the Blog Papers of Dr. Michael Sakbani; Economics, Finance and Politics

Dr. Michael Sakbani is a professor of economics and Finance at the Geneva campus of Webster-Europe. He is a senior international consultant to the UN system, European Union and Swiss banks. His career began at the State university of NY at Stoney Brook,then the Federal Reserve Bank of New York followed by UNCTAD where he was Director of the divisions of Economic Cooperation, Poverty Alleviation, and UNCTAD`s Special Programs. Published over 100 professional papers.

Wednesday, September 12, 2018

A Conversation with Trump`s America

A Conversation with Trump`s America.

Soon It will be two years in the life of the Trump administration. At this point, Mr. Trump is more than ever a disrupter, a President who wants to change the givens and norms of American politics. But the President also proved to be a polarizer, a man who has views on many things which are uninformed and dangerous to the national interests of the US. More alarming is the unwillingness of the Republicans in Congress to check his worst impulses and protect the democratic institutions of the country.

President Trump and the Judicial Appointments
Many observers of the political scene in the US complain that Trump has been filling the Federal bench with extreme conservatives. This stand is whipped up by resentment regarding the fact that Obama was stopped by the US Senate from appointing judges to the Federal bench because the Senate did not take up his proposals. Now that the Republicans are in the majority, Trump has been filling more than 120 empty positions with strict conservatives picked by the White House lawyer Dan Meghan  and the ultra-conservative Federalist Society. In principle, there is nothing wrong with that provided two criteria hold: the first is the learning and scholarship of the judge and the second his or her non-ideological stand. The US record in this respect is not impressive. Robert Bork was rejected in 1987 in favor of candidates, perhaps less qualified than him. For example, justice Clarence Thomas who has written no opinions in 29 years, does not, in the opinion of many judicial scholars, meet these two criteria.
It is often asserted that judges should rule based on the Constitution and not legislate. There are two versions to this opinion. One was held by the late Justice Antonin Scalia, to the effect, that the intentions of the Founders as revealed by various sources should determine the law. The other is the letter of the Constitution as affirmed by the Judicial precedent.
With respect to the first view, the intentions of the founders are not known with accuracy from the Federal Papers or other sources. In almost all the provisions, they held a variety of views. At the end, they voted by a simple majority. In narrow majorities, is the view of 51% necessarily more valid today than the view of 49%?  There should be evidently some common sense exerted by today judges in weighing the alternatives.
It is evident that the notions any generation has behind linguistic phrases are different in time. Take the second amendment as an example, the Farmers meant by militias bearing arms, defenders of the US against outside aggression and authoritarian government, and most likely not hunters and modern private owners of guns.
As to the second view, the letter of the Constitution as affirmed by the precedents is not sufficient as far as the social consequences of the law in time and place. The consequences of the literal application of precedents must be weighed against the social consequences. Why are the thoughts of the founders 200 years ago always valid? There is no doubt that Brown V. the Board of education, or the one man one vote decision or Roe V. Wade, would not be viewed the same way 50 or a hundred years ago as they are today.
One may say let the legislators legislate. But which ones, state or Federal. If it is the state, then there is no equal treatment. If it were the Federal, the process is not always in the social interest because of money, pressure groups, and other such factors in US elections. Today, more than 70 % of Americans support women right regarding abortions, yet, that is not the same among legislators. The same goes for unchecked gun ownership.
It is common sense that the law should have the best social consequences. Judges who possess that sensibility can step in. If their opinions are found wanting democratically, legislators can correct that. This author is favor of juridical flexibility provided it makes social and Democratic sense and is born out of the sensibility of the time.

President Trump and the Environment
Trump and some of his supporters are against the Paris Agreement on the contention that it is unfair to the US and biased in favor of China and India. It is true that developing countries are treated favorably by the accord, but The Developed Countries have through their developments abused the environment for at least 100 years. That agreement got the Chinese and the Indians to accept moving over a transition of a few years to the standards of the Treaty.
 Climate change is a scientific fact accepted by the vast majority of scientists. The environment is a closed circle whose absorption of effluents is limited by its capacity to break them down. Once that is exceeded by man`s caused pollution, the emissions accumulate and cause, among other things, climate change.  We live on a planet that we are destroying by what we are emitting. All one needs is to look at average temperatures in recent years; they are the highest on record. The ice is melting all over, especially in the arctics. Violent storms, floods, and bouts of draughts are happening at a scale never seen before.
 President Trump's only criteria are jobs and costs at the present. He has deregulated to the extreme without a second thought. The environment crisis poses a disaster and an opportunity. By denying science and withdrawing from any commitment to reduce emissions, President Trump is missing the technological race for clean technology which is now almost won by China. President Trump is overlooking the critical economic criteria that investment for and in the future should be guided by the highest returns and not by jobs at present. Is this a sensible policy for the US and the planet?

Economic Policies
Next one should consider economic policy. Let us look at the facts. This author supports cutting corporate tax rates to about 15% to give them a level playing field. In the event, they got down to 11%. This leaves corporations with lots of cash which they have been using to buy their own shares and invest anywhere. The amounts they distributed as bonuses are a one-off event. The other beneficiaries are rich people like Trump.  There are estimates that 87 % of the benefits go to the top 10 %. Even if the estimates can be debated, it is obvious that the bulk of the benefits go to the top 10%. A typical middle-class taxpayer would get less than $1000 but his/her cost of medical insurance, when there are pre-existing conditions and the extra interest on mortgage and other loans, will eat into this modest amount. That is a difference for the rich not absolutely but proportionally. Very rich people like Trump and his cabinet members will be the main beneficiaries. There are four problems with that. First, it will worsen income distribution. We are already and since 1987, in big trouble on that account. According to Josef Stiglitz, since 2009, 90% of US growth of income has accrued to the top 10%. Second, the US has the lowest tax take among all the industrial countries. This under-taxation would be good if we had no problems which need government expenses. This is certainly not the case. a. The US has a massive infrastructure problem that needs government seed money and guarantees to enable the private sector to invest and finance therein. b. The US has a health care problem absorbing 18% of the GDP which must be resolved. President Trump has whittled at the affordable care act but replaced it with nothing. c. There is the need to support basic R& D for producing new technologies and to spend on education and skills development; US students score low among the advanced countries and fifty percent of US`Ph.D.`s graduates in science and Mathematics are foreign-born. No country has done all that only through the private sector.
 Finally, the Trump budget after the tax cut opens trillions of dollars of fiscal deficits for years to come. In 2018, the deficit is about one trillion dollars. To have a deficit at a time when the economy is at full employment is contrary to theoretical and empirical economics. That will constitute a classical crowding out where the Government would crowed out private investment. It is a repetition of the false Laffer curve which claimed that tax cuts will finance themselves by increasing growth. There is no empirical evidence to that in the short or the intermediate terms. The only relief, recalling President Reagan`s time, is to import foreign savings and thereby increase US`indebtedness to foreign creditors. All of that will increase interest rates pushing up the cost of the public debt, increase private debt service, and choke the construction industry. 
 It is astonishing how the Republicans, touted fiscal conservatives by reputation, abandoned their beliefs and approved Trump`s fiscal irresponsibility. The US prosperity is indeed living on borrowed time; leaving to our children the burden of heavy indebtedness
The Federal budget is structurally skewed. The US spends 96 % of the budget on fixed obligations: social entitlements (52%), the military (25%), financing the debt (9%), various subsidies and the cost of the Fed. Gov. other than the military is 11% and thus we have only 4 % left for discretionary spending.
President Trump has been giving himself high credit for the state of the economy. He deserves some praise for reducing unemployment from 4.6 to 3.9 % and continuing the record of growth started under Obama. However, wages adjusted for inflation have at the time of writing, hardly moved up and many Americans do not feel much prosperity. Down the road, this will depress consumption and consequently, investment. 2020 will in all likelihood be a tough year.

Trade Wars
President Trump has been using trade policies for political goals. He has done that regarding Turkey, Iran, Canada, Australia, and Europe. All of these countries are friends and allies of the USA. He has started to take China on in his trade policies. China has been cheating on everybody for the last 30 years. It must be stopped. Mexico, like China, has benefited from relocation of the industry while not having the same wage standards, employment benefits, and environmental standards. But, Trump does not know the connections between trade deficits and the US unemployment problem in the rust belt. The migration of jobs is in large part a product of labor-saving technologies as well as globalist corporate policies to use their technologies and production in places where their costs are the least. Free global trade must be accompanied by retraining programs and limits on persistent imbalances. As s a comparative example, Germany spends more than twice as much as the US on labor retraining and skills retooling even though the US has almost four times its population. It is natural that trade agreements be reviewed every once in a while. 
President Trump could have forged a coalition with partners to face China. Instead, he imposed tariffs on US partners under the excuse of national security to escape WTO rules. He went further and lied about the situation of some countries. For example, the US has a surplus in its trade with Canada and Australia and not a deficit. The US has production facilities for German cars in the US tied to the globalization of inputs and supply chains. The car imports from Germany proper should be netted out of German automotive facilities exports from the US. He jumped over all that to invoking economic nonsense. He seems to put his finger on the ills but does not know how to treat them. And that is because he has views on things he does not know or understand. He listens to no experts and reads no briefs. The US has some of the best economists, but he uses ordinary fellows: a TV economic commentator, Larry Kudlow, and Peter Navarro whom  nobody has accused of being a first-rate economist. The effective way to face China is to build a coalition with Japan, Europe, and other countries to close down its alternatives; an impossible strategy for someone who believes in unilateral action.

Trump`s Foreign Policies
His foreign policy is another problem. On Israel, he supported Netanyahu blindly without asking for a quid pro quo on Jerusalem. He loves authoritarians like Putin, President Xi Jinping and the Saudi Crown Prince. He made a rush with no preparations towards Kim Jan On with a State Department half of whose expert- posts are vacant. After “binding” with Kim in Singapore, he declared "our problem with North Korea is over". Then he found out that to be a hog-wash; Kim has been according to US`intelligence, building up his weapons since Singapore. The difficulties of such unprepared meetings are that the President has no experience in dealing with North Korea. when the North Koreans talk about nuclear disbarment, they mean disarmament in the entire Korean peninsula and in North-East Asia, while the US means disarmament of North Korea. In Singapore, Kim got all the image gains he wanted while Trump got nothing except photos. Only somebody with an amateurish uninformed mind would do that.
Trump has withdrawn from UNESCO and UNRWA because of Israel, from paying US share in peacekeeping, from the Pacific Trade agreement, from the Paris agreement, from the Trans - Atlantic negotiations and from NAFTA, He is now threatening to leave WTO and God knows what else. He rejects the application of article 5 of NATO and condemned the alliance as obsolete. His rejection of the Iran deal is unreasoned hostility. The deal stops for a time Iran`s nuclear activities and imposes a very strict inspection system for compliance. To be sure, it says nothing about Iran`s aggression against its neighbors, its missile delivery system, and its human rights record. In other words, it is a narrowly scoped treaty. These issues could have been thrashed out by coalescing with other signatories in telling Iran that the treaty will not be upheld unless new wider negotiations are entered shortly. One cannot be sure what would have been the outcome, but at least it would have given diplomacy a chance. Instead, he followed Netanyahu into foolishness.
The USA was the main builder of the Multilateral System after WWII. The system enshrines law and rules of behavior in international relations US leadership has been to co-opt other countries to what it wants to do. The system further controls the world economy and bolsters US foreign policy. Trump wants to walk out of the System because he cannot order countries to do his bidding. When he talks about trade, he wants reciprocal balance with every country. This means bilateral balances, a regressive view of trade.
The international status of the US stands on three pillars: the US economic and military power, the US reliability and scrupulous adherence to legal transparent norms of behavior and the dominance of the US dollar as a settlement currency considerably beyond the relative share of the US in the world economy. The Trump administration is jeopardizing all that. Already, China, Russia, Germany, and . France, all have come out against the dollar, because of the abusive use of US financial sanctions.

The Yes-Men Around Trump
Trump`s appointments to the cabinet, except for General Mattis, are rather non-distinguished:  Mnution, Pompeo, Betsy DeVos, Bruit, Session, Ross, Cheng, Perry, etc are a bunch of yes-men millionaires.
His pronouncements and tweets are loos verbiage mostly of attacks (lock her up), abuse of subordinates (Jeff Session is a dumb southerner) alternative facts (he won with the biggest majorities), egomaniacal utterances (am a stable genius) and gutter language (African countries are shit-holes). He attacks the Democrats for what the Republicans fail to do and considers Muslims (1.7 billion) as terrorists and Latins as rapists and thugs. Seven of his closest aides have so far been indicted. According to the Washington-Post, he has so far told 5000 lies. What else can be more demeaning to the Presidency than this man with street-manners?
Many people who talk to the Whit-house staff have reported disapproval and alarm at his impulses and his unhinged behavior. From Michael Wolf`s book to the newly published book of Robert Woodward, the life-long Republican of Watergate fame, to the unsigned Op-ad in the NY Times, all depict a President who has lost authority and is a victim of his unfit personality.
The American public will have a major opportunity in November to place some checks on this President. It is not healthy that one and the same Party has control of the executive and the legislator. Reasonable supporters of Trump and independents should come out and vote for checks on him. Unfortunately, the current Republican majority in Congress is more worried about primary challenges from Trump supporters than the country or their Constitutional oaths. Trump has all but destroyed the Republican Party of Abraham Lincoln and Theodor Roosevelt. Time for reasonable people to express their dissent.