Tag: Trump

Protection from terrorists

My heart goes out to those in London who died at the hands of the British born citizen, Adrian Russell Elms, now going by the name of Khalid Masood. May Keith Palmer, Leslie Rhodes, Kurt Cochran, and Aysha Frade rest in peace. Whether he was a terrorist or a mentally disturbed citizen, he inflicted terror. How should we react?

Like health care reform, some topics never seem to go away. Indeed, striking the right balance between freedom and security is and should be under constant review. However, some approaches should be rejected out of hand. Trump’s travel ban would not have helped (hopefully it will never be implemented). In fact, his disgraceful gesture is a political stunt that does harm if anything at all. His rumored ban on carrying laptops and tablets in the cabins of flights from ten Middle Eastern and North African (predominantly Muslim) cities, while the same items may be checked and thus carried in the hull of the same plane is incomprehensible (other than as a protectionist measure, as only non American carriers fly from these cities). Beyond jeopardizing the cooperation we need from these countries to more effectively combat terrorism, these two measures are hurting our tourism and “jobs in America.”

Reasonable measures should be taken to detect and deter organized terrorist undertakings, without undermining our privacy and freedom of movement. But most attacks since 9/11 have been by lone wolves who didn’t have any actual contact with terrorist organizations. Anyone can decide to drive their car or truck into a crowd as was done in France, Germany and now England. No one in their right mind would suggest extending a travel ban to all road travel in the U.S. as a way of keeping us safe. U.S. traffic deaths have fallen significantly from 54,589 in 1972 to 35,092 in 2015 but dramatically exceed any from terrorists. With the advent and wide spread use of driverless cars such deaths will plummet dramatically in the future. But we accept that risk and drive anyway. No sane person would propose keeping every one home as a safety measure. In any event over 25,000 people die from accidents in their home in the U.S. every year. “Our risks from terrorists”

A full, rich life entails taking calculated risks. It is prudent to limit risks were the cost of doing so is not excessive in terms of our freedom of movement and quality of life. We need to keep this in mind when considering the measures we want our government to take to reduce the risk of terrorist attacks.

A related but different issue is how best to defeat ISIS, al-Qaida and the like. During his presidential campaign Trump stated that: “The other thing with the terrorists is you have to take out their families, when you get these terrorists, you have to take out their families.” “Trump on terrorists families.” Such an approach does not accord with the lessons of experience (aside from being repulsive and violating international law). Combating terrorist groups requires cooperation from the countries in which they operate and from the people in whose neighborhoods they live, etc. The International Crisis Group has distilled these lessons in the following report. From its executive summary they state that Trump’s “administration… should be careful when fighting jihadists not to play into their hands. The risks include angering local populations whose support is critical, picking untimely or counter-productive fights and neglecting the vital role diplomacy and foreign aid must play in national security policy. Most importantly, aggressive counter-terrorism operations should not inadvertently fuel other conflicts and deepen the disorder that both ISIS and al-Qaeda exploit.” “Counter-terrorism pitfalls-what US fight against ISIS and al-Qaeda should avoid”

 

 

How People Become Terrorists

Yesterday I attended a fascinating lecture by Marc Sageman on his latest book: Misunderstanding Terrorism. You can watch it here: How-people-become-terrorists

Though greatly oversimplified, the essence of his findings, which included direct interviews of over 30 captured terrorists, is that members attracted to a close net group with a shared concern and thus shared identity and common cause can for various reasons rise to terrorism when they think their issue is not receiving a fair hearing. He does not consider the ultra conservative interpretation of Islam espoused by ISIS to be a very important factor in attracting its “soldiers.” Perhaps this is why National Security Advisor H. R. McMaster urged Trump not to use the label “radical Islamic terrorism” in his speech to congress saying that it was not helpful. McMaster-trump-terrorism-speech

America’s best defense against ISIS and other terrorist producing groups is to adhere to the values that have made American so respected and admired around the world. These include the evenhanded application of the rule of law.

While listening to Dr. Sageman’s presentation I was reminded of the University of California’s handling of the Free Speech Movement in 1964-5. The FSM was formed in the fall of 1964 after the University banned the traditional sidewalk tables on the edge of the Berkeley campus from which student organizations recruited members and/or passed out their literature. I was a member of the FSM council, as were the presidents of virtually all recognized campus organizations, in my capacity as President of the University Conservatives. The council’s purpose was to get the Berkeley administration to lift its ban and restore free speech on campus (a different time indeed).

As the daily meetings of the FSM council droned on, the group began to informally split between those pushing for more and more forceful demonstrations (which led eventually to the student take over and sit in of Sproul Hall, the administration building) and those of us favoring discussions with the Administration. As the FSM council became increasingly more radical, more moderate groups began to drop out and five of us (the Presidents of Young Republics, Young Democrats, University Conservatives, Young Peoples Socialist League, and Democratic Socialists) began meeting separately in the middle of the night to agree on a strategy for approaching the Administration. We met in the office of Professor Seymour Martin Lipset because the YPSL President was his research assistant and had the key. In this we succeeded but not until Bettina Aptheker and the Marxist group led students into Sproul Hall where they “sat in” for the next few days until they were carted off by the police. Sadly, Joan Baez, who had performed on the steps of Sproul Hall (from which Mario Savio and I and others addressed the daily crowds) every Friday, and whose music I love, led the students into the building singing “We shall overcome” (though she stopped outside the door herself). It was an unforgettable experience with protest movements and crowd dynamics.

President Trump has taken the opposite approach to our terrorist threat. Rather than honestly debating whether Muslims or any other identifiable group are unfairly treated in America (of course some are occasionally, but not as the result of an official discriminatory policy), and/or our purpose and conduct in occupying Iraq, Trump has pretended that the threat comes from abroad and has tried to make it even harder for foreigners to visit. In the process he has given an ugly tone to our discussions of real issues and concerns. Trumps-foreign-policy-and-Mexico

Trump’s poorly conceived, poorly drafted, and poorly executed Executive Order temporarily banning entry of people from seven Muslim majority countries fits Dr. Sageman’s description of how to promote terrorism. Tears-and-detention-for-us-visitors-as-trump-travel-ban-hits. In the past few weeks, our charming and welcoming airport immigration officials have detained some unusual travelers.

American born citizen Sidd Bikkannavar, a scientist at the Jet Propulsion Lab with Global Entry, was detained in Houston on his return from Chile and pressured to give over the pin access number to his phone, which had been issued by his employer and contained sensitive material. Indian-origin-nasa-scientist-detained-at-us-border-phone-confiscated

French historian Henry Rousso, a pre-eminent scholar on the Holocaust, was also held at the Houston airport. “When the immigration officer discovered he would be receiving a fee for his keynote address at Texas A&M University, he ordered him to be deported, claiming he should have a working visa rather than a tourist visa.” French-historian-Henry-Rousso-detained 10-hours.

The celebrated Australian children’s writer, Mem Fox, was detained at LAX and wrote that “In that moment I loathed America.” In-that-moment-I-loathed-America-I-loathed-the-entire-country.

The detention for several hours of Mohammad Ali’s son on his way home from a speech in Jamaica because he is a Muslim is one of the more outrageous examples of what is happening. Muhammad-Ali-son-detained-Fort-Lauderdale-airport

These short sighted and ugly measures are not making us safer, quite the opposite:

Former-CIA-chief-says trumps-travel-ban-hurts-American security

In response to stricter requirements for European travel to the U.S., the European Commission is considering whether to suspend visa free travel to Europe for Americans. Did we really think we could do it to them without them wanting to do it to us? Where are the adults?

Trump’s Foreign Policy and Mexico

“From this day forward, it’s going to be only America First. America first!” Video of Trump’s inaugural address. Or was it “Trump First?”

If President Trump’s plea for others, such as Mexico, to treat the U.S. fairly were merely an embarrassing gesture, we might overlook it having grown used to Trump’s need for approval. But this is the status and fate of my country at stake. In a hysterical satire made by Dutch television, they ask whether if America is First, they might be second: Dutch youtube satire

There is little disagreement that American foreign policy should serve America’s interests. Even the neocons see the promotion of democracy as ultimately good for America, if we can survive the wars they want us to fight to impose it on the rest of the world. We have and should continue to see our interests in long-run terms—enlightened self interest. As he has shortsightedly done with trade, “Trump outlined a world in which foreign relations are collapsed into a zero-sum game. They gain, we lose.” Charles Krauthammer on Trump’s foreign policy revolution /2017/01/26/.

The real issue is which policies actually serve our interests. These policies should keep us safe and prosperous.

Military: Obviously we need a military capability sufficient to protect our shores from attack, but we need to avoid devoting more of our resources to our military than necessary for that purpose (with a reasonable margin for error) because every dollar spent on the military is a dollar taken away from building our economic strength, which is equally important for our defense and well being.

Diplomacy: We also need to invest in building good relations with other countries, especially our immediate neighbors, in part to minimize the prospect of ever needing to use our military. Thus we must devote the resources, including training, needed by our State Department to build our effective soft power. In an article in Time magazine January 26, 2017, Mikhail Gorbachev, the last president of the Soviet Union said:   “No problem is more urgent today than the militarization of politics and the new arms race. Stopping and reversing this ruinous race must be our top priority.” Gorbachev on Putin – Trump

Treaties: But here is the part least appreciated by the American public and least understood by Trump (I don’t know about the rest of his team yet and eagerly await his appointment to the Undersecretary of State position). Just as the rule of law has been critical to development and vitality of our economy and the protection of our liberties at home, it remains as important when we cross the border. This extends far beyond the critically important agreements on trade, the international monetary system, and the rules of war, to the more mundane aspects of every day life as well.

According to The Washington Post: “Trump proposes internal high-level committees to examine multilateral treaties, with a view toward leaving them….

“John B. Bellinger III, who served as legal counsel to both the National Security Council and the State Department in the George W. Bush administration, said the treaty examination was based on a ‘false premise . . . that the United States has become party to numerous multi­lateral treaties that are not in the United States’ interest.’

“’There are “many hundreds of multi­lateral treaties that help Americans every day in concrete ways,’ he said. Without them, ‘Americans could not have our letters delivered in foreign countries; could not fly over foreign countries or drive on foreign roads using our state driver’s licenses; could not have access to a foreign consular official if we are arrested abroad; could not have our children returned if abducted by a parent; and could not prevent foreign ships from polluting our waters.’” Trump-lays-groundwork-to-change-US-role-in-the-world/2017/01/26/

The Bretton Woods institutions created after World War II (the International Monetary Fund, World Bank, and World Trade Organization) established the institutional arrangements for cooperation in developing the rules of international trade and finance. American leadership in creating the international institutions through which we interact with others abroad, i.e., through which the rule of law is established and enforced internationally, has ensured that the international order has remained true to the liberal values on which America was founded. We would be wise to keep China as strong and active a member of these institutions and the rules they oversee as possible. US global leadership and the AIIB. It would be tragically misguided to undermine these institutions and our leadership of them. But this is the direction President Trump seems to be headed.

Mexico: Close to home, Mexico provides a tragic example of Trump’s failing approach to foreign policy. Our relationship with Mexico is one of our most important in the world. We share a 2,000 mile border with Mexico and it is our second largest export market earning $235 billion in 2016 while importing $296 billion worth of goods and services. The difference of $61 billion, the so-called trade deficit, reflects net Mexican investments in the U.S. Though Mexicans have been leaving the U.S. on net for the last few years, illegal immigration across our shared border has been a big campaign issue for Trump, and the Mexican border is the gateway for many non-Mexican Central American illegal immigrants. The flow of drugs across that border is also an issue.

Close cooperation with Mexico in dealing with these issues has been a critical aspect of managing them. The North American Free Trade Agreement (NAFTA) has been an enormous benefit. Former Mexican President Carlos Salinas told G.H.W. Bush that “goods bought by American consumers will be produced by Mexican workers, it is only a question of where those Mexican workers live!” He also indicated that in addition to jobs that keep Mexicans in Mexico, NAFTA also helped bring the rule of law to Mexico. Jerry Jordon

Illegal immigration reflects and responds to the incentives faced by potential immigrants. These include the quality of life, including jobs, in their home country, the demand for workers in the U.S., and the option of legal immigration. The problem of illegal immigration to the U.S. would be helped by a better legal immigration law, such as proposed by George W Bush in 2007 or later as contained in the Senate law drafted by the Gang of Eight in 2013. Better enforcement of work permit requirements with American employers could help a great deal.

President Trump’s approach has been grossly adversarial rather than cooperative. He has threatened to tear up (or at least renegotiate) NAFTA and build a wall on the U.S. –Mexican border that he would force Mexico to pay for. His approach is disastrously wrong. “President Trump’s Homeland Security secretary, John F. Kelly, has been clear about his views on a border wall with Mexico: It won’t work.” Homeland Security John Kelly on border wall – NYT. Mexican billionaire Carlos Slim stated that: “The best wall is investment, which generates employment in Mexico…. Mexico is the best partner the U.S. has.” Mexico digs in and Trump lashes back as border wall standoff deepens /2017/01/27/

The Mayor of Berlin Michael Mueller urged US President Donald Trump “not to go down the road of isolation.” He warned that such division causes “slavery and pain” and would “destroy the lives of millions.” BBC 1/27/2017. This doesn’t seem fully applicable to the Mexican wall, but still the Berliners know a lot about walls. John Oliver provides a hilarious but informative commentary on The Wall on Last Week Tonight. John Oliver video on The Wall

President Trump’s continued insistence on building the wall and his insulting claim that Mexico will pay for it has damaged the cooperative relationship that we badly need to maintain with Mexico. Trump’s tweet that Mexico should pay for the wall or Mexican President Enrique Peña Nieto should cancel his planned visit to Washington and stay home is an insult beneath the dignity of an American President as well as stupid. That President Trump is surely ignorant of these and other seriously damaging knock on effects of his mishandling of our relations with Mexico is no excuse for his insane behavior. Trump’s ruinous stance on Mexico-deportation-border-wall-tariff-trade.

“For 70 years, we sustained an international system of open commerce and democratic alliances that has enabled America and the West to grow and thrive. Global leadership is what made America great. We abandon it at our peril.” [Krauthammer]

Trust and False News

January 26, 2017

The quality and extent of interactions among people (neighbors, companies, governments) profoundly affect our quality of life. Trust is a critically important element of such interactions and of “The Wealth of Nations,” to quote Adam Smith. No society, beyond (perhaps) the family and relatives, enjoys total trust. The willingness to and low cost of dealing with others in such a society would surely make it the richest one on earth. The more distant our relationship with someone, however, e.g., hiring a contractor to add a room to the house, the more formal our understandings need to be. But the deeper and more reliable is trust within a society, the simpler such contracts and their enforcement can be. This goes well beyond the obvious costs (effectively taxes) of doing business of security guards and surveillance cameras at department stores. More Trust frees up resources to produce the goods and services that we really want.

As part of its attack on Europe and the United States, Russia for some time has systematically worked to undermine trust in the West. For example, it generates and distributes “false news” in a variety of ways. It has become more difficult to judge when news is true or deliberately made up. As a result, the public’s trust in public institutions and performance is eroded to some, hopefully still limited, extent. As I argued above, a decline in the level of trust in Western societies reduces their economic efficiency and output.

False news must be distinguished from biased reporting and from disputed facts, unfortunately labeled “alternative facts”, by Trump senior advisor Kelly Anne Conway. Bias, or priors as we economists put it, reflects our inner beliefs and tentative understandings about what is true and can influence what a reporter chooses to report or emphasize. It does not reflect a willingness to report or repeat knowingly false information. The strange case of the size of the viewing audience for Trump’s inauguration ceremony illustrates bias and a few other things on all sides.

Trump was angry that the press reported mediocre attendance to his inauguration. The highly respected conservative economist Tyler Cowen provided an interesting analysis of why he thinks Trump forced his poor press secretary Sean Spicer to launch an attack on the Press for its “misreporting” of this matter: Why trump’s staff is lying. During his first official press conference on January 23, Spicer stated very clearly several times that his assessment that Donald Trump had the largest audience for his inauguration in history referred to total viewers “both in person and around the globe”. After apologizing for having reported the previous Saturday incorrect numbers for subway ridership he proceeded to present his estimate of TV and Internet viewers along with mall attendants and asked the press to correct them if wrong. USA Today reported that “On that point, Spicer may be correct…. But there is no comprehensive measurement available that would prove or disprove this claim.” The attending press persisted in referring to the size of the crowd on the mall. That reflects bias by the Press to the point of blindness. That Trump felt compelled to speak out about the size of his audience is sad evidence that he has not yet properly transitioned from candidate to President (that the thin skinned, megalomaniac we watched during the campaign has not yet grown up).

Alternative facts abound and refer to a lack of consensus on what the facts are. These are the bread and butter of scientific investigation and debate. Whether global temperatures last year were higher or lower than the year before depends on the measurement instruments used (surface instruments of one type or another, satellite systems, etc.), their location (country side, urban areas, ocean, etc.), frequency of measurements (daily, hourly, etc.), etc. Meteorologists debate this “fact”.

Candidate Trump lied so frequently and so freely during his campaign that I can only assume that he did so deliberately as a part of a general disinformation campaign. His claim, for example, that President Obama was not native born was so irrefutably disproved that Trump eventually (but very late in the game) withdrew it. President Trump sadly continues the practice by following up his ludicrous claim that he won by a landslide, with the claim for which there is no factual support at all of wide spread voter fraud. Trumps-disregard-for-the-truth-threatens-his-ability-to-govern.

Poor Sean Spicer was forced to announce Trump’s voter fraud lie to the press. When asked for evidence he cited “A 2012 Pew study [that] found that about 1.8 million deceased people were still on the rolls and that 2.75 million people were registered in two states. The study called for states to clean up their voter rolls but did not draw conclusions about voter fraud.” Trumps-voter-fraud-claims-undermine-the-voting-system-and-his-presidency/2017/01/24/. In fact, Trump’s Chief Strategist Stephen Bannon is registered in both New York and Florida, Treasury Secretary Steven Mnuchin is registered in New York and California, and Trump’s daughter Tiffany is registered in both Philadelphia and New York though neither voted twice. Bannon-was-registered-to-vote-in-two-states. Recidivism-watch-Spicer-uses-repeatedly-debunked-citations-for-trumps-voter-fraud-claims.

Trump’s lies, whether he believes them himself or not, along with false news perpetrated by Russia and others, are increasingly undermining public trust in the information so freely available on the Internet and elsewhere. This is bad for our democracy. It is not obvious what motivates him.

“Is Trumpism a scam? And if so, whom is Donald Trump scamming?

“Or is the country confronting something even more troubling: a president unhinged from any realities that get in the way of his impulses, unmoored from any driving philosophy and willing to make everything up as he goes along, including “alternative facts”?

“Of course, there’s another possibility: that there’s a method in all of this.” E. J. Dionne, Jr. What’s-the-method-in-trumps-madness/2017/01/25/

It is one thing to disagree with the President’s policy proposals—we can discuss and debate the reasons for our differences—and quite another when we cannot trust the integrity of the President or his administration. When the President proclaims over and over that he will insure that we “Buy American and hire American” (so much for shifting power from Washington to the people), rather than explaining why this is such a bad policy—save-trade—we turn immediately to the President’s hypocrisy rather than the substance of his policy. In Trump’s own business dealings he buys his materials where they are cheapest—steel and aluminum from China (Newsweek), furnishings for his new Hotel in Washington DC from China (The-new-Trump-hotel-in-D-C-hotel-is-filled-top-to-bottom-with-goods-made-in-China), the clothing for his signature Donald J. Trump Collection from Mexico (Trumps-hypocrisy-on-trade-he-outsources-and-invests-globally-but-doesnt-want-Ford-to-do-the-same/), and the long list goes on (Trump products).

Trump’s business career is full of shady dealings (The-myth-and-the-reality-of-Donald Trumps-business-empire). Why would we have expected him to be different as POTUS? Trump the terrible. Lying has worked for Donald Trump—so why should he stop now? Why Trump lies.

Trump is very quickly running out of time to save his administration. His tweet this morning stated: “The U.S. has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers… of jobs and companies lost. If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting.” As a result, the Mexican President cancelled his planned visit. Our current account deficit with Germany in 2015, by the way, was $285.2 billion, about the same as with China. Putting his economic ignorance (or blatant lying) aside, his conduct of foreign policy, trade or otherwise, is simply dangerous. We must stand up and yell STOP. STOP!!!

A glimmer of hope is offered by the fact (a real one) that orders for George Orwell’s classic novel of tyranny “1984” have soared in recent weeks.

Keystone Pipeline, Jobs, and Confusion

Perhaps “haste makes waste” explains the jumble of contradictory statements coming from President Trump with regard to the Keystone XL and Dakota Access Pipeline projects. Or maybe not?? Trump gives green light to Dakota Access Keystone XL oil pipelines. Trump’s trade and jobs rhetoric continues to alarm free market conservatives as well as our trading partners abroad (see the comments coming from a bewildered Germany wondering how to best protect their interests as Trump pursues what he—mistakenly—considered America’s interests).

The pipelines will save jobs (yes save jobs), improve safety, and reduce environmental risks compared with the existing alternatives of rail and trucking. Obama’s State Department reviews, which cleared the Keystone XL project multiple times, concluded in its final review that the Canadian oil in question was coming out of the ground with or without the Keystone XL pipeline and thus there would be no significant impact on greenhouse gas emissions from the pipeline. https://keystonepipeline-xl.state.gov/documents/organization/221135.pdf

The same is true for the Dakota Access pipeline, the final 1,100 feet of which (of the 1,171 mile project) have been stopped because of objections by the Standing Rock Sioux tribe that it would “disturb sacred burial and archaeological sites.” WaPo.

On Tuesday, Trump said: “From now on, we’re going to be making pipeline in the United States. We build the pipelines, we want to build the pipe. We’re going to put a lot of workers, a lot of skilled workers, back to work. We will build our own pipeline, we will build our own pipes, like we used to in the old days.” WaPo

I am increasingly inclined to think that Trump’s blatant misrepresentations of the impact of his “Buy American, hire American” mantra is sinister demagoguery. TransCanada, the Canadian project owner had already planned to buy 65% of the steel pipe from U.S. manufacturers as a purely business decision. Replacing the remaining 35% with American made pipes would increase the cost of the project. It would also redeploy American workers from their current, presumable more productive, employment to make these pipes. It is hard to see what Trump doesn’t get about efficiency and productivity as a source of our wealth. If he insists on doing it “like we used to in the old days,” he will make us poorer as “in the old days.”

“Opponents of the pipeline dismissed the job numbers and economic impacts, arguing that pipelines will create only “a handful” of permanent jobs.

“But the fact that pipelines only have a handful of permanent workers simply conveys how remarkably efficient pipelines are. The high output of labor generates value and wealth and frees up Americans to be more productive elsewhere in the economy.” http://dailysignal.com/2017/01/24/trumps-pipeline-approvals-are-a-win-for-the-economy-and-environment/?utm_source=TDS_Email&utm_medium=email&utm_campaign=MorningBell&mkt_tok=eyJpIjoiT0RJeFlqaGpNamt3TkdOayIsInQiOiJTSnpZZExnVUdLOThQdW5ESnNPNDlIUHByWXFXNSs3bEFDa0VFOHVCbnhTOUtnbTBMWnd6MEkxTkdhRHpCVjU5a0JhQ2EraVZWTVVOcXlJVzVpMkVQVm9OWkJcL29VOEpkdG93RllJeldNNVBpem9KbHlPTWlOOFRJSkVEM3FyR1QifQ%3D%3D

 

 

President Trump and manufacturing jobs

President Trump intends to bring back manufacturing jobs. How might he do that and what would it mean for our economy and our workers?

Keeping in mind that our manufacturing output has steadily increased over the years and is now at an all time high, though the number of manufacturing jobs has steadily declined. Bringing back manufacturing jobs means rolling back and undoing the technical advances that made manufacturing workings more productive. But if we increase the number of workers in manufacturing by making each worker less productive (shelving some of the productivity enhancing technical advances), where will these workers come from? Presumably not from Mexico. They will have to give up what they were producing before in order to take the new manufacturing jobs.

Looking more carefully at such a policy reveals that it would make us poorer. Without Trump’s arm twisting (carrots and sticks—tax breaks, i.e., bribes, and/or tax or other penalties), the workers in question would be employed doing things that were more profitable (i.e. more productive and contributed more to our income) than in manufacturing. Trump would have those workers move from where they are more productive to where they would be less productive. I assume that such a policy reflects ignorance rather than malice, but what ever his motivation, the result of Trump’s protectionist threats would be to lower our standard of living.

If President Trump intends to return power from the government to the people, as he claimed in his inauguration speech, he will have to stop threatening companies to produce things in the U.S. when they would otherwise find it more profitable (cheaper) to produce them abroad and import them. Anything and everything that adds to our economy’s productivity (specializing in what we are best at and exporting it to pay for imports that other countries are better at making) increases our incomes. Trump should stop interfering with our private economic decisions and get on with the other aspects of his promises (tax and regulatory reform) that will increase our well-being.

Econ 101 – Jobs and Income Growth

At long last the economy has more or less reached full employment. The December 2016 unemployment rate was 4.7 percent while the Federal Reserve’s assessment of normal full employment (NAIRU—non-accelerating inflation rate of unemployment) is 4.8 percent. More over, wage growth has picked up, increasing 2.9 percent over a year earlier. The producer price index increased 0.3 percent in December (4.3% annualized). The economy is heating up. The Federal Reserve raised its overnight interbank interest rate target (Fed Funds rate) from 0.5 to 0.75 percent in December.

What does this mean for PEOTUS Trump’s goal to create jobs and increase the economy’s growth rate? At his press conference January 11, 2017 he claimed to be: “The greatest jobs producer God ever created.”

A new job is created when a company demands an additional worker for some reason or other and the desired worker is supplied. More jobs (by which I mean more new ones than the loss of old ones, i.e., a net increase in jobs) can come from any of three sources: a) an increase in the labor participation rate (more people looking for work from those of working age who are physically able to work); b) more young people entering the labor force than retiring old people leaving it; and c) a net immigration of working age foreigners. An increase in the demand for workers that cannot be filled will put upward pressure on wages and ultimately on prices.

In December the labor participation rate rose to 62.7 percent from its low in November of 62.6. It had been around 66 percent in the years just before the great recession of 2008. While we don’t really understand why so many people have dropped out of the labor force, there is scope to increase employment if some of them return. Some of the new jobs are filled by immigrants, especially those jobs requiring information technology skills, which creates additional jobs to feed, cloth, and entertain the new residents. http://wapo.st/2irYDYW. While 7.4 million people were looking for work in November 2016 (latest available), there were 5.5 million unfilled vacancies. If you like data: 5.1 million were hired in October while 4.9 million left their jobs for a net increase in employment of 0.225 million. Of those leaving their jobs 0.372 retired or died.

In short, the economy does not lack jobs and the number of jobs is growing at about the rate of growth of the working age population. If the government increases employment for infrastructure projects, those workers must be attracted away from their existing jobs, which will require higher wages. Increasing employment at much faster rates would be inflationary. Higher inflation would undermine the real value of excessive nominal wage increases.

The problem—issue or challenge—is that the new jobs offered often require skills that do not match those of the workers looking for work. Most layoffs and discharges result from automation and other productivity improvements (not from trade), which increases the wages offered for the new jobs needed as a result. This process—increased worker productivity—is the source of per capita income growth, i.e. of our increasing standard of living. However, the benefits of increased productivity will only be broadly shared if workers are trained (or retrained) in the new jobs needed. In addition, the increased income inequality in the U.S. since the 1970s is largely the result of increased rent seeking from government as government regulations have expanded to protect the established companies from outside competition.

Faster income growth, therefore, will depend on improving productivity and its rate of growth over time (not creating more jobs). Improved and simplified regulations will free up some of the large armies of compliance officers to work in jobs that actually produce things we want. It will also increase market competition by reducing regulatory capture and related rent seeking. The same is true for any reforms in the provision of medical services that lower their cost (e.g. from greater transparency of costs of treatment options and patient responsibility for and interest in those costs). This is a different issue than who pays for medical care (insurance) but the nature and structure of medical insurance profoundly influences the incentives patients and doctors have to choose cost effective medical services. Tax reforms that lower the cost of investing in the U.S. will also increase productivity and income growth.

Investments in plant and equipment and new technology increase labor productivity and income in the future but require workers and materials to build them in the present. In an already more or less fully employed economy the resources used for investments must come from giving up other uses, primarily from producing consumption goods and services. To finance investment people will need to consume less and save more.

If none of the resources and their financing come from the government (and Trump plans the opposite), interest rates will need to rise in order to encourage more savings and to moderate the increase in investment. The Federal Reserve will have to raise its interest rate targets just to stay neutral (i.e. to keep inflation rates near their 2% per year target) as the tightening labor market puts upward pressure on wages and equilibrium interest rates. Thus interest rates will need to increase even more to encourage the additional savings needed to finance additional investment.

The new government has yet to propose its budget for the coming year, but Trump cannot simultaneously increase military spending and infrastructure spending and leave entitlement commitments unchanged (which imply significant increases in actual social security and medical outlays because of an ageing population and increased retirements relative to new entrants into the labor force) even if his tax reforms are revenue neutral (which current proposals are not). We don’t know yet which of his plans will have to give and to what extent. None of this takes into account the large impact not so far down the road of unfunded fiscal liabilities (unfunded social security, Medicare, and Medicaid obligations). https://wcoats.wordpress.com/2013/03/16/the-sequester/ https://wcoats.wordpress.com/2011/04/23/thinking-about-the-public-debt/ http://tinyurl.com/yjos2ed. Thus it is difficult to forecast how much interest rates will need to rise in order to keep inflation in check while crowding out private investment to finance the growing public debt.

Higher interest rates will also tend to strengthen (appreciate) the dollars’ exchange rate, which will increase our trade deficit unless Trump totally destroys our trade flows in a misguided effort to balance our trade account (balance imports and exports). A larger trade deficit would result in some of the increased investment being financed by foreign saving (capital inflow) and to that extent would reduce the upward pressure on interest rates. So far I have not taken account of possible changes in the economic conditions of the rest of the world. However, an appreciated dollar would improve the exports and thus economic activity of other trading partners but would increase their local currency cost of any borrowing their firms and citizens have done in dollars.

The bottom line is that any increase in economic growth in our fully employed economy will come from increases in productivity not increases in employment. Tax and regulatory reform should improve the allocation of our labor and capital resources to more productive uses. They should also lead to increased investment, which will enhance future productivity. Jawboning or pressuring the allocation of these resources into less productive uses (e.g. domestic production of goods that could be more cheaply imported) will reduce economic growth. Increased investment will require higher interest rates in order to generate the savings needed (reduction in consumption) to finance the additional investment. However, continued fiscal deficits will divert that amount of savings away from investment. Without significant cuts in future entitlement commitments (and/or defense spending) these deficits will grow larger at the expense of economic growth. New trade tariffs threatened by Trump or other new impediments to trade will also reduce our productivity and growth. While the Trump administration could increase our economic growth rate in the coming years, this outcome depends on it resolving existing internal contradictions in its proposed policies.

Save Trade

I have written about the importance of trade to our standard of living many times because it seems to be under attack. The graph below, which reflects Angus Maddison’s data showing a massive increase in income throughout the world over the last two centuries and which is reproduced, courtesy of Human Progress, provides a dramatic visual depiction of the impact of Trade.

Once households were able to trade what they produced for what they needed, the increase in their output as they specialized in what they were best at was truly staggering. But it is not surprising when you reflect on how limiting it would be if you had to be self sufficient in everything.

Following the disastrous imposition of high tariffs by the U.S. in 1930 (Smoot-Hawley Tariff Act) to save American jobs and the great depression and world war that followed, representatives of all 44 Allied nations came together under U.S. leadership at Bretton Woods in 1944 anticipating the end of World War II. They established the International Monetary Fund (IMF), the World Bank, and what is now the World Trade Organization (WTO) in order to establish, protect, and further a liberal international economic order (i.e., to protect and promote free markets globally).  Trade again flourished, as it had previously at the end of the nineteenth century, leading a resumption of dramatic growth in wealth and income across the globe.

The United States was the natural (indispensable) leader in promoting this liberal order for several reasons. By the end of WWII the U.S. was the largest economy in the world. And while the size of the United States and the guarantee of free trade within its boarders provided in the U.S. Constitution assured substantial trade within the U.S., opening the rest of the world to trade was very beneficial to all countries (win-win). The Boeing Company, for example, sells more of its planes abroad than domestically because the world market is larger than the U.S. market. So the U.S. is the natural leader because it is the largest trader. But more than that, most other countries respect the commitment of the U.S. to the rule of law and a level playing field for commerce. Thus they gladly accept our leadership.

The world is far from the ideal level playing field for trade but is much closer to that model than it was at the end of WWII. The WTO (the successor of the General Agreement on Trade and Tariffs – GATT) and regional and bilateral trade agreements keep moving us closer and closer to such a world. It is a very desirable goal for the United States and for the rest of the world (look at the above graph again). As with technical progress and the increasing productivity it brings, some capital and labor (workers) will need to move to new activities and we need to insure that displaced workers do not suffer in the process (we seem to care less about the displaced capitalists assuming, I guess, that they can take care of themselves).

While it is still early, President-elect Trump seems uncommitted to the U.S. leadership of our increasingly liberal (freer) international economic order. In fact, he is threatening to throw it away by unilaterally imposing tariffs on imports and behaving like a bully internationally. We need to recall the terrible consequences of the Smoot-Hawley tariffs and resist any moves in that direction.

It is true that following WWII the U.S. often gave favorable terms to Europe (the Marshall Plan) and less developed countries in order to promote their reconstruction and development (“Trade not Aid” we used to say). The world’s economies are now growing into better balance and the U.S. is no longer as dominant as it once was. The international rules of the game (trade agreements) can and should seek a better balance of mutual benefits. But we would be making a very serious mistake to give up our leadership of the world order and abandon our commitment to free and fair global commerce.

David M Friedman

PEOTUS Trump’s nomination of David M. Friedman as his ambassador to Israel is a very bad choice. It will perpetuate Israel’s refusal to take the steps it needs to take to be a secure and prosperous member of its neighborhood and will further discredit the U.S.’s reputation and influence in the Middle East.

If you are not familiar with the basic details of what is now generally referred to as the Israeli Palestinian conflict I urge you to read my summary of it written 11 years ago: https://works.bepress.com/warren_coats/26/ and take a look (it has pictures) of my blog from Jerusalem exactly five years ago today. https://wcoats.wordpress.com/2011/12/16/the-invented-palestinians/

Israel drove Palestinians from their homes in several wars decades ago because they wanted to establish a homeland for Jews that was both democratic and Jewish. After the horrors of the Holocaust, most of the world was sympathetic. But to be democratic and Jewish, the new occupants of Palestine needed to drive out most of the existing residents (Palestinians) in order to insure a Jewish majority. Fast forward to recent decades, most of the world has settled on a two state solution by which the exiled Palestinians would be given the West Bank and Gaze to rule but the several details requiring agreement were never fully worked out. Under the Oslo Accords, which provided a step-by-step process for implementing a two state solution, I led the IMF teams that set up the Palestine Monetary Authority.

The UN, U.S. and most of the world designated Israeli settlements in the West Bank by those Israelis wanting to take still more land from the Palestinians as illegal and urged the Israeli government to stop supporting them. They continue to expand.

“Friedman has been outspoken in describing as ‘legal’ Jewish settlements in the West Bank, which every U.S. administration since 1967 has considered illegitimate.”

“Trump-picks-a-supporter-of-west-bank-settlements-for-ambassador-to-Israel”/2016/12/15/ Washington Post. Israel itself is strongly divided on the issue. Many support a two state solution and making peace with their neighbors (giving up land for peace). Others want to expand Israel’s borders to encompass all of Palestine, relying on America’s military protection for its security.

“J Street, the Washington-based [Jewish] organization that supports a two-state solution, said it was ‘vehemently opposed’ to the nomination. ‘As someone who has been a leading American friend of the settlement movement, who lacks any diplomatic or policy credentials . . . Friedman should be beyond the pale for Senators considering who should represent the United States in Israel,’ J Street President Jeremy Ben-Ami said in a statement.

“Calling the proposed nomination ‘reckless,’ Ben-Ami said it puts ‘America’s reputation in the region and credibility around the world at risk. Senators should know that the majority of Jewish Americans oppose the views and the values this nominee represents….’”

“In a column for the Jerusalem Post before the election, Friedman wrote that…under president Trump, Israel will feel no pressure to make self-defeating concessions, America and Israel will enjoy unprecedented military and strategic cooperation, and there will be no daylight between the two countries.” [All quotes are from the same Post article linked above.]

This is just the sad point. Our blanket guarantee of military support for any policy (including illegal settlements, bombing Iran, etc.) that Israel might pursue has removed the incentive for Israel to make genuine peace with its neighbors and do right by the Palestinians (peace for land). The U.S. Senate should reject the Friedman nomination.

Trump’s approach to government corruption

PEOTUS Trump is giving conflicting signals on his policy toward government corruption. He seems to recognize clearly the conflicts of interest in the “military industrial complex,” when he criticized the F-35 fighter plane and the revolving door between the defense department and the defense industry. “On Monday, Trump also took a shot at Lockheed Martin’s $400 billion F-35 Joint Strike Fighter program, the most expensive in the history of the Pentagon, saying the “cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th….Trump said there should be a “lifetime restriction” of top defense officials going to work for defense contractors ” “Trump-takes-aim-at-pentagons-revolving-door-and-lockheed-martins-400-billion-f-35-program”

This is commendable. But it is only one example of conflicts of interest that can arise in government. We await with interest to see how Rex Tillerson, Trump’s choice to head the State Department, will handle his conflicts of interest arising from the extensive business deals between Exxon-Mobile, the company he currently heads, and Russia and his friendship with Russian President Putin.

But we particularly await Trump’s clarification of how he will handle his own conflicts of interest. As a private citizen, Trump did not hesitate to use the power of government to force private citizens and companies to bend to his will. “And-so-here-we-are.” While Trump apparently has no direct businesses in Russia he has plenty of indirect business relationships. “Donald-Trump-ties-to-Russia” He has delayed until January his promised Dec 20 clarification of how he will handle this. “Trump-corruption-conflict-of-interest.” He still has not disclosed his personal and business tax returns that would clarify some of the potential conflicts. Given his strong position on the Pentagon’s revolving door, perhaps we can be hopeful that he will take equally strong measures with regard to potential conflicts of interest of his own and of his cabinet’s.