2014 March 30 Sunday
My Questions On Russia And Ukraine

Ukraine has a lot of corruption and low living standards. Therefore we interrupt regularly scheduled pablum news with important questions:

  • Does corruption do more harm to the Russian or Ukrainian economy?
  • Does an underdeveloped legal system for contracts and property do more harm to the Russian or Ukrainian economy?
  • Is Russian corruption stable, growing, or shrinking?
  • Will the suppression of free press outlets in Russia accelerate the growth of corruption?
  • Does wealth from fossil fuels extraction allow the elites in Russia to be more corrupt?
  • Will Russian seizure of Crimea make Crimea more or less corrupt?
  • Will the new government in Ukraine be more or less corrupt than the overthrown one?
  • If Russia seizes eastern Ukraine will that enable western Ukraine to develop a healthier 2 party system that will in time reduce corruption?

My point about a 2 party system: If the two parties are pro-Russia and pro-West (as exists now with a large Russian population in Ukraine) then there won't be much electoral competition over corruption. But if the Russians split off then it seems to me there is a greater hope for competition between the two parties over the issue of corruption.

I also wonder whether the GOP's decline in California due to immigration will cause a shift in political competition to the primaries over corruption or if California will just become more corrupt in its poorer and less skilled districts.

Update: Ukraine is poor with a per capita GDP of only $3,867. Compare that to its neighbors: Belarus at $6,685, Romania at $9,036, Hungary at $12,531, Poland at $12,708, Russia at $14,037, and Slovak Republic at $16,847. Ukraine has only one neighbor which is poorer: Moldova at $2,038. What causes this?

By Randall Parker 2014 March 30 09:06 PM 
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Former Adviser Says Putin Wants Finland

But Finland isn't at the top of his list.

Say he grabs eastern Ukraine. What next? Belasus? Would he actually make a play for Lithuania, Latvia, and Estonia? They are members of NATO. So is Poland. Finland, Sweden, and Ukraine are not members of NATO.

Any country near Russia with a sizable Russian minority ought to offer them relocation payments to leave. Though in the more prosperous states a Russian would be taking a step down in standard of living by going back to Russia. Their kids would be better of learning English and moving deeper in to the EU.

Putin is starting a new Great Game.

By Randall Parker 2014 March 30 08:18 PM 
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2014 March 25 Tuesday
6 Things Vladimir Putin Has Going For Him

Theodore Dalrymple says Putin has nothing to worry about from Europe for 4 reasons:

Putin has four things on his side, at least in the short-term. The first, of course, is military power. The second is his increasing control of the media and over public opinion in Russia. The third is that his policy appeals to nationalist passion which, apart from ethnic hatred, is probably the strongest political passion of all. The fourth is the weakness of his European opponents.

He left out a fifth Putin advantage: The Europeans want the oil and natural gas that Russia is selling.

But wait, there's more: Dalrymple tries to evoke fear of 1938 with democracy complacent. But complacent democracy in 2014 makes sense. Vlad isn't going to send tank armies into Europe. He can't. The only thing he'd accomplish by trying to do so is give the US Air Force pilots opportunity for lots of realistic target practice. Oh, and the US DOD a much bigger budget. Plus, a really big revitalization of the Atlantic Alliance. He might even pull Europe out of its economic depression. For Russian? Not so much.

So what does Vlad have going against him? Internal stuff: Putin's problems include poor economic growth caused by his own corrupt government, a coming peak in Russian oil production, a shrinking population, and a hostile growing Muslim minority. He doesn't the skills or inclination to turn his nation around.

Anyone want to make a compelling case for why fate of the West rests on the fate of Ukraine?

By Randall Parker 2014 March 25 08:55 PM 
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2014 March 22 Saturday
Venezuela's Breakaway City Of San Cristobal

700,000 have effectively seceded from the corrupt, socialistic, and repressive government of Venezuelan President Nicolas Maduro.

The rebels are working on defensive perimeters to keep out the National Guard. Meanwhile, back in Caracas Maduro is getting an upper hand on the opposition.

Maduro is trying to pacify San Cristobal by sending goods to its supermarkets that were rarely there before the rebellion.

Students want their deaths at the hands of thugs to have meaning for a big cause:

“We prefer to die in an army attack than for an iPhone in an armed robbery outside our homes.”

Hey Mexican readers, you know who you are. Still want to defend Maduro's government? Venezuela's economy has become severely messed up by its government.

By Randall Parker 2014 March 22 12:48 PM 
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2014 March 20 Thursday
Putin Effectively Tells West To Go For Energy Independence?

A German news site asks:

Why would a country which gets half of its revenue from the export of energy make an aggressive power play that tells every last one if its customers that it can't be trusted and that they had better wean themselves off Russian oil and gas sooner rather than later?

Imagine the EU reacted to Russia's seizure of Ukraine by getting really serious about reducing its dependence in Russian natural gas and oil. France could do its part to wean Europe off of Russian natural gas by tripling its fleet of nuclear reactors in order to supply its neighbors with enough energy to replace Russian energy. Germany could do its part by resuming spending too much on solar power far from the equator. Perhaps Scandinavian countries build wind towers in their sparsely populated northern zones. Imagine.

But meanwhile back in reality: Aging and economically cratering Europe is focused in upon itself, absorbed in the financial problems of stagnating economies and looming sovereign debt defaults and bank defaults. The EU is not a national government of a bunch of peoples, cultures, and languages with quite different outlooks and motivations. So I think Vladimir Putin shouldn't worry about that.

Russia's problem is that once its fossil fuels production peaks it does not have enough of a real economy to replace it. The Russian government needs to make a real legal system where businesses are not vulnerable to arbitrary law enforcement and where they can invest safely build up lots of capital. That would make Russian less vulnerable to China or economic pressure from the Western countries. But it seems as unlikely that Russia will stop acting like Russia as it is that the EU member states will stop being their natural selves.

Does anyone think that the Russian seizure of Crimea is an important turning point? If so, for what?

By Randall Parker 2014 March 20 08:55 PM 
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2014 March 19 Wednesday
What Happens When Old Age Entitlements Crunch Comes?

Doug Elmendorf says there are 3 ways to handle it.

Elmendorf said Social Security, Medicare/Medicaid and Obamacare will be much more expensive relative to GDP in future years because health care costs are rising, subsidized health insurance is expanding, and the population is aging: "There will be a third more people receiving Social Security Medicare benefits a decade from now than there are today," he noted.

I can tell you variations on the ways to handle it.

  • Way way more taxes.
  • Needs testing. If you aren't poor you have to pay monthly hefty premiums for Medicare or not get it at all.
  • Delay eligibility. Raise the age.
  • Cut the amount of benefits you get.
  • Cut the rest of government.

The Tea Party favors cuts in everything else. The Democratic Party (or least its lower classes) favors much higher taxes on the upper classes.

Expect some combination of the above. The last item is already happening. Old folks will find it harder to get Medicare doctors (queues are a favored way to ration medical care in many countres). Some procedures won't get funded and eligibility for treatments will be based on assorted growing sets of rules.

But if declining global oil production rips the heart out of the global economy then the cuts will be much heavier and with little or no warning.

I expect a crisis which leads to cuts with little warning. So I think anyone who expects continuation of the current status quo ought to rethink their retirement plans,. Add 5 to 10 years.

By Randall Parker 2014 March 19 08:28 PM 
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2014 March 17 Monday
What Vladimir Putin Thinks

Vladimir Putin has ended the crisis over Crimea by making Crimea part of Russia with a stroke of a pen. No need to worry any longer. The fate of Crimea has been settled. Obama says this move only deepens Russia's diplomatic isolation. But who needs a lot of diplomats around anyway? Barack is being very mean to Vladimir. Do you know what Barack did? Barry froze Vlad's Netflix account. Think Vlad is upset about that?

The seizure of Crimea can be looked at as forward defense. Putin is convinced there is a 'Destroy Russia' project. The guy has got to protect his country against Western liberalism. Seems reasonable to me.

Putin on Western governments:

“They have come to believe in their exceptionalism and their sense of being the chosen ones. That they can decide the destinies of the world, that it is only them who can be right.”

Global liberal manifest destiny. Someone has to stop it.

What I think about Vladimir: On the one hand he is a tyrant ruling a corrupt state. On the other hand Russia is in a very precarious position with a declining population and so many countries on its very long land borders. Some neighbors (e.g. China and the EU) are very powerful and it has plenty of enemies who would like to cut it down for sport. Some are activists in the US State Department who want to play with the world. US economic advisers supported the kleptocratic dismantling of state industries and helped do the Russian people great harm in the 1990s The US hasn't shown Russia's security needs much respect and holds a dual standard for the US's own Monroe Doctrine domination of the Western Hemisphere versus the US position that Russia shouldn't project power beyond its border.

I look at Putin and think what folly the US government has shown in dealing with Russia. The US government overplayed its hand and did so for a country (Ukraine) which is not essential to US security. Now Russia has responded and Obama can't do much but sputter about it.

Oh, and one other thing: international law. How important is it? Some people argue that Putin, by violating international law, has made the Chinese violent seizure of Taiwan more likely along with other undesired outcomes. Could be. But really? I mean, how much are the big players really restrained from cross-border escapades due to international law? I can't claim to know. But the US seems to manage to intervene in many countries militarily without international law holding it back. However does the US manage to do that? Is it the nature of the interventions, like, say, not adding to the official US territorial reach? Or does it just have enough allies willing to support its interpretations of international law?

Crimea is only a part of Ukraine because in 1954 Ukrainian Nikita Krushchev switched which republic it was part of in the USSR. That seems like a dumb reason to make it part of Ukraine today. If I lived in Ukraine the main reason I could see for wanting it to stay part of Ukraine is the hope that the Ukrainian government will become less corrupt and more functional than the Russian government. What are the odds of that?

By Randall Parker 2014 March 17 11:13 PM 
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Student Loan Debt Higher Than Credit Card Debt

While all the other major categories of consumer debt (mortgage, credit card, auto, etc) are down since the Great Recession the young are piling up education debt.

But the dollar value of outstanding student loans has surged, growing from 4% of GDP in 2007 to over 7% today.

The US government should not be encouraging debt peonage. The US Department of Education is going to deny loans to students for schools which have 30+% default rates. I would set the threshold much lower. 20% is still a ridiculously high number for loan defaults. The net taxpayers are funding this folly.

I would like to see the default rates by major and by school. Some schools have really high drop-out rates. The students do not learn anything useful before giving up. SAT/ACT scores, major, and school all ought to be part of the consideration for whether a kid gets a loan.

By Randall Parker 2014 March 17 10:47 PM 
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2014 March 16 Sunday
Capitalists Like H1B Visa Holders As Indentured Servants

Read this.

Nothing surprising.

By Randall Parker 2014 March 16 10:19 PM 
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2014 March 13 Thursday
CIS: Still No Evidence of a Labor Shortage

From the Center for Immigration Studies:

  • In the fourth quarter of 2013, the standard unemployment rate (referred to as U-3) for native-born adults who have not completed high school was 16.6 percent, while for those with only a high school education it was 8.5. The U-3 unemployed are people who have looked for a job in the last four weeks.

  • The broader U-6 measure of unemployment — which includes those want to work, but have not looked recently, and those forced to work part-time — was 28.7 percent for native-born adults who have not completed high school and 16.5 percent for those with only a high school education.

  • The total number of native-born, working-age adults (18 to 65) of any education level not working (unemployed or out the labor force) was 50.5 million in the fourth quarter of 2012 — 8.8 million more than in the fourth quarter of 2007, and 14.7 million more than in the same quarter of 2000.

  • The share of working-age (18 to 65) natives holding a job has not recovered from the Great Recession. In the fourth quarter of 2013, 31 percent were not working, something that has barely improved in the last five years.

  • In the fourth quarter of 2013, there were only two working-age natives holding a job for every one that was not employed. This represents a huge deterioration. As recently as 2000, there were three working-age adults holding a job for every one not working.

The numbers are especially bleak for those who haven't graduated from high school. In the year 2000 52.2% were employed. Now only 38.4% are employed. The era of the zero marginal productivity worker is already upon us. For blacks without a high school degree the decline was from 42.1% working to 31.3% working. This is very bad news. What do they do with their time? How do they survive?

By Randall Parker 2014 March 13 09:45 PM 
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Regulatory Capture And Inevitable Financial Bubbles

Back in September 2013 former US Treasury Secretary Hank Paulson said financial bubbles are inevitable because of flawed government policies.

"It’s a certainty. As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles. They will manifest themselves in a financial system no matter how it’s structured and how it's regulated. But the key thing is to have the tools and the political will to act forcefully to limit a crisis," he explained.

But what makes the flawed economic policies inevitable? One really big reason: regulatory capture by the industry that each regulator is regulating. It isn't just the regulatory agency that gets captured. Congress and upper reaches of the executive branch become tools of Wall Street. So do some college profs.

I can not offer a solution to this problem (short of making me King of course). I just want to make it clear that the US government does not have sufficient independence to regulate the financial industry.

By Randall Parker 2014 March 13 09:39 PM 
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China Leader Expecting Big Corporate Bankruptcies

China's Premier is expecting some big Chinese companies to run out of money.

Li Keqiang told lenders to China's private sector factories they should expect debt defaults as the world's second largest economy encounters "serious challenges" in the year ahead.

Supposedly China's economy still grew at an 8.6% rate in the first 2 months of 2014. But the Chinese government is pumping up infrastructure spending as the rate of spending on new private construction projects has declined sharply (down 27.4%).

I think China is moving past the easy growth phase. It can't grow much through increased exports. In fact, exports declined for the first 2 months of 2014. The bubble in the commercial building construction sector is popping. I am skeptical of the Chinese government's claim it can keep the economy growing at 7.5% per year.

In the next global economic downturn China is going to be hard pressed to avoid its own recession. I expect the next recession to be worse than the last one because so many governments are going to already be financially tapped out in the earliest stages of recession. A larger number of European governments will default. Italy, Spain, and Portugal are going to be hard pressed to avoid a default.

The peak in oil company capital expenditures that probably occurred in 2013 suggests the global economy will start to feel some pretty strong downward pressures. Energy costs will rise enough to trigger a recession. If you are working for a company that is already wobbling think about switching to a safer job if you can manage it.

By Randall Parker 2014 March 13 09:32 PM 
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2014 March 06 Thursday
Euro Currency: Bad Idea That Is Still Alive

Kevin Hjortshøj O’Rourke says the Euro currency is a bad idea.

The euro area economy is in a terrible mess.

In December 2013 euro area GDP was still 3 percent lower than in the first quarter of 2008, in stark contrast with the United States, where GDP was 6 percent higher. GDP was 8 percent below its precrisis level in Ireland, 9 percent below in Italy, and 12 percent below in Greece. Euro area unemployment exceeds 12 percent—and is about 16 percent in Portugal, 17 percent in Cyprus, and 27 percent in Spain and Greece.

Europeans are so used to these numbers that they no longer find them shocking, which is profoundly disturbing. These are not minor details, blemishing an otherwise impeccable record, but evidence of a dismal policy failure.

The euro is a bad idea, which was pointed out two decades ago when the currency was being devised. The currency area is too large and diverse—and given the need for periodic real exchange rate adjustments, the anti-inflation mandate of the European Central Bank (ECB) is too restrictive. Labor mobility between member countries is too limited to make migration from bust to boom regions a viable adjustment option. And there are virtually no fiscal mechanisms to transfer resources across regions in the event of shocks that hit parts of the currency area harder than others.

Will the United States remain as civilized as Greece or Spain if its unemployment rate ever gets as high as theirs?

Greeks and Spaniards can, out of desperation, go work in Germany or the Netherlands and send money home. But if the economy gets that bad in America where could Americans go to do work to send money home? Um, nowhere.

America's next economic downturn might turn out to be much worse than the 2008 crisis because the last time the US government could run up big debts. This time the US government would start out with a much larger existing debt and the economy would start from a higher initial unemployment rate.

The American people have voted for expensive old age entitlements (Medicare is by far the biggest) and voted against the very high level of taxes that would be needed to fund them. The American people have also voted for a large military without the taxes needed to fund it. The American people have even voted for lots of entitlement programs for poor people. Again, not enough taxes to pay for them. This gap between promises and revenue is widening as a result of aging. Plus, the young folks aren't doing as well as previous generations (thank you immigrationists) and therefore aren't earning enough to pay enough taxes either. So the US government's financial condition will be far worse going into the next financial crisis. My advice: be prepared.

Come the next financial crisis will the Euro survive? Will some countries exit?

By Randall Parker 2014 March 06 07:58 PM 
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Staples Closing 10% Of Stores With Nearly Half Of Sales Online

A sign of the times. They've also already cut average store size in half.

As retail store fronts continue to shrivel up what will the lower skilled and less bright members of society do for a living?

I am struck by my declining need to buy goods and services from the left half and even the middle of the IQ Bell Curve. It has been many months since my last visit to a bricks and mortar bank. I think I went to Target and Wal-Mart maybe once or twice in 2013. Still going to grocery stores for fresh fruits and vegetables. It has been years since I bought clothing or shoes in a store. I get all electronic devices online. Ditto bed sheets and pillows. Unlike the residents of New Jersey I pump my own gasoline. I do still shop in physical furniture stores though.

What can the less skilled do? Trash collection, but the trucks reach out and grab the cans without the driver leaving his seat. So not as many people collecting the trash. They can still work in food preparation. But automation will come to food prep in time. I'd be surprised if the fast food restaurant of 2034 needs even half the labor of the same sort of restaurant in 2014.

Not much productivity improvement has come to fast food restaurants so far. The rise in fast food restaurant productivity has been slow with a productivity increase of about 12% since 1987. But ordering and payment will get automated with touch screens and smart phone apps. Eventually automation will come to food prep as well.

The decline in wholesale and retail employment has not been as sharp as the decline in manufacturing. That page has a lot of useful graphs on employment trends per sector. Look at those graphs and see if any sector looks like it has the potential to absorb a lot of low skilled workers as employment in other sectors shrink.

Also see: College Grads Taking Low-Wage Jobs Displace Less Educated.

Recent college graduates are ending up in more low-wage and part-time positions as it’s become harder to find education-level appropriate jobs, according to a January study by the Federal Reserve Bank of New York.

My standard advice: Upgrade your skills. You've got to go up if you don't want to go down.

The economic analysis finds that Millennial college graduates ages 25 to 321 who are working full time earn more annually—about $17,500 more—than employed young adults holding only a high school diploma. The pay gap was significantly smaller in previous generations.2 College-educated Millennials also are more likely to be employed full time than their less-educated counterparts (89% vs. 82%) and significantly less likely to be unemployed (3.8% vs. 12.2%).

Part of the effect reported here is due to a larger fraction of smarter people going to college. A bright high school grad of 1970 was probably less likely to go to college than a bright high school grad of 2000. So the people who remain in the ranks of high school grads aren't as smart and ditto for high school drop-outs. Though at the same time IQ of the average college grad has dropped as more people have been encouraged to go to college. That would tend to depress the job performance of the average college grad.

Large demographic changes due to immigration further muddy the water. What we need: income by IQ level for each generation. That would let us see more clearly how much the wage premium for higher intelligence is rising.

By Randall Parker 2014 March 06 05:05 PM 
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Royalist Secretly Recorded Sarkozy Conversations

Patrick Buisson, former political advisor to former French president Nicolas Sarkozy, secretly recorded conversations that Sarkozy had with Buisson present. Now Sarkozy is trying to block having all these conversations made public. The funniest part of this episode: Buisson is a royalist.

Buisson, 64, is a former historian and journalist and a self-styled royalist with links to the far right.

I am reminded of Gregory Clark's recent book, The Son Also Rises: Surnames and the History of Social Mobility, in which he finds that surnames are linked to social class and income for many generations. He finds that intergenerational mobility in status and income are much lower than economists believe.

Why this royalist reminds me of Clark's book: Swedes with noble surnames are much more successful (e.g. far greater representation among lawyers and doctors) than people with other surnames. At least in Sweden the nobility is much smarter than the population as a whole and therefore would make much more competent political rulers.

So what I'd like to know: in which countries are noble surnames associated with higher intelligence and which countries have the smartest nobility?

By Randall Parker 2014 March 06 11:50 AM 
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