Lara Merling
The Philadelphia Inquirer, June 20, 2018
Puerto Rico was already in trouble after suffering a "lost decade" without economic growth after 2005, leading to a default on its public debt and mass migration from the island. That was before it got hit with one of the most powerful storms in history, Hurricane Maria, on September 20, 2017, followed by criminally inadequate relief and reconstruction funds. Now some of those funds might actually end up with its creditors, compounding the outrage that the remaining residents must suffer.
A new study from Harvard University estimates Puerto Rico's death toll from Hurricane Maria to be close to 5,000 people, prompting demands for a revision of the suspiciously low official count claiming only 64 people died as a result of the storm.
To make matters worse, the Harvard study attributes thousands of deaths to delays in receiving medical care in the storm's aftermath. Many of these deaths were avoidable, an outrage that made many Puerto Ricans feel like they were being treated as second class citizens.
But their troubles were just beginning. With an unsustainable debt burden, the island's finances had been handed over to a Fiscal Management and Oversight Board (the Board) that was appointed by the US Congress. Prior to the storm, the board had certified a ten-year austerity plan that would lead to another lost decade of economic growth.
In the months after Maria, some federal support started to trickle in and appropriations from the US Congress increased. Even President Trump declared the island's public debt to be "unpayable." The situation prompted a review of the Board's fiscal plan, in order to account for the island's post-hurricane reality.
When the review process started, the Board released a set of "core principles" that promised a plan that would provide sufficient relief and focus on rebuilding the island. A number of prominent economists, including Nobel laureate Joseph Stiglitz, signed a letter warning of the devastating effects that a return to austerity would have for both Puerto Rico's people and its economy.
Yet, as my colleague Jake Johnston and I show in a new report, the Board's new post-hurricane fiscal plan takes the same path of demanding more austerity, including sharp cuts for most government services. Government agencies are also expected to implement a series of layoffs, restrict labor rights, and cut public sector pensions across the board. The measures mandated by the Board would directly hurt a large number of Puerto Ricans already struggling to recover.
Even more shocking, the plan puts aside funds for a fiscal surplus that may be available for creditors to claim. The surplus would be about $6.1 billion over six fiscal years ― actually higher than the $4.5 billion surplus that was predicted before the storm hit.
Puerto Rico needs an estimated $95 billion to rebuild, but is due to receive just $54 billion from the federal government, and about $8 billion from private insurers. The increase in the surplus is not due to Puerto Rico having too much money, but rather to the Board's seeming willingness to prioritize creditors' interests over relief efforts.
One place where austerity was not considered was for the Board itself. The plan set aside a whopping $1.5 billion to cover its expenses and professional fees. The Board's executive director has an annual salary of $625,000, topped with very generous benefits. This type of lavish spending is especially distasteful coming from an unelected body that's mandating sharp cuts for the island's residents.
Meanwhile, as our fellow citizens in Puerto Rico suffer, The Wall Street Journal has named Puerto Rican bonds the investment of the year. Bond prices ticked up after news of the projected surplus reached creditors, some of whom were vulture funds who bought the bonds at a steep discount, hoping to cash in at full value.
This is too much. The US Congress and the Federal government cannot continue to destroy what is left of Puerto Rico's economy, and drive more of the population from the island (over 10 percent have already left over the past decade). The federal authorities must arrange for debt cancellation and sufficient reconstruction ― not austerity ― so that Puerto Rico can survive and return to economic growth.
Lara Merling is a research associate at the Center for Economic and Policy Research, and lead author of the new report "Puerto Rico's New Fiscal Plan: Certain Pain, Uncertain Gain."
The U.S. may find a lesson in the rise of its own steel industry.
The skyscrapers of New York might have struggled to rise if forced to depend on imported British steel.
Photographer: ullstein bild/Getty Images
Who invented modern steel?
It's a 160-year-old controversy that's still going strong – and the answer, in a way, lies at the heart of the current U.S.-Chinese trade tensions.
Many Americans are taught that the originator was William Kelly, whose ironworks in Eddyville, Kentucky was among the first to produce the metal. In the U.K. and elsewhere, credit generally goes to Henry Bessemer, who obtained the first patents for a mass production process that's used in modified form to this day 1 .
As with the battles between Alexander Graham Bell and Elisha Gray concerning the telephone and those between Nikola Tesla and Guglielmo Marconi over the development of radio, everyone wants to take credit for a world-changing invention.
The U.S. decisively overtook Great Britain in terms of steel output in the late 19th century
Source: Federal Reserve Bank of St. Louis
While the truth falls more on Bessemer's side 2 , it's worth trying to imagine how the world might have turned out if 19th century Britain had taken the same road in relation to technology and national development that 21st century America is headed down now.
President Donald Trump's planned list of tariffs on $50 billion worth of Chinese goods will home in on technologies where China wants to establish itself as a leader, five people familiar with the matter told Justin Sink of Bloomberg News last week.
The core of the dispute is Beijing's Made in China 2025 program, a roadmap to upgrade the country's abilities in high-tech manufacturing. The plan attracted little notice and less alarm when it was announced in 2015 in the wake of a similar initiative by India, but it's now taken on talismanic qualities in Washington. Made in China 2025 was mentioned more than 100 times in the U.S. Trade Representative's March report on alleged violations of U.S. intellectual property, where it was characterized as part of a suite of policies that threaten the competitiveness of American industry.
Internet searches for "Made in China 2025" surged nearly three years after the program was announced in 2015
Source: Google Trends
Let's imagine that the government of Victorian England, instead of allowing Bessemer to license his process to the likes of Andrew Carnegie, had managed to kill off the nascent U.S. steel industry and insisted the country import from the British Isles instead.
The transcontinental railroad, which opened up the food bowls of the U.S. prairies and helped feed the world in the late 19th century, might never have been viable with more costly metal shipped across the Atlantic. George Westinghouse, who got his start in industry building brakes for rail cars, might not have had the capital to invest in the development of mass electrification. Forced to depend on expensive British-made structural beams, the skyscrapers of Chicago and New York might never have risen.
It seems a ridiculous counterfactual, but it's only so because the idea of denying China a place at the high-tech table is equally ridiculous. It's only natural for a country that's becoming (and in many respects already is) the biggest consumer of advanced manufactured goods to want to develop more homegrown expertise. That's especially so given China's fears of getting caught in the middle-income trap.
America in the 19th century was as famous for its slapdash approach to intellectual property as China is now. Before the Kelly-Bessemer dispute, Samuel Slater helped kick off the U.S. industrial revolution by memorizing details of the Derbyshire cotton milling process. He then slipped into New York disguised as a farmer to get around British laws intended to stop foreign powers acquiring its technological expertise. Charles Dickens, too, spent much of his 1842 trip to the U.S. agitating for copyright laws to prevent the bootlegging of his works by American publishers.
It's understandable that Western businesses dependent on their expertise in sophisticated manufacturing should be nervous about the emergence of a powerful new competitor. And to be sure, there are aspects of the Made in China 2025 agenda – such as the setting of domestic production quotas and the abuse of technology transfer agreements – that should be addressed. Still, as we've argued before, a less confrontational approach is far more likely to bear fruit – one that takes advantage of Beijing's own desire to improve handling of intellectual property and rebalance its economy toward consumption.
Services make up more than three-quarters of gross domestic product in the U.S., in common with most rich countries
Source: World Bank
Opposition to the spread of technology is a short-sighted way to confront China's economic rise. Despite some pockets of highly sophisticated manufacturing, services make up more than three-quarters of America's gross domestic product, and aren't likely to lose their dominance any time soon.
Even if the U.S. stood a chance of prevailing in the trade war now brewing – a doubtful proposition – it would be the wrong approach. America has far more to gain in the long term by trading with a more prosperous China than one that's been stunted by an ill-advised attempt to freeze its economy in the past.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Modern basic oxygen furnaces, the main method for making non-recycled primary steel, largely differ from Bessemer's process by using oxygen rather than air to remove impurities from the liquid metal.
Kelly's plant made wrought iron, a quite different and lower-quality product to the steel developed by Bessemer. Kelly's first public mention of his process came in an 1856 letter to Scientific American responding to a report of the patents that Bessemer had already received, trying to assert prior invention. An electron microscope examination of firebricks from a "Kelly converter" exhibited for decades in the Smithsonian Institution as a crucial innovation in the history of steelmakingrevealed that no useful metal had ever been made in it, and the converter was later removed from exhibition.
"The Kelly story is another example of how the contents of patents were often reconstructed after the fact for financial advantage and how legends about invention can be created in the process," Robert B. Gordon, a professor of geophysics at Yale University, wrote in a 1992 paper reporting the results of the Kelly converter study.
To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net
In this image made from video released by KRT, North Korean leader Kim Jong-Un shakes hands with President Donald Trump while his sister Kim Yo Jong, left, looks on during thte Singapore summit on June 12, 2018.
If there's any lesson to be taken from the events of the past week, it's that there's a major geopolitical realignment taking place, thanks in part to President Donald Trump's love of dictators—and likely helped along by whatever Russia's strongman President Vladimir Putin is holding over Trump's head.
Trump's head-snapping behavior during and immediately following the G-7 summit in Canada is a big part of the story, as is his praise for North Korea's despot boy king, Kim Jong-Un.
Putin—whose minions interfered in the 2016 presidential election to Trump's benefit, and whose oligarchs apparently hold sway in Trump World—has long sought to crack the Western alliance of the European Union with the United States, a project that appears to be coming along nicely.
Note Trump's praise for Italy's new, anti-EU Prime Minister Giuseppe Conte, whose anti-establishment Five Star Party has taken power in coalition with the country's far-right League Party. On June 9, Trump shocked U.S. allies at the G-7 meeting of Western powers by calling for the readmission of Russia, despite its seizure of a chunk of Ukraine. Conte echoed Trump's view in a tweet.
The president's use of tariffs as a weapon against U.S. allies is no doubt part of his pro-Putin agenda, and understandably does not sit well with the allies so slapped. The G-7 whiplash executed by Trump, who first peevishly agreed to sign the consensus communiqué issued by parties to the summit and then tweeted his reversal after he left the meeting (what a coward), was assessed by pundits as a negative reaction to comments made by Canada's Prime Minister Justin Trudeau, who, in a press conference at the summit's conclusion, called the U.S. tariffs "kind of insulting," especially given the fact that they were implemented on the grounds of national security.
While it's true that Trump cannot abide criticism, is driven by his massive ego, and is short on impulse control, these are not reason enough to reject the idea that there are other forces behind his behavior. Like Russia, for example. Or the so-called white nationalistswho have Trump's back. (American white nationalists are rather fond of Russia these days.)
If the armchair psychologists who dismiss Trump's behavior as mere evidence of his derangement could examine two facts at the same time, they might discern a method to Trump's madness. Those two facts are that shortly after Trump flipped the bird to the longstanding allies of the United States, he heaped praise on Kim, another Putin fanboy.
All of this came on the heels of tweets by Trump in which he continued spinning his preposterous claim that the Obama administration used the apparatus of the intelligence services against his campaign. The president hangs this accusation on the fact that intelligence services, while surveilling agents of the Russian government, picked up interactions of said agents with members of the Trump campaign.
Those latest accusations led Matthew Miller, a security analyst for MSNBC, to tweet his observation about how news media have gotten so used to such absurdities emanating from the ostensible leader of the free world that they "barely even registered." MSNBC's Chris Hayes replied how he thought it was for the best that such pronouncements were missed by reporters, and a bunch of progressives piled on about how the Trump's advancement of the false narrative amounts to a mere attempt at distraction, and should consequently be ignored.
That notion is so many kinds of wrong that I can't begin to enumerate all the wrongness there. But the meta-case against ignoring all that apparent craziness is that what Trump is doing is not crazy: It's an execution of classic tactics drawn from the authoritarian playbook. It's called "gaslighting." It needs to be covered, and set into the context from which it's drawn.
Trump had barely left his lovefest in Singapore—with a dictator who is starving his people to death and has threatened the U.S. with nuclear attack—when he declared, by tweet (of course), that the U.S. news media are the real enemies of the American people.
And it barely registered.
We're in the grips of a shift in national identity, one in which democracy and adherence to human rights as stated national values (however flawed in their actual execution) are giving way to an acceptance of authoritarian rule. And we're allowing our country to align itself against the democracies of the world at the hands of a president who is looking more and more every day like a traitor. A president who is helping to fuel the rise of the authoritarian right in Europe.
Just days after Trump walked away from the G-7 consensus statement with a slam at the prime minister of Canada, the Department of Homeland Security announced that it was planning to "strengthen the northern border."
And that announcement, you could say, "barely registered."
