"Corona Virus and the Economy"

Sydney M. Williams

www.swtotd.blogspot.com

Thought of the Day

“Corona Virus and the Economy”

March 14, 2020

“In general, positive Black Swans take time to show their effect,

 while negative ones happen very quickly—it is much easier and much faster to destroy than to build.”

                                                                        Nassim Nicholas Taleb (1960-)

                                                                        The Black Swan: The Impact of the Highly Improbable, 2007

What impact Covid-19 will have on the global economy no one now knows, but at least two things seem clear and will have consequences, both of which have been instrumental in keeping inflation at bay. First, the benefits of globalization and, second, the process of “just-in-time” inventory. Both bear risks.

The concept of free trade is a search for an ideal, not unlike King Arthur’s Knights’ quest for the Holy Grail. However, the reality of free trade can never be. Yet the closer we get the better all are served. Free trade is based on the concept of division of labor, popularized by Adam Smith, of labor costs, and by the availability of natural resources and of the means of shipping resources and finished goods. Theoretically, each nation should manufacture for consumption and export that which it can produce most cost-efficiently – whether the product is soybeans, oil or electronics – and import what it needs.

Easier said than done. Every country has arable land. Every country has workers skilled in multiple areas, not just in those for which they are best known. No country wants to be totally dependent on another. Exploitation and subservience are, though, unfortunately, natural conditions of man. As well, intellectual property is protected in some countries, but not in others. Rule of law does not apply evenly. Nevertheless, the goal of global trade is worthy. For one, it takes advantage of efficiencies, resources availability and labor costs. But, most important, trade requires that countries communicate and come together, and gathering is better than isolating.

Trade has reduced inflationary pressures on the price of consumables, by outsourcing manufacturing and assembly to countries with low labor costs. Medicines produced by American companies in India or China would have been more expensive if produced in New Jersey or Illinois. The same could be said of automotive parts and consumer electronic gadgets. While low prices for finished products have benefitted consumers, the losers include factory workers and lab technicians – and perhaps consumers if and when supply disruptions come. In July 2019, the U.S.–China Economic Security Review Commission invoked a Department of Commerce study that found that 97% of all antibiotics come from China. The Corona Virus, originating in Wuhan, has highlighted the disadvantage of dependency on China for something as vital as antibiotics.     

Just-in-time (JIT) inventory is a management tool that dates back to the 1970s, when it was perfected by Toyota as a means of meeting consumer demands with minimum delays. JIT means that manufacturers produce to demand, distributors carry less inventory and retailers stock less goods – all result in lower costs to consumers. With plentiful goods on store shelves, JIT has been adopted by most American consumers. We tend to not stockpile, as we know if we run out of something, like bottled water or paper towels, we simply replenish what we need. However, there are times when panic causes habits to change. The oil embargo in 1973 caused a temporary gasoline shortage. Long lines at gas stations, limited purchases and lower speed limits were a consequence. There was not a spate of road trips or the purchase of gas-guzzling SUVs. In reality, inventories, instead of being held by gasoline dealers, were held by consumers who never let their gas tanks go below half. With 125 million registered vehicles in 1973, that meant approximately 1.25 billion gallons of gasoline were squirreled away in the tanks of cars and trucks. Today, we are seeing a similar demand for products like bottled water, paper towels and toilet paper. Corona Virus has some unknown effects, but one of them does not appear to be diarrhea. Yet three grocery shelves in my area were empty of toilet tissue this morning. Why? Need has not changed. People are hoarding. It will end when consumers realize they have no need to store more toilet paper.

Richard Thaler (born in 1945) of the University of Chicago and who won the Nobel Prize for Economics in 2017 is considered the father of Behavioral Economics. But the fact is all economics relate to behavior. Economics was once considered the “Dismal Science,” a term coined by Scottish essayist Thomas Carlyle, who had in mind Thomas Malthus’ theory that population growth would outstrip the ability to produce food, thus predicting a destiny of starvation and poverty. Malthus was wrong in that he underestimated man’s creativity. In truth, we react to carrots and sticks, to encouragement and fear – to real and emotional consequences. Advertisers understand this. And, just as the gas crisis ended as suddenly as it began, so will the current shortage of toilet paper. People’s needs have not changed, just their impulses.

For anyone who tries to stay on top of the news, it is impossible to determine how bad the Corona Virus will be. No one wants to underestimate its potential harm, in part because doctors know so little about it. Schools, colleges, sports arena are driven by concern for their students and patrons, but they are also conscious of liability, for we live in a time when and where tort lawyers loom large. Has it been politicized? Of course. We are in an election year, with a President popular with millions of followers, but despised by most of mainstream media. The economy has been Mr. Trump’s strongest suit. Should it falter, the advantage will accrue to his opponents. It is understandable that he does not want people to panic (and they should not), but they should be concerned, and they should be careful. Mr. Trump’s press conference on Friday was accompanied by a thousand-point rise in the DJIA, albeit from a distressed level. There is no reason to expect the rally to continue on Monday, but there is nothing to suggest it will fall off sharply.

The Corona Virus has temporarily altered views toward borders and global trade, but my guess is that the ultimate consequence is to cause people to consider more carefully the advantages and disadvantages of both. The same is true of inventories. Black Swan events are difficult, to predict and endure; but we have successfully faced formidable challenges in the past. We will face others, as well, in the future. In 1859, at the Wisconsin Fair in Milwaukee, Abraham Lincoln spoke to the crowd: “Let us hope, rather, that by the best cultivation of the physical world, beneath and around us; and the intellectual and moral world within us, we shall secure an individual, social, and political prosperity and happiness, whose course shall be onward and upward, and which, while the earth endures, shall not pass away.” Words to ponder as we stalk the aisles looking for the elusive roll of toilet paper.

"The Resilience of Donald J. Trump"

Sydney M. Williams

Thought of the Day

 “The Resilience of Donald J. Trump”

November 20, 2019

www.swtotd.blogspot.com

“The oak fought the wind and was broken; the willow bent when it must and survived.”

                                                                                    The Fires of Heaven

                                                                                    Robert Jordan (1948-2007)

                                                                                    American author

President Trump is an anomaly – an oak that has not broken. Whether one is a fan or a critic of the President, one has to admit that no previous President has been subjected to such pressure by those who simply hate the man, not for his policy choices, but for his character. Yet, to borrow a word from Nassim Nicholas Taleb, he is “antifragile;”[1] he grows stronger under pressure.

Admittedly, there are times when it is difficult, even for one who finds the Left’s tactics offensively offensive, to defend the man – his spontaneous Tweets and his derogatory comments about those who oppose him. But then I think of the heinous treatment he has received by a far-left media and politicians who have abandoned all senses of decency and respect, and I recognize that it is not Mr. Trump who is in the wrong. And I think of the task he has given himself – the draining of Washington’s swamp, a swamp filled with administrators, lobbyists, journalists and elected officials, all members of the “deep state” whose life blood depends on a secretive and expanding bureaucracy. And I remember Senator Chuck Schumer’s warning to him against taking on the intelligence establishment. He did, and he has reaped the whirlwind of their fury. Yet his continued resilience is critical to the continuance of our democratic Republic.

He is called a demagogue, a populist, an authoritarian, a man able to rally people but undeserving of the office and unable to govern. He is compared to Hitler and Stalin. TV and movie celebrities have called for his assassination. Yet, he does not break. Not only is he resilient, but his energy, despite his age, is boundless. Like Abraham Lincoln’s inspired choice of Ulysses Grant, “he fights.”

Despite these constant attacks, consider his accomplishments – think of tax reform, which lowered corporate taxes and lowered personal income taxes, but raised them for the wealthy in high-taxed states, like New York, California, Illinois, New Jersey and Connecticut. Consider the originalist judges he has appointed, including two to the U.S. Supreme Court. He has taken on the over-regulated state. In his first twenty-two months in office, he issued 65% fewer “significant” regulations (those with costs that consume $100 million annually) than did President Obama at the same point and 51% fewer than did President George W. Bush. And he exceeded his goal of rescinding two regulations for every new one introduced.

At the same time, he has overseen an economy that has grown significantly faster than it did under his predecessor who had the advantage of an economy first recovering from a severe recession. On October 4, CNBC reported that there have never been so many Black and Hispanics in the workforce. The jobless rate for all workers, 3.6%, is the lowest on record. He has taken the U.S. out of the worthless Iranian nuclear deal and the toothless Paris Agreement. He has called out the United Nations for their subversive views toward Israel, and he did what every President has promised to do since 1995 when the Jerusalem Embassy Act was signed by President Clinton in 1995, he moved the U.S. embassy from Tel Aviv to Jerusalem. He forced NATO members to increase spending for their own defense, and, as promised in his campaign, he has brought our soldiers home from wars where they served as police forces. He has directly confronted China’s stealing of our technology and highlighted the border crisis. He has met with the dictator Kim Jong-un, in an attempt to deter nuclear proliferation on the Korean Peninsula. At home, he has fought a culture of wokeness, political correctness and identity politics that threatens our schools and universities with ignorance, a lack of diversity of opinions and renewed segregation. As well, he has addressed the issue of victimization that serves to keep the poor and less fortunate in a perpetual state of dependency and despair.

His resilience is needed, for the media and political left have invested heavily in the narrative they have sold to the American people – an illegal President, a Russian agent and a man who seeks to destroy democracy. Democrats recognize that the best defense is a good offense. They are worried of the fragility of their arguments. It is possible, if not likely, that the forthcoming Justice Department’s Inspector General Michael Horowitz’s report on surveillance abuses by the DOJ and FBI, in regard to the Trump campaign and FISA Court applications in 2016, could implicate some big names, including James Comey, John Brennan, James Clapper, and even Hillary Clinton and President Obama. Attempting to deflect that report, as well as the investigation being conducted by John Durham into possible FBI misconduct, as it pertains to the Russian probe, has caused Democrats to go bonkers, with an impeachment without a crime and a whistle blower who will not appear. Without his resilience, Americans might never learn of the truth as to what transpired during the 2016 campaign.

In contrast to the ‘willows’ on the Left, like former New York Mayor Michael Bloomberg and Joe Biden who change policies as their audiences change, Mr. Trump does not pander to the media or tell selected constituents only what they want to hear, nor does he repeat to whomever will listen what is currently popular. The “fourth estate,” Edmund Burke’s term for an independent and disinterested press that he saw as a wall against corruption and collusion within government, has foregone independence and disinterest to become advocates. In a 2018 survey conducted by Arizona State University and Texas A&M University, and quoted by Kimberley Strassel in her book Resistance, only 4.4% of mainstream journalists described themselves as leaning right. Journalists report only that which accords with their preconceived ideas. Bias, as Ms. Strassel wrote, comes from “insularity.” It is unity of opinion that binds them.

Those who resist Mr. Trump consider themselves knights errant. They see themselves as the chosen ones to remove the man seen as the epitome of evil. In seeking to destroy him, they target all those who work with him and who support him, caring nothing for the effect they have on the individual’s family. Rough politics is nothing new. Congressional sessions leading up to the Civil War were sometimes physically violent. But today’s viciousness and vindictiveness on live TV and on social media are different. It is not just Mr. Trump. Those named or nominated to serve in Mr. Trump’s Administration are railed against on national television. Their families are subjected to personal attack; their homes are picketed. Who can ever forget the insults hurled at Justice Brett Kavanaugh by lying, supercilious and vindictive Senators? The willingness to destroy an individual’s family is new and ugly. It is no wonder that turnover within the Administration has been high.

While the resistance is about stopping Mr. Trump, it is also about protecting the privileged positions of members of the “deep state,” especially those who might be exposed by the Horowitz and Durham reports. And, keep in mind, Oak trees may break, but Willows die from rot. Mr. Trump’s resilience is critical to getting the truth out, then letting the chips fall as they will. Fiat Justitia ruat caelum.

                                               

---

[1] Antifragile: Things that Gain from Disorder, Nassim Nicholas Taleb, 2012