When the Leader Stumbles

November 18, 2017

“The US is in the middle of a political meltdown, unable to manage a domestic agenda or a coherent foreign policy. The White House is in turmoil; congress is paralyzed; and the world is looking on in astonishment and dread.” (Jeffrey Sachs, 2017)

 

Trump manages to capture the headlines on almost a daily basis. Future readers will wonder what important news items did not get covered as Trump feeds the media raw meat, and the public eagerly devours it, partly because it tastes so good. The President has the knack for drawing attention to some new issue especially when the questioning on others gets too uncomfortable. His information sources appear to be cable news channels and a coterie of close advisers who themselves have had little experience of governing, although some, as military leaders, may have had impressive careers. As the days pass, the hope is that these don’t get fed up and decide to leave early, although in many countries the citizens shudder when the generals take over.

 

It will be interesting to see who was offered senior positions in the Trump administration and refused, who accepted jobs and their respective qualifications. It seems clear that senior levels of the US federal bureaucracy are being weakened by a failure to make appointments and the selection of poorly qualified people.

 

Canada’s proximity to the US is seen by most Canadians as offering enormous economic benefits. Arch nationalists may disagree, but many countries, at least in the past, would have eagerly swapped places with Canada in order to have ease of access to US capital and other markets. Now our neighbor is a flailing (failing?) nation with the attributes described by Jeffery Sachs.

 

In today’s world there are trained suicide bombers returning from the Middle East, others home-grown who never leave home and can learn details of their trade from the internet. Drones can be purchased from Costco and toy stores; trucks are available to rent. It is surprising that terrorists have not struck more soft targets like stadiums, bus and train stations and airports.

 

Managing these situations requires cooperation and trust between governments. Unfortunately, this is not what is happening as turmoil mounts in the US with isolationist forces on the rise, while the threats require international cooperation. Similar populist pressures advocating isolationism are growing in Europe both with Brexit and in individual countries. There are no easy solutions to the issues that give rise to these pressures, but it would be nice to know that mature grown-ups are trying to manage them. US observers tell us this is now not the case.

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Sapiens – A brief history of humankind – A review

November 15, 2017

If the author or authors – some think it was Moses – of the Book of Genesis had had the evidence provided by manned and unmanned missions to space, would they have given a different account of the origins of the universe and of humans. Space exploration over the past fifty years has expanded our understanding of the universe but with many questions still answered. Anthropological research has increased our knowledge of the evolution of humans.

 

Along comes Israeli historian Yuval Harari, author of first Sapiens: A Brief History of Humankind, and in 2015 Homo Deus: A Brief History of Tomorrow. The first traces how humans got from then to now, while the second speculates about their future. Both challenge our views of the world and our place in it past, present and future. Here I comment on Sapiens.

 

The time span of world history stretches from 13.5 billion years ago, while the story of Sapiens deals with the last 70,000 years, a small fraction of this period, when our forefathers emerged out of Africa and spread throughout the world including across the Bering sea from Asia to the American continent. All inhabitants of today’s Canada and the US, for example, are migrants from some time past. Even the first settlers were immigrants travelling south and west through today’s North, Central and South America.

 

Today’s humans have evolved from the genus Homo of which there were many types whose known origins are traced by anthropologists to about 2.5 million years ago in Africa. The evidence used is the carbon dating of stone tools. Fast forward to 200,000 years ago when Homo sapiens is traced to east Africa – sapiens being one species of the genus Homo. We are not alone but one part of this genus.

 

While there were and are several species of the genus Homo, the interesting puzzle is to find out why Homo sapiens survived and why many but not all of the others became extinct. Sapiens belongs to the same genus as gorillas for instance. Harari describes how three revolutions have lead humans to the so-called civilized state we enjoy today – the Cognitive Revolution (70,000 years ago) and the emergence of language, the Agricultural Revolution (12,000 years ago) with the domestication of plants and animals and the emergence of farming to replace the hunter-gatherer; and the Scientific Revolution (500 years ago) of which the Industrial Revolution (100 years ago) is one part.

 

In the broad scheme of things, the present day is a small part of human evolution and will likely pass to another stage which Harari discusses in his second book Homo Deus (to be reviewed later). There are many excellent reviews of Sapiens, all favourable except for the odd academic who wants to quibble with some issue to reveal his or her brilliance…..usually his.

 

What struck me was the short space of time that humans have existed, and the recognition that this could and is likely to come to an end; that we are closely related to gorillas and chimpanzees, and that in certain environments they would survive and we would not. This is aside from extinction of all forms of life resulting from a nuclear holocaust due to the madness of politicians. Today’s politicians make the “Madness of King George” look like a fairy tale. One of my ancestors was an ear doctor who may have hastened his demise. This book makes it difficult for many religions to retain their account of the origin and nature of the universe which is continuing to expand.

Is Trump a modern day Luther?

November 13, 2017

Fifty years hence will people describe the political rise of Donald Trump as having similarities to the career of Martin Luther (1483-1546)? Of course the details are different in numerous ways, but the general circumstances giving rise to both men have similarities. Both had a following united by what they felt to be injustices or wrongs being committed by those in power. Luther was considered to be a royal pain in the arse by the Catholic hierarchy in Rome as well as church leaders in other parts of Europe. Trump claims to champion those in the US  who have been left behind in the economic growth of the past three or four decades, estimated at 35-40% of the population. The circumstances of these people are described by Michael Sandel, Professor of Politics at Harvard and J.D.Vance author of Hillbilly Elegy.

The personalities of the two men are quite different, but the conditions giving rise to their success have similarities. Luther was appalled by the corruption perpetrated by the leaders of the Roman Catholic Church such as the sale of indulgences, and set about creating the Protestant faction of Christian believer. Given the times, it is surprising that he was not imprisoned and/or executed.

Trump plays to the support of those left behind in the prosperity enjoyed by people with higher incomes, and the growing spread between the very rich and the rest. While his tactics do not appeal to many because while he also legislates in favour of the rich, and behaves in unconventional ways, at least he manages to keep the support of about one-third of the population.

How long Trump survives politically is moot at this time, but looking back it may be seen, that like other political rabble rousers, he was adept at identifying sensitive points of the establishment’s behaviour. His use of Tweets may come to be seen as similar to Luther’s authorship of the “ninety-five theses”  containing a critique of the church and the need for reformation.

The Swamp in Canada

October 28, 2017

So, Trump’s support has fallen to 38% from the mid-forties. That seems to me like a considerable chunk of voters including I suspect some, who in the run up to the election liked Sanders. Both appealed to voters who felt they had been dealt a raw deal and had few future prospects. That group still exists. Do similar circumstances exist in Canada?

To many voters Trump’s appeal was his promise to drain the swamp of lobbyists and hangers-on who benefit from the operations of government. In the process he has managed to fill the swamp with his own noxious creatures rather than to expel those already there. A Bannon is there to destroy the legislative process, at least the way it has operated to-date. Past dictators have used similar means to gain power for themselves and for those supporting their views.

Some blame the checks and balances built into the US constitutional structure. They forget that it was set up to offset what was seen at the time to be the failure of British rule by an hereditary monarch and elected parliament. It is more likely that all representative political systems develop flaws and weaknesses over time, as politicians learn how to work the system to the benefit of certain groups and the expense of others. This seems to be the case in the US where income has become redistributed to the top 5% of the population.

Figures for income inequality by country show 46.1 for the US and 33.7 for Canada, where a higher figure shows greater inequality. (Figures of inequality by country can be found in Wikipedia under “List of countries by income inequality”). This does not mean that Canada is swamp-free, but more likely that it may be less infested than south of the border, and may have different inhabitants.

Canadian interest groups are adept at lobbying not just for basic needs such as education and health care, but for low-cost (subsidized) transit fares, free on Wednesdays in Ottawa for seniors like myself, doubtlessly a deserving group, and attractive to politicians appealing to an increasing older population. Students lobby provincial governments to abolish fees for higher education without taking into account how it might be financed and what it might do to the quality of the service provided. Canada has its own swamp but with different residing creatures than south of the border. A weakness of any democracy is that voters learn how to play the system.

The Politics of Resentment

October 18, 2017
After watching and reading about Trump during his first ten months in office, I have gone from thinking him dangerous and mentally unstable to a feeling that he has a personality disorder. This still makes him dangerous because of how people may react to his antics and statements.
While no psychologist, I find his behaviour as petulant and childlike. But while a child can be disciplined and quarantined, this is not the case with an elected politician in a democracy. Hitler and Mussolini were elected via a democratic process and then overturned it. I am not sure about Franco and Stalin, but both had a core of strong supporters.

A mistake now is to focus too much on the man rather than on his supporters. After ten months, between 35 and 40 percent of the US electorate continue to support Trump. Many are not traditional Republican voters but people who feel that they have been getting a raw deal from their elected politicians. Like Hitler’s supporters, they are willing to follow a leader who offers them prospects, because it can’t be any worse than their present situation. The party label of the leader matters much less to them than the promises made. Eventually they may feel betrayed by their leader; the alternative could be a more extreme leader or a manning of the barricades as in Les Miserables.

What motivates the 35 percent is that over the past few decades their real incomes have declined, and the gap between the top 10 percent of families and the rest has widened with few prospects of better times. They are willing to support someone who offers better times ahead even if his manner is a bit rough up close. Of course if he does not deliver they may switch their support, perhaps to someone with more radical views and exhibiting more outrageous behaviour……caveat voter.

Trump connects with the 35 percent by understanding and appealing to their feelings of resentment. He feeds off it and so do they. I found the works of Michael Sandel, Professor of Politics at Harvard, and J.D.Vance author of Hillbilly Elegy provide good explanations of the American scene. The electoral success of right wing parties in Europe manifest similar political forces.When the Economist considers that Jeremy Corbyn could be a future UK prime minister you know something is afoot. Canada has a version of this with the Ford brothers in Toronto.

University Funding

October 7, 2017

A generous donation to Carleton University by the Nicol family is to fund a new commerce building to house the Sprott School of Business. One has to wonder whether this is the best use of the $10 million input to a $48 million building. Throughout universities many faculty offices are occupied only a few hours a week, as faculty work at home connected worldwide with their own computers. This has been the case since the early 1970s. University office sharing is an option as takes place in many businesses.

Another practice is online teaching which, while it will never altogether replace in class attendance, is increasingly being used in many disciplines. Check the Khan Academy website for one online example. Over time schools and universities will learn how to grant diplomas and credits which employers will recognize. This trend also works against creating more university space.

There will be no lack of suggestions as to how the Nicol donation could be used. An obvious one, at least to me, is financial support for students. Rising fees and reduced government funding increases the burden on students and their families. Nicol Fellowships could be created thereby spreading and perpetuating the Nicol name over numerous recipients rather than one building. Fulbright Fellowships, established in 1946, were named after Senator Fulbright. Although he provided none of the funding, his name lives on with fifty-four Fulbright alumni going on to win Nobel prizes.

Dunkirk – a miracle? Perhaps but “wars are not won by evacuations.”  

September 30, 2017

The escape of British and allied forces from Dunkirk is labelled by some as a miracle. If the Germans had captured the more than 400,000 rescued troops and then invaded England and forced an armistice, the global landscape (and my life) would have been very different.

German plans for the occupation of England and then the other parts of Great Britain included the following, described in detail in William Shirer, The Rise and Fall of the Third Reich, Simon and Schuster (1990) 782-785:

  1. Males between the ages of 17 and 45 inclusive would be interned and dispatched to the Continent.
  2. All those opposing German occupation would be liable to immediate execution.
  3. Immediate execution would also befall those who failed to turn in firearms or radio sets within 24 hours.
  4. The German forces would be organized from a headquarters in London with centres in Bristol, Birmingham, Liverpool, Manchester and Edinburgh, or Glasgow if the Forth Bridge was blown up.
  5. Individual Germans were named to undertake management of the occupation.

These plans were more detailed and repressive than in many other parts of Europe occupied by the Germans. Among Himmler’s papers was found a list of individuals who would be incarcerated. Aside from the obvious political leaders were authors including Virginia Wolf, E.M. Forster, Aldous Huxley, J.B.Priestley, Stephen Spender, C.P.Snow, Noel Coward, Rebecca West, Bertrand Russell, Harold Laski, Beatrice Webb and J.B.S.Haldane.  

Dunkirk was followed by Hitler planning for the invasion of England by weighing the relative strengths of the opposing armies, navies and air forces. He judged that while his army was better trained and equipped, England had the stronger navy, and while Goering boasted that the Luftwaffe would wipe out the RAF, this turned out not to be the case, as became apparent during the Battle of Britain which commenced in earnest in September 1940.

German and British air raids began in the summer of 1940 with the German raids increasing in ferocity in September. London received 57 consecutive nights of bombing from September 7th to November 3rd 1940. Because invasion would require the cross-channel transport of personnel and equipment, Hitler became convinced that it was a risky proposition. At the same time, he was anxious to open up a front in the East, where he could gain land by invading the Soviet Union and fulfill his dreams of a German empire to match the extent of the British Empire and the US.

While Dunkirk marked a turning point in the war, the miracle was hardly a victory. Churchill noted in Parliament on June 4th, 1940 that “wars are not won by evacuations.”

What Miracle at Dunkirk?

September 14, 2017

The movie Dunkirk, released in the summer of 2017, gives an account of the rescue of British and allied soldiers in June 1940 as a result of the German invasion of France, Belgium and Holland. Surrounded in a narrow stretch of land with their backs to the English Channel, some of these troops managed to escape by boat across the approximate 30 miles separating France from England. The film tells only a part of the story; there is another aspect to the miracle.

The events, as recounted from the British side, describe the rescue by boat and retreat across the channel. One aspect of the miracle is the rescue, a second is what might have happened if the German army had been allowed to advance to the Dunkirk beaches and prevent the escape.

About 340,000 men of the British Expeditionary Force were rescued by sea together with about 100,000 French and Dutch troops. They left behind all their trucks, guns and other heavy equipment. Around 65,000 allied personnel were killed or captured by the Germans. Those rescued became the core of the British army which was to go on with its allies to defeat the German, Italian and in the east the Japanese forces by 1945.

Missing from the film is a sense of what might easily have happened. In the period that the evacuation took place, the last days of May and first few of June 1940, the allied troops were surrounded by German tanks and soldiers who were less than 15 miles from the Dunkirk beaches, where the allied troops were being bombed and shot at by the Luftwaffe (the film does show German planes).

Some of the German high command advised Hitler to order the tanks to advance and force the allied troops to surrender before they could escape. Others cautioned against such action and their view prevailed with Hitler. Goering, as head of the Luftwaffe, assured Hitler that his planes would provide the knock-out blow, wrongfully as it turned out.

Hitler was persuaded by some, but not all of his generals, by two other factors, first that his tanks had outrun their supply lines for gasoline and might become victims of the allied forces, and second that the land separating the tanks from the beaches was marshy and difficult for tanks to traverse. The tanks would be vital later for Hitler’s campaign on the eastern front.

A second aspect to the miracle of Dunkirk is that if the allied troops had been defeated and forced to surrender, the British would have had to sign an armistice based largely on German terms. The postwar years would have been notably different, including my own.

Turbulent Times – A Path to Dictatorship?

August 27, 2017

A rough path to dictatorship is to be elected by a recognized democratic process and then to use the powers to create a dictatorship. Hitler did this in the 1930’s in Germany, while Mussolini and Franco performed a version of this in Italy and Spain. Conditions prevailing in each country determined the particular means to the takeover. Could this happen again?

 

After less than a year in office, 35 percent of the US electorate continue to support the president. Many are people with lower incomes who have not enjoyed the benefits of economic growth enjoyed by the rest of the population. To-date, President Trump has the support of those disadvantaged who are willing to ignore or to forgive him for the erratic way in which he has chosen to govern – the failure to make appointments to key positions, scripted speeches outlining policies (increasing troop deployment to Afghanistan) together with incendiary remarks about the failure of Congress to enact his platform, and possibly a willingness to create turmoil by refusing to fund the government. Another sign of unrest is the number of appointees who have either been fired or resigned their positions in the first eight months of the administration.

 

Presidential power has so far been held in check to-date by a combination of media reporting, the courts and acts of Congress. Should these fail to receive public attention and support then the democratic process flowing from the US Constitution will be in jeopardy. Currently two areas of particular concern are what happens if North Korea (or any other nuclear state) initiates an attack, and what happens if funding to the federal government is terminated.

 

The circumstances today in the US are in many ways unlike those experienced by Germany, Italy and Spain in the 1930’s, but the seeds of dictatorship exist and could still take root. The growth of political and economic uncertainty, both domestically in the US and internationally, is bound to create instability – in what precise ways is difficult to predict.

Personal versus Government Debt

April 12, 2017

Personal debt is relatively easy to understand. A person borrows, often for a specific purpose – house, car, education, vacation etc. –  knowing what the interest cost and terms of repayment will be. Once in receipt of the funds the money becomes fungible and can be used for any purpose including a specified item. The loan may make it possible to purchase the item, but the actual dollars used may come from any source available to the buyer.

 

Repayment is a condition of the loan and can only be avoided by renegotiating the terms, or defaulting on the loan with various consequences. For personal loans, the interest rate will be known at the outset, although there may be conditions for revising it if say the government alters interest rates through changes in monetary policy.

 

Consumers are generally aware of their personal debt situation, and can anticipate what will happen when various circumstances change which affect their ability to repay or service the loan. Use of a loan enhances their ability to acquire goods and services which can differ in terms of what is purchased. A loan spent on a vacation, a meal or attending a concert will have different consequences than if the expenditure is made on a house, car, medical procedure or attending an educational establishment. The latter represent a capital investment that can lead to an enhanced flow of income in the future; the former may give immediate satisfaction but have less lasting benefits.

 

The nature and consequences of personal debt are fairly easy to describe and appreciate. Public or government debt is a different kettle of fish in terms of measuring its size and understanding its ramifications which include these and other factors:

 

  1. Government expenditures are financed by a combination of tax revenues and, if needed, borrowing, the latter becoming part of the national as opposed to personal debt. But that debt becomes personal as it is shared by all Canadians and includes the debt of all three levels of government. If governments make poor economic decisions causing increased deficits, then their, and our, levels of liability increase, and Canadians would be likely to face higher levels of taxation.

 

  1. Public debt does not have to be paid off. A ten-year government bond does have to be redeemed at the end of the decade but usually it can be replaced with another bond. A government’s borrowing capacity is thus greater than that of most individuals. It has a much longer lifespan and a continuous and often growing source of revenue to service its debt and repay past loans.

 

  1. Trying to figure out the size of a country’s national debt and its consequences is extremely difficult, at least for me. An internet search results in different concepts of debt being used. Gross versus net debt is fairly obvious, but different sources will quote different figures for net debt for a country in a given year. News reporting is not helpful with reports merely printing what some source, that is thought to be official and thus reliable, publishes.

 

  1. It is often stated correctly that government debt incurred today will have to be repaid by future generations. Whether this is a bad thing or not depends on what the increased debt is used to finance. If it builds and/or repairs highways, hospitals, airports, ports and educational facilities, this represents an investment for future generations. Failure to make such public expenditures would be a detriment to future generations. Of course, there are limits as to how much borrowing can be done at any time, but these type of investments are different from other items of expenditure.

 

  1. National debts are sometimes reported gross and sometimes net with the net figure deducting assets which the government owns such as land, buildings, equipment including military equipment. Some physical assets may be easy to value but how do you value land in Canada’s national parks. These have significant value but since the government would not consider selling them then their only value comes from the revenue generated by visitors less the cost of administering the parks. (A similar private sector situation arises with churches which often find it difficult to borrow money using the building as collateral).

 

I don’t think economists or journalists do a good job of explaining the nature and consequences of deficits and debt except to repeat what each other say. It is not an easy topic to untangle, but if the absurdly low current interest rates on short, medium and long-term government debt persist there are likely to be severe repercussions. Bondholders holding bonds with negative real returns on their investments may turn away from government lending, causing interest rates to rise with consequences throughout the economy.

 

John Cochrane has an interesting article on debt and inflation at

http://www.nationalaffairs.com/publications/detail/inflation-and-debt