Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

01 February 2018

The Immigration “Fork”


[FOR COMMENT ON THE COMING CRASH, CLICK HERE. FOR COMMENT ON THE STATE OF THE UNION SPEECH, CLICK HERE. For analysis of Trump’s solar-panel tariffs, click here. For links to popular recent posts, click here.]

In chess, a “fork” is an unenviable position involving a piece that can move only two ways. Either way it moves, the outcome is bad: either it or another piece gets taken, or something bad will happen a few moves later.

When a player finds himself in a “fork,” there is no use bewailing cruel fate. The task is clear: to discern and make the better move, i.e., the one with the least bad consequences. Those players who consistently fail to do so, whether through emotion, wishful thinking or simple unsteadiness, will never excel in chess. They are also unlikely to excel in politics or in life.

And so it is with the Dems and immigration. The grand bargain that Trump proposed in his State of the Union Speech puts them in a fork. If the Dems take the bargain, Trump and the GOP will get credit for it, even though Trump himself manufactured the Dreamers’ crisis by rescinding Obama’s executive order. If the Dems reject the bargain, they will lose support among both camps. Soon the Dreamers will start getting deported, enraging progressives and Hispanics. And the border will not be made more secure, enraging conservatives and Trump supporters. Both camps will blame the Dems.

So which is the better option? Isn’t the answer obvious? Isn’t the best of bad options the one that keeps the Dreamers here and secure? Isn’t it taking the bargain, regardless of ideology or how much doing so might wound some Dems’ sense of moral superiority?

There are some nuances, but not many. The Dreamers are self-evidently more important than all the other points of the bargain put together, especially if you take at face value Trump’s pledge to protect 1.8 million of them. Not only are they more important in substance; they are also more important to the Dems’ future, which depends on strong support among Hispanics and other minorities.

True, the Wall would be a horrible symbol and a huge waste of money, even if much of the money went for “softer” border protection than a real, physical Wall. But the reason a Wall would be a waste is that it wouldn’t work. Once we start building it, cooler heads than our president will soon see that it’s not working and divert the money to more productive use.

Indeed, the legislation can and should require close monitoring of illegal immigration at our southern border to assess the Wall’s effect, if any, in real time. If there’s little or no effect, it should permit the experts in the Border Patrol to shift money to high-tech surveillance or other expedients that will work better.

The Wall was always just a political symbol anyway. It’s a bone for Trump to throw to his stop-immigration fanatics to prove he kept a campaign promise. Let him have his bone so we can keep the Dreamers here. The dreams, happiness, and productivity of more than one out of every 200 people now in America are at stake.

Anyway, most Dems just stood by helplessly while the GOP wasted $1.5 trillion on tax cuts for rich people and corporations that don’t need them. Should the Dems now fall on their swords to prevent a $30 billion waste, a mere 2.3% of the tax scam? Really?

Limiting family migration to spouses and kids—the third prong of Trump’s proposed bargain—would hurt families. It would also damage America’s reputation for family friendliness and general beneficence.

But if this limitation goes into effect and the Dems’ later gain ground politically, they can reverse the limitation as soon as they regain power. Then the net result would be just to delay immigration of more distant relatives. If the Dems’ balk at this limitation and so kill the deal, it will be a lot harder to bring deported Dreamers back. That would force the Dreamers to make yet another undeserved, wrenching change in their lives as they return from trying to establish themselves in a strange country following deportation.

As for the immigration lottery, it seems a throw-away without valid purpose. Choosing immigrants by lottery makes their skills and their family status random matters. The best you can say for this approach is that it provides good advertising for America among would-be immigrants without enticing skills or family ties to America. To condemn the Dreamers to deportation just to keep the lottery alive would be the height of irresponsibility. And again, the lottery can be re-established if the Dems achieve electoral success by delivering for a core constituency.

Whether through ignorance or to strengthen the fork, Trump promised to protect 1.8 million Dreamers from deportation and give them a path to citizenship. That’s more than double the number (reportedly 800,000) protected by President Obama’s precarious executive order. The increase only sweetens the pot for a grand bargain. The GOP will be sure to mention it to damn the Dems if the deal falls through, and Hispanics who can vote will be sure to remember.

So the path of Dems is clear. As much as they may despise Trump, they must take his bargain as soon as possible. They must bargain on details as hard as they can in private, as would be wise for the other side. But in the end a deal along the general lines of the president’s proposal makes sense for both sides.

How much should it matter that Trump himself created this crisis by rescinding Obama’s executive order protecting the Dreamers in the first place? Not much. That fact may make Dems furious, as it probably was intended to do. But the iron law of the fork applies: restoring the program permanently now, and letting Trump claim credit for resurrecting something he killed himself, is better than letting the Dreamers suffer and the GOP peel off Hispanic and progressive voters who are the Dems’ natural consistency. Those voters won’t ever support Trump, but they could and might refrain from voting at all next November.

Since the State of the Union Speech, I’ve received several e-mails from Democratic candidates and organizations bemoaning the supposed “validation” or “normalization” of Trump’s racism and bigotry that dealing with him would make. Those laments and their implied urging not to deal with Trump at all shocked me; I consider them an insult to my intelligence.

The goal of progressive politics is not to make Trump look bad; he’s doing that superbly all by himself. The goal is to get as much done for the people—especially those who support Dems—as is possible while the GOP holds both Houses of Congress and the presidency and is busy packing the courts with conservatives who will use literal interpretation of our Constitution as a bludgeon for the wealthy and powerful.

It’s fine to play on progressives’ revulsion at Trump’s open racism, misogyny and bigotry. But that’s just a tactic, gist for propaganda. Neither moral purity nor name-calling is practical politics. Far less is it justification for leaving on the table a deal that can save so many people—who are Americans in all but name!—from cruel, inhumane and economically disastrous treatment.

Yes, the crazies in the House might well kill the deal. But votes in the House are public. So the deal-killers can be blamed and shamed personally and individually if the deal falls through. Both the Dems and GOP leadership have strong incentives to do so, placing the deal-killers’ futures in jeopardy even in so-called “safe” districts.

For almost a generation, American pols have learned reflexively, like Pavlov’s dogs, to preserve an issue for future elections, rather than to resolve it with hard compromise. The notion has been that, if one side could blame the other for failing to resolve an issue, it could do well enough in the next election to break the electoral stalemate and win reliable, filibuster-proof control of Congress.

That pipe dream of pols and political operatives hasn’t come to pass for either party in about twenty years. Meanwhile, the ship of state has foundered in rough seas, with no perceptible hand on the helm. That’s why members of Congress are down there in popularity with used-car salespeople. That’s why so many members of Congress are retiring.

It’s time for this downward cycle to stop. No one, let alone a man with Trump’s vast skills deficit, can make America great again if this cycle keeps going. If the Dems don’t play the adults in the room on an issue this clear and lopsided, their chances of an electoral coup in the coming midterms will melt away like summer snow.

Erratum: An earlier version of this post reported the tax relief as giving away $2.2 trillion, and therefore a hypothetical $30 billion spent on a Wall as 1.3 percent of the tax-relief expense. The larger figure for the tax-relief expense was based on an earlier version of the tax bill that didn’t pass. The text above contains the final, correct figures, lower for the tax-relief expense and correspondingly higher for the percentage.

Anticompetence and the Coming Crash

We need a whole new word to describe the Trump Administration’s level of incompetence. It’s not just incompetent. It’s not just grossly incompetent. It brings incompetence to a whole new level—one of active, purposeful malevolence.

What with Trump’s narcissism, his lying and moronic Tweets, the so-called congressional “leaders” (Ryan and McConnell), and the crazy “Tea Party” and “Freedom Caucus,” it’s impossible to predict what this government will do. Often it seems as if Trump’s Cabinet and the GOP in Congress debate what competent leaders might do and then plan to come as close to the opposite as possible.

The gears of this machine strip their cogs against each other. The component parts fight each other and the whole. So we have near anarchy.

The Trump regime’s dysfunction is not just rampant. It is celebrated. All one can know for sure is that its acts will be inconsistent, erratic, and often bizarre, and that appearances will dominate substance and results. The sole consistent, discernible goals are to head-fake the lowest common denominator of voters—the poorly informed, non-college educated, Fox-feeding Trumpets—and to keep them energized.

And so we have Rep. Nunes’ 3.5-page memo. Not only does it try to prove that the FBI misled the FISA court by leaving out almost all the facts presented to the court, let alone the court’s opinion. It can’t reveal those things because the totality of information is classified and can’t be declassified. (That’s the reason for having a secret FISA court in the first place.)

As if that weren’t enough, the memo itself contradicts the self-evident political reason for the entire enterprise—trying to prove improper or false motives for investigating the Trump entourage’s relationship with Russia. The memo’s own last paragraph admits that completely extraneous information motivated that investigation before the events described in the memo.

To anyone with a college education and rudimentary skill in discerning cause and effect, the memo is self-defeating. It’s a dog chasing its tail. What’s more, Trump’s very public push for its release is yet another nail in his own impeachment coffin, further evidence of his intention to obstruct justice. Beyond that, the memo’s contents are hardly worth the foregoing two short paragraphs.

In the meantime, Trump has basked in the glow of his “Trump Bump”—the artificial extension of an aging Bull Market forged by the Trump Tax Scam. Trump and the GOP gave the rich and corporations an undeserved tax windfall. They pushed it over the legislative line only after rich donors threatened to stop the flow of campaign cash. Then they tried to sell it to the Trumpets and the rest of us as middle-class tax relief.

Of course the effects were predictable. What are corporations and the rich going to do with hundreds of billions of free money that they didn’t earn, had no right to expect and don’t deserve? They are going to invest it. And where will they invest it, at a time when bond interest rates are just beginning to climb out of historic lows? In stocks, including their own. And so the middle-aged “Trump Bump” got a winter life extension, a boost that lasted from December 22, when the Scam was signed into law, until last Friday.

Why last Friday in particular? The seeds of a fall had been in the ground by late September. I analyzed them in a September 23 essay entitled “Why the Trump Bump is Over.” Every cause mentioned in Saturday’s New York Times analysis was in that essay, except the fear of wage-driven inflation, which I doubt. But if I’m wrong about inflation, it’s only another reason for markets to crash.

The Tax Scam delayed the inevitable, for three reasons. First, it promised a huge injection of cash into the stock markets. Second, it raised the bare hope that Trump and the GOP could actually do something competent, rather than merely roiling health-insurance markets by eliminating the individual mandate that made “Obamacare” work. Finally, Trump’s workmanlike job on his State of the Union Speech further boosted that hope.

But other events have undermined these pillars of hope. The markets have had six weeks to “discount” the effects of the tax windfalls,. During that time, the DOW rose from 24,754 to a peak of 26,617—a rise of 7.5%. If you count from November 1, when discussion of the Tax Scam got serious, the rise was 13.6% in a mere three months.

Annualized, that’s 54.4%. Can we all say “irrational exuberance”? This is the kind of return that Bernie Madoff might promise.

As for competence, just look at the record. The captain of our ship of state doesn’t know where the tiller is. He can’t grasp it because his eyes are ever ogling Fox propaganda and his hands are ever typing a petulant Tweet. Congress is riven by discord and has no goals but helping the GOP members keep their jobs. The best of the rats are fleeing the sinking ship, leaving the worst to posture and rant (including Nunes).

It is now as clear as pure water that competence takes a back seat to show for this Administration and this Congress, if it has a place at all. And if the State of the Union Speech had glimmers of competence, the Nunes memo obscured them in days.

So the near future is self-evident. The case for obstruction of justice easily passes the test of non-frivolousness even now. If it were simply a matter of trial, no prosecutor would refuse to indict. But a sitting president can’t be indicted, so impeachment is in question.

The case for treason is equally sound, but it’s not familiar to lawyers and has never been used at a presidential level before. So it may have to wait. One hopes it will be included in the ghastly mix.

Impeachment proceedings neutered all of Bill Clinton’s second term. Then the cause was a sexual peccadillo and lying about it. This time, the cause includes the most serious charges since Congress impeached but failed to remove Andrew Johnson in the aftermath of Lincoln’s assassination and our Civil War. (Even Nixon was never accused of colluding with a foreign power, or of standing by idly, in denial, while a foreign power tried to influence our elections.)

Trump understands all this but dimly. He apparently doesn’t listen to his lawyers, except when they threaten to resign. But he understands one small truth supremely well: his reputation and his legacy are on the line. He doesn’t want to be the first-ever president to be impeached and removed, or the second (after Nixon) to resign under impeachment and credible threat of removal.

So his limited mental resources will continue to be applied, with all his anticompetence, to keeping himself in office and his reputation secure, at least in his own mind. In terms of competent government action, you can expect the coming weeks, down to the November midterms, to roll by pretty much like the week just past. Saving Trump, with as many lies as necessary, will take precedence over everything for Trump and the GOP, except possibly for a distracting pre-emptive strike on North Korea.

Lies and incompetence have consequences. In late 2007, I sold out my own portfolio based on my “Diogenes Test.” I couldn’t find any leader making an honest statement, whether in government or in business. So I saved the vast bulk of my retirement, and made money after the Crash, on the way up. Last Friday, I sold my stocks and took steps to sell my funds.

Things are so much worse now than in 2007. Our President and many in Congress don’t just use PR-speak, mouthing whole paragraphs that say nothing, as in 2007. Instead, they now tell outright lies, using simple terms that anyone can understand, and that anyone connected to the Internet and acquainted with reliable sources can refute in seconds.

Add to that the difference in leadership, and you have the makings of an anticompetence disaster. Dubya may have been a simpleton who can’t speak English, but he had a good heart and (except for Cheney) a competent cabinet with no little expertise. Trump has a heart bent on narcissism and filled with bigotry. His thinking is erratic at best. His Cabinet is filled with amateurs imbued with simplistic ideology, albeit with a few exceptions like Tillerson, Matthis, and Kelly.

Sooner or later, quality, experience and truth will out. They did under Dubya in the Crash of 2008. Do we really think we are immune from the consequences of a leader, Cabinet and Congress orders of magnitude less honest and less competent?

The painful reassessment will begin Monday, as the stock markets continue the fall they began Friday. When the fall will end, short of November’s elections and impeachment, is anyone’s guess.

When the captain seems mad, the main task is to remove him. Unlike parliamentary democracies, we have no simple way to do so. So we must await the next presidential election in 2020 or an electoral coup by Democrats in November. Either way, that’s a long time.

Meanwhile, GOP ideologues will get their fondest wish: government will fade away not from drowning in a bathtub, but through anticompetence. If it can, big business will try to pick up the slack, just as the recently-announced Amazon-Berkshire Hathaway-JP Morgan consortium pledged to try to fix a small part of the health-care market.

Will American government ever be competent again? Stay tuned. The tea leaves read a lot of pain before we reach that status again, if ever. Hard reason and observation began to replace wishful thinking last Friday, at least among investors. When a few noses smell fire, a stampede will not be far behind.

Some Numbers

Pure price analysis suggests that the markets have not fully discounted (internalized) the Trump Tax Scam, while price/earnings ratios suggest that the markets are seriously overvalued, to an extent greater than the expected tax relief can explain.

The probable bump from the tax relief is easy to calculate. For corporations whose income is largely in the top bracket, a change in tax rate from 35% to 21% produces an increase in after-tax income from 65% of taxable revenue to 79%, for an increase of 14/65 = 21.5%. If a corporation’s price/earnings ratio stays constant and its after-tax income jumps 21.5%, we should expect its stock price to jump similarly. But as the table shows, the mean price jumps in the main markets are only about one-third to one half that magnitude. These figures suggest that there may be more gain to come, when the actual effects of the tax relief show up in firms’ earnings reports this year.

Nevertheless, if we compare today’s mean price-earnings ratios for major market indices to their counterparts in 2006 and 2007, we find the expected tax-relief bump far too small to explain the increases in price-earnings ratios. These results suggest that stocks are seriously overvalued in a way that tax relief cannot explain, and therefore are vulnerable to a fear-induced selling stampede. (I chose the years 2006 and 2007 as relatively quiescent, not-too-distant but recent years between the year-2000 tech bubble and the Crash of 2008.)

Here are the numbers:

Major-Index Bumps in Value Near Tax Relief and in Mean Price-Earnings Ratio from 2006 and 2007

IndexIncrease from
11/1/17 to Peak
Increase from
12/22/17 to Peak
Increase in
Mean P/E from 2006
Increase in
Mean P/E from 2007
S&P 50011.4%7%38.7%44.4%
Russell 20007.9%4.4%N/A33.4%
DJIA13.6%7.5%55.2%67.8%
NASDAQ11.7%7.8%N/AN/A


Table Notes: The data used for the index-value calculations came from the interactive graph for each index in Google Finance, rounded to the nearest whole integer. (The peak date for each index was on or about January 26, 2018.) The current mean P/E values for each index came from this source, as of 2/2/19, presumably before market close (i.e. before Friday’s big drop). The historical price-earnings data came from these linked sources for the S&P 500, the Russell 2000, and the DJIA. (The value figures are for the NASDAQ Composite. No historical mean price-earnings figures were readily available for any version of the NASDAQ, but there is no reason to suspect they would yield a wildly different result. In fact, the astronomical P/E ratios of some high-tech NASDAQ firms suggest that they might be even more vulnerable than others to a fear-induced selling stampede.)

Links to Popular Recent Posts

permalink

0 Comments:

Post a Comment

<< Home