A very quick end of day post from me. Hope there are not too many format errors.
Riding the wave of creative destruction with President Trump is a breathtaking experience for the world. After rereading a depressing article about the state of the world published in 2014 by the Nobel Memorial Prize in Economic Sciences winner Michael Spence (my response to him calling for ‘world government’ leadership by the U.S. is included below) I then opened up the WSJ and found multiple simultaneous stimuli to restore faith in the possibility of world-shaping innovation à la Schumpeter.
Our cyclical schema stresses that kind of economic change that is particularly likely to break up the existing patterns and to create new ones, thereby breaking up old and creating new positions of power, civilizations, valuations, beliefs, and policies. (Schumpeter 1964: 279)
Trump Campaigned on Ending Foreign Entanglements. Now He Wants to Own Gaza. The president’s proposal to take long-term control of the territory was closely held among a small group of senior advisers…
NEW Trump’s plan to Make Gaza Great Again could really work. At long last, the Middle East has been presented with a bold plan that speaks to the needs of ordinary people…
The U.S. Has Rights Over the Panama Canal. Marco Rubio is right. The Neutrality Treaty authorizes America to enforce a prohibition against ‘foreign operation…
The CIA Is About to Get a Trump Makeover. Spy agency’s workforce receives buyout-style offer…
How Trump Gutted America’s $40 Billion Aid Agency in Two Weeks. Dismantling of USAID, including putting all staff on leave, appears to be a test case for new administration…
U.S. Postal Service Suspends Shipments of China Parcels. U.S. moves to halt international parcel service popular with Chinese merchants…
Using ideas as my maps
“We’ll meet on edges, soon,” said I
Proud ’neath heated brow
Ah, but I was so much older then
I’m younger than that now
from ‘My Back Pages’ by Bob Dylan
MY MODEST PROPOSAL — Ah, but I was so much older then…
MICHAEL HELLER Jul 26, 2014
Unfortunately "the huge uncontained negative spillover effects of regional tensions, conflict, and competing claims to spheres of influence" are completely unpredictable in their consequences, and radical shifts could quickly undermine preexisting assumptions and sources of order.
The world is reliant on US leadership. While the USA does remain the superpower (as we say, this could change very suddenly) it behooves it to lead in muscular single-minded fashion -- as the prime exemplar of democracy, capitalism, and rule of law -- towards the rapid creation of various priority elements of world government.
There is no puzzle about the components of world government. It is only a matter of scaling up the US governance model to the world. Granted, it could be the Belgian model, or the Congo model, or the China model. But I think it makes sense to choose the US model. It's tried and tested and immensely successful on a large territorial scale.
Why don't people nowadays even want to talk about 'world government'? It beats me. My grandfather favoured it passionately, and I admired him for that.
Be bold and proud USA. Take the decisive initiatives and unrelentingly push to create the structures enforceable global rule of law. There is no other power on earth capable of doing that.
That was my reply to —
The Global Security Deficit
Michael Spence Jul 25, 2014
FORT LAUDERDALE – Summer is normally a time to take a break from the risks and worries of everyday life, and perhaps to take stock of where we are and where we are heading. But this is increasingly difficult, because our everyday lives are becoming so much riskier and more worrying.
Much of the discussion in the period following the 2008 financial crisis focused on various economic imbalances that either threatened or impeded growth. These issues have not gone away. The US economy’s surprisingly weak performance in the first quarter, for example, has left analysts confused and uncertain about its trajectory.
But, to an increasing extent, political insecurity, potential conflict, and deteriorating international relations pose a greater threat to economic progress than the post-crisis debate foresaw.
Asia, a bright spot in terms of growth in the post-crisis years, is now experiencing rising tensions that jeopardize regional trade and growth. Japan’s somewhat fragile recovery could be derailed by an escalation of its territorial conflict with China, which is both a major market for Japanese goods and deeply integrated into Japanese firms’ supply chains.
While territorial disputes often are historically and politically important, their economic significance is usually minor, even minuscule, unless tensions like those in the East and South China Seas are allowed to get out of hand. America’s ambiguous role in Asian security – owing to its interest in supporting its regional allies while not antagonizing China – contributes to the uncertainty.
Aside from their strategic minuet in Asia, China and the United States are engaged in a cyber-security battle that is already starting to affect flows of goods, investment, and technology. On both sides, stated commitments to resolve the issue cooperatively have not produced significant results. And disputes over electronic surveillance have caused tension between the US and Europe.
The Middle East, meanwhile, has entered a period of extreme instability that will surely have negative economic effects both regionally and globally. And the tug of war between Russia and the West over Ukraine and other former Soviet satellites will adversely affect European regional stability, energy security, and economic growth.
The downing of Malaysia Airlines Flight 17 over eastern Ukraine – and, more recently, the suspension of commercial flights to Tel Aviv – adds a new dimension of uncertainty. When civilian air traffic is no longer safe from attack, one may legitimately wonder about the effectiveness of the basic systems of governance that underpin global commerce.
Indeed, the World Trade Organization is once again in jeopardy, with the Indian government threatening to veto the Agreement on Trade Facilitation reached in Bali last year, owing to disagreements about food stockpiling and subsidies. A loss of confidence in the WTO would be a major blow to an institution that plays a vital role in securing international cooperation and regulation.
The global economy is a far more highly interconnected place than it was 40 years ago. The cross-border flows of goods, information, people, and capital that are its lifeblood rely on a threshold level of safety, stability, and predictability. It is this threshold that appears to be under threat. Continued economic progress in the developing world and recovery in the developed countries requires preventing local and regional conflict from delivering large systemic shocks.
In terms of priorities, it is arguably more important for G-20 governments to strengthen the core systems that enable global flows than it is to address strictly economic issues. Moreover, there is a clear, shared interest in doing so: No one benefits from the expansion of systemic risk.
Failure to contain the impact of regional conflicts and bilateral frictions may lead to more than just supply shocks in areas like energy. The principal effect is likely to be a series of negative demand shocks: investors withdrawing, travelers staying home, and consumers closing their wallets. In a global economy in which aggregate demand is a key growth constraint, that is the last thing the system needs.
We have gone about as far as we can with a global system that is at best partly governed and regulated. As the global order defined by the Cold War (and then by a briefly dominant America) recedes into history, a new set of institutions and agreements must be developed to protect the core stability of the system.
That is easier said than done. But the starting point is to recognize the broad-based damage to the global economy’s prospects that failure to address the issue implies. Ineffective regulation in areas like food safety, infectious diseases, cyber security, energy markets, and air safety, combined with the inability to manage regional tensions and conflict, will undermine global flows and reduce prosperity everywhere.
In a way, the current global environment is a classic case of negative externalities. The localized costs of suboptimal behavior – the ones one might expect to be internalized – fall well short of the overall global costs.
Several more narrowly economic issues – for example, defective growth patterns, underinvestment in tangible and intangible assets, and the absence of reforms designed to increase structural flexibility – remain a cause for concern, because they underpin subpar growth.
But, at this moment in history, the main threats to prosperity – those that urgently need world leaders’ attention and effective international cooperation – are the huge uncontained negative spillover effects of regional tensions, conflict, and competing claims to spheres of influence. The most powerful impediment to growth and recovery is not this or that economic imbalance; it is a loss of confidence in the systems that made rising global interdependence possible.
[It is useful to be reminded what a catalogue of disasters we all faced 10 years ago. But it’s ok now, Trump is doing something about it with his whirlwind of innovations.]
As for the tariffs..
Well, Trump is ‘signalling’. Who needs who most. Y’all been taking us for granted. Do you want access to world’s largest market or not? On what terms are you going to outsource your defence by free riding on the U.S.? At what costs are you going to globally propagate socially destructive appeasement of terrorism and woke ideology?
“We got too caught up in the theory of how great markets are and didn’t focus at all on the real-world aspects that people experience,” said Joseph LaVorgna, a chief economist of the National Economic Council during the first Trump administration and now chief economist at SMBC Nikko Securities America. “Free trade sounds great when you’re trading with people who play by the same set of rules.”
Unfortunately some of the biggest players have been operating with very different rules for 20 years.
Now I will excerpt some passages from yesterday’s Americano podcast.
[NB on reading I realise the transcription is full of small errors (still useful but too many to correct). Listen to the podcast too.]
I do not wholly agree with William Clouston, but it is a legitimate and constructive perspective. In my view, tariffs are a small part of the picture. A tariff war does not spell the end of capitalism. The really important dimensions of fostering dynamic capitalism lie in other areas of economic, legal, administrative and political reform. In fact, without creative destruction capitalism is doomed. Back in 2014 most economists (including Michael Spence above) were far too sanguine about the post-2009 ‘bail outs’.
William Clouston interviewed by Freddy Gray
….for Are Trump's tariffs really that bad?
4th of February ‘Americano Podcast’ with Freddy Gray
Hello, and welcome to the Americano Show. Today, we are going to be talking about tariffs, because Donald Trump has slapped, yes, you have to use the word slapped, significant tariffs on Canada, Mexico, and slightly less, though still very significant tariffs on China too. And he is gearing up to impose more on Europe, and possibly Britain, we wait and see.
And it's causing all sorts of conniptions in the media and in the markets too. To discuss this subject, I am delighted to be joined by our economics editor, Kate Andrews, who's here with me, and the leader of the Social Democratic Party, William Clouston, who takes not the conventional view, I'd say, in Westminster Circles on Donald Trump's tariff policies. …
… William, Donald Trump thinks that the economic orthodoxy on tariffs is just wrong. And that his his tariffs will not be inflationary. And that they will just make America richer. And they will force allies to behave in a proper way towards America. Or suffer consequences. Is he entirely wrong? Or do you think he's right?
I think he's broadly right, actually. And the first thing I'd say about what he's done. Yes, it's very abrupt. But it does represent a political victory. It represents a political victory among the type of people that have been arguing for this within the Trump coalition. Obviously, it's a bit like the Brexit coalition, isn't it?” It's quite large. But the people that have been arguing for a degree of protectionism, the people that are very critical of running constant, large, persistent trade deficits, people like Bob Lightizer and Steve Bannon politically, this is a victory. I don't see it as transitory. I think the world is turning into a more protectionist phase. So I think it won't be... it was very, very interesting to watch Polyeva's... I mean, Polyeva almost certainly will be Canada's leader soon. And his reaction was very much Canada first. And all of his emphasis in the action to these corrupt tariffs on an ally was to say how can we make Canada more resilient? How can we build up our own industry? Which is exactly the right response.
I've argued for years that we're far too indifferent to what is made where and by whom and far too indifferent to who owns what. So I think it'll be messy, Freddy. I think it'll be pretty... there'll be a bit of blood on the floor. I don't actually think it'll be inflationary. I'll explain why if you like. But I think in the long run, he will probably win. Largely because he is a deficit country. The people that have a great deal to lose are the surplus economies. ….
… [Freddy] But I suppose the way in which it might backfire for Trump, William, is that if other countries start to think of themselves first, that could be disadvantageous to a global economy that has, in many ways, benefited America. I know that there's a lot of people in America who don't feel the benefits, and that's why Trump is popular and so on. But the fact is the American economy dominates the global economy because of unprotectionist measures in other countries.
I'm not sure I agree with you. From America's point of view, it depends whether you think it matters. I'll go back to this point of running persistent trade deficits. Go back to the basic trade economics. You can pay for your imports by exporting something, or by selling assets, or by issuing debt. So if you constantly run these huge deficits, you will just on the maths get core rates.“And I'm not putting an ideology forward. I'm just counting, making a basic point about mathematics. So the people that think that's important, and also the people that have noticed that if you get on the train at Penn Station, you get on Philly, and you see factory after factory closed and despoiled, and you see your industries gutted, that's had a cost to workers.
And people are inclined, particularly economists, are inclined to forget about the fact that it's political economy. So who are the winners and losers? Well, the blue collar workers, the industrial workers, the former industrial workers, the towns, the cities that used to be productive in the United States and in the UK, but are now opioid centers and full of dysfunction and underclass. They paid the price. I think what's happened is, that's why I said at the start, it's a political victory for the people who want to stand up for those citizens. And I think they're right to do so. I think in the long run, I think it probably will be massive. In the long run, it will probably be better off. ….
… [Freddy] William, do you want to respond to that? And particularly this point, I think, that is quite interesting that Donald Trump seems to be advancing a sort of national capitalism, whereas JD Vance and voices like that are perhaps more in the Social Democratic model, which you would align yourself with.
Yeah, I mean, that's right. I'm much more on aligning with Vance. I think Vance is the real deal. I think he gets it. So philosophically, I think there's more underpinning, let's say, that. And I agree. I think it's slightly erratic. I mean, it's slightly puzzling to lash out at Canada. If you strip out hydrocarbons going south from Canada to the States, the trade is pretty much in balance. So it's slightly odd. But just to nail this question about inflation, because the people that hate the idea of tariffs are always going to say it's going to be terrible, the outcome is dreadful, it's going to be inflationary. Well, before coming, I just had a look at the size of the economy in the States. So basically, consumption represents goods consumption is about 31% of the economy, and imports is about 16%. The imports from three countries he's nailed now represent about 7% of the GV. So look, prices might go up, they won't go up, of course, on all products, faked by the tariffs, but some products will have quite an elastic, some will be elastic, depends.
And actually, in the long run, a point you've made, Freddy, is that some will be substituted by a domestic production. That's exactly what France and Trump probably want. But you know, it's too early to say yet, but I suspect I'd have every faith that in the long run, in a broad trade war of this type of protectionism, the United States is perfectly placed to win it. Well, the next and perhaps very quickly will be onto it phase will be Europe. And as I understand pharmaceuticals, America imports a lot of pharmaceuticals from Europe. And unless domestic production can plug that gap very quickly, that will mean, I assume, price rises for drugs in America, which is already a very expensive place.
[Freddy] Medically, drugs cost a lot of money in America. That could cause huge political pain very quickly, could it not, William?
Well, it could, but it's up to... You see, it depends how blunt an instrument Trump wants to yield. It's up to him. You can put a different tariff on a product if you want, in different categories. So it really is a matter for Trump. I think he's done it in a very crude way, a very quick way, whether he repeats it and just slaps 25% on all EU trade with the United States. I don't know. But I get back to that, I make my point always on particular markets. One of the best ones to look at is Chinese EVs, you know, electric vehicles. There's a price advantage in the market in Europe and the United States by Chinese EVs, about a third. Now the public will buy them because they're a third cheaper. So my point is that if you sit there like a lemon, you will lose your entire automotive industry eventually, the Chinese will eat a lot. And the reason they'll eat a lot is that you practice free trade, but it's not fair trade. I don't know the conditions that Chinese workers have, that experience the same as the ones we have. I'm very critical of Britain, for instance, having no tariff at all on Chinese EVs. That's why you see so many on the streets. The European Union have a lower tariff against Chinese EVs than the United States, but actually Biden, influenced by Trump, has it right, 100 percent. This is just sensible in my opinion. I think a lot of the world, we've had free trade liberal ideology dominating for 34 years. I think this is a real inflection point, and I'm very excited about it. …
… [Freddy] William, I'll let you reply to that. It seems to me, just observing you and Kate talking, that the difference might be on whether the last 30 to 40 years have really been that prosperous, and perhaps we're not just talking about economics here.
Yeah. My first point I make when I debate free trade liberals is to take a look around at what the situation is now. So in our own economy, we probably want to talk about that. We've had 30, 40 years of prioritizing services, and particularly London and the Southeast, but the Midlands and the North have de-industrialized extensively. I mean, 1980, manufacturing is about 32 percent of the GDP, probably about nine percent now. Basically, we've lost it. A lot of that nine percent is free production for the domestic markets, and all the necessity is here. So my point is that the effects of this free trade project, and it is utopian, I mean, historically. Well, I think what Trump and Vance are doing now was actually a return to history. I think you've had an experiment, and it's not really worked, and you only have to look at a lot of what government does in Britain now. As I said before, it's mopping up the blood. Many of the cities like Birmingham, Manchester, places like Hartlepool and Blackpool with 25 percent of adults on some out-of-work benefit.
That's the point. The rhetoric I use, it would be cheaper to keep the factories open. The cost of this economic failure is absolutely stark. If you want to argue in favor of the status quo, that's what you've got to argue. You've got to argue it's working. My point and JD Vance's point is not working. People obviously have a right to say, I think we should do a turn in this direction and that direction, try and cure it. I think reindustrialization, reshoring, and less indifference about where stuff is made and who owns what, I think would do us a lot of good. …
… [Freddy] Let's talk about Britain, since you both want to talk about it. Given our current trade position, first to you, William, given our current trade position with America, would, let's say, your Prime Minister, William, which one day I hope you will be, would the natural, the sensible thing to do then, to be, to respond to Trump's saying we don't, we might leave the UK alone, to say, actually, Britain should be slapping more tariffs and protection against the overreaching American economy?
Well, first, on the trade stats, so this is highly contested. Kate said that the Americans have a trade surplus. The ONS seem to think we have, we got on the website, so. Well, that is important to point out. It's like, it's a technical paperwork issue that Donald Trump happens to think that the US has the trade surplus. There is a big debate about it, but it makes him happy to see the numbers he sees.
Right. Yeah. But I think the UK has a trade surplus with the United States, and actually I've argued the first thing I would do is not sign any free trade agreement.
I mean, if it works for us, because I really think it matters, Freddy. I think it matters. It's not just some economists, particularly free market economists, we're inclined to look at flow all the time. They're looking at the flow of trade and thinking that's good. But you've got to look at the stock. What do you end up after you've done the trade?
And I'll give you an instance of this. Liz Truss' Japanese pre-trade agreement, which she was bragging about. But if you looked at it, her own department modeled it and said, we've got a bilateral trade deficit, which you found now. And Liz Truss' agreement is going to make it worse. It's projected to increase Japanese exports to us by 80% and our exports in Japan are about 30%. So it's going to get worse. And I would argue you're going to end up poorer as a result. It's not a sensible thing to do. So the first thing I would do on the USA is leave it alone. It's not what you can do if Trump applies to ours. I don't know whether he would. But look at how incompetent the UK government has been on the basis. I have a perfect example. The biggest single, by category, the biggest single export of the United States to the UK is crude oil. But this government is refusing to open up the rose bank oil fields near Shetland. That is crazy. What are they doing? About half of the UK's trade deficits are accounted by with energy imports. And that's a mess that our own government has got into, Tory and Labour, by just being indifferent to where stuff's made. You've got to get with it and start producing energy here.” …
… [Freddy] William, I'll let you reply to that, but particularly let's focus on that Brexit point, because it seems to me the very fact that Trump might be ruling Britain out of these tariffs suggests Brexit benefit that possibly isn't being discussed in most parts of the media.
Yeah, he may. I think it's interesting how sentiment, Trump's own view today seems to be influencing his policies here. I don't think they're entirely evidence-based. I think if we're lucky, Britain may just escape it. I've said before, I think, some of the things that members of our government have said about Trump is not helpful. You have a foreign secretary that compared Trump to a neo-Nazi. I think it's very foolish. I think he's foolish of Stammer to a point in his foreign secretary, given that he'd said that. We may be lucky. We may well be lucky, but I'll agree with Kate on this point. I think the misgovernment, I think it's the whole package that counts. I think the broad trade rules that your economy has to abide by do set the tone for what is going to happen. And they're extremely powerful. Give an example, the single market, the EU single market. Go on to trading economics, have a look at the size of the UK's trade deficit.
Look at it before and after the single market. The single market is basically a boxing ring. If you're not a heavyweight, if you're not, if you haven't got cheap power and you're not at the center of it, if you're not Germany, basically, you didn't be nationalized. That's just what happened. It happened to Portugal, Italy, Greece, and it happened to us if you're on the edge. I think the macro trade rules are important, but I totally agree with Kate that just government incompetence and ineptitude has really contributed to it. We reside over a housing market, which is our macroeconomic and the domestic point of view, our biggest problem. That's just sheer incompetence. The planning system is blocked and state sector capacity in house building has been deliberately destroyed. No matter where you look, you look at energy, the toys deliberately closed down British nuclear fuels. This was an industry that Britain pioneered and led in the 50s and 60s. Blair let it go, preferred to engage in expensive foreign wars and do anything sensible like look at energy resilience. And you are where you are. So I think the Labour and Tory parties really have a lot to blame for this. I'm not denying that. …
[Freddy] William, your turn to make the prediction. Will the US be in a recession in a year's time as a result of Trump's tariffs?
No, highly unlikely for many reasons. But the biggest one is that it's only part of the economy. Most of the economy of services will be largely unaffected. And as I say, 7% of it stays anything like this is likely to have a huge effect on inflation. Budget deficit is still quite large, and that will keep it going. So I don't predict a recession. And remember, one final thing. Tariffs are a bit like trade sanctions. Actually, technically, they are expansionary for the domestic economy that is experiencing them. So you will get an effect that will start as a result of the tariffs domestically in the United States. So no recession.
[Freddy] Thank you very much, William. And thank you, Kate. Thank you for listening to that episode of Americano.
[END]
My thanks to the Wall Street Journal, the Spectator, the Telegraph, and conservative Condorito
Dr Michael G. Heller
