Don’t Pretend This Election is Normal

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On the economy:  We’ve embarked on an unprecedented binge of deficit-financed stimulus in good times.  In just the past fiscal year the deficit ballooned by an extra $300 B, far more than foreseen.   That’s a great stimulus for the election, but it will be a long, cold winter.

Erratic tariff policy is already causing layoffs and market swings, with the major impact delayed until after the election.  George Bush’s 2002 steel tariffs cost 200,000 jobs;  this time effects will go much wider.  And there is no pot of gold from these trade wars.

Finally we’re setting ourselves up for the very considerable economic consequences of ignoring climate change.

On personal welfare:  Last year’s attack on ACA showed no commitment to do anything serious about healthcare—other than remove the progressive tax that funds it.

The huge business tax cuts have produced no wage increases beyond inflation (and no jump in business investment either).  Further those tax cuts have left no room for education, infrastructure, or social services, leading to recent plans to cut Medicare and Social Security.

Supreme Court justices were chosen to fight unions and satisfy the moral pretensions of the evangelical right.  Roe v Wade is only the beginning.

On freedom: We’ve had ongoing and increasingly brutal attacks on truth and the media.  Trump’s attempts to control the FBI have not succeeded, but by all accounts a win in the mid-terms means replacing Sessions with a more obliging alternative.  We’re reached the stage where we actually have to worry about the Justice Department!

On democracy:  It needs to be emphasized that the Kavanaugh appointment completes Trump’s control of government.  With a committed majority on the Court and capitulation by Republicans in both Houses of Congress, there is effectively no check on what he does.  We haven’t had time yet to understand how bad this is going to be.  Even Constitutional limits only work if the Court will enforce them.  Without a Democratic majority in the House, there is nothing protecting the nation from whatever comes into his head—trade wars, real wars, silencing of opposition, personal vendettas, whatever.

Our founding fathers chose democracy for a good reason.  They knew all about one-man rule.  Democracy is inherently fragile, but that’s what made us what we are.  We need to preserve it.  VOTE.

Thinking Back to the 2008 Crash

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There have been many articles recently reviewing what happened in 2008 and how things have evolved since then.  It’s a good thing we’re thinking about it, but there seems to be a tinge of inevitability to our memories, as if it was all a fact of nature and we need to understand the science of how things turned out as they did.

That’s wrong.  Blithe confidence in deregulation caused the crash.  The Koch-controlled Republican Party chose—with unconscionable cruelty—to prolong the pain of the downturn, so as to get a new President who would deliver massive tax cuts for the ultra-rich.  (Remember the “balanced budget amendment” and compare with the current deficits.)  And they have placed in power and continue to support a person who in their own words “continues to act in a manner that is detrimental to the health of our republic.”  It’s a good idea to think about the crash.

Despite the much-discussed topics of globalization and automation, we are not living with unsolvable acts of God.  And there are no secret demons running around hidden in the depths of the administrative state.  Dramatically rising inequality—and the decline of the middle class—is not an accident, but a chosen result.  The deep divisions that exist in our society are not an accident, but a chosen result.  Follow the money.  Divide and conquer is nothing new.

This country has dealt successfully in the past with industrialization and massive immigration.  And was stronger for both.  And we were able to share that prosperity more broadly than it had even been done before.  We can do it again.  The current, hard-won worldwide prosperity should be good for everyone if it weren’t being sacrificed to greed.

This isn’t going to be easy.  The current inhumane, anti-democratic Supreme Court will be around for a long time.  The much-encouraged divisions in the society will not heal easily.  But we can start by heeding the recent advice of John McCain and vote out this cult that can’t even be called conservatives.  Democrats have a great variety of people running in this critical election.  Breadth of opinions is a good thing.  Belief in democracy is a requirement.

This needs to be done.  What we do matters everywhere.  We are the leaders of the free world, and that leadership is dearly missed.

NY Times: Inviting the Next Financial Crisis

This NY Times Editorial Board piece is the best summary I’ve seen of where we are and how we got there.

Our comment:

Maybe I missed it, but one thing that isn’t explicitly noted is how much worse this could be than 2008. The major stimulus then came from the US and China, both of whom are far less able today. Also the IMF issued a warning a few months ago about an enormous increase in the global level of debt. What’s particularly galling about the current situation is that the current, hard-won worldwide prosperity IS sustainable if it weren’t being sacrificed to greed.

I was glad to see the article point out the unconscionable cruelty of the Republican party in deliberately prolonging the effects of the downturn so as to sow discontent for the election. We should call things for what they were: the Republicans held the country hostage for six years, so they could deliver massive tax cuts for their ultra-rich donors.

Thrashing our Way to the Brink

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Despite Trump’s business credentials, the most immediate dangers of his presidency have always been economic. The promotional hoopla around current unemployment numbers hasn’t changed that risk.  It is worth remembering that no one foresaw the last Republican disaster in 2008, and there are similarities to that situation now.

Our basic problem is that Trump has never stopped thinking of the Presidency as a business, and that is fundamentally at odds with the reality of running a country.

Trump’s approach as a businessman is easy to describe: get all you can get away with and kill the opposition.  It doesn’t matter who gets hurt as long as you don’t get caught and come out a winner.  Even in bankruptcy.

That sounds great (“he may be a crook, but he’s OUR crook”) but as President of the most economically powerful country in the world, you can’t ignore consequences.   That’s obvious in the case of bankruptcies, but it also affects how you deal with the rest of the world.  On the positive side the progress of the world economy since the second world war shows how shared prosperity has raised all boats.  The Marshall Plan was not just benevolence, it was good policy—helping others helped us.  However the reverse is also true—disasters propagate.  Beggar thy neighbor policies have a way of biting back.

The EU, Canada, and Mexico each account for $250B in US exports—downturns in any of them affect us.  Corporate supply chains now link many countries.  China’s cheap hardware has been the basis for Apple’s profits and even for software service companies such as Google and Facebook.  We’ve already seen with the steel and aluminum tariffs that it’s easy to lose more jobs than you save.  The web of relationships can be so complicated that it’s hard even to identify all the consequences of tariffs or other such actions.  Unanticipated consequences are the order of the day.

That doesn’t mean we’re powerless to deal with problems, but “trade wars are easy” is a good way to lose big.

And there’s one more factor to keep in mind. As the IMF has warned, the world has become increasingly awash in debt, a concern for global stability.  It’s easy to be playing with fire.

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To understand the risks, it’s worth looking back at the George W. Bush administration.  There were a number of unanticipated consequences.

– Deregulation of the economy worked great for a while until it undermined the banking system and produced the worst recession since 1929.   No one saw it coming, as they didn’t know where to look.

– The collapse of the Russian economy produced abject misery.   The Bush administration refused to offer assistance (Dick Cheney’s position was “they’re the enemy, let them starve.”) The unexpected consequence was the return to authoritarianism under Putin and the rise of Russian nationalism.

– The attacks of 9/11 led to the invasions of Afghanistan and Iraq.  No one foresaw the consequences for political instability in both countries.  That in turn led to $3T wars with at most very limited benefits.  The financial consequences are still felt here today in the lack of money for education and infrastructure.

 

The risks of today’s policies are at least as bad.  We’re thrashing around inconsistently and in all directions.  We’re obsessed with trade imbalances, incorrectly treating them as a kind of scorecard with our competitors. (China sure doesn’t think they’re winners for giving us cheap iPhones that we sell worldwide at huge markup.)   We institute tariffs supposedly to protect workers but lose more jobs overall and fight unions to depress wages.  We have no plans for dealing with consequences of automation.  We’re unaccountably cutting spending on both education and basic research.

The current strong US economic position is based on technology, innovation, and the associated value chains.  We’ve now decided the current order is stupid and we’re going to fix it—without restraint.  We don’t even bother to see if we’re doing what the protected industries want.

There are explicit parallels with the Bush issues:

– We’ve gone even more gung-ho for the private sector.   They’re going to fix everything, and it’s perfectly fine to overstimulate the economy at full employment.  And run a deficit to do it.  And we just don’t have to care.

The charts below show where we are in the business cycle (one could also add the yield curve), so chances are we’ll care sooner rather than later.  Maybe we’ll undermine the EU (Trump offered France a special deal to leave the EU), maybe we’ll cripple our own supply chains in China, or maybe we can’t just keep prolonging our 10-year-old business cycle with deficit-funded tax cuts.  With all the thrashing around there are just too many chances.  Giddiness about economic success didn’t work for 2008.

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– China not Russia is the issue this time around.  They’re a tough customer, but they’ve gotten to the stage where their continued prosperity depends on ours.  We need a working relationship with them in order to develop a system of shared prosperity.   Throwing our weight around with tariffs before negotiation and insisting on our inherent right to supremacy will only make the real issues tougher.

Further we need to work through the WTO for maximum leverage.  Insisting on unilateral deals just hurts us.

– With all the generalized belligerence it’s hard not to worry about war now too.   Perhaps with Iran, perhaps not.  Perhaps Bolton is only in the administration to shut him up.  But perhaps not… With history as evidence, war is the ultimate for unpleasant unanticipated consequences.

 

The world is more leveraged and more interconnected than in 2008.  We’re going off the rails in the same ways as before.  Time to stop this train.

Mid-Term Diplomacy

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Given all the publicity around our trade wars and the North Korean negotiations, it’s worth taking a step back to look at what’s going on.  Let’s check each one.

Why have we started the trade wars?

It’s a good question, since

– The steel and aluminum tariffs have nothing to do with the real issue.

– We gave up half our leverage with China by going it alone, and there have been no significant achievements beyond what China was prepared to do anyway.

Given those facts, there is only one conclusion here—it’s reality TV for the mid-term elections.  “I’ve fought for you like no one else has ever done.”  That way every single news story is a win.  Who cares about the details anyway?

That also fits with Wibur Ross’ explanation to the Europeans of the peculiar idea that the best path to negotiation is to declare war:

“China are paying their tariffs …. China hasn’t used that as an excuse not to negotiate… It’s only the EU that is insisting we can’t negotiate if there are tariffs.”

Otherwise stated:  why can’t you people be like the Chinese?  They let us play boss when we think it looks good.  You people just have to learn.

What’s going on with North Korea?

Trump needs a deal, and he’ll get one on Kim’s terms.   It will be just like all the other agreements with North Korea—phased (and easily reversed) build-down of nuclear weapons in exchange for benefits.  Except this time it will probably include phased withdrawal of US forces from the South—a bigger concession than any other American president has every made.

However, that will be enough for the Trump propaganda machine to get going, and the rest of the press will be so relieved that Trump’s worst impulses were contained that they’ll probably agree.  And so, for public consumption, Trump can be peacemaker for the mid-terms!

 

Back in the real world, though, there are two different questions worth asking:

What do these trade games mean for our future?

If there’s any policy, it’s that we’ve decided it’s no fun winning unless everyone else loses.  So we’re not interested in alliances or trade agreements.  Prosperity is only achieved at others’ expense, so conflict is good—a philosophy that is historically disastrous and particularly inapt today.

Where is the outcry about “national security”?

Our President’s “national security” trade wars are already a constitutional crisis—arbitrary control of trade is NOT an executive power.  And it’s just going to get worse until someone finally does scream.  Trump has been increasingly willing to make up a “national security” excuse for almost anything he wants to do.  Unless the Supreme Court (or public outcry) stops him, there is no limit to where that leads.

 

Steven Pinker’s Enlightenment Now

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There haven’t been any book reviews on this site before, but Steven Pinker’s Enlightenment Now is something of a special case.  This is a political book with a message that doesn’t quite fit into the current political environment, and it includes a large body of relevant history.  Not surprisingly, Pinker finds Trump antithetical to the Enlightenment precepts he is defending.  But he also finds plenty of guilt to go around.

To start with, the book seems to have two competing objectives:

  1. Validating the fact of human progress and documenting how it has been achieved. This is really a call to action based on humanistic goals.
  2. Providing reasons for optimism about the future. This is different—good things that are going to happen for reasons such as demographics, outside the scope of specific human actors.

On the face of it, a reader expects the first subject to be primary, if only because (at this point in time) you expect any political book to end up with recommendations for what to do.  But that’s not quite where Pinker is going.  He’s trying to view history not just as a demonstration of what works, but also as a way to understand where things are going longer term.  Since the two objectives are different, it helps to treat them one-by-one.

On the first subject, Pinker does a remarkable job of demonstrating the successes that humanity has achieved—In the longer term, in the last century, and in the past few decades. This involves health, security, standard of living, and many other quantitative measures of human welfare.   Much of this is unfamiliar because, as he says, this kind of thing just doesn’t make news.  The book is worth reading for this part alone.  Pinker does a good job of demonstrating progress and what is responsible for that progress:  science, rationality, and a broad-based desire to create a better world for everyone.  It is hard to argue with the historical fact that prosperity is not a zero-sum game.

In passing Pinker tries to dispose of past arguments against enlightenment humanism.  As examples:  Humans are inherently irrational (except when they want to make a point).  Humanism is a white racist production (its advocates were on the anti-imperialist side).   Science ignores human values (just plain not true).

Predicting the future is harder, and overall I’d say that Pinker is not well-served by his desire to make things look positive.  He tries to say that nuclear war is improbable, but we know that just one outlier is bad enough.  He treats the climate change movement as a kind of hysteria, because science will just take care of it in time (based on mostly anecdotal evidence).  He views the populist phenomenon as a brief episode of backsliding until more liberal generations take over from the ones now on the verge of dying out.

So in the end it seems a shame that the future predictions tend to dominate discussions of the book, when it’s the first part—the defense of progress—that is its greatest contribution.

And then there is the question of the call to action.  What Pinker espouses is humanism—the broad-based, rational process that has delivered progress.  The problem is that humanism doesn’t have a political party.

Pinker points out that much of the political process just doesn’t work:  Issue-based movements systematically deny progress for fear of losing momentum (even though that means they frequently get caught in the bind of asking for more money to continue going nowhere).  Discussion of issues is based on faulty statistics and dishonest patterns of argument.  Democracy as a whole is not as rational or responsive as we would like to think (the chapter on that subject is well worth reading).  He gives plenty of examples of bad behavior on both the left and the right.  Both sides contributed to the grim view of reality that was instrumental in producing Trump.

So where do we go from here?  Individuals can learn to be more rational in their behavior and in their evaluation of what they see and read.  They can work with the flawed organizations that are fighting bad actors such as Trump.  They can involve themselves with specific issues and help to push them along.  All told—incremental change but no miracle solution.

That’s actually the optimism of the book.   There’s no silver bullet, but the process has worked thus far.  And hopefully we will keep it going.

Fake News

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Someone has to come out and say it.  Why does Trump keep screaming FAKE NEWS?

Trump is a salesman.  What does a salesman do if there is a flaw in his product:  claim the competition has it.  Puts them on the defensive and hides the real issue.  Fake news is a cover.

That’s all there is to say about fake news.  Contrary to some speculation, Trump is not stupid and not all that delusional.   He knows he’s lying, and he handles it the way he always has.  It’s the other side that’s lying—fake news.

That’s what he’s doing with Mueller, and taxes, and Russia ….  He knows what he is doing, he’s good at it, and he’s got Fox News and lots of other people willing to toe the line and lie for him.

It won’t help to take the bait and play defense.  That’s basically assuming there is misunderstanding and goodwill—which there isn’t.  The only way to fight it is to show that all the real examples are on the other side.  Take a few good ones from the thousands of deliberate factual errors and force his defenders to match them.

And don’t back down.  No matter how preposterous the charges, in this case there is no substitute for offense.