Uh oh: Trump has a coherent narrative

Donald Trump is a kind of idiot savant of demagoguery. Too lazy, ego-driven and solipsistic to analyze the facts of any business deal, let alone policy question, he does have an acute radar for the kinds of scapegoating that large numbers of people will respond to.

So far, though, with the American public as a whole, his credibility has been undercut by his boasting, his schoolyard insults, his lack of impulse control, his whining. Policy aside, a disinterested six-year old should be able to see through him. as 70 percent of Americans have to some degree.

Now, however, in the wake of Britain's primal scream, someone has put together for him a more coherent narrative that I fear could be very powerful, delivered today in a speech in a steel and aluminum shredding plant outside Pittsburgh. Never mind that the narrative fundamentally false -- it has enough elements of truth in it to seem plausible.

Like Obama's speeches, this speech has a historical sweep from the country's founding through Obama's presidency (and Hillary Clinton's tenure as Secretary of State).  While it projects a duce-like can-doism, it eschews direct boasting, as well as racial or religious scapegoating. The enemies are American elites and foreign nations, with the Clintons as the chief avatars of the domestic despoiling class. Trump is always all about blame, but here the domestic betrayers overshadow the overseas cheaters and predatory migrants.

The speech begins with a stab-in-the-back narrative:

Gideon Rachman cries wolf, and bids us listen

As a presumable preview of his forthcoming book, Zero-Sum Future: American Power in an Age of Anxiety the FT's Gideon Rachman has a cover story in Foreign Policy that seeks to strip away a cocoon of denial regarding American decline:

In the end, of course, the Soviet and Japanese threats to American supremacy proved chimerical. So Americans can be forgiven if they greet talk of a new challenge from China as just another case of the boy who cried wolf. But a frequently overlooked fact about that fable is that the boy was eventually proved right. The wolf did arrive -- and China is the wolf.

While the Soviet and Japanese challenges to U.S. economic hegemony faded, China's 30 year track record make its accession as the world's largest economy all but inevitable.  In raveling out the implications, Rachman takes on what he sees as a series of comforting myths: that "America still leads across the board" and will continue to do so for decades; that "globalization is bending the world the way of the west" and that China will inevitably become a democracy; that in a world in which all consequential countries are democracies, cooperation will trump conflict and mutual enrichment will result.

In response, Rachman gives us to understand that the U.S. lead is evaporating more quickly than anticipated; that China has managed 30 years of near-double digit growth without liberalizing as predicted; that as U.S. hegemony fades, so does mutual cooperation among democracies; and that protection is building momentum as the western consensus frays post-crisis.

Summers channels Krugman chanelling Uncle Sam(uelson)

Compare Larry Summers' message at Davos (relayed by Gideon Rachman) to Paul Krugman's shot across China's bow back on New Year's Day.

Summers:

Larry Summers, the chief economic adviser in the White House, was rather more subtle in his flirtation with protectionism. He told the Davos audience that one in five American men aged between their mid-20s and their mid-50s is now out of work. In the 1960s, he pointed out, 95 per cent of this age cohort had been employed. Mr Summers was careful to say that the US remains committed to open trade and can gain from globalisation. But he also pointed out that Paul Samuelson, a famous economist (and uncle of Mr Summers), had argued that the case for free trade might not apply when countries were trading with nations that were pursuing mercantilist policies. The reference to China did not need to be spelled out.

Krugman:

I usually hear two reasons for not confronting China over its [mercantilist] policies. Neither holds water....

...there’s the claim that protectionism is always a bad thing, in any circumstances. If that’s what you believe, however, you learned Econ 101 from the wrong people — because when unemployment is high and the government can’t restore full employment, the usual rules don’t apply.

Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: “With employment less than full ... all the debunked mercantilistic arguments” — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — “turn out to be valid.” He then went on to argue that persistently misaligned exchange rates create “genuine problems for free-trade apologetics.” The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.

Krugman calls for a trade war with China

When the financial meltdown was in full career, a mantra voiced by a chorus of economists, central bankers and world leaders was to avoid a cascade of protectionist measures like the round of retaliatory tariffs that magnified and prolonged the Great Depression.  "Beggar thy neighbor" -- as in protect your own market, destroy your trading partners' -- had to be the most-employed phrase on the Financial Times Comment page in 2009. Obama, a calming influence at the G-20 in late March, struck this note calling for a measured trade rebalancing on April 3:

Now, the U.S. will remain the largest consumer market, and we are going to make sure that it's open. One of the principles that we very clearly affirmed in London was that protectionism is not the answer. It's not the Germans' fault that they make good products that the United States wants to buy. And we want to make sure that we're making good products that Germans want to buy. But if you look overall, there is probably going to need to be a rebalancing of who's spending, who's saving, what are the overall trade patterns.

For the most part, the warnings held, and major economies held off from imposing major tariffs.  Yet the danger, as framed by Martin Wolf a year ago (Jan. 6, 2009), is a prolonged one, with the pressure to protect national markets increasing over time:

Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. The last time this sort of thing happened – in the 1930s – the outcome was a devastating round of beggar-my-neighbour devaluations, plus protectionism. Can we be confident we can avoid such dangers? On the contrary, the danger is extreme. Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past – above all, nationalism – will return. Achievements of decades may collapse almost overnight.

Now comes Nobel Laureate Paul Krugman, ringing in the New Year by demanding...our demand back.

P.S., I love EU: Rachman's startled valentine to the European Union

It's time for another Wolf Munch Rock Award - so named because the truth is often hard to digest.

It's also named for Financial Times columnists Martin Wolf, Wolfgang Munchau and Gideon Rachman, mainstays of that oasis of dispassionate analysis the FT Comment page. It goes to an observer of world news and trends whose writings exhibit deep (if understated) expertise, fact- and evidence-based exposition, wide-angle perspective on large-scale trends, and theses based more on observation and analysis than ideology.

This week's award goes to Gideon Rachman, for a column that exemplifies those virtues, garnished with Rachman's own signature understatement, irony, self-deprecation and contrarianism -- in this case directed against himself. A backhanded tribute to the European Union, the column is also a blackflipped mea culpa: I was wrong because I was right:

I am ready to retire as a eurosceptic. The European Union is in trouble. But rather than smirking – which would be the normal reaction of a sceptic – I am alarmed.

The premise is simple enough. European political union is a pipe dream, and a dangerous one. European economic union, on the other hand, "is the best example we have of international governance," a pillar of stability and prosperity. If protectionist pressures unravel the benefits of the common market, the results could be catastrophic.

What's so very interesting, though, is Rachman's personal journey from loving to hate the EU for its political pretensions to learning to love its now-endangered economic accomplishments. Even more interesting, it's the very weaknesses entailed by incomplete political union than now endanger economic cooperation. Rachman despised the pretensions, recognized the weaknesses and now trembles for the Rube Goldberg contraption that fostered European prosperity and freedom in spite of it all:

In January 2001, I arrived in Brussels with several firm and unfavourable convictions about the EU. I believed that most ordinary Europeans felt far more loyalty to their nation than to Europe. I thought that steadily enlarging the powers of Brussels was undemocratic and dangerous. I reckoned that in a crisis, nationalist instincts would come to the fore. I suspected that the EU’s new currency – the euro – was liable to run into trouble. And I believed that the Brussels-based elite was a “new class” that had confused its own interests with those of the continent of Europe.

Eight years on, I look back at these old prejudices – and smile at my foresight. The past few years have provided a graphic demonstration of the feeble popular support for the European project....The strain of the economic crisis is indeed opening up divisions within the Union. An emergency EU summit was called this weekend to combat protectionism. Several of the new EU members from central Europe are facing banking and financial crises – and the older members have refused to bail them out....

Arguably, all my darkest suspicions about the European project are about to be vindicated. So it is an odd time to renounce euroscepticism.

But it is precisely the threat to the EU that has focused my mind. Plans for a political union in Europe were always crazy. But the four freedoms already established by the EU – free movement of goods, people, services and capital – are huge and tangible achievements. It would be terrible to see them rolled back.

Appreciation for those "huge and tangible achievements" under stress focuses the mind indeed:

If Europe starts rolling back the four freedoms, the implications will stretch well beyond economics. Protectionism and nationalism are close cousins. The principles of consultation, co-operation and open borders within the EU have helped to repress the old, nationalist demons.

Protectionism and nationalism are close cousins. Variations on that warning have been plentiful on the FT comment page. It's the overriding back-to-the-future fear haunting the current crisis. But this phrasing is particularly resonant -- filtered as it is through Rachman's longstanding respect for European nationalist resistance to EU political ambitions.

Rachman closes with a trope that captures the full irony of his turnaround:

Strangely enough, I now feel a certain protective warmth towards the embattled eurocrats in their Brussels skyscrapers. This would have been hard to imagine when I arrived in the city all those years ago. But it has finally happened. I love Big Brother.

"Big Brother," it seems, has turned out to be King Log rather than King Stork.

This column epitomizes what I value in the FT Comment page. FT columnists write "essays" in the original sense -- trials, thought experiments. Often, they visibly think their way through to a conclusion -- and it's not just an empty rhetorical exercise leading us to a false eureka. Rachman, Wolf, Stephens, Munchau et al often take readers through their own uncertainties, ambivalences, fears: they frame policymakers' dilemmas with sensitivity and an appreciation for hard choices. I'm not sure how a crew with such congruent sensibilities was assembled. But in this era of newspaper meltdown, I look at the page with the same anxious don't-know-what-you've-got-till-its-under-siege regard that Rachman casts on the EU.

What Republicans should be good for

Andrew Sullivan has recently written something to the effect that we need Republicans to referee spending and hack fat off the stimulus bill. I seriously doubt the party's ability for constructive input on that front (so does Andrew; today he writes that they should understand that they have no crediblity on fiscal discipline). But Republicans could do the country a real service right now by standing up for one of the party's historic core principles: free trade. Today, Jagdish Bhagwati in the FT and Burton Malkiel in the WSJ sound the alarm about starting a Depression-triggering cascade of protectionist actions worldwide with the "buy American" provisions in the stimulus bill. Those warnings are timely and should be a matter of bipartisan consensus.

Update: the FT reports this afternoon that the buy American provisions have been softened but may still do harm:

The Senate narrowed the Buy American provisions, which require that federal money be spent on goods from US companies, to ensure they would be compatible with US commitments under existing trade treaties. But it rejected an amendment from John McCain, the defeated Republican presidential candidate, to strike Buy American from the bill altogether.

The head of the European steel industry trade group said the Senate had not done enough to head off a potential trade war. “Unfortunately the Senate’s vote does not go further and overturn the Buy American clause,” said Gordon Moffat, director of Eurofer. Countries such as China, India, Russia, the Ukraine and Turkey, which have not signed the World Trade Organisation’s government procurement agreement, would still be excluded, he said.

Moffat's criticism tracks with Bhagwati's:

Yet some do worry about thus undermining the WTO, which has inherited from the General Agreement on Tariffs and Trade the many roadblocks to re-enacting that history of mutually harmful outbreaks of trade barriers. They have argued, therefore, that the US can enact WTO-consistent procurement rules by excluding from US procurement China and India, among other developing countries, which have not signed the optional procurement code. But remember that these nations can also retaliate in WTO-consistent ways. They often have “bound tariffs” – ceilings, which are significantly above the “applied”, that is, actual, tariffs; and it is possible to raise the applied tariffs towards the bound levels without any restraint at all.

Nothing would prevent India and China from choosing to raise tariffs thus on items of export interest to the US. Besides, they could shift their own purchases of aircraft away from Boeing to Airbus, and of nuclear reactors from American to French companies. The response would, of course, be for the enraged US congressmen to start enacting their own retaliation. The game would become lively.

While I have found Bhagwati's free trade championing a bit imperious at times (and been imperiously slapped back), his warning now is timely and well-informed. Not passing a strong stimulus bill could be disastrous. But so could passing one with this poison pill.

The sum of economic fears

What's so scary about a really deep recession or Depression? Behind the prospects of lost jobs and reduced wealth lies the specter of political upheaval. Martin Wolf frames the danger:

Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. The last time this sort of thing happened – in the 1930s – the outcome was a devastating round of beggar-my-neighbour devaluations, plus protectionism. Can we be confident we can avoid such dangers? On the contrary, the danger is extreme. Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past – above all, nationalism – will return. Achievements of decades may collapse almost overnight.

From Depression to aggression -that's the road to ruin that lurks at the back of everyone's mind.

What David Brooks didn't hear

David Brooks seems not to have heard the same Obama speech "on the economic stresses facing American workers" that I did.

In Brooks' telling, Obama in Pittsburgh on Monday delivered a demagogic protectionist "speech about nothing" that failed to describe how "pervasive forces are shaping the lives of voters and how government should respond." Brooks complains that there was "one clause" devoted to technological change (the #1 factor in manufacturing job loss, according to Brooks) and 45 sentences devoted to trade deals (a marginal factor).

Here's the 'one clause,' in its full frame, that for Brooks did not concede enough to the impersonal economic he holds entirely responsible for job loss:

The truth is, trade is here to stay. We live in a global economy. For America's future to be as bright as our past, we have to compete. We have to win.

Not every job that has left is coming back. And not every job lost is due to trade -automation has made plants more efficient so they can make the same amount of steel with few workers. These are the realities.

I also don't oppose all trade deals. I voted for two of them because they have the worker and environmental agreements I believe in. Some of you disagreed with me on this but I did what I thought was right.

And then this:

When it comes to trade, there's no one-size-fits-all approach. If countries are committed to reciprocity, if they are abiding by basic rules of the road, then we should welcome trade. Many poor countries need access to our markets and pose no threat to our workers.

But what all trade agreements I negotiate as President will have in common is that they'll all put American workers first. We won't ignore violence against union organizers in Colombia, or the non-tariff barriers that keep U.S. cars out of South Korea.

Brooks claims that Obama's emphasis on 'fair trade' provisions in free trade agreements will have a negligible effect on job loss. Perhaps. But fair trade is part of an integrated program that also includes support for workers seeking to unionize, investment in infrastructure and green technology (funded by cap-and-trade) to create millions of new jobs; universal healthcare that will increase job portability; and more aid to put college within reach of lower income students.

More broadly, Obama fully acknowledges the large economic forces that have squeezed the working and middle classes for decades. But unlike Brooks, he sees human agency aiding and accelerating rising income equality:

For decades, our economic policies have been written to pump up a corporate bottom line, rather than promote what's right, without any consideration for the burden we all bear when workers are abused or the environment is destroyed.

It's an outrage, but it's not an accident - because corporate lobbyists in Washington are writing our laws and putting their clients' interests ahead of what's fair for the American people. The men and women you represent haven't been getting a seat at the table when trade agreements are being negotiated, or tax policies are being written, or health care and pension laws are being designed because the special interests have bought every chair.

For Obama, economic issues always come down to metapolitics -- fixing a corrupt political process -- and to restoring "balance" after decades of rising income inequality and risk shift from the community to the individual (abetted by lobbyist-written legislation). Supporting the right to organize, enforcing fair trade provisions, enacting universal healthcare, creating jobs through productive infrastructure projects, shifting tax incentives to reward keeping jobs in the U.S., and making college affordable are all of a piece.

Brooks seems to have heard the speech he wanted to hear, not the one Obama delivered.

When economists preach

Heaven protect us from the moral clarity of economists. In a New York Times op-ed (Jan. 16), the University of Rochester's Steven E. Landsburg tells us that since we're all beneficiaries of free trade, we owe nothing to its victims. Claiming that "all economists know that when American jobs are outsourced, Americans as a group are net winners," Landsburg asks, "Does it [our collective benefit] create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?"

Landsburg's answer" "Um, no." We don't feel that we need to compensate our pharmacist when we decide to buy shampoo more cheaply online, and so we shouldn't feel that need when our car buying decisions lead to auto industry layoffs. In the world economy it's every man for himself, and that's exactly as it should be.

This argument is ridiculous. Granted that no one has an intrinsic right to any given job or type of job; granted too that I do not personally 'owe' a Detroit auto worker if I buy a Hyundai. Still, we have a collective interest in creating conditions that foster prosperity for large groups of our fellow citizens -- and a collective responsibility, when old established ways of doing things (e.g., heavily unionized large industries) have trapped large numbers in in low-opportunity skill sets. Elected officials are literally hired to create conditions that maximize opportunity for individuals and so help the economy adapt to the "creative destruction" of which Landsburg is obviously enamored.

As citizens, too, we may collectively choose tradeoffs that limit the undoubted benefits of free trade, i.e. low prices There's some truth to Landsburg's claim that "protectionism" is a form of bullying, since one group generally pays more for another's benefit, as manufacturers using steel did when Bush imposed tariffs on steel imports. But not all forms of "protectionism" are morally equivalent. If a town wants to zone to keep big box stores out, that is its prerogative. We may not 'owe' our local pharmacist anything. But we may decide, collectively, that we'll all pay more to keep him or her on the block. As consumers, we all vote with our wallets. As citizens, we occasionally muster the will to vote with something else.