Multinational companies vote no on the U.S.

Happy Election Day!

Multinational companies vote every day with their dollars, deciding where to invest based on prospects for growth. This cheerfully titled Wall Street Journal article presents a rosy 2.9 percent annual growth rate by adhering to the American convention of not adjusting for population growth (about 0.8 percent annual rate). The chart in the middle, however, shows that business investment is more or less flat (down for equipment and slightly up for software and structures). Adjust that for population growth and business investment per capita is actually shrinking in the U.S. A vote of no confidence from the world’s business community.

How does it look on the micro scale? I had dinner the other night with a VP for a multinational medical diagnostic equipment company. She works from India and manages about 650 people in Europe and India. Her husband is a professor here in the U.S. and she’d like to move back here, but “my company won’t transfer me here at my level; they’re expanding in Shanghai, Singapore, India, and a bunch of other places,” she noted, “but trying not to hire anyone in the U.S.” She travels (business class) about two-thirds of the time. I asked her what airlines she likes to fly between the U.S. and India: “KLM, Emirates, or Qatar,” she responded, “but Emirates is my favorite.” Would she fly a U.S. airline? “No.” In other words, her company is no longer investing in the U.S. and she herself chooses foreign-run vendors when it is a personal decision.

What about today’s election? She’s a U.S. citizen and was planning to vote. Did she have any reservations about voting for Hillary to continue the Obama Administration’s policies that have led her company to direct its attention and investment dollars elsewhere? No. Why not? Based on media reports she believed Donald Trump to be guilty of “sexual assault.” (some kids age 5-12 were also at the table so I didn’t feel that it was a good time to ask for details on whether she found the porn star or some other woman in the news to be most credible).

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My election prediction: 55/45 popular vote split between Hillary and Trump

In April 2015 I predicted a Hillary Clinton victory. That posting suggested a 54:45 ratio between Hillary votes and votes for any Republican. It has been 1.5 years. We know who the Republican challenger is. What’s my prediction now? I’m going to bump this up to 55:45 for Hillary:Trump votes (not 55:45 total because at least some people will vote for Gary Johnson, for example).

Additional support for my theory is that Hugo Chavez prevailed over his opponent by approximately 55:45 in the 2012 Venezuelan Presidential election. Chavez lays out a blueprint for any would-be successful politician in a democracy (summary of his biography). Hillary and Chavez promise essentially the same things: prosperity without hard work; increased government handouts; soaking the rich with higher taxes; fairness insured by central planning; more parts of the economy controlled by the government or centrally directed. I don’t think that there is a significant difference between Americans and Venezuelans. So it seems safe to assume that approximately the same number of Venezuelans who were persuaded by Chavez will be persuaded by Hillary.

That’s my prediction! Let’s circle back on Wednesday morning to see who got closest!

Readers: What’s your prediction of the ratio of popular votes between Hillary and Trump? First prize for getting it right (not just with a number but also an explanation for the prediction): I buy lunch next time we’re both in the same city. Second prize: two lunches with me!

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Facebook makes Americans hate each other?

I’m wondering if Facebook is at least partially to blame for Americans’ anger toward people who don’t vote the same way as they do. For my face-to-face friends (a.k.a. “real friends”) and neighbors I don’t know a whole lot about their political views. If politics does come up in conversation they tend to moderate their speech so as to avoid offense. If a Trump supporter were at a cocktail party at our town, most people would try not to say that Trump supporters were “stupid, sexist, and racist”. (That said, the one Trump supporter I know had his “Trump/Pence” lawn sign stolen within a couple of days. And the minister at the local Unitarian church filled a sermon with “What to do if you’re stuck at a family dinner with that crazy uncle who belongs to the NRA”. My friend, a retired military officer, thought “I’m that uncle and I don’t think that I’m crazy.” (The minister, who is married to another man and has two adopted children, neither of whom is of the same race as either the minister or his husband, works “diversity” into every sermon, but apparently an NRA member at the table is not as welcome as a Syrian migrant.))

With Facebook, however, we not only can see what everyone thinks about politics but see those views expressed in the strongest possible language.

Example from a anti-welfare-state friend: “[my former graduate school thesis advisor]’s Facebook feed is non-stop liberal hate.” I’m also friends with the guy and indeed his postings do seem hostile to American Deplorables:

Did Don the Con forget to mention his foundation was just SHUT DOWN by the A.G. in New York?

Shame on the WSJ for this editorial complaining that AG Schneiderman’s letter ordering the Trump Foundation to suspend operations and comply with the law is politically motivated and timed.

Bruce is right [when Springsteen talks about Trump having “no sense of decency”]

An ignorant thug gets his comeuppance. [over an article about Trump “groping women”]

Scientific American grades the candidates on science. Trump gets an F:

Washington Post follows with another huge slam: “It’s beyond debate that Donald Trump is unfit to be president.”

NYT offers a wordy, highbrow takedown of Donald Trump. In few words: He’s a bigot and a liar.

Why mince words, @latimes ? Trump is the biggest liar to run for president.

“Trump isn’t even qualified to be human, much less President.” Choice words here.

Trump’s campaign: built on racism and lies because he’s a racist and a liar.

Watching Michelle Obama speak now. She’s so good, so compelling. The presidential qualifications she speaks of rise far about party lines. [i.e., the spouse of a current or recent leader is a source of political guidance]

If not for Facebook both of us would likely be unaware of this guy’s (1) hatred for Trump and Trump supporters, and (2) hero(ine)-worship of Michelle Obama.

For my part, I was defriended after commenting on a posting demanding that Clarence Thomas resign because of a story quoting a woman who says the he touched her in 1999. (I asked “If I can find a woman to say that you touched her 17 years ago, will you give up your job and paycheck?”) I lost another “friend” after he celebrated the firing of Billy Bush based on a recording made surreptitiously 11 years ago. (I asked “Would you want your employer to make secret recordings of you and then decide whether or not to continue to employ you based on comments that you had expected to remain private? What if a Republican employer used these recordings to fire all of the most vocal Hillary supporters?”)

What do folks think? People are saying that Americans are more polarized than ever. Could it be that the rise of polarization with each election cycle is tracking the increasing popularity of Facebook? Another factor, of course, is that government consumes a larger percentage of the economy every year (now up to about 50 percent of GDP; compare to less than 20 percent in Singapore where, presumably, they aren’t bickering all the time). So of course people fight more about how the central planners in Washington, D.C. and state/local ministries will spend this increasing percentage, just as a family discussion over what new car or house to buy is more intense than a discussion about whether to buy a book or movie. But with Facebook we’re a lot more aware of what other citizens are advocating.

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Econ 101 not popular in Las Vegas or New York

“N.F.L. Stadium in Las Vegas May Be an Ego Boost, but Not an Economic One” (nytimes) is interesting for what it reveals about Americans and their understanding of economics. The basic idea approved by state politicians is somewhat similar to Hillary Clinton’s economic plan. Taxes will be raised (in this case on hotel stays; for “the rich” in Hillary’s case) but the people paying the higher tax won’t change their behavior. So there will be free money coming from tourists and that will be used to fund most of the stadium and the roads to feed the stadium. The “business” journalist at the New York Times doesn’t ask “Well, if this is free money, why not spend it on something else?” nor “Won’t there be a reduction in hotel stays, just like if you tax cigarettes people smoke fewer packs?” Neither do the 74 commenters.

[One unarguable fact is that the football players, if they move from Oakland, will reduce their radar cross-section when being targeted by child support plaintiffs. California offers unlimited profits for a pregnancy resulting from a one-night encounter; Nevada caps the revenue yield from a child at $13,000 per year. There could still be venue litigation following out-of-state sex.]

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Scott Adams shows how easy it is to miscalculate tax rates

Scott Adams posted yesterday about how Hillary Clinton’s proposed extension of the current tax regime will result in a tax rate of 75 percent. He figures that a 50 percent income tax and then a 50 percent estate tax rate will result in the government getting 75 percent of marginal earnings. (Note that Adams lives in California, where a state estate tax is prohibited by the constitution. The estate tax rate would be higher for someone who lived in Massachusetts or New York, for example.)

Adams is obviously a smart guy so this posting shows how easy it is for citizens to miscalculate their true tax rates. A Harvard economics professor, Gregory Mankiw, made a more thorough attempt in the New York Times. He came up with a 90-percent rate by including taxes on earnings from investing the money between earning and dying. (Adams’s 75-percent figure would still be incorrect assuming that the money were stuffed under a mattress because government-generated inflation would in that case tax the value away gradually.)

[Note that Hillary herself skips out on both income and estate taxes for most of her compensation. If, in return for access or a favor, someone gives money to the Clinton Foundation via this web page, her daughter Chelsea can spend that money chartering a Gulfstream 20 years from now and there will be no taxes at all (assuming that Chelsea can come up with a Foundation-related reason why she needed to fly to Europe).]

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Wall Street nerds: How much does it cost to hedge against a 20-percent drop in the stock market this week?

One of the doomsday scenarios promoted by my Facebook friends is that the election of OrangeHitler (a.k.a. Trump) will cause an economic collapse, a stock market collapse, and a U.S. currency collapse. If we ignore the most dire predictions of a worldwide economic collapse, but assume they’re right about dollar-denominated stuff, what’s the best way to hedge against this possibility?

Let’s assume that Trump being elected dictator causes a typical basket of U.S. assets (stocks, real estate, etc.) to fall by 20 percent and that the S&P 500 tracks this as well as anything.

Assume that a Millionaire for Hillary has $5 million in assets (the house in Cambridge, Brookline, or Berkeley; stock portfolio; dollar-denominated pension and Social Security entitlements). A 20-percent fall in the value of these assets needs to be counterbalanced by a $1 million profit.

What’s the most efficient way to buy protection? A betting site shows Donald Trump paying out at 5/2. So a bet that would pay $1 million would cost $400,000, right? That seems excessive.

What about an S&P put option priced at 15 percent below the current S&P value? The option expires after a week and we buy enough that a 20-percent drop in the index results in a $1 million profit. This is where I need help from readers! What is actually the most efficient way to do this and what is the current price?

[Note that I’m asking for “my friends”; I think the market will go up about 2-3 percent after the election, whoever wins, due to the removal of uncertainty. If Trump is elected, rich investors can celebrate having someone in the White House who advocates for lower tax rates (not that Congress needs to listen). If Clinton is elected and the slow-per-capita-growth-but-high-immigration expanding Welfare State is continued, rich investors will still do fine because the S&P 500 can grow based on (a) foreign countries getting richer per capita, and (b) the U.S. being stuffed with more consumers via immigration. One of the reasons that there is a Trump v. Clinton divide in this country is that people who work at Apple or own Apple shares can prosper even as the U.S. stagnates. 62 percent of Apple’s revenue is from outside the U.S. (fourth quarter results). A voter who is living paycheck-to-paycheck actually does need for America to become great again (in GDP growth) in order to be wealthier; a voter with substantial assets can buy growth from Singapore, India, China, Korea, Taiwan, et al., even without doing anything more exotic than buying the S&P 500. I don’t need insurance against future U.S. economic stagnation because I get it by owning Apple and Google stock (indirectly through a Vanguard fund) as well as by owning foreign stocks.]

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No farms; plenty of food

Sapiens: A Brief History of Humankind (Harari) says that the “No Farms, No Food” bumper stickers that are popular in Cambridge (an important farming center!) might have it wrong.

The hunter-gatherer way of life differed significantly from region to region and from season to season, but on the whole foragers seem to have enjoyed a more comfortable and rewarding lifestyle than most of the peasants, shepherds, labourers and office clerks who followed in their footsteps. While people in today’s affluent societies work an average of forty to forty-five hours a week, and people in the developing world work sixty and even eighty hours a week, hunter-gatherers living today in the most inhospitable of habitats – such as the Kalahari Desert – work on average for just thirty-five to forty-five hours a week. They hunt only one day out of three, and gathering takes up just three to six hours daily. In normal times, this is enough to feed the band. It may well be that ancient hunter-gatherers living in zones more fertile than the Kalahari spent even less time obtaining food and raw materials. On top of that, foragers enjoyed a lighter load of household chores. They had no dishes to wash, no carpets to vacuum, no floors to polish, no nappies to change and no bills to pay.

Evidence from fossilised skeletons indicates that ancient foragers were less likely to suffer from starvation or malnutrition, and were generally taller and healthier than their peasant descendants. Average life expectancy was apparently just thirty to forty years, but this was due largely to the high incidence of child mortality. Children who made it through the perilous first years had a good chance of reaching the age of sixty, and some even made it to their eighties. Among modern foragers, forty-five-year-old women can expect to live another twenty years, and about 5–8 per cent of the population is over sixty.

There is no evidence that people became more intelligent with time. Foragers knew the secrets of nature long before the Agricultural Revolution, since their survival depended on an intimate knowledge of the animals they hunted and the plants they gathered. Rather than heralding a new era of easy living, the Agricultural Revolution left farmers with lives generally more difficult and less satisfying than those of foragers. Hunter-gatherers spent their time in more stimulating and varied ways, and were less in danger of starvation and disease. The Agricultural Revolution certainly enlarged the sum total of food at the disposal of humankind, but the extra food did not translate into a better diet or more leisure. Rather, it translated into population explosions and pampered elites. The average farmer worked harder than the average forager, and got a worse diet in return. The Agricultural Revolution was history’s biggest fraud.

Without Donald Trump around at the time, whom can we blame for this fraud?

Who was responsible? Neither kings, nor priests, nor merchants. The culprits were a handful of plant species, including wheat, rice and potatoes. These plants domesticated Homo sapiens, rather than vice versa. Think for a moment about the Agricultural Revolution from the viewpoint of wheat. Ten thousand years ago wheat was just a wild grass, one of many, confined to a small range in the Middle East. Suddenly, within just a few short millennia, it was growing all over the world. According to the basic evolutionary criteria of survival and reproduction, wheat has become one of the most successful plants in the history of the earth. In areas such as the Great Plains of North America, where not a single wheat stalk grew 10,000 years ago, you can today walk for hundreds upon hundreds of miles without encountering any other plant. Worldwide, wheat covers about 870,000 square miles of the globe’s surface, almost ten times the size of Britain. How did this grass turn from insignificant to ubiquitous? Wheat did it by manipulating Homo sapiens to its advantage. This ape had been living a fairly comfortable life hunting and gathering until about 10,000 years ago, but then began to invest more and more effort in cultivating wheat. Within a couple of millennia, humans in many parts of the world were doing little from dawn to dusk other than taking care of wheat plants. It wasn’t easy. Wheat demanded a lot of them. Wheat didn’t like rocks and pebbles, so Sapiens broke their backs clearing fields. Wheat didn’t like sharing its space, water and nutrients with other plants, so men and women laboured long days weeding under the scorching sun. Wheat got sick, so Sapiens had to keep a watch out for worms and blight. Wheat was attacked by rabbits and locust swarms, so the farmers built fences and stood guard over the fields. Wheat was thirsty, so humans dug irrigation canals or lugged heavy buckets from the well to water it. Sapiens even collected animal faeces to nourish the ground in which wheat grew.

Why does your back hurt?

The body of Homo sapiens had not evolved for such tasks. It was adapted to climbing apple trees and running after gazelles, not to clearing rocks and carrying water buckets. Human spines, knees, necks and arches paid the price. Studies of ancient skeletons indicate that the transition to agriculture brought about a plethora of ailments, such as slipped discs, arthritis and hernias. Moreover, the new agricultural tasks demanded so much time that people were forced to settle permanently next to their wheat fields. This completely changed their way of life. We did not domesticate wheat. It domesticated us. The word ‘domesticate’ comes from the Latin domus, which means ‘house’. Who’s the one living in a house? Not the wheat. It’s the Sapiens. How did wheat convince Homo sapiens to exchange a rather good life for a more miserable existence? What did it offer in return? It did not offer a better diet. Remember, humans are omnivorous apes who thrive on a wide variety of foods. Grains made up only a small fraction of the human diet before the Agricultural Revolution. A diet based on cereals is poor in minerals and vitamins, hard to digest, and really bad for your teeth and gums.

Yet life is more predictable, right?

Wheat did not give people economic security. The life of a peasant is less secure than that of a hunter-gatherer. Foragers relied on dozens of species to survive, and could therefore weather difficult years even without stocks of preserved food. If the availability of one species was reduced, they could gather and hunt more of other species. Farming societies have, until very recently, relied for the great bulk of their calorie intake on a small variety of domesticated plants. In many areas, they relied on just a single staple, such as wheat, potatoes or rice. If the rains failed or clouds of locusts arrived or if a fungus infected that staple species, peasants died by the thousands and millions.

What then did wheat offer agriculturists, including that malnourished Chinese girl? It offered nothing for people as individuals. Yet it did bestow something on Homo sapiens as a species. Cultivating wheat provided much more food per unit of territory, and thereby enabled Homo sapiens to multiply exponentially. Around 13,000 BC, when people fed themselves by gathering wild plants and hunting wild animals, the area around the oasis of Jericho, in Palestine, could support at most one roaming band of about a hundred relatively healthy and well-nourished people. Around 8500 BC, when wild plants gave way to wheat fields, the oasis supported a large but cramped village of 1,000 people, who suffered far more from disease and malnourishment.

This is the essence of the Agricultural Revolution: the ability to keep more people alive under worse conditions.

… the diligent peasants almost never achieved the future economic security they so craved through their hard work in the present. Everywhere, rulers and elites sprang up, living off the peasants’ surplus food and leaving them with only a bare subsistence. These forfeited food surpluses fuelled politics, wars, art and philosophy. They built palaces, forts, monuments and temples. Until the late modern era, more than 90 per cent of humans were peasants who rose each morning to till the land by the sweat of their brows. The extra they produced fed the tiny minority of elites – kings, government officials, soldiers, priests, artists and thinkers – who fill the history books. History is something that very few people have been doing while everyone else was ploughing fields and carrying water buckets.

Why did humans keep toiling to serve the wheat god?

For the same reason that people throughout history have miscalculated. People were unable to fathom the full consequences of their decisions. Whenever they decided to do a bit of extra work – say, to hoe the fields instead of scattering seeds on the surface – people thought, ‘Yes, we will have to work harder. But the harvest will be so bountiful! We won’t have to worry any more about lean years. Our children will never go to sleep hungry.’ … The first part of the plan went smoothly. People indeed worked harder. But people did not foresee that the number of children would increase, meaning that the extra wheat would have to be shared between more children. Neither did the early farmers understand that feeding children with more porridge and less breast milk would weaken their immune system, and that permanent settlements would be hotbeds for infectious diseases. They did not foresee that by increasing their dependence on a single source of food, they were actually exposing themselves even more to the depredations of drought. Nor did the farmers foresee that in good years their bulging granaries would tempt thieves and enemies, compelling them to start building walls and doing guard duty.

why didn’t humans abandon farming when the plan backfired? … population growth burned humanity’s boats. If the adoption of ploughing increased a village’s population from a hundred to 110, which ten people would have volunteered to starve so that the others could go back to the good old times? There was no going back. The trap snapped shut.

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More: Read Sapiens: A Brief History of Humankind.

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What the best minds of foreign policy can accomplish

One of the differences between Trump and Clinton seems to be that Clinton promises to use American cleverness to achieve diverse foreign policy goals while Donald Trump promises to refrain from meddling with disputes outside of our (fully walled?) borders. We have already seen how this worked out in Afghanistan, where building up jihadists against the Soviet-allied regime resulted in us facing a formidable enemy twenty years later. Was that a unique blunder?

Lawrence in Arabia suggests otherwise. Germany is today facing an influx of millions of refugees from wars in Islamic regions that were, 100 years ago, governed in an orderly fashion. What were the best minds of German foreign policy doing back then?

Max von Oppenheim wanted to rearrange the regional political chessboard through stoking the fires of Islamic jihad. He had begun formulating the idea shortly after taking up his consular position in Cairo. In Oppenheim’s estimation, the great Achilles’ heels of Germany’s principal European competitors—Great Britain, France, and Russia—were the Muslim populations to be found within their imperial borders, populations that deeply resented being under the thumb of Christian colonial powers. As the only major European power never to have attempted colonization in the Muslim world, Oppenheim propounded, Germany was uniquely positioned to turn this situation to its advantage—especially if it could forge an alliance with the Ottoman Empire. If it came to a Europe-wide war, Oppenheim posited in a flurry of reports to the German foreign ministry, and the Ottoman authorities in Constantinople could be persuaded to call for a holy war against the Christian occupiers of their former lands, what would happen in British-ruled Egypt, or French Tunisia, or the Russian Caucasus? One person who was itching to find out was Kaiser Wilhelm II. Forwarded some of Oppenheim’s “war by revolution” treatises, the German emperor quickly became a committed proponent of the jihad notion. Wilhem saw to it that Oppenheim, “my feared spy,” was promoted at the Cairo embassy, assuming the somewhat ironic title of chief legal counsel.

Until the blessed day of pan-Islamic jihad came, there was plenty of work to be done in British Egypt. Through the early 1900s, Oppenheim spent much of his time—and not a little of his personal fortune—quietly wooing a broad cross section of the Egyptian elite opposed to British rule: tribal sheikhs, urban intellectuals, nationalists, and religious figures. While he had already won the kaiser to his jihadist ideas, in 1907 Oppenheim gained another adherent in the form of his new subordinate, Curt Prüfer. Enough with scholarly articles and Egyptian shadow plays; under the tutelage of his charismatic supervisor, Prüfer now saw the opportunity to spread gasoline over the region, put a match to it, and see what happened.

Germany suffered millions of casualties in the war that it started against the Soviet Union. What was happened 25 years earlier?

In mid-March, just days after he had set off for Abdullah’s camp, the three-hundred-year Romanov dynasty in Russia had come to an abrupt end. Faced with paralyzing industrial strikes by workers demanding an end to the war, and a semimutinous army that refused to move against those workers, Czar Nicholas II had been forced to abdicate. The provisional government that had replaced the czar vowed to keep Russia in the Entente, but with the chaos worsening, there was growing doubt in other European capitals about just how long Petrograd might stand to that commitment. In fact, though no one yet realized it, the seed of the new Russian government’s destruction had already been sown through one of the most successful subversion operations in world history. On April 1, the German secret police had quietly gathered up a group of leftist Russian exiles, men just as opposed to the new moderate regime as they had been to the czar, and arranged their passage home. Among the returning malcontents was a Marxist named Vladimir Ilyich Ulyanov, soon to become better known by his nom de cadre, Lenin.

Lawrence in Arabia is an interesting book that sheds light on our foreign policy challenges today.

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