Crooked timber: Democracy and inequality as a global foreign policy agenda [feedly]

Not many problems can be fixed in  a single country anymore -- Crooked Timber is a social science/philosophy/political science blog with a good number of UK, Australian and US contributors -- mostly social democratic in outlook.

Democracy and inequality as a global foreign policy agenda
http://crookedtimber.org/2019/02/11/democracy-and-inequality-as-a-global-policy-agenda/

[The below text is a short memo I presented for a workshop on a left-liberal financial foreign policy for the US last week.]

The US left is starting to come to grips with the relationship between democracy and inequality. This builds on a variety of academic work over the last several years – most prominently Thomas Piketty's book, but also work by other academics such as Emmanuel Saez and Gabriel Zucman – which maps the growth in wealth and income inequality across rich countries, and how marked it has been in market-liberal countries such as the US. But these are no longer academic debates: they are being taken up by politicians within the Democratic party, creating a new dynamic of intra-party competition. Proposals by left-leaning politicians such as Bernie Sanders and Elizabeth Warren are not only notable in themselves, but in how they are shifting the center of gravity, so that more centrist politicians too are taking them up.

To date, most of the political attention has been on the domestic aspects of income inequality. What discussion of global trends there has been has focused on the fact that global inequality is falling as some developing countries catch up. I identify an alternative set of empirical findings that highlight how global networks shape patterns of inequality in the US and elsewhere. I argue that these findings have crucial implications for how we think (a) of inequality within the US, and (b) for the corrosive impact of inequality on democracy elsewhere. Finally, I suggest that there is an important policy agenda that might take up this work, and use it to start to reshape global structures so as to shore up and promote democracy.

Global structures reinforce domestic inequality

People think of economic inequality mostly as a domestic issue. They shouldn't. Global economic structures play a key role in generating inequality of wealth and influence.

They affect who gets what in the global economy. For example, international rules on intellectual property, laid down in a variety of multilateral and bilateral treaties help ensure the continued dominance of businesses in the US and Europe. ISDS rules notoriously favor the interests of international corporate investors over those of citizens, strengthening the ability of business to extract political concessions. The political left has paid some attention to these problems (although certainly not enough).

They also affect who gets taxed on what they get and who does not. Corporations and the very rich are able to take advantage of a whole industry devoted to crafting tax shelters that are designed to slip between the loopholes of different countries' rules, or exploit the willingness of some countries to harbor dodgy money. Some of this money stems not from tax evaders but from corruption and other forms of crime. Out-and-out tax havens have been criticized by rich powerful states looking to prevent leakage of money from their own jurisdictions. However, this grossly understates the problem. These problems are only beginning to be addressed by the US left.

Academic research is helping to map out the problem

Academic research suggests that the problem goes far beyond a small number of "tax haven" countries. Alex Cooley and Jason Sharman, for example, have carried out extensive research on kleptocratic corruption. They find that the standard picture of a world where there are relatively honest rich countries, and relatively corrupt poor ones, is quite wrong. Corruption and tax evasion is not a problem of bad countries but transnational networks. Different jurisdictions are connected together by the channels of (1) banks, (2) shell companies, (3) foreign real estate, and (4) second citizenship and investor visa programs. Notably, much corrupt activity is conducted by and through respectable banks, lawyers and accountants. In an experiment, Sharman and his colleagues pretended to be money launderers, corrupt officials, and terrorist financiers, and worked with specialist firms to set up shell companies to hide their illicit money. Sharman and his colleagues found that it was much easier to do so with firms based in Wyoming and Delaware than in notorious tax havens such as Panama.

Other scholars are trying to estimate how much money is hidden from authorities. Gabriel Zucman at the University of California in Berkeley has estimated that approximately 8% of global wealth, or US$7.6 trillion, is hidden in offshore arrangements, designed to either avoid or evade taxes.

These networks have stark implications for democracy in developing countries. As Branko Milanovic argues:

[the traditional] view that robber barons may demand the rule of law and the protection of property rights once they have acquired property seems reasonable—so long as we assume that there is no globalization. But with globalization, it is not necessary to fight for the rule of law in one's own country. …  A much easier course of action is to take all the money and run away to London or New York, where the rule of law already exists and where nobody will ask where the money came from. A number of plutocrats from Russia, and increasingly from China, are taking this route.

 

They have substantial, albeit less immediately dire implications for democracy in advanced industrialized countries, where they reinforce domestic financial and institutional arrangements that make it increasingly hard to trace money. Again, they make it easier for wealthy individuals in these countries to hide money from taxation authorities, weakening the state. In more recent estimates, Zucman and his colleagues find that a significant percentage of US GDP is held offshore (although far less than for some other countries; over 70% of the UAE's GDP is held offshore). These estimates are at best rough, building as they do on known patterns of wealth holding and extrapolating from them. The fact that offshore wealth is so difficult to measure is a substantial part of the problem.

Such networks can have other negative consequences for democracy. Unexplained international money flows played a substantial role, for example, in supporting the "Leave" vote in Brexit. There is good reason to suspect that they play a significant role in the politics of other industrialized countries. There is much speculation about the role of Vladimir Putin and Russia in financing these flows: such speculation may or may not be correct, but is almost beside the point. The obscuring networks and structures that enable political manipulation are open to a wide variety of domestic and international actors, allowing oligarchic forces to exercise substantial political influence with little or no political accountability.

This research has strategic implications for the left

The scholarship on global wealth flows and illicit financial networks is highly imperfect. It shows that there is a problem, that it is a big one, and sketches some of its contours. That is all it can do, given limitations of available data. It has clear strategic implications nonetheless.

First, and most obviously, it indicates that the problem of US wealth inequality is an international as well as a domestic one. If the left increases taxes on personal income, investment income or wealth in the US, it will surely lead to much greater efforts by those affected to minimize their tax burden. The existence of global networks – and of institutional arrangements in the US that greatly facilitate these networks, such as shell corporations – will help them do this. Therefore, reforming international networks is an urgent domestic challenge.

Second, such networks have wide implications for global democracy outside the US too. Before the Trump administration, the US made great noises about its commitment to spreading democracy. However, the US 'liberal order' also involved the massive expansion of global financial arrangements that have very plausibly undermined democracy and the rule of law in developing countries (by allowing political elites to expatriate their wealth to jurisdictions where they can enjoy security, rather than developing such institutions in their own home countries). In short, elements of this order were mutually contradictory – extensive global financial exchange aided oligarchs to stash money overseas, undermining their commitment to the rule of law.  A new left that is genuinely committed to supporting and spreading democracy worldwide must necessarily also be committed to the root and branch reform of the international financial system that the US has done so much to support.

Third – the left has options – especially in the US and Europe. The US has developed a very extensive set of tools intended to gather information from global economic networks and to use them to prevent actors from engaging in various forms of behavior that the US disapproves of. There is no reason in principle that such tools cannot be employed e.g. to gather information on global tax evasion and to punish financial actors that engage in it. Such tools have been used in limited ways to prevent US tax evasion (e.g. by punishing Swiss banks), but could be employed at scale in pursuit of a broader agenda of shoring up democracy. As Nicholas Mulder notes in a recent article for The Nation, there are enormous problems associated with economics sanctions. However, as he also says, the world would be quite different if the US went after international tax cheats with even a little of the fervor it has dedicated to pursuing businesses selling microchips to Iran. At a minimum, stronger data gathering could provide a much better sense of the extent of the problem – and its particular characteristics than is currently available, allowing better crafted policy measures. More ambitiously, they could be the seeds of a different and more politically robust international financial architecture. Obviously, such powers could be overused, provoking their own counter-reactions – they should be viewed as the building blocks of a different international order, based unlike the current one on liberal democracy rather than free market liberalism.

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Chris Dillow: Obstacles to full employment [feedly]

Short answer: capitalism. However, using the current macro economic dialog between Monetarists and Keynesians in the context of the UK Brexit debate and its side-effects, Chris Dillow asks some probing questions about the historical efforts to stabilize what may be inherently impossible to stabilize. Nonetheless it IS possible to constrain the domains of market relations by the adoption of industrial policies and the expansion of free or nearly free goods and services widely used or needed. Buddhist version: For some people, or peoples in some eras, from birth you must ride the tiger, and you must stay on his back until he collapses from exhaustion. If you fall, or leap off, the tiger will kill you.

Obstacles to full employment
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2019/02/obstacles-to-full-employment.html

Is full employment sustainable? For me, this is one question posed by the row between Richard Murphy and Jonathan Portes and Simon Wren-Lewis over Labour's proposed fiscal rule.

Richard describes the difference between them thus:

I am seeking a stable, sustainable economy with full employment. They are seeking the restoration of the model of central bank monetarism that existed from 1999 to 2008 in the UK, with well-known consequences.

This is because Portes and Wren-Lewis want to use fiscal policy to inflate the economy away from the zero lower bound, so that interest rates can again be used for macroeconomic stabilization.

Richard's desire, however, runs into a problem. Economists generally agree that at some point high employment will trigger rising inflation. What this point is is an empirical question. The fact that inflation has been quite stable since the early 90s whilst unemployment has not been makes me suspect it might be further off than the Bank of England thinks, but that's by-the-by. Which poses the question: what should we do to curb this inflation?

The conventional view, which Simon and Jonathan take, is to raise interest rates. But Richard and MMTers are right to say this isn't the only possibility; in theory tax rises are also an option, as could be public spending cuts or reverse QE. For me, this too is an empirical matter: my weak prior is to favour interest rates to some extent.

All of these policies, however, control inflation by depressing aggregate demand thereby tending to raise unemployment.   

MMTers rightly say inflation is a constraint upon government borrowing. But it is also a constraint upon full employment.  

Now, you could reject this by appealing to the idea of wage-led (pdf) growth (pdf). The prospect of continued full employment - and the wage rises and high demand it would bring with it  - might encourage firms to expand capacity and invest in raising productivity. That would help hold down inflation.

We know that this has worked in the past: it did so in the 50s and 60s.

I fear, though, that it might not be so successful this time. In the 50s there was a backlog of potential investments and innovations for firms to exploit. That facilitated high capital spending and rapid productivity gains. It's not clear we have such a backlog today.

We also know that wage-led growth ultimately failed in the 70s. There are two particular dangers here. We can call them the Minskyan and the Kaleckian.

The Minskyan one is that stability eventually begets instability. Confidence that demand will stay high could incentivize companies to over-invest thus reducing profits; or encourage banks to make ever-riskier loans; or cause share prices to rise too high. We saw all of these in the early 70s. I don't know if Richard is right to say that higher interest rates will trigger another credit crisis. But I do suspect that he underplays the extent to which capitalism can generate crises even without significantly higher interest rates.

The Kaleckian danger is that:

Under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension.

As we saw in the 70s, this can lead to lower investment and hence weaker aggregate demand and rising unemployment. I suspect this will be a problem for any government seeking full employment: capitalists have got used to decades of unemployment and so would regard its absence as weird, and this alone could depress animal spirits.

There are, therefore, big obstacles to lasting full employment within a capitalist economy: a job guarantee, as I understand it, highlights these obstacles more than it overcomes them.

For me, this is why many debates about macroeconomics leave me a little cold. They miss the point that there might be severe limits, within a capitalist economy, to how much even the best policies can achieve.

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In defence of conservative Marxism [feedly]

from   Chris Dillow's Stumbling and Mumbling Blog

WOW. provocative

In defence of conservative Marxism
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2019/02/in-defence-of-conservative-marxism.html

James Bloodworth complains that the hard left is "deeply conservative" and opposed to regime change. I don't want to address his specific argument – I've no aptitude for armchair foreign policy – but I do want to stand up for a conservative form of Marxism.

Opponents of Marxism tend to think of revolution as a sudden violent change – a replay of the storming of the Winter Palace. Most Marxists, and certainly not me, don't think this way. Just as the transition from feudalism to capitalism was a lengthy process – and certainly not one caused by serfs protesting the unfairness of feudalism – so too will be the transition to capitalism. As Paul Mason has said:

Capitalism, it turns out, will not be abolished by forced-march techniques. It will be abolished by creating something more dynamic that exists, at first, almost unseen within the old system, but which will break through, reshaping the economy around new values and behaviours.

Some call this accelerationism, others call it interstitial transformation (pdf).

Transformation to what? Marx, famously, was vague. He rejected the idea that socialism could be designed as an abstract blueprint and then imposed upon society*. In 1843 he wrote:

We do not anticipate the world with our dogmas but instead attempt to discover the new world through the critique of the old…If we have no business with the construction of the future or with organizing it for all time, there can still be no doubt about the task confronting us at present: the ruthless criticism of the existing order, ruthless in that it will shrink neither from its own discoveries, nor from conflict with the powers that be.

Experience has taught us that Marx was right. A big reason for this lies in a key insight of conservatism – that our rationality and knowledge are bounded and that there are therefore tight limits to what top-down designers can achieve. This government is making a mess of Brexit and Universal Credit. And whilst a socialist government might contain more able people than Duncan Smith or Davis its task will be much greater. We need, therefore, something more than a centralized dogmatic construction of the future.

Instead, the shift to socialism will be much like the process of capitalist evolution – a process of trial and error. As Erik Olin Wright said:

What can be worked out are the core organizing principles of alternatives to existing institutions, the principles that would guide the pragmatic trial-and-error task of institution-building. Of course, there will be unintended consequences of various sorts, but these can be dealt with as they arrive "after the revolution." The crucial point is that unintended consequences need not pose a fatal threat to the emancipatory projects themselves.

Socialistic institutions and policies that work can be expanded, so that they eventually supplant capitalism. For example, tweaks to Universal Credit such as less conditionality and more generosity could transform it into a basic income; worker directors and a say on CEO pay might inspire workers to demand greater control at work; changes to procurement policy can be used to encourage coops; a national investment bank might lead to a greater socialization of investment; and so on. And various bottom-up non-capitalistic initiatives – be they farmers' markets, community self-help initiatives, micro businesses or coops – would be encouraged by a leftist government. To take a couple of local examples (and all examples would be local), Vaughan College and plans to create a park along Oakham canal are socialistic projects.

It's in this context that I'm sympathetic to demands for things such as full employment policies or high top taxes. I regard these as transitional demands – reasonable requests which might be incompatible with capitalism. And if or when the two are seem to come into conflict, we should ask how we might transform capitalism so as to remove its barriers to efficiency, justice and liberty.

So, for example, if (which isn't very likely) high top tax rates cause a loss of government revenue, we might simply print money to cover the loss: one virtue of MMT is that it reminds us that we don't need the tax revenue of the rich. And if such taxes cause bosses and financiers to quit, we can ask how to reorganize production to be less dependent upon rent-seekers.

Similarly, if full employment policies such as a job guarantee lead to a profit squeeze and falling investment, we might ask how to circumvent this by socializing investment or by using coops (pdf), perhaps in a Meade (pdf)-Weitzman (pdf), style to overcome the tendency for rising wages to squeeze profits and hence depress employment.

Now, I have of course been vague here. But that's necessary. Socialism isn't about imposing a design upon the economy. It's about figuring out – in light of unforeseeable future conditions - what policies and institutions are best compatible with socialistic ideals. In this sense, Marxism is simply good orthodox policy-making – with the crucial difference that unlike orthodox policy-makers we do not assume unquestioningly that capitalism is inevitable or desirable. We Marxists are perhaps more conservative than Brexiters.

* The policies he proposed in the Communist Manifesto were social democratic ones, which were to a large extent enacted by 20^th century governments.

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Why Did Simon Kuznets Want to Leave Military Spending out of GDP? [feedly]

This look at whether military/police, even medicine --- or many other public, or potentially public sector services -- should be counted in GDP. What is the economic value of a public service'? or, is its value non-economic? or simply its cost, period?

Why Did Simon Kuznets Want to Leave Military Spending out of GDP?
https://conversableeconomist.blogspot.com/2019/02/why-did-simon-kuznets-want-to-leave.html

Simon Kuznets (Nobel 1971) usually gets the credit for doing as much as anyone to organize our modern thinking about what should be included in GDP, or left out. But I had not known that Kuznets apparently argued for leaving military spending out of GDP, on the grounds that it wasn't actually "consumed" by anyone, but should instead be treated as an intermediate input that supported production and consumption. Here's how Hugh Rockoff tells the story in his essay, "On the Controversies behind the Origins of the Federal Economic Statistics," in the Winter 2019 issue of the Journal of Economic Perspectives. [Full disclosure: I work at JEP as Managing Editor.]  Rockoff writes:

Military spending presented another problem. In one of his last discussions of national income and product before US entry in World War II, Kuznets (1941, pp. 19–20) explained that his estimates included "dreadnoughts, bombing planes, poison gas, and patent medicines because they are rated economic goods in our country today," even though they "might well be considered worthless and even harmful" in a society organized differently. In a footnote, Kuznets (p. 31, fn. 5) used an analogy with private spending to buttress his case for including military expenditures: "If the activities of the private police used by many large corporations are productive, why not those of the municipal police? And if of the domestic police, why not of the international police, i.e., the armed forces of the nation?" During World War II, however, Kuznets (1945) modified his thinking. He argued that military spending should be counted in national product during a time of total war, but it should be excluded during peacetime because military spending was then an intermediary good for producing a flow of consumption to consumers. Other economists, including decisively those at the Department of Commerce, thought otherwise (Gilbert, Staehle, Woytinsky, and Kuznets 1944).

A number of economists, however, have found Kuznets's concept of a Peacetime National Income to be attractive. Higgs (1992), for example, argued that the then-current interpretation of the impact of World War II on the American economy, that it created unprecedented prosperity, was reversed when one used Kuznets's peacetime concept rather than the conventional measure. Higgs even took exception to Kuznets's decision to include some military durables such as aircraft in investment because Kuznets thought that they could later be turned to peacetime purposes. 

In retrospect, a number of concerns weighed against adopting Kuznets's concept of peacetime national product. One reason, as Coyle (2014, p. 20) suggests, was the rise of Keynesian economics. In principle, one could use Kuznets's peacetime version of national product to analyze the macroeconomy, but the conventional measure fit more smoothly into the simple Keynesian model taught to a generation of economics students in Samuelson and other textbooks. Perhaps the most important reason for rejecting Kuznets's concept, however, was the Cold War. In his famous study of productivity, Kendrick (1961, p. 25) chose to include all defense spending in his estimates of national product partly on the grounds that "national security is at all times [Kendrick's italics] a prime objective of economic organization." In political terms, excluding national defense from national product would create the appearance that the government's statistical agency was siding with the critics of America's defense budget. Of course, no one was required, as Kuznets had pointed out, to use only one measure of aggregate product. To the contrary, Kuznets thought that it would be best to produce a series of measures, some specialized for one purpose and some for another. But as we have learned, public attention does tend to focus on a single measure of national product, so the decision to ignore Kuznets's peacetime concept may have had important consequences.

I find myself in agreement with the views of Kuznets expressed back in 1941, that if private security guards and municipal police are in GDP, the military should be, too.

But more broadly, the dispute serves as a useful reminder that GDP includes some categories of expenditures that society would have preferred not to make. For example, GDP includes all measures for home security and corporate security--not just guards but also locks, bars, and electronic measures. In addition, GDP includes cleaning up after pollution spills and natural disasters, although it would certainly have been preferable if such events had not happened in the first place. It would also be socially beneficial if people got more exercise and at healthier diets, and as a result a substantial proportion of health care spending didn't need to happen.

For other comments on the relationship between GDP and social welfare, readers might be interested in the well-known comments from "Robert Kennedy on the Shortcomings of GDP in 1968" (January 30, 2012). My own sense is that economists are well-aware of the shortcomings of GDP--indeed, probably better aware of the shortcomings than many critics. But economists also point out that on a wide array of dimensions, people who live in societies with higher GDP tend to live better lives. For samples of these arguments, see "Why GDP Growth is Good" (October 11, 2012)  and "GDP and Social Welfare in the Long Run" (April 6, 2015).  

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Trump Sanctions, Regime Change Strategy in Venezuela Can Only Cause More Violence and Suffering [feedly]

Trump Sanctions, Regime Change Strategy in Venezuela Can Only Cause More Violence and Suffering
http://cepr.net/publications/op-eds-columns/trump-sanctions-regime-change-strategy-in-venezuela-can-only-cause-more-violence-and-suffering

ark Weisbrot
The Intercept, February 2, 2019

See article on original site

Washington has been trying to topple Venezuela's government for at least 17 years, but the Trump administration has taken a more openly aggressive tack than its predecessors. Last week, administration officials kicked their efforts into high gear by anointing their chosen successor to Venezuelan President Nicolás Maduro Moros in advance of any coup d'etat. The 35-year-old Venezuelan member of Congress Juan Guaidó announced that he was now president, and the Trump administration, along with allied governments, immediately recognized him — in accordance with a previously arranged plan.

It is clear that President Donald Trump's goal is regime change; his administration is not even trying to hide it. And his allies, like Vice President Mike Pence and Sen. Marco Rubio, R-Fla., have long made it obvious what they are after.

It would be a terrible mistake to keep going down this road. Trump's policies have only worsened the suffering of Venezuelans and made it almost impossible for the country to pull out of its prolonged economic depression and hyperinflation.

A negotiated solution is necessary to resolve the political conflict in Venezuela, yet the Trump administration's commitment to extralegal regime change is rapidly precluding this option. Worse still, Trump's apparent strategy is to increase suffering through sanctions — more of which were just announced — until a fraction of the military carries out a coup to create a new, pro-Washington government.

The fairness of the 2018 presidential election, which the opposition boycotted, is up for debate, but the main problems with the regime change strategy have to do with other considerations. Venezuela is a polarized country and overthrowing the government — even if Washington were not involved in the fight — would only increase this polarization and the chances of greater violence or even civil war.

Consider the example of Nicaragua, where in 1990 the leftist Sandinistas and their U.S.-backed opponents agreed to settle their differences through an election. The sides had to agree on certain conditions so that the losers would not be persecuted: The Sandinistas kept control over the army after they lost the elections, and peace was maintained.

These sorts of necessary compromises would be impossible under the regime change strategy being pursued by the Trump administration.

Venezuela is polarized along political lines and has been ever since Hugo Chávez was elected president in 1998 and launched his Bolivarian Revolution. The opposition's attempt to overthrow Chávez in a military coup in 2002, aided and abetted by officials in the George W. Bush administration, as well as the opposition leadership's vacillating willingness to accept the results of democratic elections in subsequent years laid the groundwork for many years of distrust.

Venezuela's political polarization, however, also intersects with a great chasm that permeates most of Latin American society: a division by class and race. As in most of the Americas, the two are correlated. In the opposition protests that have occurred over the past decade, one could see these differences in the clothes worn by pro- versus anti-government protesters and in their skin tones. The opposition crowds and their leaders have been considerably whiter and from higher income groups than Venezuelans who supported the government. In the most recent protests, there has been an increase in anti-government actions in working-class and poor areas in Caracas, but the class and racial divide between Chavistas and opposition has not gone away.

Another line of Venezuelan polarization is the belief in sovereignty and self-determination. The Chavistas have made independence from the U.S. a centerpiece of their agenda, and their government, when it had money, pursued policies in the hemisphere that sought more independence for the region as well. The opposition and enemies of the Chavista governments, by contrast, have worked closely with the U.S. government for the past two decades — as can be seen in the coordination of this latest attempted coup. Washington's intervention aggravates the polarization along the lines of sovereignty, and opens the opposition to charges of alignment with a foreign power — and a power that has historically played a terrible role in the region. To appreciate the animosity that this would create, think of how much ill will has been generated in the U.S. by Russian intervention in the 2016 presidential election, and multiply that by a few orders of magnitude.

The polarizing impact of the Trump regime change operation is what makes it so dangerous. Inflation is probably over 1 million percent annually, and the economy is estimated to have shrunk by a Latin American record of 50 percent over the past five years. Millions have left the country to look for work. The opposition would almost certainly have won the last presidential election if they had participated and mostly united around a single candidate. (For the record, the U.S. reportedly threatened an opposition candidate who did participate, Henri Falcón, with personal financial sanctions if he ran for president.)

Though the government's economic policies have played a role in Venezuela's woes, the Trump sanctions have made things considerably worse since August 2017, decimating the oil industry and worsening shortages of medicine that have killed many Venezuelans. The Trump sanctions also make it nearly impossible for the government to take the necessary measures to exit from hyperinflation and depression.

Though the U.S. media is quiet on the matter, it's important to note that the Trump sanctions are both violently immoral — again, they kill people — and illegal. They are prohibited under the Organization of American States Charter, the United Nations Charter, and other international conventions that the U.S. is party to. The sanctions also violate U.S. law, since the U.S. president must state, absurdly, that Venezuela presents "an unusual and extraordinary threat to the national security" of the United States in order to impose these measures.

Venezuela cannot exit from this political crisis by one side vanquishing the other, as the proponents of regime change assume. The Vatican played a role as mediator in 2016, and Uruguay and Mexico — who have remained neutral in the political conflict — offered this week to help mediate. But the Trump team is a powerful influence on the opposition, and they have so far shown no interest in a peaceful solution.

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Mark Weisbrot is Co-Director of the Center for Economic and Policy Research in Washington, D.C., and the president of Just Foreign Policy. He is also the author of "Failed: What the 'Experts' Got Wrong About the Global Economy" (2015, Oxford University Press). You can subscribe to his columns here.

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Larry Summers: No trade deal can dictate our relationship with China [feedly]

No trade deal can dictate our relationship with China
http://larrysummers.com/2019/02/05/no-trade-deal-can-dictate-our-relationship-with-china/

As the United States and China continue to joust over trade and technology, the U.S. policy debate contrasts two views of the primary problem.

A first view expressed often in President Trump's tweets locates the key issue in the bilateral trade deficit that the United States chronically runs with China. On this theory of the problem, a solution is relatively easy: The Chinese could rearrange their imports of soybeans, fossil fuels and other products so more of them come from the United States, while countries now supplying China could export instead to nations now importing from the United States. This is what the Chinese keep offering since it means almost no real change in their economy. Neither levels of employment, output or total trade deficits and surpluses are likely to change much in either the United States or China.

A second view, held by more serious alarmists about the U.S.-China relationship, such as U.S. Trade Representative Robert E. Lighthizer, emphasizes problematic Chinese practices in key technological sectors. These range from theft of U.S. technologies to requirements that U.S. firms wishing to do business in China — chiefly in the development of key technologies, such as artificial intelligence — must form joint ventures with Chinese firms, especially those with connections to the Chinese government.

Such technological alarmists in and out of the administration hold that we can wall off U.S. technologies with sufficiently aggressive policies so China cannot steal them, or that we can pressure China to the point where it will give up government efforts at industrial leadership. Neither of these prospects is realistic.

In many ways, U.S. concerns over China and technology parallel concerns over the Soviet Union in the post-Sputnik missile gap period just before President John F. Kennedy's election in 1960. Or over Japan in the late 1980s and early 1990s, when it was often joked that "the Cold War is over and Japan won."

When atomic weapons were our most sensitive military secret, their creation required extensive sophisticated infrastructure. Yet the United States and Russia essentially had no normal interchange, so we were able to maintain a lead of three or four years with respect to both fission and fusion weapons.

Technology for artificial intelligence in development today, however, can be operated on widely available equipment. And there are hundreds of thousands of Chinese citizens studying in the United States or working for U.S. companies that develop such technology. Keeping U.S. knowledge out of Chinese hands for substantial lengths of time is impracticable short of a massive breaking of economic ties.

Nor is it likely for the Chinese government to halt its support of technology development. How would the United States react if other countries demanded that we close down DARPA, the Defense Department's advanced research agency, because it represented unfair competition? Or if trading partners argued that U.S. support for private clean-energy companies, such as the subsidies provided by the Obama administration, was an unfair trade practice? Much of our current information technology and communications infrastructure comes directly or indirectly out of Bell Labs, which was financed out of the profits of a government-regulated and -protected monopoly. Would the United States have responded constructively to demands from other countries to dismantle the Bell system?

A focus on resisting the Chinese economic threat will likely not only be ineffective but may also be counterproductive if it diverts private and public energy from more productive pursuits. I remember well from the early Clinton administration that the great symbol of efforts to constrain unfair Japanese practices was Kodak's case against Fuji, the Japanese photographic film company that attracted massive attention from Kodak's senior management and U.S. policymakers. Perhaps if Kodak had instead focused on the digital photography ideas its scientists had developed, it would still be a significant company.

Where we can mobilize international support, we should, of course, push China to live up to its trade obligations and seek to modify rules in the World Trade Organization where they do not cover problematic practices. But in reality, our competitive success over the next generation will depend much more on what happens in our economy and society than at any international negotiating table.

Will our national investment in applied scientific research continue to languish to the point where even the most brilliant young scientists cannot get their first research grants until they are in their 40s? Will public officials who surely know better continue to allow creationism to be taught as serious science in U.S. public schools in a century with so much progress in life sciences? Will public policy concern itself with the strength and competitiveness of U.S. information technology companies as well as with their marketing practices? Will a national effort be made to improve the dismal performance of U.S. students at every level in international comparisons of mathematical and scientific achievement?

These questions and others like them, much more than any trade negotiation, will determine how the United States competes over the next generation. The Russian and the Japanese challenges pushed us forward as a nation in very constructive ways. So can the Chinese challenge if we seize the opportunity it represents.

February 5, 2019

 -- via my feedly newsfeed

ePI: The state of American manufacturing: The failure of Trump’s trade and economic policies [feedly]

The state of American manufacturing: The failure of Trump's trade and economic policies
https://www.epi.org/blog/the-state-of-american-manufacturing-the-failure-of-trumps-trade-and-economic-policies/

Separating fact from fiction is always tough when listening to President Trump, who lives in his own, fact-free fantasy-world. This is particularly so when it comes to trade and manufacturing. Here are a few key points on that topic to keep in mind when listening to his State of the Union address. There's a lot that can be done to create millions of good manufacturing jobs for working Americans, but not the way this president is going about it.

• The trade deficit is growing more than twice as fast as the overall economy, because of the Trump administration's trade and economic policies. The total U.S. goods trade deficit has increased 18.1 percent since 2016, and our trade deficit with China has grown even faster, 20.5 percent in the same period (annual estimates, based on year to date trade through October). Growing trade deficits over the past two decades are the single largest causeof the loss of roughly 5 million U.S. manufacturing jobs.
• The Trump administration has failed to end currency manipulation and dollar misalignment, despite Trump's promise to name China a currency manipulator on day one upon taking office. Currency misalignment is the single largest cause of growing U.S. trade deficits. U.S. trade can be rebalanced, creating millions of good manufacturing jobs, by lowering the value of the dollar by about 25 percent. The failure to end currency misalignment is a major cause of GM's recent decision to close 5 manufacturing plants and outsource production, eliminating 12,000 jobs, and Ford's plan to reduce its workforce by 12 percent, eliminating 24,000 jobs.
• Trump's massive tax cuts (for corporations and the wealthy) and spending increases are expanding the federal budget deficit, pushing up the value of the dollar and the U.S. trade deficit. The dollar has increased 20 percent since 2013, including 5 percent in 2018 alone. As a result, the IMF now predicts that the broadest measure of the U.S. trade deficit will nearly double between 2017 and 2022. Growing trade deficits will decimate manufacturing over the next few years, and could push the United States into a recession.

• Trump's trade deals with Mexico and Canada and the negotiations with China will not fix our trade problems. The new tax bill encourages firms to outsource more jobs by reducing taxes paid when firms outsource production. The labor and environmental restrictions in the new NAFTA deal must be made strictly enforceable, or it will simply encourage more outsourcing. And the NAFTA deal grants drug-makers new powers to block generic competition and to lock in high medicine prices.
• Negotiations with China also seek to lock down increased protections for the intellectual property and profits of U.S. multinationals, but this will just encourage them to outsource more production to China. And China has already played its ace-in-the-hole in the trade war with the United States, lowering the value of its currency by 10 percent since April of 2018, more than offsetting the impacts of Trump's tariffs on trade flows. As a result, the U.S. trade deficit with China recently reached an all-time high, despite Trump's China tariffs.
• The most important cause of growing U.S. trade deficits and manufacturing job losses is not faulty trade deals, but a misaligned dollar. A handful of countries with substantially undervalued currencies have been running large, structural trade surpluses for several decades. This hurts workers in many countries that have persistently large trade deficits, including the United Kingdom, Canada, Mexico as well as the United States. The surplus countries are China, the European Union (especially Germany and the Netherlands), Japan, and Korea, plus a handful of countries that have engaged in persistent currency manipulation including Denmark, Singapore, Switzerland, and Taiwan.

So what should the United States be doing instead?

The single most important step we can take to rebuild manufacturing is to rebalance trade by realigning the U.S. dollar. There are several ways this can be achieved. In 1985, the last time this was done, Congress worked with the administration to encourage our trading partners to negotiate the Plaza Accord, an agreement to realign currencies. If a similar effort were to fail, Congress could authorize the U.S. Treasury and the Federal Reserve to sell dollars in global markets to reduce the currency's value to a competitive level. Or, we can impose a tax on purchases by foreign governments and investors of dollar-denominated financial assets.

Lastly, Congress should not be pressured into approving trade deals unless they achieve enforceable labor and environmental standards that can be quickly implemented. Likewise, new agreements should not be approved if they increase the incentives to outsource production from the United States. It is time for a new approach to trade, one based on a clear assessment of its implications for jobs and production in the United States.

 -- via my feedly newsfeed