Israeli Stock Market Soars on Nuclear News
Western stock markets are closed on Sundays, but Israel's exchange is open and its ongoing rally is continuing as the market reaches a new high today.
The kind of punditry where you draw a direct connection between a news event and a stock market rally can get a bit lame. But let's put it this way. Suppose this deal were the kind of national security disaster for Israel that congressional Republicans are making it out to be—wouldn't Israeli markets be tanking? One of the neat things about financial markets in this regard is that there's no percentage in bullshitting. You want to sell sell sell Israeli assets if and only if you actually have reason to believe some bad news about Israel has just hit the wires. In politics, there's often an upside to bullshitting. Right now, we have a lot of bearishness on Israel from politicians who see gains in painting Obama's policy as bad for Israel. But in financial markets, we see nothing but bullishness.
Last Word: Thanks for The Reckoning
Today marks the last post for The Reckoning.
When I pitched the idea of a blog to explore the theme of my recent work on relative American decline, to Slate’s editors thought this would be an excellent topic to track over the course of the final year of a particularly difficult election cycle.
During the course of that year, I hope that those who dipped into this conversation had reason to think more deeply about these issues. The United States, in many ways, is sleepwalking into the future, proceeding on multiple economic, political and military fronts as though not all that much has changed since 2008, 2001 and 1989 for that matter. My hope was to prompt a bit of long term thinking – no easy order during a hyper-partisan election year.
I fear I got dragged to often into the maelstrom. The clown car that carried the GOP’s presidential candidates during the primaries this time around just proved irresistible! But I hope, too, that there were original ideas, trenchant criticism of status quo thinking, and some sense among my readers that – while I admittedly need a copy editor – I took on sacred cows in the media, financial industry, Congress, the think tanks of the right, Russia, the US military, the Israel lobby and other repositories of retrograde thought. The White House, by the way, included on occasion.
Let's face it, even in what used to be called the television age, long-term thinking was an endangered art form. In today’s age of instantaneous opinion - whether blogged, posted on comment threads, shrieked on cable television and talk radio, or pushed out by thumb-jockeys on Twitter - thinking beyond four or five years is not America’s strong suit.
And that leads me to my first thank you: To all those who took time to comment, good or bad, and to really wrestle with some of the ideas and criticisms I put forward, thank you. For a country that has come to think it was somehow preordained that we should sit atop the global economic and political food chain, there is no more optimistic sign than to watch an engaged group of citizens struggling to come to terms with unpleasant realities.
In the broadest sense, the reality I have tried to hammer home is this: The United States, like every other empire that ever planted its tendrils in the soil of this planet, is losing its dominance of world economic and political affairs, and unless we unravel some of our current commitments and demand more of our allies and those rising to join us at the top table, we risk geopolitical Lehman Brothers moment that combines the pain of the 2008 disaster with a more traditional catastrophe: global war.
By and large, through this blog and my book ,The Reckoning: Debt, Democracy and the Future of American Power, I have been trying to get people to realize that the United States, both economically and geopolitically, is growing brittle. Our ability to dominate the global agenda since the end of World War II owed a great deal to intelligent decisions taken by that generation of statesmen: We left Europe and Asia, by and large, after World War II, rebuilding our enemies and creating international institutions that, at least on paper, showed we believe that other nations have the right to be heard.
I’ve argued that the US needs to take care not to allow our relationship with China, which for better or worse is mutually dependent, deteriorate into one of outright hostility. The political convenience of scapeboating China for unemployment, or the price of oil or tensions in East Asia is a dangerous game.
There are times when China deserves criticism and we should not hold back. Human rights, in particular, and bullying behavior toward China's smaller neighbors should be pointed out.
But China has enormous problems of its own – problems that get lost in the angst-ridden talk of US decline. It also has made real progress over the past several decades, starting as essentially a destitute communist prison camp during the mid-1970s, and since then transforming itself (and the lives of hundreds of millions). It is nowhere near democracy, but it is today a place where it is possible to imagine a democracy taking root.
No country will have as much influence on whether or not that happens at the United States. Giving hardliners there excuses to whip up hatred of the West will only ensure that process takes longer, and that the US and China remain just a Navy Lieutenant’s mistake away from outright war.
On other foreign topics, I've been more optimistic than many about the Arab Spring, and I think so far that has been borne out, in spite of Syria's violence. By and large the moderate Islamists who took power in Tunisia and Egypt have restrained the worst instincts of their constituents. Even as Israel and Hamas start another round of their futile conflict, Egypt's role has been one of balancing, not threatening. That will be a good thing in the long run.
I also have been right so far about the Iran-Israel tension. I still think Israel knows its military options are miserable, and also understands that it’s only real hope on Iran’s nuclear program is to talk tough to optimize economic pain in Iran, or goad the US into attacking it.
I also encouraged the US, early on, to open up to reformists in Myanmar (Burma). Low and behold, Obama’s there today.
By and large, though, Americans (Slate included) just don’t spend much time on foreign policy, as the useless debate on the topic showed in October. So being right on some of this counts that much less.
If I was right about many things, I made my share of mistakes, too. One such error was in thinking I could self-edit: I’m too fast a writer to copyedit my own work. This is a major drawback of the blogosphere, sadly, and of the death of the business model of my first love, journalism, has not helped.
The real clunker in all the posts of the last year, however, was one on the London Olympics. I’d relocated to London in late May, my second stint in this wonderful city. But the Brits were in the midst of the worst summer EVER on record here. Londoners themselves were resigned to an Olympics that would have serious transport and security problems. So I wrote this post: mea culpa, and apologies to my British friends. I could not be happier that it worked out differently.
On domestic economic matters, I’ve tried hard to get the Obama administration to use the awful plight of the UK and European Union as a rhetorical firewall against the implementation of similar job and growth destroying austerity in America. I tried to emphasize long-term solutions – rebalance away from consumption, for instance, the need for tax reform, and the important role a resurgent US manufacturing sector could play.
I feel I was only partly successful – the argument may well be beyond the simplistic black-and-white hues of US politics. But the fact that someone who broadly agrees won the presidential election two weeks ago gives me some solace.
As anyone who checked in here knows, I think the better of the two men won the presidential election, and for that we can thank the right-wing of the GOP for ladening their otherwise vanilla candidate with radioactive baggage.
Calling Obama the better man, then, isn’t really that much of a compliment. It's merely reflects the fact that Obama's macroeconomic and foreign policy instincts were rational rather than radical, and that Romney alienated too many voters to prevail. But I also happen to believe that tolerance, something Obama genuinely embodies, is a more important “American value” than any of the medieval nonsense I saw embraced by Romney during the primaries. If Obama barely earned his victory, Romney richly earned his defeat.
Whether Obama actually harnesses those better instincts, overcomes the dogged opposition to his policies that the Republicans will certainly mount, and begins to adjust America to the new realities ahead - well, that's another question.
The fiscal cliff is all the rage right now, and we may get some hint of the new, unburdened, second-term Obama in those talks. But that’s not the big game. That’s another increment. The Grand Bargain involves not only a recalibration of our fiscal and tax policies, but also our psychological sense of self, and - yes - unmeetable promises to the elderly, the poor and others that previous generations of Americans have committed the country to. Entitlements need reform - period.
So far, I just don't see it happening, and that worries me. Other than a "pivot" toward Asia - something Bill Clinton spoke about in the mid-1990s, by the way -- Obama's foreign policy is notable primarily because it is more rational than the supercharged unilateralism that preceded it. Drones have proven a great way to draw down US forces in Southwest Asia, but do we really think it won’t just be a matter of time before they are buzzing over our heads, too?
On domestic policy, I'll hold my fire: He was very constrained by the obstinance of the GOP House. But we will know soon enough if he can capitalize on his victory, or if he will once again use divided government as a crutch. All that oratorical talent should be put to good use.
The fact is, I believe deeply that this is the greatest nation on Earth. But the truly great do not spend a lot of energy screaming the fact from the rafters. What the rest of the world things about that question actually matters at least as much as what we think. And unfortunately, under Obama as under most presidents, our national pronouncements still reek of self-regard, of the "right" to lead the world, of the messianic sense of mission that has done much good in the world, but which also has caused misery and destruction at times that we prefer not to remember.
We have no such right: global leadership in the future will and should be shared, and always, it should be exercised because we earned it, not because God, or Allah, or John Maynard Keynes ordained it to be so.
Government is not evil – and neither is capitalism. It’s about the people in both places pulling the levers. Hopefully, in a second term, Obama gets that part right. It's up to American voters to keep him honest.
As for me, I'm working on another book. As we used to say in newspapers, see you in the funny papers.
The Fiscal Cliff and Austerity: Will Another Crisis Be Squandered?
With President Obama and House Speaker John Boehner now holding the most important negotiations either of their careers, the White House has done a predictably miserable job of preparing the ground. Even accounting for GOP denial, too much of the discredited economic dogma of the right has been allowed to survive. You can blame this on the strains of a close election for this oversight, of course, but that’s a cop out.
With talks now underway, too many Americans have not been exposed to the lessons that European fiscal policy has served up over the past several years when it comes to radical austerity. The lessons are clear, and they have direct relevance to the American dilemma.
They are very much in the news right now, too. Over the past two days, the eurozone (that part of the EU using the euro) officially fell into a double dip recession brought on by excessive austerity, and the UK’s central bank essentially predicted that the double dip its government precipitated with similar fiscal policies earlier this year is likely to turn into a triple dip sometime in 2013.
By now it should be blindingly obvious that the kind of budget cuts the right likes to champion will do just the same to the US economy. Indeed, it would also deepen the economic slowdown that is afflicting almost every major economy in the world.
So why has Obama failed to drive this lesson home?
I wish I knew. As I’ve been saying since 2010 - and more importantly, a slew of notable economists have said it too – the best way to show what draconian budget cuts would do to the United States is to look at the results they’ve brought in other complex, developed economies: i.e., Europe.
You can make an argument – speciously, I think, but still an argument – that the experience of eurozone economies is not a valid analogy because a good deal of their dysfunction derives from the fact that they’ve created a deeply flawed currency union.
But Britain’s economy is a far better microcosm, and this week the Bank of England confirmed my argument: the stubborn refusal to stimulate economic growth in the face of a balance sheet recession will lead to yet another recession – a triple dip, almost unprecedented for a major economy
This week’s Bank of England inflation report for November confirms that the 1 percent growth in Q3 2012 that the government promised was the end of the double dip will be an anomaly. It appears all that growth – or nearly all – can be attributed to the stunning success of the London Olympics. With the torch out, the fire stoking the British economy diminished, too. The Bank now expects zero or negative growth in Q4 – or, put less delicately, a triple dip.
Chris Giles, the economics editor of the Financial Times, called the BOE forecasts “the gloomiest we’ve seen for a long time.” In effect, he says, the idea that tight fiscal policy and monetary expansion would drive demand has been completely destroyed by the British test case.
Why, then, is this almost never referred to in the enormously important American debate? It should by now be conventional wisdom – an unassailable fact – that replicating the road that the British government set out upon in when the Tory-led coalition government took power in May 2010 has been a disaster.
In spite of the fact that analysts warned of this back in 2010 (as I did in my book, The Reckoning: Debt, Democracy and the Future of American Power, which I finished writing in about August of that year), many people in the United States still accept the nonsensical idea that cutting government spending alone will fix what ails the US economy.
Here’s what I wrote at the time:
In effect, by strangling the British public sector with austerity at precisely the time when British consumers and corporations felt most distressed, [British Prime Minister] Cameron has guaranteed a deeper downturn, gambling that long-term economic balance is better served by a smaller public sector, with all the sacrifices that implies, than by policies that stimulate GDP growth.
Among critics of this approach, David Blanchflower, arguably the world’s leading labor economist, warned that deep austerity on the heels of a deep recession was a historic policy mistake that could permanently lower the “speed limit” of British GDP growth. He accused George Osborne, the top economic policymaker in Cameron’s government, of engaging in a short-term accounting trick to make Britain’s national accounts look better, all fueled by Thatcherite ideology rather than economic reason. By the middle of 2011, with his nightmare prediction unfolding as expected, Blanchflower chronicled the results in the New Statesman and Society, writing that “Osborne’s policies will be responsible for the worst recession in a century—and maybe it should be named the ‘Second Great Depression.’” Britain’s post-crisis recovery stalled to near-zero growth, effectively a double-dip recession, and by December 2011 was on course to become Britain’s worst-ever post-crisis recovery, supplanting the long, Depression-era slog of 1930 to 1934.
In the United States, the lesson has failed to take. Even before US growth began to flatten out once again in the autumn of 2011, the “recovery” that allegedly began in late 2009 had become the weakest of any since World War II. But the parallels are rejected on the right. With the silly season of primaries looming, when rational thought takes a back seat to appeasing the zealous base, the GOP appears unwilling to address the British debacle. Instead, an intellectually dishonest ditty from the Grand Old Hymnal, “What Would Reagan Do?” wafts up from the party’s rank and file.
Whether the 1980/2012 comparison is relevant or not (the case is dubious at best), contemporary Republicans seem unable to grasp what Reagan actually did in practice as opposed to the sepia-toned remembrances of party lore. So thick is the propaganda around the Gipper that no one recalls how, faced with a difficult economy and divided government himself in the 1980s, Reagan chose to mix tax cuts with stimulus spending and, yes, tax increases, too [emphasis added]. Bruce Bartlett, an economic advisor to Reagan and a Treasury official under George H. W. Bush, professes amazement at the twisting of the historical record by those who allegedly idolize his former boss. Bartlett reminds us: “The cumulative legislated tax increase during his administration came to $132.7 billion as of 1988 [$367 billion today]. This compared to a gross tax cut of $275.1 billion. Thus Reagan took back about half the 1981 tax cut with subsequent tax increases.”
Wouldn’t it be nice if enough Americans understood these facts to make their denial politically impossible? Imagine Obama going into the fiscal cliff negotiations with this nonsense already settled. Instead, this will be the central obstacle to progress toward a deal - the zombie philosphy of trickle down economics and supply side growth.
Given the week’s news in the UK and the rest of Europe, I hope Obama will deploy the argument in his negotiations with Boehner, hammering home the British example in particular. Too little, too late? Maybe. And true, he risks belng labeled some kind of Euro-Venusian Socialist every time he points to anything in Europe.
But the time to worry about that kind of thing ended on November 6. Today, the enemies on his right who would never have voted for him anyway really don’t matter much anymore. The heart of the problem now is economic discredited GOP economic dogma. Now’s the time to drive a stake right through it.
US and China, Leaders Now in Place, Need to Leave Chicken Little Behind
Over the past two weeks, the leaders of the two most important nations of the world won contests that will ensure that something close to continuity will reign for the next four years. In both China and the United States, extremists who would love to recreate the Cold War's dynamic will be left on the sidelines mostly, still able to stir trouble, but not actually steering policy.
This is a good thing. By any measurement, the US-China relationship and rivalry – a rival-ationship, perhaps – is the most important in the world. During the 2012 election campaign, sadly, it apparently was necessary to cater to dimwits who think that China is the new Evil Empire and that the economic relationship is a one-way street, benefiting only China and undermining the United States.
Similarly, in Beijing, as China’s Communist Party weighed the composition of the new leadership announced today, no one dared show any signs of weakness (or even reason) when it came to nationalistic fetishes like the disputed islets of the South China Sea or demands by Westerners for improved human rights.
But hopefully, we now get down to business. With the US election decided and China's new leader, Xi Jingping, officially installed, the time for simplistic views has passed. Before the US enters yet another “political cycle,” genuine, frank conversations and compromises on both sides need to take place, and both Obama and Xi need to explain to their respective populations why getting along is the only way to avoid catastrophe.
Contrary to the rhetoric of the right – and of the trade union left, too - China’s dependency for growth on the American market, along with commercial innovations the US regularly produces, puts Bejing at a disadvantage in the long run.
With its increasing dependence on imported energy, persistent internal unrest and a susceptibility to bouts of inflation, China’s pushmipullyu relationship with America presents terrible dilemmas for the country's communist leadership.
The fact is, in spite of the Chicken-Littlism of the right, China’s rise as an economic giant, and eventually a military and diplomatic competitor to American power is taking place under terms the United States can influence and even harness to its own advantage. So far, in the three decades since China opened its economy to capitalism and began its breakneck sprint toward world-power status, the US has failed to develop a coherent strategy to leverage these advantages — particularly in innovation, technology and intellectual creativity.
Such a strategy would require Washington to invest heavily in its own economic and creative strengths, as well as adjust its military posture in the Pacific to accommodate Chinese interests without sparking conflict. It would also require Washington to insist on greater Chinese participation in international diplomacy and peacekeeping, and prepare American allies in Asia for the realignment of power that looms ahead.
To understand how we got here, we need to go back a few decades. In 1989, a deep freeze enveloped US-China ties after the TiananmenSquare massacre. Gradually, isolation gave way to a paternalistic approach as the United States held out ‘rewards’ like most-favoured-nation trade status or membership in the World Trade Organization (WTO) as incentives for China to continue opening its economy to competition. All of this made sense early on, when China’s home market was largely closed off to foreign products and foreign direct investment (FDI) was limited to joint ventures with state firms.
However, the approach lost its effectiveness in 1997 when China absorbed Hong Kong’s dynamic banking sector. Suddenly, more and more Chinese trained in US and other foreign universities chose to return to their homeland. Supercharged by the mix of long-term economic planning, first-class financial acumen and cheap credit, China’s growth accelerated, and it became clear that its emergence as an economic giant was inevitable.
But too many assume they know where this leads. In fact, the exact shape of the future geopolitical order remains very uncertain. Some view the United States and China as rival standard bearers of competing ideologies — democratic market capitalism and repressive state capitalism — bound to clash in the twenty-first century just as fascism, communism and democracy did in the previous one. But clinging too fervently to this belief risks creating a self-fulfilling prophesy, particularly in a world where the balance of power in Asia and elsewhere is in transition, and where none of the old talking shops, from the United Nations to the Association of Southeast Asian Nations (ASEAN) to the Asia-Pacific Economic Cooperation (APEC), are ready to offer a credible forum for mediating disputes.
The issues that receive obsessive attention from each side — the under-valued Chinese currency, disputed territorial claims in the South China Sea and China’s gradual modernization of its military — raise the risk of a sudden miscalculation that could have tragic global consequences. What’s more, the black-and-white view of this relationship obscures the fact that the United States retains the upper hand militarily and economically.
Washington should be plotting a future based on the awesome strengths of American free society and economic productivity. Instead, it scapegoats China, its chief competitor, for striving to lift its population out of destitution. Since the 2008 financial crisis, the United States has acted like a football team that can only play defence. Case in point is the running dispute over China’s currency, the renminbi (RMB), also known as the yuan. The People’s Bank of China — the country’s central bank — has kept the RMB low in order to maximize the competitiveness of Chinese products. The dispute pits those who think a strong RMB would make US manufactured goods more competitive globally against those who see it as a relatively small issue in a very complicated relationship.
The larger problem is not about exchange rates but ‘global imbalances’ — the fact that China’s consumers save at enormous rates and consume little compared with the spend-crazy, credit-addicted West. Getting Chinese consumers engaged in the global economy would do far more to employ American workers than a readjustment of its currency rates. Rather than building a mountainous surplus based on export earnings that it ploughs into US Treasuries and other investments, China could be recirculating that money domestically and stimulating a consumer boom that would produce a positive effect for every major manufacturing power on earth.
Of course, there are enormous structural impediments to this readjustment — for instance, Chinese banks effectively operate as funnels, sucking up much of the savings in Chinese households and transferring them (via bank balance sheets) to the corporate-state sector, underwriting its investments in massive infrastructure and other projects, and keeping consumer spending weak. Reforms to this system, which barely figure in US-China joint communiqués, would mean that more Chinese-made products would stay in China, with fewer dumped cheaply into foreign markets.
But such subtleties are lost on American legislators. Rather than focusing on ways to maintain and extend the US lead in high-end manufacturing, US politicians have waged a doomed battle to protect manufacturing industries like textiles and furniture that stand no hope of supporting what the American workforce considers a decent life. As a result, Congress has pressured for an appreciation of the RMB to be the featured ‘task’ of recent US financial talks with the Chinese. Granted, the United States has also established an annual bilateral economic summit that attempts to broaden the conversation to such areas as energy and climate change, but with US jobless rates hovering near 9 per cent, the pressure to scapegoat isn’t letting up anytime soon. The ‘all eggs in one basket’ foolishness of this is clear, and the idea that China will relent given the potential cost to its fragile domestic stability seems unlikely.
Like all powers emerging from long periods of backwardness, China wants to make the most of its labour cost advantages while they last — something that giants of nineteenth-century American capitalism understood very well. Fair play, which figures high in the rhetoric of contemporary American politicians, featured not at all in the development of American capitalism’s march to global dominance.
Imagine a China run by a democratically elected government. Given the likelihood that an appreciation of the RMB would cause mass layoffs as foreign factories switch to other, even cheaper Asian producers like Bangladesh or Vietnam, any government claiming to act in the name of its citizens would resist outside pressure to allow the RMB to appreciate.
Meanwhile, neither the Chinese nor other foreign holders of US Treasuries are under any illusion about the ultimate aim of US policy: a covert devaluing of the US dollar, thus drastically reducing the value of the enormous investment China and other US creditors hold as their shares of the US national debt.
This lack of a ‘grand strategy’ in America’s approach to China shows up in minor trade and commercial disputes. Recently, a bid by the Chinese telecommunications company Huawei Technologies to buy the American firm 3Leaf was dropped under pressure from the US Committee on Foreign Investment in the United States, a Cold War-era body founded to prevent sensitive technology from falling into Soviet bloc hands. In 2007, the same panel stopped Huawei buying an Internet routing company, 3Com, which was ultimately purchased by US giant Hewlett-Packard.
There will be times when such actions make sense. Some of China’s largest firms remain deeply entangled with the state and China’s military. And not all of China’s proposed investments have caused political fights. China’s Lenovo bought IBM’s PC business in 2006, and the huge construction firm, China State Construction Engineering Corporation, is a major contractor on the reconstruction of the San Francisco Bay Bridge and has won contracts for work on New York City’s subway and other large infrastructure projects.
But China’s FDI in US corporations remains tiny — a paltry $791 million in 2009, compared with the over $43 billion invested in China by American firms that same year. With China’s appetite for such investments likely to increase by up to eight times in the next decade, the United States would be foolish to continue warding off such money particularly given that these investments would help, over time, support US exporters and offset the enormous trade deficit the United States has been running with China for decades, amounting to $273 billion in China’s favor in 2010.
China’s great manufacturing complexes now dominate global markets across vast product lines, including appliances, consumer electronics and consumer durables like sporting goods, clothing, toys, furniture and textiles. Yet China lacks something that its nineteenth-century peers had in spades: innovators. Even in 2010, the year China officially overtook Japan as the world’s second largest economy, no Chinese brand could be called a household name in any Asian market, let alone in the wider world. Something is retarding China’s transition from copycat manufacturer to innovative top dog. The kind of manufacturing that accounts for nearly all of China’s export earnings relies on low-cost inputs, including labour, as opposed to the value-adds of quality and technology that underpin an advanced economy’s manufacturing sectors, notably in Japan, Germany and the United States. The combination of a nineteenth-century business model and a twenty-first-century pseudo-communist political repression does not foster creative thinking.
The problem might be solved in the long term by investment in R&D and reforms to China’s economic incentives and education system — indeed, Japan suffered from precisely these problems early on in its emergence from the depths of destruction after World War II into a postwar economic powerhouse. But economists also suspect that the centralized nature of China’s government will prove a lasting liability, allowing the United States and other advanced economies to maintain their lead in high-tech goods for far longer than might otherwise be the case.
This underscores a deeper dilemma. China’s brute strength in manufacturing is based on the simple, and possibly unsustainable, deal that the Communist Party made with its urban elites — namely, that it will keep incomes rising and leave these urban elites alone to make money as long as they keep their political aspirations to themselves. But as more and more Chinese in the vast, poor interior clamour for their own piece of the pie, wages will rise and demands for safety and environmental codes will erode competitiveness. When this happens and jobless workers get angry, the urban elites may demand a greater say in their own government. But by then, the rural millions may not have much patience left.
China is by no means doomed to remain a smokestack power. Increasing investment in science and technology, now running at about 1.5 percent of the GDP, puts China at the top of the table among emerging economies in terms of R&D spending, and fourth overall behind only the United States, Japan and Germany. But the country’s mediocre higher educational system, demographic and political challenges and corruption suggest that this will be more of a Long March than a Great Leap Forward.
Take the problem of demography. China certainly cannot be described as suffering from a shortage of people, but it is suffering from an acute shortage of young people, thanks to its enforcement of one-child population control policies since 1979. China has enjoyed a larger ‘demographic dividend’ (extra growth as a result of the high ratio of workers to dependents) than its neighbours. But the dividend is near to being cashed out. Between 2000 and 2010, the share of the population under 14 — future providers for their parents — slumped from 23 percent to 17 percent. China has around eight people of working age for every person over 65. By 2050 it will have only 2.2. Japan, the oldest country in the world now has 2.6. As the Economist magazine pointed out recently, China is getting old before it has got rich.
The US figure, according to Census Bureau projections, is 3.7 working people per retiree — and the trend will go gently upward. Indeed, of the countries that will rank as the world’s largest economies later in this century, only the United States, Brazil and Turkey have managed to avoid acute ‘dependency ratio’ problems. For the United States, a relatively high birth rate and a much more open approach to immigration have saved it from the worst of the crisis.
In 2011, the Boston Consulting Group (BCG) reported that, due to a number of changing economic realities — including rising salaries and economic expectations among Chinese workers, new labour, environmental and safety regulations abroad, the higher cost of energy required to ship products halfway around the world, and the US market and the uncertainties of political risk in these places — the cost benefits of producing in Asia no longer automatically outweigh the risks. Indeed, the BCG report predicts a ‘renaissance for U.S. manufacturing’ as labour costs in the United States and China converge around 2015. Anecdotally, the effects can already be seen in new plants created in the United States and in some instances in which plants set up abroad a generation ago to leverage lower labour costs have relocated back to America. This has started to happen, too.
If the main factors in these decisions were labour costs and the weak dollar, the victories would be Pyrrhic. ‘Inputs’ — energy, transportation, raw materials and other production costs — will fluctuate. But, the decisive advantages include innovative management and production techniques, savings on transportation costs, lower political risk and corruption, and the productivity and relatively high skill levels of the American workforce.
The US economy, with its potent, creative corporate sector; transparent bureaucracy; world-beating universities; and highly skilled labour force, does not have to bow down to China. It can compete and adjust to the arrival of China and to the billion-odd other middle-income workers being added to the global economy in other emerging-market countries by stretching its lead in high-end, knowledge-based commerce. The true danger for the United States does not lie in predatory Asia sweatshops. Instead, this danger lies in bumbling, for political reasons, into an overtly hostile stance that puts the world’s two most powerful nations on course for a war so terrible that no nation, regardless of its choice of economic or political models, will survive it.
Ashes to Ashes: A Sad Tale of Globalization
CHEDISTON, England — When it came, the invasion was silent. Insidiously, its vanguard arrived in plain sight, indistinguishable from the native population. It spread over farmlands, across valleys and especially into the precious remaining forests, killing slowly and quietly.
Long before England had a queen — even long before England existed — the Angles and the Saxons hewed spears and hunting bows from the vast stands of ash trees that once blanketed much of this island. Along with the English oak, the ash supported bridges, powered mill wheels and reinforced the hulls of the Royal Navy ships that for centuries kept Spanish, French and German enemies from invading.
The ash is the fourth-most common species today and beloved by millions for its beauty. But it appears to be doomed thanks to the importation of tens of thousands of Dutch and Danish ash trees afflicted by Chalara fraxinea, an incurable blight that strangles the tree by covering its leaves with fungus.
It’s also having a political effect.
"Ashes to ashes," lamented Richard Walker, surveying one of the two dying giants that shade his 500-year-old farmhouse in this bucolic village 100 miles northeast of London. Walker is hardly a Euro-skeptic, as opponents of Britain’s ties with the continent are known. But with Europe’s star very diminished of late thanks to the euro crisis, the ash blight may push some like him over the edge.
"People here knew Danish trees were infected, but they kept importing them,” he said. “There should have been some control."
Possibly the most serious agricultural crisis in Britain since mad cow disease in the 1980s, the outbreak could destroy most of the UK’s 90 million ash trees, according to the Woodland Trust, a forestry group. British agricultural experts say it almost certainly originated in a similar blight that killed most of Denmark’s ash trees in the last decade.
The reactions in Britain, where centuries of industrialization and shipbuilding have left only a fraction of the island’s native forests intact, have been positively apocalyptic.
"KILLER FUNGUS COULD KILL ONE THIRD OF OUR TREES!" screamed the Daily Mail.
The Anglican Bishop of Liverpool prayed for divine intervention to save this "green and pleasant land.”
And, perhaps predictably, The Telegraph — a newspaper that supports the current Conservative-led government — reported "Labour ministers blamed over research funding cuts."
The looming crisis has prompted talk about the need to invest in "biosecurity," the evils of globalization and new calls from some within the government to review Britain's involvement in the EU.
Read the rest on GlobalPost
The World According to GOP (and Why Slate Readers Should Care)
What will emerge from the battered body of Michael Patrick Leahy’s party?
“Who the heck is he?” you understandably ask.
Alright, how about Jenny Beth Martin’s party?
Still drawing a blank?
OK, what about the party of Michele Bachmann, Sarah Palin, and Rand Paul?
Light bulb ignites, and “The Tea Party!”
Epitaphs may be penned for weeks to come about the populist insurgency that grew (mostly) out of frustration with the TARP program. But friends, there is life in the Tea Party yet!
As in John Irving’s classic The World According to Garp, the inert, brain-dead Tea Party body wheeled into the critical ward on the day after the election still contains the seed of something. Will that seed produce a rational, thoughtful, loyal offspring like Nurse Jenny’s son? Or will it simply prove to be the seed of the GOP’s final destruction as a viable party?
So far, the signals are mixed. And there are reasons even you, readers of Slate, should care about the GOP's fate.
A good deal of attention is being paid to conciliatory, almost contrite statements from Speaker of the House John Boehner, and more recently, Romney economic adviser Glenn Hubbard, who suggested in the Financial Times on Monday that step one for the post-election GOP should be to “raise average (not marginal) tax rates on upper-income taxpayers.”
Yet while the Republican old guard tries to backpedal with some dignity into a "fiscal cliff" deal with President Obama (and I wish them all the luck in the world), the Tea Party tail may still be wagging the dog. The Tea Party, which after all prevented the 2011 Obama-Boehner “grand bargain” talks that would already have made a start of correcting the unsustainable, long-term U.S. debt trend, remains in denial.
Look at Leahy, a software marketing exec whose book Covenant of Liberty is about as close as the Tea Party movement ever came to coherent philosophical thought. A blogger for the right-wing site Breitbart, Leahy has reacted to the failure of his call for revolution by arguing that just a few well-placed votes in four key states (New Hampshire, Florida, Ohio, Virginia) would have given the vote to Romney. To be precise, 330,000 votes.
“This election was not about grand vision,” he insists. “It was about small details and focused pandering to specific demographic groups.”
Yes, I suppose New York and California, the pillars of Obama’s victory, could be considered specific demographic groups if we stretch the definition a bit. If Romney had out-pandered Obama in either, I suppose, he’d be drawing up a transition Cabinet.
But then, Democrats will point out that merely accurately reflecting the actual votes of Floridians in 2000 would have put Al Gore in the White House. How relativism rules in the wake of defeat: Suddenly, it’s the GOP that wants to banish the evil Electoral College and the Democrats who find if a work of genius. Leahy’s analysis certainly sounds desperate.
Yet his willingness to consider Romney a legitimate candidate who lost a hard-fought election shows that he retains some purchase on reality. In contrast, Tea Party leader Jenny Beth Martin—echoing know-nothing talk-radio hosts coast to coast—is a chief proponent of the argument that the GOP lost because it nominated a "Republican in name only," or RINO. Throw Romney under the bus is the new Tea Party battle cry.
If anything, Mitt lost because his pandering to the nutty right left most Americans completely confused about who he was: that and the fact that the one thing he couldn’t run away from was that he is a creature of Wall Street.
Instead of civil war, which is the current drift, what the GOP needs to do to survive is to ensure that it is people like Martin, not soft but pandering vessels like Romney, who look like a RINO to future voters. The GOP has to have the guts to excommunicate heretics—the way Lyndon Johnson bravely set in motion the loss of the solid South with the Civil Rights Act. It means a lot of bleeding, but in the end doing the right thing, rather than the Right thing, is rewarded.
In America’s stunted political spectrum, with only red and blue and a mushy purple center, we fail to appreciate the range of colors extending from our extremes. The fact is that on the left of the Democrats there is a small, pretty ineffective “pink” faction of American socialists. And on the right of the GOP caucus—far too close to the center of that caucus, this election shows, are the grays and browns that end eventually in the “black” of genuine fascism. The more time you spend away from our wacky political landscape (and I’m in London at the moment), the more obvious it becomes.
And here’s where I get to Slate readers: Why should you care?
The U.S., like any democracy, needs at least two sentient parties to survive. At the end of the day, it was Obama and not Romney who moved into the purple, and he did it making mostly genuine economic arguments rather than warmed-over fallacies about trickle-down magic. So, there’s one rational actor.
What about the other side? It will be tempting for Democrats to hope that the GOP’s civil war continues and that a new generation of eccentric, unelectable characters follows Sarah Palin and Todd Akin into the fray. Newt Gingrich, in encouraging more of the narrow-minded partisanship he pioneered in 1994, can only have inflamed this wish in liberal hearts.
I would rather see the party come to grips with reality. I’d personally rather win an argument with an impressive right-leaning intellectual than a redneck dipshit any day. (They just punch you in the face when you use big words, anyway.)
But seriously, as high as Democrats may be flying right now, there will come a time in the not too distant future when you lose the national argument again, and when you do lose it, would you want to leave the country in the hands of Jon Huntsman or Rick Perry?*
That’s why Slate readers should care.
Correction, Nov. 13, 2012: This post originally misspelled Jon Huntsman's first name.
We Now Return You to Our Regularly Scheduled Program: Gridlock
(Filed this on the morning after the election for The National. I hope I'm wrong, frankly)
After the votes were counted and the balloons had wafted down from the rafters, President Barack Obama awoke on last Wednesday to an ugly reality: he had won four more years in the White House.
Of course, no president wants to be turned away after only one term - America's constitution limits presidents to two four-year terms, and winning a second one has come to be regarded as an early sign that history might smile on the man.
But Obama, America's first black president, had already made his mark in the history books. And few would argue that fate has smiled upon a man who inherited the worst economy since the Great Depression at the beginning of his first term, and now faces a bitterly divided Congress and a looming fiscal disaster before he can even begin to enjoy his second term.
By far the greatest challenge facing Mr Obama as he surveys the four years ahead is navigating the issues involved with what has become known as the "fiscal cliff". Economists and most politicians, Republican or Democratic, agree that the $600 billion (Dh2.2 trillion) package - a mix of tax hikes, expiring tax breaks and austerity measures that are supposed to automatically take effect on January 1 - could shave as much as 4 per cent off America's GDP growth in coming years unless politicians agree on an extension.
In effect, this is austerity on such a vast - some would say reckless - level that it might be enough to cast the world's largest economy back into recession, dragging a good part of the rest of the world along with it.
So it's all hands on deck in Washington, right? After all, Mr Obama's Democratic Party actually gained a seat in the Senate, and in the end his victory over challenger Mitt Romney should be viewed as a repudiation of the Republican Party's rightward "Tea Party" tilt since 2010.
Well, not so fast ...
All sides in the United States speak confidently - when the issue of the fiscal cliff is addressed at all - that a deal to avoid a cataclysm will be agreed. But there is little sign that politicians in any quarter are preparing the ground for truly hard, painful and necessary decisions that will have to be made. Where is the bipartisan presidential "blue ribbon" commission? Or the White House invitation for lunch with congressional Republicans? Nary a leak has emerged of anyone's master plan to solve it all, either.
In fact, before the Romney campaign posters had even been recycled, some of the more right-wing Republicans were blaming his defeat on the fact that he had started sounding like a centrist. As Romney fought for the middle ground in November, he abandoned the radical social and economic proposals he had been forced to adopt to win the Republican nomination in the primaries.
(Read the rest at The National).
The Five People Who Won the Election for Obama
Many, many people deserve to be singled out by President Obama for their role in his re-election. Dogged fundraisers, the legion who mobilized his voters on Election Day, countless brave souls who held their own in barroom debates, late-night dorm room arguments, and dinner-table squabbles all over America.
But my list is a little different. Today, I salute the true drivers of opinion, men and women who deserve a shout out for driving people to the polls—and driving them away, that is, from the scarier aspects of the GOP platform.
1. Sheriff Joe:
Topping this list—first among equals, really—is Arizona’s Maricopa County Sheriff Joe Arpaio. Sadly, the “Adios Arpaio” movement led by the county’s Latino population failed. So Arpaio rides again, having been re-elected along with Obama on Tuesday night.
If I were Obama, I would be tempted to send some of the proceeds of my best-selling biography to help fund Arpaio’s re-election victory party. (He’d have to send it, of course, because a personal visit by an African-American to them parts is liable to end in a justified search and seizure and Obama in the hoosegow.)
Obama and other Democrats know that the longer Sheriff Joe remains a national figure, and the more his actions jibe with the anti-Hispanic stance of the national Republican Party, the more secure the near lock Democrats have established on the growing Hispanic vote.
As my colleague Matt Yglesias noted Wednesday, this goes deeper than immigration policy. The lack of rapport between Republicans and this country’s most important ethnic bloc is stunning in its depth, and the party’s efforts to address it only made things worse. It’s going to take more than flying into Miami and saying, “Look, I’m having cocktails with a handsome, wealthy right-wing Cuban who may someday be a vice presidential candidate!”
There was a moment during the GOP convention that encapsulated everything Hispanics ran from on Election Day. A Republican delegate from Puerto Rico was introduced and approached the podium, and the imbeciles in the GOP mob harangued her with chants of “USA, USA, USA!” Here’s how Fox News reported, in case you think I’m making this shit up:
A visibly upset Zoraida Fonalledas, Chairwomen of the [GOP Convention’s] Committee on Permanent Organization, was greeted by chants of "USA, USA, USA" when RNC Chairman Reince Priebus introduced her to the convention crowd. The chants kept coming until Priebus stepped back up to the podium and told the delegates to let Fonalledas take care of her business. Just a little bit awkward.
Solo un poco?
Adios Arpaio? No, lamentablemente. Pero muchas gracias, Sheriff Jose. Y viva Arpaio!
2. Donald Trump
Just when Mitt’s team had finally managed to lift and shake the might Etch-a-Sketch, The Donald pops up again to remind all of us just how truly crazy the Republican Party has become. His YouTube “Important Announcement” in the last week of the election was classic Trump: low class, low production values, and lowdown and dirty. It also was perfectly timed to turn the stomachs of independents everywhere.
I personally have never understood the reverence this man receives from people. My one contact with him—or with tendrils, more accurately—was as a young Associated Press reporter in the late 1980s. Trump was going bankrupt (he’s always doing that, you know) because he had gambled badly on the Taj Mahal, one of flagship casino properties of Atlantic City, N.J.
Marvin Roffman, a financial analyst at Janney Montgomery Scott Inc., did what he was supposed to do: He pointed out that the Taj might take The Donald down. The Wall Street Journal ran a story, and then my AP colleagues and I started writing about it, too. We got calls from his flaks warning us that we’d be sued if we didn’t stop writing about him. There was no accusation that we were falsifying anything. It was pure, raw politics: I’m big, you’re a bug, I will squish you.
One of my old colleagues, AJ Hostetler, takes up the tale:
The brokerage fired Roffman after he was quoted in The Wall Street Journal as saying that the Trump Taj Mahal casino in Atlantic City, N.J., which was nearly completed at the time, could suffer financial problems once it opened. After Roffman made his comments, Trump complained to the brokerage and threatened to sue. After writing a letter of apology at the urging of the brokerage, Roffman retracted his apology and was fired.
His predictions proved correct when the Taj Mahal's business fell consistently short of the $1 million a day needed to cover its interest costs and operating expenses. The lavish casino opened in April 1990.
Roffman endured a lot, but he also got a big fat (undisclosed) settlement – as well as the satisfaction of seeing The Donald eat a copious plate of crow when the Taj went bust.
Fast-forward a few decades and you get Trump’s idiotic ranting on YouTube. It must befuddle him that Obama completely ignored the stunt—The Donald is not used to being ignored. But happily, public officials are immune to civil suits, even presidents who were “born in Kenya” (or is it Indonesia?) and thus are an affront to the Constitution. So Trump’s normal modus operandi failed him as thoroughly as his political antennae, and he was forced to appeal to the court of public opinion. I’d say he lost that case, too.
Thanks, Donald. Now keep your hands off the Jersey Shore. I want my bungalows back, and the middle class, too. The last thing we need is another gold-plated condo kingdom for your golf buddies.
3. Ann Coulter
Spare a moment to thank blonde bomb thrower Ann Coulter. Author of seven—count them, seven—New York Times best-sellers. All of them say the same thing: Liberals suck, and anyone who doesn’t agree with me is a liberal. And probably a lazy parasite, and sucks.
They say doing the same thing over and over and expecting a different result is a definition of crazy.
But Ann and her many, many imitators and predecessors made life easier for Obama. “Not looking crazy,” after all, is a whole lot easier than being in a constant state of paranoid, race-baiting, Armageddon-tinged crisis. I’ll concede Obama went a bit too far when he dosed himself with Valium before the first presidential debate. But even that stunt only levelled the playing field briefly for Romney.
Hatred is a powerful foe, but also a very convenient one to have. Not hating requires thought, empathy, reason—all those things Democrats and cheese-eating surrender monkeys are supposed to have in spades, according to Coulter. But hatred on steroids, which is what a good portion of the GOP caucus has come to resemble, not only drives people crazy, it drives votes away.
“But the election was close,” I hear you say. Yes, but consider the facts.
The Democrats had an incumbent president whose race automatically alienated some people, who was forced to do things Americans abhor(bailing out banks, saving bad auto companies) because of the mess he inherited from George W. Bush, and who took two years to realize no one was going to play nice in Washington just because he was a nice guy.
Unemployment averaged above 8 percent for two years. Two unpopular wars raged on, and people (though not Ann Coulter, it should be said) continued to make the case that he wasn’t even American—he was some kind of African Muslim, right?
Against this troubled presidency the Republicans put up a Wall Street guy. A moderate Republican, I believe, would have made mince meat of Obama. But Romney was such a flawed candidate, a gaffe-prone campaigner and plutocrat, that he never really won anyone’s heart. In the end, a measure of this incompetence is that Obama took two states of the Old Confederacy (assuming he gets Florida). He was competitive in North Carolina, Georgia (-8), and even Indiana (-10). Obama also he won the income-tax-protest state of New Hampshire, not to mention Mitt’s “home states” of Michigan and Massachusetts and Paul Ryan’s Wisconsin.
Now, we can’t blame Ann for all of this: She’s had plenty of help. But be true to yourself, cheese eaters. The least you can do is empathize, smile at her, and say, “Thanks.” And maybe buy her eighth book when it comes out: Keep ‘em coming, I say!
4. David Cameron
I’d imagine that this gem of a moment failed to get the coverage in America that it did in the U.K., where I’m living at the moment. But in a campaign where images vastly outweighed substance, I believe it mattered. If nothing else, it put to rest the silly notion that Republicans are somehow “better at foreign policy.”
I’m referring, of course, about Mitt Romney’s bizarre summer holiday to London, Israel, and Poland. The trip was probably designed by a sentient being, sold as a way to bolster Romney’s foreign policy credentials. You could imagine the “strategy session” where someone must have argued that a Republican candidate should find these three places friendly platforms for looking presidential, for reinforcing Romney’s street cred as organizer of a successful Olympic Games (Salt Lake City 2002), and for generally striking presidential poses to get people used to the idea of him replacing Obama as Drone Pilot-in-Chief.
Certainly, the Likudniks of Israel, as well as the right-leaning Civic Platform government ruling Poland right now, and the Tories who currently govern Britain, generally prefer Republicans. But it went badly from the start.
When Romney got off the plane in London and inserted himself directly into the inflammatory debate over security at the upcoming Olympics, the wisdom of making such a trip quickly unravelled. Gaffes followed him from stop-to-stop:
- In Israel, he basically said Jews were ethnically superior to Palestinians. This was not merely a diplomatic gaffe dumping on the Palestinians; it also showed Romney and his advisers to be ignorant of a basic fact of Israeli politics: About 44 percent of Israeli Jews are Mizrahi (or Sephardic) and thus ethnically indistinguishable from their Arab neighbors. Both, in effect, are Semites. Not to mention the fact that 20 percent of Israel’s population is Arab.
- In Poland, he found that Solidarity leaders wanted nothing to do with him because he supported Scott Walker’s union busting in Wisconsin. (Telling a trade union movement that helped overthrow communism in Europe that they shouldn’t have the right to bargain with their employer probably isn’t the best way to get invited to introduce your policy toward Poland.)
But the true thanks here go to a guy I’ve otherwise been quite hard on for driving Britain back into recession, Conservative Prime Minister David Cameron. When Romney opined that London wasn’t ready for the Olympics and the security challenges that would ensue, he probably thought it was a good bet that something was going to go wrong and he’d look like Nostradamus in retrospect. In effect, he was wishing for a failure to prove him right.
Instead, London Mayor Boris Johnson put the colonial in his place. And then David Cameron issued the coup d’grace:
“We are holding an Olympic Games in one of the busiest, most active, bustling cities anywhere in the world,” the Conservative prime minister told reporters. “Of course, it is easier if you hold an Olympic Games in the middle of nowhere.”
Cameron subsequently disinvited Romney from a Cabinet-level meeting during the visit, and throughout the rest of the campaign, in that very so British way, made it clear without ever saying so that he was hoping Obama would win.
Thank you, Mr. Prime Minister. (Now loosen up on the austerity already!)
5. Men in Black (and Red)
Yes, my former spiritual stewards in the Catholic hierarchy deserve a mention, too. Their attacks on contraceptives and abortion rights marshalled all the fire and brimstone at their disposal. Oddly, they said virtually nothing about GOP candidates who argued that women who are raped should just shut up and have the baby. (They said nothing about Jerry Sandusky at Penn State, either—but maybe that’s being unfair.)
The Catholic Church is a very big tent—I know, I slipped out of it, altar boy surplice and all, sometime back in the mid-1970s. From the U.S. Conference of Bishops down to pro-life rabble-rousers like the Rev. Frank Pavone, their statements and strangely timed silences left the impression that the official view of the Catholic Church is that women who have an abortion, under any circumstances, will burn in hell.
Oh, wait. That is the official view of the Catholic Church! Mi scusi, padre.
I haven’t seen numbers yet, but I imagine a significant number of Catholic families in America were visited by the gender-gap fairy during this election. It’s one thing to exhort people to try and emulate Jesus and resist sin. That makes sense to me, whatever my doubts about organized religion.
But it’s another altogether to cast someone into the eternal pit because they’ve been raped and don’t want to have the criminal’s child. In parts of the Muslim world, of course, such women are simply stoned to death as assumed to be harlots. I suppose letting them live out their lives in the shadow of eternal damnation is a bit more civilized, but not much.
This puts the U.S. Catholic Church about where it should be in the 21st century. After years of posing as a more progressive wing of the great empire of Rome, the U.S. church finally has landed right where it has belonged for decades: allied with the Koran-burning pastors and angry white men of the far right.
Even after losing my wrestling match with faith all those years ago, my career as a foreign correspondent let me witness up close the many, many self-sacrificing Catholics sheltering the poor from death and starvation around the world. Over the years, the church stood up for the rights of those forgotten by most of us, lent its name to the civil rights movement, fought against nuclear weapons, genocide, and for the dignity of those behind the Iron Curtain and in other totalitarian societies.
But never has the Church managed to embrace the idea that women are equal souls, that their problems and lives deserve slightly different considerations than men. The church fought the idea of women voting a century and a half ago, has kept them out of the priesthood, and believes its College of Cardinals has a better grasp of the moral issues facing a woman than the women themselves.
So thanks, you Cardinal and Bishops, you princes of the church, for your work on the women’s vote.
- Former President George W. Bush for his eight-year imitation of the Hindu God Shiva, destroying all before him before retiring to Crawford, Texas. His endorsement of Romney was remarkable primarily for the fact that Obama was the only one hoping it would happen.
- The Rev. Terry Jones of Gainesville, Fla., for supporting Mitt Romney after burning the Koran.
- Roger Ailes, impresario of the American right, for letting his network call it for Obama even though his pal Karl Rove nearly had an aneurism.
- JP MorganChase CEO Jamie Dimon for proving beyond a shadow of a doubt that America’s largest banks still have no clue (nor any remorse) for the disaster their deregulatory religion has visited upon the country.
Riding Obama's Coattails: Mssrs. Dodd and Frank
If it weren’t for the deep disdain in which right-leaning voters hold President Obama’s health care legislation, it’s a fair bet that the phrase "Rescind" on all those GOP rally posters would be followed by “Dodd-Frank” instead of "death panels."
Nothing angers a true Romneyite—the pin-striped Republicans who are his only true natural constituency—like the idea of Uncle Sam meddling in the free-market jungle of global finance. His wider, red-state, populist constituency wouldn’t know Dodd-Frank from a Ball Park Frank. But Romney hammered away against it anyway. Even with a guy as pliable as Romney, the acorn doesn't fall far from the money tree.
Amazingly, to this day, many of the most important parts of Dodd-Frank remain unimplemented. Obama’s re-election should change that, and the beating U.S. banking stocks took Wednesday gives you a sense that investors agree. On Wall Street, which hoped Romney could scuttle or declaw some of these rules, executives will have to take solace in knowing that the huge hiring spree on compliance departments and legal specialists won’t go to waste.
Still, Dodd-Frank is not the Frankenstein's monster bankers made it out to be. In many ways, the bill fails completely to grapple with the “creativity” at the center of 2008’s near-death experience, the fact that too much power is in too few (unaccountable) hands. But it does try to do a few good things. For instance, Dodd-Frank:
- Prevents commercial banks (which are ensured by the FDIC and thus the taxpayer) from taking huge risks with their own “proprietary” accounts, a cause of much of the trouble in 2008. This is known as the Volcker Rule.
- Orders the largest banks to draw up plans for how they would unravel all their liabilities if they should ever fail—the so-called “living will”—and makes them hold more money in their vaults in case of trouble.
- Gives Securities and Exchange Commission and the Commodity Futures Trading Commission the power to regulate previously unexamined “swaps”—the market that precipitated of the collapse of Lehman Brothers.*
- Gives the government the power to protect investors from fraud, both in the mortgage markets and traditional bond and equities spaces.
- Creates new oversight of the “give everyone AAA” credit ratings agencies, which have been a bit tougher of late (see: U.S. credit downgrade in summer 2011 and Jan. 1, 2013—the latter if the fiscal cliff is not dealt with).
- Adds rules aimed at making asset-backed securities (for instance, mortgage-backed securities like those AIG stupidly insured) able to be valued and their owners more easily discerned.
- Requires that corporate boards hold shareholder votes on CEO and other top executive pay at least every three years.
- Simplifies loan documents, banning some fees, and creating a consumer financial protection agency to enforce the new rules against fraud.
You could argue that the most important of these changes are the very ones that still haven’t taken effect—the Volcker Rule, the higher capital requirements, and the “living wills” for banks that are too big to fail.
Given what happened in 2008, the banks should be happy with Dodd-Frank. Officially called the Wall Street Reform and Consumer Protection Act, Dodd-Frank is the primary legislative action taken by Congress after the financial industry nearly destroyed all human life in 2008.
The result of hearings and investigations by Congress and a variety of independent government regulatory bodies, it began at a time when prescriptions were being floated that would have radically changed global finance. Early policy suggestions included an idea removing the political independence of the U.S. Federal Reserve (a GOP favorite), nationalizing the largest banks in the United States (the liberal parry), outlawing the trading of financial derivatives (the banking industry’s nightmare), and my favorite—forcing banks that took TARP funds to write down the mortgage balances of their clients rather than pay the money back to the Treasury Department.
(This last was my own idea, but it never got anywhere because politicians worried about a backlash from “honest” people who weren’t caught underwater. Or maybe from banks who fund their campaigns. Either way, it died a quiet death.)
In the end, none of these things above ever happened. Instead, Dodd-Frank became a battleground between the banking industry and those in abject horror lined up against it. The result is a mishmash of regulatory changes that arguably make the financial system a bit less prone to the kind of crisis that hit in 2008 but really does nothing to prevent the real cause of the problem: the concentration of financial power in too few underregulated hands.
No matter how many bank scandals hit the headlines, bank CEOs will insist they need no supervision on the playground. They’ll also cite their responsibility to shareholders as a reason for this.
Yet a short list just from this year of what banks do when mommy’s not looking would include HSBC and Standard Chartered laundering Iranian money, insider trading at Nomura, Barclays and others putting the “fix” on Libor (the London Interbank Offered Rate that sets all our interest payments), JP Morgan losing $5.8 billion on risky proprietary trade, and a new probe into Bank of America’s allegedly falsified statements to clients.*
Dodd-Frank would have done little, even if fully implemented, to prevent any of the things that happened above. Many happened in London. Some are just criminal and would happen anyway.
Having said that, because Democrats have proved highly susceptible to complaints (often warranted) from the business community about the party’s love of red tape, no one has raised the Dodd-Frank banner on the campaign trail this year in a positive way. Romney, of course, railed against it in an Ayn Randy kind of way, but even as Obama’s victory assured Dodd-Frank would never be repealed, he certainly didn’t make much of a case for it out on the campaign trail. The momentum for effective (as opposed to burdensome) regulation basically died before passage of Dodd-Frank.
Partly this is due to exhaustion. No one wants to hear about economic regulation at a time when economic activity is what they’re really after. Touting the need for regulation with nearly 8 percent unemployment invites an ugly and simplistic counterattack: "See, even with the patient on life support, they want to slow the flow of blood from the intravenous tube!" It’s ignorant and deliberately obscures which party put the patient into the critical ward in the first place, but it worried Democrats enough that they all, with a few exceptions, ran like hell from Dodd-Frank.
As a result, even on the eve of the election, Dodd-Frank was very much under threat. Had a Romney administration taken office, it is very unlikely the law would have been rescinded completely. (In fact, that is a very rare occurrence.) More likely it would be gutted, first by ensuring the so-called Volcker Rule banning banks from betting with their own money never went into effect and then by delaying or watering down the “living wills” being required from all too-big-to-fail financial institutions.
For those who played “skunk at the picnic” for decades—when deregulation was second only to sex as a way to sell an idea in Washington—Dodd-Frank was a symbol of all that is wrong with Washington, a town incapable of learning from the shot it has just administered to its own foot. This was a great and unfortunate case of America “wasting a crisis,” as Rahm Emanuel, then Obama’s chief of staff, memorably put it.*
But Obama’s election at least means that, even if it is that worst of defenses—one that provides false security—it won’t be consigned to the shred pile of legislative history just because of politics.
Correction, Nov. 8, 2012: This article originally misidentified the Commodity Futures Trading Commission as the Commodity Futures Exchange Commission and the London Interbank Offered Rate as the London Interbank Overnight Rate. It also misspelled Rahm Emanuel's first name.
Romney Wins! (Playing the Contrarian Card)
Back in the 1980s, Mike Lupica, the great Daily News sports writer, was asked by someone how he could pick the New York Rangers to win hockey's Stanley Cup year-in, year-out. After all, the questioner went on, the Rangers had not won hockey's championship since 1940 - the famous chant fans of other teams, particularly the upstart New York Islanders, taunted us with for most of my youth."Nine-Teen_Four-Tee." I can still hear it.
Lupica said his choice was based on one simple dynamic: the law of averages. "Someday, the Rangers are going to win the Stanley Cup and I'll look like a genius." It took until 1994, but he was right (though not since).
Something similar happened in the world of finance today. The Gartmen Letter, most likely, is not something readers of State are familiar with. Written by global markets analyst Dennis Gartman since well before Lupica's prediction came true, it's a particular flavor of "required reading" among the brokers, bankers and strategists of the City of London.
This morning, Gartman pulled a page out of Lupica's Daily News column and predicted a Romney victory tomorrow. Not only a Romney victory, in fact, but one the former Mass. Gov. cruises to handily.
Publicity stunt? Sure, probably some of that - he got a lot of it in the financial press, genetically engineered to pray for the advent of the first Mormon presidency. But I suspect Gartman, whose views on global capital markets I deeply respect, is also having some fun here. Like Lupika, Gartman knows that if the glum, disheartened readers of his stories morning note wake up to a Romney administration tomorrow, his call will be put on par with Nouriel Roubini's 2005 prediction of the global financial crisis or Babe Ruth's promise to hit three home runs for little Johnny Sylvester, a hospitalized 11-year-old.
Well, because he has a track record of being right about a lot of other things.
Having said that, he also has a track record of being pretty funny in some of his newsletters, and he goes on to admit he could be terribly wrong on this one. Here is his analysis in a nutshell:
1) Jimmy Carter had a 2-to-3 percent lead on Ronald Reagan at this point in 1980 and Carter lost.
2) That Obama has lost the "hearts and minds" of many segments of his 2008 winning coalition, including Catholics, small business owners and "Reagan Democrats." Enough will vote for Romney, or not turn up at all, to give it to Mitt.
3) That pollsters and pundits, even over 147 years after the Civil War, are underestimating the advantage a white candidate (who isn't John McCain) has running against an African-American candidate.
What do I think? Rangers in four games. But for tomorrow, Obama 302, Romney 236. And it doesn't take much of a genius to see it, either.