Kenneth Arrow: a gentle genius

February 26th, 2017

Kenneth Arrow, one of the greatest economists of the past century, died last week. His nephew, Larry Summers, wrote a eulogy that was published in the Wall Street Journal. Here is an excerpt from it, followed by an ungated link to the full eulogy. Read the rest of this entry »

repealing and replacing Obamacare

February 25th, 2017

A draft bill to repeal and replace Obamacare has been leaked to the press. According to “The Hill”:

The bill would eliminate subsidies for people to obtain coverage, and federal funds for states to expand Medicaid would be phased out in 2020. The mandate for people to buy insurance would also be killed.

Peter Sullivan, “Leaked ObamaCare bill outlines GOP plan“, The Hill, 24 February 2017.

That’s the “repeal” part. According to “The Hill”, here is the gist of the replace part:

The plan calls for a tax credit, which would increase based on a person’s age, to help recipients afford insurance. The credit would be between $2,000 and $4,000. ….

In contrast to ObamaCare, the credits are not based on income, which Democrats argue means not enough help is given to low-income people to be able to afford coverage. Republicans say income-based credits discourage work.

The tax credits are per year, not per month, and they are flat, increasing only with age. (Note also, that tax credits are useless to the unemployed, or the very poor, who have little or no income tax to pay.) As an alternative to the individual mandate, the plan allows insurance companies to charge applicants an additional 30% on premiums if they wait until they are sick to sign up. Read the rest of this entry »

respect for the White Working Class

February 25th, 2017

Traditional labour and liberal parties have lost much of the vote of the white working class (WWC). FT columnist Simon Kuper writes that lack of respect that drives their rage. For them, respect is more important than income and living conditions. Politicians can learn from Donald Trump and Nelson Mandela, two politicians who successfully courted WWC voters.

Here is a third of Mr Kuper’s essay. There is much more in the other two-thirds. Read it and think, especially if you tend to vote liberal or labour. Read the rest of this entry »

Sebastián Edwards on Alphachat

February 24th, 2017

I just finished listening to a fascinating conversation between Chilean economist Sebastián Edwards and FT journalist Cardiff Garcia. The 38-minute podcast is an entertaining and informative discussion of populism – mostly but not exclusively in Latin America – and what it has in common with the populism of Donald Trump in the United States. I won’t attempt to summarize it. Just click on the link below – or download it from iTunes or a similar site.

Cardiff Garcia, “Sebastian Edwards on why economic populism always disappoints“, FT Alphachat 24 October 2017 (ungated access – free registration required).

Sebastián Edwards (born 1953) is currently Professor of International Business Economics at the University of California, Los Angeles (UCLA). He is a prolific writer of newspaper columns, scholarly articles and books. His latest books are Toxic Aid: Economic Collapse and Recovery in Tanzania (2014)and Left Behind: Latin America and the False Promise of Populism (2010).

public policy and share prices

February 24th, 2017

“Lex”, a Financial Times column directed to active traders of company shares, has an interesting report today on fluctuations of the share prices of firms that manage private prisons.

Last August, when the Obama government announced its intention to phase out use of private prisons, share prices in affected firms fell sharply. They climbed after Donald Trump won the election. Yesterday, after the Trump government reversed Obama’s August decision, share prices increased further.

Share prices are volatile so, as the column notes, the fall in price last August was larger than justified (at least in retrospect), and its current price may well be higher than justified. But, suppose you knew with certainty that a policy change was coming. Then you  could have purchased shares on Wednesday, then sell them today at higher prices.

Did Donald Trump profit from such a transaction? We may never know, as Trump never placed his assets in a blind trust. Indeed, he has never released his tax returns.

This is a clear example of how it is possible to profit from inside knowledge of government policy. This is why it is important that the President, indeed all government officials, refrain from ‘playing the market’, from using inside knowledge of public policy for private gain.

When President Donald Trump rounds up the “bad hombres”, he will need somewhere to put them. His officials on Thursday evening reversed an Obama administration edict to shun private prisons. ….

Last August, the Department of Justice said the Bureau of Prisons would stop using them after a report found them to be more dangerous and stuffed with contraband than government-run facilities. The new attorney-general has reversed that with the stroke of a pen.

Even better news, for investors at least: Mr Trump has ensured much greater demand for prison beds by deciding to detain and deport hundreds of thousands of illegal immigrants to whom the Obama administration had turned a blind eye. It is no surprise that CoreCivic and Geo’s shares have overshot their pre-August levels.

Yet just as we argued the 30-40 per cent fall in August was too far, the surge looks overdone now. The federal government is not the only game in town and this government will not endure forever.

Lex, “Private prisons: turning the screw“, Financial Times, 24 February 2017 (gated paywall).

the populism of Mr Trump

February 23rd, 2017

FT columnist Philip Stephens writes that the populism of Donald Trump is more than a protest against declining living standards or increasing income inequality. It is also (more, in my opinion) about protecting “the privileges of the native, white, Christian majority”.

Mr Trump, spurred by his White House strategic adviser Stephen Bannon, imagines an … order … that is robustly nationalist and protectionist and guards the privileges of the native, white, Christian majority. The values of the old order — human dignity, pluralism, the role of law, protection for minorities — have no place in this identity politics. Nor do the institutions of democracy. Judges, media and the rest are “enemies of the people”.

An “America first” foreign policy is part of the same construct. Mr Bannon, the ideologue who informs Mr Trump’s impulses, anticipates a civilisational clash with Islam and a war with China. The flirtation with Mr Putin is about confessional and cultural solidarity against an imagined barbarian threat. ….

[I]n Orwell’s words, “human beings don’t only want comfort, safety, short working hours, hygiene, birth control and, in general, common sense; they also, at least intermittently, want struggle and self-sacrifice, not to mention drums, flags and loyalty-parades”. ….

Nazism and Fascism, Orwell was saying, had caught a psychological current. Emotions elbowed aside economic calculation. Something similar is happening today if not, thankfully, on the same level of evil delusion.

Philip Stephens, “What George Orwell would have made of Donald Trump“, Financial Times, 23 February 2017 (gated paywall).

There are already 179 comments on Mr Stephens’ column, which is a “must read” for me.  Is it an accurate description of Donald Trump’s movement? I think so. Many disagree. Read the full column, if possible, and decide for yourself.

crony capitalism in Washington

February 22nd, 2017

I have seen this movie before … many times. Regardless of country, the ending is very sad.

A few hours after Rex Tillerson was confirmed as US secretary of state this month, he received some excellent news. The House of Representatives voted to nullify a rule that, as head of ExxonMobil, he had vigorously opposed. Known informally as the “publish what you pay” rule, it obliges oil and mining companies to disclose payments they make to foreign states. Scrapping it is a big victory for Big Oil. It is another sign that a Donald Trump presidency means not so much draining the swamp as handing over the swamp to the crocodiles. ….

If ExxonMobil bags a big project in Mozambique or, better yet, Russia, people will ask what it paid and whether Mr Tillerson smoothed the way — despite his pledge to recuse himself from such issues. As Jeffrey Sachs, an economist and author of Building the New American Economy, argues, Mr Trump is putting lobbyists out of business. “He’s just handing finance over to Goldman Sachs,” he says of Gary Cohn’s appointment as director of the National Economic Council. “And he’s just handing State over to ExxonMobil.”

David Pilling, “Trump, Tillerson and the resource curse“, Financial Times, 23 February 2017 (gated paywall).

The nullified rule was signed into law in 2010, but never come into effect because of industry lobbying by the American Petroleum Institute.

As the sponsors of the bill – Republican Senator Richard Lugar and Democratic Senator Ben Cardin – point out, Canada and European countries have enacted similar laws, so lobbyist arguments that the rule would place US oil companies at a competitive disadvantage are not valid.

how long will Trump last?

February 20th, 2017

Edward Luce, chief US columnist for the Financial Times, writes that either the US political system will bring Trump down, or Trump will destroy the system.

There is no alternative. Or is there?  My fear is that something equivalent to 9/11 might happen, and Trump would suddenly become a popular leader. The system could continue, with an authoritarian in charge. Read the rest of this entry »

toward universal pensions in the Philippines

February 19th, 2017

There are signs of movement, but the pace is very slow.

[Philippine] President Rodrigo Duterte, last January, granted the P1,000 [US$100] pension hike for Social Security System (SSS) beneficiaries. The Department of Social Welfare and Development (DSWD) also has a larger budget for social pension for indigent seniors, effectively doubling the target coverage from 1.3 million elderly in 2016 to 2.8 million this year.

Despite these, a study by the Coalition of Services of the Elderly (COSE), in partnership with HelpAge International, showed that 38% of senior citizens will still not be provided with social pension. It also said 34% of SSS members receive less than P2,000 every month. ….

Using data from the Annual Poverty Indicators Survey (APIS) released in 2013, the study did a simulation that shows the poverty rate would be reduced [by 3 million] from 25.4% to 22.3% if a P2,000 universal social pension is provided. ….

The study said the government, realistically, could increase the amount of social pension to P1,500 monthly. This would cost P143.97 billion or 0.97% of the country’s gross domestic product (GDP) and 4.80% of its [total government] expenditures.

Patty Pasion, “Pension for all seniors to lift 3 million out of poverty – study“, Rappler, 19 February 2017.

The study’s recommendation is an improvement, but still leaves about 23 million persons – 22.9% of the population of older persons – in poverty. The Philippines’ latest poverty line for 2014 is a per capita income of 100,534 pesos a year, equivalent to 8,378 pesos a month. Providing all older people with a pension this size would eliminate elder poverty. Is it worth doing? Would it be money well spent? This is a political question that must be decided by the taxpayers of the country.

One way to reduce costs is to provide a universal pension half this size for the ‘younger old’, aged 60-64, who can continue to participate in the paid labour force. In addition, benefits should be taxed as regular income, so that older persons of any age who are continue to work contribute also to the budget of the country.

marching in the streets of the USA

February 17th, 2017

FT contributing editor Simon Schama writes that President Donald Trump inspires people … to take to the streets in protest.

Trump’s aides are given to boasting that he has already accomplished the impossible. In one respect this is true: he has given the kiss of life to the Democratic party. Campaigning, Trump posed as the enemy of Wall Street; he now has a cabinet stuffed with billionaires, about to gift the ultra-rich with a stupendous tax cut, even as he refuses to disconnect fully from his businesses or make his tax returns public.

The next mass march has been cannily planned for April 15, the day on which Americans file their tax returns. Expect uproar.

Why we march: Simon Schama on mass dissent in America“, Financial Times Weekend Magazine, 18 February 2017. (gated paywall)

Mr Schama’s longish essay is illustrated with photos selected by Emma Bowkett, FT Weekend Magazine‘s director of photography.