Thinking Back to the 2008 Crash

DSCN9758

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.

The Firebug in Korea and China

448276456_82de10ff01_z

As the NY Times reported, Jimmy Kimmel had a concise summary of Trump’s treatment of immigrant children: “Thank you, Mr. President, for lighting the house on fire and now taking credit for putting the fire out.”

It’s good that someone noticed, but this case is far from unique.  Trump’s firebug behavior happens all the time, and he almost always gets away with it.  As with a real firebug, you can see the permanent damage once the false heroics are over.

Example number 1 is North Korea.  Trump started the fire with his visions of an imminent attack and then whipped it up as he played the out-of-control lunatic preparing a preemptive strike.  There never was any scenario where it made sense for Kim to attack the US, so Trump was in complete control of the perceived nuclear threat.  In a truly virtuoso performance he kept the fire going for many months of ups and downs (no surprise that the meeting was “almost cancelled”).  And the final act did no more than put out his own fire.

The nuclear security of the US is no better or worse than it was at the beginning.   There was no disarmament or even a concrete plan.  All the concessions were on the US side—approval of the regime and the cancelled military maneuvers (a signal of intended withdrawal).  All we’ve got is Trump telling us that Kim is now a buddy—which recalls George W. Bush’s famous comment on Putin: “I looked the man in the eye. I found him very straightforward and trustworthy—I was able to get a sense of his soul.”

The damage is on two fronts.  The first is the ringing endorsement of nuclear proliferation.   The best quote is from Beatrice Fihn, the executive director of the International Campaign to Abolish Nuclear Weapons (Ican) “We support diplomacy and peaceful solutions. But there is no agreement on nuclear disarmament and this all looked more like a big welcome party to the nuclear-armed club.”  The second problem is the signal of intended withdrawal.  China was undoubtedly happy to hear it.

However, firebug behavior is even worse when it substitutes for addressing a real problem.  That’s what seems to be happening with the Chinese trade war.  It looks like North Korea all over again.

We started the trade wars, and they’re in the news every day.  As with the Korean affair, we get a steady diet of Trump’s tough-talking belligerence together with analyst worries about the consequences.  That’s all self-created fire.  Despite the fuss, the real worry is that we’ve been set up for the deal to dowse it. Since the Chinese have already announced willingness to do something, and since Trump needs very little to cry success, there should be no problem getting the kind of PR-oriented agreement we got from Kim.  Market access can be as murky as denuclearization.

There’s another factor too.  China matters to Trump in a way no one should ever forget.  The development of China is the biggest single opportunity for the future of Trump’s businesses.   The $500 M already reported is the tiniest bit of it.  That’s another reason this great deal is going to happen.

And the damage will be monumental.

For starters, the Chinese are not amused and have cut back Chinese investment in the US to almost nothing.  Deal or no deal, there’s no reason to believe they’ll turn that around.  It also says a lot about the level of true cooperation we’re going to get on any deal.

The main point, though, is that we will miss a historic opportunity to get real trade concessions from the Chinese.  By antagonizing our European allies as well as the Chinese, we’re losing half our leverage, and Trump’s need for a deal undercuts negotiations even more.  Following the North Korean model, we’ll take what we’re given.  As the Business Roundtable of CEO’s pointed out from the beginning, there’s a real danger of missing the boat entirely.

We’ll just have to see in October!

 

Trump’s Fabulous Foreign Policy Triumphs

441215899_67bd8c207a_b1

Trump’s foreign policy has been a media success. David Brooks has decreed that Trump’s “Lizard Wisdom” is far superior to liberal elitism.  Others have called attention to Trump’s fiendishly-clever strategy of brutal attack followed by pull-back to less crazy positions.  That approach hasn’t done much for the real world, but it sure has worked with the press.

With North Korea the press turned from hysteria at the “rocket man” rhetoric to admiration when Trump decided to cool it by accepting Kim’s meeting proposal.  All that  happened, though, is that Kim received a gift that North Korean leaders have wanted for years—certified international status—with no preconditions, which is to say with no commitment to do anything at all.

Kim is running this show for his own benefit.  Whether there will be advantages or disadvantages to the US remains to be seen, but Chinese president Xi sure doesn’t look unhappy.  And the presumption of success adds pressure on Trump to get an agreement under whatever assurances Kim will accept.  The only success in this picture is Trump’s convincing the press of an accomplishment.

Next about China.  David Brooks was crowing about a new opening for American cars—ignoring that Xi had already announced an opening for American cars before the trade war.  Trump’s trade war with China seems to be following the pattern of North Korea:  bluster followed by an agreement that can be trumpeted as “great”.  And the press is likely to fall for it again, overjoyed that the trade war has been replaced by “reason”.

In fact the dual trade wars (China and the EU) have greatly weakened the negotiations with China, and Xi can be quite happy with the cards Trump has dealt.  The U.S. represents 18% of China’s exports; the EU is almost the same.  Trump took half his leverage off the table with the attack on the EU.  As far as Xi is concerned—only in his dreams!

The third issue is the cancelling of the Iran nuclear deal.  This isn’t a case of bluster and retreat, but it’s another pretty story for public consumption.  Trump, Brooks and others talk about the moral imperative (ignoring the nuclear weapons consequences) of imposing sanctions for Iran’s other transgressions.  However, not only is it clear that the sanctions strengthen the hand of the fanatical clerics, but also by turning on the sanctions we have just played our last card.  We’re simply out of the game in Iran, waiting for rescue by regime change.   It’s interesting that we expect ordinary Iranians to love us and hate the Mullahs, because we choose to starve the poor and bankrupt the middle class.

Iran now has no reason (short of war) to care about US policy,  a position they succinctly expressed with the immediate rocket attack on Israel.  We have taken one more step to complete irrelevancy in the Middle East, this time leading to a possible war and a nuclear Iran.

As Trump has said over and over again:  he can’t lose because he owns the press—he’s just too good as copy.  On foreign policy you can push that one step farther: the copy is all you get.

The Trade Wars Are a War on Trade

5518386736_dd6cbff8b0_b

The impending trade war with China has already generated the drumbeat of preparations for a real war:  “cheating”, “usurping”, “impoverishing”, “existential threat”, …  Of course with Trump you never know what’s just posturing, given how quickly the North Korean “rocket man” became “very honorable”. So there’s hope that the Chinese trade war will somehow wind down.

But even if it does, we have to recognize there is now a real, ongoing threat to international prosperity.  Trump is attacking the system of fair trade that underlies the world’s rise in prosperity since the second world war.  His notion of sovereignty means he refuses to acknowledge any limits (international or constitutional) on his ability to use trade as a weapon.  That is new, and if it wins we all lose.

 

We start by quoting a position from the Business Roundtable of corporate CEO’s on the trade negotiations with China.

“During negotiations with China, the Administration’s objective should be to secure lasting economic reforms that will curtail China’s unfair trade practices and allow U.S. businesses to compete on a level playing field. Negotiations that focus on temporarily reducing the trade deficit would make this a wasted effort. Working in coordination with our allies, the U.S. should set deadlines on those economic reforms and outline the consequences China would face if reforms aren’t made. This approach will provide an opportunity for the Chinese to produce results and for the Administration to protect the interests of U.S. businesses and workers effectively.”

The important thing about the quote is that it sees the problems with China within the context of internationally-defined fair trade.  And it emphasizes the importance of working with our allies to make the system successful.   That’s as opposed to “reducing the trade deficit”—which seems to be at the top of the administration’s list both for China and for Mexico, Canada, and others.  (This is despite the fact that our balance of payments deficit with China has decreased greatly from peak, is not a financial problem, and is not the reason for the stresses on the American middle class.)

It is important to recognize that regulating deficits is worse than “wasted effort”; it actually subverts the real objectives of fair trade.  Not only does it make China responsible for something it doesn’t completely control (we’re the ones pumping up the federal deficit), it is a rule we would never accept for ourselves.  The whole idea of fair trade is that it should be a system of known rules by which everyone can play; here we’re just imposing whatever we think we can get away with.

The quote is of course coming from businessmen, but the issue is one for everyone.  The downsides of international trade exist, but most cases the problems are of our own doing.  Further the most effective way to impose standards for labor and environmental issues is to work through the definition of fair trade.

We have already sinned against WTO fair trade once, by invoking “national security” as a blanket excuse for unilateral tariffs.   We are going beyond that here by setting rules for others we have no intention ever to obey.

 

The second example is the administration’s other major issue in the Chinese negotiations: “Made in China 2025”.

For high-tech, China today is primarily building products for western companies.  Generally most of the intellectual content and profit goes to the parent company (e.g. Apple) as the top of the heap.  Unsurprisingly, China would like to move up the value chain to get more of the benefit.  Also, China today sources most of the IC chips in the products it builds from other countries—a fact that China views as a risk to its success.  Made in China is the plan to move up.

Made in China 2025 covers just about any technical field you can think of (except AI, with its own plan), and the government expects to spend money to make progress happen.  As an idea, this isn’t terribly different from what is going on in many other countries (see here for a summary of national spending on AI).  But the Trump administration has decided that the whole idea of Chinese government involvement in technological advancement is suspect.

While Mnuchin and others use the language of fair trade to attack the Chinese plan, those attacks have lacked much specificity.  And in fact if the administration is worried about abuse, they could take the whole affair to the WTO.  What makes the case even weirder is that, as we know, the Trump administration has proposed severe cuts in US government funding for research in essentially all fields, claiming the private sector does it better.

So one has to conclude that what is going on is trade warfare pure and simple.  The Trump people (with their zero-sum view of the world) are afraid the Chinese might catch up, and their goals is to throw as many nails on the road as possible to slow them down.  That’s what passes for economic policy.

This is arrogant foolhardiness of the sort the world hasn’t seen since the geniuses of the Iraq war.  As many have pointed out, the companies most hurt will be American.  And the message for the rest of the world is clear.  The US, with quite a lot to gain, has decided it doesn’t need free trade.

The end here, as in our last piece on trade, is constitutional.  It becomes more urgent each time.

Normally, without the seldom-used national security ploy, tariffs are a matter for Congress.  When Trump got away with it on the aluminum and steel tariffs it was a scary first step.  We’re now fighting a whole trade war with China, and no one is questioning that it can be done purely by fiat.

So we no longer need to argue about whether Trump will or won’t try to make himself a dictator.  Unless something happens, he is already in position to wreck our economy all by himself.

Steven Pinker’s Enlightenment Now

enlightenment

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

megaphone-2792571_1280

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.

Yet Another Gift to China

9031550701_8a4fc41710_o

The first point to make is that the current hysteria about a trade war with China is parallel to what happened a few months ago with North Korea.  Then we had weeks of unhinged bluster that kept the press busy around the clock.  Finally it dissipated without a trace when Trump gave in to Kim’s request for a meeting—ignoring all of his and other Presidents’ demands for preconditions.

Trump had his weeks of media-certified toughness and was on to the next photo op.

(It’s not clear what will come out of the meeting, but if the South Korean trade deal is any model—it takes very little to put on a media show of triumph.  Also, it’s hard not to wonder what would happen if the two Koreas got together and decided to keep the nukes.  After all, Trump campaigned on a platform of forcing allies to take full responsibility for their own defense!)

A trade war with China is a God-given opportunity.   The Chinese have already announced as yet unspecified trade openings for the West.  So the punch line is already there—all that’s necessary is the prelude.  We’re currently getting our full-scale dose of Trump toughness on trade.  Every time the stock market goes up or down it’s just that much more publicity.  And the conclusion will be a triumphant proof of Trump’s populism for the mid-term elections.  But since Trump needs a deal, that means—as with Kim—that the Chinese are running the show.

As we’ve noted here before, this is a critical time for negotiation with China.   The West needs to be united in setting the stage for what could be a major period of international growth.  By definition this needs to be done within the framework of the WTO.  Instead of that, however, we have Trump claiming a “national security” exemption for every act of his trade war—thereby undermining the whole notion of WTO-based standards for trade.

There’s just nothing that won’t be sacrificed to a photo op.