Macro Roundup

"...I am not suggesting a direct lineage from those awakenings to today’s. The 2010s are no more similar to the 1730s and 1830s than to the 1930s. There are, however, two important parallels. First, both religion and nation are neither threats nor panaceas but something more fundamental. They are central arenas of human endeavor—institutional embodiments of human understanding and aspiration, of human excellence and folly. To oppose them is to oppose human nature. To say that the nationalist hatreds of the past oblige us to reject a political order of independent nations is akin to saying that the Crusades and Wars of Religion make atheism the only viable belief system...."

Christopher DeMuth, "America’s Nationalist Awakening,"Wall Street Journal, July 19, 2019, https://www.wsj.com/articles/americas-nationalist-awakening-11563574717

America’s Nationalist Awakening

No one saw it coming—that the next big thing of the 21st century would be the nation-state, an idea from the 17th. Yet it has suddenly become a global phenomenon—a driving force of politics in the U.S. and around the world and the subject of intense intellectual debate. The news has even come to Harvard, where a professor of history has written a book about American nationhood, and a professor of economics says that “there is something special about the nation-state—it creates reciprocal obligations that don’t exist across national borders.”

There is, to be sure, a resistance. One salvo against the organizers of this week’s National Conservatism Conference in Washington accuses us of injecting “a malignant form of nationalism... into the American body politic” and said we “need to be mercilessly defeated on the battlefield of ideas as if September 1, 1939”—the day Germany invaded Poland—“were approaching.”

But in general, the mood has moved through the stages of grief from denial to anger to acceptance—acceptance that the nation-state is alive and well, not about to die and make way for global progressivism. To wit:

• The race card and the Nazi card have been played so promiscuously against nationalism proponents that they have lost most of their power. The accusers keep flailing away, but at this point they are only complicating efforts to isolate and condemn the actual white supremacists and anti-Semites in our midst.

• Some liberals acknowledge—or even insist—that fraternal affections and group loyalties are natural and potentially even worthy. Some even show hints of recognizing that social customs and national traditions are a firmer foundation for political order than the ideology of atomized, free-floating individual autonomy.

• Beyond the world of political activists and intellectuals, these propositions have wide appeal, grounded in everyday experience. Even in the midst of all the scare talk, pollster Scott Rasmussen reports that a substantial majority of Americans—yes, even suburban women—have a favorable view of “nationalism” and “America nationalism.”

So we political conservatives, who have been aroused in our own way by the nationalist awakening, have a great opportunity to recast, enlarge and proselytize our ideas. It’s time to move beyond dueling litanies of the nation-state’s past glories on the one hand and horrors on the other.

Let me draw an analogy from earlier awakenings—the religious Great Awakenings that swept over America in the 18th and 19th centuries. In the American colonies and early U.S., the new religious impulses were much more populist, participatory, and enthusiastic than what had come before, and posited a new relationship between God and his people and among his people. Many feared that the awakenings were dangerous and divisive, that they threatened to rekindle the old intolerant religious hatreds and bloodshed that had brought so many to the New World in the first place.

Yet as it turned out, the secular consequences of the awakenings were unifying and enlarging, galvanizing the American nation. For one thing, they brought many women and black Americans to Christian practice and belief. Beginning in the 1730s, the First Great Awakening—with its emphasis on personal responsibility and self-rule—was an important antecedent to the American Revolution, the Declaration of Independence and the Constitution. The 19th-century Second Great Awakening, with its emphasis on moral obligation and social justice, was a vital impetus to the abolition of slavery.

I am not suggesting a direct lineage from those awakenings to today’s. The 2010s are no more similar to the 1730s and 1830s than to the 1930s. There are, however, two important parallels. First, both religion and nation are neither threats nor panaceas but something more fundamental. They are central arenas of human endeavor—institutional embodiments of human understanding and aspiration, of human excellence and folly. To oppose them is to oppose human nature. To say that the nationalist hatreds of the past oblige us to reject a political order of independent nations is akin to saying that the Crusades and Wars of Religion make atheism the only viable belief system.

Some people do say these things, but they are making empty debaters’ points. They ignore the intrinsic claims of nationalism and religion and the circumstances of human existence that give rise to them. The circumstances that gave rise to today’s nationalist awakening, at least in the West, have nothing to do with suppressing minorities or invading foreign lands. Instead, the new nationalism is a revolt against the failures and weaknesses of modern nation-states. It is neither intolerant nor triumphalist but rather is defensive, grounded in well-justified apprehensions of political and institutional decline.

In America, the nationalist claim is that the federal government has abdicated basic responsibilities and broken trust with large numbers of citizens:

• It has failed to secure the national borders and provide regular procedures for immigration and assimilation.

• It has delegated lawmaking to foreign and international bodies, and domestic bureaucracies, that have scant regard for the interests and values of many of our fellow citizens.

• It has acquiesced in, or actively promoted, the splintering of the nation into contending racial, religious and other groups and has favored some at the expense of others.

• It has neglected core American principles and traditions—separation of powers, due process, the presumption of innocence, local prerogative, freedom of association—allowing them to atrophy or be subjected to political conditions.

These claims are closely aligned with traditional conservative precepts, although conservative politicians and activists have not always adhered to them in recent decades. That is why the nationalist awakening is a conservative awakening, too, and presents distinct opportunities for those of our persuasion.

Which brings me to the second parallel with the Great Awakenings. Adamant revivalist energies, while unruly and disruptive, may be precursors to social enlargement and a new sense of collective purpose. I am choosing my words carefully and did not say “national unity” and “cohesion”—that has never been the American Way, outside wars and similar crises, and it never could be. All we need is a serviceable consensus on the essentials of American identity and character, sufficiently broad and representative for the tasks of cultural and political reform.

The national conservatism we are developing is going to have some hard edges and provoke some clever counterattacks and dismissals. The rancor proves the seriousness of the challenge we face. As the Danish physicist-poet Piet Hein wrote: “Problems worthy of attack / Prove their worth by fighting back.”

But the American nation is not only vast, heterogeneous and fractious but also tough, resilient and practical. The ideas conservative nationalists are developing have broad transcultural potential. Modern progressivism has turned against essential precepts of the American liberal tradition, such as equal opportunity and freedom of inquiry, religion and enterprise. We are assimilating them into conservatism, and old-fashioned liberals cannot help but notice.

An important virtue of the nation-state is that it is a constraint. The contemporary peaceable nation takes what it is given—its borders and territory and resources, its citizens and tribes, its affinities and antagonisms, its history and traditions and ways of getting along—and makes the most of them. The order of independent nation-states addresses international problems by working with the positions and interests of individual nations as they are. Many idealists would prefer to avoid these constraints by operating through stateless, single-minded political structures.

One of the most arresting features of modern life in the rich democracies is the pervasive rejection of the idea of natural constraint. One sees this throughout culture high and low, social relations, and politics and government. Where a boundary exists, it is there to be transgressed. Where a hardship exists, it must be because of an injustice, which we can remedy if only we have the will. Today’s recipe for success and happiness is not to manage within limits and accommodate constraints, but to keep one’s options open. The newest frontier is the notion that even your sex is an option, and the sooner young children are informed of this, the better.

I do not know where this impulse came from. Perhaps wealth and technology have relieved so many age-old constraints that we have come to imagine we can live with no constraint at all. Whatever the cause, it is a revolt against reality. Resources are limited. Lasting achievement is possible only within a structure. My own favorite field, economics, is out of favor these days, but it has at least one profound truth, that of opportunity cost: Everything we do necessarily involves not doing something else.

The illusion of unlimited optionality has been especially damaging in government and politics. A dramatic recent instance came in the Democrats’ presidential primary debates, where many candidates favored both open borders and free health care for everyone who shows up. This would plainly amount to the abolition of the United States. Still, the proponents would say in all earnestness that they have ingenious plans to make it work.

That is an extreme instance of the phenomenon that every social problem or inconvenience summons forth costly new spending or regulatory solutions, with hardly a care to where the resources will come from or what other problems will be slighted. It is a bipartisan phenomenon, and it has left us with a massively indebted government that spends trillions of borrowed dollars on our immediate needs, with the bills kited to future generations.

The American nation-state is rich, powerful and less constrained than any other, yet it is much more constrained than we have led ourselves to believe. Thinking of ourselves as a nation-state is, as Peter Thiel has observed, a means of unromantic self-knowledge. National conservatism, by directing our attention to our nation as it is—warts, wonders and all—is a means of reminding ourselves of our dependence on one another in the here and now, and of facing up to the constraints that are the sources of productive freedom.

“…reveal the real threat from Baumol’s disease: not that work will flow toward less-productive industries, which is inevitable, but that gains from rising productivity are unevenly shared. When firms in highly productive industries crave highly credentialed workers, it is the pay of similar workers elsewhere in the economy—of doctors, say—that rises in response. That worsens inequality, as low-income workers must still pay higher prices for essential services like health care. Even so, the productivity growth that drives cost disease could make everyone better off. But governments often do too little to tax the winners and compensate the losers. And politicians who do not understand the Baumol effect sometimes cap spending on education and health. Unsurprisingly, since they misunderstand the diagnosis, the treatment they prescribe makes the ailment worse…”

Economist Staff, "The rising cost of education and health care is less troubling than believed,"The Economist, June 20, 2019, https://www.economist.com/finance-and-economics/2019/06/20/the-rising-cost-of-education-and-health-care-is-less-troubling-than-believed

“…One is that new technologies take time to produce productivity and wage gains. It was several decades before industrialisation led to significantly higher wages for British workers in the early 1800s, a delay known as Engels’s pause, after the theorist of communism who observed it. Another lesson is that, even though it eventually increases the overall size of the economic pie, automation is also likely to boost inequality in the short run, by pushing some people into lower-paid jobs. Mr Frey is concerned that automation will leave many people worse off in the short term, leading to unrest and opposition, which could in turn slow the pace of automation and productivity growth. Everyone would then be worse off in the long run. This is the titular “technology trap”. Whereas many people assume he worries about a world with too many robots, Mr Frey is in reality more concerned about a future with too few….”

Economist Staff, "Will a robot really take your job?,"The Economist, June 27, 2019, https://www.economist.com/business/2019/06/27/will-a-robot-really-take-your-job

“… system relies on three types of data. First come economic figures such as gdp growth and interest rates. Next are market fundamentals, like the ratios of home prices to rents and incomes. Last come historical prices, to take into account momentum and mean reversion. The impact of each of these variables often depends on the others. To combine them, we used a machine-learning algorithm called a random forest. This method creates a “forest” of “decision trees”, each containing a series of yes/no choices such as “Has gdp been rising?” or “Are price-to-rent ratios below the long-run average?”, and averages the output of each tree. The model fares well in back-testing. On average, its forecasts with 18 months’ lead time came within three percentage points of actual yearly price changes. These errors are larger during booms or busts—but still small enough for the model to be useful.…”

Economist Staff, " For now, residential-property prices are likely to keep rising,"The Economist, June 29, 2019, https://www.economist.com/graphic-detail/2019/06/29/for-now-residential-property-prices-are-likely-to-keep-rising

breaking rule as I suspect you will be hearing about this paper (released this AM) from your democratic friends. Harvard economists look @ when government social spending on adults/children "pays" for itself, note though they do not account for the deadweight cost of taxation (page 13), their MVPF is a shadow price of a policy so only captures the beneficiaries value, not the opportunity cost of providing the benefits by my reading of their work.

Their core finding, "... Children pay back the initial cost as adults through additional tax revenue and reduced transfer payments. For example, we examine four major health insurance expansions to children over the last 50 years. We calculate an average across those policies and find that for each $1 of initial expenditure they repaid $1.78 back to the government in the long-run. In particular, we find that three of four policies fully repaid their initial costs...."They also find lower MVPF's for spending on adults as it reduces labor earnings, "... Our results show lower MVPFs for policies targeted to adults. Most of these MVPFs lie between 0.5 and 2. For example, we find MVPFs ranging from 0.40-1.63 for health insurance expansions to adults, 0.42-1.07 for in-kind transfers such as housing vouchers and food stamps, and 0.11-1.20 for tax credits and cash welfare programs to low-income households....."

Nathaniel Hendren, Ben Sprung-Keyser, "A Unified Welfare Analysis of Government Policies," Harvard University, July 2019, https://opportunityinsights.org/paper/welfare/

"...We conduct a comparative welfare analysis of 133 historical policy changes over the past half-century in the United States, focusing on policies in social insurance, education and job training, taxes and cash transfers, and in-kind transfers. For each policy, we use existing causal estimates to calculate both the benefit that each policy provides its recipients (measured as their willingness to pay) and the policy’s net cost, inclusive of long-term impacts on the government’s budget. We divide the willingness to pay by the net cost to the government to form each policy’s Marginal Value of Public Funds, or its “MVPF”. Comparing MVPFs across policies provides a unified method of assessing their impact on social welfare. Our results suggest that direct investments in low-income children’s health and education have historically had the highest MVPFs, on average exceeding 5. Many such policies have paid for themselves as governments recouped the cost of their initial expenditures through additional taxes collected and reduced transfers. We find large MVPFs for education and health policies amongst children of all ages, rather than observing diminishing marginal returns throughout childhood. We find smaller MVPFs for policies targeting adults, generally between 0.5 and 2. Expenditures on adults have exceeded this MVPF range in particular if they induced large spillovers on children.We relate our estimates to existing theories of optimal government policy and we discuss how the MVPF provides lessons for the design of future research.... Main Results Our estimates reveal a stark pattern: MVPFs vary substantially based on the age of each policy's beneficiaries.We find the highest MVPFs for direct investments in the health and education of low-income children. This includes Medicaid expansions, childhood education spending, and expenditures on college. In many cases, these policies actually pay for themselves in the long-run. Children pay back the initial cost as adults through additional tax revenue and reduced transfer payments.For example, we examine four major health insurance expansions to children over the last 50 years. We calculate an average across those policies and find that for each $1 of initial expenditure they repaid $1.78 back to the government in the long-run.In particular, we find that three of four policies fully repaid their initial costs. We find high MVPFs for policies targeting children throughout childhood. We do find high MVPFs for early childhood education programs, including an MVPF of roughly 44 for Perry Preschool and 12 for Abecedarian.7 In addition, we find large MVPFs for policies targeting older children, such as historical equalizations in K-12 school financing (studied in Jackson et al. (2016)) and policies increasing college attainment. Our broad patterns contrast with the notion that opportunities for high-return investment in children decline rapidly with age (Heckman, 2006). Our results show lower MVPFs for policies targeted to adults. Most of these MVPFs lie between 0.5 and 2. For example, we find MVPFs ranging from 0.40-1.63 for health insurance expansions to adults, 0.42-1.07 for in-kind transfers such as housing vouchers and food stamps, and 0.11-1.20 for tax credits and cash welfare programs to low-income households. These lower MVPFs reflect the fact that spending on many of these policies reduced labor earnings. This lies in contrast to our finding that many policies spending on children increased later-life earnings.It is important to note that these differences in returns by age represent general patterns, but do not hold uniformly. There are a number of exceptions. For child policies, we find large variation in MVPFs across policies, with some estimates relatively close to 1. In particular, we find lower MVPFs for job training programs and for college subsidies that do not lead to increases in attainment. We also find lower MVPFs for transfers to disabled children and their families. This latter case illustrates that policies with lower MVPFs are not necessarily "undesirable" they can be welfare-enhancing depending on one's social preferences. Unlike expenditures with infinite MVPFs, policies with low MVPFs involve a budgetary tradeoff that should be weighed against one's preference for redistribution...."

just an FYI, WSJ reports on the Harvard study we looked at yesterday (attached)

"...A study from two Harvard University economists, Nathaniel Hendren and Ben Sprung-Keyser, examines 133 U.S. policy changes over the past half-century, including the creation of Medicare, Medicaid expansions, the introduction of food stamps, as well as dozens of state and local programs. Their paper, released Monday, identifies which policies ultimately made the government money, generally in the form of beneficiaries who needed less assistance over time or who became more productive and paid more taxes. Say you have $1 to give to a social policy. You could strengthen the safety net for adults—say, boosting health insurance, unemployment benefits and disability insurance. Or you could give it to programs for low-income children. Adults use benefits that end up costing additional money—an extra 60 cents or so on top of the $1 you spent.But health care and education for kids often reduces dependence on aid and lifts earnings. Over time, you get back your $1—plus about 47 cents...."

Soo Oh and Janet Adamy, "When the Safety Net Pays for Itself,"Wall Street Journal, July 22, 2019, https://www.wsj.com/articles/when-the-safety-net-pays-for-itself-11563800405

though this might be fun rainy day reading out there. terrific new paper suggest that the labor share hasn't fallen, as high skilled persons income is increasingly taking the form of equity. some great factoids.

"....The widespread and growing practice of equity-based compensation has transformed high-skilled labor from a pure labor input into a class of “human capitalists”. We show that high-skilled labor income in the form of equity claims to firms’ future dividends and capital gains has dramatically increased since the 1980s. Indeed, in recent years, equity based compensation represents almost 45% of total compensation to high-skilled labor. Ignoring such income results in incorrect measurement of the returns to high-skilled labor, with important implications for macroeconomics. Including equity-based compensation to high-skilled labor cuts the total decline in the labor share since the 1980’s by over 60%, and completely reverses the decline in the high skilled labor share to an increase of almost 1%.Correctly measuring the return to high-skilled labor can thus resolve the puzzling lack of a skill premium in recent data, as well as the corresponding lack of evidence of complementarity between high-skilled labor and new-economy physical capital. Moreover, tackling the capital structure question of who owns firms’ profits is necessary to provide a link between changing factor shares and changing income and wealth shares. We use an estimated model to understand the rise of human capitalists in an economy with declining capital goods prices. Finally, we present corroborating cross section and time series evidence for complementarity between high-skilled labor and physical capital using our corrected measure of the total return to human capitalists..... In our sample, human capitalists’ ownership share of public companies is 7%.....implies that, in recent years, human capitalists earn over $85 Billion annually in equity-based compensation from publicly traded firms...."

Andrea Eisfeldt, Antonio Falato and Mindy Z. Xiaolan, "Human Capitalists," Stanford University, July 2019, https://economics.stanford.edu/sites/g/files/sbiybj9386/f/abstract_5.pdf

“…an internal Freddie Mac business strategy presentation, presented at a two-day board of directors meeting held in March 2007, tells an entirely different story. It lays out in detail how Freddie Mac in 2007 was having tremendous difficulty coping with, much less overcoming, the intense competitive threat posed by Fannie Mae. It is worth noting that in 2007 Freddie Mac was one of the largest financial institutions in the world….”

Edward Pinto, “The facts demonstrate that Fannie and Freddie were not “lazy competitors” before seizure,” American Enterprise Institute, July 22, 2019, https://www.aei.org/articles/facts-fannie-freddie-not-lazy-competitors/

Patrick Asked“Who Is The Party Of More?”

CNN, "The day the tea party died," CNN, July 23, 2019, https://www.kxlf.com/cnn-us-politics/2019/07/23/the-day-the-tea-party-died/

The day the tea party died

The tea party was born February 19, 2009. It died, officially, July 22, 2019.

The first date was when CNBC analyst Rick Santelli went on a rant — from the floor of the Chicago Mercantile Exchange — about government spending and the dangerous resultant debt it was creating for the country.

The second date was, well, Monday, when the Trump White House and key Democratic and Republican leaders in Congress agreed to a two-year budget deal that further unraveled the spending strictures put in place by tea party Republicans in 2011 and suspended the debt ceiling through July 2021 — and, in practical terms, well into 2022.

In a terrific piece for the National Review, Brian Riedl writes of Monday’s deal:

“This represents a fitting conclusion of the Budget Control Act — the crown jewel of the 2011 ‘tea-party Congress.’ The decade-long shredding of these hard-fought budget constraints mirrors the shredding of Republican credibility on fiscal responsibility.”

Correct. The deal, which still needs to be approved by both House of Congress and then signed into law by President Donald Trump (so, you just never know!), is a sort of final death throe of a movement that has been limping along — mortally wounded but still, somehow, breathing — ever since Trump emerged on the political scene.

Unlike many of his rivals for the 2016 presidential nomination — Jeb(!) Bush, Ted Cruz — Trump never expressed any real concern about the rising deficits (and debt) in the country, nor did he seem terribly concerned about its potential impacts on the economy either now or in the future.

That was in keeping with how Trump had conducted his own personal business prior to running for office — the self-proclaimed “King of Debt,” Trump regularly borrowed heavily to finance his various projects. As Trump told CBS News’ Norah O’Donnell during the 2016 campaign: “I’ve made a fortune by using debt, and if things don’t work out, I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.”

Given that history, no one could, really, be surprised by the lack of interest or concern Trump has shown about adding to yearly deficits since being elected president. His much-hyped tax cuts are set to add $1.85 trillion to the national debt over an 11-year period, according to projections from the Congressional Budget Office. (The national debt has already grown to $22 trillion — up more than $2 trillion since Trump came into office.) The federal deficit for this budgetary year, which has two more months left in it, is almost $750 billion — an increase of nearly 25% from the previous year.

The new compromise budget deal — again, assuming it passes — would raise spending limits by $321 billion over the next two years. As The New York Times’ Jim Tankersley noted on Twitter Monday night, discretionary spending (meaning government-authorized spending outside of entitlements like Medicare and Social Security) is now projected to grow at 4% for Trump’s first term. In then-President Barack Obama’s first term, which saw the rise of the tea party in opposition to out-of-control government spending partly in response to the economic recession of 2008, discretionary spending rose at 3%. (In Obama’s second term, discretionary spending dropped by 2%.)

CNN’s Manu Raju caught up with Cruz, a leading voice in tea party circles and a strong opponent of raising the debt ceiling in the Obama years, on Tuesday morning — asking him for his thoughts on the latest compromise. “Just call our press office,” Cruz told Raju. So, yeah.

The truth is that the tea party was on its way out before Trump emerged on the scene. Almost since the moment the tea party movement pushed through the Budget Control Act in 2011, politicians — on both sides — have been trying to claw back some of the spending they gave up in that deal.

But the emergence of Trump — and congressional Republicans’ complete capitulation to, well, Trumpism, has clearly sped up the death of the movement. He doesn’t care about debt and deficit and so now neither do they.

Looking back over the last 10 years, it’s a remarkable arc. The tea party was the dominant movement in American politics at the start of the decade — seizing control of the Republican Party and pushing out Speaker John Boehner (Ohio) in the process. But then the tea party forces watched as Trump grabbed the GOP by the throat and (still) hasn’t let go.

The tea party has been left dead by the side of the road, one of the many casualties of the presidency of Donald Trump.

“…Given that history, no one could, really, be surprised by the lack of interest or concern Trump has shown about adding to yearly deficits since being elected president. His much-hyped tax cuts are set to add $1.85 trillion to the national debt over an 11-year period, according to projections from the Congressional Budget Office. (The national debt has already grown to $22 trillion — up more than $2 trillion since Trump came into office.) The federal deficit for this budgetary year, which has two more months left in it, is almost $750 billion — an increase of nearly 25% from the previous year. The new compromise budget deal — again, assuming it passes — would raise spending limits by $321 billion over the next two years. As The New York Times’ Jim Tankersley noted on Twitter Monday night, discretionary spending (meaning government-authorized spending outside of entitlements like Medicare and Social Security) is now projected to grow at 4% for Trump’s first term. In then-President Barack Obama’s first term, which saw the rise of the tea party in opposition to out-of-control government spending partly in response to the economic recession of 2008, discretionary spending rose at 3%. (In Obama’s second term, discretionary spending dropped by 2%.)…”