The difference between Bitcoin and FTX

Bitcoin is a digital currency (cryptocurrency) that can be paid to another bitcoin user willing to accept it via a blockchain account.  It is backed by nothing and promises nothing. Its US dollar value has fallen from $65,496 on November 14, 2021, to $15,630 on November 21, 2022.

“FTX Exchange was a leading centralized cryptocurrency exchange specializing in derivatives and leveraged products. Founded in 2018, FTX offered a range of trading products, including derivatives, options, volatility products, and leveraged tokens. It also provided spot markets in more than 300 cryptocurrency trading pairs such as BTC/USDT, ETH/USDT, XRP/USDT, and its native token FTT/USDT.12 In early November 2022, the exchange and the companies in its orbit began a steep fall from grace….  According to its bankruptcy filing, FTX, which was once valued at $32 billion and has $8 billion of liabilities it can’t pay, may have as many as 1 million creditors…. On November 16, a class-action lawsuit was filed in a Florida federal court, alleging that Sam Bankman-Fried created a fraudulent cryptocurrency scheme designed to take advantage of unsophisticated investors from across the country. ” “FTX exchange”

The difference between Bitcoin and FTX is that Bitcoin is a digital coin/token that some believe might achieve wide adoption as money and thus a stable demand that could stabilize its price. In my opinion, this is HIGHLY unlikely. I explained this potential eight years ago: “Cryptocurrencies the bitcoin phenomena”   “The future of bitcoin exchanges”  But most people buying Bitcoin are gambling that they can sell it for a higher price than they paid for it (first cousins to slot machine addicts).

On the other hand, FTX and its related products and services promised real things and to play by known rules (contracts). On November 11, FTX and its affiliated firms were put into bankruptcy. Billions of dollars where missing? Founder Sam Bankman-Fried (SBF) claims that he was just careless. It appears more likely that he was a lying fraudster. “An attorney also said the firm had been run as a ‘personal fiefdom’ of Bankman-Fried with $300 million spent on real estate such as homes and vacation properties for senior staff.” “Crypto lender genesis says no plans to file bankruptcy imminently”  Presumably to promote himself as a good guy and to win influential friends, SBF also contributed millions to charities and politicians. 

Most crypto product and service providers want regulations that will give potential investors and customers more confidence in their products but that will not stifle the potential creativity of a dynamic industry.  Hopefully congress will get on with it — carefully. “Crypto bill criticized”

“Sam Bankman-Fried, the founder of the FTX exchange and Alameda Research, a cryptocurrency trading platform, seemed to confuse his bank and his companies. According to John Ray, the new CEO in charge of the restructuring of his empire which went bankrupt on November 11, Bankman-Fried received a personal loan of $1 billion from Alameda. He is not alone: ​​the firm, which is a kind of cryptocurrency hedge fund, has also lent $543 million in personal loan to Nishad Singh, an associate of Bankman-Friend, and $55 million to Ryan Salame, the co-CEO of FTX Digital Markets, one of FTX’s affiliates.  

“’Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,’ Ray wrote. ‘From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.’”  “Bankman-Fried received 1bn in personal loan from his company”

“Bankman-Fried’s net worth peaked at $26 billion.[11] In October 2022, he had an estimated net worth of $10.5 billion.[12] However, on November 8, 2022, amid FTX’s solvency crisis, his net worth was estimated to have dropped 94% in a day to $991.5 million, according to the Bloomberg Billionaires Index, the largest one-day drop in the index’s history.[13][10] By November 11, 2022, the Bloomberg Billionaires Index considered Bankman-Fried to have no material wealth.[14]”  “Sam Bankman-Fried”

I assume that jail is next, perhaps in the cell previously used by Bernie Madoff.

If you subscribe to The Economist you can read fascinating details here: “The failure of ftx and Sam Bankman-Fried will leave deep scars”

Dear Congressman Kevin McCarthy

The Times of Israel and other press report that you “would remove Ilhan Omar, the Minnesota Democrat, from the House Foreign Affairs Committee, in part because of her criticism of Israel.” We should all speak out against antisemitism or any other hateful characterizations of other religious and ethnic groups. However, when you criticize the Biden administration, we would be wrong to call you unamerican. Similarly, you are wrong to conflate criticism of the Israeli government with antisemitism. 

In fact, the U.S. government has been embarrassingly negligent in criticizing the Israeli government’s illegal and abusive treatment of the Palestinian residents of the Palestinian territories.  Amnesty International has declared Israel an apartheid state. “Israel’s occupation of Palestinian territory is unlawful under international law due to its permanence and the Israeli government’s de facto annexation policies, a UN-appointed Commission of Inquiry said in its first report, published on Oct 20, 2022.” It is reassuring that the US is undertaking an investigation of the recent shooting death of Palestinian American Shireen Abu Akleh by an Israeli soldier.  “FBI investigation—killing of Shireen Abu Akleh by Israel military”

I was born and raised in Bakersfield and now live in the Washington, DC area, and I have worked extensively in Israel and the WBGS for the International Monetary Fund. I hope for more from you.   “Israel and Palestine”   My travels to Jerusalem”  

Sincerely,

Warren Coats

We are shrinking

It seems that many Gen Xers and Gen Zs do not understand the huge benefits of free markets and trade that have lifted millions out of poverty. As someone who cares about the poor and about my own liberty and well-being, I do my best to help educate them. Here are two of my blogs on trade:  “Tony Judt on trade”   “Trade protection and corruption” 

Unfortunately, the Trump and Biden administrations have increasingly moved us in the wrong direction of “protecting” American producers from foreign competition. See for example the following report from the excellent news aggregator and reporter Semafor  https://www.semafor.com/

A transatlantic EV trade dispute

President Joe Biden’s Inflation Reduction Act threatens Europe’s electric car industry, according to the EU. One concern is the introduction of tax credits for U.S. EV manufacturers. The EU says this will harm overseas automakers such as Germany’s Volkswagen. South Korean officials have similar concerns for Hyundai’s exports. A few weeks ago, French President Emmanuel Macron suggested a “Buy European Act” to counteract U.S. and Chinese protectionism, while his finance minister said that the entire “level playing field between the United States and Europe” is at stake.”

With the excuse of national defence, we are playing dirty in our competition with China. We are giving up some of the win win benefits of trade to protect relatively inefficient domestic producers. We should not let our government and the crony capitalists it is protecting get away with such short sighted corruption. “Competing with- China”

Lockdown Lessons Learned During Covid

We are two and a half years into the Covid-19 pandemic. Data has accumulated on the effectiveness of lockdowns in reducing deaths and of the costs associated with lockdowns. The overall effectiveness of lockdowns must consider both aspects. Moreover, lockdowns took different forms in different places—total, targeted, etc.  Dyani Lewis has provided a very careful review of the major studies of these data in Nature  “What Scientist have Learnt from Covid Lockdowns

To overcome issues of correctly attributing deaths to Covid, excess deaths is generally used (excess from all causes each period over the recent—usually five year– average for the same period). “The pre-vaccine period of the pandemic does show that countries that acted harshly and swiftly — the ‘go hard, go fast’ approach — often fared better than those that waited to implement lockdown policies. China’s harsh lockdowns eliminated COVID-19 locally, for a time.” But the economic and public moral costs in China are very large and continue to mount. “The most effective measures were policies banning small gatherings and closing businesses and schools, closely followed by land-border restrictions and national lockdowns. Less-intrusive measures — such as government support for vulnerable populations, and risk-communication strategies — also had an impact. Airport health checks, however, had no discernible benefit….

“The impacts of lockdowns also differed from one pandemic wave to the next. By the time second waves emerged, so much had been learnt about the virus that people’s behaviour was quite different…. These changes dampened the extent to which countries benefited from lockdowns” because people adjusted on their own.

“There’s a fundamental difficulty with analysing the effects of COVID-19 lockdowns: it is hard to know what would have happened in their absence…. [Many studies] could have overstated the size of the benefit because it assumes that without lockdown mandates, people wouldn’t have reduced their social contacts. In reality, rising deaths would probably have changed people’s behaviour….

“And lockdown policies did bring costs. Although they delayed outbreaks, saving lives by allowing countries to hang on for vaccines and drugs, they also brought significant social isolation and associated mental-health problems, rising rates of domestic violence and violence against women, cancelled medical appointments and disruption to education for children and university students. And they were often (although not always) accompanied by economic downturns….

“Pure economic analyses of whether lockdowns were worth it generally try to estimate the value of lives saved and compare that with the costs of economic downturns. But there is no consensus on how to make this comparison…. Not all harms can be [objectively measured]. Loss of education because of school closures might indirectly harm children in the long run, potentially decreasing their future earnings and placing them at greater risk of poorer health outcomes…. Such harms are so far off — decades, in some cases.”

Learning the lessons that experience teaches us is very important when formulating public policy. But extracting those lessons can be difficult. Lewis’s summary is the best I have read, and I urge you to read it. I continue to believe that when we are provided the best understanding available (which obviously grows over time) we will each make the best decisions for ourselves and our families, striking the balance that is best for each of us.

The attack on Paul Pelosi

The quality of our lives and that of our community/country depends on how responsibly and wisely we use the considerable freedom we each enjoy. For example, we each have a responsibility to minimize the spread of false information. Sadly, a surprisingly large number of people are eager to jump on and spread information that feeds their existing opinions without taking the time to investigate its authenticity.

“On Saturday, Hillary Clinton, the former first lady and 2016 Democratic presidential nominee, posted a tweet assailing Republicans for spreading ‘hate and deranged conspiracy theories’ that she said had emboldened the man who attacked Ms. Pelosi’s husband, Paul, inside the couple’s home in San Francisco early Friday.” In addition to eagerly spreading lies, too many of us also fan the flames of hate with such statements that are making serious discussion of issues almost impossible.

“In a reply to Mrs. Clinton’s tweet, Mr. [Elon] Musk wrote, ‘There is a tiny possibility there might be more to this story than meets the eye’ and then shared a link to an article in the Santa Monica Observer. The article alleges that Mr. Pelosi was drunk and in a fight with a male prostitute.“Mr. Musk’s tweet was later deleted.” “Musk tweets Hillary Clinton Pelosi Husband”

Mr. Musk was a bit quick with his tweet but at least he removed it shortly there after. In fact: “The man accused of breaking into House Speaker Nancy Pelosi’s home and assaulting her husband with a hammer allegedly told police he was on a ‘suicide mission’ and had a target list of state and federal politicians as part of his effort to combat ‘lies’ coming out of Washington.”  “David Depape Pelosi attack” David Wayne DePape, 42, was caught on police cameras breaking into the Pelosi home in San Francisco. “There, on camera, was a man with a hammer, breaking a glass panel and entering the speaker’s home.”   “Capitol police cameras caught break in Pelosi home”

Sadly, too many people are contributing to our damaging atmosphere of distrust by carelessly forwarding obvious lies. But what about those who invented this and other lies to begin with.  Are these irresponsible kids who think it would be fun to pull our legs, too immature to understand the damage they were inflicting? Or are they evil traitors deliberately undermining our public comity and undermining confidence in our institutions?

Affirmative Action

Like most Americans I believe that our laws should be color blind. That means that race should not be a factor in who to hire or who to admit to college. But put aside what is required by the law for a moment and ask: what is good admission policy for a university? What we consider “good policy” itself depends on the purpose or objective of the policy.

Let me focus on private universities and colleges that are not benefiting from taxpayer (our) money, if there are any, who are thus free to determine what they consider “good policy.” Such universities are likely to want to provide the best educational experience for their students possible.  Having smart, motivated students is an important component of an enriching intellectually stimulating environment.  Diversity of ideas, personalities, and ethnic backgrounds is also a good component of such an environment.

Basing student admissions solely on SAT scores or such metrics will, unfortunately, over-represent Asians and underrepresent blacks. The goal would not necessarily be exact proportionality of the share of these groups in the population (U.S. population or global population??), but it might well be sensible given the desire for diversity, to shade admissions a bit toward more blacks and fewer Asians. Enlightened university admissions officers might well operate this way. Catholic and Hebrew schools have a different purpose, but it is expressed more on the side of applicants than admissions officers. My point is that there can be a good and proper place for such judgements in a “good” society.

“In 2003, Justice Sandra Day O’Connor, writing the majority opinion upholding affirmative action in Grutter v. Bollinger, expressed the hope that race-conscious admissions would be unnecessary 25 years hence.”  “Harvard UNC affirmative action admissions before Supreme Court”  Because of earlier discrimination against blacks, in part through inferior elementary and secondary education, it was accepted as OK to temporarily discriminate modestly in favor of blacks when admitting students to a college or university. Such “affirmative action” has increased black college enrollment considerably. “Affirmative action-supreme court cases”

But 40 years of affirmative action (the waving of equal treatment under the law) is stretching the notion of temporary and the SC is likely to end it. In many respects it is about time. However, it also illustrates that the rigidity of a legal remedy in place of more nuanced judgement can be second best. This is a dilemma.

While enjoying an intellectually stimulating time in college may help attract good students, the real test of a college’s success is the extent to which the experience promotes a richer (in all senses) life after graduation. This requires admitting students who will benefit most from what the college offers, whatever their starting point. It requires looking deeper than such indicators as SAT scores. Prof. Roland Fryer’s experience suggests possible approaches. “Affirmative action-Supreme Court and college admissions”

As he often does, George Will confronts us with the frequent contradictions in our thinking on such tricky issues: “College racial discrimination and affirmative action”

The Role of Social Media

With Elon Musk’s purchase of Twitter, the discussion of whether and how to regulate such platforms is intensifying.  “Social media and false information”  Francis Fukuyama, Barak Richman, and Ashish Goel have reviewed this issue in the current issue of Foreign Affairs:  “Fukuyama-How to save democracy from technology”  Their review is well worth reading. They offer a new suggestion for shifting control from Facebook, Twitter, etc. to their users (us) that deserves attention.

“If regulation, breakup, data portability, and privacy law all fall short, then what remains to be done about concentrated platform power? One of the most promising solutions has received little attention: middleware. Middleware is generally defined as software that rides on top of an existing platform and can modify the presentation of underlying data…. Middleware could allow users to choose how information is curated and filtered for them. [Middleware] would step in and take over the editorial gateway functions currently filled by dominant technology platforms whose algorithms are opaque.”

There are many issues to resolve with this approach, but they should be explored. I already rely on a service that reports on the trustworthiness of news sources (does the source adhere to high journalistic standards, etc.)  https://www.newsguardtech.com/. The proposed middleware would put what we see on Facebook, Twitter, Instagram, etc. in our own hands where it belongs. But, as we must never forget, our freedom produces results no better than how wisely we use it.  If we chose to see only comments and articles with views we agree with, we will remain in the bubble these social media platforms already put us in.  

Young people (and old) should be taught the importance of checking “other” views along with what they already believe.  I am reminded of the left-wing dad who complained that his kids graduated from college with all the “right” views but having heard nothing else they were totally unable to defend any of them.   “Social media and fake news”

Ukraine War—How does it end?

Russia’s invasion of Ukraine is wrong in every way (legally, morally, strategically). Ukraine’s fight to defend its sovereignty is heroic, brave, and impressive. The U.S. is supporting Ukraine to the last Ukrainian soldier. But there are a limited number of potential Ukrainian fighters left and causalities are high.

The fighting can end when: a) Russia kills or disables Ukraine’s remaining soldiers and puts a Russian friendly President in Kyiv; b) the West (NATO) provides soldiers to support the Ukrainian Army perilously launching WWIII; c) The advice offered in the letter to President Biden from 30 congressional members of the Congressional Progressive Caucus to press Zelensky and Putin to negotiate leads to a truce and end to the fighting. “CPC letter for diplomacy on Russia-Ukraine conflict”  However, the letter was later withdrawn (perhaps because the signers now foolishly believe that Ukraine can defeat Russia). “Obama already said some of what the Progressive Caucus got slammed for about Ukraine”

Of Ukraine’s total population of almost 44 million, all of fighting age and condition are on the battle fields and their numbers are shrinking every day. Of its total standing military of about 200,000 when the war began, 70,000 to 80,000 have already been killed or wounded. Another approximately 300,000 have since joined the fight. “Ukraine-Russia military comparison”    “Russia-Ukraine crisis-how big is the Ukraine army size compared to Russia’s”

Of Russia’s total population of a bit over 143 million (three times that of Ukraine), almost one million are in the military. Putin sent an estimated 190,000 into Ukraine this year. Half of them have been killed or wounded. However, unlike Ukraine, which is already all in with virtually no more potential fighters to draw on, Russia plans to send in an additional 135,000 soldiers before Spring and has 800,000 military personnel stationed elsewhere to draw on. “Putin could cripple Ukraine without using nukes”

Ukraine cannot win this war without additional soldiers from the West. “David Petraeus’s recent suggestion that Washington and its allies may want to intervene in the ongoing conflict between Moscow and Kiev. According to Petraeus, the military action he advocates would not be a NATO intervention, but ‘a multinational force led by the US and not as a NATO force.’”  “Playing at war in Ukraine”  Just think about that for a second. Whether the resulting WWIII would be nuclear or not is an open question.

I don’t want to see Ukraine lose and I don’t want to see the start of WWIII that my children and grandchildren will hopefully survive to clean up. It was a terrible mistake for us to break our promise not to expand NATO East in the early 1990s. It was a terrible mistake for us not to insist that Ukraine honor its commitments under the Minsk agreements in2014 and 2015. It was a terrible mistake to finally (2016) build the missile launch sites in Poland and Romania first announced in 2009. It was a terrible mistake for us not to press Ukraine and Russia to negotiate their semi sensible offers the first quarter of this year. I am not sure how many more mistakes we can get away with — if any.

Competing with China

China is now our main economic and political rival. Our proper and honorable response should be to strengthen our side—to be the best that we can be—in the way that one athletic team would fairly compete with another. Instead, we seem to be following the Michael Corleone—God Father—script of knee capping the enemy. Worse still, rather than pulling China into compliance with the international rules of commerce, we are moving toward their failing system of central guidance (industrial policy) of investment.

Deng Xiaoping, who served as the “paramount leader” of the People’s Republic of China (PRC) from December 1978 to November 1989, ended Mao’s repressive economic policies thus freeing up much of the economy under policies dubbed “socialism with Chinese characteristics.” Deng became known as the “Architect of Modern China.” “Since China began to open up and reform its economy in 1978, GDP growth has averaged almost 10 percent a year, and more than 800 million people have lifted themselves out of poverty.” When Xi Jinping took the throne in 2013, China’s annual GDP growth rate was 7.8%. As he increasingly reversed Deng’s economic liberalizations, China’s growth rate has steadily declined and is expected to average 2.8% in 2022. “World Bank – China”

The dramatic economic growth around the world since the start of the industrial revolution is founded in private property and trade. Trade enables individuals (and families) to specialize in what they have a comparative advantage in producing and trade it for what their neighbors are better at. Both are wealthier as a result. “Econ-101-Trade in very simple terms”    “Benefits of free trade”

Following President Richard Nixon’s page turning first visit to the Peoples Republic of China in 1972, when China’s total exports had drifted down from 4.3% of China’s GDP in 1960 ($2.6 billion) to 3.25% ($3.7 billion), until the U.S. formally established full diplomatic relations with the PRC under Deng in 1979, when its total exports were 5.16% of its GDP ($9.2 billion), exports remained a small part of China’s economic output. U.S. diplomatic recognition opened the door to increased trade with China.

At the time, a friend asked me what China could possibly produce that we would want to buy (I swear). While Chica’s exports changed little over those 19 years as a share of its GDP, it increased threefold in dollar value as a result of Chica’s overall economic growth.

Over the next 19 years (1979-1998) following Deng’s economic liberalization, China’s exports rose to 18.34% of its GDP and to $188.8 billion in absolute terms (over 20 times its exports in 1979). Income growth in developing countries normally reflect investment in capital, but in China’s case the larger share of its spectacular growth after its liberalization resulted from the improved efficiency of its resource allocations (increased labor and capital productivity). According to an IMF study “Analysis of the pre- and post-1978 periods indicates that the market-oriented reforms undertaken by China were critical in creating this productivity boom…. Prior to the 1978 reforms, nearly four in five Chinese worked in agriculture; by 1994, only one in two did. Reforms expanded property rights in the countryside and touched off a race to form small nonagricultural businesses in rural areas.” “Why Is China Growing So Fast”

But to maximize the win-win feature of trade, each person/firm must make its decisions about what to produce and trade without distorting outside interference (taxes, subsidies, buy American, etc.). Thus, communities develop rules and norms for “fair” trade. When trade extended beyond the community to the entire world, individuals and countries could maximize the mutual benefits of trade by extending such rules internationally. The U.S. had high protective tariffs on some Chinese goods under the Smoot–Hawley Tariff Act of 1930 (the Reciprocal Trade Agreements Act of 1934 allowed the US President to negotiate bilateral tariff reductions). China had many restrictions on foreign investments in China and a variety of government interventions in its export markets. These restrictive measures needed to be addressed as part of granting China membership in the World Trade Organization (WTO).

From joining the WTO at the end of 2001, China’s $272.1 billion in exports exploded to almost $3,550 billion over the next 19 years (2020), an increase of 13 times (essentially the same share of its GDP as the result of its extraordinary growth in total output). China’s imports followed a similar, but modestly lower, path, raising from 4.4% of GDP ($2.6 billion) to 17.42% of GDP ($3.090 billion) in 2020.  Prior to China’s admission into the WTO what had historically been generally balanced trade (imports and exports generally balanced) rose to a trade surplus of 4.45% in 1997. China sold more abroad than it bought from abroad and bought U.S. debt and property with the resulting surplus. It was hoped and expected that China’s pursuit of an export promotion policy based on an undervaluation of its exchange rate would be reined in by its adoption of WTO rules.

The Peoples Bank of China requested technical assistance from the IMF with complying with WTO requirements. In July 2002 the IMF sent me to discuss and organize the assistance for what was one of my most enjoyable missions (VIP tours of the Great Wall and the Forbidden City and some fabulous dinners). They wanted an American banking supervisor. One of my conditions was that he be given an office with an open door with the rest of the Chinese supervisors. The Deputy Governor approved our agreement, but the Governor vetoed it reflecting the existence of conflicting views on China’s way forward. The primary difference with the officials I talked to was how fast China should liberalize. They all agreed on the direction. The IMF report cited above stated that: “By welcoming foreign investment, China’s open-door policy has added power to the economic transformation. Cumulative foreign direct investment, negligible before 1978, reached nearly US$100 billion in 1994; annual inflows increased from less than 1 percent of total fixed investment in 1979 to 18 percent in 1994.” Direct foreign investment in 1994 was $34 billion and in 2020 it was $253 billion.

China’s gradual liberalization of its restrictions on capital outflows have resulted in larger outflows than inflows since early 2020. Between February and July of this year (2022), China suffered a record net outflow of US$81 billion via the Stock Connect and Bond Connect mechanisms, according to data from the Institute of International Finance (IIF). 

As developing countries catch up to the developed country leaders, their growth rates are expected to slow. But China’s continued heavy government direction of investment, while producing impressive high-speed trains and many thousands of high-rise apartments, and the resulting level of wasteful malinvestment is increasingly taking its toll. After speaking at a People’s Bank of China and Reinventing Bretton Woods conference in Hangzhou in 2014, I continued West to participate in the Astana Economic Forum, in Astana, Kazakhstan, stopping overnight in Urumqi, China, to celebrate my 72 birthday and change planes. Driving from the airport into a lovely Sheraton Hotel in downtown Urumqi, I passed row upon row of empty high-rise apartments (it was evening, and they were all dark) now the source of a major real estate crisis.

When Xi Jinping took over as China’s leader in 2013, the unfinished project of economic liberalization was stopped and put into reverse. The slowing of China’s growth rate accelerated. Clyde Prestowitz reported that: “The CCP [Chinese Communist Party] has long operated the economy on the basis of five year plans. In 2015, the new five year plan included the objective of: Made in China 2025. It listed a range of hi technology items with a target for making them in China by the year 2025. Semiconductors were high on the list, and as an advisor at the time to Intel, I can say that China exerted enormous pressure on that company and many others to move their production of semiconductor chips to China” “Tom Friedman has Biden and China Backward”

We are competing with China just as every firm competes with every other firm. It is mutually advantageous for both economies to grow. It is win win. But neither of us fully plays by the rules of fair trade. What should we do? While adopting policies to strengthen our own economy, we should encourage China to fulfil its WTO obligations. We are doing the opposite. We are taking the God Father mobster approach. As Edward Luce put it in the Financial Times: “Imagine that a superpower declared war on a great power and nobody noticed. Joe Biden this month launched a full-blown economic war on China — all but committing the US to stopping its rise — and for the most part, Americans did not react”  “Containing China is Biden’s Explicit Goal”

German Chancellor Olaf Scholz declared that “Globalisation has been a success story that enabled prosperity for many people. We must defend it…. Decoupling is the wrong answer…. 

We don’t have to decouple from some countries,… I say emphatically we must continue to do business with China.” “Decoupling China wrong answer says German leader”

“Mr. Xi and President Biden should focus their efforts on the future they seek, rather than the one they fear…. If a peaceful — if competitive — coexistence is the ultimate objective, Washington and Beijing do not need to knock each other out to win.” Jessica Chen Weiss in NY Times

We are restricting and reducing trade rather than encouraging its expansion. Not only has President Biden left former President Trump’s unjustified and damaging steel and aluminum tariffs in place (including on Canada) on national security grounds, but we have also directly knee-capped Chinese industries (Huawei, semiconductor chip supplies, etc.). “On 7 October, the Biden administration imposed a sweeping set of export controls that included measures to cut China off from certain semiconductor chips and chip-making equipment. Under these rules, US companies must cease supplying Chinese chipmakers with equipment that can produce relatively advanced chips unless they first obtain a licence.” “What do US curbs on selling microchips to China mean for the global economy”

Historically, such measures, as well as tariffs and bans on certain imports, have been motivated by protecting domestic firms or industries. “The Reign of Polite Protectionism”  The Jones Act of 1917, which forbids shipping goods between US ports in anything other than US built ships, is one of the most useless and embarrassing such laws (ask Puerto Rico). Banning the sale of some items to China can have a military justification but drawing the line between justifiable security concerns and the protection of uncompetitive domestic firms can be difficult. Trump’s 25% tariff on Canadian steel was (but cannot honestly be) justified on national security grounds. Whither justified or not, such restrictions make China and the U.S. (and the rest of the world) poorer. “Next salvo in Biden’s tech war on China expected to aim at quantum computing parts and artificial intelligence software.”  “US mulling bans to stunt China’s quantum computing”  Such restriction are examples of the knee-capping approach to competing with our rivals. “Trade protection and corruption”

But worse still we are now increasingly adopting China’s approach to economic management by the state—so called industrial policy. The recently adopted Inflation Reduction Act, for example, along with measures to reduce carbon omissions, subsidizes the domestic production of solar panels, wind turbines, batteries, and the processing of some critical minerals. A good economic case can be made for encouraging the use of low or non-carbon emitting sources of energy such as with the carbon taxes imposed in Europe. But there is no good case for incurring the higher cost of subsidizing the manufacture of low carbon emitting energy sources in the U.S. The same applies to subsidizing the domestic production of semiconductor chips as is established in this Act. The historical experience with government selection and support of particular products or technologies is not good to say the least. The Trump administration’s promise to buy successful Covid vaccines was a much better and very successful approach to encouraging the private sector.

“French President Emmanuel Macron slammed US trade and energy policies for creating “a double standard” with Europe…. He complained that ‘they allow state aid going to up to 80% on some sectors while it’s banned here — you get a double standard…. It comes down to the sincerity of transatlantic trade….’ The EU has been chafing over the US stimulus package known as the Inflation Reduction Act, which provides subsidies for electric cars made in North America.” “Macron accuses US of trade double standard amid energy crunch”

The financial incentive for corruption in obtaining government financial support is obvious. But even without it, government agents are at best just as good at determining and funding the best new and promising technologies for the future as are private entrepreneurs. The difference is that the private entrepreneurs are risking their own money and the government is risking yours and my money. The vast majority of such undertakings fail. When funded by the government, however, there is less financial pressure to fold and move on when outcompeted by better products. The government landscape is littered with white elephants.  “Questioning industrial policy”

Our China related policies have become damaging to the US and the West in almost every respect. “The China Initiative, launched in 2018 by the administration of former US president Donald Trump, aimed to fight suspected Chinese theft of technical secrets and intellectual property as competition between the two countries intensified…. At least 1,400 US-based ethnic Chinese scientists switched their affiliation last year from American to Chinese institutions,… The US had been ‘losing talent to China for a while and particularly after the China Initiative’,” “1400 US based ethnic Chinese scientists exited American institutions”  Not only do they return with Western technical knowledge but they also return with a fondness for Western values and freedom. Many Chinese retain that fondness and the desire to import more of it into China. We should not kill off those desires.

Doug Bandow offers sound advice: “There is still much for the West to do. The future is not set, and contra Xi’s boastful rhetoric, freedom still is the better bet for the world. Washington should start by addressing its own weaknesses. Free and allied states can constrain the PRC when necessary while cooperating with Beijing when possible, addressing Chinese abuses without adopting the PRC’s authoritarian and collectivist strategies. Americans should continue to engage the Chinese people, especially the young, showing respect for a great civilization while making the case for a free rather than totalitarian society. America can remember the crises she has overcome in the past, and confidently confront the China challenge today.” “Xi plays Mao without the madness”

The Ukraine War

Ukrainian President Zelensky says his country will file an expedited application to join NATO immediately. “’De facto, we have already proven interoperability with the Alliance’s standards, they are real for Ukraine — real on the battlefield and in all aspects of our interaction,’ Zelensky said. ‘Today, Ukraine is applying to make it de jure.”  “Zelensky says Ukraine filing expedited application to join NATO”  This reverses Zelensky’s statements he made in March of his willingness to stay out of NATO.

NATO members should just say no.  Hell no! After successfully serving to protect the West from the USSR, post-Soviet NATO has become a liability. After breaking our promise not to expand NATO further east in exchange for Russia’s agreement to the reunification of Germany, NATO has done nothing but cause problems.

In December 2021, Russia released an eight-point draft treaty to prevent its invasion of Ukraine. At the top of its list was no NATO membership for Ukraine. Soon after Russia’s invasion, President Zelensky offered to give up seeking NATO membership and agreed to much of what Russia demanded. The status of the largely Russian Donetsk and Lugansk was the largest sticking point. For reasons I totally fail to understand, the United States and its NATO allies refused to remove Ukraine’s NATO membership from the table while stating that membership was not a near term prospect. “Ukraine-Russia-NATO”

In March, following Russia’s stalled Feb 23 attack on Kyiv, representatives of Russia and Ukraine met at Belovezhskaya Pushcha, on the border of Poland and Belarus, for initial ceasefire talks.

Putin made six key demands:

  1. No NATO membership and a neutral position.
  2. Russian should be the second official language of Ukraine, with laws prohibiting it abolished.
  3. Recognize Crimea as Russian territory.
  4. Recognize the independence of Donetsk and Lugansk.
  5. Demilitarization of Ukraine and abandonment of weapons that could be a threat to the Kremlin.
  6. Banning of ultra-nationalist parties and organizations in Ukraine.

Of these, only #4 would be difficult for Ukraine to accept, but no agreement was reached, and the fighting continued with more and more Western support.  “Ukraine’s and Russia’s war”  The U.S. and NATO can bring Ukraine to the peace table anytime they want (by threatening to end their military and financial support).  No compromise agreement was reached in December, February, March or beyond. And NATO keeps expanding. Why? Why is the U.S. and NATO not pushing to make a peace agreement happen? If Russia still thinks it can come out ahead, China, India and others should convince it otherwise.

In a recent column in the Washington Post former chairman of the Joint Chiefs of Staff Mike Mullen, former U.S. senator Sam Nunn (D-Ga.) and former U.S. energy secretary Ernest J. Moniz, all of whom serve on the Nuclear Threat Initiative’s board of directors urged China to step forward:

“The most sensible policy choice for China is to wield its unique position of influence to encourage more “rational” decision-making by Putin. In particular, President Xi must make clear to Putin that nuclear use is a line he must not cross and that nuclear saber-rattling itself threatens the global nuclear order….  The United States and China can — and must — now work together with Europe and other nations to help end this war on the “just terms” called for by Biden in his speech to the United Nations.” “Xi Putin Ukraine nuclear arms”  

Every few months, I have urged us to stop this destructive war now. As winter approaches Europe with mounting energy shortages, I say it again. Stop it now.   “End the war in Ukraine”