The economic peril of aggrieved nationalism
Globalisation’s winners paid too little attention to the losers
by: Martin Wolf
Humanity is tribal. We are social and cultural animals. Culture lets us co-operate not just in family bands, but in imagined communities. Of all such communities nothing is closer to family than “nation”, a word signifying shared ancestry.
The capacity to create imagined communities is humanity’s strength and among its biggest weaknesses. Imagined community defines what people share. But what binds them together divides them from others. Today, as in the past, leaders foment aggrieved nationalism to justify despotism and even war.
For much of human history, war was seen as the natural relationship between societies. Victory brought plunder, power and prestige, at least for elites. Mobilising resources for war was a core role of states. Justifying such mobilisation was a core role of culture.
Another way exists to achieve prosperity: commerce. The balance between commerce and plunder is complex. Both require strong institutions supported by effective cultures. But war requires armies, underpinned by loyalty, while commerce requires security, underpinned by justice.
Perhaps the greatest contribution of economics is the idea that societies will gain more from seeking to trade with one another than trying to conquer one another. Moreover, the richer their partners, the greater the opportunities for mutually enriching commerce. The wise relationship between states, therefore, is one of co-operation, not war, and trade, not isolation.
This brilliant idea happens to be correct. But it is also counter-intuitive, even disturbing. It means that one might gain more from foreigners than fellow citizens. It erodes a sense of belonging to the imagined tribe. For many, this erosion of tribal loyalty is threatening. It becomes more threatening if foreigners are allowed to immigrate freely. Who, people ask, are these strangers, who reside in our home and share in its benefits?
The idea that the best way for societies to relate to one another is via mutually enriching trade is the validating philosophy of the World Economic Forum, which has its annual meeting in Davos this week. It emphasises commerce over conflict and what human beings have in common over what divides them.
It is a good creed. Yet Theresa May, the UK’s Conservative prime minister, condemns its believers as “citizens of the world”, who are citizens of nowhere. The resentment she evokes is, to a degree, justified. Those who did well out of globalisation and post-communist transition paid far too little attention to those who did not. They assumed that a rising tide lifts all boats.
They prospered hugely, often with little apparent justification. They created a financial crisis that devastated their reputation for probity and competence, with dire political results. They assumed that bonds of belonging which meant little to themselves meant little to those left behind. It is not surprising that those who find the world transformed by social and economic change succumb to aggrieved nationalism and protectionism.
Yet the politics of nationalist resentment are not just an upsurge from below. They are a tactic of power-seekers. The stories such leaders tell vary in detail, but the essence is always the same.
They distinguish the “real” people who support them from the “enemies of the people”. For them, life is war. In a war, they can justify anything.
Their story justifies turning liberal democracy into plebiscitary dictatorship. In a brilliant essay, the Polish analyst, Slawomir Sierakowski, lays out how this is working in his country.
The would-be despot condemns personal freedom as chaos, constraining institutions as illegitimate, independent sources of information as corrupt, foreigners as duplicitous and immigrants as threatening. The cultivation of paranoia justifies every step. The would-be despot needs enemies. They are always easily found. All the while, would-be despots stress that the majority is on their side (even if it is not).
The assault on the notion of reliable independent sources of information is a central element in the politics of a plebiscitary despot, such as Turkey’s Recep Tayyip Erdogan or Russia’s Vladimir Putin.
How is truth defined by such regimes? Truth is what they say it is. So power determines truth.
This is a characteristic of all dictatorships, notably the communist ones, as Orwell told us. It is also what US president-elect Donald Trump believes: truth is whatever he finds convenient today.
The US is much the most important example. So how far on the journey towards plebiscitary despotism might Mr Trump take his country? The consensus is “not far”, given the strength of its institutions. Yet institutions are only as strong as the people who run them. When Augustus became emperor, the institutions of the Roman republic all survived. Will the US judiciary defend freedom of speech? Will legislators defend the right to vote? Or will the president successfully intimidate those he disagrees with? And what might happen if a terrorist outrage occurred?
Mr Sierakowski points out that Poland’s Jaroslaw Kaczynski has embraced the welfare state.
Mr Trump, too, won the Republican base by stressing his support for the programmes on which ordinary Americans depend. But Republican leaders wish to gut them. His success might depend on whether he sticks to his promises or to his party.
Yuval Harari, the Israeli thinker, has recently argued that: “For all the disillusionment with liberal democracy and free markets, nobody has yet formulated an alternative vision that enjoys any kind of global appeal.” This is true, yet irrelevant. Authoritarian nationalism potentially has such appeal. It has moved into the core of the world system. That changes everything.
The Geopolitics of 2017 in 4 Maps
By George Friedman and Jacob L. Shapiro
Map 1: Russia’s Economic Weakness
Map 2: China’s Cage
Map 3: Redrawing the Middle East
Russia’s Imperial Instinct
WASHINGTON, DC – Russia is once again at the center of policy debates in many Western capitals. And for the third time in a row, a new US president will start his administration with ambitions to improve bilateral relations. To understand why achieving this goal has been so difficult, it helps to take a longer historical view of the Russian state.
The czars’ eastward push into Siberia mirrored America’s westward push during the nineteenth century, and Russia’s expansion into Central Asia coincided with the European powers’ colonization of Africa.
Photo: Stephen Voss for The Wall Street Journal
Fed Officials See Less Need for Tax and Spending to Boost Short-Term Growth
Shift in thinking comes as economy improves, jobless rate declines
By Shayndi Raice
Federal Reserve officials increasingly say they don’t see a need for stimulative government tax and spending programs to boost short-term economic growth, reversing their stance during and after the Great Recession.
The shift is drawing attention as President-elect Donald Trump prepares to takes office on the promise of tax cuts and spending increases. He has promised annual U.S. economic growth of as much as 4%, double the 2% seen since the recession.
To several Fed officials, the need for such fiscal stimulus to raise overall demand is a thing of the past—the postcrisis period when unemployment peaked at 10%. Today, with joblessness down to 4.7%, they instead advocate targeted policies to spur long-term economic growth by raising productivity—or output per labor hour. These would include improving education and infrastructure, fostering research and encouraging new business formation.
“I would say at this point fiscal policy is not obviously needed to provide stimulus to help us get back to full employment,” Fed Chairwoman Janet Yellen said in December.
To some observers, the turnabout appears political: Fed officials supported fiscal stimulus during the Obama administration but don’t as Mr. Trump takes the helm. However, central bankers see this as a return to normal now that the economy has healed.
Underlying the Fed’s shifting view is a long-running economic debate about the appropriate interplay between monetary and fiscal policy in managing the economy.
Before the 2008 crisis, many economists agreed that monetary policy was a better tool than fiscal policy for managing the short-term ups and downs of the business cycle. Central banks could quickly cut interest rates to boost economic activity in a recession or raise them to cool the economy if it overheated. Changes in government tax and spending programs generally take longer to enact because of congressional wrangling and are better targeted at the economy’s long-term needs, the thinking goes.
In the 1990s the Fed, under then-Chairman Alan Greenspan, cut rates in response to a recession, raised them mid-decade to prevent the economy from overheating, and lifted them again later during the tech boom. Meantime he frequently urged Congress and the White House to reduce projected federal budget deficits. In early 2001, after budget surpluses appeared, he supported tax cuts.
The thinking changed after the crisis, when the Fed and central banks in other advanced economies cut rates to near zero, only to see a deep global recession in 2009. The collapse in demand was so great, and their policy options so limited, that many monetary policy makers called for help—urging governments to ramp up short-term spending and make structural changes to their economies to foster economic growth.
European Central Bank President Mario Draghi has for years urged European governments to do more to fuel growth, saying monetary policy “can’t do everything.” Bank of Japan Governor Haruhiko Kuroda has been urged by some economists to adopt a policy called “helicopter money,” in which the central bank prints money in direct support of tax cuts and government spending increases.
In the U.S., however, the economic tide has turned. Fed officials raised interest rates in December, their second increase in a year, and foresee more increases this year if it stays healthy. In this context, they’ve returned to the old view.
“I don’t see a need of the kind of fiscal policy just to stimulate aggregate demand,” Cleveland Fed President Loretta Mester said in a recent Journal interview. “If we could come up with policies that are productive in terms of raising productivity growth, that can help our long-run economy, then those are good things,” she said, citing as examples educational programs to help workers move into new jobs and efforts to improve internet access across the country.
Chicago Fed President Charles Evans made a similar argument last month when he said that with a strong labor market “you don’t need explicit stimulus.”
Fed Vice Chairman Stanley Fischer said in October, “Some combination of more encouragement for private investment, improved public infrastructure, better education, and more effective regulation is likely to promote faster growth of productivity and living standards.”
Some Fed watchers see political implications in the shift. “Call me a skeptic, if you will, but had [Hillary] Clinton won, I don’t think Fed officials would be walking back their comments on more fiscal spending,” said Brian Horrigan, chief economist at Loomis Sayles & Co.
But PNC Financial Services Deputy Chief Economist Gus Faucher is among those who view it as a reflection of the Fed’s confidence in the economy. “I think that the reason why simply is that the economy now is in better shape than it has been in any time since before the recession started,” he said.
Under New Management
by Jeff Thomas
In 2008, the majority of Americans voted for “change,” and in some ways, they got it. They received a heavier dose of collectivism in the form of Obamacare, but in addition, they received an even heavier dose of “more of the same.”
Mister Obama did not put an end to Guantanamo as he promised. And, although he did remove troops from Iraq (only to send them back a few years later), he expanded America’s military adventures overall, invading numerous sovereign nations.
As for his promise to come down hard on the sworn enemies of democrats—the evil usurpers on Wall Street—he instead dug in deeper. His Treasury secretaries were banking insiders, not the “reformers” that had been anticipated.
Many who had voted for Mister Obama were deeply disappointed. Under him, government had grown, warfare had expanded, the economy worsened and Wall Street became even fatter than before.
In 2016, Americans, in large part, sought the selfsame changes—less central government control, less overseas aggression and a reigning-in of Wall Street and banks. But to achieve these ends, voters switched sides once again and voted for a Republican, one who boldly committed to “drain the swamp.”
So, what are the odds that they’ll receive those changes? Let’s have a look.
When a new leader is elected, the best first assumption to make is that his campaign promises probably had little or no relationship to his actual intentions. More likely, his intentions will be to continue to pander to the Deep State and those that helped him to get elected.
Therefore, it’s always a good idea, in any country, to pay attention to the new leader’s choice as his posse. The US president-elect has been active in choosing the gunslingers who will ride with him into Washington and the choices may provide an early warning as to who the new president really intends to be.
So, first off would be his closest advisors—his chief of staff and his chief strategist. Mister Trump’s choices, respectively, are Reince Priebus and Stephen Bannon. Mister Bannon is a Goldman alumnus.
In addition, Gary Cohn, Goldman’s president, has been chosen as director of the National Economic Council. By any measure, the cabinet will be somewhat of an extension of Goldman.
Mister Trump railed against Wall Street during his campaign and vilified his opponent on Twitter, stating, “Hillary will never reform Wall Street. She is owned by Wall Street!” His supporters had every reason to expect that he would prove to be the reformer they hoped for, yet his choices above suggest that that’s not the plan.
This likelihood is further enforced by his choice of Steven Mnuchin, who spent 17 years at Goldman, as Treasury secretary. His choice for commerce secretary is Wilbur Ross, a billionaire investor who is also unlikely to emerge as an advocate for reform.
As to whether warfare will be diminished in the coming administration, Mister Trump has stated clearly, in reference to ISIS, that he intends to “bomb the shit out of ’em.” (No uncertainty there.) His choice for national security advisor is Lt. Gen. Michael Flynn, whose primary focus is in ramping up tensions with Iran. His choice for secretary of defense is Gen. James Mattis, who has declared his desire to invade Iran. In addition, Mike Pompeo, who also favours an invasion of Iran, has been selected as head of the CIA.
These choices are not likely to sit comfortably with Mister Putin, with whom the president-elect suggests he will enjoy a good relationship. Nor will they sit well with the many throughout the world who already feel the US has gone far beyond its limit in seeking to police the world.
Rather than back off from the dreaded Wolfowitz Doctrine, the choices of cabinet members, taken collectively, suggest a continuation of the foreign boondoggles that began in 2001.
The one departure may be in the important position of secretary of state, Rex Tillerson, a lifetime employee of Exxon who has developed good relations with Russia and opposes government regulation of business. He may be the one pick that reflects Mister Trump’s campaign claims. Still, Mister Tillerson falls right in line with the ever-expanding corporatist relationship extant in the US government.
Finally, those who hope that Trump will reverse the trend of the Deep State’s near-total control over the US will be disappointed not only by the choice of Mike Pompeo for the CIA, but of Trump campaigner and establishment insider Jeff Sessions as attorney general.
None of the above guarantees that the voters who chose Mister Trump will soon be experiencing buyer’s remorse, but the indicators that Americans may find themselves out of the pan and into the fire are significant.
There’s an old saying that “the more things change, the more they stay the same,” and the lineup of new players above suggests that that may well be the case in the next administration.
Meanwhile, not only the US, but the entire world will be holding its collective breath over the coming months. The new president is less likely to spend as much time on the golf course as his predecessor. He’s far more likely to hit the road running. The question will be in what direction he chooses to run. His choices for cabinet suggest that that direction might have less relationship to his campaign rhetoric and more relationship to the ongoing Deep State programme. To be sure, his clear choice of Washington insiders for so many of his primary cabinet positions informs us that the swamp will not, in fact, be drained. Big Business, the military-industrial complex and Big Banks will dominate the Trump cabinet.
Whatever the world will be treated to under the new American presidency, the words of Neil Innes ring true: “No matter who you vote for, the government always gets in.”
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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