  Romans first established vassals, then came back to enslave, and finally committed genocide against any resistance left.  Hannibal saw that Rome must be stopped.  He saw the long-term consequences of Roman aggression for the evolution of the human population.

But Hannibal did not see himself as participating in that same human evolution.  He thought he could take a one-time action, standing outside human history, to intervene in it.  He was brilliant in its execution.  He defeated 70,000 Roman crack troops with far fewer soldiers, a band of allied tribes who did not even all speak the same language.  It was a remarkable feat.

But Hannibal did not see the need to return victorious to Carthage, to seize political power, perhaps to become an emperor.  And so Carthage, founded by a mythical queen on female values, preferred not to make war, to leave alone and be left alone.  Their Senate (yes, they had a senate like Rome) could did not support Hannibal.

What was the outcome?  Rome imposed a punitive treaty and war debt.  But after the debt was paid, they continued to harbor evil intentions toward Carthage.  Carthage actually started none of the wars with Rome.  The 2nd Punic War was started by Hannibal from Spain.  But Cato the Elder ended each of his speeches, no matter what the subject, saying: “Further, I think that Carthage should be destroyed.

And destroy they did, leveling the city in 146 BC killing around 150,000 civilians and enslaving a further 50,000.

The Sins of Rome

At what cost to the world was Hannibal’s idealism and shortsightedness?

Not only did Rome end Carthage, but many other peoples.  And what it didn’t end it enslaved or drove into violent resistance.  In the First Jewish War Rome killed 1.2 million Jews, and enslaved 60,000 of them for the purpose of building the Coliseum.  Over the life of the Coliseum, 400,000 people were “sacrificed” there along with a million animals.  The total gladiator deaths across the empire was 3.5 million, around 3 times the total number of deaths of Roman soldiers during the life of the empire and republic combined.

But weren’t the Carthaginians evil child sacrifice-rs?  Thanks to Rome’s leveling of the city, we can only dig up the ceremonial graves and make inferences.  The most pessimistic estimates are 25 infants per year, within weeks of birth, barely different than late term abortion.  The total could have amounted to no more than a few thousands over the entire life of Carthage.  Compare that to around ten million people killed by Rome.

What type of society was Carthage?

We cannot know what the world would be like if Carthage prevailed.  Presumably the Jews would not have been dispersed.  But the Arabs, Huns, Mongols and others would likely have come conquering just the same.  Carthage might have simply been overrun later by the Arabs.  Even the warlike Romans were overrun by various groups.  However a few points are interesting to contemplate.

According to some sources, though Carthage had slaves they did not go on slaving expeditions after about 500 BC.  (Tyre still did.)  One might suppose then that no, or fewer, slaves would have been brought to the New World.  The history of approximately half the world might be radically different, and more peaceful.

How exactly did the Carthaginians trade and “cooperate” with strangers?  Out-group vs. in-group cooperation is considered one of the strongest markets for an advanced society, capable of making a technological civilization.  Here is a remarkable description from Herodotus of Halicarnassus (about 430 B.C.) :

“The Carthaginians also say they trade with a race of men who live in a part of Libya (Africa) beyond the Pillars of Hercules (Straits of Gibraltar). On reaching this country, they unload their goods, arrange them tidily along the beach, and then, returning to their boats, raise a smoke. Seeing the smoke, the natives come down to the beach, place on the ground a certain quantity of gold in exchange for the goods, and go off again to a distance. The Carthaginians then come ashore and take a look at the gold; if they think it represents a fair price for their wares, they collect it and go away; if, on the other hand, it seems too little, they go back aboard and wait, and the natives come and add to the gold until they are satisfied. There is perfect honesty on both sides; the Carthaginians never touch the gold until it equals in value what they have offered for sale, and the natives never touch the goods until the gold has been taken away.

The Romans in Briton

Compare that to the way the Romans treated their “allies” in Briton.  King Prasutagus chose to become a “friend of Rome” and at first the Romans left him largely at peace, though they raided his neighbors for slaves.  He wanted to preserve this peace, and so on his death his will left his kingdom to “joint rule” between his heirs and the Roman Emperor.  The Roman tax authority Catus concluded this meant Rome owned the kingdom.  He had Prasutagus’ queen Bodica flogged and his two daughters raped to make the point.

Implications for today

  1. A lot of our laws, customs and ideas of trade or cooperation are still based on Roman ideas.  The government of the U.S. was deliberately modeled on Rome.  Our ideas of justice might be more like those of Catus than either Prasutagus or Hannibal.
  2. Our social activists today are either like Prasutagus or Hannibal.  They appease, or they think winning a few points and making alliances in the present will secure the future.
  3. We do not systematically study the evolution of the future because the past has been so horrific, we, like the ostrich, want to pretend that it doesn’t matter, that who we are was not shaped by it, and the future will not inevitably be shaped by “unwelcome consequences” of our actions.  We think the future is shaped by the “intent” of our actions.

We can sum these ideas up more succinctly:

  1. The inertial continuation of aggressive law and trade in the race of corporate dominance.
  2. The strategies by progressive factions of appeasement, alliance and one-day victories vs. consolidation of power over time.
  3. The belief that it is intent that counts, and that good outcomes engineered today will spontaneously persist without future consequence.

History seems to suggest that none of these three ideas leads to desirable outcomes.  We seem to be just a bunch of running ostriches, not looking where we are going.

Case for/against impeachment of Trump

brusa flag
Flag of the Banana Republic of the United States

During Christmas my brother-in-law asked if I thought Trump would still be in office at the end of 2018.  What do you think?

The standard for impeachment is “Treason, Bribery, or other High Crimes and Misdemeanors.”  Let’s take those one at a time:

Treason – People may seriously think Trump’s policies are mistaken, but there is no plausible “motive” for the leader of the most powerful nation on earth, or a man already a multi-billionaire, to decrease the power of the nation he leads.

Bribery – in the ordinary sense of regulatory or judicial favors in exchange for money, this is equally implausible.  If you want to include the trade of foreign policy favors for fake news, you have to produce a conversation along the lines of “Would you like us to produce some fake news for you in exchange for lifting sanctions?  Yes, that would be nice, by all means do so.” The Russians pulled their shenanigans all around the world but did not engage with any other nation’s political party in this manner.  It is unlikely they did so here.  They did not need to ask or offer favors.  Trump stated during the campaign he wanted to have improved relations with Russia, strongly suggesting that meant lifting sanctions.  It was said in front of everyone.  Do you suppose in private someone told the Russians “If you don’t help us, we won’t be lifting sanctions?”  Highly improbable.

Other High Crimes – Trump is as likely as anyone to have committed unrelated high crimes in the past.  I assume they would have come out by now.  That leaves only the Nixonian crime of obstruction.  Where there is fire there must be smoke.  People are looking at the firing of Comey and thinking that is smoke.  I see that as Trump’s insistence on loyalty – an insistence of every strong leader in human history.  There is an ambiguity here.  The definition of obstruction is “corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice.”

Any threatening letter or communication would be out in the open by now.  Comey would have said so immediately.  Nixon paid hush money.  That leaves a trail.  There is no suspicion of hush money here.  The thing is, the obstruction has to be done “corruptly or by threats …”  It is not sufficient to qualify as obstruction of justice for an officer of the government to exercise legitimate discretionary authority over an investigation, making a trade off with broader goals, such as foreign policy.  Happens all the time.  I think it is likely that is all Trump did.  Did he attempt to impede (stop) the investigation?  Yes, plainly he has stated that he wishes it would go away, and plainly he asked Comey to drop it, but that was done openly, not corruptly (acting dishonestly in return for money or personal gain).  Anything that Trump is likely to have done he has already openly declared, and so not dishonest. If it were for personal gain, he would have blocked or fired the special prosecutor also.  (There is no issue of loyalty in regard to the special prosecutor, who is not appointed by Trump and does not work for Trump.)  If Trump fires Mueller, we can revisit this.  But if the Senate gets rid of him, there is no implication.

And Misdemeanors – If the president of the United States is removed for a misdemeanor, then we need to change our flag to the design at the top of this article.  It seems to have become the policy of the United States, both under Bush and Obama, to advocate the overthrow of any government we don’t like either by street protest or revolution or invasion rather an election.  Not one such government (Ukraine, Libya, Afthanistan, Iraq, Syria, etc.) is now stable.  This is what throwing the president out for a misdemeanor amounts to.  The US won’t be stable if we do that.  There has already been a special election that limits Republican control of the senate.  There is another coming up in just 10 months, and a presidential election in 34 months.  It isn’t clear Pence would be a better leader for anyone but die-hard republicans (anti-gay, walked out on anthem protesters, not one to be loved by the left).