(What’s Left of) Our Economy: More Evidence of Germany’s Stealth Protectionism

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Angela Merkel, consumers, consumption, developing countries, Financial Times, Germany, Global Imbalances, globalization, imports, Matthew C. Klein, protectionism, savings, taxes, Trade, Trump, value-added taxes, VATs, wage suppression, wages, {What's Left of) Our Economy

President Trump’s charges that the United States has signed terrible trade deals in recent decades, and that foreign economies have been the main beneficiaries, inevitably have triggered a potentially useful debate over which major countries are most open to trade and which are tightly closed. Unfortunately, such arguments won’t actually be useful until “open” and “closed” are properly defined, and a new Financial Times column on Germany’s economic policies nicely illustrates how remote that goal remains.

I’ve previously made the case that accurately measuring protectionism – and thus accurately gauging which countries are contributing adequately to global prosperity and which are free-riding – entails much more than adding up individual trade barriers. Such simple counts also mislead on the equally important question of which countries the United States can reasonably hope to trade with for mutual benefit, and which countries can’t possibly qualify.

And because Germany’s government has both taken trade fire from Mr. Trump and vigorously replied, I’ve used it to illustrate the above points. In a short op-ed for USA Today and a much more detailed RealityChek post, I’ve noted that, as with many other leading foreign economies, the main problem with Germany as a promising trade partner stems at least as much from its overall national economic strategy as from its specific trade practices. That is, countries like Germany, which heavily emphasize growing by saving, producing, and exporting, can’t possibly be good trade matches for countries like the United States, whose priorities have been the diametric opposites.

Of course, those national economic strategies manifest themselves in specific practices and policies. (How else could their focus be established?) But the links to trade flows aren’t always clear. For example, there’s widespread reluctance to acknowledge the trade impact of value-added taxes (VATs), which promote exports and penalize imports. The role played by other German policies, like suppressing wages or skimping on infrastructure spending, has been even less apparent.

What the new Financial Times post adds to the mix is a generally neglected form of wage suppression: Germany’s taxes on low-wage workers – which author Matthew C. Klein describes as “among the highest in the world” since at least the turn of the century.

These taxes inflict an outsized blow on Germany’s imports – and on the the world economy as a whole – in at least two important respects. First, economists tend to agree that the lower an individual’s or household’s income, the higher the share of that income will be spent (as opposed to saved). If they’re right, then these taxes ave been hitting Germany’s overall consumption and import levels especially hard. Therefore, these levies look like notable contributors to the bloated German trade and current account surpluses that are not only detrimental to America, but that could threaten the entire world’s financial stability.

Second, as supporters of pre-Trump U.S. trade policies constantly point out, much of what low-income consumers buy is produced and exported by low-income countries (e.g., apparel or school supplies or furniture). So since high taxes on low-wage workers in Germany prevent them from importing as much from the developing world as they could, third world countries need to focus more on customers in more promising markets – like America’s.

Germany and its leader Angela Merkel lately have been basking in the glow of praise from the political classes in the United States and abroad, which have anointed them as among the new, post-Trump champions of free trade and all its purported benefits. (China’s another alleged globalization champion, but that’s another story.) Its lofty taxes on low-wage workers add to the evidence that these titles are wildly premature.

(What’s Left of) Our Economy: The Laughable EU-Japan Trade Deal

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agriculture, automotive, driverless cars, EU, European Union, fake news, Financial Times, free trade agreements, G20, globalization, Japan, Mainstream Media, Trade, Trump, Wolfgang Munchau, {What's Left of) Our Economy

It seems like the economic policy world is all abuzz about the news that the European Union (EU) and Japan have agreed to the broad outlines of a trade agreement. That’s odd, to put it mildly, since reviewing what’s known about the deal for about five minutes is enough to debunk the notion that it’s a global economic game-changer – and the related claims that it will represents a stinging rebuke to President Trump’s moves toward a more results-oriented U.S. trade policy.

It’s true that the EU and Japan are enormous economic entities. They’re also high-income entities. But they haven’t been very dynamic economic entities. From 2005 to 2016, the former increased its output by just under 28 percent (in euro terms) before factoring in inflation. The latter has grown by less than 2.50 percent in yen terms. By contrast, the United States (which hasn’t been killing it, either) has boosted its current dollar gross domestic product by 41.82 percent during this period in U.S. dollars. 

They’re also regions that tend to run trade surpluses – although massive energy imports following the Fukushima nuclear plant disaster have generally tipped Japan’s total trade into deficit. So from a macro-economic standpoint there’s a major question regarding how willing they are to open their markets significantly on a net basis – especially given how slow their overall growth has been. Maybe that’s why one joint European-Japanese effort to estimate their welfare effects came out with results that barely move the needle. And interestingly, this study projects that the United States will be a net winner.

But the strangest aspect of the prospective deal, especially from the EU perspective, concerns the specific trade flows that are apparently targeted. For Brussels is aiming mainly to boost its exports of food products like meat, wine, and dairy, and in return has been willing to lower its automotive tariffs. The agreement has even been nicknamed the “cars for cheese” deal.

In other words, the Europeans supposedly believe they’ll prosper – and show the Trump administration a thing or two – by giving pride of place to industries that, however politically powerful, have relatively little ability to generate big positive spillovers to the rest of the economy, and welcoming more predatory competition to an industry with phenomenal potential to foster future innovation and productivity growth. (Think “driverless cars.”) In fact, this quid pro quo is so bad for Europe that it casts considerable doubt as to whether its terms will be honored.

Also interesting – for all the European ire about the steel tariffs being mulled by the United States (which runs a big trade deficit in this sector), Brussels has said little about the industry during its trade talks with Japan (which runs a big surplus).

Financial Times columnist Wolfgang Munchau has admirably dissented from the Mainstream Media groupthink and dismissed the EU-Japan deal as “a shameful attempt at manipulation” of the narrative surrounding the recent G20 summit that was hyped by journalists exhibiting “confirmation bias” of their pro-internationalist, anti-Trump views. On this side of the pond, we’ve come up with a simpler description: fake news.

(What’s Left of) Our Economy: Why Trade’s Best Champions Really Need to Raise Their Game

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Brad Setser, China, Council on Foreign Relations, Financial Times, George W. Bush, Global Imbalances, manufacturing, Martin Wolf, non-tariff barriers, offshoring, offshoring lobby, tariffs, Trade, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

When you’ve been in the trade policy trenches as long as I have, it’s important these days to look up from time to time and pinch or otherwise remind yourself how dramatically Donald Trump’s election a president has changed the policy landscape. And I’m of course someone who broadly supports his stated objectives in this field.

Weirdly, however, folks who oppose Mr. Trump’s views keep showing that their need to wake up is even greater, and this goes double for backers of the general trade status quo intellectually honest enough to acknowledge many of its serious problems. The biggest adjustment they need to make? Demonstrating that they can develop approaches to solving these problems that are realistic alternatives to the tariff-centered measures that the president is apparently contemplating. Recent offerings from the Financial Times‘ Martin Wolf and the Council on Foreign Relations’ Brad Setser reveal how much more progress is needed.

In Wolf’s latest column, he heaps scorn on the Trump-ian claim that expanding trade with China (or with any country) has played a “significant” role in causing any of U.S. manufacturing’s problems. And he declares that “Nothing [President Trump] does will reinstate manufacturing to its lost role as the dominant provider of “good jobs”.

But Wolf continues to see a different – and arguably more important – danger stemming from preserving the global trade status quo:

“[H]uge current account surpluses in some countries forced deficit countries into financial excesses as an (ultimately unsustainable) way to maintain demand in line with potential output. The [2007-08 financial] crisis vindicated the concern of John Maynard Keynes about the potentially malign role of surplus countries in the global economy.”

So logically, Wolf is telling readers that if better balance doesn’t come to global trade, Financial Crisis 2.0 could easily result – echoing a warning made both by me and by many eminent economists.

What does he recommend to stave off such a catastrophe? A “proactive, not defensive” approach that includes a drive to “open global markets” (as if this hasn’t been tried before?) and – most interesting in light of his opposition to U.S. trade barriers – “forcing” chronic trade surplus countries like China “to rely more on domestic and less on external demand.” It’s somewhat encouraging that Wolf recognizes that the surplus countries (read “protectionists”) won’t take these steps voluntarily. But what could he possibly mean by “forcing” if no “defensive,” or even punitive, measures like tariffs are permissable? Maybe he’ll tell us in his next column?

The gap between diagnosis and prognosis is at least as wide in Setser’s January 18 post on “China’s WTO Entry, 15 Years On.” The essay is worth reading in its entirety, for it decimates the arguments made by the entire bipartisan U.S. globalization cheerleading policy establishment (not to mention the corporate Offshoring Lobby) about the unprecedented benefits that would flow from admitting China into the global trade rule-making and enforcement body – and thereby shielding it legally from most American unilateral economic power and leverage. Here, though, are a few key examples:

>”It now seems clear that the magnitude of the post-WTO China shock to manufacturing was significantly larger than was expected at the time of China’s entry into the WTO. China already had ‘most-favored-nation” (MFN)/“normal trade’ access to the U.S. Market….But China’s pre-WTO access to the U.S. came with an annual Congressional review, and the resulting uncertainty seems to have deterred some firms from moving production to China.”

>”Moving final assembly of electronic goods to Asia created pressures for the full supply chain [i.e., the much more valuable and innovative production of parts and components, as well as the research and development and engineering work] to move to Asia….Even if the currency issue is taken off the table, I suspect that the trade gains—or really the export gains— from integrating China into the WTO’s “rules” were overestimated.”

>“It is now clear that WTO accession was not enough to make China into an easy market for foreign firms to supply from outside China.

“Here is a point that I think should get a bit more emphasis. China’s imports of manufactures, net of its imports of imported components, peaked as a share of Chinese GDP in 2003—and have fallen steadily since then. There is no ‘WTO’ effect on China’s imports of manufactures, properly measured (i.e. leaving out imports for re-export).”

>”Some firms have succeeded in China, but generally by producing in China for the Chinese market, not by selling to China. Successful challenges to some specific Chinese practices in the WTO have yet to alter this pattern….The WTO rules aren’t all that constraining in a country like China—thanks to state control of commanding heights enterprises and banks, and institutions, such as the National Development and Reform Commission (NRDC), that assure party control of major state firms and large investment projects.”

>Many WTO-legal remedies that might have worked were not used “because U.S. and European firms benefited from making use of Chinese production to meet global demand” – and because George W. Bush’s administration danced to their tune.

But Setser’s policy recommendations seem no more realistic than Wolf’s, especially if significant, unilateral tariffs are ruled out:

“The correct fight right now is against the domestic policies that keep China’s savings so high, against a surge in capital outflows that leads to a yuan depreciation that then becomes entrenched (if China’s currency goes down, I worry it won’t go back up), and against Chinese import-substituting industrial policies that aim to displace major exports to China.”

In the pre-Trump period, the diagnosis-prognosis gap unaddressed by intellectually honest supporters of the trade status quo didn’t matter much, since American presidents were so determined to preserve that status quo. But this time, it seems to be different.  And if these trade advocates hope to prevent what they tend to describe as a counterproductive – and maybe worse – shift in American policy, they’ll need to do a much better job of showing that no major course change is needed at all.

(What’s Left of) Our Economy: Will Tech Kill Too Many Jobs?

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Alan Turing, artificial intelligence, automation, Financial Times, Gillian Tett, Jobs, Paul Wallace, Reuters, robots, tech, technology, Turing Test, work, {What's Left of) Our Economy

One of the biggest issues facing our whole human species is one that I have (uncharacteristically!) written on little: whether or not the latest and future generations of technology will kill off way more jobs than they will create. One big reason: I’m still trying to bone up on this question, and I’m still very much in the learning phase about the future of work – and especially work that will pay a living wage..

But despite my limited knowledge, I’m pretty sure that two recent articles on the subject are especially valuable for shedding light on dimensions that demand a lot more attention.

The first is a recent column on the Reuters site presenting a case for optimism that the new robots and artificial intelligence will turn out to be big net new jobs creators. Author Paul Wallace, a former editor at The Economist magazine, definitely makes some strong points. For example, he argues that too much of the research underlying the case for pessimism wrongly assumes that all positions in sectors considered highly vulnerable are equally vulnerable.

Indeed, Wallace spotlights a study finding that a focus on tasks rather than occupations can dramatically reduce the numbers of workers at risk – at least, it seems, for the time being. One big reason? Many seemingly vulnerable positions allegedly involve “crucial social interactions” that no hardware or software or combination (on the horizon?) can replicate.

Yet those possible qualifications I just mentioned point to one major potential vulnerability in Wallace’s argument – and in the study he cites. Both seem to assume that the technologies in question won’t advance much more – and possibly that they will never, or not for decades, reach the stage where they can interface adequately with human customers or colleagues. You don’t need to be a science fiction buff to understand the implausibility of that scenario.

In fact, recall that pioneering computer scientist Alan Turing displayed unmistakable confidence that such progress was at least theoretically possible. Why else would he have developed his famous test of whether machines could be genuinely intelligent, and even, by extension, conscious?

“Turing put forward the idea of an ‘imitation game’, in which a human being and a computer would be interrogated under conditions where the interrogator would not know which was which, the communication being entirely by textual messages. Turing argued that if the interrogator could not distinguish them by questioning, then it would be unreasonable not to call the computer intelligent, because we judge other people’s intelligence from external observation in just this way.”

The article also raises big questions about the quality of the jobs that Wallace (and other optimists?) are confident won’t be robot-ized out of existence. Some definitely seem desirable – like “designing smartphone apps that have only just sprung into existence” – although I still wonder whether sooner rather than later apps won’t be designing themselves much more efficiently.

But the other examples of safe jobs sound a lot like dead-end jobs – e.g., restaurant jobs, personal trainer positions, and tour guides. And I continue to struggle understanding why they’re thought to be especially safe, either, over any meaningful stretch of time.

Gillian Tett, the managing editor for U.S. news at the Financial Times, seems fairly upbeat about employment and automation, too, and also cites research purporting to undercut techno-alarmism. Like Wallace’s examples, it’s worth considering. Her summary of the message: “[P]eople are also working with robots in new roles.” But also like Wallace’s examples, it raises the question, “For how much longer?”

Much stronger is this point made by Tett: “[T]here is a burning need for policymakers to obtain much better data on what is really happening in the American workplace. Anthropological studies are small scale, while the macro-level data are surprisingly weak, partly because the Bureau of Labor Statistics tends to collect data through traditional channels.”

My contacts with the Trump transition team convince me that upgrading American government statistics bearing on trade and offshoring are due for a big rethink. The clearly surging importance of the latest actual and potential labor-saving technologies means that their actual and likely impact on the world of work demand the same treatment.

(What’s Left of) Our Economy: No, America Doesn’t Have a Manufacturing Demand Problem

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Census Bureau, exports, Financial Times, gross output, Im-Politic, imports, Institute for Supply Management, ISM, manufacturing, manufacturing trade deficit, Trade

Because the Financial Times is one of the world’s truly great newspapers (no, it’s not a long list), I was surprised to see its latest coverage of U.S. manufacturing data make a fundamental mistake. The paper’s report on yesterday’s December figures from the Institute for Supply Management (ISM) confuse the demand for manufactured goods with the production of manufactured goods. As a result, readers got an off-base description of the state of American manufacturing and its main challenges, and an equally erroneous picture of how these challenges can be overcome.

As I’ve written repeatedly, surveys like those conducted by the ISM are deeply flawed measures of manufacturing’s health to begin with. The main problem: their “survivorship bias,” which means that they only provide readings on the well-being of companies remaining in the sector at a given time. They say nothing about whether the industry itself is growing or shrinking.

But the Financial Times‘ article was comparably misleading when it claimed that the poor ISM December numbers showed that U.S. manufacturing’s problem nowadays is weakening demand for its products. Where recent months are concerned, that may be partly true. And certainly, many of the biggest foreign economies to which American manufactures sell have seen their own economic growth remain sluggish or slow further.

The ISM, however, also reported that America’s manufacturing imports have fallen on a monthly basis for three straight months. We’ll need to wait until the Census Bureau’s December U.S. trade figures are released (early next month) to know if that’s really true or not. (Census’ methodology is not affected by survivorship bias, and in fact its latest data show that America’s manufacturing imports rose between August and September, and between September and October.)

But what’s unmistakably true over the longer, and more meaningful, run is that whatever total slackening there has been in overall U.S. demand for manufactures, the sector’s main main headwind comes from elsewhere – specifically, abroad. In fact, through the first ten months of this year, although manufactures exports were down by 6.10 percent over 2014 levels, imports were up by 1.52 percent. In other words, the biggest demand problem facing domestic industry is that too much of the demand for this sector’s output in America – its biggest market by far- is being supplied from abroad. And it’s a problem that’s far from new.

The inadequacy of demand for domestically produced manufactured goods is evident from the ongoing surge in the U.S. manufacturing trade deficit – which keeps setting new annual and monthly records. But this particular demand problem is also clear from different figures that compare the growth of America’s manufacturing production versus the growth of the country’s market for manufactured goods – i.e., its purchases of such goods from all sources, at home and abroad.

The U.S. government’s statistical agencies don’t make displaying his comparison inordinately easy. But a reasonably accurate and up to date picture can be created by combining separately compiled figures – on the gross output of manufacturers located in America, and on the nation’s foreign trade. The U.S. market for manufactures consists of domestic output plus imports (which are, after all, consumed domestically) minus exports (which are consumed abroad).

For these purposes, the gross output data is more appropriate than the value-added data, since they reflect the production of all the manufactured inputs used in final products, rather than seek to avoid “double counting” both these inputs and the final products that contain them. The more comprehensive measure allows a more valid comparison with the export and import figures, which count inputs and final products separately, too.

Measured by gross output, American manufacturing production grew by 38.06 percent (before inflation) between the start of the current weak recovery in the second quarter of 2009 and the second quarter of 2015 (the latest available figures). That’s actually faster than the growth of total U.S. gross output during this period (28.59 percent). But the American manufacturing market – the demand for manufactured products – grew by 44.41 percent.

Moreover, most of this manufacturing gross output growth took place during the early part of the recovery, when the sector was snapping back from a near-death recessionary experience. Between 2009 and 2011, this production expanded by 24.89 percent in current dollars. From then until 2014 (the last full-year numbers available), this rate slowed to 10.68 percent, and 2015 will undoubtedly come in even worse.

To be sure, there’s been a bigger percentage slowdown in manufacturing import growth between 2009 and 2014 – 38.95 percent between 2009 and 2011 versus 11.94 percent since. But in addition to the absolute numbers being much bigger, the slowdown in export growth has been even greater: 39.31 percent to 10.21 percent.

Obviously, the faster the American economy grows, the faster its demand for manufactures will increase, and more production will result. But to achieve the industrial rebound so many U.S. leaders – including President Obama – have identified as necessary – much more will be needed. And given the persistently wide gap between American manufacturing demand and American manufacturing production, a thoroughgoing trade policy overhaul must be part of the mix.

(What’s Left of) Our Economy: Media Flattery for America’s Corporate China Lobby

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China, cyber-security, Financial Times, hacking, lobbying, multinational corporations, offshoring, protectionism, technology, technology transfer, The Wall Street Journal, {What's Left of) Our Economy

Even before checking out The Wall Street Journal this morning, I was going to post an item on some truly weird material quasi-buried in a Financial Times piece from last week. The Journal article, however, showed  that it’s become nothing less than vital to spotlight this latest instance of how the media spreads the most whoppingly one-sided information on many U.S.-China-related subjects in the most offhanded ways.

According to FT writers Geoff Dyer and Richard Waters in a September 11 piece on “High-tech diplomacy” between the United States and China, “The American business community once saw itself as almost a go-between in the US-China relationship, an embodiment of the two countries’ intertwined economic fates and a diplomatic actor that was sometimes able to take the edge off political arguments” and a “conduit between governments.”

More recently, they observe, the companies have “started to lean more heavily on Washington for support against Chinese policies that seemed designed either to shut them out of large sections of the Chinese market or pressure them to hand over key technologies.” And of course, the article dutifully quotes an “expert” from an American think tank (which happens to be heavily funded by such businesses) sympathetically describing the companies as “being pulled in many directions by both governments in what has become a much more complicated relationship….Most of them do not like being caught in the middle.” Who could help but feel their pain?

These offshoring companies have indeed been hoisted by Beijing on the petard of their longtime claims that expanding trade with China would greatly benefit the U.S. economy, too; that China was moving steadily towards Western business and even legal, and political norms; and that therefore Washington should mainly turn the other cheek in response to any continued economic predation by the Chinese. The firms also undoubtedly told the two FT reporters that they previously saw themselves as valuable diplomatic intermediaries – as is their right. And perhaps some executives actually believed that.  It’s true, moreover, that the FT didn’t present these descriptions as fact.

At the same time, because an alternative perspective was completely ignored, what else could a reader not steeped in these subjects conclude? And omissions like this matter, because what Dyer and Waters didn’t mention is all the evidence that American companies operating in China have actually served, and every effectively, as de facto lobbyists for a Chinese government. Their common interest? Preventing American officials from rocking the boat of bilateral economic relations in order to preserve profits both were reaping at the expense of domestic U.S. producers and their employees – aka the productive core of the American economy. For as the media has ignored ever since China trade issues have been stirring controversy, U.S.-owned firms whose products are made in China for export to the United States benefit every bit as much from Chinese subsidies and protectionism as Chinese-owned companies.

Where the Journal piece comes in is in providing crucial perspective about the growing number and volume of corporate complaints about China’s increasingly brazen protectionism. On top of refusing to support measures that arguably could counter China’s latest moves, the American firms – especially the tech companies – have massively caved to the pressure. As reported by the Journal’s Eva Dou and Don Clark (and as described by RealityChek for months), these companies are doubling down on their longstanding policies of transferring capital and, most important, cutting-edge technology, to Chinese enterprises. The FT referenced these moves, but only briefly, and deep into the second half of the article.

And by the way, if you look at the types of knowhow being provided to China (as I’ve been doing for years), it’s no mystery why it’s become so adept at hacking key U.S. government and private sector computer systems. In other words, reasons abound for viewing the corporations so indulgently portrayed in the FT not only as whiners, but as dangerously two-faced whiners.

No one should want the FT or any other news organization to take sides in this debate. But the media needs to do a much better job remembering that these giant companies already have their own flacks.

Im-Politic: A New Japanese Owner for the Financial Times May Not be Good News

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Bloomberg, conflicts of interest, Felix Salmon, Financial Times, Im-Politic, Japan, journalism, Laurie Anne Freeman, Leonid Bershidksy, media, New York Times, Nikkei Inc., Pearson PLC, self censorship, Shinzo Abe

I’m such a fan of the Financial Times that I’ve even given in to its paywall strategy and subscribe to it. That’s why I’m so worried about yesterday’s news of its sale by Britain’s Pearson PLC to Japanese media giant Nikkei Inc. The FT‘s coverage of the economics and business worlds, in particular, is peerless, and even though that’s too often a low bar, the paper (including its web offerings) has consistently served up information virtually unavailable anywhere else, and its news approach is much more often than not non-ideological.

Ownership by a Japanese company could easily change all that, and this danger has been badly neglected by the discussion and commentary spurred by the transaction. In short, for all the faults of U.S. and the rest of western journalism, it’s been a paragon of independence and a genuine watchdog over government compared to its Japanese counterpart – Nikkei included.

Fans of the deal themselves (all too briefly) acknowledge the problem. Thus leading financial journalist Felix Salmon writes that “The Financial Times could not hope for a better parent,” even though he writes that the Japanese company “has historically been more deferential toward big business.” Bloomberg columnist Leonid Bershidsky provides much needed elaboration. Nikkei, he observes, is “said to be too soft on the Japanese corporate establishment. You can get a flavor of its kind of business journalism from its English-language Asian Review. Many of the stories read like press releases, and the FT probably wouldn’t have run them.”

And Britain’s Guardian notes that:

“The last really big corporate scandal in Japan, when Olympus was found to be concealing losses of $1.3bn, resulted in the unceremonious sacking of the (English) chief executive who revealed it. The Financial Times broke the story; Nikkei did not cover it until it became wholly unavoidable. Nor would readers of Nikkei be acutely aware that Japanese-made airbags have been blowing up in the US since 2004, a story that has long preoccupied the New York Times.”

As this revelation indicates, the problem hardly stops with Nikkei, and is anything but new. Even more alarming have been the findings of many Western journalists and academics with long experience working in Japan. Despite the emergence of democratic forms of government in Japan after World War II, political scientists such as Laurie Anne Freeman of the University of California, Santa Barbara have explained that for decades:

“the press system in Japan [has served] as neither a watchdog nor a lapdog. Nor does the state directly control the press in ways Westerners might think of as censorship. The level of interconnectedness, through both official and unofficial channels, helps set the agenda and terms of political debate in Japan’s mass media to an extent that is unimaginable to many in the United States and other advanced industrial democracies.”

Worse, reports have abounded recently that the government of Prime Minister Shinzo Abe has been trying to capitalize on the Japanese media’s long record of subservience by increasing pressure to produce favorable coverage.

The Financial Times‘ deserved reputation for integrity may survive in the Nikkei regime. But precisely because self censorship is so intrinsically difficult to track, and because despite their avowed dedication to openness, media companies’ internal editorial operations tend to be highly opaque, evidence of any FT slippage will be hard to identify. And if it does occur, its forms will be subtle. Further, observers will be forced to play the not-entirely-fair game of wondering whether even seemingly aggressive coverage of Japan in particular by FT could and should have been more hard-hitting.

Yet because the appearance of conflict of interest is just as important as actual conflicts, such questions will become unavoidable. I hope they’ll serve as a warning to other western news organizations that become targets for takeover from political systems that prize far too few western values.

Our So-Called Foreign Policy: Obama Cyber-Security Failings Getting Lost in the Shuffle

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China, cyber-security, cyber-security summit, Financial Times, hacking, Obama, Office of Personnel Management, OPM, Our So-Called Foreign Policy, Xi JInPing

President Obama has two big reasons to thank his lucky stars so far this summer. As widely noted, he’s racked up a series of impressive legislative and political wins, including fast track trade negotiating authority, favorable Supreme Court decisions on same sex marriage and his healthcare program, and (for now) conclusion of a nuclear arms proliferation deal with Iran.

Less widely noted is how this winning streak, along with a stunning rush of events that’s included everything from the Greece Crisis to the noisy rise of Donald Trump as a presidential candidate, has contributed to the president’s luck in another big way. They have also greatly overshadowed the hack of the federal government’s main personnel agency, which has been called a genuine intelligence disaster, and which should have the nation robustly debating whether the Obama administration has been asleep at the cyber-security switch.

Of course, the president has said a great deal about cyber-security. For example, he’s brought up the issue at a summit with Chinese leader Xi Jinping – whose government is suspected of hacking the Office of Personnel Management (OPM) and other important American targets. And he’s held a splashy White House meeting on the issue. But according to a Financial Times analysis last week of U.S. Government figures and studies, administration actions have been woefully inadequate.

The Financial Times says it’s looked at “dozens of reports by agency inspectors general, the Government Accountability Office and the Office of Management and Budget [OMB].” Their collective findings? “For years more than half of the 24 agencies required to report their cyber defences failed to take the most basic security steps. Such measures include patching software holes, using strong authentication technology and continuously monitoring systems, to help secure the troves of data collected on employees, retired military officials and government programmes.”

One big reason for this shoddy record is that few government agencies appear to take cyber threats seriously. According to the Financial Times, OMB figures show that agencies whose cyber-security expenditures represented less than two percent of their 2014 budgets include the Pentagon, the Energy Department (which handles much American nuclear weapons and proliferation-related research), NASA, the State Department, the Treasury (whose responsibilities include staunching the flow of funding to terrorist groups), the Social Security Administration, and OPM.

The Justice Department and Department of Homeland Security look more on the ball, but still only devoted a little more than three percent and just about two percent of their budgets, respectively, to cyber-security.

Throwing money at a problem is no cure-all, especially since as the Financial Times piece makes clear, the federal bureaucracy still isn’t well structured to spend it effectively? (A problem that, as I’ve written, includes the appointment of cyber-clueless agency heads.) But how can the nation hope to protect itself adequately against cyber-threats if, as the article also documents, the overall funding available to handle them is growing so much more slowly than the number of attacks? Where’s the evidence that the president is even thinking about raising Washington’s game, or that Congress and the media are acting like effective watchdogs? And how many more mega-hacks will the nation need to experience before cyber-security even becomes front page news again, much less a real White House priority?

(What’s Left of) Our Economy: The Real Economics of Currency Manipulation

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central banks, currency manipulation, currency wars, devaluation, exchange rates, fast track, Federal Reserve, Financial Times, Great Depression, John Plender, Obama, protectionism, QE, Robert Aliber, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership, University of Chicago, {What's Left of) Our Economy

Since Congress is finished with its fight over fast track negotiating authority for President Obama, and the next big trade deal in the offing – the Trans-Pacific Partnership (TPP) – is still being negotiated, issues like foreign currency manipulation have virtually disappeared from the media.

That’s more than a shame, since the effects of China’s longstanding exchange-rate protectionism – which gives Chinese-made goods artificial price advantages in all global markets – still weigh on American manufacturing production and employment.  And let’s not forget that Mr. Obama and Congress’ Republican leadership successfully beat back efforts to include strong disciplines on manipulation in the TPP – even though prospective TPP member Japan looks like another huge manipulator.

Here’s hoping, though, that when these subjects return to the spotlight, decision-makers will read John Plender’s excellent post in yesterday’s Financial Times explaining why this predatory practice needs to be abolished – and not just for America’s sake.

Plender makes two main contributions to the heated currency manipulation debate. First, he explains that the main argument against curbing manipulation is a straw man. It doesn’t much matter whether national currencies weaken because the governments in question are explicitly seeking trade advantages or not. It’s true, as manipulation soft-liners note ad nauseam, that the recent spate of central bank monetary easing policies pursued all around the world generally has been bound to weaken their countries’ currencies. It’s also true that America’s own Federal Reserve has eased massively itself – though the dollar has remained strong over the long run partly because of its unique status as the world’s predominant currency, and partly because the U.S. economy has outperformed that of most other major powers lately.

But as Plender notes, the distortions to trade flows take place all the same. He could have added, as opposed to only suggesting, a point I keep making: Monetary easing by a trade- and export-led economy (like China’s or Japan’s) is much likelier to stem from trade-related concerns than easing by a consumption-led economy like the United States. (Other considerations let America off the hook, too.)

His second contribution: observing that the universally condemned currency devaluations that helped deepen the Great Depression were by no means all made to beggar trade partners. Yet as trade policy critics are constantly reminded, trade flows suffered anyway. In fact, Plender cites this stunning claim from University of Chicago economist Robert Aliber: measured in terms of the worldwide trade imbalances that have resulted, “today’s currency wars are more severe than those of the 1930s.”

Indeed, this is a great opportunity to revive another point I’ve made in the context of of the fast track/TPP currency manipulation debate: The devaluations of the 1930s and the economic and military calamities they brought closer taught the American and other architects of the post-World War II global economic order a seminal lesson: that such currency movements needed to be controlled in order to create and maintain a viable international trade system. Unless Mr. Obama and his fellow globalization cheerleaders now believe that this conviction was wrong, they need to make sure that U.S. policy helps end or severely punish manipulation, and finally treat genuinely free trade like a priority, not a talking point.

Im-Politic: What the Polls are Really Saying About Obama’s Trade Agenda

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2016 elections, CBS News, Congress, currency manipulation, fast track, Financial Times, free trade agreements, Global Trade Watch, Hillary Clinton, Im-Politic, Jobs, Obama, polls, public opinion, Reuters/Ipsos, The New York Times, TPA, TPP, Trade, Trade Promotion Authority, Trans-Pacific Partnership

I’m sure glad I’m not the Financial Times headline writer who told readers the other day that “Obama seems to be winning over public, if not Congress, on trade.” The writer blew it not because there haven’t been recent poll results containing good news for a president seeking a big new Pacific Rim trade deal and sweeping fast track negotiating authority from Congress. He or she blew it because such surveys have been showing such sharply contradictory results – as a new New York Times/CBS News sounding just reminded us. In fact, the headline was also off base in suggesting that any polls can be a reliable indicator of public on an issue like trade, which is poorly covered by the national media and partly as a result largely unfamiliar to many Main Street Americans.

As I wrote recently, the Pew Foundation findings stressed by the Financial Times contained some big apparent contradictions – chiefly, showing that Americans’ support for the idea of trade agreements keeps rising impressively, but that large pluralities believe the deals have significantly harmed the economy.

Meanwhile, Public Citizen’s Global Trade Watch has done an excellent job exposing the weaknesses in another recent poll – from Reuters/Ipsos – that seems downright incompetent. The survey reported majority support for “new trade deals,” but these agreements were described as seeking to “promote the sale of goods overseas.” Talk about a leading question!

In fact, as Global Trade Watch noted, a previous Ipsos trade poll found that when a specific feature of Mr. Obama’s Trans-Pacific Partnership (TPP) was included in a question (currency manipulation), nearly three quarters of Americans opposed the administration position. Moreover, that same survey showed 84 percent of the public agreeing that “protecting American manufacturing jobs” is more important than “getting Americans access to more products.”

The New York Times/CBS News results reported this morning contain more bad news for the president (and for that Financial Times headline writer). They show 55 percent to 42 percent public opposition to the president’s fast track request (which is accurately described). They show that although 78 percent of Americans have “heard or read…not much or nothing at all about the TPP (thanks, journalists!) they believe by a 22 percent to 16 percent margin that it will make fewer jobs available in the United States. (One third didn’t know or didn’t answer, and 29 percent doubted it would “make much difference.” And finally, 63 percent of respondents agreed that “Trade restrictions are necessary to protect domestic industries” while only 30 percent supported the view that “Free trade must be allowed, even if domestic industries are hurt by foreign competition.”

So for what they’re worth – and again, that’s open to big doubts – recent polls aren’t collectively sending any clear message on trade policy generally, and even muddier ones on the specific controversies Congress is dealing with today. But another body of evidence is less equivocal. As I noted in that recent post, most presidential candidates in both parties who have spoken out are running against Mr. Obama’s trade agenda. Others, especially Hillary Clinton, have conspicuously remained on the fence.

Of course, the primary voters these hopefuls will initially face are more partisan and ideological than the electorate as a whole. But candidates also know that their primary positions tend to stick with them during general campaigns. If on balance, this many professional politicians see fast track and the TPP as political losers, it’s hard to believe that they’re far off the mark.