Fuzzy Little Things I Find Interesting

America’s Abandonment of Free Trade Is Bad for Everyone:

The real surprise since 2021 has been that President Joe Biden not only has not repudiated the trade policies of his predecessor but also has amplified the philosophy behind them in a way that raises serious questions about the future of U.S. and global trade policy. This shaking of the old edifice of consensus is taking place despite Biden’s long record of support for free trade while serving in the Senate.

I blame the pandemic.

During the pandemic we saw governments shut down the free flow of goods, especially N-95 masks and the precusors to testing equipment and vaccine development, as even blocks like the European Union devolved into nationalism and refused to trade with each other. And we saw Trump’s “America First” policies further exacerbate the problem; previously the United States used trade restrictions as a club to open up trade, not as a mechanism to close trade.

Now I’m perfectly fine with some manufacturing “nationalism”: certain items are absolutely necessary in building military weapons and military equipment–and not having the ability to build these things at home means we can be potentially held hostage by a foreign adversary who controls parts of the supply chain. But that needs to be carefully limited to those items that are crucial to fighting a war, and which cannot be quickly ramped up within 120 days of the start of a major war.

But what we’re seeing out of the Biden Administration is a continuation of the economic nationalism of the Trump Administration–something which I found terribly troubling. Free trade lifts all boats; restricting trade means you cannot use the talents of the world to benefit Americans at home.

The saddest part is that internationalism, founded on a cornerstone of international trade, is one of the core principles of the progressive political order that arose in the 1930’s. That is, if progressivism actually stands for anything, it stands for internationalism (or greater political and economic cooperation between nations), cosmopolitanism (or the idea that all human beings are members of a single global community–a community which implies respect for our differences and freedom to pursue our lives as we see fit anywhere around the world), urbanization (or the idea that populations are better served in well functioning urban centers), and mass transit (or the idea that a well designed transportation system is key to urban populations living their best lives).

And when COVID-19 hit, all four of these cornerstone ideas were attacked, dismantled, and are now suffering massive setbacks.

Mass transit? COVID-19 has disrupted service in many areas like New York, and early on fear of mass transit helped to drive a work-at-home movement which still persists today.

Urbanization? Many cities saw their populations flee, as people with means concluded that being couped up in a suburban “staycation” home was preferable to living in the center of an urban plague. (This is what drove up lumber prices.) And it appears they’re not coming back: San Francisco has been particularly hard hit, but Chicago is not far behind, and other urban centers are quickly transforming themselves into playgrounds for the incredibly rich.

Internationalism and cosmopolitianism? Both have seen serious setbacks, and the war in Ukraine and the failure of the Biden Administration to repudiate the policies of Trump on international trade, as well as the Biden Administration’s failure to repudiate the Trump Administration’s border policies by attempting to keep immigration at incredibly low levels show that, in a real way, unless you’re very rich, internationalism and cosmopolitanism are both dead-letter issues.

Oddly it’s the reason why I suspect we’re seeing a battle over pronouns and “wokeness”: because the practical aspects of the progressive move towards internationalization is now dead–and the Biden Administration is quietly shoveling dirt on the corpse in the back yard, out of sight where we can’t see the remains.

The Student Loan Pause Has Made Borrowers Worse Off

From the linked working paper’s abstract:

We find a large stimulus effect, as borrowers substitute increased private debt for paused public debt. Comparing borrowers whose loans were frozen with borrowers whose loans were not frozen due to differences in whether the government owned the loans, we show that borrowers used the new liquidity to increase borrowing on credit cards, mortgages, and auto loans rather than avoid delinquencies. The effects are concentrated among borrowers without prior delinquencies, who saw no change in credit scores, and we see little effects following student loan forgiveness announcements.

This means there is a huge swath of people out there who, when the student loans were paused, did not plan for their resumption, borrowed more–and are likely going to have to declare bankruptcy when student loan payments resume.

This implies in October we will see a massive uptick in bankruptcies.

And the corresponding political anger from a group of people who were promised “breads and circuses” and who did not use the pause as an opportunity to take control of their personal finances.

Remember: the Tea Party movement started during the Obama Administration as a protest, in part, by those upset the government was potentially awarding delinquint mortgage holders and thus creating a massive moral hazard.

That’s Smoke, Not Climate Change – WSJ:

Evaluating the causes of this complex event calls for humility, curiosity and thoughtfulness. But politicians are in charge.

I Disagree with Bob Poole on Zoning – Econlib:

Bob makes a point that some commenters have made when I’ve argued against zoning: namely that people who bought houses under the zoning rules are being betrayed by the elimination of those rules. Bob even goes so far as to say that the local government had a contract with the home owners.

Here’s the problem. There’s no contract. Instead, the government made a regulation, people bought assets with the idea that those regulations would be enforced, and there’s some chance that if the regulations are relaxed or eliminated, people who own those assets will suffer a capital loss.

But libertarians aren’t typically in the business of saying that on that basis those regulations should be kept. People who bought medallions giving them the legal power to operate a cab in New York suffered a loss when Uber and Lyft were allowed to operate. Should Uber and Lyft be regulated out of existence?

I’ve never been a ‘pure libertarian’, though I am sympathetic to the libertarian side of the political philosophical spectrum. To me, where libertarianism falls down is with the idea that we can use contract law to replace most government regulations–but unfortunately contract law is only as effective as the lawyer you hire to defend yourself. And that hangs a lot of people who can’t afford lawyers out to dry.

And yes, it is true that a lot of laws are unfairly and disproportionately enforced on people who can’t afford laywers–but the libertarian approach, to me, exacerbates the problem. In the extreme, the libertarian approach to enforcing the law seems to emphasize private security–but if you can’t afford private security, what do you do? (To understand what I mean, imagine what would happen if you were charged $100 to call 911.)

And zoning laws are one of those places where the proper libertarian answer–abolishing zoning laws–may not be the right approach. After all, consider the public infrastructure (roads, water, sewer) that would be affected if suddenly every house in a neighborhood were converted into multi-family apartment structures. (The lack of parking alone could be a problem.) There is, in other words, a potential “tragedy of the commons” failure mode here, as no-one has an incentive to expand the common public infrastructure shared in a neighborhood–even if that’s simply widening the streets. The solution to the “tragedy of the commons” has always required cooperation of one form or another–and usually cooperation enforced by government edict. (Even pure economic solutions require an authority to shape the market towards shared cooperation.)

All that said, trying to park government zoning–which really is a restrictive regulation protecting the economic interests of a few–under the umbrella of “libertarianism” seems to be a failure in understanding the term “libertarianism.” After all, zoning is just a form of “protectionism”–and you see that protectionism play out on a daily basis across this country.

There is a plot of land just a mile and a half from me whose owners want to use to build office buildings and a shopping complex; the neighboring land owners want that track of land to remain a low-density wooded lot. The lot has no influence on the neighboring watershed, so there is no major environmental concern; instead, the neighbors simply want to preserve the aesthetics of a few wooded acres at that intersection.

And I do honestly side with the neighbors; I think woods are prettier than office buildings. But I also understand my preference in the matter and five bucks gets you coffee at Starbucks: that is, my opinion doesn’t really amount to very much.

But the zoning battle is pure protectionism: the power of the surrounding neighbors to limit how the property is being used without being willing to actually buy the land and put it into a trust of some sort, in order to preserve the aesthetics of their neighborhood.

Calling this process “Libertarian” is just stupid.

When Employees Leave a Company, Others Often Follow – WSJ:

They found that employees leaving often had a big impact on the ones who remained—but the average results hid some big splits among employees.

Take layoffs as an example. The authors found high-performing employees—employees whose performance reviews ranked in the top 40%—were often much more affected by layoffs than low-performing employees, those in the bottom 40%.

The attrition rate for high-performing employees increased by about a third to about 2% from 1.5% within six months of the layoff announcement. The attrition rate for low-performing employees, though, rose only modestly within six months of the layoff announcement, to about 2.15% from 2.01%.

Why? High-performing employees typically have more employment options, says Sima Sajjadiani, an assistant professor at the University of British Columbia’s UBC Sauder School of Business and one of the paper’s co-authors. As a result, when layoffs are announced, these individuals might pre-emptively begin job searches to secure new roles rather than wait to see if they would be included in the layoff.

“Companies should consider the possible ripple effect when they make decisions about layoffs, especially because high performers are disproportionately affected,” she says.

I’ve seen companies commit suicide this way: forgetting their highest performing employees can easily find jobs elsewhere where they feel more appreciated. And “appreciation” does not come from dropping a six-pack of beer to be consumed at the end of business hours at a cluster of desks–as I saw at one place I used to work for. It comes from a culture of honest corporate appreciation for its employee’s efforts.

Which requires managers who actually know who their high performers are, who appreciate those efforts, who reward those efforts with monetary compensation, and who seek to help their lower-performing workers.

Unfortunately a lot of companies seem to promote an almost adversarial relationship between managers and employees. Others seem incapable of properly coaching their employees–and too many managers honestly don’t know what the hell their employees actually do.

And they’re just one high-performing employee departure away from collapse.

A Tale of Two Economies – WSJ:

Here’s some nasty stuff: Now that the debt-ceiling arm-wrestling contest is over, Treasury needs to raise more than $1 trillion in auctions over the next few months. That is some overhang. Who is going to buy all that debt? Not the Federal Reserve, which is in quantitative-tightening mode. And remember, U.S. banks are $2.2 trillion underwater in their bond portfolios. As deposits move to higher-yielding money-market funds, banks are selling bonds as well. Plus, their commercial real-estate loans are a mess. Defaults are the highest they have been since the 2008-09 financial crisis as city office occupancy rates hover around 50%. No shortages there.

As opposed to eggs. This spring’s egg shortage caused prices to jump 60% year over year. Now guess what’s in short supply? Baby chicks. Note the eggs came first. Shortages began during the pandemic and kept rolling: dumbbells, toilet paper, baby formula, many generic drugs, lithium, nickel and now GPUs, graphic processors used for graphics, crypto and artificial-intelligence platforms like ChatGPT.

The problem is simple: the economy never could turn on a dime, and it takes far less time to destroy something than it does to create something.

And the government-mandated pandemic shutdowns destroyed a lot of things.

So we’re still on a psychological rebound: people are trying to get out and do the things they weren’t allowed to do during the pandemic, which has caused shortages across the service sector. Tourism in Europe has gone crazy as people believe it’s now safe to travel overseas without the risk of being taught in pandemic shutdowns. In my area (in Raleigh, North Carolina), restaurants are still trying to hire, as companies try to get the manpower they need to combat all the various shortages, including shortages of service workers in restaurants and hotels, as well as shortages in health care and social services.

And some of these manpower shortages are leading to shortages in goods as well as in services.

It’s why so many economists are confused about the economy: because the economy is now in the process of rebuilding from the damage done by the government when the economy was shut down–and people are under extreme stress and anxiety and have altered their behavior accordingly.

It’d doesn’t help that there is a battle over working at home, nor does it help that, after the government killed a large number of businesses during the pandemic, government leaders are trying to force people back to their pre-pandemic lives in order to save their own tax base. (All those declining property prices? Yeah, that affects taxes, and that affects the ability of cities to afford hiring the police necessary to fight rising crime rates. Which discourages people from returning back to downtown corridors, which lowers property prices further…

And it doesn’t help that the principle tool the Federal Reserve has in fighting inflation is inherently destructive, not constructive. Raising interest rates is a destructive act, designed to kill the weaker companies–which is necessary in a traditional recession, as weaker companies are like the underbrush in a forest that chokes off the forest and which may lead to a massive forest fire.

But companies were already weakened during the pandemic–it’s why we have these shortages in the first place–so raising interest rates without attempting to strengthen supply chains or help corporations by reducing regulatory burdens will only hurt things further.

But of course we can’t help corporations; we couldn’t even clear the backlog at the Port of Los Angeles a few years ago, because it smacks too much of “trickle-down theory.”

We’re all getting a massive practical lesson in economic theory.

Sadly too many of us–including the so-called “experts” and “elite” who control this country–are learning the wrong lessons, or are too stupid to figure out the right ones.