Saturday, April 30, 2016

Trump's World

Donald Trump began the "presidential" phase of his campaign this week with a speech on foreign policy.  It was immediately dismissed as a "strange world view" by the New York Times, and subjected to "snickering and scorn" by the foreign policy establishment.

What did he say?  Basically that US foreign policy was a success up to the end of the Cold War, but has been misguided since then.  He identified five weaknesses of current foreign policy:

  1. Our resources are overextended.
    (Who would disagree after 15 years of continuous war?)
  2. Our allies are not paying their fair share.
    (All presidential candidates agree on this)
  3. Our friends are beginning to think they can’t depend on us.
    (e.g. Israel, PolandCzechia, Egypt)
  4. Our rivals no longer respect us.
    (and it is starting to be ridiculous)
  5. America no longer has a clear understanding of our foreign policy goals.
    (For example: https://www.hillaryclinton.com/issues/national-security/)

Trump's plan is to be more aggressive against "radical Islam" and China, rebuild the military, oppose trade agreements, and ease tensions with Russia.

Hilary Clinton agrees with much of this.  In a recent debate, she said:
it is important to ask for our NATO allies to pay more of the cost. There is a requirement that they should be doing so, and I believe that needs to be enforced.
Clinton is also hawkish on terrorist groups, and the contributions she receives from defense contractors suggest that she agrees about rebuilding the military.  She opposes trade agreements, is very critical of China, and began her time as Secretary of State with an attempt to ease tensions with Russia.

So why all of the criticism of the speech?  I've tried to remove the fluff and hyperbole from the New York Times editorial and extract the main points.  I think they are as follows:

  1. Trump would negotiate too forcefully.
    "other nations have agendas, too."
  2. His "America First" view contradicts his willingness to use force when needed.
    "He did not bother to square that [America First] with his vow [to use force when needed]"
  3. Opposing nation building contradicts his aim to build regional stability.
    "He condemned 'nation building,' but said he aims to build 'regional stability,' without explaining the difference."
  4. He is vague about how he would rebuild the military.
    "He did not say how he would further build up the military."
  5. He lied about ISIS collecting revenue from Libyan oil.
    "There is zero evidence of that."

#1 is the main point of the editorial.  Trump says that a negotiator must be "willing to walk," but the Times thinks this advice only applies to real estate deals.  Hillary seems to share this view, essentially saying that the US would never pull back from NATO, regardless of how the US is treated.

I don't think real estate is the only field where effective negotiation requires strength.  France understood this when it withdrew from NATO in the 1960s and extracted concessions when it returned in the 1990s.  Jimmy Carter understood this when he boycotted the 1980 Olympics in Moscow.  The Cold War was won with a 40 year threat to destroy the world.  It seems completely bizarre to me to argue that negotiations with rival world powers should not be backed by anything other than fines and moral exhortation.

#2 is not a coherent criticism.  Trump believes in using force when it would directly benefit the U.S., and does not otherwise.

#3 should not be so difficult for the Times to understand.  Pouring billions of dollars into broken countries is not the only possible strategy for building regional stability.

#4 is true - every presidential candidate in U.S. history is guilty of vagueness in their promises.

On #5, perhaps I am missing something, but there clearly seems to be evidence that ISIS is collecting revenue from oil in Libya.  

The media and the political establishment have become accustomed to ridiculing Donald Trump.  When he ridicules back, pearl clutching ensues.  But the failures of post Cold War foreign policy are obvious to voters, and are legitimate topics of debate.

Saturday, April 23, 2016

Cuba and the Future of Religion

In the streets of Havana, I noticed many men and women dressed all in white.  I was surprised to learn that they were practicing a religion with African origins called Yoruba, Santeria, or Regla de Ocha.  It is the same religion that Eula Biss' mother became obsessed with - I wrote about it here.  New Cuban initiates wear white clothing for a year including white shoes, hats, and umbrellas, in accordance with  Larry Iannaccone's theories of how religions attract contributing members while avoiding free-riders.  Followers of Santeria are said to outnumber Catholics in Cuba by 8 to 1.

Many African slaves sent to Cuba were from the Yoruba region of Nigeria and Benin.  Seeing similarity between the gods of their native religion and the saints of the Catholic religion to which they were forced to convert, they outwardly practiced Catholicism while secretly worshiping their own gods.  Visiting Catholic churches in Havana, we saw several Santeria practitioners.  Cuban political leaders apparently encourage the idea that they are protected by Santeria gods and allow free exercise of the religion.

It is a brilliant strategy - use the infrastructure of an existing religion instead of building from scratch.  There are biological parallels, which raise the question of whether the relationship is parasitic or symbiotic.  Perhaps the Catholic church is essentially finished, and Santeria is using its empty shell, like a hermit crab using the shell of a dead snail.  Or perhaps Santeria is taking members away from the church while using its structure, like mistletoe on a tree.  Or it could be that Santeria is breathing new life into the Catholic church, and they can coexist and share the cost of infrastructure.  The Catholic church apparently does not see the relationship as beneficial - visiting popes have refused to meet with Santeria representatives.

It occurred to me that this religion might be poised to grow rapidly in the United States once the U.S. embargo on Cuba is lifted.  The Catholic Church in the U.S. has considerable infrastructure that could be stealthily appropriated by Santeria adherents.  The African origins of the religion might appeal to both black and white liberal Americans.  The Mariel boatlift in 1980 brought some Santeria adherents to the U.S., and fairly large numbers practice in New York City and Florida.  In Cuba the religion is mostly practiced by black and mixed-race people, but in the U.S. there are more white members. 

Religion is in decline in the U.S., but the religious impulse is innate and difficult to repress for long.  Americans are looking for new ways to worship, and an exotic import from Cuba making use of structures already optimized for worship might take root.

Saturday, April 16, 2016

Race in Cuba

The New York Times reported recently in a story headlined "Cuba Says It Has Solved Racism. Obama Isn’t So Sure," that President Obama's speech in Havana was
 an unusually direct engagement with race, a critical and unresolved issue in Cuban society that the revolution was supposed to have erased.
The story reminded me of a display I saw in the Museum of the Revolution in Havana labeled "Cretin's Corner" that pictures the two president Bushes, Reagan, and Fulgencio Batista, president of Cuba at the time of the revolution.  Batista is reviled in Cuba and routinely criticized outside of Cuba, but it is not often acknowledged that he was black.  He was actually quite light skinned, but at the Museum of the Revolution he is caricatured as having dark skin and thick lips.  Here is a picture I took of it in February:

 Cuban revolutionaries were mostly white, and so are the people in power today.  Cuba was a racially segregated society before 1959, and so the revolutionaries were helped by the fact that Batista was black - many in the white middle and upper classes were not fond of Batista. This may be why they still find it useful to emphasize Batista's race in the Museum of the Revolution.

Race relations in Cuba are difficult for outsiders to understand.  Even basic statistical data are impossible to trust - official numbers show that Cuba is 60% white, while other estimates put the figure as low as 20%.   An editorial in a Cuban newspaper reacted to Obama's speech by asking, "Negro, Are you Dumb?"  The author of the editorial was black.  It was also odd to hear stories of Batista, described as an absolute dictator, being unable as president to enter segregated clubs.

Cuba is a puzzling place.

Sunday, April 10, 2016

Democracy

Thank you Iowa's 2nd Congressional District for electing me an alternate delegate to the Republican National Convention!

Alternate delegates attend the convention, so I will be reporting here on what happens in Cleveland in July!

The first thing I read this morning was an article in the New York Times with a print edition headline of "Primary Process Seen in Conflict With Democracy."  What I saw yesterday in Ottumwa, Iowa was just the opposite.

Anyone can attend a Republican caucus in Iowa - filling out a registration form 10 minutes before the caucus starts gives anyone the right to participate.  At most caucuses, anyone who stuck around after the initial presidential preference vote could become a delegate or alternate to the county convention and in my county, everyone who wanted to move on the district convention was able to do so.

District convention attendees were ordinary people, not party insiders.  Even the party insiders were ordinary people who have gone through the process for years and volunteered for party jobs in their spare time.

Party insiders had few advantages.  The chairman of the convention ran for Presidential Elector and was beaten by a college student who the convention simply liked.  Keep in mind that while this is usually described as a purely ceremonial position, electors have the ability to change the outcome of an election.  In a non-democratic country positions like these would be closely guarded by people in power.

In my case, I began my campaign two weeks ago with emails and letters to delegates.  I printed out flyers and handed them out to delegates as they arrived in Ottumwa.  I am not well known in the district and I have not been very active in the party - my two minute speech and conversations with delegates made the difference.  Some delegates promised to support Cruz no matter what, while others made no mention of their candidate preference.

Iowa's vote for the presidential nominee at the Republican National Convention might or might not reflect February's caucus vote, but the delegate selection process is absolutely free and open to anyone who wants to participate.

If democracy means scrupulously tallying the whims of every single person and counting them equally, then I suppose our process is not democratic.  But no one who cares about politics should complain that they are shut out of the process.  It is open to anyone willing to spend a little time and effort.

Sunday, April 3, 2016

Welcome, Delegates

Welcome to 2nd District of Iowa Delegates!  I look forward to meeting you in Ottumwa on Saturday!

Trade

Imagine a simple world with a farmer and a blacksmith.  Each needs one unit of food per year to live.  A plow lasts a year and with it the farmer can grow two units of food in a year.

The blacksmith can manufacture one plow each year, and he trades it to the farmer for one unit of food.  The farmer eats the other unit of food, and both gain from the trade.

Now let's make the model a bit more complicated and suppose that there is a Chinese blacksmith who makes a plow and offers to trade it to the farmer for 0.9 units of food.  The farmer is better off with this trade, because now he can eat 1.1 units of food.  One unit was enough to live, but he is happy to eat more.

Suppose also that the Chinese blacksmith has access to better, nontransferable technology that allows him to make plows cheaply. If he sells one plow per year to our farmer he will make a small profit in addition to what he already lives on.

Does the entrance of the Chinese blacksmith into our market increase overall welfare?  The farmer and the Chinese blacksmith are both slightly better off, but our blacksmith faces catastrophe.  He can't move to China, he can't farm, and there is no one else to buy his plows.  It is easy to believe that his loss of welfare outweighs the sum of the gains to the farmer and the Chinese blacksmith.

Now suppose that we are the government of the country containing only the farmer and the blacksmith.  There is no way to tax the farmer enough to compensate the blacksmith for his loss, but if we prohibit entry of the Chinese blacksmith into our market, we will increase the total well being of our citizens.  The loss of income of the Chinese blacksmith isn't our problem, since he lives in a different country.

The answer economists usually give to arguments like this is that the blacksmith should find something else to do!  In our example this doesn't work.  If the blacksmith tried to work for the farmer, the farmer could only afford to pay him 0.1 units of food per season, and so the blacksmith would starve.

The question is whether the real world is full of opportunities for unemployed blacksmiths or whether it is closer to the closed world of our example.  A recent paper suggests that American blacksmiths are having a hard time.  They have been told for a long time by economists like me that mutually beneficial trade must be a good thing, but they see for themselves that it isn't true for them.  No wonder they want to throw out the "experts" and vote for Trump.

Of course the real world is much more complicated.  Maybe the Chinese blacksmith will invest the profit and develop a plow that will allow our farmer to grow three units of food, and then he can hire the blacksmith to be his butler.  Maybe the unemployed blacksmith will use his free time to invent a two-unit per year plow.  The issue is a lot like that of automation.  In the past displaced workers have found new work in other industries, but there is no guarantee that this will continue forever, and over the last several years it has not been the case.

As I wrote last time, ordinary people are beginning to think that "experts" aren't always right.  Many of them think it is time to elect a non-expert with business sense who will do things differently.

Saturday, March 19, 2016

Would Mexico Pay for a Wall? Some Trump Calculus

Donald Trump is regularly mocked for saying he would make Mexico pay for a wall on the U.S. border.  What could he be thinking?

Trump estimates the cost of a wall to be $10 billion, while other estimates suggest the cost might be \$25 billion.  The length of the border is approximately 2,000 miles.  Israel has completed 330 miles of its wall/fence around the West Bank at a cost of around \$2.6 billion, which would suggest a total cost for Trump's project of around \$16 billion.  344 miles of the Mexican border are already fenced, which would reduce the cost, but difficult terrain in some remaining areas would increase the cost.  I will (I think conservatively) assume a cost of \$25 billion.

Mexico will not, of course, simply pay because they are told to, but they do have a significant vulnerability - remittance payments from immigrant workers to their families back home total $24.8 billion per year. Oklahoma already imposes a 1% tax on these payments that raised \$11.3 million last year.  Revenue from the tax has increased steadily since it was enacted in 2009 - on average it has risen 7.8% per year.

Trump has suggested that he would impound remittances from illegal wages, but a simple impound would not raise any revenue because knowing that the money would be impounded, no illegal workers would remit any money.  To calculate the revenue that would be earned from a tax on remittances, it is necessary to calculate how much remittances would decline in reaction to the tax.

An estimate of the elasticity of demand for remittances with respect to cost is -.22, meaning that a 1% increase in cost reduces remittances by 0.22%. I assume that the current cost of remittances is 4%.  In the following simple revenue model, $r$ equals tax revenue, $t$ is the tax rate, $R$ is total current remittances, $\epsilon$ is the elasticity of demand, and $c$ is the current cost as a percentage of remittance amount.

Tax revenue will be: $$r=tR\left(1+\frac{t\epsilon}{c}\right)$$ The derivative of tax revenue with respect to the tax rate will be: $$\frac{\partial r}{\partial t} = R\left( 1+\frac{2t\epsilon}{c}\right)$$ Setting the derivative equal to zero and solving for the tax rate that maximizes tax revenue gives: $$t=\frac{-c}{2\epsilon}$$ Using the assumed values of c and $\epsilon$ gives a tax rate of 9.1%, which produces revenue of \$1.13 billion per year.  If the cost of the wall is \$25 billion, and the current long term government borrowing rate is 2.7% per year, then the remittance tax revenue would amortize the cost of the wall in 17.6 years. 

A problem for this plan is that Trump plans to deport illegal immigrants, which would reduce remittances.  The Congressional Budget Office estimates that 73% of all legal residents of the U.S. born in Mexico remit money to Mexico, and 83% of illegal residents do so.  The Pew Research Center estimates that 51% of all Mexican born U.S. residents are here illegally.  Assuming that the payment amounts are the same per resident, if Trump departs all illegal residents immediately, revenue from the remittance tax would decline by 54.2%, which would increase the time in which the wall could be amortized to 31.3 years. 

Trump has other ideas to finance the wall at Mexico's expense.  The U.S. sends \$350 million annually to Mexico in economic aid and \$70 million in military aid.  Trump has suggested cutting these amounts, and if they were cut to zero, the amortization time would be reduced to 20.4 years.

Trump has also suggested raising tariffs on Mexican goods entering the U.S.  It is apparently possible for the president to opt out of NAFTA, and Hillary Clinton has also promised to threaten to opt out unless Mexico agrees to concessions.  The value of annual Mexican imports to the U.S. is \$37 billion.  A calculation similar to what I did for a remittance tax, but with a larger elasticity of -.86 and existing transport costs of 2% suggests a revenue maximizing tariff of 1.2% which would raise \$144 million per year, reducing the wall amortization time to 18.2 years.

Trump also suggests raising the fee for Mexicans to enter the U.S.  Mexico recently raised the fee for Americans to cross into Mexico to around \$28.  If the U.S. did something similar it might raise enough to lower the wall amortization time to 17.8 years.

Of course there would also be maintenance costs for the wall, but Trump only said Mexico would pay to build it, not maintain it.  Presumably he would be willing to maintain the wall using U.S. taxpayer money.

Whether the wall is a good idea or not is a different question.  It seems to me, however, that Trump is correct that the U.S. has the means to force Mexico to pay for it. 

While most Americans have not thought through the details, it is intuitively obvious to them that a powerful country like the U.S. has the ability to squeeze money from a poor country like Mexico.  The fact that experts all say it is impossible only convinces voters that experts are clueless.  It is obvious to everyone that Trump is no policy expert, but recent failures of experts* have convinced voters that a businessman with common sense could do better.

* See here, here, here, here, and here for examples.