(What’s Left of) Our Economy: Neglected Issues Surrounding the Banking Turmoil

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banking system, banks, Elizabeth Warren, executive compensation, Federal Reserve, finance, financial reform, inflation, interest rates, Michael S. Barr, monetary policy, regulation, risk management, Silicon Valley Bank, stress tests, SVB, {What's Left of) Our Economy

So much analysis and commentary has been prompted by the recent outbreak of turmoil in the U.S. banking system (including Congressional hearings with testimony from system supervisors themselves) that it’s hard to believe that any major points have been badly neglected. Except they have been – at least according to my own efforts to follow the situation. Here are three of the biggest:

First, there’s been a flood of claims from progressive American legislators – led by Massachusetts Democratic Senator Elizabeth Warren – that the banking woes have stemmed largely from a Trump-era rollback of the regulatory reforms that were put in place after the 2007-08 global financial crisis to prevent the crackpot schemes that were the immediate cause of that near-meltdown.

In particular, Warren argued, the 2018 law that eased some of those early regulations exempted all but the nation’s biggest “systemically important” banks from mandatory, independent stress tests that aim to gauge their vulnerability to sudden economic shocks.

But what these critics either don’t know, or don’t want you to know, is that the stress tests that were designed for those biggest banks never included the kind of steep – indeed historic – rise in interest rates pushed through by the Federal Reserve to fight multi-decade high inflation. So even had the mandated stress tests been conducted for banks like the now-collapsed Silicon Valley Bank (SVB), they would have missed the very danger that touched off the current banking jitters.

Second, even though the above criticisms of the rollback are offbase in the above key respect, regulatory failures clearly occurred. And based on what’s known, the most puzzling has to do with the Federal Reserve. Here’s a description of the Fed’s performance in regulating SVB provided to Congress this week by the central bank’s Vice Chair for Supervision Michael S. Barr – who is heading the Fed’s deeper investigation of its procedures and practices. It’s worth quoting in full (footnotes have been removed):

“Near the end of 2021, supervisors found deficiencies in the bank’s liquidity risk management, resulting in six supervisory findings related to the bank’s liquidity stress testing, contingency funding, and liquidity risk management.In May, 2022, supervisors issued three findings related ineffective board oversight, risk management weaknesses, and the bank’s internal audit function. In the summer of 2022, supervisors lowered the bank’s management rating to ‘fair’ and rated the bank’s enterprise-wide governance and controls as ‘deficient.’ These ratings mean that the bank was not ‘well managed’ and was subject to growth restrictions under section 4(m) of the Bank Holding Company Act. In October 2022, supervisors met with the bank’s senior management to express concerns with the bank’s interest rate risk profile and in November 2022, supervisors delivered a supervisory finding on interest rate risk management to the bank.

“In mid-February 2023, staff presented to the Federal Reserve’s Board of Governors on the impact of rising interest rates on some banks’ financial condition and staff’s approach to address issues at banks. Staff discussed the issues broadly, and highlighted SVB’s interest rate and liquidity risk in particular. Staff relayed that they were actively engaged with SVB but, as it turned out, the full extent of the bank’s vulnerability was not apparent until the unexpected bank run on March 9.”

What’s astonishing about this testimony – and what’s been largely overlooked in banking crisis commentary so far – is that it states that between “the end of 2021” and last November, supervisors from the Fed and from its San Francisco branch told Silicon Valley Bank repeatedly of major actual and potential problems in its management practices no fewer than five times, The bank did…apparently nothing. And Fed officials at more than one level responded by…wringing their hands?

The big question: If banks are so free to ignore these warnings and ratings downgrades for so long, why bother with them in the first place? And a question almost as big: Once it’s clear that a bank is acting so negligently and arguably illegally, why doesn’t the Fed start making this information public in some way? Don’t depositors have the right to know that they’re likely doing business with a scofflaw?

(This report by the non-profit financial reform advocacy group Better Markets blames the Trump-era rollback for this seemingly gaping hole in supervisory and regulatory policy, in particular by in most cases preventing supervisers from communicating their findings to bank boards of directors, meaning that the senior managers who presumably had something to do with a bank’s problems could keep this information to themselves. The subject definitely needs further investigation – and correction if this account is accurate.)

Third, the torrents of easy money with which the Fed has flooded the economy for so long played a role in SVB’s failure that’s only been fleetingly mentioned. For not only, as widely noted, did this ocean of resources encourage overly risky lending (by greatly reducing the cost of guessing wrong). Not only did it give investors and businesses enormous, skyrocketing amounts of cash to deposit in banks like SVB. Not only did the rock-bottom interest rates generated by super-easy money lead the flush banks to park more and more of it in longer-term instruments – which offered higher yields and therefore more revenue.

But these revenues, and the higher stock prices they usually produced, were central to the compensation paid to senior executives – the more so since new lending opportunities weren’t remotely great enough to keep up with the hugely increased supply of assets. So bank management had at best modest incentives to manage better the risks of such extensive long borrowing – because salaries and bonuses would suffer. And because even (or especially?) the cleverest among us too often get addicted to hopium, it’s easy to understand how reckless risk management persisted even after it became obvious that interest rates were going up and depressing the face value of these long-dated assets. 

This dynamic (described more completely in these Financial Times and Wall Street Journal pieces) seems to have been particularly prominent at SVB and the few other institutions that have either failed or are on the ropes. But it’s likely unnervingly widespread at lots of other less-than-systemically important banks that have been operating in the same abnormally low interest rate environment.

Of course, these three issues don’t exhaust the list of banking turmoil subjects that need much more examining. But deeper dives into them seem like a more than good enough place to start.  

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(What’s Left of) Our Economy: Inside the U.S. Research and Development Slump

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Bank for Intenational Settlements, Bernie Sanders, Elizabeth Warren, innovation, National Science Foundation, neo-liberalism, private sector, Project-Syndicate.org, research and development, science, stock buybacks, technology, William H. Janeway, {What's Left of) Our Economy

At the risk of sounding like an Elizabeth Warren or Bernie Sanders clone, I’ve just come across some data showing that stock buybacks by U.S. public companies have really gotten out of hand. That matters because it looks like they’ve been denying these firms major resources for performing the research and development (R&D) needed to keep creating new products, services, and processes, and maintain the U.S. economy’s global competitiveness.

I got interested in these trends due to a post at the Project-Syndicate.com website by William H. Janeway. According to this business and economics writer, for decades through the first half of the twentieth century, America’s industrial giants in particular spent significant shares of their profits on “Scientific research and development of technological applications,” and indeed virtually monopolized such activity in the United States up to the start of World War II.

Once the war broke out, and long after (including of course during the early Cold War), these efforts were powerfully supplemented by the federal government. And beginning in the 1960s (roughly), when for various reasons, the profits that powered private sector R&D began drying up, Washington’s funding actually was able to fill the gap pretty satisfactorily.

Yet starting in the early 1980s (and I’m simplifying terribly here), market-friendly neo-liberal national economic policies like regulatory reform and tax cutting revived corporate profits. But these measures also presented business with a less risky, more immediately lucrative, and therefore more appealing way to use this new windfall than figuring out how to provide new and better goods and services – buybacks of their own shares of stock, a practice that was legalized in 1982.

I’ve found data going back to 1995, and from then through 2019, reports the Bank for International Settlements (a grouping of the world’s major central banks) annual U.S. gross stock buybacks soared more than ten-fold – from $73.16 billion to $829.18 billion. Yearly net buybacks jumped even faster – from $34.41 billion to $605.22 billion.

And since then, annual gross buybacks have jumped still higher. Investment banking firm Goldman Sachs pegs the 2021 gross buyback total at $992 billion, and not surprisingly predicts that the number for this year will hit $1 trillion. The slow growth stems partly from a one percent excise tax on the largest buybacks that kicks in next year.

Private sector R&D hasn’t exactly stood still during this period. But the National Science Foundation (NSF) says it rose only four-fold, from $129.83 billion to $498.18 billion. (See the spreadsheet provided at the first link here.) Put differently, in 1995, annual gross buybacks were 56.35 percent of annual R&D outlays. In 2019, annual gross buybacks just over 60 percent higher.

The NSF believes that private sector R&D neared $532 billion in 2020. But even that nice increase wouldn’t change the ratio much.

During these decades, moreover, federally funded R&D hasn’t remotely filled the gap. It increased nearly 150 percent from 1995 to 2019, but in absolute terms, the latter total was only $62.80 billion. And in 2020, it’s estimated to have risen only to $65.69 billion.

Further, neo-liberalism (or market fundamentalism, or whatever you want to call it0 is just as much to blame for this sluggish pace as it is for Wall Street deregulation, for it resulted from the same, reflexive anti-government impulses.

I don’t mean to demonize private business or finance or free markets, or to lionize government. But clearly something’s gone very wrong with the incentive structures shaping business decisions, and just as clearly, lots of business lobbying has had lots to do with it. Ditto for inadequate federal funding. Without major changes, don’t expect the U.S. economy from escaping the dangerous trap of heavy reliance on debt-based growth any time soon.

(What’s Left of) Our Economy: Demonization and Double Standards on Gas Prices

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Biden, demand, Democrats, Elizabeth Warren, energy, gas prices, inflation, oil, oil prices, sanctions, supply, Ukraine-Russia war, Vladimir Putin, {What's Left of) Our Economy

According to the reasoning of President Biden, Massachusetts Senator Elizabeth Warren, and many other Democrats and progressives, Vladimir Putin, or Big Oil, or American gas station owners, or some combination of those three, have been getting nicer or less greedy and/or more patriotic (when speaking of the domestic actors). What’s the evidence? The average price of a gallon of gasoline in Anerica has fallen during this period.

After all, the President and his fellow Democrats have been saying since at least mid-spring March that prices at the pump had been soaring because the Russian dictator’s invasion of Ukraine (and resulting sanctions) has pushed up world oil prices, because the world’s oil companies have been earning “windfall profits,” and because U.S. gas station owners have been (unpatriotically) price-gouging.

Since mid-June, though, as Mr. Biden has just noted, gas prices are down. So the above culprits must have become less villainous. In fact, since several authoritative sources track these prices, it’s possible, depending on which one is considered most trustworthy, to know exactly how much less villainous.

Specifically, according to the GasBuddy.com website, national average pump prices are down 6.87 percent over the last month. So clearly, Putin, Big Oil, and gas station owners have collectively become 6.87 percent less heinous and/or avaricious and, in the case of U.S.-owned oil companies and the gas station owners, less unpatriotic.

The widely followed Lundberg survey says regular grade gasoline has become 4.14 percent cheaper during this period – so the Democrats’ culprits in its view haven’t become quite so benign.

They look better in Triple A’s eyes, though, since that organization calculates that pump prices are off by 6.74 percent.

Of course, the above analysis is the most childish and even self-serving form of nonsense. Gas prices, like prices of practically everything, depend on numerous interacting factors having nothing to do with foreign strongmen or corporate iniquity. World oil prices are the biggest single determinant, but these in turn are affected by national and global demand, which in turn results from the overall state of the economy, which in turn can be strengthened or weakened by fiscal policy (e.g., stimulus bills) and monetary policy (e.g., interest rates). Don’t, however, forget refining and pipeline availability, and even weather (as in bad hurricane seasons shutting down oil facilities in the Gulf of Mexico in particular).

Complicating matters further, these and other oil price determinants don’t affect retail gas prices all at once, as they understandably take varying amounts of time to work their way through a lengthy production and distribution system. Meanwhile, future supplies depend on private investors examining this multi-faceted and highly fluid landscape to judge whether committing capital to the oil industry is their best bet for maximum returns. And these calculations are inevitably highly uncertain given that any payoffs will inevitably be years off.

So it’s indeed childish to ignore the complicated and constantly interacting dynamics of an enormous industry that at bottom needs to keep wrestling with inevitably fluctuating supply and demand conditions. And it’s self-serving because for years the President and his party have clearly worked hard to reduce the role played by a fossil fuel like oil in the U.S. energy picture.

If you doubt that self-serving claim in particular, or any of the above analysis, ask yourself this: Are these oil industry critics remotely as likely to start praising the producers and the gas station owners (or Putin) for reducing prices as they’ve been to slam them for the price increases?

Im-Politic: Why Progressives (& Mainstream Democrats) May Ditch American Workers For Good

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Bernie Sanders, Biden, budget deficits, Democrats, Donald Trump, economics, Elizabeth Warren, Im-Politic, Immigration, imports, manufacturing, Modern Monetary Theory, productivity, progressives, Stephanie Kelton, The New York Times, Trade, wages, working class

If you want to start a (hopefully verbal only) fight about American politics, one good way is to tell a Democrat that his or her party – and especially its powerful progressive wing – has been abandoning the country’s private sector working class in favor of what New York Times columnist Ross Douthat just called “the winners of globalization, from wealthy suburbanites to Wall Street and Silicon Valley elites….”  (Here’s some polling evidence for this proposition.)

So it’s more than a little interesting that if you take this position, you’ve recently gotten some devastating ammunition from no less than one of progressivism’s leading intellectual lights – economist Stephanie Kelton.

Kelton has achieved renown for her pioneering “Modern Monetary Theory” take on economic policy. As she has explained, it holds that “Governments in nations that maintain control of their own currencies — like Japan, Britain and the United States, and unlike Greece, Spain and Italy — can increase spending without needing to raise taxes or borrow currency from other countries or investors.”

Naturally, Democrats of most stripes have seized on this argument to varying extents to justify running much bigger federal budget deficits to deal much more ambitiously with a whole host of national problems – to engineering an adequate recovery from the CCP Virus-induced recession to remedying major social and economic ills that they believe dangerously plagued the economy before the pandemic.

One aspect of Kelton’s views, though, has been widely ignored, and it’s this stance that led her last week to support explicitly measures with proven records of harming domestic U.S. private sector workers but with which the increasingly elitist Democratic Party has grown increasingly comfortable over the last decade or so – on trade and especially immigration policy.

The ignored Kelton stance: on inflation. As she has specified (in the column linked above), “Politics aside, the only economic constraints currency-issuing states face are inflation and the availability of labor and other material resources in the real economy.” And in the author’s latest column, she argues that it’s precisely the appearance of these threats today that require the Biden administration to embrace unfettered trade and mass immigration policies.

As Kelton puts it, the combination of (1) President Biden’s massive spending plans and (2) undeniable contraints on the nation’s capacity to supply all the new demand that they’ll create will produce worrisome inflationary pressures. Too many customers will be chasing too few products to buy, thereby forcing up the prices of the latter and possibly generating more economic problems than this new consumption solves.

Among the solutions she offers? Enabling the economy much more easily to satisfy all the new demand by accessing productive capacity from abroad. Thus she suggests both

“Repealing tariffs would make it easier and cheaper for American businesses to buy supplies manufactured abroad and easier for consumers to spend more of their income on products made outside of our borders, draining off some domestic demand pressures” and

“loosening legal-immigration policies, so that even once America nears full employment there would still be an adequate labor pool to meet the increased demand for workers.”

These arguments are entirely consistent with more conventional schools of economic thought – which have long insisted that the freest possible worldwide flows of goods, services, and people will lead to the greatest possible degree of prosperity for the world as a whole.

The problem, though, is that recent decades have taught that when the United States opens its economy wide to a world full of countries that still tightly protect their own markets, and when it opens its borders wide to enormous foreign populations with much lower living standards, American workers take major hits. Abundant research even in the mainstream economics community, for example, has documented the devastating impact of the “China shock” on trade, and the Trump years showed that when immigration curbs helped U.S. labor markets tighten to unprecedented levels, wages for low-income workers, who overall compete directly for employment against illegal aliens, rose especially strongly.   

For many years, Kelton’s fellow Democrats and progressives have been increasingly determined to deny these immigration realities – even when employment levels have been less than stellar. And although private sector labor union-oriented Democrats and even progressives like Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont still champion what might be called America First trade policies, the party’s rank and file has grown much more enthusiastic about the pre-Trump version of economic globalization — as indicated by the below survey results from the Pew Research Center.

Even more curious, and troubling for the economy as a whole: Kelton sorely neglects the concept of productivity, and the importance of continually boosting the economy’s efficiency in order to boost living standards in sustainable, as opposed to bubbly, ways.

Kelton does write that “Over time, the Biden plan’s investments in our physical and human infrastructure will enhance our economy’s productive capacity, leaving us with a better educated and more productive work force, more efficient railways, less congested roadways, improved technologies and much else.”    

But she also adds, crucially, “this can’t happen overnight. It will take years.”  Presumably, then she’d be OK with dropping the open trade policies at least to some degree.  What she misses, however, are the (further) productivity-killing effects bound to emerge during that period of re-enabling imports in sectors like manufacturing – which are central to the nation’s hopes for retaining sufficient productive capacity. 

Indeed, she seems unaware that those manufacturing sectors that have been heavily dependent on artificially cheap imports have been major productiviy laggards. (The same holds for parts of the economy that have leaned heavily on the comparable crutch of immigrant labor – especially low-wage, low-skill immigrant labor).

Kelton of course is only one Democratic party thinker, and as she complained in her latest Times column, too many Democratic leaders – including the President – are still clinging to their supposedly outmoded views on spending and taxing and promoting U.S.-made manufactures.  And as mentioned, even within progressive ranks, her views on trade may not prevail against the Warren and Sanders perspective.

But it’s just as reasonable to believe that progressives hold the whip hand among  Democrats today on many issues, and Kelton played the biggest role in turning their spending-happy views into virtual party orthodoxy.  If her immigration and especially trade positions take the same course, the Democrats’ once unchallengeable identity as “the party of the common man” will become an example of transparently false advertising.       

P.S. Special thanks to my Twitter friend who goes by the handle @RocCityBuilt for first alerting me to the trade and immigration material in Kelton’s latest article.   

Im-Politic: How to Deal with the Confederate and Other Now-Controversial Monuments

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A.P. Hill, Abraham Lincoln, Arlington National Cemetery, Aunt Jemima, Civil War, Confederacy, Confederate monuments, Constitution, cross-burning, Elizabeth Warren, First Amendment, Franklin D. Roosevelt, George C. Wallace, George Washington, Im-Politic, Ku Klux Klan, Mexican War, military bases, Pierre Beauregard, racism, Reconstruction, Robert E. Lee, Stonewall Jackson, Theodore G. Bilbo, Thomas Jefferson, treason, Trump, Tucker Carlson, Woodrow Wilson

Not that anyone’s asked for it, but the Confederate and other allegedly racist monuments issue is back in the news, so here’s my handy dandy guide for figuring out which of these memorials should be taken down or removed, which should remain publicly displayed (and how), and which should be left alone. (This guide, which only covers the major controversies that have reappeared recently, will of course include naming decisions for public buildings and spaces like parks and squares and streets.)

Some major misconceptions need to be cleared up first. Right off the bat, everyone should agree that whatever actions are taken (removal or alteration), they must result from legal processes. Unauthorized teardowns and inflictions of damage are simple vandalism and should be punished as such. No private person or group has the right to take these matters into their own hands, precisely because no one’s voted for you. As for public officials, unless laws specifically empower them to act unilaterally, they should always work through legislation or established rule-making procedures.

In addition, let’s drop the dishonest nonsense about statues and plaques on public grounds, and choices of names for public buildings or military bases and spaces like parks and squares, being simple descriptions or illustrations of history. Nothing could be clearer than that they’re meant to express honor and pride.

Similarly, making changes (including removal) has nothing to do with “erasing history.” To take one example, if Robert E. Lee’s name is taken off a high school or highway or whatever, there’s no chance that Lee will be forgotten. Every American who takes a public school course in U.S. history will learn about his role as commander of the Confederate army during the Civil War. And if you happened to cut or sleep through that class, you can always access one of the upteen gazillion books about that conflict that have been written for the last roughly century-and-a-half since it ended.

It’s true that public school students may not encounter the names of lesser Confederate figures. To which the only adult reply is “Big deal.” The reason that folks like Generals A.P. Hill or even Stonewall Jackson may be overlooked is because, in the end, they weren’t such big deals.

Also a no-brainer: If Americans want to honor controversial or despicable figures or movements or ideas on their own property, that’s in virtually all cases their Constitutionally protected right. Ditto for private businesses. If your neighbor is flying a Confederate flag or has painted a swastika on his property, you’re free to shun him, and to urge others to do the same. If you’re offended by Aunt Jemima, switch your pancake syrup brand, ask the company to use a new image or character, or encourage boycotts and trust in the market and consumer choice to settle the issue. (Cross-burning on one’s own private property, a la the viciously racist and anti-semitic Ku Klux Klan, is legally treated somewhat – but only somewhat – differently.)

More complicated is the question of which level of government should be making which decisions where public property is concerned. For instance, should a federal ban be enacted on using Confederate names on any public grounds, including state and local? I can see an argument for that proposition (as indicated below, it provides encouragement for treason, a Constitutionally designated crime or, alternatively, creates a discriminatory environment). But I can also understand the case for leaving the decision to the states and localities – and ultimately letting the market decide (mainly in the form of privately organized boycotts of the type that has pushed several states to drop anti-LGBT measures).

So having cleared away this intellectual brush, here’s the guide – at least for some of the major cases:

>Confederate leaders – they’re the easiest call of all. They were traitors. They took up arms against the U.S. government. No decent American should want to honor them in any way. Yes, there’s an argument that some of these naming decisions (e.g., for U.S. miIitary bases) were made in order to promote reconciliation between North and South after the Civil War. Indeed, President Trump just made it.

But the U.S. decision not to prosecute the leaders of the Confederacy – and execute them if found guilty – was a strong enough gesture of reconciliation. In addition, nearly all Confederate veterans – including senior officers – were soon permitted to vote and hold public office once more. And the same states whose rebellion ignited the war were admitted back into the Union.

As a result, naming numerous U.S. military bases after Confederate generals represents a grossly mistaken (at best), and I would argue utterly perverse and continuing slap in the face to all American citizens and legal residents of the country, and especially to the soldiers who fought and died to preserve the Union and their families and descendents. There are plenty of other American military leaders who served their country in actually patriotic and genuinely heroic ways. Their names belong on these bases instead.

But what about the graves of Confederate veterans (including rebels from “ordinary” backgrounds who may not have been slave owners or even racists) currently lying in U.S. military or other national cemeteries, including Arlington? There’s no doubt, as made clear here, that a number wound up there because of mistakes in identifying very partial physical remains. But it’s also clear that many were placed in or actually moved to these plots and the graves specially marked as signs of respect – and that Congress approved.

Massachusetts Democratic Senator Elizabeth Warren has recently introduced legislation to “remove all names, symbols, displays, monuments, and paraphernalia that honor or commemorate the Confederate States of America and anyone who voluntarily served it from all military bases and other assets of the Department of Defense.” Presumably (though I haven’t found the full text) this includes the markers.

Fox News talker Tucker Carlson (who I generally admire) condemned this measure as grave “desecration.” That’s reckless hyperbole, but if Warren would actually remove the markers, that looks excessive as well, since at least according to the official description in the National Parks Service post linked above, they simply identify the deceased as Confederates.

My bottom line: It’s not possible to figure out which of these veterans were bad guys and which were at least reasonably good guys, and the bodies are already interred. So I’d leave them be.

Not so, however, for the Confederate Memorial at Arlingon Cemetery – which even its official website says “offers a nostalgic, mythologized vision of the Confederacy, including highly sanitized depictions of slavery.” The Cemetery authorites go on to contend that “The Confederate Memorial offers an opportunity for visitors to reflect on the history and meanings of the Civil War, slavery, and the relationship between military service, citizenship and race in America.”

But given the monument’s clear glorification of the Confederate cause and its rose-colored view of slavery, and given that visitors have lots of other opportunities to reflect on the meaning of the Civil War and related issues, I’d ship this slab of stone out of there. It has no place on arguably the most sacred ground of this nation’s civic religion.

What to do with it, however, from that point – along with other Confederate monuments on federal grounds? Here I fully agree with those who would put them in museums instead of simply destroying them. Wouldn’t it be best to show them in a setting that could describe them fully and explain the context of their creation? And I’d deal with these statues and plaques on state and municipal lands in exactly the same way.

>Let’s move to American historical figures who didn’t revolt against their country, but nonetheless owned slaves and/or expressed racist views or supported racist policies. Here I’ll restate the argument I originally made in this post. If these figures were known only or best for racist views and positions – like former segregationist Alabama Governor George C. Wallace, or former (if you can believe it) even more racist Mississippi Governor and U.S. Senator Theodore G. Bilbo, I’d remove any statues etc from public grounds and stick them in museums, displayed as described above.

>The same would go, by the way, for Civil War leaders who for various reasons were widely seen after the conflict as personifications of honor or other military virtues, or who actually repented in word and/or deed after the war. Lee is the leading example of the former. However gentlemanly he might have been, or however well he may have treated his soldiers, and even however distinguished his record in the U.S. Army during the Mexican War (which, to complicate matters further, was in large measure a war of annexation), few would have paid much attention to him, or even known of him, if not for his Civil War role. So let’s get him and his name out of public spaces.

A prime example of the latter is Pierre Beauregard. This former Confederate general actually led the troops in South Carolina who fired on Fort Sumter and for all intents and purposes started Civil War. After the conflict, according to the official website of his hometown of New Orleans, he became “an early proponent of equal rights in Louisiana, serving as the outspoken leader of the short-lived and ultimately failed unification movement.”

Since I do believe in redemption (and hope everyone else does, too), I’d go along with a monument of some kind. But not the kind currently standing in the city – which depicts “the uniformed general astride his horse.” How about moving that statue to a museum, complete with a full bio, and putting up a new monument portraying him in civvies and celebrating his efforts to champion equality? Ditto for any similar cases.

As for those leaders with troublesome racial pasts and/or policy records who nonetheless are (rightly) known for much more (as I argued in the RealityChek post linked above) , I’d leave their monuments in place, too – but make the maximum feasible effort to add some explanations that mention these blemishes. By the way, such leaders include not only former slave-owning Presidents like George Washington and Thomas Jefferson, and outspokenly racist former Presidents like Woodrow Wilson, but even former Presidents generally seen as race relations heroes – like Abraham Lincoln and Franklin D. Roosevelt. 

A final point about dealing with the Confederate and especially other controversial monuments: If anything should be obvious about this discussion of the issue, it’s how complicated much of the history is, and therefore how complicated many of the monuments et al decisions are. Some are indeed easy calls and should be made promptly. But no one should favor anything resembling a rush to judgment on the others.

Im-Politic: Why Biden Can’t Run Even as a Fake China Hawk

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Alexandria Ocasio-Cortez, Asian-Americans, Barack Obama, Bernie Sanders, China, Code Pink, Democrats, election 2020, Elizabeth Warren, Im-Politic, Jeet Heer, Joe Biden, Judy Chu, labor unions, Larry Summers, progressives, racism, Rashida Tlaib, Sherrod Brown, The Nation, Trade, Trump

I know I just wrote about how dreadful Joe Biden’s China policy record has been for decades. But the former Vice President is the presumptive Democratic Party nominee for President, and he could well be sitting in the Oval Office next January. So it’s eminently newsworthy to report that any hopes that a President Biden would recognize these disastrous mistakes, and generally speaking try to continue President Trump’s policy of reversing them, are now lying in ruins.

Specifically, it’s become clear in recent days that any Biden effort to keep his newly made promise in a political ad to “hold China accountable” for its role in unleashing the CCP Virus on the world is going to prove totally unacceptable to his party’s progressive wing – whose support he’s acting like he needs desperately to win in order to defeat Mr. Trump.

Moreover, it’s been reported that one of the campaign advisers chosen by Biden is Larry Summers, a former Clinton Treasury Secretary and Obama administration chief White House economic aide who has always championed reckless trade and broader economic expansion with the People’s Republic. Worse, during the Obama years, Summers was a major obstacle opposing ideas like sanctioning China for its protectionist currency policies – which would have gone far toward stemming the extraordinary increase in Beijing’s economic and therefore military power that took place while Barack Obama occupied the White House. In other words, the Biden campaign will be powerfully shaped by the Democrats’ centrist wing – and its own long record of enabling China.

If you doubt that Summers still backs coddling China, check out this 2018 post – which shows him turning intellectual backflips trying to excuse Beijing’s massive theft and extortion of American intellectual property, and to claim that the Obama policies succeeded spectacularly in bringing China to heel.

The stances of Democratic progressives are less well appreciated – but at least as important given this faction’s success in pulling Biden and other Democratic centrists to the Left this year on a host of issues. Moreover, don’t forget how if they’re unhappy enough with Biden, many of them will stay at home on election day and, as in 2016, help hand victory to Mr. Trump. At the same time, the progressives’ story it’s a more complicated story than the centrists’.

It’s more complicated because two of the progressives’ favorites – Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont – are definitely supporters of tougher and, more important, smarter U.S. China policies. That’s especially true of Sanders, who has voted against every U.S. effort to integrate the American and Chinese economies more widely and deeply during his long career on Capitol Hill. Nonetheless, it’s also true that neither Senator made China a major issue during their presidential campaigns this year.

And one main reason is surely that none of the progressives’ other leading (and younger) lights seems especially interested in China. Commendably, they have condemned China’s horrific repression of its Muslim Uighur minority. But ask yourself – when’s the last time Rep. Alexandria Ocasio-Cortez, for example, condemned the People’s Republic for the trade and intellectual property and investment policies that have stripped the United States of much of its manufacturing base and hammered the wages of manufacturing workers? I couldn’t find any such statements.

Ditto for Michigan Rep. Rashida Tlaib – and she represents a Detroit area district whose economic distress owes significantly on China-related and other trade policy failures. But you won’t even find these words on her website.

But although much of the Democratic Left has had little to say lately about China and trade, signs have abounded that it’s royally ticked off about Biden’s CCP Virus ad – in some cases because of their alleged potential to stoke anti-Chinese bigotry at home, but also because they supposedly blame China for U.S. virus-related losses that they insist are really President Trump’s fault.

Most of this pushback so far has come from Asian-American activists in Democratic ranks who don’t hold political office. But it’s also come from California House Democrat Judy Chu, Chair of the Congressional Asian Pacific American Caucus. Does anyone believe she’ll face much resistance here from the rest of her party?

And non-Asian American progressives have ripped the Biden ad, too – including influential pundit Jeet Heer (national political correspondent for one of the progressives’ flagship magazines, The Nation); Sanders campaign surrogate Josh Fox; and Code Pink, the women-led progressive grass-roots group.

In theory, the Democrats’ still-powerful labor union base could prod Biden to lay out a credible plan to combat China’s many threats to American interests. But its representatives, at least, have been quiet about the virus and its implications. In fact, judging from this recent op-ed piece, its spokespeople seem at least as determined to blame Trump administration blunders for the country’s CCP Virus woes as they are to blame pre-Trump China-coddling and enabling trade policies. Indeed, one of the labor Democrats’ Congressional leaders, Senator Sherrod Brown of Ohio, seems to adopted a “Biden uber alles” position during this campaign, even on China policy.

Yet although both Democratic centrists and progressives will be strongly pushing Biden to soft-pedal criticisms of China for the rest of this presidential campaign, this approach is likely to flop so badly with the American electorate in general (as shown in a post earlier this week) that it’s a natural for President Trump to exploit. And if a Trump campaign hammering China themes creates even more incentive and/or pressure for the President to maintain his hard and smart line against Beijing, it won’t just be his political career that benefits. It will be the entire nation as well. Maybe even the Democrats will start opening their eyes.

Im-Politic: Trends that are Trump’s Reelection Friends?

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Adam Schiff, Barack Obama, Bernie Sanders, economy, election 2020, Elizabeth Warren, Gallup, Im-Politic, independents, Jobs, Joe Biden, Kamala Harris, Nancy Pelosi, Trump, Tulsi Gabbard

Don’t look now, but Gallup has just given President Trump two major end-of-the-year gifts in two separate sets of poll results it’s just published. Gift Number One: Mr. Trump this year moved into a tie with his White House predecessor, Barack Obama, as the man most admired by Americans. Gift Number Two: The state of the U.S. Economy, widely viewed as one of the most important determinants of Americans’ votes for President, has faded notably in their minds as a top national concern.

Impeachment, and the nonstop political coverage of Mr. Trump’s alleged wrongdoing, surely have been America’s leading political stories this year. But all the same, the President and Obama jointly headed the list of the country’s most admired man. Better yet for Trump-ers:  The survey was conducted in early December, so respondents had lots of time to digest the impeachment drama. And the possible icing on the cake – the tie was produced by a one percentage point reduction in the Obama score from 2018 (when he won this contest – and for the twelfth time!) and a five percentage point rise in the Trump score.

Further, although trend data isn’t available, Mr. Trump was named most admired by 10 percent of independents. That figure trailed the Obama total (12 percent), but not by much. And the former President won’t be on any ballots this year. 

The results for some of the President’s other major opponents and critics are bound to cheer him, too. House Intelligence Committee Chair Adam Schiff, the California Democrat who’s helped spearhead the impeachment drive, increased his score from 2018 – but only by less than one percent to one percent. House Speaker Nancy Pelosi also rose in the poll – but only from one percent to two percent.

As for the group of Democratic contenders for Mr. Trump’s job, the best performers in this survey were Vermont Independent Senator Bernie Sanders, Massachusetts Senator Elizabeth Warren, Hawaii House Member Tulsi Gabbard, and California Senator Kamala Harris (who recently dropped out). Yet they all garnered only one percent of Americans’ votes. Nonetheless, all did better than former Vice President Joe Biden, whose backers for this title declined from one percent in 2018 to less than one percent this year.

As for the economy, since the global financial crisis produced the Great Recession starting at the end of 2007, it’s been rated as “the most important problem in the U.S.” in Gallup surveys seven times (the last coming in 2016). In addition, “jobs” was mentioned among the top four most important problems nine times. (I find it odd that the two are presented separately by Gallup as well.)

But since the Trump inaugural, the economy has vanished from the ranks of the top four national problems, and the only appearance made by jobs was in 2017 (when it came in fourth).

Even if polling was more of a science than an art, none of these results would guarantee President Trump’s reelection. One potential trouble spot: During each of his years in office so far, “government” has topped Americans’ lists of the country’s most important problems. The Gallup results indicate that respondents assign about equal blame for Washington dysfunction to Mr. Trump and the Republicans in Congress on the one hand, and to the Democrats in Congress on the other. But during the Trump administration, the percentages prioritizing this concern have risen overall from previous levels – and markedly.

The big takeaway for me is that if the President turns and keeps his focus to at least a reasonable extent on substantive issues like the economy, and shoots off fewer dumbbell and wholly unnecessary tweets and remarks (here’s a prime recent example), and if no new misconduct-related bombshells emerge, he’ll calm the nerves of the independents he needs to win back from their 2018 defection to the Democrats, in particular relieve their Trump Exhaustion Syndrome, and win reelection pretty handily. The big fly in this ointment, of course, is that the above prescription so far has never been followed by Mr. Trump.

(What’s Left of) Our Economy: What the Mini-Deal Says About Trump’s China Policy

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agriculture, business investment, censorship, China, decoupling, democracy, Democrats, election 2020, Elizabeth Warren, Hong Kong, Hong Kong protests, human rights, impeachment, Populism, Republicans, tariffs, Trade, trade talks, trade war, Trump, Uighurs, Ukraine, Ukraine Scandal, {What's Left of) Our Economy

The “Phase One” min-deal reached by the United States and China tamping down bilateral trade tensions for the moment, speaks volumes about the three major forces that are now driving President Trump’s China policy, and that will keep shaping it through the next U.S. election – though not always in consistent ways. They are:

>the President’s evident belief that his reelection hopes are being threatened mainly by revived impeachment threats but also by an economic slowdown that has unmistakably been influenced by the so-called trade war with China;

>his consequently increased need for political support from the establishment Republicans so numerous in Congress who have never boarded the Trump Tariff Train and who are worried about their own reelection chances next year; and

>Mr. Trump’s consistent (though generally unstated) belief that no matter how the formal trade talks proceed, America’s national security as well as economic interests require the U.S. economy to continue steadily decoupling from China’s.

The strength of the impeachment drive faced by the president is now indisputable. Some polls are even showing growing Republican support for not only impeachment by the House but removal by the Senate. Moreover, this political challenge comes at a time when the President’s strongest suit by far (at least according to polls) – his economic policy record – is looking somewhat weaker.

Few signs point to a recession breaking out by Election Day, much less during the preceding weeks or months. But growth has been slowing to levels that Mr. Trump himself has deemed unacceptable – in no small measure because they were the rates that prevailed for most of the Obama administration.

The tariff-heavy Trump trade policies hardly deserve all the blame. (See, e.g., this recent post.) But the failure of business investment to stay elevated following passage of major tax cuts for business is especially telling. It buttresses claims that both the President’s various sets of tariffs and the inconsistency with which they’ve been both threatened and applied have inhibited companies from approving big new expenditures on new factories and other facilities.

As a result, nothing that can reasonably be expected from Washington (in other words, ruling out a big infrastructure spending bill) is likelier to boost the economy more than a nerve-calming trade truce with China mainly featuring some Chinese market opening or re-opening (especially for agricultural products) in return for some U.S. tariff cuts, promises to refrain from new levies, or some some combination of such moves. At the least, such an agreement would in theory help growth maintain the momentum it has remaining.

A mini-deal along these lines would also please the Senate Republicans who might ultimately judge the President’s fate, and who generally have lagged far behind the GOP base in turning against pre-Trump China and broader trade policies. Moreover, as I’ve written, impeachment politics have greatly magnified their sway over Mr. Trump before. Despite his sky-high popularity with Republican voters, the President was heavily dependent on their political backing until this spring in order to neutralize any impeachment chances while his Russia ties were being investigated. That’s surely why his early policy initiatives were dominated by traditional Republican priorities, like tax cuts and repeal of former President Barack Obama’s healthcare overhaul, rather than by populist priorities like an infrastructure bill and the prompt imposition to tariffs.

Once the Special Counsel and other investigations flopped for various reasons, Mr. Trump had a much freer hand. But because of the emergence of “UkraineGate,” for now, those days are over. Probes growing out of those events are certain to last for months. Therefore, continued, much less higher, tariffs on China that could further drag on the economy and further frustrate the rural constituencies so crucial to the President and many other Republicans seem out of the question.

The President is so hamstrung that he’s been unable to marshal greater public support for staying the tariff course even though China is antagonizing American public opinion with its harsh suppression of the Hong Kong protests and the Muslim Uighur minority, and with its heavy handed efforts to extend its censorship practices to the National Basketball Association and other U.S. businesses. And don’t forget: These developments have placed China in a much weaker position, too.  

One reason that the President hasn’t been able to capitalize could well be his reluctance to declare publicly the functional equivalent of economic war, or his intent to decouple – presumably because any such statements would prompt the Chinese to crack down even further on American companies even doing business in the PRC that have nothing to do with job and production offshoring aimed at serving the U.S. market from super-cheap and highly subsidized Chinese facilities, as opposed to serving Chinese customers. And that reasoning has been entirely understandable.

Much less understandable – the President’s insistence that a trade war with China would be easy to win and inflict no economic harm on Americans, rather than choosing to challenge his compatriots to endure some sacrifices in order to beat back a mortal threat to their national security as well as prosperity. No wonder public support for so-called hard-line policies remotely strong enough to offset the opposition and reservations of the Congressional Republicans and most Democratic politicians is nowhere to be seen.

And don’t doubt that the Chinese fully understand. Whatever problems they initially experienced in figuring Mr. Trump out, they surely have concluded that they’re best advised to play the waiting game on the broader and deeper so-called structural issues dividing the two countries (e.g., intellectual property theft, technology extortion, massive subsidies) until the President is replaced by a Democrat who’s much easier to deal with.

Indeed, the evidence for this conclusion is abundant. China issues have played a small role in the Democratic primary campaign so far – even when it comes to long-time critics of pre-Trump trade policies like Democratic Socialist Vermont Senator Bernie Sanders, and Massachusetts Senator Elizabeth Warren. One likely explanation: In recent years, Democratic voters and leaners have markedly flipped on those pre-Trump approaches, from deep dislike to general approval. This shift in public opinion (matched in part by a trade flip in the other direction among Republicans and leaners) may also warrant some Chinese confidence that even a President Warren might prove a more acceptable interlocutor than Mr. Trump.

Nonetheless, the formal talks are not the only track on which the Trump administration’s China trade policies are running. And the other track – featuring unilateral U.S. moves to restrict Chinese involvement in the American economy, and thereby foster decoupling – is much less controversial than the trade talks and especially the tariffs and tariff threats clearly required to spur any meaningful progress.

Highly revealing on this score (in terms of the importance attached in Washington to decoupling): Even as a high level Chinese delegation was jetting to Washington, the President approved actions against Chinese tech companies and Chinese officials that were justified by human rights concerns, but that in the first case clearly advanced decoupling. Just as revealing (in terms of possible Chinese acceptance of a more skeptical new bipartisan U.S. consensus on China policy): Despite the provocative timing, the Chinese didn’t turn around and head back home once they heard the announcement.

Reinforcing the new American consensus on decoupling has unmistakably been the growing realization by the U.S. corporate sector that its heavy bets on China have dangerously increased its vulnerability not only to the whims of American politics, but to a Chinese regime that’s turned out to be much less hospitable than expected. As a result, “Phase One” is not only a suspiciously convenient-looking term being used by the President to describe his new deal. It also looks suitable for describing where his administration’s overall China policy stands right now.     

Making News: Video of Presidential Campaign Economics Interview Now On-Line!

Tags

Democrats, economy, election 2020, Elizabeth Warren, Liquid Lunch, Making News, NewsmaxTV.com, Wall Street

This past week has been so crazy news-wise that I’d completely forgotten to post a link to a video of an interview I did for NewsmaxTV.com two Fridays ago. The subject: some recent economy-related developments in the current and intensifying presidential campaign!

So click here for a great (and still timely!) discussion on the “Liquid Lunch” program focusing in particular on Massachusetts Senator Elizabeth Warren’s rise to just-about-front-runner status among the Democratic contenders – and on an apparently strong reaction from Wall Street.

And keep checking with RealityChek for news of upcoming media appearances and other developments.

Im-Politic: On the Democrats’ Debates

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African Americans, Amy Klobuchar, Barack Obama, Bernie Sanders, Beto O'Rourke, China, Cory Booker, debates, Democratic Party, Democrats, Democrats debates, economy, election 2020, Elizabeth Warren, Im-Politic, Joe Biden, Kamala Harris, Michael Bennet, Pete Buttigieg, race relations, tariffs, Trade, Trump

So thanks to last week’s two debates, we’ve now seen most of the Democratic presidential candidates in, as sportscasters like to say, “limited action,” and have had some time to ruminate about the results. Here’s my sense of some of the biggest takeaways.

>The Democrats generally are in denial about the health of the economy. This problem became clear immediately, as the first question on Night One, posed to Massachusetts U.S. Senator Elizabeth Warren, noted that her “many plans” for the economy come “at a time when 71 percent of Americans say the economy is doing well, including 60 percent of Democrats. What do you say to those who worry this kind of significant change could be risky to the economy?”

Warren’s response? Ignore the cited polling data and claim – presenting no evidence – that “Who is this economy really working for? It’s doing great for a thinner and thinner slice at the top.” For good measure, sharing her fact-free perspective at the outset were her Minnesota Senate colleague Amy Klobuchar, and former Texas Congressman Beto O’Rourke. And don’t forget former Vice President Joe Biden’s charge on Night Two that “Donald Trump has put us in a horrible situation” economically. Or California Senator Kamala Harris’ view that the economy is great only for those who own stocks.

No one is saying that too many Americans aren’t still being left behind in an economy that’s unmistakably shifted into a somewhat higher gear under President Trump. No one is saying that the economy hasn’t shown some signs of slowing. (See, e.g., this recent post.) No one is saying that the economy is going to be a decisively winning Trump issue in 2020. (This new poll throws lots of cold water on that proposition.) And no one is saying that because the economy is so far performing pretty well, Americans are especially happy about the overall state of the union. (Survey results like these make clear that they’re not.)

But no one should be feeling too great about so many politicians remaining so deeply in denial (or at least pontificating as if they are) about a state of affairs that is so easy to document.

>Kamala Harris is simply race-baiting. Let’s assume that all of the California U.S. Senator’s allegations about former Vice President Joe Biden’s record on school busing decades ago are completely accurate. How can the conclusion be avoided that she’s trying to portray Biden as remaining deficient as racial issues today, and in the process, stir up the worst kinds of national divisions? After all, he served as the second-in-command to the nation’s first African-American president. Black politicians, and especially long-serving black politicians, have publicly praised him as a long-time trusted ally.

In other words, whatever Biden’s past shortcomings on race, nothing could be more obvious than that they’ve vanished in every meaningful way, and in every way relevant to policymaking. It’s no longer possible accurately and responsibly to depict him as a problem for the African-American community. Harris’ indictment also indicates a refusal to acknowledge that individuals can learn, evolve, and grow, and to give them any credit when they do.

I recently spoke about this privately with an African-American friend who argued that the real Biden race problem that’s emerged recently stemmed from his indignant response to similar allegations and insinuations by New Jersey Senator Cory Booker, another 2020 African-American Democratic hopeful. In other words, Biden’s refusal to apologize for comments about racist southern Senators signaled an insensitivity to racial slurs (like describing African-American men as “boys”) that could well prompt younger blacks to stay at home in the fall of 2020, and boost Mr. Trump’s odds of reelection.

I don’t disagree with that political analysis at all (though I don’t consider it a foregone conclusion, either). But politics aside, that would point to the same type of intolerance, censoriousness, and sanctimony being displayed by Harris. More of this, America these days clearly doesn’t need.

>Biden performed better than I expected. The former Vice President and still 2020 Democratic front-runner has widely been declared a major loser in his debate exchange with Harris, and poll results reinforce that conclusion. I agree that Biden was poorly prepared for attacks on racial issues that he must have known would come that evening from someone. In particular, his substantive defense of his busing record – that he only opposed a sweeping federal mandate – did indeed (as Harris charged) ignore the decisive role that the Federal government has regularly needed to play in advancing civil rights when state government were either hostile or indifferent to the cause.

Nevertheless, Biden certainly didn’t act like the “Sleepy Joe” he’s been labeled as by President Trump, and that seemed like an apt description for some of his more disjoint moments in these early phases of the 2020 election (for example, this rambling discussion of the China challenge). He flashed temper (or at least indignation), he sounded articulate, he stood tall, his energy level didn’t notably flag. In fact, assuming that his health holds up (he turns 77 in November), Biden looked like a candidate who could mix it up with Trump on a debate stage. As demonstrated by the race relations storm he’s kicked up, however, he’s as gaffe-prone as ever.

>The Democrats have no grip on China issues. Sure, they generally acknowledge that China poses problems for the United States (but there’s some disagreement as to what they are). But few so far have offered realistic solutions to these problems.

For example, Senator Michael Bennet of Colorado, “I think the president’s been right to push back on China but he’s done it in completely the wrong way. We should mobilize the entire rest of the world who all have a shared interest in pushing back on China’s mercantilist trade policies and I think we can do that.”

What a shame that he was never asked why countries like Germany, Japan, and South Korea, which profit enormously from selling sophisticated industrial machinery to China, would want to see any slowing in U.S.-China trade when so many of those machines are used in factories that supply the American market?

Mayor Pete Buttigieg of South Bend, Indiana agrees that the China challenge “is a really serious one,” but seemed most concerned that the Chinese are “using technology for the perfection of dictatorship.” He endorsed the stale and misleading “tariffs are taxes” trope, and insisted that “the biggest thing we’ve got to do is invest in our own domestic competitiveness.” He never explained if he’s OK with the infrastructure the nation unmistakably needs being manufactured in China and elsewhere abroad, or why “education” is so critical when children in China and everywhere else have the same capacity to capitalize on their learning as children in America – even though population considerations will long ensure that their wages stay orders of magnitude lower no matter how advanced the work they do.

Interestingly, Sanders is the only Democratic hopeful with a lengthy record of voting in Congress on China trade and related economic issues – always correctly (in my view) opposing reckless expansion. That explains CNBC’s ironic but on-target recent observation that “Sanders in particular has targeted Trump because his trade views overlap with the president’s.” And hence mushy Sanders statements like “I think we do need new trade policies that are fair to the working people of this country not just to the CEOs, but as usual, I think Trump gets it wrong in terms of implementation,”

Warren seems equally conflicted, agreeing with Mr. Trump that “tariffs are one part of reworking our trade policy overall” but lamely chiding him for engaging in “tariff negotiation by tweet” instead of “fighting back” with “strength and a coherent plan, not with chaos.”

Indeed, Warren has a detailed-looking plan for implementing a strategy of “economic patriotism.” It contains some good features, like what seem to be industrial policy proposals (with no real specifics), tightening up Buy American government procurement policies, and requirements that production that results from (amped up) taxpayer-funded research and development programs take place in the United States. But it’s unclear whether she realizes that tariffs are going to be central to their success. In addition, she appears quite enamored with devaluing the dollar as a trade policy panacea. And she puts considerable stock in government-run training and reeducation programs that, to date, have been proven failures and that have long (as noted above) evidently assume that Americans are the most educable and train-able people on earth.

If you’re a Democrat, or any American who wants to see elections held between the most qualified candidates possible, the good news is that the party’s hopefuls will have eleven more debate chances to up their games. Unfortunately, it might also turn out that the nation will simply witness eleven more events marked by hollow, and too often angry, grandstanding.