Our So-Called Foreign Policy: New Challenges – & Opportunities – for U.S.-Israel Relations

My new op-ed on President Obama’s deal to keep Iran from developing nuclear weapons briefly made a point that’s crucial to the domestic U.S. politics that will help determine the agreement’s fate in Congress: on what it means for Israel’s security. Given this central political reality and my own strong “pro-Israel” views, it’s time to spell out what I mean.

First, some truth in advertising. If you’re familiar with my writings, you know that I believe that the core debate over Israel’s security, relationship with the Palestinian Arabs, and future, isn’t close to a fair fight on the merits. Dominating the “pro-Israel” side are pragmatic, morally clear-eyed adults. Dominating their critics’ ranks is a wide variety of psychologically juvenile critics who range from simple naifs determined to wish away the Hobbesian realities of international affairs to guilt-ridden liberals and others farther left who instinctively assume that all unsuccessful peoples – including the Palestinians – mainly have someone else to blame for their plight.

And in a tragic irony, I’ve argued, the Palestinians’ self-styled champions and even many self-styled impartial arbiters– including many U.S. Presidents and foreign governments – have actually prolonged their misery by encouraging them to seek utterly unrealistic goals.

This isn’t to say that I don’t consider valid any criticisms of individual Israeli policies and leaders. And of course, many have come from within Israel itself. It is to say that I believe that the vast bulk of Israel’s critics support positions whose adoption would not ultimately permit that country to survive as a Jewish state.

For such reasons, I suspect that I surprised many readers of my Iran article with the argument that Congress should approve it because it strengthens American security on net (if modestly) – especially if a Yes vote is accompanied by measures that reduce U.S. vulnerability to threats emanating from the Middle East. More important, I probably surprised them further by contending that, having marginalized the Middle East, American support for Israel is likely to increase and become even more reliable because the United States could pursue these policies as a matter of choice rather than strategic necessity.

But the sooner current American supporters of Israel assimilate this notion, the better for them and for the Jewish state. For Iran deal or not, the Middle East is certain to recede as a U.S. foreign policy priority. As a result, from a purely self-interested standpoint, Israel’s security will recede as a U.S. foreign policy priority. Indeed, this transformation has been brewing for decades, and poses an even greater challenge to Israel, its leaders, and its American and other international backers than the Cold War era tensions between U.S. and Israeli interests that date from the Jewish state’s founding in 1948.

Until the Iran deal debate reached critical mass, it was difficult to remember a time when a powerful U.S. conventional wisdom didn’t equate Israel’s fate with America’s.  But this consensus (or at least its Washington, D.C. version) was relatively late to develop. Many of President Truman’s top advisers, for example, opposed prompt U.S. recognition of Israeli independence due to two intertwined fears. First, they hoped to avoid antagonizing Arab rulers sitting on huge and vital oil deposits and second, they hoped to avoid driving these rulers closer to the Soviet Union.

Although these concerns persisted with varying degrees of strength through the September 11 attacks, the underlying trend saw the United States and Israel move closer together. American public opinion, meanwhile, had turned strongly pro-Israel since the Jewish state defeated vastly larger Arab forces in the 1967 Six Day War and then faced increasingly serious terror attacks on its own soil and abroad (as during the 1972 Munich Olympics). Israel’s appeal to Americans was also surely heightened by the eruption of Islamic fundamentalism in the Middle East triggered by the Iranian revolution and seizure of American hostages in 1979.

In 2001, the full-blown emergence of another Middle East Muslim terrorist threat – this one capable of striking the American homeland – on top of continuing worries about protecting the flow of Persian Gulf oil, decisively convinced George W. Bush’s administration that Israel’s stability, strongly pro-Western orientation, and intelligence assets were of paramount importance to the United States.

Nonetheless, since the end of the Cold War, first geopolitical and then economic shifts have been unavoidably challenging the strategic logic of a close American alliance with Israel – although U.S. policy has been slow to grasp the implications. The fall of the Soviet Union eliminated the only country able to provide radical Arab regimes with an actual or potential superpower patron, or to threaten Gulf oil flows directly. The USSR’s demise also denied more moderate regional governments the leverage over Washington inevitably provided by a prospective rival for their allegiances. By the same token, however, staunch Israeli support became less important for achieving America’s regional objectives.

And several years ago, the revolution in American energy production began illuminating an eminently achievable future in which Persian Gulf oil matters much less to the U.S. and world economies. Therefore, the argument that Israel will matter just as much in these dramatically new circumstances – as a military base, an intelligence provider, and a combat partner – will ring less and less true.

The United States will still face actual and potential threats from Middle East-based terrorist groups like Al Qaeda and ISIS, and for the short- and possibly medium-term future, Israel will have much to offer in these fights. But that’s only as long as “fighting them there” remains the focus of American strategy. As I’ve explained repeatedly, Washington should shift as quickly as possible to a strategy focused on tightly sealing the border against terrorist entry. This would amount to fighting terrorism mainly by seeking to control conditions that are relatively easy to control (America’s own borders) instead of fighting it by seeking to control conditions that are demonstrably impossible to control (the utterly dysfunctional Middle East).

Until this transition is made, Israel can certainly provide valuable assistance to the special forces-oriented harassment operations I believe would be most effective in keeping ISIS off balance and unable to consolidate a terrorist safe haven – like the one the Taliban enjoyed in Afghanistan while planning 9-11. But after the transition, this assistance – which could include help in tracking dangerous or suspicious characters – clearly won’t be as important to Americans.

The Middle East has been so central to American security and prosperity for so long, and still remains so volatile and unpredictable, that rendering it marginal to the country’s fate won’t happen overnight, or even close. Moreover, it’s entirely possible that the region will generate a deadly new threat that takes the U.S. government completely by surprise.  

But that’s a big part of the point. The dynamics now increasingly driving U.S.-Middle East relations are so powerful that a genuinely game-changing development (or two!) would be needed to offset their effects on the region’s diminishing existential relationship to America. (One possibility – if Russia intensifies its Putin-era revanchism, grows much stronger, and re-emerges as a Soviet-scale problem.) Similarly, although Israel’s consequently diminished role in Washington’s security calculations will not become apparent in the near term in any dramatic, highly visible way, a corrosive effect on bilateral ties will emerge much sooner.

It looks sensible for Israel and its supporters to believe that relationships based on mutual need tend to be the most durable. But the United States has always been so inherently secure geopolitically and self-sufficient economically that few countries – especially outside the western hemisphere – will ever qualify as vitally important interests or partners. Fortunately for Israel, it has always had another promising option for attracting and maintaining support from such a strategically flexible superpower – its nature as a successful democracy that shares crucial values with Americans. And as suggested above, Israeli leaders have always known this.

Therefore, as long as Israel merits this description, it’s likely to enjoy strong backing from Americans even as they perceive fewer and fewer self-interested stakes in a peaceful, stable Middle East. Even better, and this is the fundamental point, an America not excessively worried about securing flows of Middle East oil or creating regional alliances to fight terrorist forces in the region could well be an America that feels freer to permit these values to govern its approach to Israel – and to Israel’s enemies. As a result, Israeli leaders who keep banging the strategic necessity drum will sound less and less credible, and more and more shrill.

Because Israel lives in a brutal neighborhood and has such a slim margin of error for survival, and because Americans have no remotely comparable experience, Israeli will continue to need to take actions, especially toward the Palestinians in the West Bank and Gaza, that are bound to trouble Americans from time to time, and even on a regular basis. At the same time, since Americans are not completely naive, they’re sure to cut Israel considerable – but not infinite – slack. As a result, it will be more important than ever for Israeli leaders to strike the right balance between unavoidable toughness and image preservation. Both Israel and its supporters should be heartened by the Jewish state’s success so far at achieving this goal.

(What’s Left of) Our Economy: Tech Labor Shortage My…Foot

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So many myths were busted in today’s Employment Cost Index (ECI) report from the Labor Department, which should put the kibosh on wage inflation claims until…the next Employment Cost report. One of the most important is the longstanding notion that America is experiencing a scary shortage of high tech workers, and will fall hopelessly behind the rest of the world in the innovation race – with dangerous implications for national security and living standards – if the “skills gap” isn’t filled pronto with zillions of brainy immigrants.

The ECI data – which doesn’t adjust for inflation when it comes to detailed occupational and industry data – lacks information on technology workers per se. But it does provide statistics on pre-inflation total compensation (including non-wage benefits) for workers in the “professional, scientific, and technical services” field, which includes engineering and computer services.

Remember that textbook economics and common sense both tell us that when businesses can’t find the workers they want, they tend to react in one of two ways. They either increase pay to become more attractive to existing workers they need, and over the longer- term to draw more people into their field. Or they figure out a way to get the necessary work done by becoming more efficient – say, by buying or developing some gizmo that can replace human beings, or make their current employees more productive. (The textbooks, incidentally, don’t teach that businesses facing labor shortages typically lobby governments to boost immigration levels in order to create labor gluts and suppress wages – which seems to be the strategy of choice in Corporate America nowadays.)

Of course, economics also teaches that employers urgently needing more workers will try various mixes of both approaches over time. But those facing genuine shortages usually can’t afford to skimp on pay. Why, then, do the data on total compensation for “professional, scientific, and technical services workers” show that that’s exactly what’s happening to compensation?

The new ECI numbers covered the quarter ending in June, and deep in the Labor Department website, you can find statistics going back to 2001. Since that June, here’s how pay has improved over each previous June quarter:

2000-01: 3.4%

2001-02: 2.4%

2002-03: 2.1%

2003-04: 4.5%

2004-05: 2.6%

2005-06: 3.1%

2006-07: 4.7%

2007-08: 4.1%

2008-09: 2.0%

2009-10: 1.4%

2010-11: 3.0%

2011-12: 1.5% 

2012-13: 2.0% 

2013-14: 1.7% 

2014-15: 1.1% 

Do these look like the kinds of pay raises given out by businesses that are desperate to hire? It’s clear that total compensation increases slowed down considerably once the Great Recession took hold in 2008-09. But why should even that deep downturn have produced the dramatic deceleration revealed here? After all, we’re talking about the industries of the future – sectors and companies that are generating outsized growth because they’ve not only found brilliant new ways to meet wants and needs the rest of the economy already has, but because they’re great at identifying completely new wants and needs.  And anyway, the recession ended more than six years ago – remember?

But here’s a finding that’s even more stunning – and destructive to claims of tech worker shortages: For the last three years, total pay for the private sector workforce overall has risen faster than total pay for the professional and scientific etc. workers. 

Lying about the hiring picture isn’t exactly admirable behavior, but we’re talking about businesses here.  They’re supposed to be obsessed with making money in any legal way possible.  But elected officials who swallow their propaganda presumably have a different set of responsibilities.  If I can find information debunking their labor shortage claims, so can the politicians.  Why haven’t they?    

 

(What’s Left of) Our Economy: Wage Inflation Claims Looking Dumber (or More Self-Interested?) Than Ever

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You’ve heard the expression that something has just moved from the sublime to the ridiculous? With the new Labor Department report on employment costs, claims that U.S. wage inflation is finally taking off have moved from the ridiculous to whatever comes afterwards – and that may mean “conflicted.”  

The Employment Cost Index (ECI) has recently become the principle basis for the wage inflation case because, six years into a dreary economic recovery, it’s the only measure indicating that compensation might not be continuing its decades-long stagnation. Therefore, it’s become a mainstay for monetary policy hawks who insist that American labor markets crippled by the Great Recession really have healed, and that it’s high time for the Federal Reserve to raise its key interest rate from its current near-zero level. Never mind, by the way, that none of the ECI’s readings adjusts for inflation, and that its headline includes benefits (which include lots of one-time rewards handed out to workers recently by nervous employers seeking more control over and flexibility with their payrolls).

It’s not my intention to comment today on the interest rate debate. But nothing could be clearer than that this morning’s ECI reading means that the wage inflation vigilantes need to change their tune, or they need to find some new evidence that American workers aren’t still receiving the short end of the stick.

The always provocative – and often on-target – ZeroHedge.com site has pointed out that on a sequential basis (these reports come out quarterly), the new ECI headline change was the worst since the series began in 1982. More revealing, though, are the year-on-year changes released this morning.

According to the Labor Department, the increase in total compensation costs for civilian workers – including wages, salaries, and non-wage benefits – was two percent. And even with inflation running well below that level, this means that employees are barely staying ahead of living costs. The comparable figure for the previous year? The same two percent, with the same implications.

Over the last year, wages and salaries rose 2.1 percent in pre-inflation terms – slightly better than the previous year’s 1.8 percent. But despite the excitement among economists and pundits over benefits, their year-on-year increase of 1.8 percent was well below 2013-2014’s 2.5 percent.

But the bad news for inflation hawks (and for the nation’s workforce) doesn’t stop there. For even these crummy numbers were propped up by compensation for government workers. Their wages, salaries, and benefits aren’t set by market forces, which means that they tell us nothing about the state of labor markets. Instead, government wages etc are set by government decisions.

Take out compensation determined solely by politicians’ whims, and the headline ECI figure rose by only 1.9 percent from June, 2014 to June, 2015. That’s less than the previous year’s anemic two percent even. Wage and salary increases picked up some during this period – from 1.9 percent to a still lousy 2.2 percent. But benefits really tanked – from a 2.4 percent rise from June, 2013-June, 2014 to 1.4 percent. That’s barely ahead of inflation.

Today’s ECI did contain one mild surprise: The June year-on-year increase for overall manufacturing compensation (2.5 percent) topped that for private industry as a whole, and was also faster than the previous year’s rise (2.1 percent). At the same time, before the recession hit, total manufacturing pay often registered much bigger annual gains.

I’m not big on conspiracy theories, and by no means do I believe that the economic argument for Fed rate hikes is nonsensical. Far from it. But given these results, going forward, it’s going to be important to keep in mind one other big source of fuel for any continuation of wage inflation claims – higher interest rates, all else equal, would mean much bigger profits for America’s banks. And many other finance companies have based their hopes for bigger profits on expectations of rate hikes. So when you start hearing again about wage inflation claims, which you surely will whatever the data say, it will be more important than ever to consider the source.

(What’s Left of) Our Economy: Growth Has Been Both Bubblier & Weaker Than Previously Thought

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I’ve frequently written that if Americans should have learned anything from the financial crisis, it’s that not all growth is created equal. During the bubble decade leading up to the crisis, the U.S. economy grew at rates that were below average historically speaking, but the real problem was the growth was unhealthy; it stemmed largely from sources that were unreliable, namely personal consumption and housing.

That’s why a typically neglected aspect of the new figures on gross domestic product (GDP) released by the Commerce Department this morning contains such distressing news. The numbers include revisions for the years 2011-2014, and confirm that America’s growth during the recovery it’s currently experiencing from that financial crisis – and from the ensuing recession – is getting even less healthy than its bubble-era counterpart. Just as bad – the economy isn’t even growing as fast as it was during the mediocre “oughts.”

First let’s review what the new GDP figures report about that 2011-2014 period. Their findings? Growth during that period of this historically sluggish recovery was even worse than previously thought.

Adjusting for inflation, the economy grew by 1.60 percent in 2011 – just as earlier estimates showed. But 2012’s real expansion was revised down a bit from 2.30 percent to 2.22 percent, and the 2013 rate all the way from 2.20 percent to 1.49 percent. Real growth last year was revised up marginally – from 2.40 percent to 2.43 percent. On net, however, 2011-2014’s economic performance was weaker than originally thought – and certainly weaker than the bubble decade’s performance.

But if the economy’s makeup is examined, it becomes clear that recent growth has not only been slower than during the bubble – its been even more consumption- and housing-heavy. And the new GDP release shows that this trend has continued through the middle of this year.

As a benchmark, let’s look at the economy in the fourth quarter of 2007 – when the Great Recession officially began. At that time, the toxic combination of consumption and housing accounted for 71.16 percent of all economic activity, adjusted for inflation. By the time the current recovery began, in the second quarter of 2009, this figure was down to 70.94 percent, indicating that a bit of progress had been made.

But the latest data, providing first look at the second quarter of this year, show that the consumption and housing share of the economy in after inflation terms is up to 71.80 percent – nearly as high as the last bubble decade reading. In other words, consumption and housing have been growing faster than the economy as a whole for the last six years. They also were among the economy’s growth leaders from the first to second quarters of this year, and over the last year.

An economy getting healthier – not simply bigger – would be an economy whose growth was led by business investment and exports. The current growth mix, by contrast, looks like a recipe for Financial Crisis 2.0. Raise your hand if you think anyone will raise this crucial issue at next week’s Republican presidential debates – or at any stage during the intensifying presidential campaign.

(What’s Left of) Our Economy: Those New Revised GDP Numbers are the Worst Indictment of U.S. Trade Policy Yet

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The new GDP revisions released today by the Commerce Department report that America’s trade performance has slowed the current already sluggish recovery to an even greater degree than previously thought, and that an even greater toll has been taken by the portion of U.S. trade flows strongly influenced by American trade policies and deals (like those currently being pursued by President Obama).

In addition, the historically huge bite taken out of first quarter growth this year turns out to have been even bigger, relatively speaking, and although all major import categories set new quarterly records in the second quarter, the same can’t be said for most exports.

Here are the trade highlights from this morning’s GDP report:

>Today’s GDP figures, which present initial second quarter 2015 estimates and revised 2011-2014 data, reveal that inflation-adjusted U.S. trade flows had hampered the current weak recovery through the first quarter more than previous estimates indicated. This development reversed itself only to a small degree in the second quarter.

>The new figures also show that the all-time record relative bite taken from growth by trade in the first quarter of this year was even greater than first judged.

>The new data show that the increase in America’s constant dollar trade deficit since the recovery began in the mid-2009 had slowed cumulative growth by 8.97 percent through the first quarter of 2015. The new data report a 9.33 percent drag – because overall after-inflation growth was lower and because the real trade deficit’s increase was greater than first estimated.

>According to these new figures, in the second quarter of 2015 (the latest data available), a small decrease in the real trade deficit from the first quarter to the second quarter – from the upwardly revised $541.2 billion annualized to $536.3 billion – resulted in trade flows adding 0.13 percentage points to the annualized inflation-adjusted growth figure of 2.30 percent.

>In the second quarter, real total exports rose at a 5.30 percent annualized rate after falling by an upwardly revised 6.00 percent annualized rate in the first quarter. Second quarter real total imports increased only by an annualized 3.50 percent rate – less than half the pace of the first quarter’s 7.1 percent increase, which was left unchanged.

>The new first quarter real trade deficit was the nation’s highest since the second quarter of 2008 ($550.4 billion) and the new second quarter figure is the second highest since then.

>Nonetheless, however discouraging, these recovery-era numbers mask the even greater toll taken out of the recovery by trade flows that are heavily influenced by trade deals and other trade policy decisions. The reason: They include trade in services, where trade liberalization is in relatively early stages, and in oil, which is not dealt with via conventional trade policy.

>When real oil and services trade flows are omitted, the new GDP data reveal that through the first quarter, the increase in the inflation-adjusted trade deficit cut cumulative recovery growth by 21.02 percent – with nearly all of the damage done in the private sector.

>The previous GDP data had reported a 19.82 percent hit to the recovery from the growth of the real policy-shaped trade deficit.

>Preliminary trade figures for June, which will permit calculation of the policy-induced trade hit to real growth through the second quarter, will be released next week.

>According to the revisions, the real trade deficit’s sequential worsening subtracted 1.92 percentage points from the first quarter’s 0.64 percent growth. That’s a bigger proportional hit than the 1.89 percentage point subtraction from a 0.20 real GDP percentage point decline that was previously estimated – and that represented the worst relative trade bite since quarterly changes began to be tracked (in 1947).

>The biggest absolute trade hit to real growth occurred in the third quarter of 1982 – a 3.22 percentage point subtraction. But in that quarter, overall GDP fell at a much greater 1.40 percent annualized rate.

>According to the new figures, the second quarter saw new quarterly records for real imports of goods and services combined, goods and services separately, and services exports.

>Inflation-adjusted combined imports totaled an annualized $2.6550 trillion in the second quarter – higher than the first quarter’s previous record of $2.6325 trillion, which was revised down.

>Inflation-adjusted goods imports totaled an annualized $2.1807 trillion in the second quarter – higher than the first quarter’s previous record of $2.1611 trillion, which was revised up.

>Inflation-adjusted services imports totaled an annualized $427.7 billion in the second quarter – higher than the first quarter’s previous record of $469.8, which was revised down.

>Inflation-adjusted services exports totaled an annualized $664.4 billion in the second quarter – higher than the first quarter’s previous record of $660.6 billion, which was revised down.

Making News: New Op-Ed Says Even This (Really) Bad Iran Deal is Actually Better than No Deal

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I’m pleased to report that a new op-ed of mine on President Obama’s Iran nuclear deal has just been posted on The Hill website.  The article, which you can read here, explains why both sides in the debate have got it wrong, and why even a deeply flawed agreement aimed at slowing Iran’s nuclear weapons program will leave the United States somewhat more secure than the status quo.

At the same time, the piece also argues that the Iran deal’s unavoidable shortcomings make clearer than ever that the nation needs a wholly new strategy for countering the wide range of threats it faces from the Middle East.

(What’s Left of) Our Economy: Open Borders, the Goose, and the Golden Eggs

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Since Ezra Klein is still young, he has time to learn what a bad idea it is to try being clever on unfamiliar subjects. Nonetheless, as made painfully clear in a new interview with Democratic presidential hopeful Bernie Sanders, the media wunderkind and Vox.com founder would be well advised to learn this lesson sooner rather than later, at least when it comes to how the global economy works.

Evidently trying to be clever, Klein tried to trip up the Vermont Senator by asking him how he could reconcile his avowed democratic socialism – and its presumed concern about global poverty – with his opposition to “sharply raising the level of immigration we permit, even up to a level of open borders….” Added Klein, “It would make a lot of the global poor richer, wouldn’t it?”

Sanders’ response was good. But he could have really humiliated Klein by reminding him that unlimited immigration would not only slash American living standards, but that it would ultimately backfire on developing countries as well. The reason is the same as that which argues, from a global perspective, against dropping all barriers to imports from the third world, and it springs from a reality as unmistakable as it is apparently unknown to Klein: American consumption is the goose that lays the developing countries’ golden eggs. To paraphrase that immortal adage, it’s “where the money is.”

Yet just as the United States ultimately can’t responsibly finance the consumption of enough third world imports to spur developing country progress unless its own economy remains truly healthy, it can’t ultimately provide opportunity for third world immigrants without maintaining genuine prosperity. And as Klein and other chattering class advocates of much freer immigration and trade policies should understand – but clearly don’t – the financial crisis demonstrated the heavy costs for everyone of forgetting this truth.

As I’ve written, thanks in large measure to more than a decade of U.S. job- and wage-killing trade deals focused tightly on developing countries, a critical mass of American workers lost the incomes they needed to support acceptable living standards by living within their means. Rather than change course on trade policy, the bipartisan Washington powers-that-be decided to enable the working and middle classes to at least run in place economically by borrowing, instead of earning. The economic meltdown and Great Recession that inevitably ensued inflicted damage worldwide.

Just as important, the historically feeble recovery that’s followed has claimed its share of third world victims, too. Slower American growth has helped crimp imports from China and the rest of Asia, thus sapping the vigor of these export-dependent countries. (Although, as this recent post shows, this phenomenon is easily exaggerated.)  The continuing U.S. malaise has also undermined employment opportunities for current and prospective immigrants from Mexico and the rest of Latin America. Meanwhile, because many global investors have become more risk averse since the last decade’s bubbles burst, and because Wall Street regulations have (necessarily) tightened up some, much international capital has forsaken developing country market and fled to the safety of the United States.

Do Klein and his ilk really believe that admitting a flood of overwhelmingly low-wage, low-skill immigrants will turn this situation around and help anyone, at least for any serious length of time? The only possible justification is a belief, contrary to the evidence and common sense, that the newcomers could rise up the U.S. income ladder as quickly as previous immigrant cohorts. The same question applies to boosting American imports from developing countries – which other supposed experts have touted as a prime reason for supporting President Obama’s Pacific Rim trade deal. Moreover, as I’ve just reported, import- and offshoring-friendly American trade policies could also start victimizing recent immigrants – and choking off opportunities for their successors.

In a perfect world, of course, inhabitants from poor countries could move to wealthier countries any time they wished, and they and the native-born populations would all live happily ever after. Alternatively, in a perfect world, third world populations could supercharge their incomes by providing their first world counterparts with an indefinitely growing supply of increasingly advanced products. Americans (and in principle, Europeans and Japanese) would all support themselves by finding themselves jobs in the New Economy, or the Newer Economy, or the Sharing Economy, or whatever fantasy economic utopians conjure up. Or maybe central banks could keep trying to shatter ever-soaring records for money-printing,

In that perfect world, however, we wouldn’t need economics, or economics. And we certainly wouldn’t need economic journalists like Ezra Klein.

Our So-Called Foreign Policy: What Does Obama Really Think About the Iran Military Option?

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I’ve suggested that the less President Obama and his top advisers say about their new Iran nuclear deal, the better its chances of Congressional approval, and Secretary of State John Kerry recently provided a great example that somehow escaped even the critics’ notice.

The president plainly thinks that one of the strongest arguments on behalf of the deal is that it’s America’s best option for keeping Iran nuclear weapons-free short of war. And most of his critics plainly agree with his assumption that such a conflict would be terrible. Otherwise, why would they keep insisting despite all the evidence that tougher sanctions, or a prolonging of current sanctions, can get the job done?

I agree that a military strike could be very dangerous. It’s anything but clear that the U.S. government knows where all of Iran’s key sites are, and secret facilities would almost by definition survive American bombs and missiles. Moreover, military actions have a nasty habit of producing unexpected and harmful consequences.

But here’s the funny thing: According to Secretary of State John Kerry, the president actually isn’t so worried. And Kerry’s stated views could legitimately be interpreted as agreeing – at least if you take seriously some July 24 remarks at the Council on Foreign Relations in New York City.

The Council, just to remind, is a combination foreign policy education and discussion group and research organization, and its members include many of America’s top private business and financial leaders as well as current and former government officials (along with, less impressively, chattering class types like think tank staffers and journalists). So Kerry (a member himself) presumably was choosing his words even more carefully even than usual. It’s worth quoting at some length what he said about the military option:

“Now, I know there’s been a lot of railing through the years over their [Iran’s nuclear] program, and people rant and rave. And we know we’ve seen the prime minister with a cartoon of a bomb at the UN and so on and so forth. But what’s happened? What has anybody done about it? Anybody got a plan to roll it back? Anybody got a plan that’s viable beyond bombing them for one or two days or three days that might slow their program down for two years or three years? To which, as most of you as practical human beings, you know what the response will be.

“I mean, we can do it, and we haven’t taken it off the table. Let me make that absolutely clear. This President is the only president who has actually developed something called the Massive Ordnance Penetrator, the MOP, which has been written about publicly. And not only has he asked it to be designed, he’s deployed it.

“…And when I became Secretary of State, when he called me into the Oval Office and I sat with him, I said, ‘Mr. President, if I’m going to be your Secretary of State, I want to know that if I’m going around and talking to countries in the Middle East and I say you’re prepared to use military action, I don’t want to be a Secretary of State for whom you’ve pulled out the rug.’

…And he looked at me and he said, ‘John, let me tell you something directly. Iran will not get a nuclear weapon and I will do whatever is necessary, but I believe diplomacy has to be put to the test first.’”

So according to Kerry, although Mr. Obama is by no means anxious to attack Iran’s nuclear facilities, his position that all options needed to remain “on the table” has not simply been talk. He gave the orders to develop a weapon needed to achieve success and to put it into service.

Kerry’s own views of using force and of its consequences are at least as interesting. He told Council members that “We can do it” and that between one and three days of strikes “might slow their program down for two years or three years.” To be sure, the Secretary did add, “you know what the response will be.” In fact, though, this matter is far from clear.

For example, what Kerry didn’t mention during this appearance was the possibility of such attacks triggering a region-wide Middle East war. Nor did he bring up the prospect that the so-called “Arab Street” might rise up in anger. Maybe that’s because, if anything, Sunni Arab public opinion could well welcome action against Shia Iran. Meanwhile, the region’s other Shiites – in Iraq and Syria – seem to have their hands full with ISIS and with embattled Syrian dictator Bashir Al-Assad’s remaining forces.

Kerry might be referring to a point he has made elsewhere – that Iran’s knowledge of the nuclear fuel cycle can’t be “bombed away,” and that Tehran could simply start all over again. At the same time, if this is Kerry’s point, it hardly proves that military action would be futile. After all, creating enough physical destruction to slow Iran’s weaponization plans by two to three years sounds pretty impressive – especially compared with a deal whose flawed verification and sanctions snap-back provisions could easily permit Tehran to continue progressing toward weapons capability with its remaining human and physical infrastructure intact. Moreover, if the Iranian nuclear program shows signs of attaining critical mass again, it could be attacked again.  

Again, none of the above means that I favor the military option. What it does mean is that the president himself might not believe one of the main arguments for his Iran deal.  If true, that could ironically hearten many opponents – but frighten many supporters.

 

 

(What’s Left of) Our Economy: The Exim Bank Fight is Much Ado About Very Little

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The fight in Washington over resurrecting the Export-Import Bank has gotten so heated that it’s responsible for Texas Republican Senator (and presidential candidate) Ted Cruz calling his Kentucky colleague (and Senate leader) Mitch McConnell a liar, and has the nation’s major business groups lobbying furiously for reauthorization. For the life of me, I still can’t figure out what the big deal is.

In principle, I like the idea of the Bank – which has been forced to suspend most of its operations since its authorizing legislation ran out on June 30. It helps promote U.S. overseas sales by providing low-cost, taxpayer-backed financing for American businesses that want to do business with foreign customers that are sort of risky. The financing needed to clinch sales to these customers – in effect, a subsidy – enables the exporters to compete effectively with foreign rivals that receive similarly “attractive financing” from their governments.

It’s hardly free markets – but America faces a world of trade competitors that aggressively intervene to support their own firms and workers all the time. Matching this particular form of subsidy is simply a variation on Adam Smith’s maxim that an appropriate way to fight foreign trade barriers is to create bargaining chips by erecting your own.

At the same time, as I originally pointed out in my book The Race to the Bottom, by fostering trade with partners that aren’t terribly creditworthy, the Bank’s operations have reinforced the illusory claim that the supposedly “emerging markets” of the third world have become keys to future U.S. prosperity, and that reaching and cultivating these markets should trump other possible trade policy goals (like, say, recapturing the import-controlled portions of America’s home market). After all, if exports to a certain country need to be subsidized, that market probably isn’t very sustainable, and businesses should be wary of relying on them.

In addition, the share of U.S. exports aided by the Bank is miniscule. During fiscal year 2014, Exim says it supported $27.4 billion worth of these transactions. That works out to 1.68 percent of total goods exports. It’s true that, just as not all goods and services produced necessarily have the same long-term value to a national economy, not all exports are created equal. As I’ve repeatedly written, manufacturing plays a special role due to its heavy reliance on research and development, the high wages it pays, and its economy-leading productivity growth. Exim overwhelmingly works with manufacturers, but those $27.4 billion worth of 2014 fiscal year Bank-aided manufactures exports come to only 2.30 percent of the U.S. total that calendar year.

I’m kind of sympathetic to the argument that cutting smallish programs can create outsized political benefits by demonstrating will. In other words, how can politicians who can’t even agree on eliminating trifles ever hope to agree on meaningful spending reductions? In addition, the Bank has had a not-trivial scandal problem in recent years, reinforcing conservative charges that it embodies “crony capitalism.”

Yet the Bank has experienced only very low default rates on its loans, and largely as a result, it’s actually a net contributor to the U.S. Treasury. Its minor role makes clear that the Bank is anything but a game-changer – as its sometimes fevered corporate supporters often imply. (In fact, if they were really concerned about leveling the global playing field for domestic producers, they’d drop their opposition to unilateral U.S. sanctions on currency manipulation and other predatory foreign trade practices.) But Exim’s record adds force to supporters’ arguments that the nation’s economy is better off with its activities than without them.

By the same token, however, although conservatives are right to worry about official overreach and its dangers, Exim is anything but a poster child for government corruption or inefficiency. If their leaner government campaign is serious, Congressional Republican hardliners will target much more appropriate targets than the Export-Import Bank.

Im-Politic: Immigration Common Sense is One Casualty of the Trump Surge

Americans are getting a great object lesson these days about the problems caused by bombastic and flamboyant figures championing reasonable positions. Their inevitable rhetorical excesses and personal quirks completely overshadow substance.  In the process, they slam minds shut across the political spectrum while worsening polarization even on already emotion-laden issues.

In other words, the firestorm ignited by Republican presidential candidate Donald Trump’s remarks about crime and Mexican immigrants has moved the nation farther away from recognizing that U.S. immigration policy is needlessly jeopardizing public safety – and from even thinking clearly about the subject.

Supporters of bigger legal immigration inflows (just FYI, the nation already officially admits about one million newcomers each year) have fought back with data purporting to show that immigrants are less likely to commit crimes than native-born Americans, and they readily point to polls reporting that large majorities of the public view even illegal immigrants as simply “honest people trying to get ahead.”

But if you think these findings settle the matter, you don’t even need to be reminded of horrific individual events like the alleged murder of San Franciscan Kathryn Steinle last month by a convicted and repeatedly deported illegal alien felon just released from custody by that municipality’s Sanctuary City policy despite federal requests to keep him locked up. Instead, you should read the following analyses by Norman Matloff and by Steven A. Camarota, immigration policy critics whose reasoned arguments deserved much more national attention.

Matloff, a University of California, Davis computer science professor, has long specialized in the study of (legal) “high tech” immigrants and their effects on the jobs and wages of their native-born counterparts. But his July 7 post makes a seminal political and policy point on immigrants and crime. As Matloff explains, whatever the data on immigrant crime rates versus native-born crime rates (and, I think he would agree, the more relevant data on illegal immigrant crime rates versus native-born), there’s another figure that should matter at least as much to policymakers – and surely does to the public. It’s the figure of 175,000 that describes the number of foreign nationals in American prisons.

In his view, it’s a figure that points to a major failure of U.S. immigration policy – somehow, it has resulted in the admission of at least 175,000 people (remember, the number leaves out the immigrant criminals still roaming free) who had endangered the rest of the population. Are immigration enthusiasts really arguing that that’s a record or performance that can’t or mustn’t be improved upon?

Camarota, Research Director for the Center for Immigration Studies, focuses on a different but equally important issue – the weaknesses of the crime studies themselves. They suffer, he explains in a July 23 blog, from a big apples and oranges problem. That is, the studies compare populations that can’t legitimately be compared.

To begin with, Camarota suggests (but I wish had discussed in more detail), “immigrants” form a group that includes huge numbers of individuals who simply don’t commit many crimes in the first place – those admitted, like the high tech immigrants, on “merit-based” grounds. Similarly, the native-born population includes groups, like African-American men, whose crime rates are unusually high.

Controlling for these and other pertinent factors, Camarota writes, does indeed reveal a relatively high crime rate for male Mexican-born immigrants aged 18-40 and native-born men of Mexican ancestry combined. The author adds that the Census Bureau, which generates the raw numbers, has historically experienced trouble distinguishing native-born from immigrant inmates in the nation’s prisons – the sample it uses for assessing crime rates.

At the same time, Camarota elaborates on an important policy point made in brief by Matloff. Major immigration policy failures are revealed even by statistically invalid comparisons showing roughly similar crime rates for immigrants and the native-born. Immigration, he writes, “is supposed to benefit our country. Therefore the goal of policy is to select immigrants that have much lower crime rates than natives, not rates that are somewhat higher or even somewhat lower than natives’.”

There’s no doubt that the Trump phenomenon is obscuring these insights – even as it has greatly elevated immigration’s public profile. But the nation’s Mainstream Media and politicians also deserve lots of blame. Rather than bother to learn something useful that might eliminate unmistakable and frankly dangerous shortcomings in the nation’s immigration policy, they’d clearly rather bash The Donald.

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