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The Wrongologist

Geopolitics, Power and Political Economy

Buffett: Focus on Lower Health Care Costs, Not Corporate Taxes

The Daily Escape:

Ribbon Chapel, Onomichi Japan – photo by Koji Fujii

Andrew Ross Sorkin wrote about Warren Buffet and the Berkshire Hathaway annual meeting in Omaha. Thousands of people attend these meetings, which are known as “Woodstock for capitalists.” Sorkin reports that Buffet made this comment:

The tax system is not crippling our business around the world.

Sorkin said that Mr. Buffett, was blunt and pointed, implicitly rebuking his fellow chief executives, who have been lobbying the Trump administration and Washington lawmakers to lower corporate taxes. Buffett said that those who have been single-focused on seeking relief from their tax bills would be smart to shift their attention to health care costs, which are growing and swallowing evermore corporate profits. The Kaiser Family Foundation reports that 49% of Americans, about 156 million, are insured by their employer. More from Sorkin:

The need for corporate tax relief has become the lodestar of the corner office, with CEOs rhapsodizing  over President Trump’s plan to try to stimulate growth by cutting tax rates for businesses.

But as Mr. Buffett pointed out, these chief executives are missing the bigger issue: As a percentage of our GDP, the cost of maintaining our American health care system is rising at an alarming rate. And Corporate America pays a big (and growing) chunk of that bill.

Buffett wasn’t talking about the cost of health insurance, which is a fraction of the total cost of health care. He suggests that today’s corporate tax rates are a distraction, not a true impediment to growth:

If you go back to 1960 or thereabouts, corporate taxes were about 4% of GDP…And now, they’re about 2 % of GDP.

While tax rates have fallen as a share of gross domestic product, health care costs ballooned:

About 50 years ago, health care was 5% of GDP, and now it’s about 17%.

Buffett is a smart guy. He raises an argument for focusing on the underlying costs of our health care system, something that goes far beyond the debate around the Affordable Care Act, or what will replace it. Buffett says that our global competitiveness has fallen largely because our businesses were paying far more for health care — a tax by another name — than those in other countries.

As Buffett said: (brackets by the Wrongologist)

When American business talks about [corporate taxes] strangling our competitiveness, or that sort of thing, they’re talking about something that as a percentage of GDP has gone down…While medical costs, which are borne to a great extent by business, have swelled.

Here are the facts:

  • In 1960, corporate taxes in the US were about 4% of GDP. The percentage fell steadily, reaching a bottom in 1983 before rising slightly over the last few decades. Today, it is 1.9%.
  • In the meantime, health care costs as a percent of GDP have skyrocketed. Today our health care costs are 17.1% of GDP, up from 13.1% in 1995.
  • Germany’s cost is 11.3%, up from 9.4% during the same period. Japan’s is 10.2%, up from 6.6%. Britain’s health care costs are 9.1% of GDP, up from 6.7% percent in 1995.

That makes our health care cost disadvantage far greater than our tax differential. It harms American companies in particular, since they bear such a large share of those costs, which firms in our competitor countries do not. US Corporations spend $12,591 on average for coverage of a family of four, up 54% since 2005, according to a study by the Kaiser Family Foundation.

But Congress avoids the issue, and CEOs don’t talk about it. A final quote from Warren:

It’s very tough for political parties to attack it…it’s basically a political subject…

In fact, Buffett’s partner, Charlie Munger, is the rare Republican (Buffett is a Democrat) who has advocated for a single-payer health care system. Under his plan, the US would enact a sort of universal type of coverage for all citizens — perhaps along the lines of the Medicaid system.

Which brings Wrongo to his final point: Medicaid expansion is the one part of Obamacare that can be said unequivocally to work. It’s a single payer program funded by the Federal government. So it’s bitterly ironic that the Republican’s reaction to Obamacare is to assault and roll back an existing Federal program, from LBJ days.

Of course, kicking poor people who benefit from Medicaid will always be popular with Republicans. So, Republicans, by making Medicaid worse, will try to restore their natural order of things.

Lazy, uninformed voters = Lazy, uninformed legislators = Lazy, uninformed policy.

It’s that simple.

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Is Taxing Robots a Solution to Fewer Jobs?

The Daily Escape:

(Slot canyon with dust devil – photo by Angiolo Manetti)

Yesterday, the Dutch voted in an election pitting mainstream parties against Geert Wilders, a hard-right, anti-Islam nationalist whose popularity is seen as a threat to politics-as-usual across Europe, and possibly, as an existential threat to the EU.

Wilders, who wants to “de-Islamicize” the Netherlands and pull out of the EU, has little chance of governing, as all of the mainstream parties have already said they won’t work with him. Given Holland’s complicated form of proportional representation, up to 15 parties could win seats in parliament, and none are expected to win even 20% of the vote. OTOH, polls show that four in 10 of the Netherlands’ 13 million eligible voters were undecided a day before voting, and there is just 5 percentage points separating the top four parties, so Wilders could surprise everyone.

As Wrongo writes this, the Dutch election results are not known, but PBS NewsHour coverage on Tuesday surfaced a thought about taxing robots. PBS correspondent Malcolm Brabant was interviewing workers in Rotterdam:

Niek Stam claims to be the country’s most militant labor union organizer. He says the working class feel insecure about their prospects because of relentless automation and a constant drive to be competitive. The union is campaigning for robots to be taxed.

Brabant then interviewed a worker:

Robots do not buy cars. Neither do they shop for groceries, which leads to a fundamental question: Who’s going to buy all these products when up to 40% of present jobs vanish?

This isn’t an entirely new idea. Silvia Merler, blogging at Bruegel, says:

In a recent interview, Bill Gates discussed the option of a tax on robots. He argued that if today human workers’ income is taxed, and then a robot comes in to do the same thing, it seems logical to think that we would tax the robot at a similar level. While the form of such taxation is not entirely clear, Gates suggested that some of it could come from the profits that are generated by the labor-saving efficiency…and some could come directly in some type of a robot tax.

The main argument against taxing robots is made by corporations and some economists (Larry Summers), who argue that it impedes innovation. Stagnating productivity in rich countries, combined with falling business investment, suggests that adoption of new technology is currently too slow rather than too fast, and taxing new technology could exacerbate the slowdown.

It can be argued that robots are property, and property is already taxed by local governments via the property tax. It might be possible to create an additional value-added tax for robots, since an income tax wouldn’t work, as most robots are not capable of producing income by themselves.

Noah Smith at Bloomberg argues that the problem with Gates’ basic proposal is that it is very hard to tell the difference between new technology that complements human work, and new technology that replaces them. Shorter Noah Smith: Taxation is so hard!

Why are Western economies stagnant? Why has wage growth lagged GDP growth? Automation is certainly a key factor, but rather than point the finger at the corporations who continually benefit from government tax policies, let’s just assign blame to an object, a strawbot, if you will. That way, we won’t look too carefully at the real problem: The continuing concentration of economic and political power in the hands of fewer and fewer corporations.

Automation isn’t the issue, tax laws that allow economic treason by corporations in their home countries are the issue.

Why is nationalism on the march across the globe? Because fed-up workers see it as possibly the only answer to the neoliberal order that is destroying the middle class in Western democracies.

Let’s find a way to tax robots. Something has to offset Trump’s tax breaks for the rich.

Now, a musical moment. Did you know that “pre-St. Patrick’s Day” was a thing? Apparently, some dedicated celebrators prepare for the day itself by raising hell for up to a week beforehand. With that in mind, here is some pre-St. Pat’s Irish music, with Ed Sheeran singing “Nancy Mulligan” a love song about his grandparent’s marriage during WWII, against the wishes of her parents, and despite their Catholic/Protestant differences:

Those who read the Wrongologist in email can view the video here.

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First Person Report From the Women’s March

(Below is a guest post from Nicole Dodd, a recent graduate from UC Santa Barbara. She has moved to Washington DC to begin a career in government service. The photos below are ©Nicole Dodd)

“Women’s rights are human rights.” Hillary Rodham Clinton, 1995

This past Saturday, I was one of almost 500,000 women and men participating in the Women’s March on Washington. From 8 am until well after 8 pm, the streets were crowded with women wearing pink ‘pussy hats,’ carrying indignant signs, and chanting out against our newest president.

The movement was powerful, and greatly exceeded expectations: the Washington March itself had almost 2.5x the amount of people it was projected to have, and the sister marches across the States and the world had incredible turnout. After having seen so many red “Make America Great Again” caps and rioters in the streets just twenty-four hours earlier, I was encouraged to see an influx of pink hats participating in a protest that remained peaceful and could spark a global movement.

From an outside perspective, it may seem that the Women’s March had no direction and no goal. Millions of people took to the streets to protest, but for what? On the Women’s March website, it lists the ‘unifying principles’ of the march: ending violence, reproductive rights, LGBTQIA rights, worker’s rights, civil rights, disability rights, immigrant rights, and even environmental justice. From what I saw, participants in the March held signs that advocated for each of the unifying principles of the March. However, the heart of the matter is this: President Trump was elected without a majority popular vote, and while he has promised to be ‘a president for all Americans,’ his words and actions have proven that he will not.

While January 21st was an important first step in the fight against the Orange Overlord’s administration, the fight in no way stops here. As a pragmatist, I realize that many women and men will walk away after this weekend thinking that they’ve completed their democratic duty by simply showing up and chanting angrily for a few hours.

Despite this, I am extremely hopeful. Many speakers at the Washington March implored the participants to get politically active. We were told to write our representatives every single day, join and become active in the organizations that we were working to support, and finally, to run for public office. Protesters held signs echoing those same sentiments, urging us to vote and to get involved. To top it off, the Women’s March website published an article outlining what exactly we can do during Trump’s first 100 days to make sure our voices are heard in the Capitol.

In the same way that it is our democratic responsibility to vote in local, state and national elections, it is also our democratic responsibility to peacefully protest and make sure that our representatives are accurately representing our interests. It’s hard to evaluate if the Women’s March will lead to concrete actions – the commitment of the crowd could easily be attributed to mob mentality, and people lose resolve over time. Still, the Women’s March was the largest protest to ever occur over the inauguration of a US President, and that fact cannot go unnoticed. My hope is that, with clear guidance and resources from the Women’s March administrators, the majority of participants in Saturday’s movement will abandon their excuses and take it upon themselves to exercise their democratic rights and responsibilities.

I can promise you that this protester will refuse to sit by idly, and will take action.

My favorite chant from Saturday sums up the movement perfectly:  “This is what democracy looks like”. Here are a few photos from the DC March. This one shows size of the crowd:

Sign from person near the Smithsonian:

One of the main purposes of the March was to address reproductive rights:

I’m with her” sign shows marchers’ solidarity. View towards the Washington Monument:

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Capitalism Is Past Its Sell-By Date

“This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations…” Rutherford B. Hayes (March, 1888)

Nearly 130 years ago at the height of the Gilded Age, President Hayes had it right. Capitalism then was an economic free-for-all. Today, capitalism again is rewarding too few people. And data show that the problem is worse than we thought. The WSJ reported on a study by economists from Stanford, Harvard and the University of California that found:

Barely half of 30-year-olds earn more than their parents did at a similar age, a research team found, an enormous decline from the early 1970s when the incomes of nearly all offspring outpaced their parents.

Using tax and census data, they identified the income of 30-year-olds starting in 1970, and compared it with the earnings of their parents when they were about the same age. In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age. By 2014, that number fell to 51%. Here is a chart showing the results:

wsj-30-year-olds-make-less

And we know that real median household income in the US today is basically the same as in 1989. The paper doesn’t provide specific reasons for the decline in incomes for younger Americans, but it generally blames slower economic growth and, especially, the rapidly widening income gap between the top 20% and the rest of society.

They found that the inability of children to out-earn their parents is greatest in the Midwest. This underlines that those who voted for Trump have a point: The Midwest has been hit harder by import competition, especially from Japan and China, and by technological changes, than other regions of the US.

When looking only at males nationally, the decline is even starker: In 2014, only 41% of 30-year-old men earned more than their fathers at a similar age.

There are some issues with the study worth mentioning: Most kids born in the 1940s did well in their thirties, maybe because their parents were 30 during the Depression and WWII. By the 1960s, an industrialized economy brought significantly higher wages to 30 year olds. A high denominator in the ratio of parent’s income to child’s income (compared to the past) made it more difficult for succeeding generations to exceed their parents’ incomes.

The economy also has shifted in the past 30 years and is now service-based, as factories moved overseas, and automation became prevalent. This change swapped higher wage manufacturing jobs for mostly lower wage service jobs. That alone could make it all but impossible for young adults to hit the ratios that their parents did relative to their grandparents.

Maybe the American Dream didn’t die; it just never really existed in the sense of broadly-based income mobility. Have another look at the chart, upward mobility (as measured by making more than your parents) has been declining since the mid-1940s.

Why? Between rising globalization and rapid advances in automation, we now have more people than jobs. And no matter whom we elect, this trend will continue. Those manufacturing jobs are never coming back. Even in China, robots are now displacing workers in factories.

We don’t need “good paying manufacturing jobs”; we need good paying jobs.

This is the most serious challenge capitalism has faced in the US. Without improving personal income, there will be fewer who can afford college, or afford to buy the things that capitalism produces. Low personal income growth puts sand in the gears of our economy.

The left offers a critique of contemporary global capitalism but no real practical alternative. Neither does the right, but their memes of America First, nostalgia for a golden (gilded?) age, and more tax cuts seem like less of a stretch than a Bernie Sanders-like frontal assault on capitalism.

No one in either party has a plan for a world in which robots displace the demand for labor on a large scale. And the under-30 cohort is now spending at least 4 times more (in the case of Wrongo’s university, 10 times) for a college education than what their parents paid, and they are earning less.

If people matter at all to our leaders, and if 90+% of them lack the means to live without working, America must make employment our top priority, despite the fact that many have been deemed redundant by capitalists in the private sector.

Surplus labor drives the price of labor down; allowing the employer class to afford a pool boy, or a nanny, or another cook.

And it makes the waiters more attentive to Mr. Trump.

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New OPEC Deal Puts Saudi Arabia On The Sidelines

The new OPEC deal to cut oil output, the Cartel’s first since 2008, gives OPEC what it wanted: higher oil prices. It was difficult for the Cartel to achieve an agreement. Russia, a major oil producer that isn’t even a member of OPEC, brokered a deal between Saudi Arabia and Iran. From Oil Price:

The interventions ahead of Wednesday’s OPEC meeting came…from Putin, Saudi Deputy Crown Prince Mohammed bin Salman and Iran’s Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani…According to Reuters, Putin’s role as intermediary between Riyadh and Tehran was pivotal, and is a “testament to the rising influence of Russia in the Middle East since its military intervention in the Syrian civil war just over a year ago.”

Prior OPEC meetings failed to deliver consensus, because nobody wanted to cut production. Tehran argued OPEC should not prevent it from restoring the output lost by years of Western sanctions, but the Saudis wouldn’t agree. The animosity between them didn’t help: Proxy wars in Syria and Yemen have exacerbated decades of tension between the Saudi Sunni kingdom and the Iranian Shi’ite Islamic republic.

The brokering started when Putin met Saudi’s Prince Mohammed on the sidelines of the G20 meeting in China. Both felt they could benefit from cooperating to push oil prices higher, and agreed to work together to cut excess production that had more than halved oil prices since 2014. Lower prices had created large budget deficits for both Russia and Saudi Arabia.

Financial pain made cooperation possible, despite the huge political differences between Russia and Saudi Arabia over the civil war in Syria. But Iran also had to agree. Prince Mohammed had repeatedly demanded that Iran participate in any production cuts. Saudi and Iranian OPEC negotiators had debated the point without compromise for months.

Putin stepped in: He established that the Saudis would shoulder the lion’s share of cuts, as long as Riyadh wasn’t seen as making concessions to Iran. A deal was possible if Iran didn’t celebrate a victory over the Saudis.

Reuters reports that a phone call between Putin and Iranian President Rouhani smoothed the way. After the call, Rouhani and oil minister Bijan Zanganeh went to Iran’s supreme leader for approval. During the meeting, leader Khamenei approved the deal. He also agreed that Iran wouldn’t take a victory lap once the deal was announced.

And so the deal got done. OPEC is trimming output by 1.2m barrels per day (bpd) starting January 1st.

The deal is contingent on securing the agreement of non-OPEC producers to lower production by 600,000m barrels per day. Russia says it will contribute half of that, 300,000 bpd. Iran was allowed to slightly boost its output, while Iraq slightly lowered theirs.

We’ll see if the deal holds, and/or, who cheats.

Pundits like to chalk up winners and losers in this type of deal. Since OPEC now accounts for less than half of all energy output in the world, it is a weakened cartel, dependent on the kindness of outsiders (like Russia) to hold together.

Saudi Arabia looks like the biggest loser. First, it cut production by 500,000 bpd. Second, it has presided over a momentous shift in global power, one that is as stunning as Brexit or Trump’s victory.

Saudi’s capitulation to Russia and Iran ends OPEC’s domination of the world’s energy market. The Saudis also made the US shale oil market more powerful in the global energy market, since US shale will produce more oil whenever oil prices are high. However, Saudi oil remains far cheaper to produce than American shale oil, since it requires far less energy to extract and refine.

Russia emerged as the biggest winner. Its economy did not buckle under the Saudi effort to drive oil prices down via increased production. Putin is now the indispensable power broker in the Middle East, something that was unthinkable even 12 months ago. The Syrian civil war will soon end with Russia winning, Assad staying in power, and Saudi Arabia as the regional loser.

And so, this year truly has seen the death of one world order, along with the birth of another. The US and Saudi now have very little to show for their 50+ year joint effort to dominate the Middle East. The EU looks far from stable as a force in Western Europe.

And Saudi Arabia has just become the third dinosaur to be felled by the asteroid called 2016.

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Are We Facing an Undemocratic Future?

What do you think when Trump appoints so many retired generals to cabinet-level posts in his administration? The positive side of the argument is that these are talented, well-educated individuals who bring a worldview and experience on the global stage that Trump himself lacks.

The other side of the argument is that the authoritarian president Trump risks making his government much more authoritarian than it needs to be. This from Roger Cohen in the NYT:

A quarter-century after the post-Cold War zenith of liberal democracies and neoliberal economics, illiberalism and authoritarianism are on the march. It’s open season for anyone’s inner bigot. Violence is in the air, awaiting a spark. The winning political card today, as Mr. Trump has shown…is to lead “the people” against a “rigged system,”…The postwar order — its military alliances, trade pacts, political integration and legal framework — feels flimsy, and the nature of the American power undergirding it all is suddenly unclear.

We sound like a nation that is ripe for political upheaval. Citizens are not only more critical of their political leaders, they have become more cynical about the value of democracy as a political system, less hopeful that anything they do might influence public policy, and more willing to express support for authoritarian alternatives.

Yascha Mounk, a lecturer in government at Harvard, has spent the past few years challenging one of the bedrock assumptions of Western politics: That once a country becomes a liberal democracy, it will stay that way. That bedrock assumption is called “democratic consolidation” in political science, but Mounk’s research suggests that isn’t correct anymore.

In fact, he suggests that liberal democracies around the world may be at serious risk of decline. Data from Freedom House, an organization that measures democracy and freedom around the world, showed that the number of countries classified as “free” rose steadily from the mid-1970s to the early 2000s.

But since 2005, Freedom House’s index has shown a decline in global freedom each year. According to Mounk and his research partner Roberto Foa, who reviewed the data, early signs of democratic destabilization exist in the US and in other Western liberal democracies. They found that the percentage of people who say it is “essential” to live in a democracy has plummeted, and it is especially low among younger generations. The survey was based on 2014 data. Here is a graph from the Mounk-Foa study:

percent-who-say-democracy-is-essential-us

The graph shows responses by age cohort. Younger Americans have substantially less need to live in a democratic society than do older individuals. (The grey shaded part of graph is the 95% confidence limit for the responses to the survey). Remarkably, the trend toward acceptance of nondemocratic alternatives is especially strong among citizens who are both young and rich.

Mounk and Foa found that support for autocratic alternatives is also rising. Drawing on data from the European and World Values Surveys, they found that the share of Americans who say that authoritarianism would be a “good” or “very good” thing had risen from 18% in 1995 to 35% of rich Americans:

support-for-authoritianism-by-income-us

While citizen support for authoritarian rule remains in the minority, it can no longer be dismissed as a fringe group. They support “a strong leader who doesn’t have to bother with parliament and elections” and they want “experts” rather than the government to “take decisions” for the country. (In the study, “Upper income” is defined as the top 20% of income. “Lower Income” was defined as the bottom 50% of income.)

Overall, the rich are also now more likely than lower income citizens to express approval for “having the army rule.” While 43% of older Americans, including those born between the world wars and their baby-boomer children, do not believe that it is legitimate in a democracy for the military to take over when the government is incompetent or failing to do its job, the figure among millennials is much lower at 19%. In the US, only 5% of upper-income citizens thought that army rule was a “good” or “very good” idea in 1995. That figure has since risen to 16%, so the young rich are much more autocratic than their rich elders.

The clear message is that our democracy is now vulnerable. What was once unthinkable should no longer be considered outside the realm of possibility. This is partially the result of an educational system that does not teach even basic civics, much less the meaning of the Constitution.

Generations have grown up believing that they can casually read the document and understand what constitutional law is. Young Americans have never known the threat of an undemocratic system, so their fear of autocracy is far less than it is in the minds of their elders.

Trump is the prime example of this. And according to Mounk’s findings, he has a receptive audience in the young and the wealthy.

Would that be enough to undermine democracy in the US?

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Smart Guys, Smart Power

When we think of entrepreneurs involved in renewable energy, usually just one name comes to mind, Elon Musk, a smart guy who has given Tesla a new meaning. He just merged Tesla with Solar City.

But smart entrepreneurs in solar are emerging. The NYT wrote yesterday about Nicholas Beatty, a former banker who has covered about 25 acres of his farm in England with solar panels. This isn’t a new phenomenon, lots of farms have solar arrays both in the UK and elsewhere:

What’s new in Mr. Beatty’s field is a hulking 40-foot-long shipping container. Stacked inside, in what look like drawers, are about 200 lithium-ion cells that make up a battery large enough to store a substantial portion of the electricity the solar farm puts out.

The battery and its smart software give Mr. Beatty an advantage over other solar panel farmers. Power prices rise and fall depending on the supply and demand. The spread between the high and low price can be dramatic. By storing power in the battery, Mr. Beatty can feed it into the grid when prices are high:

The battery effectively takes power off the line when there is too much and puts it on when there is too little…

Improved industrial-sized batteries are a way of achieving that flexibility. Mr. Beatty’s battery storage system cost about $1 million, but could increase revenue for his solar farm by as much as $250k per year. Beatty is one of many entrepreneurs and businesses trying to play the fast-shifting electric power landscape. This is a capital-intensive business:

With about a dozen friends and family members…he spent £6.5 million ($8 .1 million) to build the solar farm in 2014. The solar panels…generate about £650,000 ($810k) in revenue a year…

Improved battery storage and its smart controlling software has been one of the two pillars required to make solar power competitive with non-renewable energy sources. The other is the cost of solar panels. Tesla has been working on both axis. They have built a solar demonstration project on the island of Ta’u in American Samoa that generates 1.4 megawatts of energy. The microgrid has 60 Tesla Powerpacks, the company’s large commercial battery with 6 megawatt hours of battery storage. These batteries can be fully charged with only 7 hours of daylight from 5,300 solar panels.

The microgrid facility can fully power the island of 600 residents for 3 days on battery power. It is expected to save the island 109,500 gallons of diesel per year or $8 million in fuel costs. Ta’u previously relied on diesel fueled generators for power.

Cost of solar energy per kilowatt or megawatt hour has been uncompetitive for a long time, but that is changing. And most countries and most US states now are willing to purchase power from independent generators, like Mr. Beatty in the UK. The Economist has this chart of the relative costs of sources of energy:

price-of-solar

All of this means that American farmers could open a new revenue stream by becoming smart solar power generators. Farmers own large acreage in sunny locations. They have a deep understanding of farming, another capital-intensive business. They understand that farming is a climate-dependent enterprise, another factor in common with solar power generation.

A key factor is whether their state allows interconnection with the power grid, and whether the state’s program to pay the independent power generator for power sent to the grid at an economic rate.

Let’s hope that Donald Trump’s fascination with coal doesn’t lead to bad policy. The Economist reports that Trump has promised to make more public land available to miners; but access to coal reserves isn’t their problem. Coal employment peaked in the 1920s, and today, fewer electric utilities want to use coal. If he intervenes on behalf of coal, he will be actively handicapping renewables and natural gas. If Trump’s energy policy is focused on a few unprofitable coal-mines, China will take a commanding lead in batteries, solar panels and wind turbines. That wouldn’t be so smart.

We are at a time when the cost of solar energy has dropped dramatically, and with greater economies of scale, it will fall even further.

It is past time for a few smart entrepreneurs to take up the disruption of the fossil fuel industry and its fellow travelers, the electric utilities.

 

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Our New Political Majority

(This is the last column for this week. We will resume on Sunday with cartoons. Everyone has reasons to be thankful, so take the time to talk about them with your loved ones, or your close friends this week.)

Last weekend, like most Americans, Wrongo spoke with friends and family about how we got to the disappointing political place where we are today.

Der Spiegel Online asked: If you think back ten years, could you have imagined in 2006 that America’s reality would be Donald Trump as president of the US? Probably not, but ten years ago:

  1. Economic growth and job growth both fell in 2006 as the residential housing boom came to an end.
  2. Wages were the smallest share of national income since the government began compiling the statistic in 1947.
  3. Consumer debt soared to new heights, while consumer debt payments rose to the highest on record.

Those were dispatches from the ongoing war that corporations and neoliberal economic elites made on our citizens. And it didn’t stop there. After 2006, we had the financial meltdown and the Great Recession. Banks had to be bailed out. Millions of people lost their jobs. Debt grew, and faith in government’s willingness and ability to improve the fortunes of their citizens evaporated.

The clear losers were workers in traditional economic sectors, particularly in manufacturing. According to a study by economists David Autor, David Dorn and Gordon Hanson, the increase in imports from China have resulted in the loss of 1.5 million manufacturing jobs since the early 1990s.

But automation had a greater impact: In total, some 6.9 million manufacturing jobs were lost in the US between the early 1990s and 2011. For those who have lost their jobs, it seems that their political representatives have forgotten them. Particularly when establishment Democrats and Republicans continue to push for more trade, by which they mean more imports from our global corporations who continue to export those jobs to lower-wage countries.

In 2016, despite substantially better economic times, many American still worried about losing their jobs and their financial security. They saw themselves as the losers in a game that only helps corporations and the elites. This domination of our politics by the economic elites has produced a defacto disenfranchisement of everyone else.

A new political map has emerged, one that doesn’t neatly fit into the Left vs. Right model of our politics. The new dividing line is between those who support, and those who oppose, America’s economic elites and their neoliberal policies. Those on both sides of the old ideologies who distrust the elites are connected by their fear of being left behind. This was clear in 2016 in those precincts where Trump outperformed Romney, and where Clinton underperformed Obama.

This is today’s landscape, but in 1998, Richard Rorty, an American philosopher who died in 2007, wrote “Achieving Our Country” which predicted our current political situation. According to the NYT, the following fragment of the book has been retweeted thousands of times since the election:

Members of labor unions, and unorganized unskilled workers, will sooner or later realize that their government is not even trying to prevent wages from sinking or to prevent jobs from being exported. Around the same time, they will realize that suburban white-collar workers — themselves desperately afraid of being downsized — are not going to let themselves be taxed to provide social benefits for anyone else.

At that point, something will crack. The nonsuburban electorate will decide that the system has failed and start looking around for a strongman to vote for — someone willing to assure them that, once he is elected, the smug bureaucrats, tricky lawyers, overpaid bond salesmen, and postmodernist professors will no longer be calling the shots.

One thing that is very likely to happen is that the gains made in the past 40 years by black and brown Americans, and by homosexuals, will be wiped out. Jocular contempt for women will come back into fashion…All the resentment which badly educated Americans feel about having their manners dictated to them by college graduates will find an outlet.

Rorty’s basic contention is that the left abandoned its core philosophy in favor of a neo-liberal worldview that promoted globalism and corporatism. Rorty said in a lecture in 1997:

This world economy will soon be owned by a cosmopolitan upper class which has no more sense of community with any workers anywhere than the great American capitalists of the year 1900.

Mr. Rorty’s most prescient words:

The cultural Left has a vision of an America in which the white patriarchs have stopped voting and have left all the voting to be done by members of previously victimized groups.

Rorty said that in 1998. And in 2016, it was Hillary Clinton’s failed election strategy.

What’s so striking about “Achieving Our Country” is Rorty’s argument that both the cultural and political left abandoned economic justice in favor of identity politics, ignoring too many economically disadvantaged Americans.

According to voter turnout statistics from the 2016 election, 58.4% of eligible voters actually voted (135.2 million). Clinton received about 63.7 million votes (27.5% of eligible voters) to Trump’s 62 million, (26.8%) while 9.5 million votes went to others.

This means that 41.6% of America voted for nobody, far outweighing the votes cast for Trump or Clinton.

That the majority of Americans did not vote is not because they don’t care. They voted no confidence in a political system that forgot about them a long time ago.

A minority elected Trump. The majority voted against our neoliberal political system.

 

(BTW, Tuesday was the 53rd anniversary of JFK’s assassination. While it remains fresh in Wrongo’s mind, it hardly registers in the minds of the press or the public. A new idea on Oswald’s motives appeared in the LA Times. Take a look.)

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Hail The Orange Overlord

(Wrongo will say more about Veteran’s Day during Sunday’s cartoon edition. For today, let’s acknowledge that Veteran’s Day is one of America’s most patriotic holidays, and that this year, it feels very disappointing to many of us. Leave that aside. Take a minute to reflect on those who fought for us so that we have the right to vote for whomever we please.)

Regarding the election: Aren’t you happy that America is on its way to being great again?

For both the winners and the losers, please don’t make things worse than they have to be by deepening the divide between the two political camps. Most of all, try to be understanding of each other. Half of the country is not reacting well to this, and some on both sides are going to say things that they’ll regret, or that put them at odds with you and your core values.

People aren’t at their best when they’re afraid and confused, so take a beat, and let the next month or two go by without overreacting. There will plenty of time to do that after the inauguration.

And there is little value for Democrats in performing a self-flagellating post-mortem. We can analyze the results, but we can’t change them. We know what went wrong, even if we won’t admit it. Here’s what has to happen:

  1. Democrats need to find a way to make sure that their primary process favors new faces with bold, inspiring ideas. We can’t have any more competent retreads. Mondale, Dukakis, Gore, Kerry and Hillary Clinton were all competent technocrats who were really weak candidates. How many times must we replay this record before changing direction?
  2. It’s time for Democrats to stop using white working classas a pejorative. Not so long ago they were the bedrock of the New Deal Democratic Party. Find a way to be respectful. Think about how to bring them back to the Democrats’ side.
  3. There is one argument that we need to see less of: that the demographic makeup of the US is sure to produce a Democratic paradise. This argument is false, as we learned on November 8, and it promotes lazy thinking by the leaders of the DNC: the “We’ll just sit back and they’ll drop into our hands like ripe fruit” kind of thinking.

Finally, the notion that since the old white people will die off, we should focus solely on Millennials is stupid. Time makes more old people every day. And as people age, they change their opinions and politics.

Hillary and her campaign team failed. They raised $1.1 billion by Election Day, and lost conclusively. Their strategy, and its execution were both failures. If you spent a $billion in the corporate world and failed, you would be fired immediately by your organization. Dems should take no consolation from Hillary winning the popular vote. It doesn’t change who the president is. The real numerical difference is very small, and may even be reversed by the time all votes are counted.

Hillary did not articulate an inspiring vision. Her damned emails and the Clinton Foundation were self-inflicted wounds. Her team’s strategy of micro-targeting, which worked well for an inspiring candidate Barack Obama, was self-limiting for the technocrat Clinton.

The 2016 problem that Democrats failed to address was that nearly half of the electorate was dissatisfied enough that they were willing to vote for Donald Trump, arguably the least qualified person to ever hold the office. And Clinton and her campaign team had no message or vision directed at the group Donald inspired.

Presidential campaigns are an affair of the heart, but Hillary was a cerebral candidate in a highly-charged emotional situation.

The so-called Deplorables have spoken. Democrats have opened the door and let the Right Wing demons in. The GOP now has free reign. And doubtless, there will be no mercy dispensed as they roll back the new deal legislation that remains of the books.

It is likely that the “lesson” the DNC will learn from their loss will be to move even further to the right. Yet, when Americans have to choose between an ersatz Republican-lite and the real thing, they will choose the real thing every time. If the DNC had an ounce of clever thinking, they would recognize the need to be once again have a platform that is:

  • Fully committed to adding more jobs, jobs, jobs
  • For reining in the economic power of large corporations
  • For reversing income inequality
  • For Medicare for all
  • For additional taxation of the highest personal income brackets
  • Against endless war
  • Against Citizens United

The question is whether progressives attempt to “reform” the Democratic Party, or whether they organize a new party. It might begin like the Republicans began when they split from the Whigs. The Whigs split started in 1850, and by 1856, the Whigs were no longer a national party.

Maybe in these times, a new “American Justice” party could recruit Elizabeth Warren, Bernie Sanders, Kamala Harris, Tulsi Gabbard, Gavin Newsom and most important, a battalion of young messengers to bring a third party to power in the US.

If that doesn’t happen, we need to see the DNC leadership’s heads on a pike.

In either case, we face a decade or more of rebuilding progressivism into an American political majority.

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China’s Grand Strategy

In December 2015, Wrongo linked to a year-end prediction in the LA Times:

“One Belt, One Road”, also known as “OBOR,” is a new development strategy initiated by China in 2015 to promote its economic connectivity and cooperative relationship with nations in Eurasia by helping them develop infrastructure. These initiatives should also help Chinese exports.

OBOR is called the new Silk Road by the Chinese. The Silk Road was an ancient network of trade routes linking China’s merchants with Central Asia, the Middle East, Africa and Europe in the seventh century.

Now, China’s president, Xi Jinping, wants his country to revisit the time when the Silk Road was a conduit for diplomacy and economic expansion, and when Chinese silk was sent across the globe.

OBOR has drawn remarkably little attention and comment in the US, especially by our politicians and pundits, who prefer to focus on old white men in red ball caps.

This is surprising, considering OBOR’s economic implications and its geostrategic significance.

OBOR seeks to convert the Eurasian land mass into a single economy by interconnecting a network of roads, railroads, pipelines, ports, airports, and telecommunications links, and, based on these, to create a series of logistics corridors (One Belt). Supplementing this will be a maritime component (One Road), aimed at linking Southeast Asia, Oceania, and North Africa, through the South China Sea, the South Pacific Ocean, and the Indian Ocean. China would develop deep water ports and then build the infrastructure to link them to interior markets. Here is a graphic that shows the “One Belt, One Road” project:

OBORSource: The Economist

China plans to commit $4 trillion to build out the OBOR project. That may sound like a lot, but China currently has $3.5 trillion in reserves, mostly in US$. The Chinese say that they have 900 deals in 60 countries in place, or in negotiation, or planned. Most would be designed, built and managed by Chinese enterprises, along with local partners. The Chinese government will directly or through several newly established funds they control, provide the financing for both the Chinese companies and their local partners, with low-interest loans or grants.

OBOR will enable China to employ the large project development capacity that it has built up during its industrialization and infrastructure development drive, much of which China now sees as surplus to current needs.

By seeking to use OBOR to create a Eurasian bloc, China resurrects Mackinder’s World Island Theory, described as: Whoever controls the Heartland of Europe and Asia will rule the world. The corollary is: Who controls the Land Power will unavoidably compete with who controls the Sea Power. Today, the US is the Sea Power, while control of the Land Power is up for grabs, and China is betting that OBOR can help it become the Land Power.

This is China’s Grand Strategy.

Russia is in an interesting position. On the one hand, China is its ally, particularly in oil and gas, with Russia as supplier, and China as the buyer. China will need Russia’s military strength along with its own to offset the military power of the US once the real competition begins. Also, Russia cannot ignore the positive significance that a strong OBOR could provide in its relations with the US and the EU.

China’s bet is that the US is losing its grip in Europe. And that the EU will not be a long-term player politically even if it is economically. The EU is challenged from within by stagnant economies, and challenged from the East by Russia, who sees the EU’s expansion to former Soviet bloc nations as both military and political threats. Possibly, Germany can be spilt off from the rest of Europe.

This is China’s plan for global economic and political primacy in the 21st century. The US response has been to continue playing geopolitics with breathtaking ineptitude: When you are number one, you ally with number three (Russia), against number two (China). Or better yet, get them to fight each other.

But when the US tries to contain both simultaneously, it pushes them together.

Most significant, an autonomous Asian nation is promulgating a global economic and political expansion through bilateral deals. It is presenting a positive and credible vision of future commercial and political success for many countries who no longer trust the West, if indeed, they ever did.

This is very much against the multilateral trade model that the US and the EU have stood for in the past 70 years. Sadly, the West has not demonstrated any positive vision for the future since the end of the cold war.

But trust Trump. He’ll make a great deal, and those Chinese will certainly stay at home.

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