Streetwise Professor

Today the S&P500 dropped about 4 percent. A pretty big move, yes, but hardly a catastrophe. But to follow the financial media and Twitter, you’d think it was market Armageddon. It’s Monday, so of course everybody was screeching “Black Monday,” and (of course)^2, #blackmonday trended on Twitter.

Not even close.

I worked at an FCM in Chicago on Black Monday. Well I guess I still worked there. After a falling out with my boss, I submitted my resignation at 7AM on the October 19, 1987: so now you know the real cause of the Crash. But I was in the office, and had a ringside seat to an honest-to-God crash. People, please. Today wasn’t even close.

Today’s move was about a 3 sigma move. Black Monday, 1987, was a 20 sigma move. If the world was normal-which it ain’t, of course-a 20 sigma move should occur every several billion lives of the universe. Three sigma moves occur about once every five years. So in fact, we’re a little bit overdue.

In brief, there is no comparison.

Despite the decline in stock prices, there is still one raging bull market. In stupidity. Today’s market move triggered Pavlovian responses from both idiots and people who should know better.

Leading the idiot parade were Bernie Sanders and Donald Trump. (You’re shocked, I’m sure.) Both took to the express lane of stupidity, Twitter, to share with us their deep thoughts. Sanders reflexively blamed trade:

The results are in. Unfettered free trade has been a disaster for working Americans. It is high time we ended our disastrous trade policies.

Trump blamed China, and (apparently) US policy makers dancing to China’s tune:

Markets are crashing – all caused by poor planning and allowing China and Asia to dictate the agenda. This could get very messy! Vote Trump.

Yes, China has something to do with it, but (a) as noted above, today’s “crash” is small beer indeed, and (b) the sort of autarky that Trump fantasizes about would have made us far less wealthy than we are, resulting in stock prices (and other asset prices) far below than the level to which they “crashed” today.

And then there’s Zero Hedge, which wet itself repeatedly in excitement, all the while declaring that the era of DOOM! is upon us. Too bad for ZH that if there’s anybody who’s effed by recent developments, it’s ZH’s BFF Putin and Russia. (Ruble above 71, and Brent at a 42 handle today. Good times, Vlad!)

As for people who should know better, consider Mark Cuban:

Later, in an interview on CNBC’s “Fast Money,” Cuban said the historic moves in the market on Monday were not caused by normal trading.

“No one else that trades can move the market [by] hundreds of points in hundreds of seconds in either way,” Cuban said.

“What we saw today was like a three stooges market… that doesn’t happen from normal traders, that doesn’t happen from large funds taking positions or selling positions, that happens because algorithms watch everything that’s happening and everything that’s correlated to what’s happening in equities and they take action.

About 6 years ago, reflecting on China’s massive stimulus effort in the aftermath of the crisis, I referred to the country as the “Michael Jackson economy,” sustained by artificial stimulants, and extending the analogy, predicted it would not end well. In the years since, Chinese economic statistics have performed according to plan with metronomic regularity, but all of the distortions inherent in an investment-driven, credit-financed boom only accumulated. Throughout this period, China interfered in markets, by the manipulation of crucial prices, notably interest rates and the exchange rate, and the implementation of measures to direct capital to favored sectors and firms.

Signs of resource misallocation have abounded most notably in the form of massive overcapacity in myriad industries (e.g., steel), the construction of vacant cities, and a relentless rise in debt-to-GDP that is approaching the stratospheric levels attained by Japan before its crash in the early 1990s.

It was inevitable that this was not sustainable. But although Chinese authorities indicated at some level they understood this, and talked about transitioning away from the credit, export and investment-driven growth model towards a consumption-driven one, political economy considerations that tend to favor established interests, and no doubt a deep fear about their inability to maintain control and social peace during a transition, kept them from kicking the old habits. And now it appears that the Michael Jackson-esque denouement is nigh.

All signs are of an impending economic crisis in China. The recent stock market decline is one symptom (but mainly a symptom), as are other economic data. But the surest sign is the panic evidenced by truly gargantuan stimulus measures (totaling around $2 trillion, or four plus TARPs, according to Christopher Balding’s figuring) and the recent decision to devalue the yuan.

The real slowdown is an especial concern because of the Rube Goldberg nature of the Chinese financial system, and the massive amounts of debt that has accumulated since 2009. The government is using a variety of measures to take the associated risk on its balance sheet (although it is using indirect means to conceal this fact), but even the government balance sheet is not bottomless. In such a debt-dominated and opaque financial system, a full-blown financial crisis that would greatly exacerbate the real slowdown is quite possible.

There are a couple of lessons here that need to be emphasized. The first is the dubious value of GDP as a measure of economic performance, especially in an investment-driven, highly managed economy. Investment is a cost incurred in the expectation of realizing a greater benefit in the future: it is not a benefit  in itself. In an economy where price signals and incentives are deeply distorted by financial repression, capital controls, and crucially a high-powered incentive system that ties remuneration and promotion of government officials to GDP targets, there will be massive malinvestment. With this malinvestment, future returns will be small and negative, and often insufficient to service the debt used to finance it.

When the investment is made it looks great in the GDP figures. But in an economy where investment accounts for upwards of 50 percent of GDP, the destruction of value caused by the malinvestment is staggeringly large.

The GDP-linked high powered incentive system is likely especially pernicious. Investment decisions should be forward looking, but the incentive system drives officials to make “investments” based on their current cost, not the expectation of their future returns.  Big investment (cost!) today means big GDP today means life is good for the cadres. This is beyond perverse.*

Another lesson is that no one should be surprised. Logic and experience lead to the same conclusion. Economic logic teaches that distortions of prices and top-down resource allocation mechanisms destroy wealth rather than create it. Experience, from extreme cases like the USSR to less extreme ones like Japan, illustrate vividly the hard reckoning that a managed system must eventually face.

I am only surprised that people are surprised. Even though logic and experience should have led people to question the Chinese “miracle,” and to doubt rather than tout its GDP figures, for years Smart People** have marveled at Chinese economic performance and sang paeans to its wise government steersmen. They were mesmerized by GDP figures, and confused costs with benefits. But just as it was inevitable that Michael Jackson’s dependence on artificial means would eventually result in a health crisis, it was inevitable that China’s dependence on artificial stimulants and distortionary interventions driven by political agendas and warped incentives wold result in an economic crisis.

And there are mounting signs that that moment has arrived. Perhaps it will result in a serious crisis. Perhaps it will result in multiple lost decades (a la Japan). But one way or another, forecasts of future Chinese economic dominance are going to look quite embarrassing.

* This is a different issue than whether Chinese officials routinely falsify economic data. Given the high powered incentives at the lower and middle levels of the governing hierarchy, and the need for the government to demonstrate its alleged economic competence at the upper levels, the incentives to falsify data are acute.

** H/T @soncharm, of Rhymes With Cars and Girls.

About a month back I wrote about my experiences in Sweden. As if to illustrate my point about the Swedes’ attempt to flee from their historic identity and current cultural realities, horrific events occurred on 10 August. An Eritrean refugee who had just been denied asylum in Sweden went into an Ikea, grabbed two knives from the shelf, and proceeded to butcher two shoppers, a woman and her son. Some reports indicate that one of the victims had been beheaded.

Swedish officialdom immediately shrouded the events and the perpetrator in a veil of secrecy. Tellingly, the name of the assailant has not been released. There is only one reason to have done this: to prevent revelation that the assailant was not just an immigrant, but a Muslim one. But, of course, this attempt was futile because any sentient being can infer immediately the reality from the very fact that the Swedish authorities attempted to suppress the reality. Meaning that the authorities did not succeed in their object, and in the bargain proved themselves to be craven and afraid to recognize that their immigrant community harbors a terrorist threat. As if everyday Swedes are blind to this reality. Further meaning that the authorities insult the intelligence of the citizenry, increasing the alienation of large segments of the population from the elite.

Swedish officials compounded the insult by ostentatiously rushing police to protect refugee centers, insinuating that native Swedes were prone to indiscriminate violence against immigrants.

This behavior is precisely why, to the shock of the Swedish establishment, that a far right nativist party now leads the polls in the country. The suppression by the elite of frank discussion of matters such as the integration of immigrants into society, the failure to deal with potential terrorist threats emanating from the immigrant population, and the creation of protected classes inevitably pushes people towards the fringes, and strengthens  those whom the elite despises most. This problem is particularly acute in Europe, where mechanisms of conformity and social control are more pronounced than in the US. But the US is not immune. Indeed, the appalling success of Donald Trump here is the result of the same dynamic.

As if another illustration were needed, consider the events on the Amsterdam-Paris train yesterday. A Moroccan with terrorist connections who was known to authorities in three European countries, and who had been to Syria, boarded the train in Brussels, armed with an AK-47, an automatic pistol, and boxcutters. As he emerged from the bathroom intent on mayhem, three Americans, including two enlisted servicemen on vacation, rushed him, forced him to the floor, and disarmed him. When he was down, a 62 year old Brit jumped on to keep him down.

But for the actions of three brave Americans, there would be dozens of dead Euros.

The train crew, if you have to know, took cover, barricading themselves in a safe room on the train. One French actor did suffer injuries while breaking the glass on the alarm.

Consider the reaction of French officialdom:

The motives behind the attack were not immediately known, although a spokesman for the interior minister said: ‘It is too early to speak of a terrorist link’

As the Swedes show, it is always too early. No doubt the French will attempt to put this issue behind them quickly, so they can get back to truly pressing matters. Such as the existential threat from Uber.

And the strains are about to get worse, as a metastasizing refugee crisis in southern Europe is about to spill over into rich Europe, most notably Germany, which is already experiencing a backlash.

Suppressing discussion of uncomfortable and thorny issues can buy social peace. For a while. But shutting off all outlets for civil discussion of controversial matters just causes the buildup of latent pressures that eventually cannot be contained, leading to a potentially calamitous disruption of social harmony. Allowing a little strife now can avoid a lot of strife in the future. But the Euros (and increasingly the US) have chosen the opposite course.

As long as the Euros keep denying they have an Islamist terrorism problem, they will have an Islamist terrorism problem. And their denial is creating another problem: a rise of the reactionary right.

Putin went for a dive in a submersible of the Crimean coast today. He was apparently in search of the Russian economy, and the ruble, but the sub couldn’t quite make it that far down.

As people get older, they tend to repeat the same behavior even after it has become self-parodying: they run out of new ideas and cling to old ones that used to work. This is especially true for people who are at a loss for what to do, because they are presented with insoluble problems.

Vladimir Putin is a perfect illustration of this. Even though his acts of derring do have become the target of world-wide satire, did the submarine thing again. (I thought he would actually go to Kherson, and claim to stumble a cross a relic of Vladimir the Great, but he went with the glass bottom boat again.) Perhaps smarting from previous criticism of his scuba dive in which he claimed to have found a (planted) amphora, today he asserted that the sea bottom was strewn with them.

Putin is at sea in more ways than one. He faces a dire economic situation. His old standby-various energy powerplays-has been undermined by declining demand growth and the development of new supplies. He is in a quagmire in Donbas. He has no idea how to address any of these problems, and indeed, everything he tries seems to turn out badly.

So he goes to the well one more time, and looks even more delusional than usual. It’s the kind of thing that people who are out of ideas do.

It’s also hilarious that the man who bans Dutch cheese and Dutch flowers*, and stymies the investigation of the shutdown of airliner with dozens of Dutch citizens aboard, went on his dive in a Dutch-built vessel.

I guess he didn’t trust a Russian one. Given that it’s August, that’s probably wise.

To round out the comedy, Putin communicated with Medvedev by radio. Poor Dmitry, always the sidekick who never gets to do the fun stuff.

* The Dutch flowers are allegedly infested with California thrips. Dutch flowers and American bugs! Obviously a Nato plot!

The Hillary email travesty becomes more of a travesty by the day.

Hillary keeps repeating her mantra: none of the email was marked as classified when she received or sent it.

Yes, she thinks you are that stupid. Or maybe she is that stupid, and doesn’t recognize the difference between a sufficient condition and a necessary one. Keeping information marked as classified on her private server would be sufficient to violate the law. But it’s not necessary. The relevant statute defines classified information of the United States as:

information originated, owned, or possessed by the United States Government concerning the national defense or foreign relations of the United States that has been determined pursuant to law or Executive order to require protection against unauthorized disclosure in the interests of national security [emphasis added].

Hillary was Secretary of State, the officer of the government responsible for the “foreign relations of the United States,” and who dealt with national defense issues as part of that job. So, if Hillary wrote anything in an email pertaining to her job that would have damaged the United States had it been disclosed, or received any email pertaining to her job that would have damaged the United States had it been disclosed, she violated the law.

So Hillary’s defense would have to be: “All I did as Secretary of State–or at least, all I did via email–was discuss frivolous matters that would not have mattered in the least had they been disclosed.” In other words, she was a total cipher as SoS whose electronic correspondence (sent and received) was utterly trivial and required no protection against unauthorized disclosure. Not some of it. All of it.

Well Okay then! Who am I to disagree that Hillary was a cipher?

But if that’s her defense, why the extreme measures to prevent disclosure of this information? Why protect the banal and irrelevant? Why have a private server in the first place? Why fight tooth and nail to delay and impede turning over even paper copies of the allegedly trivial email? And most tellingly: why wipe the server clean? The latter act particularly suggests guilt.

All of these questions answer themselves. It was impossible for her to perform her official duties without keeping information that required protection against unauthorized disclosure on her precious server.

The wiping of the server raises another serious issue. It seriously impedes, and perhaps makes impossible, any forensic examination of the server to determine whether it had been hacked.

It’s also worth noting that apparently Hillary’s server utilized a spam service that opened, decrypted, and read every email to make sure it wasn’t spam. (Heaven forfend Hillary get unsolicited ads for yoga pants!) Well, what if her spam service was hacked? Just how many potential holes were in her email system, anyways?

Further, it now appears that the classification designations had been illegally removed from things sent to Hillary. Very sensitive things, including information related to satellite intelligence/national technical means. As an aside, Jonathan Pollard spent decades in prison for revealing information related to intelligence satellite capabilities.

The legal violations are self-evident.

The appalling lack of judgment is also evident. But it’s important to note that she is not just guilty of lack of judgment as the term is usually used, to indicate thoughtlessness, carelessness, or negligence. She made the conscious judgment to place her own selfish interests above those of the country. It’s not so much bad judgment, as malign judgment.

One wonders how long this can go on. There are two mechanisms for terminating her political career, as is only just and necessary. The first is political: voters will realize that she is unfit for any office, let alone the presidency. The second is legal: the Justice Department will prosecute her.

I have my doubts that either mechanism is sure-fire. The second is particularly interesting. Obama does not like Hillary: his Svengali, Valerie Jarrett, positively hates her. Will he let her twist in the wind for a while and then let a prosecution proceed? Or will he decide that the blowback from a war with the notoriously vicious Clinton machine (a) could distract him during his last year in office, and detract from his precious legacy, and (b) increase the odds that the even more hated Republicans could take the presidency, and undo some of his actions.

I can see it both ways, but think it more likely that Obama will stay the Justice Department: taking her on would be an extremely risky move. I therefore think that the more promising mechanism is a political judgment by the American people that Hillary is categorically unfit for the presidency. Promising, but not inevitable. Intense partisanship, combined with the fact that the Republican party is currently a mess and being ripped apart by whatever the hell Trump is doing, could mean that despite her manifest flaws as a person and a politician, Hillary could become the next president.

I’ve long been an Elon Musk skeptic.  He struck me as Harold Hill-esque con man, and an aspiring cult leader.

Izabella Kaminska at FT Alphaville has come to the same conclusion. (I appreciate her giving extended play to my posts on Musk, and for pointing out that I’ve “never bought the hype.”) Her last sentence says it all, in a rhetorically questioning kind of way: “Who was it again that said “the bigger the lie, the more it will be believed”?”

Exactly.

There are some major cracks beginning to show in the Musk facade. The most telling is the fact that one Musk entity-SolarCity-sold $165 million in bonds (that are backed by the cash flows from SCTY’s solar installations) to another Musk entity, SpaceX (which just experienced an embarrassing spacecraft malfunction.) When money is taken out of the left pocket to put into the right pocket, eyebrows should be raised. Especially when the explanation is this lame:

So why is SpaceX buying these up? According to SolarCity’s Vice President of Financial Products, Tim Newell, the answer is “very straight forward.” The bonds offered SpaceX an attractive rate of return for a one-year investment compared to other investment options out there. SpaceX carriers a fair amount of cash at times, noted Newell, and the company wanted to put that cash to work in the short term with a high degree of reliability

Sure. If it’s offering such a great rate of return, why isn’t anyone else buying it? And why does it have to offer a better rate than “other investment options out there”? A more plausible story is that the bonds weren’t selling, or that they would only sell at yields Musk didn’t want to pay, so  he had to use one of his companies to prop up another. Those kinds of shell games can only last so long.

Moreover, some executives have left, most recently the head of service, who is taking a leave of absence. This follows the departure of the CFO (announced in June).

Then there is the recent Tesla earnings report, which showed that despite the massive subsidies it has received, it still can’t earn a GAAP profit and, and is burning cash at a hellacious rate, $565 billion million* in the last quarter alone. Further the company revealed that it almost certainly will miss its sales target of 55,000, perhaps by as much as 10 percent. The introduction of the Model X is being pushed back yet again. The company had been counting on China for future growth. Performance there had been disappointing, and China’s current economic troubles (which include a huge automobile inventory overhang) make it an unlikely future savior.

But Musk responded in his typical supercilious fashion:

Rather sanctimoniously, the carmaker said that it would prioritise “a great product” over quarterly numbers. Investors have probably understood that by now. Just in case of doubt, Mr Musk followed up on the earnings call with: “We don’t want to set high expectations . . . Winning needs to feel like winning.”

Just a suggestion: channeling one’s inner Charlie Sheen is probably not a good idea.

There is also a medium-to-long term risk for Tesla, and a deliciously ironic one (though it is somewhat hedged by SolarCity). Specifically, Musk is a anthropomorphic anthropogenic climate change true believer who touts electric automobiles as a way of combatting it. The EPA’s recent proposed regulation of CO2 is also targeted at climate change. Though by its own admission will do virtually nothing to ameliorate temperature increases, the regulation will make electricity much more expensive: that’s a certainty. Estimates are in the range of 10-20 percent. That makes electric cars that much less attractive. Higher energy costs will also reduce income, leading to lower demand for Tesla vehicles, but will also reduce the demand for petroleum, which will lead to lower gasoline prices which will also negatively impact demand for Teslas: the EPA regulation will therefore cause both income and substitution effects that are harmful to Tesla (though again SolarCity will benefit from the EPA plan). Meaning that one green dream will cannibalize another.

For those who see Tesla as more of a battery company than a car company, higher electricity prices hurt the storage battery business too.

But no doubt Elon will turn his attention to doing what he does best: importuning the government to subsidize him. I lay heavy odds that we will see an effort to increase or extend subsidies to electric vehicles with the specific purpose of offsetting the effect of EPA regulations on the sales of electric cars. Just watch. If the markets are becoming less enamored with Elon, there are still plenty of suckers for his shtick in government.

*Thanks to commenter Highgamma for catching this.

Apparently the administration is shocked! Shocked! that Turkey took advantage of its deal with the US to hammer its real enemy (the Kurds) while leaving its frenemy (ISIS) virtually untouched:

Turkey has launched a series of aggressive airstrikes against Kurdish militants but has yet to turn its firepower on Islamic State in Syria as expected, increasing concerns in Washington about the Ankara government’s intentions.

. . . .

But some U.S. officials suspect Turkey is using its recent agreement with the U.S. to fight Islamic State as cover for a new offensive against Kurdish separatist group PKK.

A senior U.S. official said Turkey gave American officials assurances last week that it planned to wrap up attacks on the Kurds in short order, but it has kept up the bombardments focused on the group’s bases in northern Iraq near the Turkish border.

“It’s clear that ISIL was a hook,” said a senior U.S. military official, referring to Islamic State. “Turkey wanted to move against the PKK, but it needed a hook.”

Who knew? This was evident within minutes of the deal being announced, and should have been eminently foreseeable. The US got conned. Played. Pantsed. Obama and Kerry were chumps. Suckers. Patsies. Marks. So yes, the answer is (e)!

But by all means, after seeing them getting totally taken by a duplicitous Middle Eastern autocrat, we should totally trust their assurances that they have this Iran thing completely under control. With such an abysmal record of diplomatic failures, of which this is just the latest, Obama’s superciliousness towards the numerous critics of the Iran deal (supercilious, when he isn’t accusing them of warmongering and treason) is an amazing thing to behold.

Despite happy talk from the government in recent months, Russia continues its downward economic spiral. The economy contracted by 4.6 percent in the second quarter. This is pretty appalling, given that oil prices had rebounded some. The Economics Ministry says this is “the lowest point” for Russia, but given the recent rout in oil prices, and the troubling signs coming out of Russia, this seems unduly optimistic. If anything Q3 and Q4 are likely to be worse. These therefore seem to be more realistic predictions:

“While second-quarter growth surprised on the downside, perhaps far more importantly is the fact that the outlook for the Russian economy has deteriorated so far in the third quarter,” Piotr Matys, a London-based foreign-exchange strategist at Rabobank, said by e-mail.

. . . .

“The economic prospects for the coming quarters look pretty grim,” Liza Ermolenko, an analyst at London-based Capital Economics Ltd., said by e-mail. “Industry appears to have been a major cause behind the deterioration in the second quarter, having gone from being a relative bright spot in the first quarter.”

The consensus is now that the current economic situation is more dire than 2008-2009, and that it is likely to persist far longer.

On top of this, China’s sudden devaulation of the Yuan has caused a further decline in commodity prices, with Brent now below $50/bbl. This has contributed to a further decline in the Ruble, which fell about 2 percent in the aftermath of China’s move.  The Russian currency is now around 65 to the dollar.  Russia is particularly vulnerable to an extended Chinese malaise, not to mention a hard Chinese landing.

The Russian Central Bank now faces the same conundrum that it confronted last summer and fall. It can choose between loosening monetary policy to spur the economy but would thereby spur inflation (already running at over 15 percent) and pressure the ruble even further. Or it can choose to defend the Ruble, which would hamstring the real economy, and potentially spur capital flight if the credibility of the RCB’s action is doubted. Which leg does it chew off?

Wherever Putin and his economic advisers look, the scene is bleak indeed. The situation in China is particularly ominous, because Putin had grabbed onto China like a drowning man, hoping it would rescue him from the blows raining down from sanctions and the commodity price implosion. But the Chinese devaluation, combined with a litany of other grim statistics coming out of China, suggests that if China is not drowning itself, it is struggling mightily to keep its head above water.  Russia is particularly vulnerable to an extended Chinese malaise, not to mention a hard Chinese landing. Putin counted on China’s economic support to allow him to continue his Ukrainian adventure and weather the resulting sanctions.  It’s not happening (Chinese direct investment into Russia has fallen by 25 percent), and the prospects of it happening anytime soon are diminishing daily.

Nor are the long run prospects particularly encouraging, not with Bloomberg running articles titled “Russian Workers Vie With Greece in Race for Productivity Abyss,” the upshot of which is that Russia has the lowest productivity in Europe, running at 50 percent of the European average and 30 percent below Greece. (Which makes this boast by the Russian Minister of Industry and Trade that Russia has overtaken the US in labor productivity even more hilarious.)

In brief, the Russian economy is doing an imitation of the Kursk, 15 years ago. The only difference is that Putin has yet to admit the economy has sunk.

A few weeks ago I wrote the first in what I anticipated would be a running series of posts on Hillary Clinton. If the US is still a country of laws, not men (or women, in this instance), or if Hillary Clinton is an honorable individual, this would be a short-lived serial indeed. For today the State Department Inspector General determined that Clinton’s private email server contained a least two emails classified at extremely high levels. This despite her adamant (though utterly risible) denials that she ever discussed classified matters via her personal email. (I say risible because what Secretary of State would never discuss classified information in writing? If you believe she never did, I have a bridge spanning boroughs to sell to you cheap.)

Pair this story with another story that has been in the news and you know how bad it is. Namely, the story that the Chinese have penetrated the private emails of virtually all high ranking national security officials since at least 2010. And you know the Russians have done the same. And the Iranians. And maybe even the Tongans.

This is a felony. It appears to be open and shut. Hillary Clinton has no business holding any office or trust in the United States government, let alone the presidency. If this is a country of laws, she will be prosecuted and convicted, like David Petraeus. If she were a woman of honor, she would terminate her candidacy. But I have serious doubts on both scores-especially the last. Expect a barrage of vicious attacks on her critics (protect the queen! kill the messenger!), combined wit a campaign of obfuscation and denial. It’s the Clinton way. I can hope, but seriously I think this episode will be yet another demonstration of the low state to which this nation has descended.

Pending the outcome of this despicable affair, I will add to the Hillary Chronicles by writing about her New College Compact. I read it, so you don’t have to. Suffice it to say that it proves that Hillary only excels her dishonesty with her economic retardation. This document is triple distilled economic stupidity. 199 Proof.

Where to begin? Start with her formulation of the problem:

Either they say, “We just can’t afford it,” and pass up on all the opportunities that a degree offers — or they do whatever it takes to pay for it, even if that means going deeply into debt.

Now, for most people, the return on investment of a college degree is still worth it. On average, people with four-year degrees earn over half a million dollars more over their careers than people with high school degrees.

So it’s too expensive, but it’s worth it. Or something. But what about those for whom it isn’t worth it? Then why the hell should they be doing it? And why the hell should somebody else be paying for it?

But the worst part is this: “we’ll make sure cost isn’t a barrier.”

Under my plan, tuition will be affordable for every family. Students should never have to take out a loan to pay for tuition at their state’s public university. We’ll make sure the federal government and the states step up to help pay the cost, so the burden doesn’t fall on families alone.

Further, Hillary proposes to make community college free, and to subsidize the student loans that are undertaken, and to refinance outstanding loans at subsidized rates. (Come to think of it, Hillary’s proposal has a lot in common with China’s recent bailout of local government funding vehicles.) The refinancing portion is particularly daft, because those costs are sunk. This is just a pure transfer, and likely a regressive transfer because as Hillary herself admits, the college educated have higher incomes.

Most economic train wrecks occur when those who receive the benefits don’t pay the cost. One of the virtues of student loans is that the person who borrows out the wazoo to pay for the degree in anthropology (or puppetry!) has to bear the misery of his/her unwise choice. Their experiences should be spread far and wide, pour encourager les autres. A Scared Straight program is in order, but instead Hillary proposes to saddle taxpayers with bearing the cost of the romantic or juvenile or just plain stupid choices college bound students make, which often includes the choice of bounding off to college in the first place.

Here’s Hillary’s plan, such as it is:

• Under the New College Compact, no student should have to borrow to pay tuition at a public college.
• Schools will have to control their costs and show more accountability to their students.
• States will have to meet their obligation to invest in higher education.
• The federal government will increase its investment in education, and won’t profit off student loans.
• And millions with student debt will be able to refinance it at lower rates.

First, I note the massive amount of federal coercion on the states inherent in the plan. Second: I laughed out loud at the “federal government . . . won’t profit off student loans.” That’s pretty much guaranteed.

Third, the South Park Underwear Gnomes plan is about as coherent: “1. Collect underwear. 2. ? 3. Profit!”

The outcome of this plan, if heaven forfend it is implemented, will be: 1. a massive misallocation of human resources, as too many people go to college and too many people choose the wrong degree. 2. Deadweight losses from the taxation required to pay the estimated $350 billion cost of the program (which is doubtless an underestimate). 3. The cost of college–the real cost incurred, not the cost paid by the beneficiaries of the program–will go up, as surely as day follows night. The objective of the program is to raise the demand for college education, which will increase output, total cost, and marginal cost.

This is the first of Hillary’s big, bad ideas. If justice is done it will be the last. But, alas, I doubt justice will be served, and that more big, bad ideas are to come. When they are, I’ll add to the chronicles.

Russia cemented its well-deserved reputation for insanity by bulldozing and burning tons of food seized for violating the country’s cut-off-its-nose-to-spite-its-face import ban. This was daft, even overlooking the foolishness of the ban.

Seizing smuggled foodstuffs raises the cost of violating the ban, thereby achieving a deterrent effect. But what’s the point of destroying what was seized? Selling it would make much more sense. First, selling would actually help strengthen the ban by increasing supply and reducing prices in Russia, thereby reducing the profitability of smuggling. This would have also increased Russian consumption, making Russians better off. Second, the Russian government could realize revenue by selling the confiscated products: God knows it can use every ruble it can get. Or it could just give the stuff away, and get a PR victory as well as reducing the incentive to smuggle.

In other words, no economic downside, and some economic upside (assuming the ban is rational).

Instead, the Russian government engaged in exhibitionist masochism, and destroyed the seized items in a very public and flamboyant way.

Why? Beats me. Maybe they were trying to make the point that Russia needs nothing from the decadent West. Or maybe they are in thrall to the broken window fallacy, and believe that destroying stimulates production.

I really don’t want to understand. Because to understand these lunatics, I would probably have to descend into lunacy myself.