Economist's View

Report: Trump Transition Ordered Government Economists to Cook Up Rosy Growth Forecasts

Mathew Yglesias:

Report: Trump transition ordered government economists to cook up rosy growth forecasts: As the White House staff tries to put together a budget for President Donald Trump, they face a fundamental problem. Trump has promised to cut taxes, increase spending on the military and infrastructure, and avoid cuts to Social Security and Medicare. The only way to do that without producing an exploding budget deficit is to assume a big increase in economic growth.

And Nick Timiraos at the Wall Street Journal reports that Trump is planning to do just that — by making things up.

Deep into his story about Trump budget hijinks, Timiraos reveals that “what’s unusual about the administration’s forecasts isn’t just their relative optimism but also the process by which they were derived.” Specifically, what’s unusual about them is that they weren’t derived by any process at all. Instead of letting economists build a forecast, Trump’s budget was put together with “transition officials telling the CEA staff the growth targets that their budget would produce and asking them to backfill other estimates off those figures.” ...

Paul Krugman: The Silence of the Hacks

The truth is out there:

The Silence of the Hacks, by Paul Krugman, NY Times: The story so far: A foreign dictator intervened on behalf of a U.S. presidential candidate — and that candidate won. Close associates of the new president were in contact with the dictator’s espionage officials during the campaign, and his national security adviser was forced out over improper calls to that country’s ambassador...

Meanwhile, the president seems oddly solicitous of the dictator’s interests, and rumors swirl about his personal financial connections to the country in question. ...

Maybe ... it’s all perfectly innocent. But if it’s not innocent, it’s very bad indeed. So what do Republicans in Congress, who have the power to investigate the situation, believe should be done?

Nothing.

Paul Ryan ... says that Michael Flynn’s conversations with the Russian ambassador were “entirely appropriate.”

Devin Nunes, the chairman of the House Intelligence Committee, angrily dismissed calls for a select committee to investigate contacts during the campaign: “There is absolutely not going to be one.”

Jason Chaffetz, the chairman of the House oversight committee — who hounded Hillary Clinton endlessly over Benghazi — declared that the “situation has taken care of itself.”

Just the other day Republicans were hot in pursuit of potential scandal, and posed as ultrapatriots. Now they’re indifferent to actual subversion and the real possibility that we are being governed by people who take their cues from Moscow. ...

The point is that you can’t understand the mess we’re in without appreciating not just the potential corruption of the president, but the unmistakable corruption of his party — a party so intent on cutting taxes for the wealthy, deregulating banks and polluters and dismantling social programs that accepting foreign subversion is, apparently, a small price to pay. ...

So how does this crisis end? It’s not a constitutional crisis — yet. But Donald Trump is facing a clear crisis of legitimacy. ... And nothing he has done since the inauguration allays fears that he is in effect a Putin puppet.

How can a leader under such a cloud send American soldiers to die? How can he be granted the right to shape the Supreme Court for a generation? ...

The thing is, this nightmare could be ended by a handful of Republican legislators willing to make common cause with Democrats to demand the truth. And maybe there are enough people of conscience left in the G.O.P.

But there probably aren’t. And that’s a problem that’s even scarier than the Trump-Putin axis.

The Problem with Puzder as Labor Secretary

My latest at MoneyWatch:

The problem with Puzder as Labor Secretary: Donald Trump’s pick for secretary of labor, Andrew Puzder, is scheduled to undergo confirmation hearings Thursday before the Senate Health, Education, Labor and Pensions Committee. Prior to his nomination, Puzder was the CEO of CKE Restaurants, the parent company of fast-food chains Hardee’s and Carl’s Jr.

Democrats and other critics of Puzder’s nomination have raised concerns about Puzder’s employment of an undocumented housekeeper (a transgression that has disqualified nominees of previous administrations). But for me, the biggest issue is the extent to which he can fulfill the Labor Department’s own stated mission, to be an advocate for labor...

It ends with:

...that’s a portrait of a “Secretary of Business Owners” rather than a “Secretary of Labor.” In this time of rising inequality, stagnant wages and increasing economic insecurity due to globalization and technological change, workers need someone to protect their interests, someone willing to work endlessly to improve all aspects of their working lives.

President Trump promised workers that he would stand up for them and bring decent jobs to regions of the country that have struggled in recent years. In my eyes, the nomination of Puzder for labor secretary betrays that promise, and to me, that’s reason enough that he should not be confirmed.

Will Trump Bankrupt the Fed as an Institution?

I have a new column:

If Trump Stacks Its Board, He Politicizes the Fed and Demeans Its Independence: Daniel Tarullo announced on Friday that he is resigning from the Federal Reserve Board of Governors in early April, nearly five years before his term expires on January 31, 2022. Governor Tarullo, who was appointed by President Obama in 2009, led the effort to plug the holes in financial regulation that allowed the housing bubble and financial panic to occur. So his resignation comes at an inopportune time for those of us worried about Trump’s plans for wholesale deregulation of the financial sector and the vulnerability to another financial crisis that comes with it. 

Trump could also have a large impact on how the Fed conducts monetary policy..., the Fed could be permanently damaged...

Paul Krugman: When the Fire Comes

Who will stop him?:

When the Fire Comes, by Paul Krugman, NY Times: ...there’s a pretty good chance that sometime over the next few years something nasty will happen — a terrorist attack on a public place, an exchange of fire in the South China Sea, something. Then what?

After 9/11, the overwhelming public response was to rally around the commander in chief. Doubts about the legitimacy of a president who lost the popular vote and was installed by a bare majority on the Supreme Court were swept aside. Unquestioning support for the man in the White House was, many Americans believed, what patriotism demanded. ...

Unfortunately, the suspension of critical thinking ended ... badly. The Bush administration exploited the post-9/11 rush of patriotism to take America into an unrelated war, then used the initial illusion of success in that war to ram through huge tax cuts for the wealthy.

Bad as that was, however, the consequences if Donald Trump finds himself similarly empowered will be incomparably worse. ...

Mr. Trump’s attack on Judge James Robart, who put a stay on his immigration ban, was ... unprecedented. ... The really striking thing about Mr. Trump’s Twitter tirade, however, was his palpable eagerness to see an attack on America, which would show everyone the folly of constraining his power... What we see here is the most powerful man in the world blatantly telegraphing his intention to use national misfortune to grab even more power. And the question becomes, who will stop him?

Don’t talk about institutions, and the checks and balances they create. Institutions are only as good as the people who serve them. Authoritarianism, American-style, can be averted only if people have the courage to stand against it. So who are these people?

It certainly won’t be Mr. Trump’s inner circle. It won’t be Jeff Sessions, his new attorney general... It might be the courts — but Mr. Trump is doing all he can to delegitimize judicial oversight in advance.

What about Congress? Well..., maybe, just maybe, there are enough Republican senators who really do care about America’s fundamental values to cross party lines in their defense. But given what we’ve seen so far, that’s just hopeful speculation.

In the end, I fear, it’s going to rest on the people — on whether enough Americans are willing to take a public stand. We can’t handle another post-9/11-style suspension of doubt about the man in charge; if that happens, America as we know it will soon be gone.

A Conservative Case for Climate Action

Feldstein, Halstead, and Mankiw :

A Conservative Case for Climate Action: Crazy as it may sound, this is the perfect time to enact a sensible policy to address the dangerous threat of climate change. Before you call us nuts, hear us out.

During his eight years in office, President Obama regularly warned of the very real dangers of global warming, but he did not sign any meaningful domestic legislation to address the problem, largely because he and Congress did not see eye to eye. Instead, Mr. Obama left us with a grab bag of regulations aimed at reducing carbon emissions, often established by executive order. ... As Democrats are learning the hard way, it is all too easy for a new administration to reverse the executive orders of its predecessors.

On-again-off-again regulation is a poor way to protect the environment. ...

Our own analysis finds that a carbon dividends program starting at $40 per ton would achieve nearly twice the emissions reductions of all Obama-era climate regulations combined. ...

The idea of using taxes to correct a problem like pollution is an old one with wide support among economists. ...

Republicans are in charge of both Congress and the White House. If they do nothing other than reverse regulations from the Obama administration, they will squander the opportunity to show the full power of the conservative canon, and its core principles of free markets, limited government and stewardship. ...

One suggested edit to the last paragraph: If the Republicans do more than reverse regulations from the Obama administration and impose a carbon tax, they will squander the opportunity to show the full power of the conservative canon, and its core principle of rewarding wealthy supporters in the business community.

How Incomplete is the Theory of the Firm? Q&A with Daniel Carpenter

ProMarket interviews Daniel Carpenter "ahead of the upcoming conference on the theory of the firm, in which he will be taking part, Carpenter shared some of thoughts on the role of corporations and government interference in the market:

How Incomplete is the Theory of the Firm? Q&A with Daniel Carpenter: ...Q: The neoclassical theory of the firm does not consider political engagement by corporations. How big an omission do you think this is?

I think it’s an immense omission. For one, we can’t even talk about the historical origins of many firms without talking about corporate charters, limited liability arrangements, zoning, public contracts and grants, and so on. To view these processes as legal and not political is a significant mistake. I’m currently writing a lot on the history of petitioning in Europe and North America, and in areas ranging from railroads, to technology-heavy industries, to extractive industries, to banking, firms (or their investors) had to bring a case before the legislature, or an agency of government, or both. They usually used petitions to do so. 

Beyond the past and into the present, there are a range of firm activities that we can’t understand without looking at politics. ...

And in the future, the profitability and survival prospects of many firms in the coming years will depend heavily, in a polarized environment, on the political skills of managers. ...

Q: Some people describe Donald Trump’s economic policies as “corporatism.” Are you more worried by Trump’s interference in the market economy or by companies’ ability to subvert markets’ rules?

I don’t see those as binary opposites but as complements. If regulation is constitutive of marketplaces (fraud standards, disclosure and labeling requirements, evidentiary requirements), then companies’ ability to subvert market rules will in fact interfere in the proper functioning of a market economy.

I think we’re likely to see both Trumpian interference and company subversion, in other words.

That said, I am concerned about Trump’s interference in markets, for example his bullying of companies and the idea of imposing border taxes. In the U.S. and elsewhere, we are going to see the need for legislative and judicial constraints upon this kind of executive action.

Trump Picks Wall Street Over Main Street

Mike Konczal:

Trump Picks Wall Street Over Main Street: President Trump fired the first round in his war against financial regulations by signing two executive orders on Friday.

The first calls for the Treasury secretary to conduct a review over the next 120 days of regulations stemming from the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The second calls for a review of the Department of Labor’s “fiduciary rule,” which requires investment professionals to act in the best interest of their clients, rather than seek the highest profits for themselves...

Though they don’t do too much by themselves to roll back these reforms, the directives do offer important details on how Mr. Trump will approach the financial industry in the next four years — and provide three reasons that people on Main Street should be scared about how Mr. Trump will help Wall Street.

The first is that President Trump, contrary to the hopes of many, has no intention of getting tough with finance. ...

Second, while Mr. Trump wants to repeal the fiduciary rule, he appears to have no interest in a replacement for it. ...

Third, rather than meet with regulators, small businesses or community banks, Mr. Trump met with the titans of Wall Street before announcing the directives. ...

It’s no wonder financial stocks have been soaring since Mr. Trump was elected. Voters who hoped he would “drain the swamp” and upset the elite are in for a big surprise. ...

Paul Krugman: Donald the Menace

"A man who is out of his depth and out of control":

Donald the Menace, by Paul Krugman, NY Times: For the past couple of months, thoughtful people have been quietly worrying that the Trump administration might get us into a foreign policy crisis, maybe even a war. ...

The most likely flash point seemed to be China ... where disputes over islands in the South China Sea could easily turn into shooting incidents. But the war with China will, it seems, have to wait. First comes Australia. And Mexico. And Iran. And the European Union. (But never Russia.) ...

The Australian confrontation has gotten the most press... Australia is, after all, arguably America’s most faithful friend in the whole world...

Well, at least Mr. Trump didn’t threaten to invade Australia. In his conversation with President Enrique Peña Nieto of Mexico, however, he did just that. ...

The blowups with Mexico and Australia have overshadowed a more conventional war of words with Iran...

There was also ... the response to ... Russia’s escalation of its proxy war in Ukraine. Senator John McCain called on the president to help Ukraine. Strangely, however, the White House has said nothing... This is getting a bit obvious, isn’t it?

Oh, and ... Peter Navarro, head of Mr. Trump’s new National Trade Council, accused Germany of exploiting the United States with an undervalued currency..., government officials aren’t supposed to make that sort of accusation unless they’re prepared to fight a trade war. Are they?

I doubt it. In fact, this administration doesn’t seem prepared on any front. Mr. Trump’s confrontational phone calls, in particular, don’t sound like the working out of an economic or even political strategy — cunning schemers don’t waste time boasting about their election victories and whining about media reports on crowd sizes.

No, what we’re hearing sounds like a man who is out of his depth and out of control, who can’t even pretend to master his feelings of personal insecurity. His first two weeks in office have been utter chaos, and things just keep getting worse — perhaps because he responds to each debacle with a desperate attempt to change the subject that only leads to a fresh debacle.

America and the world can’t take much more of this. Think about it: If you had an employee behaving this way, you’d immediately remove him from any position of responsibility and strongly suggest that he seek counseling. And this guy is commander in chief of the world’s most powerful military.

Thanks, Comey.

Class & Confidence

Chris Dillow:

Class & confidence: On Radio 4’s Media Show yesterday Andrea Catherwood told Sarah Sands, the incoming editor of the Today programme:

The job specification did say that there was a requirement of extensive experience of broadcast journalism and a sound appreciation of studio broadcast techniques. You obviously got over that hurdle (16’23” in).

Many of us, though, wouldn’t even have tried the hurdle. If I’d had Ms Sands otherwise decent CV, I’d have looked at that job spec and ruled myself out as unqualified. Ms Sands, obviously, did not.

In this, she’s following many others. Tristram Hunt has become head of the V&A despite no experience of curating or of running large organizations. David Cameron wanted to become PM because he thought he’d be “rather good” at it – a judgment which now looks dubious. And the last Labour government asked David Freud to review welfare policy even though, by his own admission, he “didn't know anything about welfare at all.”

These people have something in common: they come from families sufficiently rich to afford private schooling*. And they are not isolated instances. ...

One thing that’s going on here is a difference in confidence. Coming from a posh family emboldens many people to think they can do jobs even if they lack requisite qualifications. By contrast, others get the confidence knocked out of them (16’20 in)**. As Toby Morris has brilliantly shown, apparently small differences in upbringing can over the years translate into differences not only in achievement but also in senses of entitlement.

The point is not (just) that people from working-class backgrounds suffer outright discrimination. It’s that they put themselves forward less than others, and so save hirers the bother of discriminating against them. ...

Herein lies an issue. In hiring Ms Sands (and no doubt many others like her) the BBC is conforming to a pattern whereby inequality perpetuates itself. This suggests that the corporation is badly placed to address what is for many of us one of the great issues of our time - the many aspects of class inequality – because it is part of the problem. And it compounds this bias by focusing upon other matters instead – for example by the incessant airtime it gives to the (Dulwich College-educated) Farage***. Bias consists not merely in what is said and reported, but in what is not – in the choice of agenda. In matters of class, the BBC is not impartial. ...

If Obama Was For It, We Had To Be Against It

Just a reminder -- this is a (slightly edited) rerun of a post from August 10, 2012:

Biden: McConnell decided to withhold all cooperation even before we took office, by Greg Sargent, Washington Post: I’ve got my copy of Michael Grunwald’s new book on the making of stimulus, The New New Deal, and ... it may shed new light on the degree to which Republicans may have decided to deny Obama all cooperation for the explicit purpose of rendering his presidency a failure — making it easier for them to mount a political comeback after their disastrous 2008 losses.

Grunwald has Joe Biden on the record making a striking charge. Biden says that during the transition, a number of Republican Senators privately confided to him that Mitch McConnell had given them the directive that there was to be no cooperation with the new administration — because he had decided that “we can’t let you succeed.” ...

Biden, of course, has a history of outsized comments. But two former Republican Senators [Bob Bennett and Arlen Specter] are confirming the gist of the charges... Meanwhile, former Senator George Voinovich also goes on record telling Grunwald that Republican marching orders were to oppose everything the Obama administration proposed.

“If he was for it, we had to be against it,” Voinovich tells Grunwald. ... “He wanted everyone to hold the fort. All he cared about was making sure Obama could never have a clean victory.” ...

It seems pretty newsworthy for the Vice President of the United States to charge that seven members of the opposition confided to him that their party had adopted a comprehensive strategy to oppose literally everything the new President did — with the explicit purpose of denying him any successes of any kind for their own political purposes — even before he took office.

Help for Business Scholars and Students Affected by the US Restrictions

Via Joshua Gans (and Brad DeLong's excerpt):

The Rotman School of Management, University of Toronto... is offering to help scholars and students impacted on by the new US immigration restrictions. We would like to hear from anyone who:

• Can no longer return to the US to continue their academic position or studies in a business, economics or related areas.
• Missed application deadlines for University of Toronto degree programs in business, economics, or related areas; but are concerned they will not be able to undertake studies in the US anymore.
• Facing temporary disruptions as a result of the new policies who may need a place in North America to continue their academic work.

The official statement is here: http://www.rotman.utoronto.ca/Connect/MediaCentre/NewsReleases/20170201

CNN Hires Hack Trump Adviser to Spout Gibberish About Economics

Jordan Weissmann:

CNN Hires Hack Trump Adviser to Spout Gibberish About Economics: ...I would like to pause for a brief moment to commemorate the act of journalistic malpractice CNN has just committed by hiring conservative scribbler and Trump adviser Stephen Moore as an economics analyst. It is a doozy. ...

In economics circles, Moore is looked at as a sort of tragicomic figure, the supply-side gang leader who can't count straight. ...

CNN has a habit of veering wildly from serious journalism from its Washington bureau or its online KFile investigative team to vomit-worthy infotainment in which toadies like Jeffrey Lord or—previously—Corey Lewandowski defend whatever the heck Donald Trump has just said. (The network has a lot of airtime to fill, and it fills it with mostly useless discussion panels.) You can guess which side the pendulum just swung to with Moore's hire.

A network that is serious about delivering factual information instead of propaganda to viewers would not have made these hires.

In the Trump Administration, Credibility May be a Problem

Here's my latest column:

In the Trump Administration, Credibility May be a Problem, by Mark Thoma: ...politicians have an additional credibility problem over and above their inability to make long-run commitments. Little of what politicians say can be trusted even during the years they are in office. And with Trump saying whatever comes to his mind, or whatever a particular audience wants to hear, his erratic behavior, and his tendency to contradict himself, who knows what to believe? Nothing is credible until it happens, and even then it might be reversed. ...

When Government Misguides

Cecchetti & Schoenholtz:

When Government Misguides: "That [comparative advantage] is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them." Paul Samuelson

Governments play favorites. They promote residential construction by making mortgages tax deductible. They encourage ethanol production by subsidizing corn. They boost sales of electric cars by offering tax rebates. These political favors usually diminish, rather than increase, aggregate income. They’re about distribution, not production.

With the ascendance of Donald Trump to the presidency, U.S. government intervention has taken a particularly troubling turn. Not only has he threatened companies planning to produce their products outside of the United States, but he has appointed strident free-trade opponents (ranging from China-bashing Peter Navarro to trade-litigator Robert Lighthizer) to key positions in his administration. In his first week in office, President Trump has pulled the United States out of the Trans-Pacific Partnership (TPP) and moved to renegotiate the North American Free Trade Agreement (NAFTA). His representatives also have threatened to impose tariffs on Mexico (and other countries). In what seems like the blink of an eye, these actions have sacrificed the valuable U.S. reputation–earned over seven decades since President Truman—as a trustworthy leader in the global fight for open, competitive markets. ...

Paul Krugman: Building a Wall of Ignorance

"The story seems, like so much that’s happened lately, to have started with President Trump’s insecure ego":

Building a Wall of Ignorance, by Paul Krugman, NY Times: We’re just over a week into the Trump-Putin regime, and it’s already getting hard to keep track of the disasters. ...

But I want to hold on, just for a minute, to the story that dominated the news on Thursday, before it was, er, trumped by the uproar over the refugee ban. As you may recall ... the White House first seemed to say that it would impose a 20 percent tariff on Mexico, but may have been talking about a tax plan, proposed by Republicans in the House, that would do no such thing; then said that it was just an idea; then dropped the subject, at least for now. ...

The story seems, like so much that’s happened lately, to have started with President Trump’s insecure ego: People were making fun of him because Mexico will not, as he promised during the campaign, pay for that useless wall along the border. So his spokesman, Sean Spicer, went out and declared that a border tax on Mexican products would, in fact, pay for the wall. So there!

As economists quickly pointed out, however, tariffs aren’t paid by the exporter..., they’re paid for by ... consumers. America, not Mexico, would therefore end up paying for the wall.

Oops. But that wasn’t the only problem. America is part of a system of agreements — a system we built — that sets rules for trade policy, and one of the key rules is that you can’t just unilaterally hike tariffs that were reduced in previous negotiations.

If America were to casually break that rule, the consequences would be severe. ... If we treat the rules with contempt, so will everyone else. The whole trading system would start to unravel, with hugely disruptive effects everywhere, very much including U.S. manufacturing. ...

All of this should be placed in the larger context of America’s quickly collapsing credibility.

Our government hasn’t always done the right thing. But it has kept its promises, to nations and individuals alike.

Now all of that is in question. Everyone, from small nations who thought they were protected against Russian aggression, to Mexican entrepreneurs who thought they had guaranteed access to our markets, to Iraqi interpreters who thought their service with the U.S. meant an assurance of sanctuary, now has to wonder whether they’ll be treated like stiffed contractors at a Trump hotel.

That’s a very big loss. And it’s probably irreversible.

Paul Krugman: Making the Rust Belt Rustier

Will Trump Repeat Reagan's mistake?:

Making the Rust Belt Rustier: Donald Trump ... appears serious about his eagerness to reverse America’s 80-year-long commitment to expanding world trade. On Thursday the White House said it was considering a 20 percent tariff on all imports from Mexico; doing so wouldn’t just pull the U.S. out of NAFTA, it would violate all our trading agreements. ...

Taken together, the new regime’s policies will probably lead to a faster, not slower, decline in American manufacturing.

How do we know this? We can look at the underlying economic logic, and we can also look at what happened during the Reagan years, which in some ways represent a dress rehearsal for what’s coming. ...

What Reagan did ... was blow up the budget deficit with military spending and tax cuts. This drove up interest rates, which drew in foreign capital. The inflow of capital, in turn, led to a stronger dollar, which made U.S. manufacturing uncompetitive. The trade deficit soared — and the long-term decline in the share of manufacturing in overall employment accelerated sharply.

Notably, it was under Reagan that talk of “deindustrialization” and the use of the term “Rust Belt” first became widespread.

It’s also worth pointing out that the Reagan-era manufacturing decline took place despite a significant amount of protectionism, especially a quota on Japanese car exports ... that ended up costing consumers more than $30 billion in today’s prices.

Will we repeat this story? The Trump regime will clearly blow up the deficit, mainly through tax cuts for the rich. (Funny, isn’t it, how all the deficit scolds have gone quiet?)..., interest rates have already risen in anticipation of the borrowing surge, and so has the dollar. So we do seem to be following the Reagan playbook for shrinking manufacturing. ...

And there’s a further factor to consider: ... Manufacturing is a global enterprise, in which cars, planes and so on are assembled from components produced in multiple countries. ... There will, inevitably, be huge dislocation: Some U.S. factories and communities will benefit, but others will be hurt, bigly, by the loss of markets, crucial components or both.

Economists talk about the “China shock,” the disruption of some communities by surging Chinese exports in the 2000s. Well, the coming Trump shock will be at least as disruptive.

And the biggest losers, as with health care, will be white working-class voters who were foolish enough to believe that Donald Trump was on their side.

We Are the Last Defense Against Trump

Daron Acemoglu

We Are the Last Defense Against Trump: In the second half of the 20th century, the main threat to democracy came from the men in uniform. Fledgling democracies such as Argentina, Brazil, Chile, Thailand, and Turkey were set back by dozens of military coups. For emerging democracies hoping to ward off such military interventions into domestic politics, Western European and American institutions ... were offered as the model to follow. They were the best way to ensure that democracy, as Juan Linz and Alfred Stepan famously put it, became “the only game in town.” ...

Yet today we are coming to discover that contemporary democracy has its own soft underbelly — not so much a weakness against a cabal of colonels conspiring a violent takeover of government, but the gutting of state institutions and the incipient establishment of a variant of personal rule. Examples of personal rule include Venezuela under Hugo Chavez, Russia under Vladimir Putin, and Turkey under Recep Tayyip Erdogan. These differ from the Mobutus, arap Mois and the Abachas of the world, because they are engineered by democratically elected leaders and maintain a much higher degree of legitimacy among some segments of the population But they still showcase how this process can irreparably damage institutions and hollow out democracy. Now, these examples are poised to include America under Donald Trump.

Trump appears to share several political goals and strategies with Chavez, Putin, and Erdogan. Like them, he seems to have little respect for the rule of law or the independence of state institutions, which he has tended to treat as impediments to his ability to exercise power. Like them, he has a blurred vision of national and personal interests. Like them, he has little patience with criticism and a long-established strategy of rewarding loyalty, which can be seen in his high-level appointments to date. This is all topped by an unwavering belief in his abilities.

What makes America vulnerable to being blindsided by such a threat is our unwavering — and outdated — belief in the famed strength of our institutions. ...

How Pro-competition Rules Can Benefit Consumers: A Look at the Wireless Industry

From Guy Rolnik at ProMarket:

How Pro-competition Rules Can Benefit Consumers: A Look at the Wireless Industry: During the summer of 2014, SoftBank-controlled Sprint abandoned its plans to merge with T-Mobile. The alleged reason was antitrust regulators who “would block a deal in an industry that is dominated by just a few large players.”

Following a meeting of SoftBank’s CEO Masayoshi Son with Donald Trump last December, both Sprint and T-Mobile signaled that the merger might still happen. ...

How would a T-Mobile-Sprint merger affect U.S. consumers?” A new Stigler Center working paper, “Political Determinants of Competition in the Mobile Telecommunication Industry,” by Mara Faccio and Luigi Zingales may help to answer this question. ...

The takeaway

... A lax antitrust enforcement can cost American consumers billions of dollars every year.

Trump's Alternative Facts about the Economy

Me, at MoneyWatch:

What if “alternative facts” spread to economic data?: Donald Trump’s inability to accept news that disagrees with the view he has of himself and what his administration can accomplish was on display on his first two days as president. He, and those speaking on his behalf, claimed falsely that “This was the largest audience ever to witness an inauguration, period, both in person and around the globe,” and then doubled down even when presented with solid evidence it wasn’t true. 

Americans were told the new administration relies on “alternative facts,” which seems to mean whatever numbers it can come up with to support Mr. Trump’s claims.

What worries me, among other things, is how the president will react to bad news about the economy. ...

Paul Krugman: Things Can Only Get Worse

How will Trump handle bad news?:

Things Can Only Get Worse: ...Donald Trump ... spent his first full day in office having a temper tantrum, railing against accurate reports of small crowds at his inauguration..., how is he going to react to disappointing numbers about things that actually matter? ... How will a man who evidently can’t handle even the smallest blow to his ego deal with it?

Let’s talk about the predictable bad news.

First, the economy..., unemployment probably can’t fall much from here... And since bad stuff does happen, there’s a strong likelihood that unemployment will be higher four years from now than it is today.

Oh, and Trumpist budget deficits will probably widen the trade deficit, so that manufacturing employment in particular is likely to fall, not rise.

A second front on which things will almost surely get worse is health care. ...

On a third front, crime, the future direction is unclear. ... Violent crime is, in fact, way down... Crime could, I suppose, fall further, but it could also rise. What we do know is that the Trump administration can’t pacify America’s urban war zones, because those zones don’t exist.

So how will Mr. Trump handle the bad news...? That’s obvious: He’ll deny reality, the way he always does when it threatens his narcissism. But will his supporters go along with his fantasy?

They might. After all, they blocked out the good news from the Obama era. Two-thirds of Trump voters believe, falsely, that the unemployment rate rose under Obama. (Three-quarters believe George Soros is paying people to protest Mr. Trump.) Only 17 percent of self-identified Republicans are aware that the number of uninsured is at a historic low. Most people thought crime was rising even when it was falling. So maybe they will block out bad news in the Trump years. ...

On top of that, Mr. Trump made big promises during the campaign, so the risk of disillusionment is especially high.

Will he respond to bad news by accepting responsibility and trying to do better? Will he renounce his fortune and enter a monastery? That seems equally likely.

No, the insecure egomaniac-in-chief will almost surely deny awkward truths, and berate the media for reporting them. And — this is what worries me — it’s very likely that he’ll try to use his power to shoot the messengers. ...

You may have thought that last weekend’s temper tantrum was bad. But there’s much, much worse to come.

Attacking Economics is a Diversionary Tactic

Simon Wren-Lewis:

6.  ... In terms of conventional monetary and fiscal policy, academic economists got the response to the crisis right, and policymakers got it very wrong. Central banks, full of economists, relaxed monetary policy to its full extent. They created additional money, rightly ignoring those who said it would bring rapid inflation. Many economists, almost certainly a majority, supported fiscal stimulus for as long as interest rates were stuck at their lower bound, were ignored by policymakers in 2010, and have again been proved right.

7.  So given all this, why do some continue to attack economists? On the left there are heterodox economists who want nothing less than revolution, the overthrow of mainstream economics. It is the same revolution that their counterparts were saying was about to happen in the early 1970s when I learnt my first economics. They want people to believe that the bowdlerised version of economics used by neoliberals to support their ideology is in fact mainstream economics.

8.  The right on the other hand is uncomfortable when evidence based economics conflicts with their politics. Their response is to attack economists. This is not a new phenomenon, as I showed in connection with the famous letter from 364 economists. With austerity they cherry picked the minority of economists who supported it, and then implemented a policy that even some of them would have disagreed with. (Rogoff did not support the cuts in public investment in 2010/11 which did most of the damage to the UK economy.) The media did the rest of the job for them by hardly ever talking about the majority of economists who did not support austerity.

9.  The economic costs of Brexit is just the latest example. Critics have focused on the most uncertain and least important predictions about Brexit, made only by a few, to attack all Brexit analysis. The fact that this prediction involved an unconditional macro forecast, while the assessment made by a number of groups about the long term cost involves a conditional projection based largely on trade equations, seems to have completely escaped the critics. More important, the fact that the predicted depreciation in sterling happened, and is in the process of already causing a large drop in living standards, is completely ignored by these critics.

10.  Attacking economists over Brexit is designed to discredit those who point out awkward and uncomfortable truths. Continuing to attack economists over not predicting the financial crisis, but failing to ignore their successes, has the effect of distracting people from the group who actually caused this crisis, and the fact that very little has been done to prevent a similar crisis happening in the future.

Disillusioned in Davos

Larry Summers:

Disillusioned in Davos: Edmund Burke famously cautioned that “the only thing necessary for the triumph of evil is for good men to do nothing.” I have been reminded of Burke’s words as I have observed the behavior of US business leaders in Davos over the last few days. They know better but in their public rhetoric they have embraced and enabled our new President and his policies.

I understand and sympathize with the pressures they feel. ... Businesses who get on the wrong side of the new President have lost billions of dollars of value in sixty seconds because of a tweet. ...

Yet I am disturbed by (i) the spectacle of financiers who three months ago were telling anyone who would listen that they would never do business with a Trump company rushing to praise the new Administration (ii) the unwillingness of business leaders who rightly take pride in their corporate efforts to promote women and minorities to say anything about Presidentially sanctioned intolerance (iii) the failure of the leaders of global companies to say a critical word about US efforts to encourage the breakup of European unity and more generally to step away from underwriting an open global system (iv) the reluctance of business leaders who have a huge stake in the current global order to criticize provocative rhetoric with regard to China, Mexico or the Middle East (v) the willingness of too many to praise Trump nominees who advocate blatant protection merely because they have a business background.

I have my differences with the new Administration’s economic policies and suspect the recent market rally and run of economic statistics is a sugar high. Reasonable people who I respect differ and time will tell. My objection is not to disagreements over economic policy. It is to enabling if not encouraging immoral and reckless policies in other spheres that ultimately bear on our prosperity. Burke was right. It is a lesson of human experience whether the issue is playground bullying, Enron or Europe in the 1930s that the worst outcomes occur when good people find reasons to accommodate themselves to what they know is wrong. That is what I think happened much too often in Davos this week.

Nobel Laureates Give Advice to President Donald Trump

Paul Krugman: Donald the Unready

The Trump administration's readiness and fitness for office:

Donald the Unready, by Paul Krugman, NY Times: Betsy DeVos, whom Donald Trump has nominated as education secretary, doesn’t know basic education terms, doesn’t know about federal statutes governing special education, but thinks school officials should carry guns to defend against grizzly bears.

Monica Crowley, selected as deputy national security adviser, withdrew after it was revealed that much of her past writing was plagiarized. ...

Meanwhile Rex Tillerson, selected as secretary of state, casually declared that America would block Chinese access to bases in the South China Sea, apparently unaware that he was in effect threatening to go to war if China called his bluff.

Do you see a pattern here?...

The ... typical Trump nominee, in everything from economics to diplomacy to national security, is ethically challenged, ignorant about the area of policy he or she is supposed to manage and deeply incurious. Some, like Michael Flynn, Mr. Trump’s choice as national security adviser, are even as addicted as their boss to internet conspiracy theories. This isn’t a team that will compensate for the commander in chief’s weaknesses..., it’s a team that will amplify them. ...

If you want a model for how the Trump-Putin administration is likely to function (or malfunction), it’s helpful to recall what happened during the Bush-Cheney years.

People tend to forget the extent to which the last Republican administration was also characterized by cronyism, the appointment of unqualified but well-connected people to key positions. ... Remember “Brownie, you’re doing a heck of a job”? And it caused very real damage..., Katrina was the event that finally revealed the costs of Bush-era cronyism to all.

Crises of some kind are bound to occur on any president’s watch. They appear especially likely given the crew that’s coming in and their allies in Congress...

Real crises need real solutions. They can’t be resolved with a killer tweet, or by having your friends in the F.B.I. or the Kremlin feed the media stories that take your problems off the front page. What the situation demands are knowledgeable, levelheaded people in positions of authority.

But as far as we know, almost no people meeting that description will be in the new administration, except possibly the nominee for defense secretary — whose nickname just happens to be “Mad Dog.”

So there you have it: an administration unprecedented in its corruption, but also completely unprepared to govern. It’s going to be terrific, let me tell you.

Economy under Trump: Plan for the Worst

Larry Summers:

Economy under Trump: Plan for the worst: ...There has not been so much anxiety about U.S. global leadership or about the sustainability of market-oriented democracy at any time in the past half-century. Yet with markets not only failing to swoon as predicted, but actually rallying strongly after both the Brexit vote and Trump’s victory, the animal spirits of business are running hot.

Many chief executives are coming to believe that, whatever the president-elect’s infirmities, the strongly pro-business attitude of his administration, combined with Republican control of Congress, will lead to a new era of support for business, along with much lower taxes and regulatory burdens. This in turn, it is argued, will drive major increases in investment and hiring, setting off a virtuous circle of economic growth and rising confidence.

While it has to be admitted that such a scenario looks more plausible today than it did on Election Day, I believe that it is very much odds-off. More likely is that the current run of happy markets and favorable sentiment will be seen, with the benefit of hindsight, as a sugar high. John Maynard Keynes was right to emphasize the great importance of animal spirits, but other economists have also been right to emphasize that it is political and economic fundamentals that dominate in the medium and long terms. History is replete with examples of populist authoritarian policies that produced short-run benefits but poor long-run outcomes. ...

The Economics of the Affordable Care Act

Dean Baker at INET:

The Economics of the Affordable Care Act: The Affordable Care Act (ACA), which President-elect Donald Trump and the Republican-controlled Congress have vowed to repeal, was crafted to overcome two basic problems in the provision of health care... First, the costs are incredibly skewed, with just 10 percent of patients accounting for almost two thirds of the nation’s healthcare spending. The other problem is asymmetric information: Patients have far more knowledge about the state of their own health than insurers do. This means that the people with the largest costs are the ones most likely to sign up for insurance. These two problems make it impossible to get to universal coverage under a purely market-based system. ...

Covering the least costly 90 percent of patients is manageable, but the cost of covering the least healthy 10 percent is exorbitant. ...

The ACA gets around this problem by requiring that everyone buy insurance — a mandate that allows people with serious health problems to get insurance at a reasonably affordable price. Since many people cannot afford an insurance policy even if it’s based on average costs, the ACA also provided subsidies to low and moderate income people. It pays for the subsidies primarily through a tax on the wealthiest households, those with incomes over $200,000.

Thus far, the ACA has actually worked better than expected in most respects. ...

Insofar as the ACA has run into problems, those have been attributable to too few healthy people in the health care exchanges, and too little competition among insurers. Many commentators have wrongly blamed the problem in the exchanges on a failure of young healthy people to sign up for insurance. This is not the cause of the problem, since more people are getting insured than had been projected. The reason fewer healthy people are showing up on the exchanges is that fewer employers dropped insurance than had been projected. ... By continuing to provide insurance for their workers despite the ACA, employers are effectively keeping healthy people out of the exchanges.

The other problem with the exchanges has been limited competition, as many insurers have dropped out after the first few years. The loss of competition has meant higher prices. ...

One way to make insurance more affordable would be to reduce the costs of the health care system as a whole. Americans pay twice as much per person as people in other wealthy countries, with few obvious benefits in terms of outcomes. But such cost cutting would mean reducing the incomes of drug companies, doctors, and insurance companies — the big winners under the current system. It seems unlikely the Republicans will go this route. They are more likely to restore a version of the pre-ACA situation, in which many more people are uninsured and most workers know that their insurance is only as secure as their job.

Paul Krugman: With All Due Disrespect

People are saying that Donald Trump is an illegitimate president:

With All Due Disrespect, by Paul Krugman, NY Times: As a young man, Congressman John Lewis, who represents most of Atlanta, literally put his life on the line in pursuit of justice. As a key civil rights leader, he endured multiple beatings. Most famously, he led the demonstration that came to be known as Bloody Sunday, suffering a fractured skull at the hands of state troopers. Public outrage over that day’s violence helped lead to the enactment of the Voting Rights Act.

Now Mr. Lewis says that he won’t attend the inauguration of Donald Trump, whom he regards as an illegitimate president.

As you might expect, this statement provoked a hysterical, slanderous reaction from the president-elect – who, of course, got his start in national politics by repeatedly, falsely questioning President Obama’s right to hold office. ...

But let’s not talk about Mr. Trump’s ravings. Instead, let’s ask... Is it O.K., morally and politically, to declare the man about to move into the White House illegitimate?

Yes, it is. In fact, it’s an act of patriotism.

By any reasonable standard, the 2016 election was deeply tainted. It wasn’t just the effects of Russian intervention...; Hillary Clinton would almost surely have won if the F.B.I. hadn’t conveyed the false impression that it had damaging new information about her, just days before the vote. This was grotesque, delegitimizing malfeasance, especially in contrast with the agency’s refusal to discuss the Russia connection.

Was there even more to it? Did the Trump campaign actively coordinate with a foreign power? Did a cabal within the F.B.I. deliberately slow-walk investigations into that possibility? Are the lurid tales about adventures in Moscow true? We don’t know... Even given what we do know, however, no previous U.S. president-elect has had less right to the title. So why shouldn’t we question his legitimacy? ...

Now, anyone questioning Mr. Trump’s legitimacy will be accused of being unpatriotic — because that’s what people on the right always say about anyone who criticizes a Republican president. (Strangely, they don’t say this about attacks on Democratic presidents.) But patriotism means standing up for your country’s values, not pledging personal allegiance to Dear Leader.

No, we shouldn’t get into the habit of delegitimizing election results we don’t like. But this time really is exceptional...

So let’s be thankful that John Lewis had the courage to speak out. It was the patriotic, heroic thing to do. And America needs that kind of heroism, now more than ever.

Blind Trust in Donald Trump Could Be Costly

I have a new column:

Blind Trust in Donald Trump Could Be Costly: Donald Trump has refused to divest himself of his business interests before being inaugurated as president and has instead said he would hand control over to his sons. However, as the director of the Office of Government Ethics, Walter Shaub, Jr., said in a letter last December, a point he reiterated after Trump announced his plan to turn control over to his sons last week, “Transferring operational control of a company to one's children would not constitute the establishment of a qualified blind trust, nor would it eliminate conflicts of interest."

In response, Trump argues that his numerous conflicts of interest won’t affect his decisions as president. But there have already been instances where meetings with foreign leaders had a clear connection to his business pursuits, his nominations for important government positions show a strong bias toward favoring business interests, and his proposed legislative agenda, while touted as a populist, contains the standard Republican pro-business slate of policies. The stage is set for those coming into power to use their government offices to enrich themselves, and if they do, it has the potential to undermine US competitiveness and reduce long-term economic growth. ...

Infrastructure Delusions

Paul Krugman:

Ben Bernanke has a longish post about fiscal policy in the Caligula Trump era. It’s not the most entertaining read; perhaps because of the political fraughtness of the moment, Bernanke has reverted a bit to Fedspeak. But there’s some solid insight, a lot of it pretty much in line with what I have been saying.

Notably, Bernanke, like yours truly, argues that the fiscal-stimulus case for deficit spending has gotten much weaker, but there’s still a case for borrowing to build infrastructure...

But he gently expresses doubt that this kind of thing is actually going to happen...

Let me be less gentle: there will be no significant public investment program, for two reasons.

First, Congressional Republicans have no interest in such a program. They’re hell-bent on depriving millions of health care and cutting taxes at the top; they aren’t even talking about public investment...

But this then raises the obvious question: who really believes that this crew is going to come up with a serious plan? Trump has no policy shop, nor does he show any intention of creating one; he’s too busy tweeting about perceived insults from celebrities, and he’s creating a cabinet of people who know nothing about their responsibilities. Any substantive policy actions will be devised and turned into legislation by Congressional Republicans who, again, have zero interest in a public investment program.

So investors betting on a big infrastructure push are almost surely deluding themselves. We may see some conspicuous privatizations, especially if they come with naming opportunities: maybe putting in new light fixtures will let him rename Hoover Dam as Trump Dam? But little or no real investment is coming.

Paul Krugman: Donald Trump’s Medical Delusions

Repeal and hope to blame the Democrats:

Donald Trump’s Medical Delusions, by Paul Krugman, NY Times: ...Some Republicans appear to be realizing that their long con on Obamacare has reached its limit. Chanting “repeal and replace” may have worked as a political strategy, but coming up with a conservative replacement for the Affordable Care Act — one that doesn’t take away coverage from tens of millions of Americans — isn’t easy. In fact, it’s impossible.

But it seems that nobody told Mr. Trump. In Wednesday’s news conference, he asserted that he would submit a replacement plan, “probably the same day” as Obamacare’s repeal — “could be the same hour” — that will be “far less expensive and far better”; also, with much lower deductibles.

This is crazy, on multiple levels.

The truth is that even if Republicans were settled on the broad outlines of a health care plan — the way Democrats were when President Obama took office — turning such an outline into real legislation is a time-consuming process.

In any case, however, the G.O.P. has spent seven years denouncing the Affordable Care Act without ever producing even the ghost of an alternative. That’s not going to change in the next few weeks, or ever. For the anti-Obamacare campaign has always been based on lies that can’t survive actual repeal. ...

Republicans don’t have a health care plan, but they do have a philosophy — and it’s all about less. Less regulation, so that insurers can turn you down if you have a pre-existing condition. Less government support, so if you can’t afford coverage, too bad. And less coverage in general: Republican ideas about cost control are all about “skin in the game,” requiring people to pay more out of pocket (which somehow doesn’t stop them from complaining about high deductibles).

Implementing this philosophy would deliver a big windfall to the wealthy, who would get a huge tax cut from Obamacare repeal...

But the idea that it would lead to big cost savings over all is pure fantasy, and it would have a devastating effect on the millions who have gained coverage during the Obama years.

As I said, it looks as if some Republicans realize this. They may go ahead with repeal-but-don’t-replace anyway, but they’ll probably do it because they believe they can find some way to blame Democrats for the ensuing disaster.

Mr. Trump, on the other hand, gives every impression of having no idea whatsoever what the issues are. But then, is there any area of policy where he does?

Making America's Risk of a Financial Crisis Great Again

Me, at MoneyWatch:

Making America's risk of a financial crisis great again: In the decades prior to the financial crisis, the U.S. underwent a period of financial deregulation under the assumption that market forces would prevent financial institutions from taking excessive risk. In particular, the shadow banking system -- financial institutions that don’t operate as traditional banks -- was lightly regulated. 

However, as Alan Greenspan admitted in testimony on Capital Hill after the financial crisis, that assumption turned out to be wrong. The traditional banking sector, which is highly regulated, weathered the storm fairly well, but the shadow banking system came crashing down -- and brought the economy with it.

Nevertheless, Republicans are determined to roll back financial regulation, particularly measures implemented under the Dodd-Frank financial reform package passed in the aftermath of the financial crisis. I believe that’s a mistake. ...

Here's What Really Caused the Housing Crisis

Me, at MoneyWatch:

Here's what really caused the housing crisis: One story of the housing crisis goes like this: Government programs that helped low-income households purchase houses led to widespread defaults on the subprime loans they held, sparking the entire the financial meltdown. 

For example, Lawrence Kudlow and Stephen Moore, both of whom have been named as economic advisers to Donald Trump, argue that the financial crisis and recession were caused by policies Bill Clinton implemented that were designed to stop discrimination in housing loans, known as “red-lining,” in poor areas. In particular, they argue that the Community Reinvestment Act (CRA), legislated in 1977, is to blame:

“Under Clinton’s Housing and Urban Development (HUD) secretary, Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in ‘credit-deprived’ areas. Banks were effectively rewarded for throwing out sound underwriting standards and writing loans to those who were at high risk of defaulting.

What’s more, in the Clinton push to issue home loans to lower income borrowers, Fannie Mae and Freddie Mac made a common practice to virtually end credit documentation, low credit scores were disregarded, and income and job history was also thrown aside. The phrase “subprime” became commonplace. What an understatement. … Tragically, when prices fell, lower-income folks who really could not afford these mortgages under normal credit standards, suffered massive foreclosures and personal bankruptcies.”

However..., that isn’t what happened. ...

There Will Be No Obamacare Replacement

Paul Krugman:

There Will Be No Obamacare Replacement: You may be surprised at the evident panic now seizing Republicans, who finally — thanks to James Comey and Vladimir Putin — are in a position to do what they always wanted, and kill Obamacare. How can it be that they’re not ready with a replacement plan?

That is, you may be surprised if you spent the entire Obama era paying no attention to the substantive policy issues — which is a pretty good description of the Republicans, now that you think about it.

From the beginning, those of us who did think it through realized that anything like universal coverage could only be achieved in one of two ways: single payer, which was not going to be politically possible, or a three-legged stool of regulation, mandates, and subsidies. Here’s how I put it exactly 7 years ago...

It’s actually amazing how thoroughly the right turned a blind eye to this logic, and some — maybe even a majority — are still in denial. But this is as ironclad a policy argument as I’ve ever seen; and it means that you can’t tamper with the basic structure without throwing tens of millions of people out of coverage. You can’t even scale back the spending very much — Obamacare is somewhat underfunded as is.

Will they decide to go ahead anyway, and risk opening the eyes of working-class voters to the way they’ve been scammed? I have no idea. But if Republicans do end up paying a big political price for their willful policy ignorance, it couldn’t happen to more deserving people.

Paul Krugman: Deficits Matter Again

Republicans are planning to "blow up the deficit mainly by cutting taxes on the wealthy":

Deficits Matter Again, by Paul Krugman, NY Times: Not long ago prominent Republicans like Paul Ryan ... liked to warn in apocalyptic terms about the dangers of budget deficits, declaring that a Greek-style crisis was just around the corner. But ... tax cuts ... would, according to their own estimates, add $9 trillion in debt over the next decade. Hey, no problem. ...

All that posturing about the deficit was obvious flimflam, whose purpose was to hobble a Democratic president... But running big deficits is no longer harmless, let alone desirable.

The way it was: Eight years ago, with the economy in free fall, I wrote that we had entered an era of “depression economics,” in which the usual rules of economic policy no longer applied... In particular, deficit spending was essential to support the economy, and attempts to balance the budget would be destructive.

This diagnosis ... was ... always conditional, applying only to an economy far from full employment. That was the kind of economy President Obama inherited; but the Trump-Putin administration will, instead, come into power at a time when full employment has been more or less restored. ...

What changes once we’re close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment.

Now, government borrowing can still be justified if it serves an important purpose..., infrastructure is still a very good idea... But while candidate Trump talked about increasing public investment, there’s no sign at all that congressional Republicans are going to make such investment a priority.

No, they’re going to blow up the deficit mainly by cutting taxes on the wealthy. And that won’t do anything significant to boost the economy or create jobs. In fact, by crowding out investment it will somewhat reduce long-term economic growth. Meanwhile, it will make the rich richer, even as cuts in social spending make the poor poorer and undermine security for the middle class. But that, of course, is the intention. ...

But back to deficits: the crucial point is not that Republicans were hypocritical. It is, instead, that their hypocrisy made us poorer. They screamed about the evils of debt at a time when bigger deficits would have done a lot of good, and are about to blow up deficits at a time when they will do harm.

Who Will Donald Trump Turn Out To Be?

Brad DeLong:

Who Will Donald Trump Turn Out To Be?: We have very little indication of what policies Donald Trump will try to follow or even what kind of president he will be. The U.S. press corps did an extraordinarily execrable job in covering the rise of Trump--even worse than it usually does. Even the most sophisticated of audiences--those interested in asset prices and how they are affected by government policies--have very little insight into Trump's views or those of his key associates.

Will Donald Trump turn out to be the equivalent of Ronald Reagan--someone who comes into office from the world of celebrity with a great many unfixed policy intuitions, but no consistent plan? Will he turn out to be the equivalent of Silvio Berlusconi, who regards the presidency as an opportunity to wreak his kleptocratic will on the country? Or will he turn out to be someone worse than Berlusconi?

I would say that Trump could be any of four figures...

Paul Krugman: The Age of Fake Policy

Don't let Trump distract you from his real agenda:

The Age of Fake Policy, by Paul Krugman, NY Times: On Thursday, at a rough estimate, 75,000 Americans were laid off or fired by their employers. Some of those workers will find good new jobs, but many will end up earning less, and some will remain unemployed for months or years.

If that sounds terrible to you..., I’m just assuming that Thursday was a normal day in the job market. ... In an average month, there are 1.5 million “involuntary” job separations (as opposed to voluntary quits), or 75,000 per working day. Hence my number. ...

Real policy ... involves large sums of money and affects broad swathes of the economy. Repealing the Affordable Care Act ... would certainly qualify.

Consider, by contrast, the story that dominated several news cycles a few weeks ago: Donald Trump’s intervention to stop Carrier from moving jobs to Mexico. Some reports say that 800 U.S. jobs were saved; others suggest that the company will simply replace workers with machines. But even accepting the most positive spin, for every worker whose job was saved in that deal, around a hundred others lost their jobs the same day. ...

This was fake policy — a show intended to impress the rubes, not to achieve real results.

The same goes for the hyping of Ford’s decision to add 700 jobs in Michigan...

The incoming administration’s incentive to engage in fake policy is obvious... Mr. Trump won overwhelming support from white working-class voters, who believed that he was on their side. Yet his real policy agenda, aside from the looming trade war, is standard-issue modern Republicanism: huge tax cuts for billionaires and savage cuts to public programs, including those essential to many Trump voters. ...

Still, none of this would work without the complicity of the news media. ...

Sorry, folks, but headlines that repeat Trump claims about jobs saved, without conveying the essential fakeness of those claims, are a betrayal of journalism. This is true even if ... the articles eventually, quite a few paragraphs in, get around to debunking the hype: many if not most readers will take the headline as validation of the claim.

And it’s even worse if headlines inspired by fake policy crowd out coverage of real policy.

It is, I suppose, possible that fake policy will eventually produce a media backlash — that news organizations will begin treating stunts like the Carrier episode with the ridicule they deserve. But nothing we’ve seen so far inspires optimism.

Trying to Remain Positive

Robert Stavins:

Trying to Remain Positive: With inauguration day in the United States just two weeks away, it is difficult to harbor optimism about what the Trump presidency will mean for this country and for the world in realms ranging from economic progress to national security to personal liberty... In the wake of the election, expectations are no better, including in the environmental realm... And since then, the President-elect’s announced nominations for key positions in the administration have probably eliminated whatever optimism some progressives may have been harboring.

Remarkably, the least worrisome development in regard to anticipated climate change policy may be the nomination of Rex Tillerson to become U.S. Secretary of State. Two months ago it would have been inconceivable to me that I would write this about the CEO of Exxon-Mobil taking over the State Department (and hence the international dimensions of U.S. climate change policy). But, think about the other likely candidates. And unlike many of the other top nominees, Mr. Tillerson is at least an adult, and – in the past (before the election) – he had led his company to reverse course and recognize the scientific reality of human-induced climate change (unlike the President-elect), support the use of a carbon tax when and if the U.S. puts in place a meaningful national climate policy, and characterize the Paris Climate Agreement as “an important step forward by world governments in addressing the serious risks of climate change.”

It’s fair to say that it is little more than damning with faint praise to characterize this pending appointment as “the least worrisome development in regard to climate change policy,” but the reality remains. ... Of course, whether Mr. Tillerson will maintain and persevere with his previously stated views on climate change is open to question. And if he does, can he succeed in influencing Oval Office policy when competing with Scott Pruitt, Trump’s pick to run EPA, not to mention Rick Perry, Trump’s bizarre choice to become Secretary of Energy?

In the face of all this (and much else), is it possible to offer any statement of optimism or at least hope? The answer may be found in the reality that U.S. policy – in many issue areas – consists of much more than the policies of the Federal government. In a variety of policy realms, the states play an exceptionally important role. One might not normally think about this in the context of addressing a global commons problem, such as climate change, but these are not normal times.

And so I will try to rescue myself from my current mental state – at least temporarily – by focusing today on policy developments in the State of California. To do this, I offer an op-ed I recently wrote with Professor Lawrence Goulder of Stanford University, which was published in the Sacramento Bee a week before the November election. Good policy developments at the state level are, of course, even more important now than they were then. ...

Paul Krugman: America Becomes a Stan

"This debacle didn’t come out of nowhere":

America Becomes a Stan, by Paul Krugman, NY Times: In 2015 the city of Ashgabat, the capital of Turkmenistan, was graced with a new public monument: a giant gold-plated sculpture portraying the country’s president on horseback. This may strike you as a bit excessive. But cults of personality are actually the norm in the “stans,” the Central Asian countries that emerged after the fall of the Soviet Union, all of which are ruled by strongmen who surround themselves with tiny cliques of wealthy crony capitalists.

Americans used to find the antics of these regimes, with their tinpot dictators, funny. But who’s laughing now?

We are, after all, about to hand over power to a man who has spent his whole adult life trying to build a cult of personality around himself; remember, his “charitable” foundation spent a lot of money buying a six-foot portrait of its founder. ... So we can expect lots of self-aggrandizement once he’s in office. I don’t think it will go as far as gold-plated statues, but really, who knows?

Meanwhile, with only a couple of weeks until Inauguration Day, Donald Trump has done nothing substantive to reduce the unprecedented — or, as he famously wrote on Twitter, “unpresidented” — conflicts of interest created by his business empire. Pretty clearly, he never will — in fact, he’s already in effect using political office to enrich himself...

This means that Mr. Trump will be in violation of the spirit, and arguably the letter, of the Constitution’s emoluments clause... But who’s going to hold him accountable? Some prominent Republicans are already suggesting that, rather than enforcing the ethics laws, Congress should simply change them to accommodate the great man.

And the corruption won’t be limited to the very top: The new administration seems set to bring blatant self-dealing into the center of our political system..., assembling a team of cronies, choosing billionaires with obvious, deep conflicts of interest for many key positions in his administration.

In short, America is rapidly turning into a stan. ...

But this debacle didn’t come out of nowhere...: an increasingly radical G.O.P., willing to do anything to gain and hold power, has been undermining our political culture for decades. ...

The only question now is whether the rot has gone so deep that nothing can stop America’s transformation into Trumpistan. One thing is for sure: It’s destructive as well as foolish to ignore the uncomfortable risk, and simply assume that it will all be O.K. It won’t.

Can Trump Grow the Economy as Much as He Promises?

I have a new post at CBS MoneyWatch:

Commentary: Can Trump grow the economy as much as he promises?: File this under promises that will be next to impossible to keep: President-elect Donald Trump’s vow to create 25 million new jobs over the next decade and boost economic growth to 3.5 percent annually, and perhaps as high as 4 percent. ...

Paul Krugman: And the Trade War Came

Trade war. What is it good for?:

And the Trade War Came, by Paul Krugman, NY Times: Donald Trump got ... overwhelming support from white working-class voters. These voters trusted his promise to bring back good manufacturing jobs while disbelieving his much more credible promise to take away their health care. They have a rude shock coming.

But white workers aren’t alone in their gullibility: Corporate America is still in denial about the prospects for a global trade war, even though protectionism was a central theme of the Trump campaign. ... The ... relevant legislation gives the occupant of the White House remarkable leeway should he choose to go protectionist. ...

Oh, and don’t expect attempts by experts to point out the holes in this view ... to make any impression. Members of the Trump team believe that all criticism of their economic ideas reflects a conspiracy among think tanks that are out to undermine them. ...

There will be retaliation, big time. When it comes to trade, America is not that much of a superpower...

And retaliation isn’t the whole story; there’s also emulation. Once America decides that the rules don’t apply, world trade will become a free-for-all.

Will this cause a global recession? Probably not — those risks are, I think, exaggerated. ...

What the coming trade war will do, however, is cause a lot of disruption. Today’s world economy is built around “value chains” that spread across borders: your car or your smartphone contain components manufactured in many countries, then assembled or modified in many more. A trade war would force a drastic shortening of those chains, and quite a few U.S. manufacturing operations would end up being big losers, just as happened when global trade surged in the past.

An old joke tells of a motorist who runs over a pedestrian, then tries to fix the damage by backing up — and runs over the victim a second time. Well, the effects of the Trumpist trade war on U.S. workers will be a lot like that.

Given these prospects, you might think that someone will persuade the incoming administration to rethink its commercial belligerence. That is, you might think that if you have paid no attention to the record and character of the protectionist in chief. Someone who won’t take briefings on national security because he’s “like, a smart person” and doesn’t need them isn’t likely to sit still for lessons on international economics.

No, the best bet is that the trade war is coming. Buckle your seatbelts.

Paul Krugman: Populism, Real and Phony

 "Trumpism ... is anything but populist":

Populism, Real and Phony, by Paul Krugman, NY Times: Authoritarians with an animus against ethnic minorities are on the march across the Western world. ... But what should we call these groups? Many reporters are using the term “populist,” which seems both inadequate and misleading..., are the other shared features of this movement — addiction to conspiracy theories, indifference to the rule of law, a penchant for punishing critics — really captured by the “populist” label?

Still, the European members of this emerging alliance — an axis of evil? — have offered some real benefits to workers. ... Trumpism is, however, different..., the emerging policy agenda is anything but populist.

All indications are that we’re looking at huge windfalls for billionaires combined with savage cuts in programs that serve not just the poor but also the middle class. And the white working class, which provided much of the 46 percent Trump vote share, is shaping up as the biggest loser. ...

Both his pick as budget director and his choice to head Health and Human Services want to dismantle the Affordable Care Act and privatize Medicare. His choice as labor secretary is a fast-food tycoon who has been a vociferous opponent both of Obamacare and of minimum wage hikes. And House Republicans have already submitted plans for drastic cuts in Social Security, including a sharp rise in the retirement age. ...

In other words..., European populism is at least partly real, while Trumpist populism is turning out to be entirely fake, a scam sold to working-class voters who are in for a rude awakening. Will the new regime pay a political price?

Well, don’t count on it..., you know that there will be huge efforts to shift the blame. These will include claims that the collapse of health care is really President Obama’s fault; claims that the failure of alternatives is somehow the fault of recalcitrant Democrats; and an endless series of attempts to distract the public.

Expect more Carrier-style stunts that don’t actually help workers but dominate a news cycle. Expect lots of fulmination against minorities. And it’s worth remembering what authoritarian regimes traditionally do to shift attention from failing policies, namely, find some foreigners to confront. Maybe it will be a trade war with China, maybe something worse.

Opponents need to do all they can to defeat such strategies of distraction. Above all, they shouldn’t let themselves be sucked into cooperation that leaves them sharing part of the blame. The perpetrators of this scam should be forced to own it.

Jeb Hensarling and the Allure of Economism

James Kwak:

Jeb Hensarling and the Allure of Economism: The Wall Street Journal has a profile up on Mike Crapo and Jeb Hensarling, the key committee chairs (likely in Crapo’s case) who will repeal or rewrite the Dodd-Frank Wall Street Reform and Consumer Protection Act. It’s clear that both are planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks (which, together, make up most of the act).

Hensarling is about as clear a proponent of economism—the belief that the world operates exactly as described in Economics 101 models—as you’re likely to find. He majored in economics at Texas A&M, where one of his professors was none other than Phil Gramm. Hensarling described his college exposure to economics this way:

“Even though I had grown up as a Republican, I didn’t know why I was a Republican until I studied economics. I suddenly saw how free-market economics provided the maximum good to the maximum number, and I became convinced that if I had an opportunity, I’d like to serve in public office and further the cause of the free market.”

This is not a unique story...

Introductory economics, and particularly the competitive market model, can be seductive that way. The models are so simple, logical, and compelling that they seem to unlock a whole new way of seeing the world. And, arguably, they do: there are real insights you can gain from a working understanding of supply and demand curves.

The problem, however, is that the people ... forget that the power of a theory in the abstract bears no relationship to its accuracy in practice. ...

Hensarling, who likes to quote market principles in the abstract, doesn’t appear to have moved on much from Economics 101. ... This ritual invocation of markets ignores the fact that there is no way to design a contemporary financial system that even remotely resembles the textbook competitive market: perfect information, no barriers to entry, a large number of suppliers such that no supplier can affect the market price, etc. ...

Regulatory policy that presumes well-functioning markets that don’t exist is unlikely to work well in the real world. Actually, Bill Clinton and George W. Bush tried that already, and we got the financial crisis. But to people who believe in economism, theory can never be disproved by experience. Hensarling is “always willing to compromise policies to advance principles,” he actually said to the Journal. That’s a useful trait in an ideologue. It’s frightening in the man who will write the rules for our financial system.

Paul Krugman: How Republics End

"The process of destroying democratic substance while preserving forms is already underway":

How Republics End, by Paul Krugman, NY Times: ...Lately I’ve been reading a lot about the ancient world. Initially..., I was doing it for entertainment and as a refuge from news that gets worse with each passing day. But I couldn’t help noticing the contemporary resonances of some Roman history — specifically, the tale of how the Roman Republic fell.

Here’s what I learned: Republican institutions don’t protect against tyranny when powerful people start defying political norms. And tyranny, when it comes, can flourish even while maintaining a republican facade.

On the first point: Roman politics involved fierce competition among ambitious men. But ... “However important it was for an individual to win fame and add to his and his family’s reputation, this should always be subordinated to the good of the Republic … no disappointed Roman politician sought the aid of a foreign power.”

America used to be like that, with prominent senators declaring that we must stop “partisan politics at the water’s edge.” But now we have a president-elect who openly asked Russia to help smear his opponent..., the good of the republic be damned.

And what happens to the republic as a result? Famously..., the transformation of Rome from republic to empire never happened. Officially, imperial Rome was still ruled by a Senate that just happened to defer to the emperor ... on everything that mattered. We may not go down exactly the same route..., but the process of destroying democratic substance while preserving forms is already underway. ...

Why is this happening? ... And let’s be clear: This is a Republican story, not a case of “both sides do it.” ..., what directly drives the attack on democracy, I’d argue, is simple careerism on the part of people who are apparatchiks within a system insulated from outside pressures by gerrymandered districts, unshakable partisan loyalty, and lots and lots of plutocratic financial support.

For such people, toeing the party line and defending the party’s rule are all that matters. ...

One thing all of this makes clear is that the sickness of American politics didn’t begin with Donald Trump, any more than the sickness of the Roman Republic began with Caesar. The erosion of democratic foundations has been underway for decades, and there’s no guarantee that we will ever be able to recover.

But if there is any hope of redemption, it will have to begin with a clear recognition of how bad things are. American democracy is very much on the edge.

Paul Krugman: Useful Idiots Galore

"There were a lot of useful idiots this year, and they made the election hack a success":

Useful Idiots Galore, by Paul Krugman, NY Times: On Wednesday an editorial in The Times described Donald Trump as a “useful idiot” serving Russian interests. That may not be exactly right. After all, useful idiots are supposed to be unaware of how they’re being used, but Mr. Trump probably knows very well how much he owes to Vladimir Putin. ...

But let’s be honest: Mr. Trump is by no means the only useful idiot in this story..., bad guys couldn’t have hacked the U.S. election without a lot of help, both from U.S. politicians and from the news media. ...

The pro-Putin tilt of Mr. Trump and his advisers was obvious months before the election... By midsummer the close relationship between WikiLeaks and Russian intelligence was also obvious, as was the site’s growing alignment with white nationalists.

Did Republican politicians, so big on flag waving and impugning their rivals’ patriotism, reject this foreign aid to their cause? No...

This shouldn’t come as a surprise. It has long been obvious ... that the modern G.O.P. is a radical institution that is ready to violate democratic norms in the pursuit of power. ...

The bigger surprise was the behavior of the news media, and I don’t mean fake news; I mean big, prestigious organizations. Leaked emails ... were breathlessly reported as shocking revelations, even when they mostly revealed nothing more than the fact that Democrats are people.

Meanwhile, the news media dutifully played up the Clinton server story, which never involved any evidence of wrongdoing...

And then there was the Comey letter. The F.B.I. literally found nothing at all. But the letter dominated front pages and TV coverage, and that coverage — by news organizations that surely knew that they were being used as political weapons — was almost certainly decisive on Election Day.

So as I said, there were a lot of useful idiots this year, and they made the election hack a success.

Now what? If we’re going to have any hope of redemption, people will have to stop letting themselves be used... And the first step is to admit the awful reality of what just happened. ...

And it means not acting as if this was a normal election whose result gives the winner any kind of a mandate, or indeed any legitimacy beyond the bare legal requirements. It might be more comfortable to pretend that things are O.K., that American democracy isn’t on the edge. But that would be taking useful idiocy to the next level.

Paul Krugman: The Tainted Election

"This election was an outrage":

The Tainted Election, by Paul Krugman, NY Times: The C.I.A. ... has now determined that hackers working for the Russian government worked to tilt the 2016 election to Donald Trump. This has actually been obvious for months, but the agency was reluctant to state that conclusion before the election out of fear that it would be seen as taking a political role.

Meanwhile, the F.B.I. went public 10 days before the election, dominating headlines and TV coverage across the country with a letter strongly implying that it might be about to find damning new evidence against Hillary Clinton — when it turned out, literally, to have found nothing at all.

Did the combination of Russian and F.B.I. intervention swing the election? Yes. Mrs. Clinton lost three states – Michigan, Wisconsin, and Pennsylvania – by less than a percentage point, and Florida by only slightly more. If she had won any three of those states, she would be president-elect. Is there any reasonable doubt that Putin/Comey made the difference? ...

So this was a tainted election. ...

Democratic norms have been and continue to be violated, and anyone who refuses to acknowledge this reality is, in effect, complicit in the degradation of our republic. This president will have a lot of legal authority, which must be respected. But beyond that, nothing: he doesn’t deserve deference, he doesn’t deserve the benefit of the doubt. ...

Will acknowledging the taint on the incoming administration do any good? Maybe it will stir the consciences of at least a few Republicans. Remember, many ... of the things Mr. Trump will try to do can be blocked by just three Republican senators.

Politics being what it is, moral backbones on Capitol Hill will be stiffened if there are clear signs that the public is outraged by what is happening. And there will be a chance to make that outrage felt directly in two years — not just in congressional elections, but in votes that will determine control of many state governments.

Now, outrage over the tainted election past can’t be the whole of opposition politics. It will also be crucial to maintain the heat over actual policies. ...

But we ought to be able to look both forward and back, to criticize both the way Mr. Trump gained power and the way he uses it. Personally, I’m still figuring out how to keep my anger simmering — letting it boil over won’t do any good, but it shouldn’t be allowed to cool. This election was an outrage, and we should never forget it.

Economists Are Out. Goldman Is Back In.

Justin Fox:

Economists Are Out. Goldman Is Back In: It looks like Gary Cohn will be leaving Goldman Sachs Group Inc., where he is president and chief operating officer, to become director of Donald Trump's National Economic Council. This is not a unique career trajectory!

The first director of the NEC, which President Bill Clinton created in 1993 to coordinate economic policy among the sometimes-warring government agencies responsible for it, was Robert Rubin... Stephen Friedman, became director of George W. Bush's NEC. If Cohn in fact takes the job, there will have been as many former top Goldman executives in charge of the NEC as Ph.D. economists.

The continuing prominence of Goldman Sachs alumni in Washington is a remarkable thing. In the throes of the financial crisis it seemed hard to imagine that the old Goldman-to-Washington pipeline could continue to operate. ...

So Government Sachs is back! ...

Electronic Voting Machines and the Election

Thomas Cooley, Ben Griffy, and Peter Rupert (not endorsing or questioning -- but seems worth noting):

Electronic Voting Machines and the Election: Three states are facing or currently undergoing a recount of votes cast, after a number of computer scientists reported some evidence of problems with the electronic voting. This finding was heavily disputed in the media, and seemingly little evidence was produced to support the conclusion that there was malfeasance in counties with electronic voting. Indeed, following the initial media response, the lead computer scientist backed down from initial reports, saying that there are flaws in electronic voting that could be easily exploited, and that an audit is important, but there isn’t direct evidence. We use our data to explore the claim that counties with electronic voting exhibited different voting patterns than their paper peers. What we find is definitely troubling: in some of the swing states, and specifically in states that were projected to vote Democratic at the top of the ticket, those with electronic voting had a decrease in the percent of the total vote going for the Clinton-Kaine campaign, and an increase for the Trump-Pence campaign. We try to determine if this is spurious by checking for patterns in other places with electronic voting, as well as during the 2012 election. We only find this correlation for swing states during the 2016 election. ...

Their conclusion:

... It’s tough to draw precise conclusions as to what these correlations mean. It’s still possible that there are other factors driving our results, other than electronic voting. But, what we do know is that results in key swing states differ in counties with electronic voting. Further, the patterns in these counties are not exhibited by other similar but not electorally important counties across the country. Additionally, electronic voting had no impact in swing states during the 2012 election. Taken together, it seems tough to dismiss the correlations that we have found in the data. While we don’t know how to interpret the findings practically, it certainly lends credence to the efforts to initiate recounts in several of the swing states.

Why Not Centrism?

Chris Dillow:

Why not centrism?: Some people want to revive centrism. Tony Blair wants to “build a new policy agenda for the centre ground”. And the Lib Dems’ victory in Richmond Park is being seen as a warning to the Tories that it must “keep the votes of the middle ground.”

This poses the question: does the idea of political centre ground even make sense? It does, if you think of political opinion being distributed like a bell curve with a few extremists at either end and lots of moderates in the middle. But this doesn’t seem to apply today, and not just because political opinion has always been multi-dimensional. What we have now is a split between Leavers and Remainers, and the ideas correlated with those positions such as openness versus authoritarianism. Where does the “centre ground” fit into this? ...

This, I think, is the essence of centrism. It accepts that globalization and free markets (within limits) bring potential benefits, but that these benefits must be spread more evenly via the tax and welfare system. This stands in contrast to nativism and some forms of leftism which oppose globalization and favour market intervention. It also contrasts to libertarianism and Thatcherism which emphasize freeish markets whilst underplaying redistribution. It’s also what New Labour stood for. ...

I have a ... beef. It’s that this form of centrism offers too etiolated a vision of equality. Inequality isn’t simply a matter of pay packets but of power too. Centrism fails to tackle the latter. This is a big failing... For me, therefore, a centrism which ignores inequalities of power must be inadequate.

Herein, though, lies the sadness: even this form of centrism would be a big  improvement upon a lot of today’s politics.

Team Trump’s New Pledge on Tax Cuts

David Leonhardt:

Team Trump’s New Pledge on Tax Cuts: ...Last week..., Steven Mnuchin said something unexpected on CNBC in his first interview after becoming Donald Trump’s choice for Treasury secretary. A friendly host invited Mnuchin to respond to the liberal charge that Trump’s tax cut was a sop to the rich. Mnuchin, a financier and former Goldman Sachs partner, refused — and made news instead.

“It’s not the case at all,” he said. “Any reductions we have in upper-income taxes will be offset by less deductions, so that there will be no absolute tax cut for the upper class. There will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it.” ...

Of course, a single comment from Trump’s orbit — even from the captain of the economic team, who repeated it for emphasis — deserves skepticism. ...

Most Americans oppose a tax cut for the rich, polls indicate. History shows that the economic rationale is nonsense, which means it would not help the working-class voters who elected Trump. And the incoming president’s own Treasury secretary said it would not happen: “There will be no absolute tax cut for the upper class.”

It’s a simple, yes-or-no standard. Call it the Mnuchian standard. Any plan that cuts taxes for the rich falls short and deserves to fail.