Friday, November 17, 2017

David Brooks Stares Into Reaction

Our Elites Still Don’t Get It
Freedom without covenant becomes selfishness. And that’s what we see at the top of society, in our politics and the financial crisis. Freedom without connection becomes alienation. And that’s what we see at the bottom of society — frayed communities, broken families, opiate addiction. Freedom without a unifying national narrative becomes distrust, polarization and permanent political war.

People can endure a lot if they have a secure base, but if you take away covenantal attachments they become fragile. Moreover, if you rob people of their good covenantal attachments, they will grab bad ones. First, they will identify themselves according to race. They will become the racial essentialists you see on left and right: The only people who can really know me are in my race. Life is a zero-sum contest between my race and your race, so get out.
Brooks sees the problem is big. What he doesn't yet see is that the Alt-Right, Neoreaction and the rest is mostly a tragic figure in his mostly accurate conception. The Right isn't out there cheering for racialism. Instead, it accepts that the very liberal things David Brooks would like to save are largely influenced by race and, crucially, ethnicity. The evidence of voting patterns suggests Irish, Nords and Southern European didn't assimilate for at least a century, and their assimilation was mostly reverse-assimilation. America has moved so far left that New Deal Democrats now land on the right. The new immigrants lacks even basic shared values such as Christianity and rule of law. They aren't pulling Anglo-America in a more Continential/Statist direction. They're pulling America apart.

That's why there's a red pill and the accurately termed Dark Enlightenment. A key flaw in liberalism (looks like this word is back to original meaning among the educated set) is the blank slate/universalism, the idea that liberalism is for everyone instead of a peculiar cultural institution native to the British Isles. Many cultures may have forms of liberalism, but what we in the Anglo-Americas understand as liberty is not what exists in most parts of the world, even if we would correctly drop them into the "free" category. (The libertarian, anarcho-capitalist nirvana of Somalia being the most extreme example.)

For the sake of argument, perhaps Brooks is right and we're wrong. There's no Blank Slate, but HBD is less deterministic than we understand. Brooks would have a compelling argument to sell the dissident Right, which even at its most reactionary is still more liberal than most of the world (culture!)— if we had time for a debate. But as I said, the Right is the tragic figure. There is no time, Mr. Brooks. To borrow from the five levels of Maslow's hierarchy (survival, safety, belonging, esteem/status, self-actualization), Brooks is on level 3 or 4, the progressives are on level 5 in cloud cuckoo land, the right is on level 2 and worried this is actually a level 1 existential crisis at civilization scale.
History is full of examples of nations that built new national narratives, revived family life, restored community bonds and shared moral culture: Britain in the early 19th century, Germany after World War II, America in the Progressive Era. The first step in launching our own revival is understanding that the problem is down in the roots.
Oh no.

Wednesday, November 15, 2017

Eliminate SALT Deductions

How cucked is the GOP? We are about to find out. Going into this tax battle, the GOP said it would eliminate all state and local tax deduction as part of tax simplification. The removal of deductions will be offset by higher standard deductions. Only taxpayers in extreme situations, such as California, New York and New Jersey, aka "the rich" and the Democrats, would likely lose on this.

An aside on "the rich." Many people are "wealthy" thanks to their largest illiquid asset: their house. The median home price in New Jersey is $300,000 vs $150,000 in Tennessee. If the term rich means anything, it means wealthy in assets, and in that case, anyone who is middle class in places such as NYC are rich when compared the rest of America. They may live close to the edge because the cost of living is high, by they always have the option of selling a $1 million home and moving upstate/down south into a nice $300,000 home. The same person in rural Tennessee, or even urban Nashville, is never making that switch to NYC unless it's for employment.

President Trump cucked for the Democrats on state and local tax (SALT) deductions, assuming he's not playing politics. The House put property tax deductions in their bill. The normally cucked Senate went harder and eliminated property tax deductions and threw in an Obamacare mandate repeal (!). Playing with SALT is good short-term strategy because those high-tax states want it bad. Assuming the GOP is cucked, but not retarded, the Senate has now given the House a bargaining chip to trade for votes and the final bill will include property tax deductions.

If you have low time preference though, you eliminate SALT completely without batting an eye. The net present value is highly positive. In the short-run, there could be pain at the ballot box for House and Senate Republicans in blue states. However, there is also immediate pain for Democrats at the state and local level because they'll have to reform or cut taxes if they want to ease the higher tax burden. (It also sets up a rich white asian Dem vs poor black hispanic Dem fight in states such as California.) At the national level, once SALT is gone it is never coming back. How will Democrats pass a tax cut for the rich of California, New York and New Jersey, while attacking Republican tax cuts for the rich at the same time? They can try, but it is a rhetorical fail.

To summarize:

Permanently shift the tax burden to high tax states "that can afford to pay higher taxes" (utilizing Dem rhetoric)
Create demand for tax reform or lower taxes at the state level, which favors the GOP and fractures Dems
Take a one-time GOP electoral hit in blue states
That becomes permanent Democrat electoral albatross if they ever bring it up again

War is the continuation of politics by other means. Democrats understand this; Republicans do not. If they surprise and end up eliminating SALT deductions, the sweet taste of victory might be enough to red pill a few of them.

Wednesday, November 01, 2017

St. Louis Fed: Good Case for QE Being Detrimental

The Fed was supposed to start reducing its balance sheet in October (but did it?). As the exit from quantitative easing takes effect, there's uncertainty as to the results. The end of QE 1, 2 and 3 all saw financial market declines and drops in interest rates. Although the goal of QE was to lower rates, it actually raised interest rates. QE pushed investors out of bonds and into riskier assets such as stocks. It increased the "animal spirits." A reversal of QE should produce a larger negative result and a new low in bond yields, if the pattern holds.

That's assuming QE itself didn't harm the economy. It's possible that QE suppressed credit growth by taking high quality assets (U.S. Treasuries) out of the financial system. (Banks use treasuries as collateral for derivatives, USTs are the high octane fuel for ultra-leverage.) What isn't known is how large the effect might be. If it was significant, the reversal of quantitative easing will increase credit growth and interest rates. The Fed thinks it will hike interest rates to ward off exploding credit growth and high inflation, but it's exit from QE might be the very trigger that causes it. In which case, every hike of interest rates will increase inflation, and the Fed will chase its own tail back to double-digit inflation.

I don't think that scenario is very likely, the former scenario makes more sense given the weight of evidence. Still, the Fed itself isn't sure about what's going to happen. It doesn't even know if QE worked.
Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy. With unconventional monetary policy, the difficulty is magnified, as the economic theory can be lacking, and there is a small amount of data available for empirical evaluation. With respect to QE, there are good reasons to be skeptical that it works as advertised, and some economists have made a good case that QE is actually detrimental.
Quantitative Easing: How Well Does This Tool Work?