(What’s Left of) Our Economy: Hurricanes Muddy September Manufacturing Jobs Results – & Obscure Huge Automotive Revisions

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This year’s violent hurricane season contributed in September to American domestic manufacturing’s second sequential jobs in the last three months. Industries with extensive facilities on or near the Gulf coast and in the southeast took especially hard on-month hits, notably chemicals (-2,000), apparel (-1,900), and motor vehicles and parts (-3,200). Yet the heaviest single sector job decline came in printing and related activities (3,600).

September employment levels throughout manufacturing, however, also were greatly affected by enormous July automotive revisions, which prolonged a jobs recession in the sector that began in April, 2016. Initially credited with a 1,600 net job rise in July, automotive’s employment improvement was revised up to 5,300, and then dragged all the way down to a net job loss of 27,100. The overall July manufacturing job totals were downgraded from an initial 16,000 net increase to the 11,000 net loss revealed this morning.

Pre-inflation manufacturing wages in September matched the solid 0.45 percent sequential advance recorded for the private sector as a whole. But in manufacturing, this increase followed a 0.49 percent monthly wage drop in August – industry’s biggest since last November (which rounded down to 0.49 percent). Further, manufacturing’s annual current-dollar wage increase of 1.99 percent represents a striking slowdown from the previous year (2.95 percent). Manufacturing’s share of total nonfarm employment actually ticked up, though, in September and August – to just under 8.49 percent. In July, it matched its all-time low of 8.47 percent.

Here’s my analysis of the latest monthly (September) manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

>U.S. domestic manufacturing lost jobs on net sequentially in September for the second time in three months, with much of the total 1,000 decline traceable to payroll drops in sectors with many facilities in or near the hurricane-affected Gulf coast and southeastern states.

>For example, significant monthly job hits were taken in the automotive sector (3,200), chemicals (2,000), and apparel (1,900).

>At the same time, the sector with the greatest on-month job losses in September was printing and related support activities (3,600). And the petroleum and coal products industry, another Gulf coast-heavy sector, only lost 100 net jobs from August to September.

>In addition, employment levels throughout manufacturing in September were strongly affected by immense revisions for monthly automotive job changes in July.

>The initial read on vehicle and parts payrolls that month reported a 1,600 monthly jobs gain. The next employment report revised this advance up to 5,300. But this morning, the Bureau of Labor Statistics data tables showed a 27,100 month-to-month net automotive job loss for July.

>As a result, overall monthly manufacturing payroll shifts for July changed dramatically, too – from an initially reported 16,000 improvement to a 26,000 surge to an 11,000 net decrease.

>In fact, these automotive revisions revealed the sector to be mired in a jobs recession that began in April, 2016. Since then, payrolls in the sector have fallen by a cumulative 4,300.

>Manufacturing wages rose a seemingly impressive 0.45 percent sequentially in September on a pre-inflation basis, matching the gain of the overall private sector.

>Yet in manufacturing, this progress was preceded by a 0.49 percent monthly current dollar manufacturing wage drop in August, the biggest such decline since a comparable figure in November. In the private sector, pre-inflation wages rose sequentially in August by 0.15 percent.

>Worse, the September plummet meant that pre-inflation manufacturing wages had risen only 1.99 percent year-on-year – one of the lowest figures of 2017. And this wage gain was much bigger than the 2.95 percent current dollar raise manufacturing workers received between the previous Septembers.

>Moreover, the recovery-era gap between pre-inflation wage increases in manufacturing and in the private sector overall has widened considerably over the last year. In September, 2016, private sector wages had risen 21.55 percent faster than manufacturing pay since the recovery began in June, 2009. This September, the difference was 25.28 percent.

>In absolute terms, during the recovery, current-dollar manufacturing wages are up 15.90 percent in toto and overall private sector wages are up 19.92 percent.

>The latest inflation-adjusted wage data for manufacturing and overall private sector wages go through August, and further darken the pay picture in industry.

>That month, real manufacturing wages plunged by 0.91 percent sequentially – their worst such performance since November, 2011 (0.95 percent). Inflation-adjusted hourly pay for the overall private sector worsened, too – but by just 0.19 percent.

>And since the recovery began more than eight years ago, whereas overall private sector wages have risen by 4.66 percent on a price-adjusted basis, pay has improved by a mere 1.12 percent for manufacturing workers.

>Employment figures tell a similar story. Since hitting its last low point, in February and March of 2010, manufacturing has regained 994,000 (43.35 percent) of the 2.293 million net jobs it had shed since the last recession officially began, in December, 2007.

>Manufacturing employment is still down since that recessionary onset nearly ten years ago, too – by 1.299 million, or 9.45 percent.

>Since its latest employment nadir, in February, 2010, the overall private sector has boosted employment by 17.065 million. That’s nearly twice as many jobs as it lost (8.780 million) during the recession.

>Since the recession began, overall private sector is up by 8.285 million – a 7.14 percent gain over those nearly ten years.

>Somewhat more encouragingly, manufacturing jobs as a share of total non-farm jobs (the Bureau of Labor Statistics’ American jobs universe), rose slightly in September and August (to just under 8.49 percent) from the record low it had matched in July (8.47 percent).

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(What’s Left of) Our Economy: U.S. Trade Deficit Falls Slightly in August as Strong Exports Outweigh Record Manufacturing Shortfall

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In August, the combined U.S. goods and services trade deficit declined by 2.67 percent sequentially to hit $42.40 billion – its lowest monthly level since September, 2016’s $38.47 billion. The improvement came even though several typical major engines of trade deficit growth worsened.

A new record was set for the chronic and huge manufacturing trade deficit, with its $82.15 billion August total topping the previous high (last November’s $80.75 billion) by 1.73 percent. The manufacturing-heavy China goods gap, meanwhile, grew to its highest monthly level ($34.89 billion) since September, 2015 ($36.29 billion). And the pre-inflation oil trade deficit, which has decreased dramatically in recent years, staged its strongest monthly rebound (jumping by 60.59 percent) since June, 2016 (60.84 percent). Pointing to a hurricane effect: the biggest monthly drop in current dollar oil exports (11.53 percent) since August, 2015 (12.62 percent).

Boosting the August trade performance was the new all-time high hit for services exports ($66.11 billion), the best overall monthly exports figure ($195.32 billion) since December, 2014 ($197.18 billion), and the best monthly goods exports reading ($129.21 billion) since April, 2015 ($129.72 billion). America’s goods trade deficits with Mexico and South Korea, both of which have been criticized by President Trump, increased sequentially in August (by 25.49 percent and 15.20 percent). And the longstanding Japan merchandise deficit grew by 13.49 percent on month.

But merchandise trade shortfall with Trump trade target Canada plummeted by 61.43 percent month-to-month, and the goods gap with the European Union fell by 7.92 percent. The latest figures on the growth-slowing impact of the Made in Washington trade deficit show that it’s weakened slightly (from slowing the U.S. economic recovery by 17.40 percent as of the first quarter of this year to cutting inflation-adjusted growth by 17.30 percent in the second quarter). The new August trade figures indicate that it might decline modestly again once third quarter GDP and September trade data are released.

Here are selected highlights of the latest monthly (August) trade balance figures released this morning by the Census Bureau:

>America’s combined goods and services trade deficit declined by 2.67 percent on month in August to its lowest level ($42.40 billion) since September, 2016 ($38.47 billion), as a new monthly record manufacturing trade shortfall and poor China and hurricane-related oil results were more than offset by strong export performances, including a new all-time high for services exports.

>The August manufacturing trade deficit of $82.15 billion was 1.73 percent greater than the previous record total of $80.75 billion, set last November.

>August manufacturing exports grew by a solid 6.82 percent on month, to $93.51 billion. But the far larger amount of imports rose by 5.07 percent, to $175.67 billion.

>Year-to-date, the manufacturing trade deficit is running 5.56 percent ahead of last year’s record pace. Manufacturing exports for the January-August period are up 4.04 percent, and imports have increased nearly as fast – 4.72 percent.

>Fueling these manufacturing trade results in August was a 3.99 percent month-to-month widening of America’s manufacturing-heavy trade deficit with China. The $34.89 billion total was the largest monthly figure since September, 2015’s $36.29 billion.

>U.S. goods exports to China improved sequentially in August by an impressive 8.75 percent, but merchandise imports, which are much greater, increased by 5.08 percent.

>Year-to-date, the merchandise deficit with China is 6.24 percent higher than last year’s total – which was the second largest annual figure ever.

>The pre-inflation U.S. oil trade deficit, which has nosedived in recent years thanks to the energy production revolution, rose in August from $3.02 billion to $4.85 billion. That 60.59 percent monthly increase was the biggest such rise since the 60.84 percent surge registered in June, 2016.

>Pointing to the effects of this year’s violent hurricane season, oil exports in August recorded their biggest monthly decrease (11.53 percent) since August, 2015 (12.62 percent).

>On a year-to-date basis, however despite the longer-term improvement, this oil shortfall is outpacing last year’s by a stunning 36.01 percent.

>The hurricane impact on oil was also suggested by the excellent export data produced by other major sectors of the economy.

>Services set a new overseas sales record in August, and reached their second all-time monthly high in the last three months. August’s $66.11 billion bested June’s $65.90 billion by 0.33 percent.

>Total U.S. exports improved by 0.42 percent, to $195.32 billion, and thereby hit their highest level since December, 2014’s $197.18 billion.

>Goods exports rose even faster sequentially in August, by 0.44 percent to $129.21 billion. The result was their strongest month since April, 2015 ($129.72 billion).

>Having set reform of the North American Free Trade Agreement (NAFTA) as a priority, President Trump no doubt noticed that the U.S. merchandise trade deficit with Mexico surged by 25.49 percent on month in August, to $6.18 billion. U.S. goods exports to Mexico were 5.73 percent higher in August than in July, but import growth was 9.68 percent.

>The year-to-date merchandise deficit with Mexico is so far 11.72 percent higher than in the first eight months of 2016.

>America’s merchandise trade deficit with South Korea, which has just this week agreed to substantive talks on modifying its bilateral trade deal with the United States, increased by 15.20 percent sequentially in August, to $2.22 billion.

>U.S. goods exports to South Korea actually sank by 8.21 percent on month – the biggest such decrease since January’s 21.51 percent. America’s merchandise imports from South Korea fell, too, and for the second straight month – but by only 0.70 percent.

>America’s merchandise trade deficit with South Korea is down so far this year by fully 28.07 percent on a year-to-date basis. But since the bilateral trade deal went into effect, in March, 2012, it’s nearly tripled.

>The U.S. merchandise trade deficit with Japan increased notably (13.49 percent) as well on month in August, to $6.55 billion.

>America’s goods exports to the world’s third biggest single national economy decreased by 5.52 percent month-to-month, while its goods imports rose by 4.02 percent.

>Year-to-date, this merchandise deficit with Japan is running 12.54 percent ahead of last year’s level.

>Better news came in merchandise trade with America’s other NAFTA partner, Canada. The U.S. deficit – which has been volatile recently – plummeted by 61.43 percent in August, to just $410 million.

>American goods exports to Canada improved by 12.50 percent. Imports climbed, too, but by only 9.06 percent.

>Year-to-date, though, the U.S. merchandise trade shortfall with Canada is running nearly three times ahead of last year’s rate.

>Improvement in August was also seen in American merchandise trade with the European Union (EU) – the world’s largest economic unit. On a monthly basis, the U.S. deficit narrowed in August by 7.92 percent, to $12.39 billion.

>U.S. goods exports to the EU advanced by 9.08 percent on month, while imports were up only 2.52 percent.

>Year-to-date, moreover, the American merchandise deficit with the EU is running 0.72 percent behind last year’s rate.

>The latest data for the growth drag on the still weak U.S. economic recovery of rising trade deficits are only from the second quarter. But by both major measures, they show that trade’s bite into the expansion is easing, but remains deep.

>Since the recovery began, in mid-2009, to the end of the second quarter of this year, the increase in the trade deficit has reduced cumulative after-inflation output during the expansion by 9.24 percent, or $247.30 billion. That’s down from the 10.04 percent, and $255.9 billion, as of the first quarter.

>The toll on the expansion attributable to U.S. trade policy is diminishing, too, but has been much higher. This Made in Washington deficit strips out of inflation-adjusted American trade flows energy and services – two sectors where trade policy and related decisions have had only marginal effects so far. The remainder of U.S. trade flows – of goods except oil – are heavily influenced by policy.

>Since the recovery’s onset, the rise of this Made in Washington deficit has cost the recovery $462.8 billion in lost growth in absolute terms – or 17.30 percent of the cumulative total. That’s down from a growth bite of 17.40 percent worth ($443.3 billion in absolute terms) for the first quarter.

Our So-Called Foreign Policy: The North Korea Credibility Gap at The Atlantic

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The Atlantic has long been one of America’s most important magazines, so we all have a stake in doing what we can to keep its quality as high as possible. And it’s in that spirit, that I offer the magazine’s editors this advice: If you’re going to keep running pieces on the North Korea nuclear weapons crisis, make sure that your authors read your own previous coverage of the North Korea nuclear weapons crisis. That way, you’ll avoid embarrassments like that resulting from recent posts by contributing editors Peter Beinart and Kori Schake, and by staff writer Uri Friedman.

According to both Beinart and Schake, President Trump’s positions on North Korea depart dramatically from those of his predecessors. The main reason? He’s considering launching preventive strikes aimed at destroying North Korea’s nuclear arsenal before it can be used against America’s allies in Asia, or against the United States itself.

In Beinart’s words, Mr. Trump’s mulling of this action, which aims “not at stopping an imminent North Korean attack, but at stopping North Korea from gaining the means to launch such an attack” is “the equivalent of shooting a man because he’s on his way to the store to purchase a pistol or because he’s at a firing range checking to see if it works.”

As such, his stance is both “something that Americans once considered monstrous” and “barbaric,” as well as an option rejected by Cold War presidents “while Joseph Stalin and Mao Zedong—two leaders every bit as brutal and rhetorically chilling as Kim Jong Un—developed nuclear weapons. Instead, America’s leaders responded with deterrence.”

As Schake puts it, Mr. Trump’s suggestions that preventive war is on the table as a U.S. option ignore the reality that “the constraint on Presidents Clinton, Bush, and Obama, is the same one he faces. That constraint is the 30 million South Koreans and 130,000 Americans living within artillery and rocket range of North Korea’s conventional forces. Trump’s predecessors weren’t being nice to Pyongyang; they were recognizing that the risks of preventative war to remove the North Korean threat aren’t worth starting a war that will inevitably incur ghastly damage.”

My point here isn’t to debate whether these assertions are true. It’s to point out that, just a few months before these pieces came out, folks who follow foreign policy closely may well have read the following statement in a major magazine: “Bill Clinton, George W. Bush, and Barack Obama all considered preemptive military strikes against North Korea’s nuclear sites….”

And where did this statement appear? In an article by Atlantic staff writer Friedman.

Friedman also made clear that all three former presidents rejected this option – although his account makes no mention of philosophical principles or a more narrowly based refusal to risk causing mass casualties in this particular instance.

He may be wrong, too. But don’t Beinart and Schake read Friedman? Doesn’t he read Beinart and Schake? Didn’t anyone on The Atlantic‘s staff notice the stark contradiction? Indeed, what happened to the magazine’s fact-checking operation? According to this article, it still existed as of 2012 – and was incredibly rigorous. Has it been phased out? Is it gone completely?

The Atlantic continues to publish enough valuable content that I’ll keep monitoring its website and reading many articles and posts. I’d recommend it to RealityChek readers and everyone else, too. But here’s something else I’d recommend – read these regulars, at least, with a little more than the usual healthy skepticism.

(What’s Left of) Our Economy: A Big New Hit to Free Trade Theory

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OK, time for some good news – at least if you’d like the economics community to come up with more realistic views of trade policy and its impact on the national and global economy. As made clearest by a (sadly overlooked) journal article by Steve Keen of Kingston University in London, some noted academic economists have identified fatal-looking flaws in comparative advantage theory – the 18th century concept that ever since has anchored mainstream scholarly thinking about the entire discipline, along with justifying the virtues of the freest possible trade flows.

As Keen writes, comparative advantage identified benefits flowing from economic specialization, and was first advanced by British economist Adam Smith in his seminal The Wealth of Nations to explain the superiority of laissez-faire, free market practices within industries. His compatriot David Ricardo extended the concept to relationships between industries and countries. The core idea in its trade theory version is that all countries and their peoples will reap maximum gains if they limit themselves to those tasks that represent their own best efforts – even if they’re laggards by international standards in that particular sector.

I first encountered a compelling objection to comparative advantage in the early 1990s, in the form of a sharp observation by Harvard Business School professor Bruce R. Scott. As he noted, Portugal, one of two countries in Ricardo’s classic description of comparative advantage’s virtues, basically hewed to the Ricardian prescription, specialized in turning out relatively simple products (in this case, wine) – and remained a poor country for centuries. The second country was Great Britain. It specialized in higher value goods (epitomized, in that era, by textiles), and became the world’s greatest and richest empire.

More fundamentally, Portugal specialized in activity that could generate good levels of growth in the short-term, but whose long-term wealth creation potential was limited by low levels of productivity growth, capital and technology intensiveness, by limited potential for innovation, and by deficiencies in other closely related indicators of dynamism. Great Britain specialized in activity whose positive spinoffs were bound to be far greater.

Other major Ricardo blind spots have been pointed out since then – for example, his skepticism that capital would ever easily move across borders. But his central insights have continued commanding pervasive respect among professional economists. Just as important, they’re still revered by political leaders and opinion molders who find these theories convenient for portraying their often self-interested trade policy preferences as indisputable truths, or who learned in a freshman economics class that they’re gospel.

Keen’s big addition to comparative advantage critiques has to do with unfettered free trade’s likely effect on an economy’s diversity and growth potential. As he notes, Ricardo’s case for liberalizing trade flows hinges on a completely unrealistic assumption about its impact on a national productive base, and hence on national output and incomes. The assumption: that countries will wind up better on net if they abandon those activities that don’t meet the comparative advantage test, and refocus their efforts on activities that can pass it, and that such a transition is feasible in the first place.

In other words, Portugal would scrap all of its textile factories (and presumably all its other industries as well), and become for all intents and purposes a mono-economy devoted to wine. Great Britain would abandon whatever wine-making and other non-textile work it was engaged in, and turn into a big cloth-making facility. What of the other necessities of national and individual life, at least those that are in theory trade-able? They would be imported – and paid for by the earnings from exports of the national champions.

Simply articulating this scenario reveals how completely fanciful it is. For example, what about supplying needs before the envisioned transitions are completed? How long will they last? And even over decades under a free trade regime, could the global economy possibly be expected to turn into the kind of exquisitely complex but perfectly functioning mechanism that could enable a large number of mono-economies from securing the full range of traded goods and services that are either needed or simply wanted?

Keen, however, identifies what he reasonably seems to view as a more fundamental problem: The sectors of the economy in which Ricardians want countries to specialize are relatively strong because they efficiently use various factors of production (chiefly, according to Keen, machinery). The Ricardian transition entails other parts of the economy switching to that strong sector (again, wine-making and textile-making in Portugal and Great Britain, respectively), and essentially becoming just as good as wine-making – largely because all the kinds of machinery used in that economy can easily, and indeed seamlessly be redeployed in the strong sector.

If this assumption was valid, as Keen observes, then it would be reasonable to suppose that each rejiggered national economy could produce even more output, and generate higher incomes for its population, than before. But as the author also observes, this outcome makes no sense because “machinery is specific to each industry, and the crucial machines in one industry cannot simply ‘move’ to another without loss of productivity.” And if you believe, as is the case with mainstream economics, that rising productivity is a key – and over the long run, the biggest key – to rising incomes, then you should recognize this Ricardian transition also as a recipe for worsening national impoverishment.

That is, in the kind of mono-economy Ricardo hoped would eventually comprise the global economy, most of the populace would be struggling with inappropriate capital stock and other assets to earn a living engaged in activity with which it boasted little, if any, experience.

Why did Ricardo overlook something so obvious? In Keen’s words, it’s an example of “a confusion of monetary capital (which Ricardo, as a stockbroker by trade, knew intimately) with the physical machinery in factories (about which he knew very little). Yes, monetary capital moves easily in search of a profit—today, even internationally. But machinery is specific to each industry….”

However, Keen continues, “The archetypal machines for cloth and wine manufacturing in Ricardo’s time included the spinning jenny and the wine press. It is stating the obvious that one cannot be turned into the other, but stating the obvious is necessary, because the easy conversion of one into the other was assumed by Ricardo, and has been assumed ever since by mainstream economic theory.”

Here’s another example of the same delusionality that will be familiar to everyone who’s followed the U.S. trade policy debate for the last few decades: the claim by supporters of current trade policies that trade-related production and job losses are no big deal because America’s real edge in the global economy going forward is, say, services. So the best response is to train all those displaced auto workers to become nurses (and, pace Keen, to use all that surplus auto production machinery to write software).

Just as interesting, Keen points to a small but growing body of research touting the advantages of industrial and other economic diversity – the opposite of Ricardo’s aim. A broad-based manufacturing and technology base has of course long been supported by critics of current trade policies for national security reasons (to ensure the ability to produce an adequate range of defense assets), and to avoid potentially dangerous dependence on foreign supplies of civilian goods as well.

Similarly, it’s been contended that too many linkages exist among manufacturing industries, and between manufacturing and many kinds of services, to assume that entire sectors can be lost without major collateral damage.

Keen’s piece, however, also spotlights evidence that the world’s least successful national economies tend to possess narrow – at best – productive bases and to generate a comparably narrow range of exports, and that the most successful turn out a wide variety of goods for both domestic and foreign markets.

Keen’s theoretical critique of Ricardo is by no means the only one that’s come from the ranks of economists themselves. In 2001, William J. Baumol (a former President of the American Economic Association no less) and Ralph E. Gomory, one of the nation’s leading technology authorities, produced this study purporting to show that explicitly promoting national industries and technologies via various forms of government intervention (including tariffs) can produce better results for individual countries that toeing the free trade line.

But the Baumol-Gomory case has (so far) failed to dent confidence in Ricardian trade theory notably. And certainly the Mainstream Media never displayed much interest. In that vein, of possible import is the appearance this week on Bloomberg.com of this follow-up of sorts to Keen-like analysis. More steps on a  journey of a thousand miles?

Death and Senselessness

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No doubt there’s nothing cosmic, or even important (except to me), about it, but I can’t help but be struck by the fact that within the last two weeks, and especially the last two days, I’ve needed to reckon with questions of God, evil, and death (on an individual and mass scale) – all closely related of course.

One of the mass-scale deaths obviously is last night’s Las Vegas shooting, about which so little is known for sure that any analysis is wildly premature – and frankly irresponsible. Not that that’s stopped the hateful partisans on all sides.

To be sure, there are details that seem significant, but they add up to nothing coherent yet. For example, shooter Stephen Paddock clearly planned this atrocity in great detail, but no reliable information has emerged yet about any political or other cause-related agenda he might have had. Similarly, no evidence of affiliation with any non-state actors has been found. For those reasons, it looks like the term “terrorism” doesn’t apply.

So are we dealing with a case of derangement? Nothing known yet warrants that conclusion, either – including the statements from his brother. And as has become so depressingly typical, he was taken utterly by surprise by this act of mass murder.

Moreover, I’ve balked at viewing these kinds of mass shootings as reasons to tighten greatly gun control laws, for reasons explained here and here. Today I’m not inclined to revisit this issue, but it does seem worth noting that audio of the violence seems to reveal that an automatic weapon of some kind was used, and that its capacities added greatly to the fatalities. So is it too much to hope that Las Vegas will lead to some meaningful improvements in gun control that fully respect legitimate gun-ownership rights?

But of all the reactions I’ve heard and read till now, the most moving for me came from a Twitter contact, producer Sylvia Hall of Fox Business News: “Worlds changed for families of 50 people without warning or reason.” For me, nothing has better described the shock – and the maddening senselessness – from the standpoint of the victims and their loved ones.

I strongly suspect her words affected me so deeply because just yesterday I learned that a good friend had passed away over the weekend. He had experienced some major health problems in recent years, but his death was jolting, and seems senseless, for at least two reasons. He seemed to be recovering from his syndrome. And before falling ill he was young for his age physically and in some ways in personality (in the best sense).

And I’ll be grieving actively for longer than usual, I’m convinced, both because it’s the first such loss I’ve experienced of a peer, and more important, because I have no doubt we could have been even better and closer friends. We’d been separated by geography for most of the time we’d known each other, but practically from the first it was clear we were on nearly all of the same wave-lengths. So I’m mourning a genuinely good soul and a relationship that ended long, and senselessly, before their time – along with a marriage that inspired and delighted everyone who knew him and his now devastated wife (also a good friend).

The other mass-scale death I unexpectedly encountered recently is the Holocaust – in the form of a lengthy conversation I (unexpectedly) had with a Christian clergyman during a train ride from New York City back to DC. He was Middle Eastern in origin, and therefore well acquainted with violence of all kinds, especially by dint of work with refugees, as well as very compassionate and learned both in theology (including of my own Judaism) and history.

Normally, I don’t broach metaphysical subjects right away with strangers, even if their business is metaphysics. But the ride would be a few hours long, I was curious about him and his beliefs, he seemed curious about me and mine, and it was only a matter of time before the subject of arguably the ultimate example of senseless (by any standards I at least regard as remotely ethical) mass violence came up.

My position is full of uncertainty. My late father, as mentioned here, witnessed the Holocaust’s effects first-hand, as part of a team of Yiddish translators sent to Dachau shortly after that death camp’s liberation. He told me that he was never able fully to square a belief in God with witnessing that sight. I have great sympathy for that view, though my faith remains more intact.

My interlocutor was much more certain – of the opposite. His position seemed an attempt to imbue this slaughter of innocents with sense. As I understood it, he argued that during the run-up, God became so dissatisfied with His creation, and apparently so despairing that faith was wanting, that He “absented” Himself from His role in and influence over human affairs.

I didn’t for a moment take him a claiming that the Holocaust’s victims in any sense deserved their fate, but my questions tumbled out anyway. Did the victims themselves displease God? What sins, on anyone’s part, could possibly justify such retribution? Why was the loss of faith (apparently the decisive sin) so important? Isn’t God’s top priority to foster loving hearts and behavior? Shouldn’t “results” like this count for more than theological allegiances? What of proportionality? Why so utterly indiscriminate? And since there’s so much evidence of a continued shortage of faith ever since, didn’t this divine decision fail to achieve its objective? Unless He’s still absent?

I can’t do the answers justice in this space. They were coherent and sophisticated and reasoned. They were also deeply humane. Yet I found them completely incapable of making sense of this abomination – a term I use in both the secular and Biblical sense – let alone strengthening the case for faith.

Still, a critical mass of my faith has continued through a sad weekend and a tragic day. I hope the reasons aren’t becoming increasingly senseless.

(What’s Left of) Our Economy: U.S. Growth’s Quality is Better, but Remains Far from Good

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As indicated in yesterday’s post, the final (for now) returns are in on America’s economic growth for the second quarter, and as RealityChek regulars know, it’s a new occasion to look at the crucial and sorely neglected subject of the quality of American growth. What the figures show is that, despite some tiny signs of progress, nearly a decade after a terrifying financial crisis caused by bloated spending on personal consumption and housing, the U.S. economy is still heavily dependent on growing via bloated spending on personal consumption and housing.

First, let’s review the situation on a stand-still basis. For the second quarter, the share of inflation-adjusted gross domestic product (GDP) comprised by personal consumption came in at 69.60 percent. This figure – for the first full quarter of the year during which Donald Trump has been president – was slightly above the 69.56 percent for January-March quarter, and an all-time record.

The second component of what I’ve called the “toxic combination” is housing spending, which stood at 3.49 percent of real GDP. That’s lower than the 3.58 percent share for the first quarter, and (thankfully) well below the record of 6.17 percent set at the height of the previous decade’s housing bubble, in the third quarter of 2005.

Nonetheless, because personal spending has become so strong, the total toxic combination in the second quarter came to 73.09 percent of after-inflation GDP. That’s a bit below the 73.14 percent share for the first quarter but, more important, it’s just slightly less than the record 73.29 percent of real GDP set by the toxic combination set in the second quarter of 2005. So it’s difficult to argue that one of the biggest lessons of the financial crisis and ensuing recession has been learned.

The picture looks somewhat better lately when the economy’s main growth engines are examined – that is, when we analyze the economy on a dynamic, not a stand-still basis. During the second quarter of 2017, the toxic combination of personal and housing spending generated 64.03 percent of after-inflation growth. That’s less than half their share during the first quarter (140.65 percent – these numbers can be more than 100 percent because of the GDP components that subtract from growth).

It’s also a considerably smaller growth role than such spending has generally played since very early in the economic recovery. In fact, here’s how much constant dollar growth the toxic combination spurred, by year, from 2011 (when the economy was returning to normal following a deep slump and strong but largely incomplete initial snapback) to 2016: 97.50 percent, 60.36 percent, 79.17 percent, 80.16 percent, 98.25 percent, and 138.26 percent.

Even better, the growth role played by business spending – which creates productive assets like factories and labs, and also includes spending on research and development – could be on the upswing. The figures for the first two quarters of this year have been volatile, and in the wrong direction: 69.62 percent and 27.06 percent respectively.

But these numbers together so far have reversed the trend from 2011 to 2016 – when the share of growth accounted for by business spending plummeted from 53.75 percent to turning into a small growth drag.

The stand-still numbers, however, show that the U.S. economy remains so heavily skewed toward personal and real estate spending that only a major – and doubtless unprecedented – surge of business spending can start turning matters around. And the economy will remain far too fragile and crisis-prone till it does.

(What’s Left of) Our Economy: Trade was a Marginal Growth Engine in the Second Quarter

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The final (for now) solid 3.03 percent annualized real GDP growth figure for the second quarter benefited slightly on a sequential basis by a drop in the inflation-adjusted trade deficit to $613.6 billion – the lowest such level since the third quarter of 2016 ($557.3 billion). Trade’s role as a quarterly growth engine, however (adding 0.21 percentage points) decreased to its smallest on a relative basis since the third quarter of 2014 (when its fueled 0.28 percentage points of 5.11 percent annualized growth).

New quarterly constant-dollar records were all achieved for total exports and goods exports, and for all import categories. For total imports and goods imports, these records were their fifth straight. Real services exports increased sequentially at their fastest annualized rate (6.2 percent) since the first quarter of 2013 (7.1 percent). But services imports hit their eleventh straight quarterly record ($498.2 billion).

Trade’s subtraction from cumulative recovery-era real growth remained considerable in the second quarter, but shrank sequentially both in toto (from 10.04 percent in the first quarter to 9.24 percent) and in terms of the Made in Washington deficit that tracks trade flows heavily influenced by trade policy (from 17.40 percent to 17.30 percent).

Here are the trade highlights from Thursday morning’s GDP report from the Commerce Department’s Bureau of Economic Analysis:

>The final read on second quarter economic growth produced an unusual mix of results given all the attention focused on President Trump’s stated resolve to reform U.S. trade policy. On the one hand, a sequential drop in the inflation-adjusted trade deficit to $613.6 billion (its lowest level since the $557.3 billion in the third quarter of 2016) helped lift annualized quarterly growth to 3.03 percent – the best such result since the first quarter of 2015 (3.20 percent).

>On the other hand, trade’s positive contribution to growth was its smallest on a relative basis (adding 0.21 percentage points) since the third quarter of 2014 (0.28 percentage points out of 5.11 percent annualized real growth).

>On a stand-still basis, new quarterly records were set for nearly all after-inflation categories of trade flows, including across the board on imports.

>Real total exports increased by 3.48 percent sequentially at an annual rate, from $2.1623 trillion annualized to $2.1811 trillion – their second straight all-time high.

>Real goods exports also hit their second straight quarterly record, improving by 2.17 percent annualized, from $1.4923 trillion annualized in the first quarter to $1.5004 trillion.

>Real services exports rose quarter-to-quarter at their fastest annual rate (6.01 percent) since the first quarter of 2013 (6.86 percent). But their $682.3 billion total fell short of the record of $684.9 billion set in the second quarter of 2015.

>Real combined goods and services imports in the second quarter rose sequentially at their slowest annualized rate (1.48 percent) since the second quarter of 2016 (0.39 percent). But their $2.7948 trillion figure was still their fifth straight quarterly record.

>Real goods imports set their fifth straight quarterly record, too. They rose by just 1.33 percent on an annual basis (the slowest pace since the third quarter of 2016’s 1.23 percent) to hit $2.7948 trillion annualized.

>As for real services imports, they set their eleventh straight quarterly record ($498.2 billion) – even though they advanced by a mere 2.18 percent annualized (the slowest such pace since the 1.01 percent annual growth in the second quarter of 2016).

>The new GDP figures showed that trade kept subtracting from America’s cumulative growth during te current economic recovery, but that the growth drag lightened by both major measures.

>As of these final second quarter results, the increase in the inflation-adjusted trade deficit since the second quarter of 2009 (when the recovery officially began) has sliced $247.3 billion from the real gross domestic product’s improvement – a growth drag of 9.24 percent.

>As of the first quarter, this growth drag was 10.04 percent, or $255.9 billion.

>The bite into growth from the Made in Washington trade deficit’s increase was much greater, but diminished as well.

>The post-second quarter, 2009 widening in this trade deficit – which strips out trade in energy and services and focuses on import and export flows heavily influenced by trade policy – cost the economy $462.8 billion, resulting in a growth drag of 17.30 percent.

>The Made in Washington trade deficit’s growth drag in the first quarter was 17.40 percent, or $443.3 billion.

Im-Politic: A Vacuum at the Heart of The Vietnam War

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I was planning on waiting till I saw its end to comment on the Ken Burns/Lynn Novick PBS documentary series, The Vietnam War, since analyzing anything without seeing the whole seems like a great formula for missing something important. But the episode on the January-July, 1968 period (“Things Fall Apart”) covers such a critical period, forthrightly raises so many of most painful questions generated for both supporters and opponents of the war, and then fails so completely to answer them, that this segment seems worth its own posting.

To remind, those first months of 1968 created one of the war’s major turning points; principally, they witnessed the Tet offensive shockingly launched at the end of January by North Vietnamese and Viet Cong forces against a wide range of targets in South Vietnam. The ferocity and scope of the attacks seemed to discredit completely official American claims of solid progress versus the enemy, and led to levels of U.S. public backing for President Lyndon B. Johnson’s strategy dropping below critical levels, to Johnson’s stunning announcement that he would not seek a second term in office, and to the start of peace talks.

But even that description, which I tried to make as neutral as possible, can be challenged from several standpoints, and these challenges explain much of the frustration I felt watching “Things Fall Apart.”

First some truth in advertising. My strong opposition to the war dates to sometime around 1970 (somewhat later than that of many friends); I would have been a high school junior or senior at the time. Was some of it self-serving? You be the judge: I wasn’t technically a draft dodger, since I received an entirely legal, non-faked 4-F medical deferment. Also, by the time I received my very low (13) lottery number, in 1971, it seemed increasingly clear that the role of American ground troops was cresting, and there was no chance that I’d be flying over Vietnam in an air war that actually intensified. And of course, even at the conflict’s height, the vast majority of U.S. military personnel in the country were volunteers, and most of them were stationed behind the lines (though hardly out of danger).

But even though odds were my skin would have been safe had I been inducted or not, who could really be certain that American politicians would keep their Vietnamization promises over time? Moreover, I was able to avoid any service at all both through an accident of birth and thanks to family circumstances not available to so many of the young Americans who did fight and die or suffer physical and psychological wounds.

Everything I’ve learned since then about the conflict, however, has only deepened my conviction that U.S. military involvement in Vietnam was a ghastly, and in Constitutional terms, criminal mistake, which sought goals not remotely worth the sacrifice in American blood and treasure. It’s easy, consequently, for me personally to find the basic Burns-Novick narrative about early 1968 entirely convincing.

But there have so many flies in this ointment! For example, Tet no doubt was thoroughly discouraging to supporters of the war (including, at that time, yours truly). As The Vietnam War makes clear, Johnson administration assessments of the fight to keep South Vietnam in the non-communist world were invariably much rosier than circumstances warranted. In fact, just before Tet, U.S. officials were sounding especially optimistic that North Vietnamese and Viet Cong units were being “ground down,” and had lost their early momentum. How, then, could they stage attacks the length and breadth of South Vietnam, including fighting their way into the U.S. Embassy compound in Saigon, and holding out in the old imperial capital of Hue for a month?

Certainly elites, especially in the media and politics, were shaken. Certainly, it was the predominant reason for Johnson’s decision about the 1968 presidential race. But the American people? There’s considerable evidence that Tet did not suddenly convince masses of the public that it the time had come for the United States to get out. This 2008 journal article ably summarizes the polling evidence giving grounds for doubt. As Patrick Hagopian of Britain’s Lancaster University has documented, Tet-period surveys generally confirmed and solidified popular dissatisfaction that had been growing since Johnson began greatly escalating the American military effort in 1965.

Just as important, many of the war’s critics actually wanted Johnson to take off the gloves and attack the foe much more energetically – and presumably decisively. In Hagopian’s words. “The majority of Americans identified themselves as ‘hawks’ before the Tet offensive, and their number actually peaked in the immediate aftermath of the offensive, indicating a wish to strike back against the communists. The Tet offensive therefore did not just increase opposition to the war, it intensified the views of hawks who saw the options as ‘fight or get out.’”

Indeed,as Hagopian notes, in the critical March 12, 1968 New Hampshire primary that helped convince Johnson to bow out of the race because of peace candidate Senator Eugene J. McCarthy’s strong showing, “the majority of those who voted for [the grassroots challenger] were Vietnam war hawks who thought that President Johnson was not escalating the war fast enough. This was a repudiation of Johnson’s policies, but it was a protest vote by the hawks and not by people who supported McCarthy’s antiwar stance.” Burns and Novick do refer to this result briefly in The Vietnam War, but it’s treated as a mere footnote and simply left hanging.

Fly in the ointment number two concerns the on-the-ground results of Tet itself. Here Burns and McCarthy admirably embrace a view that still appears far from the conventional wisdom:  Tet was not only a devastating military defeat for the communist side. It was a devastating political defeat. For the offensive’s planners, notably North Vietnamese Communist Party chief Le Duan, expected the attacks to end the war once and for all by sparking a nation-wide revolt against the “puppet” Saigon government. Yet the South Vietnamese populace overwhelmingly stood beside its leaders. And the big domestic political change in the country brought about by Tet was the effective destruction of the southern dominated Viet Cong as a fighting – and major political – force.

The trouble for the documentary is that the Burns and Novick treatment of Tet’s impact on the South Vietnamese people in “Things Fall Apart” clashes violently with their portrayal of that nation’s leaders and their following. In all the previous episodes I’ve seen (that is, all save the first), South Vietnam’s leaders were depicted as incompetent, corrupt, and often both. Their political support, meanwhile, was dismissed as minimal, especially in the countryside that contained some 80 percent of South Vietnam’s people. Further, what the filmmakers tell viewers time and time again is that in the eyes of this highly nationalistic demographic, the Saigon government was also crippled politically by its heavy dependence on foreign (U.S.) backing, and that the American soldiers who strove to prop them up were generally seen as “invaders.”

Yet when this population had the chance to throw out these purportedly illegitimate leaders, most refused.

One possible explanation is that the Saigon government was seen as the lesser of two evils, but this is not an argument that Burns and Novick make. The filmmakers allude to public backing for neutralist and/or Buddhist leaders who favored a negotiated solution to the war, but these references never go beyond the allusion phase – at least not through the end of “Things Fall Apart.” So the South Vietnamese reaction to Tet (and this also includes the Burns-Novick description of a hitherto inept South Vietnamese military that made a major turnaround during Tet and often fought valiantly and effectively) is left as a total mystery.

As a result, also left completely unexamined is the potentially earthshaking but logical (at least) conclusion that can be drawn from these two flies in the ointment – that from a purely military perspective, U.S. leaders had a more accurate understanding of the war than is widely recognized. Specifically, after Tet, the tide on the battlefield had finally turned to a generally neglected extent, and that more persistence may well have produced a conclusion much better for the United States – and even arguably for the South Vietnamese people – than the total victory won by the North. Indeed, why had Hanoi at long last agreed to negotiations in 1968 after only a partial American bombing halt? Because it was still confident of triumphing militarily?

So how come I’m still an opponent of the war? For the reason stated above. No attainable goal in Vietnam could reasonably justify the price paid by America – more than 58,000 dead; some $1 trillion in 2011 (likely a conservative estimate); a broken, divided society; a wounded, distorted economy. Nor am I persuaded by an argument made by some revisionist scholars and other analysts – that the benefits extended well past Vietnam, and that the war is best seen as a delaying action that enabled the whole of East Asia to avoid communist rule and establish the foundations of its more recent stability and prosperity. If these were indeed products of Vietnam, the price for the United States still would have been wildly excessive, in my opinion.

But these subjects are much more deserving of public national debate than they’ve received so far, especially since the United States has found itself in several other unpopular, unsuccessful wars in spite of defeat in Vietnam, and surely stayed out of several other likely unpopular conflicts because of it. They also deserve much more discussion that devoted by Burns and Novick. The Vietnam War has been touted as a documentary that will help Americans better understand an historic episode that continues powerfully shaping the present in more ways than I suspect many recognize. Its treatment of crucial questions in “Things Fall Apart” makes me wonder whether it will even approach achieving this goal.

Im-Politic: Fake Hate Group Facts from the Washington Post

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What on earth gives with journalists at the Washington Post? Both editors and reporters alike? I ask this because of the outrageous headline in today’s edition, accompanying an equally outrageous article, sliming an organization that’s concerned about the spread of Muslim extremism and terrorism into the United States as a “hate group.”

Not that there’s anything new about mainstream news media and their staffs being dismissive about these dangers. And not that there’s anything new about these newspapers, magazines, broadcast networks, and websites using as their guide to hate groups the Southern Poverty Law Center (SPLC) – even though this organization’s definition of an anti-Muslim extremist can be wildly offbase.

What’s new, and upsetting, about this incident is that the Post itself recently published an article – by the head of the restrictivist immigration organization, the Center for Immigration Studies (CIS) – that its appearance alone (let alone the evidence it marshaled) revealed that the paper itself took most seriously the case that SPLC hate group ratings are simply biased garbage.

As noted by its Executive Director Mark Krikorian in a Post article just last March, SPLC has labeled CIS a hate group since February.  But as Krikorian also pointed out:

“CIS has testified before Congress more than 100 times over the past 20 years. We’ve also testified before the U.S. Commission on Civil Rights, and our work has been cited by the Supreme Court and the Justice Department’s Office of the Inspector General. We’ve done contract work for the Census Bureau and the Justice Department. Our director of research was selected by the National Academies of Sciences as an outside reviewer for last year’s magisterial study of the fiscal and economic impacts of immigration. Our authors include scholars at Harvard,Cornell University, Colorado State University, the University of Maryland and elsewhere. We are one of the most frequently cited sources on immigration in the media (including in The Post).”

And he sensibly concluded:

“Equating a group that has such a track record of engagement in the public policy debate with, for instance, the Holy Nation of Odin has nothing to do with warning the public of ‘hate.’ The SPLC’s true purpose can only be to deprive the American people of points of view they need to hear to make informed and intelligent collective decisions.”

Yet this morning, just six months later, a Post headline declared that “Marriott says it will not cancel conference hosted by anti-Muslim hate group.” In other words, this development was portrayed as a fact. But in the third paragraph, reporter Abha Bhattarai (and clearly her editors) show that the paramount basis for this description was that same Southern Policy Law Center.

Now the group so labeled – ACT for America – is completely separate from Krikorian’s CIS. Here’s how it describes it purpose:

“ACT for America educates citizens and elected officials to impact public policy and protect America from terrorism. As a result, ACT’s grassroots network has driven the education process toward the successful passage of 84 bills in 32 states. ACT for America is continuing to expand its nationwide volunteer network that trains citizens to recognize and help prevent criminal activity and terrorism in the United States while preserving civil liberties protected by the United States Constitution.”

Bhattarai attempted to buttress the SPLC’s finding by reporting that ACT was

“behind anti-Muslim demonstrations across the country this summer that attracted white supremacist groups.

‘I don’t believe in having Muslims in the United States,’ Francisco Rivera, of the white supremacist group Vanguard America, said at one of the demonstrations.

‘Their culture is incompatible with ours.’”

Sounds like guilt by association to me. Moreover, there are reasons to view Bhattarai’s verbal brush as excessively broad in a more fundamental sense. Here’s how another big national news organization, The Los Angeles Times, depicted these activities. ACT, it stated, “has supported President Trump’s restrictions on refugees and travel from Muslim-majority countries. It organized protests throughout the country this summer against sharia law, which the group says is incompatible with Western culture.”

That appears to be much more precise — and less damning — phrasing. And I’m inclined to trust in it because the Times handled the headline for its version of this story properly, too:

“Marriott won’t cancel convention of what critics call anti-Muslim hate group.”

So the Times, unlike the Post, seems to understand the difference between a fact and an opinion. But the Post‘s failure in this regard is even less excusable because it had recently run material casting major doubt on the SPLC’s bona fides. In other words, it seems that its own reporters and editors don’t read a lot of what the Post produces. Maybe the rest of us should take this as a hint?

Im-Politic: Major Evidence for the GOP’s Trump-ization

If you follow national news to any extent, you know that ever since he began his run for the White House, there have been major tensions – and sometimes outright warfare – between Donald Trump and the more traditionally conservative establishment of the Republican party. You also know that these tensions have grown lately as the President has expressed his frustration with the failure of pillars of that establishment – the party’s leadership in Congress – to push through repeal of President Obama’s healthcare law, even though they enjoy majorities in both House and Senate.

What you may not know, because it’s attracted almost no attention, is that compelling evidence has just appeared showing that Mr. Trump is winning this battle hands down.

The evidence comes in the form of a Wall Street Journal/NBC News poll that, among other questions, asked of voters who consider themselves Republicans or Republican “leaners” whether they considered themselves “to be more of a supporter of Donald Trump or more of a supporter of the Republican Party?” The Trump supporters outnumbered the GOP loyalists by a whopping 58 percent to 38 percent.

Moreover (although neither news organization) has released the exact numbers, both groups of Republican and GOP-leaning voters approve of Mr. Trump’s decision to work with the Democrats to postpone a budget and debt ceiling debate-driven closing of the U.S. government while not permitting the impasse block aid for hurricane-stricken states. That can’t be good news either for Senate Majority Leader Mitch McConnell of Kentucky or House Speaker Paul Ryan of Wisconsin. Nor is the finding that both groups approve of Mr. Trump’s (still) hard line on immigration – mainly because McConnell and Ryan and nearly the entire corporate funded GOP/conservative think tank complex and consultant crowd has long favored labor-cheapening Open Borders policies.

None of this is news to Ryan, at the least. Right after last November’s election, he told the media that the shocking Trump win had helped the Republicans keep control of Congress. In the wake of this admission, what’s been most surprising to me is how often and strongly the President has worked to achieve mainstream Republican goals that are of relatively little interest to his base at best and could well harm them economically – like an “Obamacare” repeal and a harshly austere federal budget. (You could add globalist and even neoconservative foreign policy positions in Afghanistan, the Middle East, and elsewhere to this list.)

My initial explanation was that Mr. Trump had calculated that, given how so many Democrats had opted for “resistance” mode, he’d need to attract some mainstream Republican support for various agenda items like trade, immigration, and infrastructure building, and therefore decided to throw this group some bones on other issues.  Then I ventured that the President needed to maintain cordial relations with the Congressional Republicans and keep pandering selectively to the more traditionally conservative portion of the GOP base in order to secure their votes in any impeachment proceedings. Although “Russiagate” and the various investigations it’s spawned have largely been relegated to the back pages recently, I’m sure these considerations are still motivating the President.

After all, don’t forget that Special Counsel Robert Mueller’s probe is proceeding apace, it’s difficult to predict what he’ll find, and impeachment can be a purely political exercise – meaning that it doesn’t require a finding of the “high crimes and misdemeanors” listed in the Constitution as impeachment justifications, but never defined. (“Treason” and “bribery” are also Constitutionally impeachable offenses and clearer in their meaning, but there’s bound to be disagreement over exactly what kinds of actions qualify.)

And yet the President seems happy to return to the rhetorical warpath against leading House and Senate Republicans at the drop of a hat.

I suspect that this pattern of warmer and colder relations between Mr. Trump and the establishment wing of his party will continue as long as the impeachment threat hangs over his head — and partly because the President seems to take special pleasure in keeping both allies and adversaries off balance. But the Wall Street Journal/NBC poll makes clearer than ever that, leaving impeachment politics aside, and for the time being, the brand of ideologically impure nationalist populism epitomized by Mr. Trump during the campaign in particular will be the new face of American Republicanism.