Month: June 2023

Cancel Culture and the Chinese Cultural Revolution

Posted on by j.giglio

It’s not news that Americans live in a new Age of Magical Thinking. The Enlightenment is seen as the start of hate speech, feelings must always overrule facts, and transubstantiation has taken on a whole new meaning.  Men can become women simply by wishing it so.

Over the last several years, much ink has been spilled about whether there are similarities between cancel culture of the 21st century, particularly in Anglosphere countries, and China’s Great Proletarian Cultural Revolution.  Pundits warn of the dangerous implications of cancel culture.

Both social media and real-life mobs target people who dissent, aiming to ruin their reputations and sometimes getting them fired, all while toppling statues of the Founding Fathers and looting in the name of social justice.

Contemporary events come nowhere near the scale of violence and repression associated with the Cultural Revolution.  Thankfully, social ostracism and unemployment are not the same as firing squads and gulags, but they are still harmful, especially to those committed to free speech.

The ordinary American lives in an age when they witness “high-tech” lynching, to borrow a phrase coined in 1991 by then Supreme Court nominee Clarence Thomas.  The core features are public smears, ridicule, along with the moralistic mob forcing victims to publicly recant their sins.

Between 1949 and his death in 1976, dictator Mao Zedong directed a radical transformation of China.  He grew increasingly suspicious of government apparatchiks and Chinese Communist Party intellectuals, leading him in 1966 to launch a stunning attack on the establishment in the form of a “Cultural Revolution.”

He encouraged youthful Red Guards, his shock troops, to destroy the “four olds” (old ideas, old culture, old customs, and old habits).  In practice, this meant widespread beating, denunciations, and mob-instigated “trials.”  Red Guards roamed the country attacking establishment elites, including government officials, managers, intellectuals, and former members of the bourgeois class. The goal was to purge the country of anyone who was insufficiently leftist.

Today, America and other Anglosphere countries are going through an admittedly more genteel cultural revolution of activists preoccupied with identity politics and cancel culture preaching the same old shibboleths.  As under Mao, people suffer disproportionate consequences for small ideological heresies.

Cancel culture involves public shaming, boycotts, online harassment, and calls for removing people from positions of influence due to perceived offensive comments or behavior.  It can lead to reputational damage, loss of employment opportunities and social isolation without due process.  Cancelling people who disagree with you is straight out of the playbook of dictators and cults.

For example, when former NFL quarterback Drew Brees stated he could “never agree with anybody disrespecting the flag of the United States of America,” citing his grandfathers’ military service, he was accused of violating contemporary social justice dogmas. Acquiescing to the pressure less than 24 hours later, Brees issued an apology on Instagram. He soon followed up with another apology.  Then his wife apologized.  Any wonder why public figures spend their days walking on eggshells?

It remains to be seen where America goes next in its nascent cultural revolution.  Where this trend goes and how long it lasts will ultimately depend on whether Americans stand up for their convictions or cave before online mobs.  Maybe nothing permanent will come of it, despite the best efforts of today’s Red Guards.  It may well turn out that the worst harm from legitimization of censorship and cancel culture may befall those on the right or the left who wield these weapons.

We would do well to remember the words of John Stuart Mill:

“He who knows only his side of the case (argument) knows little of that.  His reasons may be good, and no one may have been able to refute them. But if he is equally unable to refute the reasons on the opposite side, if he does not so much as know what they are, he has no grounds for preferring either opinion”.

Inflation, Interest, and the Fed

Posted on by j.giglio

Interest rates play a crucial role in the economy, influencing savings, investment, consumption and overall growth.  Central banks around the world cut benchmark interest rates sharply following the 2007-09 financial meltdown that  tanked the global financial system. In many cases, the nominal interest rate was cut to zero, close to zero or even negative territory.

It was thought that these aggressively low interest rates helped stimulate economic activity, although there remain uncertainties about the side effects and risks. 

Distressed, or “Zombie,” companies feasted on cheap credit. These firms tied up resources that could have been better allocated to more productive and efficient businesses, hindering overall economic growth.

For example, companies such as Bed Bath & Beyond earned just enough money to continue operating, but were unable to pay off their debts as interest rates rose.  As rates have risen, many of the loans banks made to these firms have turned out to be stinkers, as borrowers miss payments or default. 

Indeed, cheap credit, by way of low interest rates, was allowed to persist for an improbable 14 years – much too long in the minds of many analysts.  What was initially seen as a blessing turned out to be a curse. 

When continued for too long, cheap credit effectively inspires excessive borrowing – some of it speculative.  And bubbles do eventually burst. 

A lot has happened since the 2007-09 financial crisis. Recently, inflation has returned with a vengeance.  The Federal Reserve and other central bankers are trying to stop surging prices by raising short-term interest rates, which is not necessarily a boom for the stock market or the economy.

Rising interest rates help control demand for credit, soften growth of the money supply and therefore help control demand.  In theory, higher mortgage rates may slow housing price inflation and help make property more affordable over time. 

Others argue that today’s rate hikes threaten to push up tomorrow’s housing costs amid high prices for materials and loans.  This creates a threat of future housing shortages that could lead to more inflation.

High interest rates prevent a misallocation of capital goosing the price of the riskiest assets in the shares casino.  Then there are investment projects, often vanity projects, that only proceed because of cheap capital. 

As interest rates rise, they incentivize savings in contrast to the recent near-zero interest rates that made savers – including many retirees – feel like fools.  

Finally, high interest rates give central banks room to cut interest rates in the event of a negative external shock. In sum, they act as a deterrent to excessive borrowing and spending, curbing inflationary pressure and preventing the formation of bubbles.

But higher interest rates also bring with them the risk of significant slowdowns in consumption.  They might choke off much needed business investment in new home building and renewable energy capacity, for example. 

Rising interest rates may cause the dollar to appreciate, making exports less competitive and leading to an export slowdown and perhaps a worsening trade deficit.

Higher interest rates certainly make government debt more expensive, sending debt costs soaring and eating up a bigger share of public budgets.

Finally, higher interest rates might lead to a broad-based economic slowdown that could hit stock prices, pension fund assets, and dividend incomes.

In recent months, inflation has been as persistent as gravity.  A cold dish of truth is that it is unclear when prices will moderate.  The Fed took a break from raising interest rates at its June meeting after a string of 10 consecutive rate hikes in just over a year. Still, the benchmark rate could go a bit higher in the near future.  

The Fed is taking some time to assess the effects of its prior rate hikes on inflation and the overall economy, as well as the impact of other economic activity – namely the collapse of three banks this spring.  Improvisation is clearly the order of the day.

The Future of Roadway Pricing

Posted on by j.giglio

The need to find a better way of managing public roads in metropolitan areas is painfully apparent to many Americans each morning when they drive to work.

It is easy to conclude that the U.S. has made a series of wrong-headed choices about how to finance its all-important metropolitan roadway systems.  The results of these mistakes are ubiquitous and take several forms.

We have insufficient roadway capacity where it is most needed, as evidenced by severe traffic congestion on many critical roadway links in important metropolitan regions during increasingly long portions of the day.

We are chronically unable to build new roadway capacity to keep up with demand, to the point that blindly chanting “we can’t build our way out of congestion” too often replaces serious discussion of how to overcome obvious capacity shortfalls.

We insist on “saving money” in government operating budgets by reducing needed roadway maintenance, which causes roads to wear out faster and reduces long-term capacity.

To move beyond these mistakes, transportation policy makers must recognize the potential of recent technological breakthroughs that enable effective, market-oriented roadway financing systems that can dramatically improve how the U.S. manages, maintains, and pays for existing metropolitan roadway systems.

In simple terms, technology can now allow access to metropolitan roadway capacity through the same kind of marketplace mechanism traditionally used to distribute access to a host of private sector goods and services.

We can charge motorists directly for access to each roadway in a metropolitan area without requiring them to stop or slow down. Prices can be based on the distance they travel on that roadway and can be differentiated based on the “popularity” of each route as measured by the number of vehicles per hour traveling on them.

Prices can also be differentiated based on vehicle type, so trucks and other heavy vehicles that cause more wear and tear on pavement pay higher prices than small vehicles that cause less wear. Charges can be adjusted frequently to reflect changes in the number of vehicles traveling on a roadway.

Frequent price adjustments can also be used to guarantee motorists a certain minimum average speed on a particular route. Charges can be raised or lowered to maintain a target maximum number of vehicles on the roadway.

Intelligent use of these new technologies narrows the often considerable gap between a roadway system’s theoretical capacity and its functional capacity by using the classic economic principle of using price to control the demand for scarce resources.  It also results in better service for all roadway customers in a metropolitan area.

Note the term “customers.”  A customer is a willing buyer of what you have to sell at the price you are charging. What makes someone a willing buyer is a personal judgment about whether the value they are getting is greater than the price charged.

Suppose a driver can use two different lanes to reach their destination.  One lane charges a price per mile but promises an average speed of 60 mph.  The other charges nothing, but moves at less than 10 mph.  If the driver is on their way to an important business meeting and can’t afford to be late, they may decide that the value of time saved by using the priced lane is greater than the cost.  But if they are simply making a discretionary trip to the mall, they may opt to use the fee one and put up with the additional travel time.

Put simply, roadway pricing lets you create value for drivers by offering them shorter travel times for high-priority trips.  Drivers determine the priority of their trips, making personal judgments about which are the most important and how much they are willing to pay to reach their destinations faster.

Using price to distribute travel demand rationally at and raise resources for roadway maintenance?   Now that would be something to write home about.

Playing Let’s Pretend

Posted on by j.giglio

One definition of intellectual dishonesty is the practice of ignoring reality when it interferes with what you want to believe about the way the world works.  The bipartisan deal President Biden signed on June 3, after months of political brinkmanship to raise the debt limit for two years and increase the amount of money the federal government can borrow, is an example.

Cynics might be forgiven for insisting there is a great deal to be said for intellectual dishonesty in American society.  They would remind us that the body politic is much more likely to enjoy an adequate supply of the public goods and services that are so vital to the national welfare if Americans can convince themselves that “someone else” is paying for them.

Whenever we admit to ourselves that the cost is coming out of our pockets, we inevitably try to cut corners or do things on the cheap, and ultimately deprive ourselves of much that is really needed.

Many Americans would argue that government has played a major role in this national con game since the early days of the republic.  By cleverly manipulating things like tax rates, deductions, and public accounting practices, the government has made it easy for Americans to persuade themselves that “the other guy” is paying most of the bill for the things we need.  All of which has helped make the United States great—in the sense of becoming the world’s most ostensibly successful national economy for the moment.

The national debt has soared, nearly tripling since 2009, forcing the U.S. Treasury Department to borrow more to pay for government spending.  The legislative curb on this borrowing is known as the debt ceiling.  When Treasury spends the maximum amount authorized under the ceiling, Congress must vote to suspend or raise the limit on borrowing.

The latest deal includes caps on federal spending, additional work requirements for food stamps and welfare, and reforms to build energy projects more quickly.  But the caps would not actually reduce spending.  The end game is to make it grow more slowly, say more slowly than the rate of inflation.

Divided government is never pretty.  But if you are of a Panglossian persuasion, you will rejoice that this deal enables both sides to claim a win of sorts.

Neither wants to be responsible for a catastrophe, so each pretends it is a win-win deal. Republicans can say they cut spending since spending will grow more slowly than it might have otherwise. Democrats can argue that they prevented actual cuts.  In theory, everyone wins and politicians insist they conducted themselves in an intellectually honest fashion.

But the American public, not elected officials and government bureaucrats, is to blame for this.  They insist on receiving more from government than they’re willing to pay for, and they don’t ask any serious questions about the charades and fiscal shenanigans necessary to sustain the illusion of a free lunch.

The U.S. is up to its neck in debt – $31.4 trillion as of January 2023.  Since it cannot increase its income in the short term, it needs to exchange new debt for old debt, leaving no choice but to raise the debt ceiling to avoid global economic chaos.  The annual federal deficit has averaged nearly $1 trillion since 2001, meaning government spends that much more money than it receives in taxes and other revenue.

To make up the difference, the government has to borrow to finance payments that Congress has already authorized. Even with the debt limit raised, the best way to repay the debt is to figure out how to revive the economy.

Good government types and fiscal moralists may be outraged by these shell games and urge Americans to stop acting like children.  But Americans have a long and pragmatic tradition of believing that fiscal morality, like religion and the law, is great as long as it doesn’t get in the way of anything really important.