Post-truth politics

Art of the lie

Politicians have always lied. Does it matter if they leave the truth behind entirely?
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CONSIDER how far Donald Trump is estranged from fact. He inhabits a fantastical realm where Barack Obama’s birth certificate was faked, the president founded Islamic State (IS), the Clintons are killers and the father of a rival was with Lee Harvey Oswald before he shot John F. Kennedy. 

Mr Trump is the leading exponent of “post-truth” politics—a reliance on assertions that “feel true” but have no basis in fact. His brazenness is not punished, but taken as evidence of his willingness to stand up to elite power. And he is not alone. Members of Poland’s government assert that a previous president, who died in a plane crash, was assassinated by Russia. Turkish politicians claim the perpetrators of the recent bungled coup were acting on orders issued by the CIA. The successful campaign for Britain to leave the European Union warned of the hordes of immigrants that would result from Turkey’s imminent accession to the union.

If, like this newspaper, you believe that politics should be based on evidence, this is worrying.

Strong democracies can draw on inbuilt defences against post-truth. Authoritarian countries are more vulnerable.

Lord of the lies
 
That politicians sometimes peddle lies is not news: think of Ronald Reagan’s fib that his administration had not traded weapons with Iran in order to secure the release of hostages and to fund the efforts of rebels in Nicaragua. Dictators and democrats seeking to deflect blame for their own incompetence have always manipulated the truth; sore losers have always accused the other lot of lying.

But post-truth politics is more than just an invention of whingeing elites who have been outflanked.

The term picks out the heart of what is new: that truth is not falsified, or contested, but of secondary importance. Once, the purpose of political lying was to create a false view of the world. The lies of men like Mr Trump do not work like that. They are not intended to convince the elites, whom their target voters neither trust nor like, but to reinforce prejudices.

Feelings, not facts, are what matter in this sort of campaigning. Their opponents’ disbelief validates the us-versus-them mindset that outsider candidates thrive on. And if your opponents focus on trying to show your facts are wrong, they have to fight on the ground you have chosen.

The more Remain campaigners attacked the Leave campaign’s exaggerated claim that EU membership cost Britain £350m ($468m) a week, the longer they kept the magnitude of those costs in the spotlight.

Post-truth politics has many parents. Some are noble. The questioning of institutions and received wisdom is a democratic virtue. A sceptical lack of deference towards leaders is the first step to reform. The collapse of communism was hastened because brave people were prepared to challenge the official propaganda.

But corrosive forces are also at play. One is anger. Many voters feel let down and left behind, while the elites who are in charge have thrived. They are scornful of the self-serving technocrats who said that the euro would improve their lives and that Saddam Hussein had weapons of mass destruction. Popular trust in expert opinion and established institutions has tumbled across Western democracies.

Post-truth has also been abetted by the evolution of the media. The fragmentation of news sources has created an atomised world in which lies, rumour and gossip spread with alarming speed. Lies that are widely shared online within a network, whose members trust each other more than they trust any mainstream-media source, can quickly take on the appearance of truth. Presented with evidence that contradicts a belief that is dearly held, people have a tendency to ditch the facts first. Well-intentioned journalistic practices bear blame too. The pursuit of “fairness” in reporting often creates phoney balance at the expense of truth. NASA scientist says Mars is probably uninhabited; Professor Snooks says it is teeming with aliens. It’s really a matter of opinion.

When politics is like pro-wrestling, society pays the cost. Mr Trump’s insistence that Mr Obama founded IS precludes a serious debate over how to deal with violent extremists. Policy is complicated, yet post-truth politics damns complexity as the sleight of hand experts use to bamboozle everyone else. Hence Hillary Clinton’s proposals on paid parental leave go unexamined and the case for trade liberalisation is drowned out by “common sense” demands for protection.

It is tempting to think that, when policies sold on dodgy prospectuses start to fail, lied-to supporters might see the error of their ways. The worst part of post-truth politics, though, is that this self-correction cannot be relied on. When lies make the political system dysfunctional, its poor results can feed the alienation and lack of trust in institutions that make the post-truth play possible in the first place.

Pro-truthers stand and be counted
 
To counter this, mainstream politicians need to find a language of rebuttal (being called “pro-truth” might be a start). Humility and the acknowledgment of past hubris would help. The truth has powerful forces on its side. Any politician who makes contradictory promises to different audiences will soon be exposed on Facebook or YouTube. If an official lies about attending a particular meeting or seeking a campaign donation, a trail of e-mails may catch him out.

Democracies have institutions to help, too. Independent legal systems have mechanisms to establish truth (indeed, Melania Trump has turned to the law to seek redress for lies about her past). So, in their way, do the independent bodies created to inform policy—especially those that draw on science.

If Mr Trump loses in November, post-truth will seem less menacing, though he has been too successful for it to go away. The deeper worry is for countries like Russia and Turkey, where autocrats use the techniques of post-truth to silence opponents. Cast adrift on an ocean of lies, the people there will have nothing to cling to. For them the novelty of post-truth may lead back to old-fashioned oppression.


Up and Down Wall Street

Job Market Isn’t Working

For U.S. workers, weak wage growth and a shorter workweek add up to the worst employment trends since 2013. Also, a credit-rating problem for Tesla.

By Randall W. Forsyth              

 
Photo: Pixabay
 
           
Labor day is a time for workers to take a break from their travails and enjoy some of the fruits of what they have produced. For the investor class, the state of the labor market is also a matter of concern over this holiday; not so much because of how workers are faring but, to be brutally honest, because of how it affects the capital markets.

The monthly compendium of employment data is always the most highly anticipated and scrutinized batch of numbers produced by the government statistics mills, but it has taken on a greater status than ever before. Credit, or blame, the Federal Reserve officials who have hinted broadly that further strong gains in the jobs market would let them implement the long-promised increase in their interest-rate targets.

But the August employment report, released on Friday just before Wall Street’s exodus for the long holiday weekend, gave little sign of significant improvement in workers’ lots and, in turn, all but quashed the chance that there would be a rate hike at the Sept. 20-21 meeting of the Federal Open Market Committee. 

To use a technical term, the jobs numbers were meh. Nonfarm payrolls rose by 151,000, shy of the 180,000 forecast by economists, a relatively trivial miss, while the unemployment rate held unchanged at 4.9%, with minimal net revisions of previous months’ numbers. Beyond the headlines, however, were some devilish details that belied signs of stability.

In particular, during August, workers saw their earnings barely budge, while their hours were cut, leaving them less in their aggregate pay packets. Hiring in the private sector was punk, with much of it accounted for by notorious phantom jobs from business start-ups presumed by government number crunchers. A rise in government payrolls was also largely the product of statisticians’ seasonal adjustments.

Average hourly earnings edged up 0.1% last month, which might not have kept up with inflation. Even worse, observes David Rosenberg, chief economist and strategist at Gluskin Sheff, was a cut in the workweek, to 34.3 hours from 34.4. Workers’ paradise? Hardly. As he explains, that’s equivalent to slashing 300,000 from payrolls.

The main area of strength over the past two months has been government jobs, according to Morgan Stanley economist Ted Wieseman. With 47,000 local teaching positions included, they were up 75,000 in July and August. Without seasonal adjustment, government payrolls were down 868,000 in those two months, he points out, and the gains probably represent the difficulty in adjusting for summer school breaks. Given the timing of Labor Day this year, more kids than usual started classes in August, confounding the statisticians. What the seasonals giveth in July and August they likely will taketh away in subsequent months.

More to the point, Rosenberg reckons that the August employment data imply dips of 0.2% for personal income and industrial production. From the standpoint of working men and women, the combined effects of minimal earnings growth and shorter hours put aggregate change in year-over-year employment at negative 1.5%—the worst showing since December 2013.

That reflects the gains that have gone to lower-paying jobs, according to Steve Blitz, a sharp-eyed economist at an outfit called M Science. Excluding jobs in health care, retailing, and restaurants, along with mining (where employment has been decimated by the oil bust), payroll increases in higher-paying sectors have averaged 73,000 in the past six months and 93,000 in the past 12. That represents a slowdown from the beginning of 2015, when the six-month moving average was 150,000 and the 12-month was 97,000.

One possible explanation for the recent slowing in job gains and pay is that employers, feeling the squeeze from rising costs and waning revenues, have been trimming expenses wherever they can. And that includes cutting hours and holding payrolls in check.

Revised data for the second quarter released last week show unit-labor costs—a more comprehensive measure of labor expense—rising at a 4.3% annual clip, up from a preliminary estimate of 2%. The likely future effect, according to Joshua Shapiro, chief U.S. economist at MFR, may be the opposite of what has been happening. Businesses may try to economize on less-skilled workers in order to hang on to more-skilled ones and protect profit margins, resulting in lower overall payroll growth.

Shapiro also points out that the so-called birth-death adjustment (which corrects for presumed net business formations) totaled 106,000, before seasonal adjustment, versus unadjusted private payroll gains of only 33,000. While that’s not precisely comparable to seasonally adjusted numbers, it suggests a big influence on the adjusted data.

These micro examples belie the macro picture of an economy at full employment because of a sub-5% headline jobless rate. The broader, so-called underemployment figure (dubbed U6 by the Bureau of Labor Statistics, which includes part-time workers who want full-time gigs, plus people “marginally attached” to the labor force) held steady at 9.7% in August.

So-called hawks arguing for the Fed to raise interest rates contend that the slowing of job growth indicates full employment; the pool of available workers is being absorbed, resulting in fewer hires. That notion is contradicted by tepid wage growth, according to Citi economists Andrew Hollenhorst and Andrew Labelle.

Economics 101 would suggest that if there were full employment, businesses would be bidding for workers to have enough labor to satisfy demand for their products. Anecdotal evidence suggests that rising costs, in part owing to government initiatives such as hikes in the minimum wage and increasing benefits expenses, are inducing businesses to cut elsewhere.

According to Challenger Gray & Christmas, computer firms have announced more than 55,000 job cuts this year, with Cisco Systems  (ticker: CSCO) last month announcing 5,500 layoffs. Elsewhere, another Dow Jones industrials component, Wal-Mart Stores  (WMT), said it would trim 7,000 back-office jobs, while it boosted store employee wages.

Put together, these bits and pieces from the jobs front suggest that the long-shot bet that the Fed will raise interest rates this month is off.

According to Bloomberg, federal-funds futures put a 32% probability of a quarter-point rise in the fed-funds target, from 0.25-0.5% currently, at the September FOMC meeting. The probability for a move at the Dec. 13-14 confab is 60%, better than even money but no sure thing. All because the economy’s progress is, shall we say, labored.

WHILE THE FED and its fellow central banks have fallen short in producing robust recoveries for workers, they have provided the cheap capital to fund the plans and dreams of capitalists. Perhaps too generously, in the case of the latter.

Both the New York Times and Bloomberg last week published features on the boom in residential building in the Big Apple, both of which featured the G word—glut. The Times’ page-one piece related that the Brooklyn rental market is “saturated.” What once was known as the Borough of Churches has become overgrown with high-rises for hipsters (as well as normal humans). And across the river in the City (aka Manhattan, as old-time Brooklynites call it), developers of hyper-luxury condos are being forced to offer multimillion-dollar price cuts to lure buyers for the plethora of flats for plutocrats coming on the market.

To some extent, the slowing demand reflects foreign factors, notably the diminished circumstances and circumscribed abilities to move money onto U.S. shores by the well heeled abroad. But the surfeit of supply surely has been stoked by cheap money created by central banks around the globe, which has been used by developers to erect these superfluous structures.

The dough has also bankrolled all manner of what economists of the Austrian ilk dub malinvestments—boondoggles that wouldn’t get funded in the absence of cheap money. When times get tough, prudent capital gets going—elsewhere—just when the malinvestments need further cash to replenish what they’ve burned.

The latest example is Tesla Motors (TSLA), which reported last week that it faces a cash squeeze and needs to raise additional capital to support the merger with another of founder Elon Musk’s companies, SolarCity(SCTY). The highly accommodating capital markets had been wide open to Tesla, providing it with extraordinarily cheap financing for its “gigafactory” for batteries, through notes with tiny interest coupons convertible into its then-highflying stock, as this column noted back in early 2014.

That was then. Now, Standard & Poor’s has added Tesla to its list of “weakest link” corporate credits. Those so dubbed sport credit ratings of single-B-minus or worse and a negative credit outlook. S&P considers them to be default candidates.

This tally of weakest links increased to 251 companies in August, from 245 in June. That’s the most since 264 in October 2009, during the financial crisis. Oil and gas outfits were the largest group, accounting for 25% of the total, followed by financial institutions with 14%.

The trailing 12-month default rate for the weakest links during the last default cycle was 10 times that of speculative-grade credits overall, S&P noted in a research note.

Free money from central banks provides the stakes for gamblers to follow their dreams. Some of it goes for reckless real estate development; some of it goes for blindingly brilliant electric automobiles. When financial conditions turn, however, both suffer.

The Not-So-High Costs of Brexit

Daniel Gros
. Newsart for The Not-So-High Costs of Brexit



BRUSSELS – The United Kingdom’s vote to “Brexit” the European Union is on course to become the year’s biggest non-event. Beyond a weaker pound and lower UK interest rates, the referendum has not had much of a lasting impact. Financial markets wobbled for a few weeks after the referendum, but have since recovered. Consumer spending remains unmoved. More surprising, investment has remained consistent, despite uncertainty about Britain’s future trade relations with the EU. Have the costs of Brexit been overblown?
 
Not exactly. In fact, the UK may well end up losing the predicted 2-3% of GDP from Brexit.
 
But it is the exit from the single market, not the initial vote to leave, that will bring those losses, and that may happen over a long period. If the exit turns out to be a ten-year process, the losses would be borne gradually over that period, costing the UK about 0.2-0.3% of GDP per year, on average.
 
This could be very good news for the UK. With a weaker currency, the country will benefit from an increase in export competitiveness that could offset those incremental losses and the transient investment weakness that is likely to arise.
 
Other factors will also cushion the blow of Brexit. Over the last two decades, the UK has transformed its economy to foster unprecedented specialization in services. In the mid-1990s, goods exports were three times as important as services exports, and the majority of British exports went to the EU. Nowadays, the UK exports mostly services – and mostly to non-EU markets.
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UK exports share of GDP

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As a result, the internal market for goods is far less important for the UK today than it is for other EU countries. The value-added contained in British goods exports to the EU accounts for only about 5% of GDP – several times less than for, say, Germany. Meanwhile, Britain’s non-EU exports account for about 7% of GDP.
 
The shift in UK goods exports away from the EU reflects a change in the sources of economic growth, with Asia, in particular, gaining primacy. To some extent, other EU member states have also shifted their goods exports away from Europe, but the effect has been most pronounced in the UK.
 
The fact that the UK now relies more heavily on access to world markets than on access to the EU’s internal market surely contributed to the Brexit vote, as it minimized the sacrifice that the UK would have to make to regain control over hot-button issues like immigration. The belief that the UK could secure superior access to world markets on its own than as part of the EU also helped.
 
This is where the Brexit bet becomes riskier. To be sure, approving trade deals will be much easier for the UK than it is for the EU, which requires agreement from 30 parliaments (including some regional ones). The political challenges that have impeded the approval of a relatively low-profile free-trade agreement with Canada exemplify this challenge. But the UK will also have less leverage in negotiations than the EU does, especially in dealing with large emerging economies.
 
Similarly, the UK does not have to fear huge changes in its ability to export services to the EU, which currently accounts for about 40% of the UK total, because the EU’s internal services market already is far from open. But there is one exception: financial services. And it is a big one.
 
As it stands, financial services account for about one-third of Britain’s total services exports and two-thirds of the overall services surplus that the UK needs to pay for its deficit on goods.

The industry’s success is the result, at least partly, of the UK’s EU membership.
 
The specialization of the UK economy and its external accounts toward financial services (and services in general) began when capital movements were liberalized under the internal market program of the 1990s. It was accelerated with the introduction of the common currency, which, combined with the elimination of obstacles to cross-border capital flows and a global credit boom, fostered the concentration of many types of wholesale financial services in the City of London.
 
The financial sector has a natural tendency to form clusters, and London – where English is spoken, the legal system is efficient, labor markets are flexible, and the regulatory regime is relatively streamlined – offered substantial advantages. Add to that the EU’s “passporting” system, which enables London-based banks to sell their services directly throughout the EU, and the growth of the city’s financial-services sector makes perfect sense – as does the fact that citizens of London voted overwhelmingly against Brexit.
 
Yet the reality is that most of the advantages that have made London into a financial-services hub will remain even after Brexit. And the loss of passporting might be offset by the creation of subsidiaries or “bridgeheads” within the EU, such as Dublin, Frankfurt, or Paris. London’s financial-services industry could therefore survive Brexit, though it is unlikely that it will maintain its previous vigor.
 
Indeed, no matter what terms the UK negotiates with the EU, it will probably have to change its growth model, probably through a modest revival of manufacturing, among other things. Given decades of decline in British manufacturing, this would be easier said than done. But, if the country doesn’t manage such a rebalancing, the long-term cost of Brexit might turn out to be substantially higher than current estimates.
 
The expansion of the financial-services industry – which creates few, but very highly paid, jobs – has contributed to rising income inequality, which has been more pronounced in the UK than elsewhere in the EU. And inequality helped fuel the widespread frustration with globalization and the so-called “establishment elites” that carried the Brexit campaign to victory.
 
In this sense, one of the major economic benefits of the UK’s EU membership led the British to reject the project. The question is whether the economic changes that Brexit will necessitate will produce the benefits for British workers that the “Leave” campaign promised. The answer remains far from clear.
 
 


The Evidence the FBI Ignored

Plus, Donald Trump brings a new language to American politics.

By James Freeman



The FBI investigative file on Hillary Clinton’s emails shows that the Bureau “didn’t pursue evidence of potential false statements, obstruction of justice and destruction of evidence,” observes the editorial board. The notes show “the G-men never did grill Mrs. Clinton” on her intent in setting up her server. And they allowed Clinton aides including Huma Abedin to get away with claiming to the FBI that “they were unaware of the existence of the private server until after Clinton’s tenure at State or when it became public knowledge.” Then there’s the deletion of emails after the issuance of a subpoena.

“In the suddenly tightening presidential race, we are seeing, or hearing, the careful and ‘reliable’ political language of Hillary Clinton in competition with the intemperance of Trumpian rhetoric,” writes Daniel Henninger. “One sounds real, the other just doesn’t. The new way of talking in American politics may turn out to be enough to win.”

“On the 15th anniversary of 9/11, the U.S. should not be rewarding Iran for its deadly actions with gifts of sanctions relief, and the easing of arms embargoes and ballistic-missile restrictions,” writes Joseph Lieberman. The former senator reminds that the 9/11 Commission found “strong evidence that Iran facilitated the transit of al Qaeda members into and out of Afghanistan before 9/11, and that some of these were future 9/11 hijackers.”

“Suddenly, as it heads for the exits, the Obama Administration is talking tough” about Russian hacking, notes a Journal editorial. “A cynic might ask where they’ve been for eight years and suggest that this is an attempt to warn in advance of any October surprise leak of Mrs. Clinton’s emails. But any foreign attempt to interfere with a U.S. election should be resisted, and so better late than never.”

Speaking of Moscow, “ John Kerry arrives in Geneva Thursday for more talks on Syria with Russian Foreign Minister Sergei Lavrov, and while there might be a deal, no one should expect a durable peace,” says a separate editorial.

“The next three weeks are critical for polishing the image each candidate carries into the debates,” writes Karl Rove. “For Team Trump, success may depend on who’s in charge. Mr. Trump’s son-in-law, Jared Kushner, organized the trip to Mexico City last week, and his campaign manager, Kellyanne Conway, pressed for Saturday’s visit to a black church in Detroit. In both places Mr. Trump looked, sounded and acted presidential. Contrast that with Wednesday’s rally in Phoenix, orchestrated by campaign CEO Stephen Bannon and speechwriter Stephen Miller, where Mr. Trump was his railing, angry self.”

David Rivkin and Andrew Grossman note that “29 states and the District of Columbia have laws on the books purporting to bind electors to vote for their party’s candidate or in accord with the state’s popular vote.” But the laws cannot stand, write the authors. “The time is ripe to put an end to this legal charade and establish, as federal-court precedent, that the Constitution forbids enforcement of elector-binding mandates.”

One hundred years ago this month the self-service grocery store was born in Memphis, Tenn. Jerry Cianciolo describes how school dropout Clarence Saunders came to invent Piggly Wiggly.