Archive for the ‘Global Affairs’ Category

What happened in 2017 and what might happen now?

December 24, 2017

My favourite Xmas card for 2017 reads,

“Three Wise Women would have asked for directions, arrived on time, delivered the baby, cleaned the stable, made a casserole….and there would have been Peace on Earth.”

 

Overwhelmed by news coverage of the Trump presidency, I think we have lost sight of what actually happened which is a precursor for trying to figure out the future.  I suggest that Trump is like the head of a nasty boil beneath which resides a lot of infectious puss resulting from some unpleasant causes. It could kill you but can hopefully be treated.

What follows may be an oversimplified explanation, but here goes. Since becoming selected as Republican candidate, being elected and governing for a year, Trump has managed to grab the headlines with outrageous comments and behavior. If anyone else had done this they would have been crucified politically and in the press. Trump manages to change the channel when public indignation is stoked. He is an artiste at managing the press. He is more clever than mad.

So far the president’s support is rock solid with 30-35% of the US electorate. Some are traditional Republican voters, while others probably supported Bernie Saunders and may not have voted for Clinton. The Saunders followers felt and still feel that Washington is a swamp and Trump’s boast to drain it remains attractive to them.

The 30-35%, or a portion of them, feel that they have not shared in the economic growth of the past decades. Growth has seen significant structural changes in the economy, such as the loss of manufacturing jobs and their replacement by a combination of outsourcing and growth of service sector jobs associated with rapidly evolving communications technology. At the same time, some groups have managed to shape the rules of the business game, through such things as tax breaks, subsidies and protectionism favouring certain investors and sectors. In turn, these favoured ones finance political campaigns and keep the swamp well infested.

Responsible for all this are the acts of previous Democrat and Republican administrations, which have shaped the policy infrastructure to the benefit of their traditional supporters. What we observe and experience today is the result of an evolving social, political and economic backdrop. Trump is the focus of this scene. But without him the same underlying forces would be at work leading to some probably unwelcome outcome.

Can there be a positive future given these events? Probably, but this depends on the sturdiness of the of the American political system over the next three years. Trump will have left some unexploded mines on the political battlefield. He will have governed by signing executive orders (Obama did the same thing in his second term with a Congress controlled by Republicans), and by making judicial appointments of people favouring his political views. In this sense Trump is here to stay by leaving a lasting mark on American society. It will take time and leadership to redirect the ship of state.

Seasons greetings to all.

 

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Trumpmania

December 8, 2017

I confess I am addicted to following the antics of Comrade Trump, partly because it is such good theatre with the curtain rising on a new scene almost daily. But partly because events south of the border are already impacting our lives. Regardless of the outcome of the NAFTA re-negotiations, business will delay or cancel investment opportunities for the time being thereby slowing the economy. I am still amazed about why the US stock market is doing so well.

My addiction is fed by watching excerpts from Morning Joe on MSNBC for the anti-Trump view, and Fox News for opposing commentary by pro-Trump supporters. Add a puff of Steve Bannon and Breitbart News and the day can be shot without doing anything else, except to wonder whether Little Rocket Man or Humpty Dumpty (HD) will light the fuse for a nuclear holocaust. The Daily Show is another channel I watch. Hardly a day goes by that host Trevor Noah does not have a clip about the President and his supporters.

Each day Humpty Dumpty on Twitter offends someone personally, and as soon as the reaction gets out of hand he changes the channel –  from the charges laid against former campaign manager Paul Manafort, to Michael Flynn’s guilty plea, to testimony to Robert Mueller’s investigation, to the meeting of son Donald Jr with the Senate Committee on Russian election interference, to the decision to move the embassy in Israel from Tel Aviv to Jerusalem, to name a few. What will it be tomorrow?

The news media grab any story involving the President and his cabinet, and we the audience dutifully follow assuring that network audiences remain high. After a year in office, I conclude that one needs to watch both sides, in my case that is MSNBC versus Fox News with a touch of Breitbart. If one only listens to the MSNBC viewpoint then one misses the reason why HD won the election (OK with fewer votes), and why it is that over 30% of the electorate continue to support him, and apparently quite strongly. The majority of the electorate is fed up with the way Washington is run and support him as someone who could shake things up. Unfortunately, he is doing it for the benefit of his wealthy friends, not for the masses.

Michael Moore was one of the few people outside the President’s close supporters who called the election correctly. Moore spent time attending rallies for both candidates, noting that Clinton often had small and unenthusiastic audiences. And when Sanders’ supporters were asked if they would vote for Clinton, if Sanders was not the candidate, they often said no. Twenty-five years of Bill and Hillary in Washington was viewed as enough by many. And when Obama later accepted $400,000 for a speaking engagement five months after his term ended, this seemed to reinforce the need to drain the swamp.

HD is now behaving like a dictator. He asks the head of the FBI to drop the inquiry on Russian interference in the election; his legal advisor says he is above the law; his son claims client-counsel privilege when neither of them are lawyers; and he tweets his feelings daily. One hopes that the adults around the White House can keep him in check. They are mainly military men who must be wondering why they took their jobs. Tillerson from head of Exxon has become little more than an errand boy. Males groping females has now become headline news with the resignation of Al Franken, and the forgotten news that a president boasted about his groping.

These stories fill the headlines, and there will be more. Meanwhile important events are taking place in Europe and Asia which could ignite economic and political tumult around the world. Today our attention is drawn to the resignation of Senator Al Franken for behavior that HD boasted about. What will it be tomorrow?

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.

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.

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

Forty days into the new US administration – some thoughts

March 3, 2017

1. Michael Moore called the election correctly, unlike almost all the news media pundits. He did so by observing the enthusiastic crowds at Trump meetings, and Clinton’s lukewarm crowd support, plus the fact that Sanders supporters said they would not back Clinton if Sanders was not the candidate. Most of the media forecast the outcome they wanted, not what voters were signaling, which the democrats did not want to hear.

2. The Democrats nationally are now in the weakest position they have been in for decades with no obvious leadership candidates. They have lost Senate and House seats, governorships and control in a growing number of states. They did however get about three million more of the popular vote in the presidential contest. While this does not count in the way presidents are elected, it reinforces the message that the country is divided.

3. The newly elected president does not read mainstream media, although his staff does. He Tweets and watches cable news networks, especially Fox News. His behaviour suggests a cocktail of narcissism and mental instability. This seemed to change with a measured and lengthy speech to the joint Congressional Houses on Feb. 28th. The speech contained spending proposals which would vastly inflate the budget deficit and weaken the US dollar and raise interest rates. However the stock market has boomed since the election…..go figure.

4. The involvement of Russia in the election is still unknown, but after a brief honeymoon period between the US and Russia there are signs of future instability due to contacts between Republican cabinet appointees and Russian officials before the election. This could be linked to Trump’s tax returns which may show that he had funding from and commercial ties with Russian businesses.

5. Elected Congressional Republicans are having a hard time knowing how to respond to the President’s proposals. Some they like, but some they strongly oppose, and so does Ivanka.

6. A personal prediction (few turn out to be accurate) – the President’s close advisers, Bannon, Priebus, Conway, Spicer and Miller are unlikely to hold these positions a year from now. They helped to shape the campaign rhetoric but may not be the most adept advisors for governing.

7. Leading firms in the mainstream media are labelled as providing ‘fake news” when they criticize the new administration. These firms seem to be hanging in and retaining their influence and may become the most effective critics of the government.

Prediction – Marie Le Pen will win the French election.

Déjà vu

November 15, 2016

Two events come to mind as providing some sort of precedent to the 2016 US election, the 1989 fall of the Berlin Wall and its impact on the Soviet Union and satellite countries, and events leading up to and following the French Revolution, 1789 to 1799. In both instances, pressures built up leading to a volcanic type explosion which became visible on the surface but where the causes lay underground.

The establishment media and almost all of the rest of us failed to appreciate what was happening in the US, because we were not looking at or listening to what half the population was saying. A few were, such as Bernie Sanders and Michael Moore. Sanders sits in the Senate as an independent and caucuses with the Democrats in the Senate. He raised a large amount of money in small donations with a crowd-sourcing type process. Moore is a documentary film maker who is skilled at covering topics ignored by the mainstream media.

 

The former Soviet Union

The 1989 demise of the Soviet Union has been followed by almost three decades of change for member countries which are now more or less independent. The transition has not always been smooth. Aside from foreign relations, what happened within each country was a change of the domestic political scene, generally towards democracy except in those places which are now part of Russia. It was a major upheaval as the countries of eastern Europe became more democratic.

America had a revolution in 1776, but this was a revolt against an external force, British control, and was not a result of dissatisfaction within the country as is the case today. Its success gave impetus to events in Europe.

 

The French Revolution

The French Revolution beginning in 1789 suggests parallels. It was an internal uprising by groups in French society which rebelled against their rulers and the prevailing economic and social conditions. It lasted for ten years and brought about change, but it also led to the rise and rule of Napoleon until his defeat in June 1815 at Waterloo.

The process was messy. On the positive side, it ushered in democracy to France – freedom of religion, legalization of divorce, decriminalization of same-sex relationships, civil rights for Jews and black people, plus the execution in 1793 of Louis XII.

A couple of short extracts on the French Revolution from Wikipedia suggest comparable circumstances to today’s US with of course different institutional factors in play.

Many other factors involved resentments and aspirations given focus by the rise of Enlightenment ideals. These included resentment of royal absolutism; resentment by peasants, labourers and the bourgeoisie towards the traditional seigneurial privileges possessed by the nobility; resentment of the Catholic Church’s influence over public policy and institutions; aspirations for freedom of religion; resentment of aristocratic bishops by the poorer rural clergy; aspirations for social, political and economic equality, and (especially as the Revolution progressed) republicanism.

Louis XVI ascended to the throne in the middle of a financial crisis in which the state was faced with a budget deficit and was nearing bankruptcy. This was due in part to France’s costly involvements in the Seven Year’s War and the American Revolution. 

…the country’s extremely regressive tax system subjected the lower classes to a heavy burden, while numerous exemptions existed for the nobility and clergy. He argued that the country could not be taxed higher; that tax exemptions for the nobility and clergy must be reduced; and proposed that borrowing more money would solve the country’s fiscal shortages. Necker (finance minister) published a report to support this claim that underestimated the deficit by roughly 36 million livres…

 

So, parts of the world have been here before. How it will all play out, and throw in Brexit and upcoming elections in Europe, is a mystery to me. But there are similar circumstances to suggest parallels.