Trump: I Help Myself Before I Help Others

Hillary Clinton gave a big speech today laying out the case that Donald Trump is a lousy businessman. Trump's counterargument, as usual, is that bankruptcy laws are there to be used, and anyway, only four out of his hundreds of companies have ever gone bankrupt. Oddly enough, this is actually true—but only in a hypertechnical sense, not in any sense that actually matters.

The real story is that he went enormously into debt in the late 80s, did a lousy job of running his casinos, and went completely bust. He only avoided personal bankruptcy because his creditors decided it was better to put him on a strict allowance and keep him on the team that liquidated his assets. When Trump finally recovered, no one would loan him money anymore, so he suckered the public into doing it. His shiny new publicly-traded casino company was the only time we ever got a real look at how Trump runs his companies, and it was a disaster. Trump paid himself millions, but the company never made a profit and eventually went under. Mom and pop investors lost everything. If you want all the gory details, Matt Yglesias rounds them up here.

Anyway, this is just a long windup to share with you his campaign's response to Hillary's speech:

Ladies and gentlemen, your Republican nominee for president. Makes you feel proud to be an American, doesn't it?

Guess what? The Pentagon is still lying about how effective our anti-missile defenses are. David Willman of the LA Times reports on the recent test of an anti-missile interceptor launched from Vandenberg Air Force Base in California:

The missile agency issued a news release that day touting a “successful flight test.” The agency’s lead contractors were no less effusive. Aerojet Rocketdyne Inc., maker of the thrusters, said the new model “successfully performed its mission-critical role.”

....In fact, the test was not a success, the Los Angeles Times has learned. One of the thrusters malfunctioned, causing the interceptor to fly far off-course, according to Pentagon scientists.

....Project engineers for the Jan. 28 test had planned for the interceptor to fly within a narrow “miss distance” of its target to test the new thrusters’ effectiveness. That is not what happened. The closest the interceptor came to the target was a distance 20 times greater than what was expected, said the Pentagon scientists, who spoke on condition they not be identified.

 “The mission wasn’t successful,” one of the scientists said. “Did the thruster perform as expected? No, it did not provide the control necessary for a lethal impact of an incoming threat.”

A couple of months after the failed test, the Missile Defense Agency was still keeping up a brave face. "In appearances before Congress, the agency’s director, Vice Adm. James D. Syring, has expressed no concerns about any aspect of the test, including the thrusters’ performance."

Finally, confronted with evidence of the failure, the Missile Defense Agency conceded the problem but insisted that it had been identified and fixed. "Any necessary corrective actions will be taken for the next flight test," they said. How often have we heard that before?

It doesn't bother me too much that the test failed. Anti-missile defense is a tough nut to crack, and failures are inevitable. But given the fact that we've been working on this for decades and still can't field a reliable system, isn't it about time for the Pentagon to at least start telling the truth about whether these systems work?

I haven't found much to say about yesterday's finale to the Hillary Clinton email saga. Mainly this is because we really didn't learn much new from James Comey's press conference. We've known for over a year that Hillary was careless and perhaps a bit arrogant in her use of email while she was secretary of state, but also that she almost certainly did nothing that would lead to criminal charges. Comey added a few details to the story, but nothing that changed the basic contours of what we already know. I didn't read a single commentary yesterday that struck me as even modestly interesting.

Politically, though, there's something we can learn from this. Consider two "scandals." The first is Benghazi. Hillary Clinton did nothing wrong. It was, essentially, a complete nothingburger. The second was Emailgate. In that one, Hillary unquestionably did things that were foolish at best and possibly criminal at worst. It was a genuine story.

But Republicans treated them both exactly the same. It didn't matter whether Hillary actually did something wrong or not. They went after her with their usual Whitewater/Travelgate/Vince Foster level of fury, convinced that if only they yelled loudly enough the country would finally see her unmasked as the villain she really is. And they're still doing it. James Comey has spoken, and no one reasonable thinks he's on the take for the Clintons. But conservatives are almost unanimous in their shrieking that she is too guilty and ought to be put behind bars. Paul Ryan is now promising a probe of the probe, and idiotically calling for the director of national intelligence to "block" Hillary's access to classified information while she's running for president. The only surprise here is that he isn't demanding that Hillary's access to classified information be blocked even if she wins.

After eight years of Bill Clinton's presidency and now four years of Hillary Clinton's post-cabinet career, Republicans have been crying wolf about Hillary for more than a decade. It's pretty obvious that they're going to continue, and that they really don't care whether she's actually done anything wrong. I have a feeling the public may finally be getting tired of their games.

Report: Tony Blair Lied Britain Into War

It took seven years, but the great and good of Britain have finally concluded that Tony Blair basically lied them into war:

Tony Blair has responded to criticisms made in the Chilcot report by saying he takes full responsibility for leading Britain into the Iraq war following the “hardest most momentous, most agonising decision” of his life....“For all of this I express more sorrow, regret and apology than you can ever know or believe,” he said, in a speech in which his voice cracked with emotion.

....In a forensic account of the way Blair and his ministers built the case for military action, Chilcot found that Blair disregarded warnings about the potential consequences of military action and relied too heavily on his own beliefs, rather than the more nuanced judgments of the intelligence services.

A memo published by Chilcot also revealed that Blair had written to the US president, George W Bush eight months before the 2003 invasion, promising him: “I will be with you, whatever.”

More here.

How Likely Is a Recession in 2017?

Deutsche Bank says there's a strong chance that the US economy will go into recession within a year:

The so-called yield curve suggests there’s a 60% chance of a U.S. recession occurring in the next 12 months, according to analysts at Deutsche Bank, led by Dominic Konstam....The bank’s fixed-income researchers looked at the difference between the three-month and 10-year U.S. Treasury yields, which has been narrowing sharply in recent months. Adjusting for the low level of short-term rates suggests that the yield curve is already inverted, they found.

“Given the historical tendency of a very flat or inverted yield curve to precede a US recession, the odds of the next economic downturn are rising,” the analysts found.

I'm not quite sure how predictive the yield curve is at the moment, but I have my own reasons for fearing a near-term recession. The chart on the right shows it in a nutshell: housing prices are getting near their bubble highs of 2006, while household incomes are growing slowly.1 There are lots of measures you can use to detect a housing bubble, but my standby has always been a simple one: house prices vs. income. At some point, if house prices outpace income by too much, people just can't afford to buy new homes. Then prices fall and—if the decline is steep enough—a recession follows.

We're not out of whack by as much as we were in 2006, but we're getting there. Add in the length of the current expansion, Europe's continued sluggishness, Brexit fears, and the Chinese slowdown, and there are plenty of reasons to be nervous about the economy. Our next president might have a pretty tough time in her first couple of years in office.

1Both series are in nominal dollars, indexed to January 2000 = 100.

Over the weekend Brad DeLong wrote a post about Kansas Gov. Sam Brownback and how his disastrous tax cuts have decimated the state's economy. It prompted several of the usual comments, and DeLong highlights this one in particular:

The process Brownback has put the state on isn't something he regrets. And obviously over the next several years, Kansas will recover in that it won't get worse and will have growth that more or less tracks national growth. And at that point the state will declare Brownback's policies to be a "success."

This reminds me of something I've meant to point out for a while: economies always recover eventually.1 Conservatives take advantage of this fact by loudly and clearly insisting that their proposed tax cuts will supercharge economic growth. They know that eventually there will be growth, and when it happens they can then loudly and clearly insist that their tax cuts were responsible. Since they've been loudly and clearly saying this all along, ordinary citizens conclude that they're right.

Democrats don't really do this. When Barack Obama put together his various economic initiatives in 2009, for example, he was pretty circumspect about what they'd accomplish. Ditto for Bill Clinton in 1993. When they ran for reelection, both of them touted their economic achievements, but only in fairly broad terms. Obama didn't insist that his stimulus bill was a magic bullet and Clinton didn't claim that tax hikes and deficit reductions were always and everywhere the key to economic growth. Because of this, ordinary citizens never strongly associated the policies of either man with economic growth.2

Why is this? Stimulus programs and deficit reductions have about as much to do with economic growth as tax cuts: some, but not a lot. And none of them can truthfully claim to be the secret sauce for all economic woes at all times.

But that doesn't bother Republicans. They've been focused like a laser beam on tax cuts as economic miracle workers for more than 30 years now. The fact that virtually no evidence supports this claim doesn't matter. Democrats, conversely, can't quite bring themselves to make the same unequivocal claim. Are they too embarrassed to just flatly lie about it? Too disorganized to agree on any one thing? Too muddled to make their points loudly and clearly? It is a mystery.

1Except maybe for Greece. We'll see.

2Until much later, that is. Bill Clinton is now generally associated with the strong economy of the 90s, but it took a decade of weak economic growth to make him look so good.

The big Donald Trump news over the holiday weekend was Stargate. This refers not to the TV show, but to the Star of David on top of a pile of money that he retweeted to symbolize how corrupt Hillary Clinton is. At first glance, retweeting this anti-Semitic trope seemed like it was probably due to the fact that Trump's inner circle is almost exclusively a bunch of white men who just didn't notice that this might be offensive. In other words, dumb and insular, but not malevolent.

Except for a couple of things. First: Trump deleted the tweet within a few minutes and photoshopped a circle on top of the star. Then he went on offense, claiming that the star was really a sheriff's star, not a Star of David. This prompted an entire Twitter meme (sample: "I was born a conservative sheriff, but my folks converted to reformed sheriff when I was 12") but also a serious question: If it was really a sheriff's star, why delete the tweet?

Second and more important: Trump didn't create this graphic himself. He retweeted it from the account of an obvious white supremacist who plainly meant this to be a Star of David. Was this just a mistake? Did Trump have no idea who this guy was? Perhaps. And yet, why was he—or someone on his staff—following this account in the first place? And why does this "mistake" seem to happen so often? This is hardly the first time Trump has retweeted something from a white supremacist. Here are Ben Kharakh and Dan Primack a couple of months ago in Fortune:

In late January, Donald Trump did something that would have sunk almost any other presidential campaign: He retweeted an anonymous Nazi sympathizer and white supremacist who goes by the not-so-subtle handle @WhiteGenocideTM. Trump neither explained nor apologized for the retweet and then, three weeks later, he did it again. This subsequent retweet was quickly deleted, but just two days later Trump retweeted a different user named @EustaceFash, whose Twitter header image at the time also included the term "white genocide."

…It is possible that Trump―who, according to the campaign, does almost all of his own tweeting―is unfamiliar with the term "white genocide" and doesn't do even basic vetting of those whose tweets he amplifies to his seven million followers. But the reality is that there are dozens of tweets mentioning @realDonaldTrump each minute, and he has an uncanny ability to surface ones that come from accounts that proudly proclaim their white supremacist leanings.

Kharakh and Primack wanted a more quantitative analysis of this, so they hired a firm to perform a network analysis. They identified the 50 most influential "white genocide" Twitter accounts and then looked at Trump's tweets. Here's what they found:

Since the start of his campaign, Donald Trump has retweeted at least 75 users who follow at least three of the top 50 #WhiteGenocide influencers. Moreover, a majority of these retweeted accounts are themselves followed by more than 100 #WhiteGenocide influencers.

But the relationship isn't limited to retweets. For example, Trump national campaign spokesperson Katrina Pierson (who is black), follows the most influential #WhiteGenocide account, @Genophilia, which is best known for helping to launch a Star Wars boycott after it became known that the new film's lead character was black. (Below are some recent #WhiteGenocide tweets from @Genophilia.)

Fortune also used Little Bird software to analyze the top 50 influencers of the Trump campaign slogan #MakeAmericaGreatAgain, and found that 43 of them each follow at least 100 members of the #WhiteGenocide network.

This could be just a coincidence. White supremacists love Trump, and Trump just accidentally happens to retweet a lot of their stuff. Unfortunately for Trump, you'd have to be an idiot to believe that, and he's running out of idiots. Even Republicans weren't trying to defend him over the weekend. Paul Ryan just sighed: "I really believe he's gotta clean up the way his new media works," he said diplomatically.

But Trump runs his new media himself. It's one of his biggest claims to fame. To clean it up, he needs to clean himself up. And he shows no signs of being willing to do that.

Italy Is Next In Line For a Banking Crisis

The Wall Street Journal reports that Italy could be ground zero for the next European economic crisis:

In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.

....The U.K. vote to exit the European Union has compounded the strains on Europe’s banks in general and Italy’s in particular.... Brexit has many executives concerned that central banks will keep interest rates lower for longer than they might otherwise, in an attempt to counteract the slower growth—in the eurozone as well as Britain. European banks’ stocks slid after the vote, with those in Italy especially hurt.

....“Brexit could lead to a full-blown banking crisis in Italy,” said Lorenzo Codogno, former director general at the Italian Treasury. “The risk of a eurozone meltdown is clearly there if Brexit concerns are not immediately addressed.”

It's not clear to me just how bad things really are in Italy, since the Journal compares their level of nonperforming loans to the US, not to peer countries like Portugal or Spain. Even better would be to tell us how Italy's current NPL level compares to past levels. It it really way out of whack historically? Or just mildly worse than usual during this phase of an economic cycle?

That said, it's apparent that Europe's banking sector continues to have problems thanks to the endless can kicking done between 2010 and 2014. The hope that everything would just spontaneously get better if structural problems were ignored long enough was never a great plan, and it still isn't. However, a standard bank bailout isn't possible, thanks to new rules adopted by the EU two years ago. Philipp Hildebrand suggests instead something simpler:

As Angela Merkel, German chancellor, has pointed out, the rules as they stand...permit the temporary shoring-up of banks with public money to make up for a capital shortfall revealed by a regulatory stress test, if raising private capital is not feasible. It is a fortunate coincidence that the 2016 European Banking Authority’s stress test campaign is under way. And it is clear, with most European banks trading far below book value, that raising private capital at this juncture is not a practical option. At the same time, most European banks are perfectly viable, and so resolution is not the way to go.

The European Commission should therefore allow those governments that wish to do so to take temporary equity stakes in banks that need a capital boost. Importantly, state aid rules apply, so this should not be a free handout. Rather, it should be conditional on banks committing to significant steps to address the structural difficulties they face and diversifying income sources. This would be similar to the US Tarp process in 2008 that ended up returning money to taxpayers.

Perhaps so. "Temporary," of course, has a tendency to last a long time in some countries. Still, this might be the best and easiest solution. If Italy thinks it best to rescue its own banks with an equity infusion, they should probably be allowed to do so. Ditto for Portugal, Spain, and other countries with continuing bank sector weakness. I don't know if it would work as well as TARP did—and TARP did work, despite the bad rap it's gotten—since Italy's economy is fundamentally weaker than the US economy ever was. But it's worth a try.

Hillary Clinton Innocent

The FBI has concluded that Hillary Clinton was careless in her use of a personal email server, but that's all. No criminal charges will be brought:

With respect to the thousands of e-mails we found that were not among those produced to State…We found no evidence that any of the additional work-related e-mails were intentionally deleted in an effort to conceal them.

…Although we did not find clear evidence that Secretary Clinton or her colleagues intended to violate laws governing the handling of classified information, there is evidence that they were extremely careless in their handling of very sensitive, highly classified information.

…While not the focus of our investigation, we also developed evidence that the security culture of the State Department in general, and with respect to use of unclassified e-mail systems in particular, was generally lacking in the kind of care for classified information found elsewhere in the government.

…Although there is evidence of potential violations of the statutes regarding the handling of classified information, our judgment is that no reasonable prosecutor would bring such a case…In looking back at our investigations into mishandling or removal of classified information, we cannot find a case that would support bringing criminal charges on these facts. All the cases prosecuted involved some combination of: clearly intentional and willful mishandling of classified information; or vast quantities of materials exposed in such a way as to support an inference of intentional misconduct; or indications of disloyalty to the United States; or efforts to obstruct justice. We do not see those things here.

Even conservatives expected this and have been preparing the ground all weekend to insist that the whole thing was rigged and Hillary really is guilty regardless of what the FBI says. Good luck with that, folks.

Bottom line: Hillary Clinton screwed up. She's admitted this repeatedly. Other investigators have come to the same conclusion. If you want to criticize her for this, that's fine. She deserves it. But there was no criminal intent and essentially no chance that a jury would have convicted her. We've known this for months now. Now we know it officially.

Stephen Rose writes in the Washington Monthly that the middle class is indeed shrinking. But this is good news—if you use a specific measure that he created for no apparent reason. Basically, he took the definitions of rich, middle class, and poor from 1979 and adjusted them for inflation. Then he compared that to incomes in 2014. Voila! More people are in the higher income groups.

This is uninteresting. It's a mathematical consequence of the fact that incomes have grown in real terms since 1979. They haven't grown by a lot for those who aren't rich, but they've grown nonetheless, and that means everyone automatically moves up in 1979 terms. If we did this same exercise for the year 100 AD, we'd find that virtually everyone in the country is now part of the top 1 percent. Big deal. I honestly don't understand what the point of this is supposed to be. It's literally meaningless.

But I nonetheless want to point out what Rose does with his results:

The widening gulf between some middle-class Americans and their neighbors also helps to shed new light on the depth of populist anger. For most Americans, the plutocrats in the top 1% are remote figures whose standard of living is impossible to attain. But it’s another thing to be confronted by the success of those in one’s everyday experience.

As Dennis Gilbert notes in his The American Class Structure in an Age of Growing Inequality, many people without college degree feel disrespected by those with a college degree. Often when they think about the “rich,” it is anyone with $100,000 or more — not those in the true one percent earning $350,000 or more.

....The tensions and resentments of the bottom 70 percent are much more based on interactions of the middle class and lower middle class with the upper middle class than they are with interactions between the middle class and the rich. Couple this with rising uncertainties and anxieties about the future and you have the disappointment and anger that have benefited the populist campaigns of Republican Donald Trump and Democrat Bernie Sanders.

Rose presents no evidence that the gap between the upper middle class and the lower middle class is any greater than it's ever been. Nor does he present any evidence that working class resentment toward the upper middle class is any greater than it was in the past. In the 50s, Joseph McCarthy pretty clearly appealed to resentment against the egghead class. In the 60s, Richard Nixon appealed to hardhats who resented elite opposition to the Vietnam War. "Reagan Democrats" are the stuff of political lore. Newt Gingrich and George Bush made hay with the resentments of evangelicals against latte-sipping liberals who looked down their noses at them. This kind of class-based resentment is nothing new.

So: Is working-class resentment against the upper middle class any greater than it used to be? There's certainly no income-based argument that it is. Nor do I know of any poll-based evidence. Nor even any real anecdotal evidence. As near as I can tell, "real America" has been angry at coastal elites pretty much forever according to the campaign reporting we see every four years.

I wouldn't be surprised if members of the lower middle class are more resentful of elites today than they were in the past. But I'm awfully tired of hearing this asserted endlessly based on nothing much at all. Throw me a bone, folks. Give me some real evidence that the working class is angrier than it's ever been. Anything will do. Polls. Surveys. NSA wiretaps. Something—other than the fact that Donald Trump has a following among a group of Republican voters who have been mad at the eggheads forever and mad at Democrats ever since the Civil Rights Act was passed. What have you got?