Monthly Archives: August 2022

Inflation Reduction Act is the motherload of bad policy ideas

By Kent R. Kroeger (Source: NuQum.com, August 9, 2022)

From elementary to high school, I was a short and skinny kid who was frequently subjected to various forms of socially acceptable peer group torture, the most common of which was the noogie headlock.

A guy wraps his arms around your neck from behind, bends you over and starts grinding his index finger’s proximal interphalangeal joint (i.e., knuckle) into the boundary between your frontal and parietal skull bones.

It hurt, but it was a tolerable level of pain compared to some other bullying alternatives.

For example, a snuggies attack, the process in which someone reaches into your pants from behind and grabs your Fruit of the Looms (i.e., underwear) and attempts to pull them over your head.

While that attack hurt less than the noogie, it inflicted far more emotional pain, particularly when conducted in front of fellow students.

Luckily, God blessed me with a low center of gravity and exceptional twitch muscle speed that helped me avoid most snuggie attacks.

Noogies, however, were another matter. Once they had your neck in a grip, they owned you. And to fight back it required a different set of fighting skills to weather the demoralizing fury of an unforeseen noogie attack.

And while my younger self was never a master of hand-to-hand combat techniques, occasionally I could resist a noogie strike by using my free, outside arm to land a few solid, but usually ineffective punches at my attacker’s crotch.

Inevitably, the response to such a countermove was for my attacker to grind his knuckle into my skull even harder — to the point where it actually hurt — forcing me to withdraw my crotch-directed response and, instead, utter the internationally-accepted indication of unconditional defeat, “Uncle!”

I bring up these traumatic childhood memories because I believe they are a metaphor for policymaking in the U.S. today.

Most Americans live in a perpetual noogie-hold courtesy of corporate America, whether they know it or not. And no piece of national legislation better exemplifies that condition than the Inflation Reduction Act of 2022, recently passed by the U.S. Senate and certain to end up on President Joe Biden’s desk for signature sometime in the near future.

What is wrong with the Inflation Reduction Act of 2022?

The Inflation Reduction Act (IRA) is anything but a public policy designed to reduce inflation. Instead, it is the motherload of bad policy ideas, designed more to help the wealthiest Americans than to impact, in a positive way, the lives of regular Americans.

How do I know? Read the text.

If taming inflationary pressures is the primary bill’s goal, Part 1 of the bill (Corporate Tax Reform 5 Sec. 10101. Corporate Alternative Minimum Tax) is an inauspicious start.

Ostensibly, the bill’s intent to raise government revenues by initiating a 15-percent minimum tax on large corporations could easily be a Bernie Sanders idea. But, in reality, it is not.

Firstly, accelerated depreciation is exempted. That is, compared to straight-line depreciation, this provision allows more depreciation of an asset’s life in its earliest years (and less in later years). In practice, according to corporate tax experts, accelerated depreciation encourages wasteful tax shelters, drains revenue from the U.S. Treasury, is irrelevant to small businesses, and does little to help the economy.

But, more importantly, this provision potentially increases inflationary pressures, not decrease them.

Why? Because if you are a company facing a drain on your bottom line there are two primary options: lowering costs (such as laying off workers) or raising revenues through price increases on the goods and services you offer customers.

Neither is good for the economy.

In other words, corporate America has consumers in a perpetual noogie-hold and raising their costs of doing business through higher taxes (i.e, landing a figurative crotch shot) only backfires in the long run through higher unemployment or higher prices.

OK, so we are off to a bad start with the IRA. How about its other provisions?

Thanks to Arizona Senator Kyrsten Sinema, a Democrat, the IRA no longer includes a provision to close the carried interest tax loophole that benefits private equity and hedge fund managers (a loophole even uber-capitalist Donald Trump opposed). Instead, Sinema allowed a one-percent excise tax on stock buybacks that, in theory, brings in more revenue than eliminating the carried interest tax loophole as it will likely incentivize companies to issue dividends instead, which are taxed when issued.

As to its effect on stock prices or the macroeconomy, Wall Street expects little impact.

Very well, the tax provisions in the IRA are, at best, unlikely positively impact inflationary pressures, and could potentially have the opposite effect.

But fear not, the IRA applies the brakes on the primary cause of inflation — economic growth — by unleashing the Internal Revenue Service (IRS) on tax-paying Americans who are the least equipped to defend themselves from a federal tax audit.

According to the current IRA bill (which still has to go through the U.S House), the number of IRS agents and audits will double. And the target of these additional audits most likely will not be the wealthiest Americans, but instead, average U.S. households.

And if the Democrats achieve their stated aims with the IRA, the increased IRS audits will generate at least $124 billion in increased tax collections over the next 10 years.

In comparison to a $23 trillion dollar annual economy, that may not seem like a growth-crushing number, but it will be to the millions of Americans who find themselves in the crosshairs of an IRA bureaucracy that will become bigger and (dare I say) more powerful than the Pentagon.

Well, at least the IRA has one provision that will most certainly suppress economic growth and, in turn, curb inflationary pressures.

What other damage could the IRA do to this country?

If you are a fan of wealth inequality, the IRA is also likely to direct even more money to the wealthiest Americans through the more than $300 billion earmarked to fund “investments” in attacking climate change and boosting the growth of clean energy. The most visible financial handouts will be to those Americans able to purchase electronic vehicles (EVs) such as bargain-end Tesla’s currently selling for around $50,000, but farmers and ranchers will also get their share of the jackpot through cash incentives for reducing methane emissions (e.g., cow farts).

But that is not the most toxic element of the IRA that will increase wealth equity; instead, the bill will fund the launch of the National Climate Bank which will be tasked to make “investments” in clean energy technologies and energy efficiency — or, as I would put it, an additional bureaucracy authorized to print money that will be immediately transferred to corporate accounts through loans and the federal contract process.

Who will benefit most by this spending? Corporate executives.

Hey, it’s a free market. I don’t fault companies for exploiting the federal government’s ability to print money. However, I do fault the politicians — Democrats and Republicans — that confuse federal spending with actually solving a national problem (e.g., climate change). And, trust me, nobody will be held accountable if in 10 years the U.S. is emitting more greenhouse gases than ever and little has been done to actually address our warming planet.

My prediction is that the IRA’s $300 billion will be pissed away faster than you can say Solyndra.

Even though his companies have received billions in government subsidies — and why would anyone expect him to turn them down? — Tesla CEO Elon Musk has repeatedly said the U.S. government is not a good “steward of capital.”

Is there anything good in the IRA?

Despite the private-equity lobby winning again, the IRA does have provisions that are net positives according some progressive economists.

The most cited provision that will primarily help Americans 65 and older is the one that empowers Medicare to negotiate prices with drug companies. This a policy that has been pursued by progressives for years and now, finally, has a real chance of becoming a reality. Additionally, this potential savings in prescription medicines will help fund a three-year extension of government subsidies supporting the Affordable Care Act (ACA) that would have expired next year.

That is a big deal and should not be diminished.

The Bottom Line on the IRA

Progressives are having a hard time getting excited about the IRA.

Vermont Senator Bernie Sanders tries, but the constipated look on his face when he attempts to defend the bill says more than his measured words:

https://cdn.embedly.com/widgets/media.html?src=https%3A%2F%2Fwww.youtube.com%2Fembed%2FcudBaqbXsQE%3Ffeature%3Doembed&display_name=YouTube&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DcudBaqbXsQE&image=https%3A%2F%2Fi.ytimg.com%2Fvi%2FcudBaqbXsQE%2Fhqdefault.jpg&key=a19fcc184b9711e1b4764040d3dc5c07&type=text%2Fhtml&schema=youtube

In short, Sanders is saying everything he proposed to make the bill acceptable was rejected by his own party.

If anyone remains deluded that the leaders of the Democratic Party are good for progressive policy ideas, now is the time to end such conceits.

The IRA is a crappy bill, anti-progressive to its core, that will do little to reduce inflation, stop climate change, or lower the national debt; but, instead, could undue the electoral advantage the Democrats gained with the Supreme Court’s overturning Roe v. Wade. Its a bad bill openly designed to help the privileged few whose lobbyists crafted it.

The Democrats, not just progressives, may well regret passing it.

  • K.R.K

Send comments to: kroeger98@yahoo.com

Both the Democrats and GOP have some good ideas, but never call me a ‘Centrist’ or ‘Moderate’

By Kent R. Kroeger (Source: NuQum.com; August 5, 2022)

I get this question all the time: If you don’t love the Democrats or the Republicans, do you consider yourself a centrist, undecided, independent or moderate?

Not only is the answer, no, but I couldn’t be further from the ‘centrist,’ ‘undecided,’ ‘independent’ or ‘moderate’ labels.

I respect bold ideas and policies: Medicare for AllThe end of our forever warsCancelling student debtAggressive policies to end our reliance on fossil fuels. A pro-nuclear energy policyEnding the carried interest loophole. Less government. Lower taxes. A simple, flat national consumption tax.

Those are hardly centrist, undecided, independent or moderate positions. I’m all over the ideological map.

And the survey data reinforces this understanding of centrists, undecideds, independents and moderates: Like me, they are ideologically diverse. Writes analyst Lee Drutman for fiverthirtyeight.com:

“Anybody who claims to have the winning formula for winning moderate, independent or undecided voters is making things up. Perhaps more centrist policies will appeal to some voters in each of these categories — but so will more extreme policies.

Moderate, independent and undecided voters are not the same, and none of these groups are reliably centrist. They are ideologically diverse, so there is no simple policy solution that will appeal to all of them.”

Do tell.

Drutman’s conclusions make me wonder why we are stuck with only two major political parties when, by his estimate, 44 percent of vote eligible Americans in 2020 fell into this ‘murky’ middle.

Do we not deserve at least one third party option? No, says our political elites.

The primary reason for our lack of multiple political parties is that our electoral system (i.e., ‘first-past-the-post’) forces us towards just two viable parties — and our media and political elites reinforce that pressure.

But, of course, nothing in our constitution says this has to be the way it is. Political and economic elites dictated to us that this is what we have to accept.

As I was forcefully told by Teresa Vilmain, a high-ranking campaign operative on Tom Harkin’s 1984 Iowa Senatorial campaign, during my paid stint as a door-to-door fundraiser on that campaign, “We are a two-party system. Don’t let people tell you they aren’t committed to the Democrats or Republicans. They are no other choices.”

That sums up our political system, but Vilmain’s dictum never represented my attachment to the two major parties. Iowans deserved choices other than Tom Harkin or Roger Jepsen (the GOP incumbent) in 1984’s Iowa Senate race.

Fast forward to the present, nothing has changed for the better in our political system since 1984— in fact, things have gotten worse — so forgive me if I could care less if the Republicans or Democrats control the Congress after the 2022 midterm elections. The average American is screwed no matter which party wins.

If only an ideologically transcendent political leader could arise in my lifetime. But, don’t worry, I’m not holding my breath.

  • K.R.K.

Send comments to: kroeger98@yahoo.com

International law is a fiction

By Kent R. Kroeger (Source: NuQum.com; August 3, 2022)

International law consists of rules and principles governing the relations and dealings of nations with each other, as well as the relations between states and individuals, and relations between international organizations. (Cornell Law School)

The overarching goal of this blog is to highlight analytic tools and data that are available to everyone. Today, however, I am going off-script to address an issue that is close to my heart and represents an early part of my career.

I taught a survey class in International Politics and Law at the University of Iowa almost 30 years ago, and though I was an only marginally effective instructor, my students were exceptionally engaged on the question of international law.

Does international law actually exist?

One student in particular, who served in the Army reserve and who had been deployed on a United Nations (UN) peacekeeping mission, aggressively disagreed with the contention that the UN, or any other international organization, represents a ‘legal authority’ that can sanction or punish a rogue nation independent of the will of a major world power (i.e., the U.S.).

The student offered this observation: “If I steal a car, I broke the law and will be arrested by the police. What police force stops me from stealing a country?”

“The U.S.,” answered a student.

But the U.S. is not an international organization. It is a nation-state, a powerful one at that.

Current events have brought this issue to the forefront: Vladimir Putin claims Ukraine is historically part of a greater Russia (not true), and the Communist Party of China argues that Taiwan is a breakaway province (true) that is inseparablypart of the People’s Republic of China (not true).

What international laws validate Russia and China’s claims of sovereignty over Ukraine and Taiwan?

The answer is that there is no such international authority. Historical claims of sovereignty, like Russia’s and China’s, are feckless and impotent separate from their military and diplomatic ability to acquire those territories.

Only nation-state power determines national boundaries. There is no international body that governs these definitions. Only hard and soft power can decide what constitutes an independent nation-state.

The informal rules that govern the definition of a sovereign nation-state have not changed since the Peace of Westphalia in 1648, which recognized the inviolability of nation-state borders and endorsed non-interference from external sovereign states in the domestic affairs of individual sovereign states.

This latter aspect of Westphalia has been violated many times over. Today, powerful countries interfere directly in the internal affairs of weaker countries on a daily basis — and there is no international legal authority that can stop this.

As to the former impact of Westphalia, it remains true todaythat independent nation-states exist because their governing authority controls ‘lethal’ power within a definable national boundary, and most countries (particularly powerful ones) recognize that control.

That is what makes a ‘legal’ nation-state. Nothing more, nothing less.

Israel has understood this reality from its inception. And, today, the only barrier to Israel annexing the West Bank is their acknowledgement that the international community will not accept such a move.

Set aside your media-fueled belief that international law stands against Russia’s control of the Donbass region of Ukraine or China’s claim to Taiwan: The reality is that nation-state powers like the U.S. will decide those outcomes.

International law is a fiction.

  • K.R.K.

Send comments to kroeger98@yahoo.com

Addendum: What about the Nuremburg trials?

Since posting this essay I’ve had a number people push back with valid questions: What about the Nuremburg trials after WWII? And what about the International Court of Justice (ICJ) or the International Criminal Court (ICC)?

Are these not concrete examples of international law in action?

No, they are not. They are fundamentally dependent upon the cooperation of nation-states for their legitimacy.

Let us start with the Nuremburg trials. The charter that created this tribunal limited the jurisdiction of the court to Germany’s actions in World War II, largely because the Allied nations (U.S., U.K., France and Russia) did not want to face legal challenges to their actions during the war.

The Nuremburg tribunal was a creation of the nation-states that won the war. It was in no way a legal tribunal independent of the nation-states that created it. It was law determined by the victors in WWII.

The ICJ is a more interesting example. Is it an international judicial authority that can make judgments against nation-states, or individuals within those nation-states, independent of the recognized sovereignty of those nation-states?

The answer, again, is an emphatic No!

The ICJ is the principal judicial organ of the UN. It was established in June 1945 by the Charter of the UN. It is, at its inception, a product of nation-states entering into a multilateral agreement. Its authority is solely dependent upon the nation-states that agree to its powers.

The ICC is similarly a product of nation-states. On 17 July 1998, the Rome Statute of the ICC was adopted by a vote of 120 to seven, with 21 countries abstaining. The seven countries that voted against the treaty were China, Iraq, Israel, Libya, Qatar, the United States, and Yemen.

The ICC’s authority is completely dependent on the nation-states that support it. Subsequently, the U.S. routinely denies the authority of the ICC.

In contrast, if the U.S. government wants to prosecute a U.S. billionaire for wrongdoing, the billionaire cannot unilaterally declare they are not subject to U.S. law. They must, instead, defend themselves in a U.S. court of law.

That is why international law remains a fiction compared to the actual legal authority of a nation-state.

Beware of causal fallacies in the hunt for COVID-19’s origin

By Kent R. Kroeger (Source: NuQum.com; August 2, 2022)

With the formal release of two studies offering strong evidence that the initial epicenter of large-scale COVID-19 transmission centered on the Huanan Seafood Market in Wuhan, China, many in the news media and scientific community declared the end of the lab-leak theory in explaining COVID-19’s origins.

Matthew Aliota, a researcher in the college of veterinary medicine at the University of Minnesota who did not work on either of the studies, told the Associated Press that this new research “kind of puts to rest, hopefully, the lab-leak hypothesis.”

wrote about these two studies four months ago when their pre-print versions were released to the public, and, while citing some critics of those studies, I too found myself moving away from the lab-leak theory as the most probable cause of the COVID-19 pandemic and towards the belief that COVID-19 has a zoonotic source (i.e., animal-to-human transmission).

Despite this latest research pointing at the Huanan Seafood Market as the earliest focal point for the virus’ mass transmission between humans, there remains no ‘smoking gun’—that is, scientists have yet to find evidence of the original SARS-CoV-2 virus residing in an animal species prior to the outbreak within humans.

Without that crucial evidence, it remains possible (though not necessarily likely) that a virus created and/or housed within the Wuhan Institute of Virology (or some other Wuhan lab) was inadvertently leaked into the environment, leading to an infected human spreading the virus in the crowded, poorly-ventilated Huanan Seafood Market.

The Intercept’s Ryan Grim noted recently on The Hill’s Rising podcast that China’s version of the Centers for Disease Control and Prevention (CDC) has a virology lab a mere 500 yards from the Huanan Seafood Market (see Figure 1) — a lab which has, in the past, been cited for inadequate biological containment and control practices.

Figure 1: Map of Central Wuhan and location of the Huanan Seafood Market relative to known virology labs

Map of Central Wuhan, China

As willing as most virologists are to declare that SARS-CoV-2 is natural in origin, it is hard to ignore these two facts:

  • The patient-level data used by researchers to support the Huanan Seafood Market origin hypothesis was provided by the World Health Organization through Chinese authorities — a source with a strong motive to discredit the lab-leak hypothesis.
  • Chinese authorities — who shutdown the Huanan Seafood Market in early January 2020 — either did not test a sample of the animals available in the Huanan Seafood Market for SARS-CoV-2 prior to shutting the market down, or did so but did not find SARS-CoV-2 in the animals sold in that market.

The incentive for the Chinese government to prove the natural origins of SARS-CoV-2 is too great to think they didn’t go to extraordinary lengths to find the animal source of this virus.

And, yet, they have never provided direct evidence that SARS-CoV-2 resided in any animal population before entering the human population.

I find that troubling.

But, to be fair, the history of forensic virology is chock full of examples where it took years for scientists to find the source cause of a viral pandemic (see Figure 2). For example, it took nearly two decades to establish that chimpanzees (or the monkeys they ate) were the original source of HIV (and even that conclusion is tentative). Similarly, establishing horseshoe bats as the source species for the 2002 SARS virus required 14 years of forensic viral research.

Figure 2: Years required to identify the source of zoonotic viral outbreaks

Source: Office of the Director of National Intelligence (National Intelligence Council)

Since these two latest studies were initially released in February, very little new information has been released on COVID-19’s origin, with the notable exception of an article in the Proceedings of the National Academy of Sciences authored by economist Jeffrey Sachs and Neil Harrison, a Columbia University professor of molecular pharmacology and therapeutics, in which they report scientific evidence that “a sequence of eight amino acids on a critical part of the virus’s spike protein…is identical to an amino acid sequence found in cells that line human airways.”

If true, could adaptations and random mutations in nature have resulted in such a coincidence? According to Sachs and Harrison, this coincidence is improbable enough to justify a more thorough investigation into the lab-leak theory.

However, there appears to be no momentum in scientific or political circles for such an inquiry, in part, because it likely would require significant cooperation from the Chinese government that has — up to now — done more to hinder rather than support such a deep-probing, independent investigation.

Beware of the Causal Fallacy

I’ve made a career out of analytic mistakes. Declaring the COVID-19 pandemic as effectively over in January 2020 was not my best analytic moment — though, in my defense, I relied upon Chinese government data when making that forecast. Which is why no researcher should rely solely on biased data sources for their analyses.

And there is one logical fallacy almost every data analyst has fell victim too at least once over their career — it is the causal (or questionable cause) fallacy.

Causal fallacies can occur when researchers confuse an effect with a cause, especially when they mistake something as the cause simply because it came first.

The fact that the COVID-19 pandemic started in a crowded Wuhan, China food market is not proof of its zoonotic source, but it is evidence in the direction of that conclusion. Yet, it does not rule out the possibility that someone directly or indirectly infected by SARS-CoV-2 due to a lab leak made a routine visit to their favorite Wuhan food market.

Until irrefutable evidence that SARS-CoV-2 resided in an animal population prior to entering humans is offered, it is hard to categorically deny the plausibility that the virus originated and was leaked from a lab.

This does not mean that skeptics of the zoonotic cause of SARS-CoV-2 are vulnerable to conspiracy theories. Rather it is evidence that we will never accept ‘official’ data sources without independent verification of data completeness and accuracy — particularly when the source has a clear bias as to how the data should be interpreted.

The data independence requirements are not there yet with respect to the origins of COVID-19. And without the open and genuine cooperation of the Chinese government, we may never find the true cause of the COVID-19 pandemic.

  • K.R.K.

Send comments to: kroeger98@yahoo.com