U.S. Politics: Can't Stand It, I Know Ya Planned It, Gotta Set It Straight this Morongate

[Morpheus]

Trump sat down with rabid lumpen doughy fanboy and spawner of dog murderers and professional liars, Mike Huckabee, the results may surprise you.

Ron Howard narration: They won't

https://www.thestar.com/amp/news/world/2017/10/08/donald-trump-defends-paper-towels-in-puerto-rico-says-stephen-paddock-was-probably-smart-in-bizarre-tv-interview-analysis.html

Quote

“I think one of the greatest of all terms I’ve come up with is ‘fake.’ I guess other people have used it, perhaps, over the years, but I’ve never noticed it,” he said.

 

[OldGimletEye]

https://krugman.blogs.nytimes.com/2017/10/05/the-transfer-problem-and-tax-incidence-insanely-wonkish

Quote

Suppose we assume rational expectations. (I know, I know – but for a benchmark it may be useful.) Then we can think of the adjustment process I’m describing as a little dynamic system in e, the exchange rate, and K, the capital stock. High K means a low rate of return compared with r*, the foreign rate of return, so e must be rising. High e means large trade deficits. The phase diagram looks like this:

.....

where the saddle path is the unique path along which expectations about the future exchange rate are fulfilled. You can solve for that path by linearizing around a steady state; the solutions to that system have two roots, one negative, one positive, and the negative root tells you the rate of convergence along the saddle path.

At any given time the capital stock K is given; the exchange rate e jumps to put the system on the saddle path, and then it converges over time to the long run equilibrium.

An interesting technical point by Krugman why corporate tax cuts just may not bring mornin’ in ‘Murica like conservatives like say it will. There is a lot of stuff why it probably won’t but this, if I understand it, deals with just the issue of capital and exchange rate adjustments.

I think this is an extremely interesting point, and I think its worth thinking through what he is trying to say here. My math might be a bit half assed, but its largely to illustrate what I think Krugman is getting at. And maybe some people can get exactly what he is gettting at, without reading all this, and if so, sorry for wasting your time, but I’m a bit slow and have to work through things by the numbers, so to speak.

Any, if I understand it, it goes something like:

At each time period t you have something like

r(h)(t+1) + E_t(dq(t+1)) = r(f)(t+1)

Which says at each time period the expected rate of return of the home country, r(h)(t+1), plus the expected log depreciation* of the exchange rate, dq(t+1), has to equal the expected return in foreign country.

Now conservative sorts of people, think of the above as being an accounting identity. It’s something that has to hold. It doesn’t really explain behavior. If the expected exchange rate deprecation is large, then the expected home return has to be large, otherwise, people in foreign countries won’t start buying financial assets here in the US.

So we got to specify some behavioral relationships.

Now supposing we are currently at equilibrium with the initial rate of return r(1) and initial log exchange rate q(1). Then orange baboon comes along and says I’m gonna make ‘Murica Great Again and we need to cut corporate taxes. And conservative sorts of people say, “yep, it’s gonna be awesome, and if we’re lucky, it will be so good, we’ll be driving DeLoreans again and wearing parachute pants too, and maybe they’ll remake Miami Vice, which we can watch on beta max”, or maybe that’s just what Newt Gingrich was saying cause according to him if Obama had done it like Reagen, everything would have been awesome, and ol’ Newt Gingrich wouldn’t be an effing idiot conservative loser, now would he? No of course not.

So orange baboon gets his corporate tax cut passed and the new long term equilibrium rate of return is r(2) and the new long term equilibrium exchange rate is like q(2).

Now supposing, the rate of return process looks something like:

r(t+1) - r(t)  = a[r(t) – r(2)] + b[q(t)-q(2)] + e(t+1)

which says:

The change in returns equals the degree that r(t) and q(t) are from their long term equilibrium values (after the corporate tax cut), plus an error term. The coefficients a,b represent the speed of the adjustment process.

Well actually Krugman talks about capital adjustments, not adjustments to returns. So lets say returns, r(t) is a function of capital, something like r(t) = f[k(t)]. We’ll do a first order Taylor expansion around the new equilibrium level of capital, getting something like:

r(t) = f[k(2)]+df/dt[k(2)] [k(t) – k(2)]

Substituting in we get something like:

f[k(2)]+df/dt[k(2)] [ k(t+1) - k(2)] – [f[k(2)]+df/dt[k(2)] [k(t) - k(2)]]= a[f[k(2)]+df/dt[k(2)] [k(t) – k(2)] -r(2)]  + b[q(t)-q(2)] + e(t+1)

Rearranging a bit, and I end up with something kind of like:

df/dt[k(2)][k(t+1) – k(t)] = a*[r(2)+f[k[2]) + a*df/dt[k(2)][ [k(t) – k(2)] + b[q(t)-q(2)] + e(t+1)

Now divide by df/dt[k(2)] (it’s constant conservative sorts of people) and do some relabeling and you get something like:

k(t+1) – k(t) = d + a[ [k(t) – k(2)]+ b[q(t)-q(2)] + v(t+1)

Now, model the exchange rate process something like:

q(t+1) – q(t) = f[k(t) – k(2)] + g[q(t) – q(2)] + z(t+1)

Where f and g measure the speed of adjustment.

Doing a bit more rearranging and apply the conditional expectations operator E_t, you get something like:

E_t(k(t+1) – k(t)  ) = c(1) + a*k(t) + b*q(t)
E_t(q(t+1) – q(t)) = c(2) + f*k(t) + g*q(t)

And it looks like I got one of them thar dynamical systems Krugman was talking about.

Now, assuming k(t+1) – k(t) is 0 and q(t+1) – q(t) is so, you get something like:

0 = c(1) + ak(t) + b*q(t)
0 = c(t) + f*k(t) + g * q(t)

Getting:
1) [-c(1) -b*q(t)/a ]= k(t)
2) [-c(2) – f*k(t)] = q(t)

Equation one gives you all the points where k(t) is constant (ie k(t+1) - k(t) is 0) and equation 2 does a similar thing for q(t). Where they (the phase lines) cross is where the system is back in equilibrium. Normally you’d compute out the eigenvalues to figure out if the system converges, but I’ll take pass, right now on that, as I’m too lazy. I’ll just assume it does.

Anyway, Krugman’s point (and I think it would have been helpful if he had put a dashed vertical line where old equilibrium position was, but maybe that just me), and I think this is an important theoretical point, is that once corporate tax rates get cut, people don’t rip out machines and bring them over to America, to start cranking out MAGA caps at the rapid rate. People in foreign countries immediately start purchasing dollars to buy US financial assets, and that drives up the exchange rate. And then the system has to adjust. Exchange rates depend on rates of return (or capital or whatever) and rates of return depend on exchange rates. If the system adjust to the new equilibrium quickly (after the corporate tax cut) then maybe (assuming there are no other reasons to think corporate tax cut won’t work well as promised), then maybe it will be mornin’ in Murica. But, if the system adjust slowly, uh not so much.

*If your asking yourself why I’m using log exchange rates instead of regular exchange rates, its cause I don’t want to to even think about linearizing Q(t+1)-Q(t)/Q(t). And if your saying to yourself, goddamn you’re lazy OGE, you would be right. Almost too lazy to live at times.

[Manhole Eunuchsbane]

1 hour ago, Morpheus said:

Trump sat down with rabid lumpen doughy fanboy and spawner of dog murderers and professional liars, Mike Huckabee, the results may surprise you.

Ron Howard narration: They won't

https://www.thestar.com/amp/news/world/2017/10/08/donald-trump-defends-paper-towels-in-puerto-rico-says-stephen-paddock-was-probably-smart-in-bizarre-tv-interview-analysis.html

 

He thinks he invented the word fake? Holy Shit. You're not even the first person to personify the word, Donnie. Use your delusion.

[Morpheus]

"Unpresidented"- Let him have that one, let him be that one.

[Manhole Eunuchsbane]

22 minutes ago, Morpheus said:

"Unpresidented"- Let him have that one, let him be that one.

Amen to that. One can hope.

[The guy from the Vale]

2 hours ago, OldGimletEye said:

https://krugman.blogs.nytimes.com/2017/10/05/the-transfer-problem-and-tax-incidence-insanely-wonkish

An interesting technical point by Krugman why corporate tax cuts just may not bring mornin’ in ‘Murica like conservatives like say it will. There is a lot of stuff why it probably won’t but this, if I understand it, deals with just the issue of capital and exchange rate adjustments.

I think this is an extremely interesting point, and I think its worth thinking through what he is trying to say here. My math might be a bit half assed, but its largely to illustrate what I think Krugman is getting at. And maybe some people can get exactly what he is gettting at, without reading all this, and if so, sorry for wasting your time, but I’m a bit slow and have to work through things by the numbers, so to speak.

Any, if I understand it, it goes something like:

At each time period t you have something like

r(h)(t+1) + E_t(dq(t+1)) = r(f)(t+1)

Which says at each time period the expected rate of return of the home country, r(h)(t+1), plus the expected log depreciation* of the exchange rate, dq(t+1), has to equal the expected return in foreign country.

Now conservative sorts of people, think of the above as being an accounting identity. It’s something that has to hold. It doesn’t really explain behavior. If the expected exchange rate deprecation is large, then the expected home return has to be large, otherwise, people in foreign countries won’t start buying financial assets here in the US.

So we got to specify some behavioral relationships.

Now supposing we are currently at equilibrium with the initial rate of return r(1) and initial log exchange rate q(1). Then orange baboon comes along and says I’m gonna make ‘Murica Great Again and we need to cut corporate taxes. And conservative sorts of people say, “yep, it’s gonna be awesome, and if we’re lucky, it will be so good, we’ll be driving DeLoreans again and wearing parachute pants too, and maybe they’ll remake Miami Vice, which we can watch on beta max”, or maybe that’s just what Newt Gingrich was saying cause according to him if Obama had done it like Reagen, everything would have been awesome, and ol’ Newt Gingrich wouldn’t be an effing idiot conservative loser, now would he? No of course not.

So orange baboon gets his corporate tax cut passed and the new long term equilibrium rate of return is r(2) and the new long term equilibrium exchange rate is like q(2).

Now supposing, the rate of return process looks something like:

r(t+1) - r(t)  = a[r(t) – r(2)] + b[q(t)-q(2)] + e(t+1)

which says:

The change in returns equals the degree that r(t) and q(t) are from their long term equilibrium values (after the corporate tax cut), plus an error term. The coefficients a,b represent the speed of the adjustment process.

Well actually Krugman talks about capital adjustments, not adjustments to returns. So lets say returns, r(t) is a function of capital, something like r(t) = f[k(t)]. We’ll do a first order Taylor expansion around the new equilibrium level of capital, getting something like:

r(t) = f[k(2)]+df/dt[k(2)] [k(t) – k(2)]

Substituting in we get something like:

f[k(2)]+df/dt[k(2)] [ k(t+1) - k(2)] – [f[k(2)]+df/dt[k(2)] [k(t) - k(2)]]= a[f[k(2)]+df/dt[k(2)] [k(t) – k(2)] -r(2)]  + b[q(t)-q(2)] + e(t+1)

Rearranging a bit, and I end up with something kind of like:

df/dt[k(2)][k(t+1) – k(t)] = a*[r(2)+f[k[2]) + a*df/dt[k(2)][ [k(t) – k(2)] + b[q(t)-q(2)] + e(t+1)

Now divide by df/dt[k(2)] (it’s constant conservative sorts of people) and do some relabeling and you get something like:

k(t+1) – k(t) = d + a[ [k(t) – k(2)]+ b[q(t)-q(2)] + v(t+1)

Now, model the exchange rate process something like:

q(t+1) – q(t) = f[k(t) – k(2)] + g[q(t) – q(2)] + z(t+1)

Where f and g measure the speed of adjustment.

Doing a bit more rearranging and apply the conditional expectations operator E_t, you get something like:

E_t(k(t+1) – k(t)  ) = c(1) + a*k(t) + b*q(t)
E_t(q(t+1) – q(t)) = c(2) + f*k(t) + g*q(t)

And it looks like I got one of them thar dynamical systems Krugman was talking about.

Now, assuming k(t+1) – k(t) is 0 and q(t+1) – q(t) is so, you get something like:

0 = c(1) + ak(t) + b*q(t)
0 = c(t) + f*k(t) + g * q(t)

Getting:
1) [-c(1) -b*q(t)/a ]= k(t)
2) [-c(2) – f*k(t)] = q(t)

Equation one gives you all the points where k(t) is constant (ie k(t+1) - k(t) is 0) and equation 2 does a similar thing for q(t). Where they (the phase lines) cross is where the system is back in equilibrium. Normally you’d compute out the eigenvalues to figure out if the system converges, but I’ll take pass, right now on that, as I’m too lazy. I’ll just assume it does.

Anyway, Krugman’s point (and I think it would have been helpful if he had put a dashed vertical line where old equilibrium position was, but maybe that just me), and I think this is an important theoretical point, is that once corporate tax rates get cut, people don’t rip out machines and bring them over to America, to start cranking out MAGA caps at the rapid rate. People in foreign countries immediately start purchasing dollars to buy US financial assets, and that drives up the exchange rate. And then the system has to adjust. Exchange rates depend on rates of return (or capital or whatever) and rates of return depend on exchange rates. If the system adjust to the new equilibrium quickly (after the corporate tax cut) then maybe (assuming there are no other reasons to think corporate tax cut won’t work well as promised), then maybe it will be mornin’ in Murica. But, if the system adjust slowly, uh not so much.

*If your asking yourself why I’m using log exchange rates instead of regular exchange rates, its cause I don’t want to to even think about linearizing Q(t+1)-Q(t)/Q(t). And if your saying to yourself, goddamn you’re lazy OGE, you would be right. Almost too lazy to live at times.

Logarithmic scales are absolutely appropriate for values that will always be positive (imagine a negative exchange rate or value of money...) and that have values spanning several orders of magnitude (think US-baht exchange rate. Or US-Turkish Lira. Or...)

[OldGimletEye]

On 10/8/2017 at 3:04 PM, theguyfromtheVale said:

Logarithmic scales are absolutely appropriate for values that will always be positive (imagine a negative exchange rate or value of money...) and that have values spanning several orders of magnitude (think US-baht exchange rate. Or US-Turkish Lira. Or...)

I know, I was speaking a bit tounge in cheek. Also, in this case, it's easier to work with.

[Manhole Eunuchsbane]

 To be fair though, Donnie Two Scoops continues to personify fake in a manner which is unpresidented (pun intended)

 http://www.cnn.com/2017/10/08/politics/donald-trump-bob-corker-tweets/index.html?utm_source=fark&utm_medium=website&utm_content=link&ICID=ref_fark

 

/Just a series of whoppers that are so easily fact checked. For someone who lies as much as he does, he's astoundingly bad at it.

[Fragile Bird]

3 hours ago, OldGimletEye said:

https://krugman.blogs.nytimes.com/2017/10/05/the-transfer-problem-and-tax-incidence-insanely-wonkish

<snip>

God bless, OGE, if only I understood this....

[The guy from the Vale]

47 minutes ago, Fragile Bird said:

God bless, OGE, if only I understood this....

What Krugman is saying, in laymn's terms, is that corporate tax rate decreases are usually almost neutralized by corresponding exchange rate increases. Not quite perfectly, and this self-corrects over the course of a decade or three, but there's no appreciable short- or medium-term benefit to the economy (while, of course, depriving the government of revenue it needs to rase some way or another)

 

(Please correct me if I got this wrong, OGE. I only had econ 101 back at university, even if I got an A...)

[Darth Richard II]

4 hours ago, Rippounet said:

I found this Breitbart article fascinating:
http://www.breitbart.com/big-hollywood/2017/10/07/nolte-playboys-hugh-hefner-liberated-us-straight-hell/
 

The reason I like reading Breitbart is because it gives you this kind of incredible insight into the conservative mind, that quite frankly, I would have a hard time believing if it wasn't right there on the -internet- page.

There's so much to unwrap here. The hatred for the sexual liberation, the idea of a moral decadence, the idealization of the past... etc.
The article also lays bare some of the fundamental contradictions of modern conservatism. For instance, the author starts by reaffirming his dedication to individual rights and the first amendment, and then goes on to lament the consequences.
 

Don't stare into the abyss.

[Bonnot OG]

https://amp.usatoday.com/story/744087001/

They plan on holding more hate marches like they did last night.

[Dr. Pepper]

3 hours ago, Morpheus said:

"Unpresidented"- Let him have that one, let him be that one.

He'll always have covfefe.  

[Dr. Pepper]

15 minutes ago, Sword of Doom said:

https://amp.usatoday.com/story/744087001/

They plan on holding more hate marches like they did last night.

But, ya know, we ought to just continue allowing them to incite violence and hold these recruitment events.  Because reasons.  

[Ser Scot A Ellison]

16 hours ago, karaddin said:

So its not really US politics, but it is US and doesn't deserve a thread of its own...the Rick and Morty/McDonalds/Szechuan Sauce outrage today is quite possibly the only thing from 2017 thats topping "western politics" for sheer "what the fuck is going on?". I have to wonder if this is a reaction to the sheer insanity of politics, that people are just getting more and more out there to avoid dealing with actual reality, but its just ...?

ETA: Curious how those that were concerned about free speech on college campuses feel about this? 

 

Wait, like heckling the visiting team at a basketball game?

Sorry, heckling speeches... I'm never going to like it, but threatening expulsion over an expression of speech should violate the first amendment and not be allowed.

[KingintheNorth4]

6 hours ago, Rippounet said:

I found this Breitbart article fascinating:
http://www.breitbart.com/big-hollywood/2017/10/07/nolte-playboys-hugh-hefner-liberated-us-straight-hell/
 

The reason I like reading Breitbart is because it gives you this kind of incredible insight into the conservative mind, that quite frankly, I would have a hard time believing if it wasn't right there on the -internet- page.

There's so much to unwrap here. The hatred for the sexual liberation, the idea of a moral decadence, the idealization of the past... etc.
The article also lays bare some of the fundamental contradictions of modern conservatism. For instance, the author starts by reaffirming his dedication to individual rights and the first amendment, and then goes on to lament the consequences.
 

Speaking of contradictions by modern conservatives, I find it ironic that they believe a ban on assault weapons won't work at all, but fully support bans on abortions, drugs, and Muslims attempting to travel to the US. 

[Mexal]

So Pence flies from NV to Indy to attend a Colts game against the 49ers. Before the game even starts, Pence leaves the game due to the 49ers kneeling which they do every game. Then he flies back to CA to fundraise for Rohrabacher. It costs 43k an hour to fly AF2 and we paid for that political stunt to throw more fuel on the fire. These people suck.

 

[karaddin]

40 minutes ago, Ser Scot A Ellison said:

Wait, like heckling the visiting team at a basketball game?

Sorry, heckling speeches... I'm never going to like it, but threatening expulsion over an expression of speech should violate the first amendment and not be allowed.

No, as in protesting someone speaking at a college. It's the "defence of free speech" response to protests by silencing the speech of many more people.

[Ser Scot A Ellison]

9 minutes ago, karaddin said:

No, as in protesting someone speaking at a college. It's the "defence of free speech" response to protests by silencing the speech of many more people.

I saw that in my edit.  The University is in the wrong.  Threatening explusion for heckling speeches is, in my opinion, a suppression of free speech.

[kairparavel]

19 minutes ago, Mexal said:

So Pence flies from NV to Indy to attend a Colts game against the 49ers. Before the game even starts, Pence leaves the game due to the 49ers kneeling which they do every game. Then he flies back to CA to fundraise for Rohrabacher. It costs 43k an hour to fly AF2 and we paid for that political stunt to throw more fuel on the fire. These people suck.

 

Puerto Rico is screwing with the budget but there will always be money to stage a political stunt and deflection. He was never staying for the game because of the flight schedule. It's a tight itinerary when you want to create a photo op in the middle of the country and need to be on the west coast. Tweeting a three year old photo along with his big move was the cherry on top.