Month: September 2016

Sure, the federal government has been largely dysfunctional since 2010, due mostly to vandalism caused by the GOP.  Fortunately, our system of limited government at the federal level means that a vacuum can be filled by state and local authorities and by the private sector.  Unlike nations with strong men, therefore, we can survive mediocre or worse leadership in Washington.

Otherwise, our future is bright, particularly relative to the other countries that I analyzed earlier this week.  We have a looming demographic problem, but it is smaller than our competitors’.  Our culture is vibrant.  We have friendly neighbors (at least as long as Trump isn’t President).  Our economy has consistently grown faster than the EU’s in the recent past.  I doubt there is any world leader, including Xi, who wouldn’t gladly trade his problems for ours.

Our biggest challenge, in my opinion, is to maintain our position as the guarantor of a rules-based system of international relations without succumbing to imperial overstretch.  That will be the subject of a post in the reasonably near future.

So now I turn to the US.

Our politics sure are a mess.

But our people are strong

So as we move along

Our future should be a success.

Many Americans believe in a caricature version of France:  a dying country with a huge welfare state where nobody can be bothered to do any work.  In reality, the size of the French welfare state is fairly unremarkable, its workers are very productive, and the country, relative to all of the EU nations except Germany, is growing at a reasonable pace.

And there lies the rub.  Germany, as a result of labor market reforms proposed by an ostensibly socialist government about fifteen years ago, is growing much faster than France.  The EU was essentially designed as a partnership between France and Germany, but everyone recognizes that it is an unequal relationship now, and that is an affront to the French public.

The problem with France is not the size of its welfare state, but its labor regulations, which have discouraged investment and created two classes of workers:  one (mostly old workers) with excessive protections; and a second (mostly young) with none.  You would think that the young workers would rise up and attempt to overthrow this regime, but they have embraced it in the hope that they, too, will benefit from it when their time comes.

The French people are perfectly aware of this situation, but have been unable to do anything about it.  What typically happens is that the government (both left and right-wing) proposes some very moderate reforms, the unions go out on the street, the reforms get watered down even further, and the result is weak legislation which does little good, but creates suspicion about the government’s ultimate motives when the cycle begins anew.

What does this mean for 2030? Reforms are clearly necessary, but significant change in France typically happens in convulsions.  Expect at least one such convulsion between now and then–possibly shortly after the 2017 election, which could be won by Le Pen.

I turn my attention to France.

Young workers there don’t stand a chance.

The people are mad.

Some change wouldn’t be bad.

But the leadership seems in a trance.

Trump puts himself forward as the spokesman for the white working class, but his tax plan is a gigantic giveaway to–wait for it–people like himself!  Workers only get the crumbs off his table.

Why isn’t there more public discussion about this?

It’s obvious that the focus of politics in the UK over the next several years will be on Brexit, nationalism, and constitutional change.  A major split in the Labour Party is highly likely, and the Conservatives could follow sometime thereafter.

But what of the country in 2030?  Here are my predictions:

1.  Scotland will leave the UK, and Northern Ireland may, as well.  The domination of Scottish politics by the SNP reminds me a bit of the situation with the Home Rulers in Ireland around the turn of the 20th Century.  I don’t think Scottish independence is a good idea, but it isn’t up to me.  Irish reunification, on the other hand, would largely be the result of positive changes in the Republic, and would be welcome.

2.  There will be a single major center-right and center-left party in 2030.  The right-wing party will be the Conservatives, simply because conservatism is an idea grounded in human psychology that never really goes out of style.  The left-wing party probably will bear little resemblance to the current Labour Party, which is largely an anachronism.  The first-past-the-post system essentially dictates that, over the long run, minor parties will collapse into the larger ones.

3.  Britain will remain close to Europe, and will be a cosmopolitan, dynamic society.  It was the older people in the UK who voted Leave;  they will be far less of a factor in 2030.  Young people in Britain want a multi-cultural society, and they will get it.

The big remaining question is what name will be given to the remnants of the UK?  One thing is for sure:  it won’t be Former United Kingdom.  I’m betting on Britain, without the Great.

The nation they call the UK.

Its parties are in disarray.

Labour’s likely to split.

Brexiteers pitching fits.

Times are changing;  that’s all you can say.

Greg Mankiw is what passes for a reasonable, sober right-wing economist these days.  After reading his op-ed in the NYT on Sunday, I can only say that the bar has been set really, really low.

Mankiw makes the case for abolishing the estate tax by reference to two hypothetical rich families, one of which is spendthrift, and the other is frugal.  He argues that it is unfair for the spendthrift family to pay a lower overall tax rate, when you consider consumption, income, and estate taxes, than the frugal family.  He also contends that there are better mechanisms to fight inequality, such as the abolition of the carried interest loophole and limits on deductions, than the estate tax.

Here are my reactions to his arguments:

1.  The primary purpose of the estate tax is to avoid the creation of wealthy dynasties.   For reasons best known to him, Mankiw focuses exclusively on the impact to the dead members of the family; he doesn’t seem to care that their successors, under his regime, inherit huge fortunes and do not have to work for a living.

2.  The estate tax is economically efficient.  Relative to income taxes, the estate tax creates fewer burdens on one’s incentive to work.  It also provides a guaranteed pot of resources from which the tax can be paid.

3.  Tax policy is not a morality play.   Mankiw appears to accept the Teutonic view that saving is always good, and consumption is evil.  In a world in which corporations are sitting on mountains of cash because they don’t see sufficient demand for their products in the future, this attitude does not make sense.

4.  The alternatives he cites for fighting inequality would be much less effective.  The carried interest loophole only applies to hedge fund workers, and plutocrats do not rely primarily on itemized deductions to maintain their fortunes.

I agree with his point that it is not good policy for the thresholds and the rate of the tax to oscillate wildly.  I don’t expect, or advocate for, substantial changes to the system that exists today.  I do not, however, believe that the abolition of the tax makes any sense, except to billionaires who think that the solution to the problem of cash mountains is to make them even larger.

There is a fairly lively debate going on as to whether it is the growing strength or the emerging weaknesses of China that represent the greater threat to the existing world order.  There are plausible arguments on both sides.

Here is my analysis of China’s strengths and weaknesses:

Strengths

1.  A pragmatic, resilient, confident population with a record of accomplishment that spans thousands of years.
2.  A government which, until recently, had somehow managed to graft capitalist institutions on an agrarian communist system and make it work.   The magnitude of this accomplishment is breathtaking, particularly if you consider the condition of the country after the Cultural Revolution.

Weaknesses

1.  Due partly to the one-child policy and partly to industrialization and urbanization, China is facing a demographic time bomb that will make its low-wage industries less competitive over time.
2.  For the same reasons, the government will ultimately be compelled to create, and pay for, a real safety net in lieu of relying on local authorities and families to solve the problem.
3.  The political and economic systems are rife with glaring contradictions.  The Communist Party no longer believes in Marxism; the state tries to encourage innovation in culture and business while stifling free expression; the Communist Party maintains its right to use power arbitrarily while attempting to create an inviting climate for business; etc.
4.  China is surrounded by neighbors that are either actively or potentially hostile.
5.  The government, in recent times, has tried to maintain stability in the face of problems created by excessive debt by increasing the debt, which obviously won’t work in the long run.
6.  Younger Chinese have no memory of the condition of the country in the 1960’s and 1970’s.  They will have less patience with the government than their parents do when it fails to meet their rising expectations.

So how does this play out by 2030?  Here are some tentative predictions:

1.  There will be a serious debt crisis between now and 2030 that will have world-wide implications.  The government has enough resources, including some residual goodwill among the population, to survive it.
2.  Growth will slow significantly, partly due to natural forces, and partly due to the government’s inability to adjust to changing circumstances and resolve the contradictions identified above.
3.  The government will succeed in creating a viable safety net.
4.  China will become the world’s largest economy, but will remain stuck well behind Japan and South Korea in terms of per capita GDP.
5. Its relations with its neighbors will be the subject of future posts.

How would the world look today if the 9/11 attacks had never happened, or had failed?  Islamic extremism and terrorism predated 9/11, and many of the sources of conflict would have existed regardless of the outcome of the attacks, so you can’t reasonably say we would be living in a world without Islamic terror.  On the other hand, the magnitude and visibility of the threat probably would have been much different.

ISIS and Iraq are part of the same poisonous package.  It is clear that Bush 43 and his neoconservative friends wanted a war with Saddam, and that the ostensible rationales for the war had little logical connection with 9/11.  On the other hand, 9/11 was an essential part of the psychological climate that created support for the invasion, and Bush and Cheney occasionally made false references to Saddam and terrorism in making their case to the American people.  Would the Bush Administration have found a pretext for war with Saddam that would have mobilized the American people without 9/11?  Or, to put it another way, would Saddam have eventually done something stupid and aggressive enough to sell the war to the American electorate?

I don’t have a definitive answer to that.  To me, it is a 50:50 proposition.

As we watch Putin strut his stuff in Ukraine and the Middle East, it is tempting to think that his aggressive behavior has “made Russia great again.”  That’s certainly the impression he is trying to create, but it isn’t true.  The fact is that both Syria and Ukraine were run by strong men allied with Russia in early 2014; today, Ukraine is a hostile state, and Syria is a shambles.  In spite of its military and diplomatic displays, Russia is weaker today than it was two years ago, and that doesn’t even take its economic problems into account.

When you project the condition of the country out to 2030, it only gets worse.  At that point, Russia will almost certainly have endured a succession crisis;  the history of second acts behind strong men isn’t pretty (just ask Maduro about that).  The population and average life spans are declining.  The country doesn’t sell anything that anyone wants to buy except oil and natural gas, both of which will have less value over time, as renewables become more affordable.  The political system practically runs on corruption.  Anyone with money wants to leave.

It’s hard to be optimistic in the long run.  In the short run, it’s all smoke and mirrors.

 

(It’s a pun:  get it?  Trompe d’oeil?)

Trump reiterated his support for “taking the oil” in Iraq at the Commander-in-Chief Forum last week.  Leaving aside the fact that any such action would have been inconsistent with the professed objectives of the war and dissolved all of the public support for it, both domestically and abroad, let’s follow up on Matt Lauer’s question:  given that oil fields, unlike gold and art treasures, cannot simply be packed up and sent home, how could this be accomplished?

Trump indicated that it would be necessary to maintain a small residual force in order to protect the oil fields.  It isn’t that simple.  No possible government of Iraq would acquiesce to American control of its principal source of revenue, and the population would be outraged.  In addition, the oil would have to be moved out of the country, either by pipeline or truck, and both would be extremely vulnerable to saboteurs.  As a result, it would be necessary to provide armed protection over thousands of square miles of Iraqi territory.

There would also be questions about who, exactly, would be given the oil after it left the country, but the bottom line is that “taking it” would require an indefinite and large scale occupation of the country over the armed opposition of the residents.  The cost of that would far exceed the value of the oil itself.

It’s  certainly comforting to know that a man with such incredibly idiotic views has a realistic chance of being our next President.

About two weeks ago, I was advised that one of the comments I had posted contained malware that could infect the computers of my readers.  As a result, I am very reluctant to post any new comments that don’t clearly come from credible sources.  Anyone who wants to contact me directly can refer to the information in a post entitled, I believe, “On the Purposes of this Blog, and its Rules.”  You can find it by plugging some or all of that title in the search box.

Trump’s best hope of winning consists of convincing the American public that his opponent shares the same weaknesses that he does, so they might as well vote for the one who credibly promises change.  Thus far, the MSM have more or less gone along with this approach, due to their desires to be seen as even-handed and to see a close and exciting horse race.  Here is the way it plays out:

                                                   Trump              v.               Clinton

Foreign Policy Follies   Putin; “Take the Oil;” Tear Up Treaties        Benghazi!

Foundation Faux Pas  Illegal Contribution      Access for Nobel Prize Winner

Inequality Issue   Huge Tax Cut for the Wealthy    Wall Street Speeches

Lies, Lies, Lies      Innumerable                            E-Mail  Issue

You’re a Bigot!     Mexican Rapists, etc.        Support for 1996 Crime Bill

 

No reasonable person could look at the first and second columns and think they amount to the same thing.  And yet, here we are, in a race with an uncertain outcome.   It isn’t exactly a tribute to the virtues of our system.

 

 

There once was a man in Manila.

Of him we’ve had more than our fill-a.

He’s unleashed his thugs

On the folks who sell drugs.

You could call him Rodrigo the Killa.

 

I’ve always believed that individual political systems are the product of national culture and historical experience, rather than some concept of universal rights. The exception to that would be due process of law, without which a civilized and prosperous society, in my view, is simply not possible.  That is what makes Duterte’s approach to vigilante “justice” so obnoxious.

(Incidentally, Duterte bears plenty of resemblance to Trump, so Americans, and the rest of the world, should be viewing him as a test case for a Trump Administration.  You can see the fruits of his erratic behavior and coarse vocabulary already.)

How do we deal with this?  We have strategic interests in common with the Filipino people that transcend our disgust with Duterte.   We don’t have to embrace every aspect of the Filipino political system in order to cooperate on issues regarding the South China Sea.  The answer, to me, is clear:  tell the world openly and bluntly that America will continue to cooperate with the Filipino leadership on matters of mutual interest regardless of our belief that vigilantism ultimately accomplishes nothing, and will come to a bad end.  That approach lets us pursue our interests without compromising our values.