Thursday, January 19, 2017

Guess who wrote this?

Here's an interesting analysis of the Trump election win:

The world and many Americans are aghast that half the American electorate voted for a candidate who never answered a debate question about how he would deal with a problem, who found it necessary to insultingly conflate fat people and hackers, who boasted about being a sexual predator, who called in question the legitimacy of American democracy, who promised to annihilate freedom of the press in the manner that every authoritarian leader has done and continues to do, including his idol, a super thug called Vladimir Putin, who threatened to jail any politician who opposed his will, who bragged about circumventing the spirit of the law by exploiting its letters, who pandered to fundamentalists by rejecting science, who has made an art out of emptying the pockets of anybody stupid enough to follow rules about fair play and honesty, who thought it wise to retweet the support of Neo-Nazis, who had no compunction about accepting dirty capital from third world kleptocrats, who thought it smart business to screw business vendors out of their promised payment, who thinks he can map his strategy of threatening the backers of his failing business ventures with default to the debts of the United States, who threatened to undo the devil's bargain whereby jobs were shipped abroad in return for goods at drastically lower prices than if made at home, and who thinks nuclear weapons should not exist if not deployed to press one's advantage over the competition.

The market did not tank the morning after because it interprets the election result as a protest vote which does not give a House, Senate and Presidency now controlled by the Republican Party a mandate to implement the bad ideas Donald Trump hijacked and cranked to their logical, catastrophic limit. Unlike Great Britain whose lost glory is an indisputable fact, the American half that voted for Trump did not jettison its moral compass because an end-timer mentality was justified by the circumstances. Most Americans do not know who Frank Giustra or Rick Rule are, but at least half voted against the machine personified by Hillary Clinton. They did not vote for Donald Trump; they voted against the status quo represented by the powers behind the Republican and Democratic Parties.


Nobody is talking about it yet, but if "red" America attempts to impose a nasty version of Christian fundamentalism on America's west coast, it will collide with an invisible fist that is already poised to strike back. The apparent polarization of America is such that it is reasonable to question the sustainability of the union. The geographic polarization is not of an economic nature; it is a deeply philosophical-moral split. In thirties Germany the Nazis rose to prominence by isolating and targeting the Communists within the German population. It was an internal ideological power struggle which the left lost. The ideological distribution in the United States has a profound geographical distribution, punctuated by a rural versus urban divide. Physical separation is a realistic response to any attempt by the Republican political triumvirate to impose a Christian version of Sharia Law on all of America.

In 2011 a phenomenon called Occupy Wall Street flared up and quickly vanished. It was a trial balloon supposedly engineered by the likes of anarchist David Graeber which appealed to the split between the 99% and 1%. Paradoxical as it may sound given everything Trump has indicated he stands for or against, Trump's victory is a rallying cry by the 99% against the 1%. Occupy Wall Street's timing was wrong, which is why it retreated into the woodwork. Protest marches are already erupting in places like Chicago and Oakland. The post 2016 election environment offers conditions much more conducive for a spontaneous flowering of an Occupy Wall Street style protest movement. The trend of jobs marching to China courtesy of globalized trade which enable capital to seek out the lowest cost jurisdictions in terms of labor and emission control costs is coming to an end. As China grows stronger its people become more demanding; the next big trend is the increasing automation of production, not just of the goods produced by blue collar workers, but also the services produced by the white collar knowledge workers. The two most pressing questions are, what will the worker of the future do to "earn" the income needed to consume the output increasingly produced by the machine world, and how will the benefit of the machine world's output be transferred to a retiree generation which has the greatest longevity expectation in the history of mankind? This is in the back of the mind of every American who voted, and certainly those did not or could not. Don't think for a moment that Trump does not understand this.

Donald Trump may have a narcissistic impulse of the sort described by Barbara Oakley in Evil Genes, but he does not (yet) have command of a power hierarchy in the style enjoyed by a Mao Zedong during his reign of terror. It is thus reasonable to predict that he will not succumb to the demands of the Republican wingnuts to which he appealed during his campaign. It was very important that in his election night speech he focused on the idea of making America great again through infrastructure renewal spending. Fiscal stimulus in the form of infrastructure spending is a Keynesian response to an economic downturn for which Obama pushed throughout his two terms, but which was resisted thanks to the Republican control of the House and eventually both the House and the Senate which insisted on "austerity" as a form of biblical punishment for past excess, even though the suffering landed on almost anybody put the perpetrators of the excess during the Bush-Greenspan reign. The sneering joke making the rounds Tuesday night on Democrat network stations such as MSNBC involved the unlikelihood of Trump getting a goahead for a plan that not only cranks up fiscal debt by slashing taxes for the one-percenters, but also cranks it up by building stuff which generations of 99-percenter Americans will benefit from. Good luck getting the Freedom Caucus (aka Tea Party) to agree to that!

The market thus should have dismissed Trump's talk about infrastructure renewal as nothing more than stinky gasses dissipating from a surprisingly large and active orifice. But it did not, and the result was stronger prices for base metals such as copper, nickel and zinc. If we continue with the notion that Trump is not the evil moron implied by his emanations, that he is in fact a sophisticated Face Dancer, or a "performance artist" to use a more contemporary term, one can adopt the view that he will adapt quickly to rational behavior buttressed by the wisdom of experts in matters such as geopolitics. This reduces the risk of security of supply style disruptions, which is a negative for optimism about stronger raw material prices. At the same time as Trump avoids stirring the international pot, he can focus on getting a mandate for infrastructure spending, which he could get from both Republicans and Democrats if both sides accept that the two party system is no longer sustainable.

My suspicion is that Trump understands that he a tightrope walker who needs to garner support by splitting the two party system into three parties: a right wing party that holds all the religious fundamentalists and all the groups Fox News entertains, a centrist party that captures all the moderate Republicans and Democrats, and a leftist party which attracts young people and ideological purists of the Bernie Sanders style. The market responded positively to base metals because it is wagering that Trump's ego is so massive that he will comprehend his role in a historic existential rethink for America that leads him to do the "right thing" with the help of moderates from both parties. On the other hand, even as he boosts total demand for raw material because America starts rebuilding production capacity, there is a risk that although Trump behaves himself on the geopolitical front, aspiring super-powers such as China or Russia will push the envelope so as to force a confrontation that escalates into the curtailment of raw material supply. Metals thus have a double whammy upside potential: either Trump drives demand growth that boosts base metal prices, or supply disruptions boost the prices of metals, or both happen. And none of this requires any of the terrible things Trump has blustered about during the campaign to be turned into policy. The market does not yet share this view, but its eventual adoption makes the current stall in the rally that began at the end of January 2016 an excellent buying opportunity.

Give up?

That was John Kaiser.

I'd like to let him know that the right wing (i.e. the Republicans who support Trump) will never in a million years vote the for infrastructure spending he speaks of, and the reason is simple: mainstream conservative economics asserts quite strongly that infrastructure spending is communism, and therefore verboten.

It may happen, however, that the Republicans vote in favour of Trump's tax credits toward private infrastructure spending, but that never provides a benefit to society because the goal of a private infrastructure developer is to capture as much of the externality as possible in their rent.

That's why it costs so much to drive the 407, by the way: what you're paying is a significant fraction of the total benefit to society that a public highway would have provided in its place.

And in any case, when the economy is at full employment, from a resources & inputs standpoint, infrastructure spending will simply crowd out private spending on investment in structures. So instead of getting a new factory built, you get a new toll road. Big whoop.

In any case, it's nice that at least Kaiser has written another big long essay. If only he'd get up off his ass and write more often!

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