Latin America

John Bolton and the Monroe Doctrine

Democracy is at risk in Latin America. The danger goes well beyond Cuba, Nicaragua and Venezuela

DONALD TRUMP’S administration is not famed for its adherence to highfalutin’ political principle, so John Bolton, the United States national security adviser, struck an unusual note when he claimed in a speech in Miami last month that the “Monroe doctrine is alive and well”. The reference to the 19th-century principle under which the United States arrogated to itself the right to police Latin America was taken as a warning to Russia and China not to meddle in what used to be called “America’s backyard”. Mr Bolton gave new life to the doctrine by announcing fresh economic sanctions against Cuba, Nicaragua and Venezuela, which he likes to call the “troika of tyranny”.

But the tone of his speech was optimistic as well as threatening. Once the troika was brought down, Mr Bolton explained, there was a prospect of “the first free hemisphere in human history” extending from “the snowcapped Canadian Rockies to the glistening Strait of Magellan”.

The problem with Mr Bolton’s soaring rhetoric is not just that the Strait of Magellan roils more than it glistens. It is also that both his analysis and his prescription are wrong. The weaknesses in Latin American democracy stretch far wider than the trio Mr Bolton fingered, and the United States will not help strengthen it by bullying its southern neighbours.

In the 1980s Latin America turned from a land of dictators and juntas into the world’s third great region of democracy, along with Europe and North America. Since then democracy has put down roots. Most Latin Americans today enjoy more rights and freedoms than ever before.

Yet many Latin Americans have become discontented with their democracies (see article). The region’s economy is stagnant. Poverty is more widespread than it need be because of extreme inequality. Governments are not providing their citizens with security in the face of rising violent crime. Corruption is widespread. Voters’ discontent, voiced on social media, has helped promote leaders with an unhealthy tendency to undermine democratic institutions.

Latin America’s fall from grace is most obvious in Venezuela and Nicaragua, which are sliding into dictatorship; in communist Cuba, which stands behind those two regimes, hopes of reform have been dashed. But across the continent, the threats to democracy are growing.

Many Latin American voters have abandoned moderates in favour of populists. Brazil’s Jair Bolsonaro and Mexico’s Andrés Manuel López Obrador (known as AMLO) share an ambivalence to the dispersal of power and the toleration of opponents that are the essence of democracy. Mr Bolsonaro, who has spoken of his nostalgia for military rule, has eight generals in his cabinet of 22; AMLO is weakening competing centres of power, such as elected state governors. The “northern triangle” of Central America, meanwhile, is dominated by weak and corrupt governments. In Honduras a conservative president and American ally, Juan Orlando Hernández, governs thanks to an election marred by fraud. Guatemala’s president ordered out a UN body investigating corruption that had helped jail two of his predecessors.

Voters elect populists such as Mr Bolsonaro and AMLO—and may elect Cristina Kirchner, who is on track to make a comeback in Argentina’s election in October—not to replace democracy with dictatorship, but because they want their politicians to do a better job. Yet in the 21st century, it is not tanks on the streets that crush democracy. Rather, elected autocrats boil the frog, capturing courts, cowing the media and weakening the parts of civil society that hold them to account. By the time citizens squeal, it is too late. That is what happened in Venezuela under Hugo Chávez, and what is happening now in Turkey.

The main task of averting the danger falls to Latin Americans. They need to rid politics of corruption and cronyism. Politicians need to keep their distance from the armed forces and their hands off the institutions that scrutinise the government. Above all, politicians need to reconnect with ordinary citizens. There are a few hopeful signs. New parties and NGOs are training young activists in how to be effective reformers.

The United States needs to help rather than hinder the task of strengthening democracy. Talk of the Monroe doctrine may make some Latin Americans see their northern neighbour more as a bully than as an ally. Instead of threatening to supplement sanctions on Venezuela with military action, it should work harder at combining sanctions with negotiations, especially with the armed forces. And Donald Trump should restore the $500m aid programme for the northern triangle that he abruptly cancelled this year, for there were signs that it was helping to cut both violent crime and immigration.

Although Latin America usually gets little attention in American foreign policy, few other parts of the world have a bigger bearing—through immigration, drugs, trade and culture—on daily life in the United States. A democratic and prosperous Latin America matters on both sides of the Rio Grande. Mr Trump needs to think harder about how to help that happen.

Rising Tensions

Trump's Iran Escalation Poses a Threat for Germany

The U.S. under Donald Trump is exacerbating tensions with Iran, leading many to fear war may be just around the corner. Any military conflict would have dire consequences for Europe, but the Americans remain undeterred. By DER SPIEGEL Staff

Photo Gallery: A Powder Keg in the Middle East

When German Foreign Minister Heiko Maas entered the meeting room of the center-left Social Democratic Party's (SPD) parliamentary group in the German parliament building in Berlin on Tuesday afternoon, he was met with expectant eyes. The news had just emerged that Maas had received a call from United States Secretary of State Mike Pompeo. A sparsely worded press release from the German Foreign Ministey noted that the secretary of state had expressed his "regret" that he needed to cancel his trip to Berlin at the last minute.

Foreign policy is a symbolic business. Who visits whom when, who makes whom wait for how long -- this all has significance in diplomacy. Even if the German government went to great effort not to seem irritated, Pompeo's cancellation is yet a further sign of just how fragile the relationship between Berlin and Washington is at the moment.

Other SPD lawmakers would also have liked to find out more about the background behind the cancellation, given that it came at a delicate moment. The news out of the Middle East this week has been alarming. An American aircraft carrier was on its way to the Persian Gulf, and every indication suggested that Pompeo's aircraft was also heading somewhere in the crisis region.

But Foreign Minister Maas said nothing. Instead, he left the meeting after half an hour. To the SPD lawmakers, the minister's silence seemed like a symbol of the helplessness and the lack of direction in German foreign policy.

Unpredictable Consequences

There was, after all, plenty for him to explain. The U.S. secretary of state was on his way to Baghdad with the goal of bringing the Iraqi regime on board with the Washington's strategy against Iran. The Americans are currently escalating the conflict with Tehran -- with unpredictable consequences for their allies in Europe. In Berlin political circles, worries are growing about the potential threat of war.

Experienced diplomats are reminded of the period in the run-up to the U.S.-led invasion of Iraq in 2003. And sources within the German government believe the threat of war is greater than it has been at any point in recent decades.

"We're seeing increasing confrontation everywhere in the region," said Volker Perthes, the head of the German Institute for International and Security Affairs (SWP). He believes there's "a dangerous concurrence of conflicts and too many actors who are willing to take risks and are not speaking with each other."

A Powder Keg

Jürgen Tritten, a veteran member of the German parliament with the Green Party who is also a member of the Foreign Affairs Committee, said he sees a "huge danger of escalation" in the region. "The U.S. appears to be looking for a pretext to escalate the conflict with Iran," he argued. "The claim that Iran is planning an attack against U.S. troops in Iraq smacks of a Tonkin incident," he added, referring to a minor confrontation that became the pretext under which the U.S. intensified its role in the Vietnam War.

Washington is trying to bring Iran to its knees using a mixture of economic warfare and military threats. And whether or not the U.S. is pursuing a goal of regime change seems almost beside the point. Because anyone who puts a fuse into a powder keg and says, "Let's just see what happens," is already risking a war.

The U.S. has already slapped tough sanctions on the regime in Tehran, and it is demonstratively ramping up militarily in the Persian Gulf. After intelligence services warned of potential Iranian attacks against U.S. soldiers, Trump deployed a battle group led by the aircraft carrier Abraham Lincoln as well as a bomber squadron toward Iranian territorial waters in the Persian Gulf.

In response, Iranian revolutionary leader Ali Khamenei, has reportedly placed the Iranian forces on higher alert. In a speech on May 1, he described Washington's actions as "total war." At no point since the end of the Iran-Iraq War in 1988 has the threat of war been greater.

The U.S.' actions are doubly dangerous. The tensions with Iran could, intentionally or not, expand into a military conflict. And it wouldn't be any less dangerous if the hawks in Washington succeeded in destabilizing Iran and the country fell into civil war. Iran has over 80 million inhabitants, a population about four times the size of Syria's before the civil war.

It's little surprise, then, that Trump's confrontational Middle Eastern policy has exacerbated the tensions between the U.S. and its European allies, because, unlike the situation in Venezuela, Europe would be directly affected. The continent's very security is at stake.

The consequences of a war would primarily affect Europe. Sources within the German government claim that the Americans have been told repeatedly that their policies pose a much greater danger to Europe than the U.S. But those efforts have been in vain.

Europeans Blame the U.S.

The Americans believe the Europeans, especially the Germans, have been an impediment to their strategy of maximum pressure. Trump's government doesn't see Merkel's government as an ally, but rather as an obstructionist that too often insists on dialogue in the Middle East, has too close a relationship to Tehran and undermines the sanctions and torpedoes Washington's policies against Iran.

A war in the Middle East may not be on Trump's agenda. During his campaign, he promised that under his leadership, the U.S. would end the "destructive cycle of intervention and chaos" and thus stop "racing to topple foreign regimes that we know nothing about, that we shouldn't be involved in." But the president and John Bolton, his national security adviser, both agree that the threats against Iran should intensified.

Meanwhile, the Europeans blame Washington for the escalation in the Middle East. "Washington is exacerbating regional tensions with its policy of applying maximum pressure on Iran," said Niels Annen, a high-ranking official at the German Foreign Ministry. "Trump's Middle East policy is highly dangerous," said Luxembourg Foreign Minister Jean Asselborn. "Trump is breaking international agreements with Iran. And in the Israeli-Palestinian conflict, the U.S. president is effectively making a two-state solution impossible."

Leaders in Berlin and Brussels believe that Iran is reacting with restraint to pressure and provocation from the U.S. One year after Washington withdrew from the nuclear deal with Iran and imposed severe sanctions on the country, Tehran announced this week it would violate the treaty -- in a very limited manner.

Iran's announcement that it would no longer abide by the limit for the storage of enriched uranium and heavy water is, in the view of the German government, not immediately relevant, given that these limits won't be reached until autumn at the earliest. The hope being that a political solution can be found by then.

"Iran's announcement alone is not a violation of the agreement," said Helga Schmid, the secretary-general of the European External Action Service (EEAS) in Brussels, the EU's diplomatic arm. "We will adhere to our commitments, as long as Iran does the same."

In two weeks, a new report from the International Atomic Energy Agency is expected to be released. The agency regularly monitors whether Iran is abiding by the agreement. In Brussels, leaders are expecting that the report, like the past 14, will be positive.

And this, despite the fact that U.S. sanctions are now hitting the Islamic Republic at their full impact. The country's economic growth has collapsed. This year, its GDP is expected to shrink by 6 percent. Inflation is at nearly 40 percent, discontent within the population is growing and the humanitarian situation is worsening.

The complete oil embargo Pompeo announced in late April, which prohibits all countries from purchasing it from Iran, will, according to U.S. State Department estimates, cost Iran 50 billion dollars per year, or 40 percent of its annual government income. Although the Iranians are expecting that China will continue to buy a limited amount of oil, and that they will also be able to sell some petroleum on the "gray market" through Iraq and Turkey, estimates suggest that exports will fall from 2.5 million barrels per day to a maximum of 700,000.

Pact in Danger

Tehran is also disappointed in the European signatories to the nuclear agreement. After the U.S. pulled out of it one year ago, Germany, France and the United Kingdom assured the Iranians they would do everything in their power to save the agreement. Trade was to be a central instrument. In order to bypass U.S. sanctions and sidestep the American financial system, Germany, France and the U.K. would set up a special purpose vehicle called Instex to serve as a kind of trading platform that could be used to offset imports and exports to Iran against each other, keeping the money in the individual countries rather than relying on transfers.

In practice, however, not a single transaction has taken place. The establishment of the vehicle has been delayed. Instex's managers are particularly concerned about how to ensure that the transactions don't run afoul of U.S. sanctions.

With the help of the consulting company Ernst & Young, the Europeans are looking for experts who can review every Iranian company to exclude the risk of them having any connections to the Revolutionary Guard. Because if it turns out that the Europeans potentially conducted business with the Revolutionary Guard, which is considered a terrorist organization by the U.S., it would be just what the Trump administration was waiting for.

Even if that possibility is successfully excluded, members of the German government doubt that Instex's trade volume will be sufficient to decisively change the economic situation in Iran.

In the meantime, Iran has issued the Europeans an ultimatum of 60 days to offset the effects of the sanctions. If that doesn't happen, Iran could restart enriching uranium or withdraw itself from the nuclear deal. Then it might not be too long before Tehran acquires the nuclear bomb -- or the U.S. attacks militarily.

Heavy-Handed Policies

The confrontation with Tehran is only part of the heavy-handed policies the U.S. is imposing on the Middle East. Trump has split the region into two categories: allies and enemies. In the president's head, there's no room for gray areas. The U.S.' allies include Israel and the Saudi royal family as well as the rest of the Gulf States. The biggest enemy is Iran.

The Americans are hoping to get Iran to the negotiating table with their harsh policies. They want Iran to abandon its nuclear program in the long term, limit its missile program and cease providing support to Shiite militias like Hezbollah.

But Iran also has allies across the region, with Iran-allied militias in Iraq, Syria, Lebanon and Yemen. Tehran is blaming the growing tensions on three "B's:" Israeli Prime Minister Benjamin Netanyahu, Saudi Crown Prince Mohammed bin Salman and Trump's National Security Adviser John Bolton.

One American measure in particular has increased the danger of an accidental military escalation: On April 8, Washington declared the Iranian Revolutionary Guard as a terrorist organization. In retaliation, the parliament in Tehran passed a law declaring Centcom -- the U.S. central command in charge of the Middle East -- as a terrorist body. Now, at least in theory, American and Iranian troops, are obliged to take action against each other wherever they might encounter each other in the region.

Berlin is also on a collision course with Washington over the Middle East's second major crisis zone. The Trump administration is set to present its plan for resolving the Israeli-Palestinian conflict in June. The plan is to wait until after Ramadan and the formation of a new Israeli government. After that, though, Trump wants to introduce to the world his "vision" for settling one of the century's greatest conflicts, as his son-in-law Jared Kushner, one of the architects of the policy, recently announced.

No concrete action has been taken so far, but the fear is that the U.S. will move away from the idea of the two-state solution, which the international community has viewed as the only way forward for decades. "The vision that we'll lay out is going to represent a significant change from the model that's been used," Secretary of State Pompeo told CNN in an interview last month.

Abandoning America's Mediator Role

Words like those are the source of concern for the government in Berlin. Chancellor Merkel and Foreign Minister Maas are ready to give the plan a careful read, and they are receptive to creative ideas for resolving the conflict. But if the American plan were to weaken the Palestinians' right to self-determination as a nation or recognize territories occupied by Israel without regard to international law, Germany would not be able to back it.

Since taking office, Trump has abandoned America's role as a mediator and has unilaterally taken the side of the Israeli government. He closed the Palestinian diplomatic mission in Washington and eliminated U.S. funding for the United Nations Relief and Works Agency for Palestinians (UNRWA). He moved the U.S. Embassy to Jerusalem and recognized Israeli control of the Golan Heights, which it annexed from Syria in 1981, in the middle of the Israeli parliamentary election campaign.

At the end of March, Christoph Heusgen, Merkel's former foreign-policy adviser and now Germany's Permanent Representative to the United Nations, demonstrated how the tone toward the U.S. might be ratcheted up. At a meeting of the UN Security Council, he accused the Americans of "violating international law."

"We appeal for respect for international law, but not as a goal in and of itself," said Heusgen. "We believe that international law is the best way to protect civilians and allow them to live in peace and security."

Rolf Mützenich, the deputy parliamentary group leader for the SPD, remarked, "As with the nuclear agreement with Iran, the Americans have yet to explain to us what the better alternative to the two-state solution would be." In Brussels, EU officials also want to preserve the two-state solution. "We don't see a better solution for the Middle East conflict in the EU than the two-state solution," said EEAS official Schmid.

'We're Sitting on a Rope'

Mützenich is calling on the German government to take the lead among the countries pushing for a UN Security Council resolution requiring strict compliance with international law in the Middle East. "The U.S. must then decide whether to veto a resolution like that," said Mützenich.

Europe is basically watching helplessly as tempers flare between Washington and Tehran. "We are sitting on a rope, with the Americans pulling at one end and the Iranians at the other, and the rope is getting thinner and thinner," said one EU diplomat.

German foreign policy is essentially limited to appeals to the Iranians. No one in Berlin believes that Germany's allies in Washington can be persuaded to shift course. Germany at the moment considers the theocracy in Tehran to be more reasonable and rational than the country's own allies in Washington.

That hasn't gone unnoticed by the Americans, either. But in Trump's crude view of foreign policy, Germany plays the part of the bad guy anyway. Merkel has gained a reputation among the president's close staffers as a nerve-wracking moralizer who gives tediously long lectures. Which takes us back to Pompeo. Baghdad was, as mentioned earlier in this article, more important to the secretary of state than Berlin. Pompeo, on the other hand, had no trouble attending two other appointments in Europe -- Finland on Monday and the U.K. on Wednesday.

That says a lot about ties between Berlin and Washington in these days. More than a year after taking office, Pompeo still hasn't paid a visit to Berlin.

Bolton also hasn't seen any reason to visit Germany. And a good seven weeks have passed since Chancellor Merkel's last phone call with Trump.

Germany currently has little to report to the White House. Instead, other Europeans are getting their chance. The same day that Pompeo cancelled his Berlin visit, the White House sent out an announcement about a high-ranking visit from Europe: Hungarian prime minister and right-wing populist Viktor Orbán is expected in Washington next week. Trump has said he wants to talk to Orbán about deepening American-Hungarian relations.

When the German chancellor travels to the U.S. next, at the end of May to give the commencement speech at Harvard University, Trump won't have any time for her. He'll be playing golf in Florida.

Pompeo apparently wants to reschedule his visit for next week, but officials in Berlin are still awaiting confirmation from Washington.

By Christiane Hoffmann, Peter Müller, Christoph Scheuermann, Fidelius Schmid and Christoph Schult

Xi Jinping’s China seeks to be rich and communist

President’s ambitions rely on avoiding ‘middle-income trap’ and placating a more demanding populace

Martin Wolf

Will China emerge as a high-income country still ruled by a communist party state? If China were to achieve this, it would transform a world in which all large, high-income countries are currently democratic. It would reshape the global balance of power, not just economically and militarily, but also politically and ideologically. This is what President Xi Jinping expects to happen. But how likely is it, in fact?

Today, China is not quite exceptional. True, the number of countries ruled by a party that calls itself communist is far smaller than it was before 1991. Yet there remain a few others, notably Vietnam. True, too, it has achieved four decades of staggering economic growth. Yet it is still a middle-income country, ranked by the IMF at 75th in the world, in gross domestic product per head at purchasing power parity — a little behind Mexico and Thailand.

In terms of quality of governance, too, it is not extraordinary, at least on standard World Bank indicators. As one would expect, it ranks far higher for “government effectiveness”, on which it is ranked close to Italy, than for “voice and accountability”, on which it is below Russia. But it is not really exceptional among middle-income countries. If, however, it were to become a high-income country, with GDP per head at, say, the level of South Korea but with government accountability where it is today, something quite new would have emerged. After all, even Singapore’s “voice and accountability” is ranked far higher than China’s.

If this were to happen, China would succeed in becoming rich, while its political system stayed much the same. This, it is clear, is what Mr Xi is trying to ensure. Sustained growth of real GDP per head at 4 per cent a year over another generation would bring China into the middle of the high-income group. Its economy would then be far bigger than those of the US and EU combined. This would be a new world. Yet is it a plausible one? South Korea is, after all, the only sizeable country to have moved from low-income to high-income status over two generations.

To achieve this, China’s party-state must prove able to reach high levels of government performance and the Chinese economy able to attain high-income levels of prosperity, without succumbing to demands for greater accountability from a population that would, by then, be prosperous, urbanised, highly educated and demanding. Moreover, this must also happen without the unmanageable splits in the party elite that destroyed the Soviet Union.

Why might China fail? It might succumb to the “middle-income trap”. Some argue that China’s economic growth is already significantly overstated. Moreover, as the population ages, environmental constraints bite, the economy is arguably more state-dominated, and returns on investment fall, growth — already far below rates achieved before 2008 — might fall to levels little, if any, higher than in the high-income countries. Convergence would then stall. A debt crisis might make such a slowdown more abrupt.

Meanwhile, social changes might undermine the legitimacy of the party-state, particularly in the context of such a slowdown. Moreover, in the long run, the party might find it impossible to contain the inherent corruption. It might also find it increasingly difficult to sustain the legitimacy of an organisation rooted in an outmoded Marxism, especially one responsible for such catastrophes as the Great Leap Forward and the Cultural Revolution. As Kerry Brown of King’s College London notes in China’s Dream, a fascinating book on the culture of China’s communism, the past is “full of doors that have been carefully closed and locked, and territories that are vigorously blocked off and policed”.

Why, nevertheless, might Chinese communism succeed? One answer is that the party-state has proved astonishingly flexible and pragmatic. Switching so quickly from the Cultural Revolution to “reform and opening up” was a feat. The ancient notion of the “mandate of heaven” is also helpful: since the communists are in power, they are meant to be so. Another answer lies in the deep roots of bureaucratic absolutism in China. Also crucial is the party’s claim to have redeemed the nation from poverty and victimhood and delivered, instead, prosperity and power. The party always frames the national narrative. It is, in Prof Brown’s words, the “repository of the national mission”. The marriage of party to nationalism is a potent fount of legitimacy. The way the US is conducting its trade diplomacy is likely to cement nationalist support.

The Communist party has additional assets. One is the drive towards education and entrepreneurship of the Chinese people, which greatly increases the likelihood of achieving prosperity. Another asset is the ability to transform modern technology into a system of comprehensive surveillance over virtually every Chinese person. Yet another is the ability to point to the recent economic and political failures of the high-income democracies: the global financial crisis; declining productivity growth; the tendency to choose incompetent leaders (such as US president Donald Trump) and doomed causes (such as Brexit). For a huge number of Chinese the democratic alternative must look less attractive than before. For them to risk domestic political stability for today’s versions of democracy, not least the west’s rejection of the pragmatic competence on which China’s progress is based, will seem foolhardy.

Will China turn itself into a huge Singapore, with high-income levels of prosperity and government effectiveness, but retain one-party rule? Or will its political system, economic progress or, more plausibly, both together, founder? Will Mr Xi go down in history as the man who brought China to the top of the world, or as a Chinese version of Leonid Brezhnev, whose conservatism brought the Soviet system into irretrievable disrepair? It is impossible to know how this will end. The Chinese alone will decide. We only know that it matters for us all. Meanwhile, the west has to look within, to repair its failing democratic system.

The US, Iran and ‘Sabotage’ in the Persian Gulf

Four oil tankers near the Strait of Hormuz were targets of “sabotage” attacks from unknown sources.

By Xander Snyder  


A week after the United States deployed an aircraft carrier strike group and a bomber task force to the Middle East to counter an unspecified Iranian threat, four oil tankers near the Strait of Hormuz were targeted by a “sabotage” attack from unknown sources. Two of the ships were Saudi, one of which was en route to pick up oil and deliver it to the U.S. The other two were Norwegian and Emirati. All of the ships were reportedly sabotaged near the Fujairah Emirate, which houses a refueling hub south of the strait on the Gulf of Oman. None of the ships sank, and no individuals have been reported killed or injured.

So far, little is known about the attacks. The Norwegian ship, the Andrea Victory, was reportedly “struck by an unknown object,” according to the ship’s operator, and video footage shows a hole in its hull near the waterline. A reporter from Sky News Arabia, a partly Emirati-owned news agency, captured video footage of the Al Marzoqah, one of the Saudi ships, that showed no identifiable damage. Separately, Lebanese news channel Al Mayadeen reported that seven Emirati oil tankers were damaged in an explosion at the port of Fujairah, a charge that was subsequently taken up in Iranian media and that the United Arab Emirates denied. Neither Saudi Arabia nor the UAE has blamed Iran publicly. The UAE said it has requested support from a team of U.S. investigators and that it will refrain from making any conclusions until the investigation is complete.

The initial assessment from the U.S. investigators, according to American officials who spoke with CBS News on Monday, was that Iran or its proxies were behind the attacks. The team hasn’t reached a final conclusion yet, but Iran would seem to be the most likely suspect. It has, after all, threatened for years to take action in the Strait of Hormuz. Iran has also launched sabotage and asymmetric attacks against more powerful adversaries before. By demonstrating the vulnerability of shipping in the Persian Gulf, the Islamic Revolutionary Guard Corps could beat its chest without seriously escalating an already tense situation to the point that the U.S. would need to get involved.

At the same time, it’s not entirely clear what Iran would gain from such low-grade attacks. If anything, Iranian leaders appear to have been spooked by the U.S. deployment last week. In a closed-door session with Iran’s Parliament over the weekend, IRGC chief Maj. Gen. Hossein Salami said that, while Iran is prepared for war with the U.S., it doesn’t expect war. (Unsurprisingly, Iranian leaders certainly aren’t claiming responsibility for the attack and have called the incident “regretful.”)

Nothing about a war with the U.S. would benefit Iran. Its economy is in shambles. Its people are struggling financially as the persistently weak rial drives up demand for hard assets that are ever further out of reach for the average Iranian. Drought plagues the country, driving disaffected farmers into crowded cities. And the regime is so strapped for cash that there have been reports that Hezbollah (an Iran-funded proxy) is struggling to pay its fighters. On top of this, the country’s oil export revenue has been declining because of reimposed U.S. sanctions. Iran cannot win a war with the U.S., which means that at least some factions within the country are seeking a way out of their current predicament.

Despite its bellicose rhetoric, the IRGC likely doesn’t want war, either. While it is angling to pull power away from President Hassan Rouhani and other moderates who supported the nuclear deal with the U.S., if all the political infighting brings only the threat of war with the U.S., the public may begin to question the efficacy of the IRGC’s policies, too. Showcasing its ability to pose a low-level threat to Persian Gulf shipping channels could be a way for the IRGC to offer a tangible policy without risking U.S. retaliation and without letting the situation get out of its control.

But it wouldn’t make the IRGC look particularly strong, either. Sabotage attacks like the ones conducted over the weekend – which at present look to have caused, at most, minor damage – don’t fundamentally change Iran’s strategic position, help Iran get around U.S. sanctions, or strengthen Iran’s allied militias’ prospects anywhere in the Middle East. The benefit of such attacks, in other words, is superficial at best, showcasing the limited options available to the IRGC rather than its military prowess.

For its part, the U.S. has remained quiet so far, with President Donald Trump issuing only a vague threat to Iran “if something happens.” As of Sunday, the U.S. began flying what it has referred to as “deterrence flights” over the Persian Gulf with its recently deployed B-52s, as well as F-35s and F-15s, but it’s unclear whether there’s a connection between these flights and the apparent sabotage.

All things considered, the situation doesn’t seem to benefit any of the typical players that have an interest in Persian Gulf transit. For now, then, we’ll count this as another variable in the ongoing U.S.-Iran standoff.

How the tumbling renminbi could inflame China-US tensions

Weakness in Chinese currency raises questions over Beijing’s tactics in trade spat

Hudson Lockett and Daniel Shane in Hong Kong

What’s going on with the renminbi?

In short, it is weakening, as market participants brace for further details about planned US tariffs on a further $300bn of goods imported from China.

The scale of the fall depends on which type of the Chinese currency you are referring to. The offshore renminbi slipped almost 1 per cent on Monday to more than Rmb6.9 per dollar, its weakest level since December, while the more tightly controlled onshore exchange rate was a touch less volatile, weakening as much as 0.8 per cent to Rmb6.877.

How does this help China, and is Beijing behind the move?

China has devalued its currency in the past in an effort to support exports while limiting imports. These days, it tends to step back and allow markets to push the exchange rate in either direction, usually quite gradually, in line with its objectives at the time. On Monday the People’s Bank of China, the central bank, set the onshore rate’s trading band weaker for a third straight day, suggesting it is not averse to further falls.

But it is too early to tell if Beijing is forcing the slide at the moment.

A weaker exchange rate in the wake of the latest rise in US tariffs would provide China with cheaper and more competitive exports as it grapples with the latest demands for concessions out of Washington. But it would also have costs.

In August 2015, Beijing carried out the biggest one-day devaluation of the renminbi in more than two decades, in what critics described as an effort to boost its export-driven economy. However, the downward adjustment of the currency exposed China to criticism and it complicated relations with the US, where politicians have long argued that the renminbi is undervalued.

The move also undermined China’s efforts to have the renminbi accepted as a global reserve currency alongside the dollar, yen, euro and sterling. Gains made by the renminbi in this respect, before the devaluation, have since been reversed. In March the currency accounted for just 1.2 per cent of international payments, according to data from Swift.

Could this escalate and how will the US respond?

China could continue to allow the renminbi to weaken against the dollar by declining to step in and counteract downward pressure from markets. Analysts have tipped the exchange rate to become more volatile in the next few weeks amid heightened uncertainty over whether Beijing and Washington can finally bury the hatchet on trade. Some expect it to pass Rmb7 per dollar by the end of the year.

But there is little sign that Beijing has abandoned its long preference for more gradual, managed movements in the foreign exchange rate. Few observers expect a drastic move akin to that seen four years ago.

The case against Beijing is not very strong at the moment, even from a US policy perspective. The US Treasury Department in October once again declined to label China a currency manipulator even as it expressed “concerns” over the weakening exchange rate, which was then closer to Rmb7 per dollar than at any point since 2008.

That lack of an official designation is unlikely to stop the Trump administration from accusing Beijing of currency manipulation, particularly if trade tensions escalate further, putting still greater downward pressure on China’s currency.

What do falls in the renminbi mean for other countries?

The effects of a weaker renminbi may be seen on those economies that depend on selling goods to China, such as South Korea and Australia, because their exports have effectively become more expensive for Chinese buyers. South Korea’s won also fell sharply on Monday.

When Beijing engineered a major devaluation of the renminbi four years ago, some of the biggest initial responses were felt in the prices of commodities such as oil and shares of mining companies, for which China is a major customer.

Declines in the value of the renminbi make Chinese goods cheaper for the rest of the world which, given the country’s role as the world’s second-largest economy, could risk spreading deflationary pressures to trading partners. When a country slashes the value of its currency to boost exports, it can also risk triggering competitive devaluations by trading partners seeking to protect their own export industries.

Demographics is destiny

By Rana Foroohar

There are plenty of Progressive policies that rich people don’t like. But I’m beginning to think that one Democratic 2020 proposal that may have real legs is Elizabeth Warren’s idea to retire student debt. I say this because of the growing understanding that the $1.6tn student debt bubble is changing not only consumption patterns among younger people, but potentially long term American demographics as well.

I’ve written in previous columns about the growth impact of student debt — when you are busy paying off an average of $30,000 in student loans, it’s tough to spend money on much else. But I recently came across a fascinating research note from David A. Rosenberg at Gluskin Sheff, that looked at how debt may impact long term demographics. The share of “kids” between the ages of 25 to 34 living at home has risen from 12 per cent to 17 per cent since the financial crisis. For males in that cohort, more than one in five now live with parents (it’s as if we’ve suddenly become Italy!). That’s the highest number since the Great Depression. The median age for a first marriage is now 30 years for men, and 28 for women, which, again, is unprecedented.

Result — the US birth rate (meaning births per 1000 people) has, for the first time in recorded history, dropped below 12 per cent. As Rosenberg puts it, we didn’t need a Chinese style one child policy to curb birth rates in America. We did it all by ourselves, by creating a system in which the only inflation around exists in areas like education, healthcare, and housing — and in those areas, particularly the first two, we’ve got way too much of it. Ed, what do you think? Will student debt win out over “Medicare for All”, or no?

I think we are headed towards a period of huge wealth redistribution, and also intergenerational political conflict, as millennial voters (the largest block) demand relief from their crushing debt burdens.

This is going to have massive investment implications, which I don’t think the markets realise at all yet. For the last four decades, wealth has moved from poor to rich, and young to old.

Now, it’s going the other way. Massive portfolio shifts will be called for (hint: blue-chips could become the new subprime).

The economics and politics of that are something I’ll cover in a future column or Swamp Note.

U.S. Tariffs Haven’t Been This High Since the Great Depression

By Al Root

It’s official. U.S. customs duties are set to eclipse 1930s tariff levels.

U.S. and Chinese officials haven’t agreed on a new trade pact, which means the America is slapping higher tariffs on more Chinese goods.

If the new Chinese tariffs stay in place all year, then customs cash flowing into the U.S. Treasury will eclipse levels last seen in the 1930s, when measured against the size of the overall economy.

The Smoot-Hawley Tariff Act, passed by Congress in 1930, is blamed, in part, for the Great Depression that decade. Reed Smoot was a senator from Utah and Willis Hawley was a member of the House from Oregon.

There is something, however, to President Trump’s claim that tariff money is pouring into U.S. coffers.

Through March, customs duties were up more than 60% on a trailing 12-month basis. Still, the roughly $50 billion received over that time is only about 1% of total spending by the U.S. federal government.

So far, it seems that the stock-market pain in response to the new tariffs was felt earlier in the week. The Dow Jones Industrial Averagewas near the break-even line after Treasury Secretary Steven Mnuchin called the latest talks on trade constructive and a Federal Reserve governor said cuts in interest rates could be a possibility if consumers cut back on spending.

“Countries don’t pay tariffs,” said Jason Pye, vice president for legislative affairs at FreedomWorks, a conservative advocacy group. “Businesses don’t pay tariffs. Only consumers pay these costs. Tariff increases are nothing more than a tax hike on individuals.”

The longer the tariffs last, the more instability they will cause, he said.

Shrinking Middle Class Threatens Global Growth, Stability

Recruitment to the middle classes is in decline across developed countries, says the OECD

By Paul Hannon

The Shibuya district of Tokyo, Japan. While 70% of baby boomers were members in their twenties, that has fallen to 60% of the generation known as millennials. Photo: Toru Hanai/Bloomberg News 

The middle class is shrinking and its economic power diminishing in the U.S. and other rich countries, a development that threatens political stability and economic growth, according to a report by the Organization for Economic Cooperation and Development.

At the peak of its powers in 1985, the aggregate income of the middle classes was four times that of the richest group. Three decades later, it had fallen to less than three times. And while income growth for the middle classes has been slow over that period, the cost of housing, education and health care has risen much more rapidly.

The result of that squeeze is that middle-income households have taken on more debt and feel less secure in their status, while younger generations are less likely to gain membership of a group once seen as accessible to all.

The notion that the middle class is under pressure isn’t entirely new, and has become more politically salient since the financial crisis. But the OECD’s report provides evidence to back up that sense of peril.

“It’s not just a feeling,” said Stefano Scarpetta, director for employment at the Paris-based research body, which provides policy advice to its member governments.

Among the steps it recommends to ease the squeeze are lower taxes on middle-income workers, and higher taxes on the rich to pay for that, as well as steps to limit housing, education and health costs.

The OECD defines the middle class as comprising households with incomes between 75% and 200% of the median. That varies widely by country. In the U.S., a single person would have to earn between $23,400 and $62,400 to be part of the group.

The proportion of the population in OECD member countries who are in the category has fallen over the last 30 years, from 64% to 61%. However, larger falls have been recorded in the U.S., Israel, Germany, Canada, Finland and Sweden.

Across developed countries, recruitment to the middle classes is in decline. While 70% of baby boomers were members in their 20s, that has fallen to 60% of the generation known as millennials.

Seita Omija, 26, an assistant director at a small media marketing agency in Japan, said he was aiming to enter the middle class.

“In Japan I don’t feel there is as much disparity as there is in the U.S., for example,” Mr. Omija said. “But entering into the middle class really feels impossible for many young people today—unless you have some kind of specialized tech knowledge, that is.”

Mr. Omija said he has taken on some side jobs making marketing videos to boost his income. Altogether he said he made about 3 million yen, or slightly less than $30,000, a year.

“For many people about to head into their 30s, it feels impossible to enter into the middle class unless you work some kind of side job,” he said.

The middle class share of the population now ranges from around 50% in the U.S. and Israel to around 70% in Nordic and some other European countries. The U.S. stands out in having a relatively small middle class given its high median income: among other countries, a higher median income tends to be associated with a larger middle class.

The loss of middle-class economic power has been driven by what the OECD describes as “dismal” income growth compared with top earners. At the same time, the cost of many of the goods and services that are key to middle-class life styles have risen much more rapidly. That is especially true of housing, which now accounts for a third of middle-class spending, up from a quarter in 1995.

Rising city rents have squeezed the German middle class. Since 2012, rents in the country’s largest cities have risen sharply—by 70% in Berlin and 43% in Munich. But real wages for employees in nonmanagement positions have increased just 8.4%.

Higher rental costs also stand in the way of another traditional route into the middle class: running a small business.

According to Mario Lombardo, rents have doubled since he set up his store producing and selling handmade perfumes and scented candles in a neighborhood that has developed into Berlin’s fashion district.

“You need to be very creative to make money,” he said. “Taxes are over 40% and the rents are simply skyrocketing here.”

Since 2012, rents have risen by 70% in Berlin but real wages for employees in nonmanagement positions have increased just 8.4%. Demonstrators in Berlin, Germany, campaign “For Fair Wages.” Photo: Felipe Trueba/EPA/Shutterstock

The OECD estimates that 20% of middle-income households spend more than they earn, and they are more likely to be highly indebted than rich or poor households, with one in eight owing more than 75% of their assets.

The OECD’s report comes as Democratic lawmakers and presidential candidates outline a range of plans for boosting taxes on the wealthy to address economic inequality, while concerns about the retreat of the middle class have spread to billionaires such as Bridgewater CIO Ray Dalio, who in an essay published last week warned of “great conflict and some form of revolution” if it isn’t halted.

The OECD said there is a clear link between the strength of the middle class and rapid economic growth, noting that in their “intolerance of corruption, and their trust in others and in democratic institutions they are the very foundations of inclusive growth.”

“Political instability is an important channel through which a squeezed middle class may upset economic investment and growth,” it warned.

— River Davis in Tokyo and Bojan Pancevski and Bertrand Benoit in Berlin contributed to this article


How Fintech Is Revolutionizing Financial Services

New technologies are disrupting the financial services industry, like they have in many other markets, whether Wall Street is ready for them or not. From peer-to-peer lending and robo-advisors to bitcoin and crowdfunding, financial technology or fintech is smashing old business models on its way to crowning new rulers in the world of money. And there is no turning back.

“Fintech is not only the future, but it is here,” said Amy Gutmann, president of the University of Pennsylvania at the April 3 launch of the Stevens Center for Innovation in Finance at Wharton. The business school is planting an official stake in the ground by establishing a center dedicated solely to fintech. “We have an incredible history and heritage in finance, but I think the best way for us to honor the history of the school is to leverage it for the future,” added Wharton Dean Geoffrey Garrett, at the event. (Garrett also wrote a LinkedIn post about the event.)

It’s helpful to think about fintech companies as fitting into any of three main business verticals — lending, asset and wealth management, and payments, according to David Klein, CEO and co-founder of CommonBond, which he said allows his firm to provide lower cost student loans. Layer on top three technology horizontals — front-end, middle ware and back-end — and pretty much any fintech company will fall into this grid, he said during a panel discussion among fintech disruptors and regulators at the launch event.
CommonBond fits into the lending space. Klein’s own experience with hefty student loans led him to found a company that he said offers lower interest rates and improved customer service. The firm, he added, can offer a better deal by underwriting the loan risk, which the federal government does not do. It also has lower operating costs by not having any physical stores, unlike banks. “We don’t have bricks-and-mortar locations and we underwrite so that has allowed us to lower the rate of interest for students going to school or refinancing,” he said.

Like Klein’s company, Square Capital is focused on meeting the unfilled needs of the end user. There are 30 million small businesses in America and 24 million of them are sole proprietorships — think of the food truck, shoe repair shop, nail salon or beauty parlor — according to Jackie Reses, head of Square Capital. If they want to expand, many of these small businesses face big hurdles in getting loans from a major bank, which typically ask for volumes of paperwork and guarantees. “It has become a total crimp in U.S. economic growth,” she said.

Access to financing is the lifeblood of any business, which uses funds for things such as working capital, inventory purchases and emergencies. If a flood closes down a shop for a few days, the impact could be severe. “Most businesses have only 17 days of working capital in their bank accounts,” Reses said. “Any unusual occurrence that happens could really put an end to a business.” At Square, 70% of its sellers can’t get capital anywhere else.
“The mission of Square and Square Capital is to bring small businesses into the financial ecosystem,” Reses continued. Since the introduction of its first product, the Square Reader, a white dongle that plugs into a smartphone to let anyone accept credit cards, Square has expanded into a broad suite of products. “Our whole ecosystem is built around the idea of listening to the pain points and issues that we hear … and building tools that help small businesses,” she said. As such, “we really changed the risk paradigm of who is allowed into the financial system.”

The small entrepreneurs’ needs guide the strategies of Square Capital. “We start with the framework of what job we’re doing and what’s the help wanted,” Reses said. “I don’t sell loans. I help small businesses solve their cash-flow problems.” If Square just focused on matching what competitors were doing, it would end up offering a ‘me too’ product. Such a way of doing business is “very backwards-looking, not forward-looking,” she added.

Two Phases of Cryptocurrencies

There’s another thing that seems backward to the folks at Square: the idea of a currency issued by a country. Founder Jack Dorsey thinks such a system feels “antiquated,” Reses said. “In a multi-country world that we live in, there’s no reason why a nation-state should actually control the movement of that capital going forward.” One way to wrest control of money from a central authority like a government is to switch from using fiat, or hard, currency to cryptocurrencies. Square’s Cash app already makes it easy for users to buy cryptocurrencies — with a simple swipe.

Cryptocurrencies have the power to change the lives of people in countries with substandard, inadequate or corrupt financial systems. “What we’ve seen in the last 10 years is the birth and growth of an open source monetary system that allows those people to opt out for the first time,” said Robby Gutmann, CEO of New York Digital Investment Group, a digital asset management firm. For example, cryptos could preserve the income of a taxi driver in Venezuela who has seen the bolivar sharply devalued.

Robby Gutmann said the crypto world falls into two buckets. The first pertains to the use of cryptos, which he said is expanding albeit slowly. The second relates to investments in cryptos. Over time, he believes, the two will converge. He also identified two phases for the cryptocurrency. It is currently in phase one where it functions as a “bridge asset,” he added. Cryptos can’t be used directly to buy most goods and services; they still need to be converted into hard currency and vice versa. Phase two comes when local currencies are replaced by cryptos, he said.

Gutmann said it is hard for him to imagine the developed world mass-adopting cryptocurrencies. The existing financial systems work well for most people and so there’s less motivation to change. Any change also needs the participation of banks and institutional investors. But for developing nations, cryptos could solve some tough problems and thus be more quickly adopted.
Regulators Are Moving

Regulators are taking notice. The Securities and Exchange Commission, for one, is becoming more proactive instead of reactive, said Elad Roisman, a newly appointed commissioner. The SEC sees lots of interest in cryptos. “We have this burgeoning asset class, incredible interest by a whole new generation of investors, [which is something] I’ve never seen before,” he said. “Our job is to help facilitate [growth], but at the same time ensure that investors have enough information to make informed decisions and if there are bad actors, we’re finding them.”

Instead of waiting for new laws to be minted that apply to these new technologies, the SEC gets guidance from history. “We have found a way to find decades-old laws and Supreme Court cases and apply them to new technologies and new assets,” Roisman said. For example, to determine whether a crypto is a token or a security, it looked at the Supreme Court case SEC v. Howey in the 1940s. The ruling in the case defined a security: It is an investment of money in a common enterprise with a reasonable expectation of profits based on the efforts of others.

Roisman said the SEC has also offered guidance through periodic reports. For example, he pointed to a 2017 report that classified tokens offered by “The DAO” as securities and thus must comply with federal securities laws. The SEC also set up groups like FinHub where regulators, innovators, developers and entrepreneurs congregate to learn from each other. “We have continually brought in people with … financial and technology backgrounds to inform our policy-making decisions.”

But Klein said there’s still a big regulatory gap that makes it hard for startups to scale like the incumbents. For example, CommonBond can’t compete with big banks when it comes to access to capital. Banks have a source of cheap capital in the form of customer deposits — it pays very little interest to the bank customer and turns around and lends the money out at a higher interest rate. Companies like CommonBond cannot get capital this cheap to lend out. It has to offer higher rates to savers to lure them away from banks, which enjoy their trust because they’ve passed stringent government requirements.
“In our space, if you’re a very big bank — who has what I believe to be a pseudo-government sponsored monopoly on capital — then you get access to big capital at a low cost consistently over time in a way that nobody else does,” Klein said. “So when innovative players who are smaller and truly thinking about the customer first, what’s their access to capital? What’s the cost of capital and how sustainable is that over time?”

Klein said this dilemma leads to a bigger question: “Are we going to have an intermediary regulatory frame that allows smaller innovators to make the jump, or bridge, to true long-term scale?” Right now, on one side are smaller players operating in a “hodge-podge of state-based regulatory noodle soup” and the other side are banks that meet a “very high bar” of capital and liquidity ratios and other compliance measures, he said. There’s nothing in between. “I would propose having an intermediary solution that allows innovators to bridge to scale.”

But until the regulatory framework gets there, the best scenario is for startups and incumbents to work together since they each want what the other has. “Unless and until we get to that point, I believe there is an opportunity for incumbents to take the best of both worlds, partner in some capacity [with disruptors], and make finance better for the end consumer,” Klein said.

Trump’s Most Worrisome Legacy

The US president's attacks on America's truth-seeking institutions jeopardize its continued prosperity and very ability to function as a democracy. As corporate giants capture the institutions that are supposed to protect ordinary citizens, a dystopia once imagined only by science fiction writers is emerging before our eyes.

Joseph E. Stiglitz

stiglitz257_Win McNameeGetty Images_trump nielsen

NEW YORK – Kirstjen Nielsen’s forced resignation as US Secretary of Homeland Security is no reason to celebrate. Yes, she presided over the forced separation of families at the US border, notoriously housing young children in wire cages. But Nielsen’s departure is not likely to bring any improvement, as President Donald Trump wants to replace her with someone who will carry out his anti-immigrant policies even more ruthlessly.

Trump’s immigration policies are appalling in almost every aspect. And yet they may not be the worst feature of his administration. Indeed, identifying its foulest aspects has become a popular American parlor game. Yes, he has called immigrants criminals, rapists, and animals. But what about his deep misogyny or his boundless vulgarity and cruelty? Or his winking support of white supremacists? Or his withdrawal from the Paris climate accord, the Iran nuclear deal, and the Intermediate-Range Nuclear Forces Treaty? And, of course, there is his war on the environment, on health care, and on the rules-based international system.

This morbid game never ends, of course, because new contenders for the title emerge almost daily. Trump is a disrupting personality, and after he’s gone, we may well reflect on how such a deranged and morally challenged person could have been elected president of the world’s most powerful country in the first place.

But what concerns me most is Trump’s disruption of the institutions that are necessary for the functioning of society. Trump’s “MAGA” (Make America Great Again) agenda is, of course, not about restoring the moral leadership of the United States. It embodies and celebrates unbridled selfishness and self-absorption. MAGA is about economics. But that forces us to ask: what is the basis of America’s wealth?

Adam Smith tried to provide an answer in his classic 1776 book The Wealth of Nations. For centuries, Smith noted, standards of living had been stagnant; then, toward the end of the eighteenth century, incomes start to soar. Why?

Smith himself was a leading light of the great intellectual movement known as the Scottish Enlightenment. The questioning of established authority that followed the earlier Reformation in Europe forced society to ask: How do we know the truth? How can we learn about the world around us? And how can and should we organize our society?

From the search for answers to these questions arose a new epistemology, based on the empiricism and skepticism of science, which came to prevail over the forces of religion, tradition, and superstition. Over time, universities and other research institutions were established to help us judge truth and discover the nature of our world. Much of what we take for granted today – from electricity, transistors, and computers to lasers, modern medicine, and smartphones – is the result of this new disposition, undergirded by basic scientific research (most of it financed by government).

The absence of royal or ecclesiastical authority to dictate how society should be organized to ensure that things worked out well, or as well as they could, meant that society had to figure it out for itself. But devising the institutions that would ensure society’s wellbeing was a more complicated matter than discovering the truths of nature. In general, one couldn’t conduct controlled experiments.

A close study of past experience could, however, be informative. One had to rely on reasoning and discourse – recognizing that no individual had a monopoly on our understandings of social organization. Out of this process emerged an appreciation that governance institutions based on the rule of law, due process, and checks and balances, and supported by foundational values like individual liberty and justice for all, are more likely to produce good and fair decisions. These institutions may not be perfect, but they have been designed so that it is more likely that flaws will be uncovered and eventually corrected.

That process of experimentation, learning, and adaptation, however, requires a commitment to ascertaining the truth. Americans owe much of their economic success to a rich set of truth-telling, truth-discovering, and truth-verifying institutions. Central among them are freedom of expression and independent media. Like all people, journalists are fallible; but, as part of a robust system of checks and balances on those in positions of power, they have traditionally provided an essential public good.

Since Smith’s day, it has been shown that a nation’s wealth depends on the creativity and productivity of its people, which can be advanced only by embracing the spirit of scientific discovery and technological innovation. And it depends on steady improvements in social, political, and economic organization, discovered through reasoned public discourse.

The attack by Trump and his administration on every one of the pillars of American society – and his especially aggressive vilification of the country’s truth-seeking institutions – jeopardizes its continued prosperity and very ability to function as a democracy. Nor do there appear to be checks on corporate giants’ efforts to capture the institutions – the courts, legislatures, regulatory agencies, and major media outlets – that are supposed to prevent them from exploiting workers and consumers. A dystopia previously imagined only by science fiction writers is emerging before our eyes. It should give us chills to think of who “wins” in this world, and who or what we might become, just in the struggle to survive.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His latest book, People, Power, and Profits: Progressive Capitalism for an Age of Discontent, will be published in April.