The Turning Point of 2008

At first glance, the Georgian war ten years ago this month and the global financial crisis that erupted the following month seem unrelated. But this is to neglect the deeper currents driving the confrontation in the Caucasus.

The absorption of post-communist Europe into the West was not simply a matter of velvet revolutions. What Bush’s defense secretary, Donald Rumsfeld, called “new Europe” – the post-communist NATO allies and European Union members – depended on hundreds of billions of dollars in investment. The loans came from the same European banks that helped fuel the US real-estate boom and inflate the even bigger housing bubbles in the United Kingdom, Ireland, and Spain. The most extreme real-estate inflation in the world between 2005 and 2007 was on NATO’s Eastern frontier in the Baltics.

.. But it was not only the Soviet Union’s former satellites that benefited from the debt-fueled global boom. The authority and power of Putin’s regime, too, was (largely) a function of globalization – specifically, the huge surge in oil prices. In 2008, it seemed that Russia’s state-controlled energy giant Gazprom, benefiting from unprecedented growth in emerging-markets demand, led by China, might soon become the world’s largest corporation.

.. The EU insists on the innocence of its model of integration. The goal is peace, stability, and the rule of law, not geopolitical advantage, its senior representatives guilelessly maintain. Whether or not they truly believe it, the EU’s new post-communist members saw it differently. For them, NATO and EU membership were part of an anti-Russian package, just as they had been for West European countries in the 1950s.

.. Although Ukraine, too, applied for NATO membership in 2008, it did not provoke Russian intervention. But the war in Georgia split the Ukrainian political class three ways, between those who favored alignment with the West, those who favored Russia, and those who preferred a policy of balance. These tensions were further exacerbated by the impact of the financial crisis.

No part of the world economy was hit harder by that crisis than the former Soviet sphere. When global lending imploded, the most fragile borrowers were cut off first. Followed closely by a collapse in commodity prices, it dealt a devastating shock to the “transition economies.”

.. As one of the world’s largest oil and gas exporters, Russia was one of the worst affected. But after the humiliation of the financial crises of the late 1990s, Putin had seen to it that Russia was armed with substantial dollar reserves – the third largest after China and Japan. Reserves of $600 billion enabled Russia to ride out the storm of 2008 without external help.

The same was not true of its former satellites. Their currencies plunged. Interest rates soared. Inflows of foreign capital stopped. Some found themselves turning to the International Monetary Fund (IMF) for help.

In fact, the impact of the 2008 crisis split Central and Eastern Europe. The political leadership of the Baltic states toughed it out, accepting savage austerity to continue on their path toward euro membership. In Hungary, the governing parties were discredited, opening the door to Prime Minister Viktor Orbán’s illiberal regime.

.. But no country in the region was strategically more important, more fragile politically, or worse hit economically than Ukraine. In a matter of weeks, Ukraine was dealt a devastating one-two punch by the war in Georgia and the financial crisis. This opened the door to the successful presidential candidacy of pro-Russian Viktor Yanukovych in 2010

and set in train desperate financial negotiations with the IMF, the EU, and Russia, culminating in the crisis of 2013. Given current talk of trade wars, it bears recalling that it was an argument over Ukraine’s association agreement with the EU that led to Yanukovych’s overthrow and an undeclared war with Russia.

.. The events of August and September 2008 taught two painful and deeply disconcerting lessons. First, capitalism is prone to disasters. Second, global growth did not necessarily strengthen the unipolar order. Truly comprehensive global growth breeds multipolarity, which, in the absence of an overarching diplomatic and geopolitical settlement, is a recipe for conflict.

Today all eyes are on Asia, the rise of China, and its growing influence across Eurasia, Africa, and Latin America. But Putin’s Russia continues to be a spoiler. So we should not forget the Georgian crisis of August 2008, when it first became obvious how dangerous the new global economic dispensation might become.

America Has Gone Off the Rails. Steven Brill Sees Ways to Get It Back on Track.

According to Gallup, in the first week of January 2004 more than half of surveyed Americans were satisfied with the direction of the country. Within a few weeks, however, that number had fallen below 50 percent. It has never recovered. Since the 2008 financial crisis, it has not cracked 40 percent.

.. Brill describes a slow-motion process of perverse meritocracy in which, as one law professor tells him, “the elites have become so skilled and so hardworking that they are able to protect each other better than ever before.” Or, as Brill labels it, “Moat Nation.”

.. Brill focuses on the legal shifts and stalemates that ushered in the country’s current predicament

.. The rise of executive compensation practices linked to stock prices encouraged executives to prioritize short-term profits over long-term investments. A series of Supreme Court cases, ending with Citizens United, enabled corporate speech to play a powerful role in national politics. The growth of super PACs and lobbyists in Washington guarantees that any piece of appropriate regulation will be watered down — first in Congress and then in the implementation stage.

.. The federal government’s approach to fraudulent financial firms has shifted from the criminal prosecution of executives to the levying of fines.

..  the number of times the phrase “unintended consequences” appears in the book. Many of the legal and regulatory changes that Brill excoriates have counterintuitive beginnings. Who helped spearhead the growth of the commercial speech movement? The consumer advocate Ralph Nader, who sued the Commonwealth of Virginia to allow pharmacies to advertise drug prices. “Talk about boomerangs,”

.. the very first political action committee was created in 1943 by a labor union.

.. efforts to bring more minority members to Congress as “another reform effort that boomeranged,” because minority Democrats allied with Republicans to rewrite congressional districts and eviscerate districts held by white Democrats.

.. Brill blames the tortoise-like pace of government rule-writing on due process run amok.

.. Brill argues that interest groups have weaponized due process to guarantee gridlock.

..  In almost all of “Tailspin,” a well-intentioned liberal reform goes badly off the rails.

.. Brill never quite makes the connection between laws and norms.

.. many of the trends that Brill identifies, like political polarization, have their origins in the erosion of norms, not laws, and the real question is whether Americans can trust one another enough not to abuse less legalistic systems.

.. On this point, Steven Levitsky and Daniel Ziblatt’s “How Democracies Die” is probably more instructive.

How the G.O.P. Built Donald Trump’s Cages

Republicans who spoke up this time should be asking themselves why a president of their party felt he was enforcing its principles by breaking apart families and caging children.

.. But many, many other party leaders have been venturing ever deeper into the dank jungles of nativist populism for quite some time, exploiting the politics of fear and resentment. Mr. Trump did not invent Republican demonization of “the other” — it came about in two ways: gradually, and then all at once.

.. From the early 1990s to 2000, the conservative firebrand Pat Buchanan kept the Republican Party on its toes, running for president three times with an explicitly isolationist message.

.. But it was during the George W. Bush years that anti-immigrant sentiment started to become more central to the party’s identity.

.. Mr. Bush made comprehensive immigration reform a priority of his second term.

.. Conservative talk radio took up the cause, smacking Mr. Bush as squishy on immigration. The very concept of comprehensive reform became anathema to many on the right.

.. The Great Recession that Mr. Obama inherited did nothing to quell nativist resentment among working-class whites, and the rise of the Tea Party pulled the Republican Party further to the right

.. Just ask Senator Marco Rubio, the Florida Republican, who saw his fledgling political career almost snuffed out by his flirtation with comprehensive reform

.. in the wake of Mitt Romney’s presidential loss in 2012, after which the Republican Party briefly decided that one of its principal goals was to improve its image with Hispanic voters.

.. The resulting plan would have done everything from beefing up border security to overhauling visa categories to promoting a merit-based immigration system.

It also provided for the legalization of undocumented immigrants, which meant conservatives hated it.

..  the bill cleared the Senate by an impressive 68-to-32 vote. But John Boehner, then the House speaker, refused to bring it up for a vote in the Republican-controlled lower chamber.

.. Mr. Rubio became a pariah to the Tea Party voters who had propelled him to office three years earlier. Soon, he was denying that he had ever really supported the bill.

.. Party leaders fanned those flames, accusing Mr. Obama of being imperious and “lawless.” In one bit of twisted logic, Mr. Boehner argued that the House couldn’t possibly take up reform legislation because it couldn’t trust Mr. Obama to carry out said legislation.

.. Along the way, Republican candidates continued to play to their base’s darker impulses. On the whole, the rhetoric was subtler than that of the current president

.. Steve King, Republican of Iowa, painting Dreamers as drug mules with “calves the size of cantaloupes because they’re hauling 75 pounds of marijuana across the desert.”

.. Mo Brooks, Republican of Alabama: “I’ll do anything short of shooting them”

.. Nor was Mr. Trump the first Republican to promote the idea that within every immigrant lurks a murderer or terrorist.

.. Louie Gohmert, Republican of Texas, ran around warning of what came to be mocked as the great “terror baby” plot. As Mr. Gohmert told it, radical Islamists were plotting to impregnate droves of young women, who would infiltrate the United States to give birth here. The babies would be shipped back home for terrorist training, then return as adults to wreak havoc on an unsuspecting America.

.. Time and again, given the choice between soothing and stoking nativist animus, Republican lawmakers chose the low road.

.. And he has even less interest in addressing the root causes of migrant families flocking to the border.

.. In 2016, the Department of Homeland Security reported, “More individuals sought affirmative asylum from the Northern Triangle Countries (El Salvador, Guatemala and Honduras) in the last three years than in the prior 15 years combined.”

.. Helping these nations stabilize themselves is key to reducing the flow of asylum seekers. But Mr.

Trump does not like complexity or long-term strategizing.

He prefers casting blame and making threats. 

.. In the administration’s budget proposals, it has sought deep cuts in aid to these countries — something Congress has wisely ignored. Removing a financial lifeline from nations already in chaos is hardly a recipe for progress.

.. Mr. Trump’s move to kick out as many people who are from these countries as possible threatens to overwhelm nations ill equipped for such an influx. And without the money that many of the immigrants living here regularly send back to their families, the economies of these countries would further crumble.

.. In 2016, 17 percent of El Salvador’s gross domestic product came from remittances from abroad.

.. America’s immigration mess is not going to be cleaned up anytime soon.

.. conservatives are terrified that the base will punish them if they concede even an inch. Speaker Paul Ryan, with one foot out the door, has no juice. And pretty much everyone assumes that nothing will move through the Senate anyway.

.. Trump is planning fresh crackdowns in the run-up to the midterms, to reassure his base that he has not lost his resolve. If anything, given the fragility of his ego, last week’s flip-flop will make him all the more desperate to prove his strength.

.. Mr. Trump is more a breaker than a fixer.

.. The question now is whether the conference will learn anything useful from this episode.

.. There is also his

  • politicization of law enforcement, his
  • attempts to undermine public faith in the democratic process, his
  • attacks on the press, his
  • family’s suspect business dealings and his
  • habitual lying

.. this is unlikely to be the last time the president puts members of his party in an uncomfortable, and perhaps untenable, position.

.. The weight of this moment should be recognized. Mr. Trump’s capitulation was not a given. With a little less media scrutiny, fewer heartbreaking photos and fewer calls from angry voters, tent cities could have kept on filling with traumatized children.

.. Having done so much to pave the way for Mr. Trump and his immigration policies, they now owe it to the American people to help keep him in check.

The Italian Economy’s Moment of Truth

Unlike many other European countries, Italy still has not restored economic growth to its pre-crisis level – a fundamental failing that lies at the heart of many of its political problems. Now that a new anti-establishment government is taking power, it remains to be seen if the economy will be remade, or broken further.

..  Italy has become the first major EU member state to be governed by a populist coalition.
.. M5S and the League both openly question the benefits of eurozone membership, though neither party made leaving the euro a specific commitment of their governing program in the election campaign, a failure that Italian President Sergio Mattarella seized upon in vetoing key cabinet pick.
.. They also disdain globalization more generally
.. The League, in particular, is obsessed with cracking down on immigration.
.. promised to tackle corruption and topple what they see as a self-serving political establishment, while introducing radical policies to reduce unemployment and redistribute incomes.
.. There are rumors that the parties want to write down Italy’s sovereign debt
.. In such a scenario, Italian banks currently holding considerable amounts of government debt would suffer substantial balance-sheet damage. The risk of deposit flight could not be excluded.
.. Italy’s nominal (non-inflation-adjusted) growth is too weak to produce substantial deleveraging, even at today’s low interest rates.
.. Italy’s real per capita GDP remains well below its 2007 pre-crisis peak
.. a worldwide retreat from globalization and growing demands for national governments to reassert control over the flow of goods and services, capital, people, and information/data.
.. For years, global market forces and powerful new technologies have plainly outstripped governments’ capacity to adapt to economic change.
.. Italy could soon find that its leading export is talented young people.
.. the Italian government needs to root out corruption and self-dealing, and demonstrate a much stronger commitment to the public interest.
.. Italy needs to develop the entrepreneurial ecosystems that underpin dynamism and innovation. As matters stand, the financial sector is too closed, and it provides too little funding and support for new ventures.
.. collaboration between government, business, and labor has played a key role in the countries that have adapted better to globalization and technology-induced structural change.

10 YEARS AFTER THE CRISIS.

The financial crisis and the massive federal response reshaped the world we live in. Though the economy is in one of its longest expansions and stock indexes have hit new highs, many people across the political spectrum complain that the recovery is uneven and the markets’ gains aren’t fairly distributed. The Wall Street Journal takes a look at some of the most eventful aspects of the response and how we got to where we are today.

Trump Arrived in Davos as a Party Wrecker. He Leaves Praised as a Pragmatist.

But a rough consensus emerged over Mr. Trump’s two-day visit that his administration had shown itself to be more pragmatic than advertised. Many were inclined to view the president’s most extreme positions as just aggressive bargaining postures.

.. “There’s a very constructive mind-set in the Trump administration to find the best path forward,” said Vas Narasimhan, global chief of drug development for Novartis

.. He left the impression that he was above all eager to woo foreign investment, as if he were leading some amped-up American Chamber of Commerce.

.. Economists note that the American economy is into its ninth year of expansion, a trend that speaks to how the aftermath from the 2008 financial crisis has finally run its course.

.. And he gained the unbridled endorsement from the man who heads the World Economic Forum, Klaus Schwab, whose eagerness to flatter his interlocutors is legendary.

.. Whatever the optics of the head of an institution dedicated to reducing economic inequality offering his unqualified support for Mr. Trump’s tax cuts, Mr. Schwab was indeed speaking for business.

Trump, Oprah and the Art of Deflection

Will American politics return to normalcy in 2021 or 2025? I’m not betting on it.

Deflection as a media strategy has become an art form. Its purpose is to avoid answering a charge by misdirecting it and confusing the issue. It’s often used during crisis.

.. The paparazzi had chased her like jackals, raced after her car in the tunnel, surrounded it, and taken pictures after the crash. Fleet Street hunkered down in confusion, perhaps even some guilt. Then some genius noticed Buckingham Palace wasn’t flying a flag at half-staff. The tabloids rushed to front-page it: The cold Windsors, disrespecting Diana in death as they had in life. They shifted the focus of public ire. Suddenly there was no more talk of grubby hacks. Everyone was mad at the queen.

 

.. Ms. Lewinsky had gone into virtual hiding in 2008, when Hillary last ran, and didn’t want to do it again. So in 2014, just before the cycle got serious, she rather brilliantly wrote a piece for Vanity Fair in which she announced yes, she’d been a victim in a national scandal and the true culprit was . . . the press, the internet and the “feedback loop of defame and shame.”

In fact she was the Clintons’ victim, but she successfully deflected your gaze. Once Mrs. Clinton’s people understood Monica would be taking shots not at Hillary but at Matt Drudge, Ms. Lewinsky’s problem went away.

 

.. The best deflection has some truth in it. The Windsors were a chilly lot, and the internet does amplify a personal humiliation.

 

.. as I watched the Golden Globes. Hollywood has known forever about abuse, harassment and rape within its ranks. All the true powers in the industry—the agencies, the studios—have one way or another been complicit. And so, in the first awards show after the watershed revelations of 2017, they understood they would not be able to dodge the subject. They seized it and redirected it. They boldly declared themselves the heroes of the saga. They were the real leaders in the fight against sexual abuse. They dressed in black to show solidarity, they spoke truth to power.

 

.. They were upset, as Glenn Reynolds noted on Twitter , that you found out, and thought less of them. Anyway, they painted themselves as heroes of the struggle.

 

.. Deflection is brilliant, wicked, and tends to work.

 

.. But could she win? Absolutely.

Oprah is stable. Oprah is smart. Oprah is truly self-made. She has a moving personal story. She has dignity and, more important, sees the dignity in others. She is fully wired into modern media; she helped invent modern media. Reporters and editors are awed by her. People experience her not as radical but moderate. She has been a living-room presence for two generations and is enormously popular. The first poll, published Wednesday, had her leading President Trump 48% to 38%.

 

.. But it freaks you out, doesn’t it? Not that American presidents now don’t have to have the traditional credentials and governmental experience, but that maybe they can’t be fully accomplished and appropriate because that’s boring. History has been turned on its head. In falling in love with celebrity and personality, we are acting not like a tough and grounded country but a frivolous, shallow one.

 

.. I had a disagreement with a friend, a brilliant journalist who said when the Trump era is over, we will turn for safety to the old ways. We will return to normalcy. 

.. No I said, I see just the opposite. We will not go back for a long time, maybe ever. We are in the age of celebrity and the next one will and can be anything—Nobel laureate, movie star, professional wrestler, talk-show host, charismatic corporate executive.

The political class can bemoan this—the veteran journalists, the senators and governors, the administrators of the federal government. But this is a good time to remind ourselves that it was the failures of the political class that brought our circumstances about.

.. at least half the country no longer trusts its political leaders, when people see the detached, cynical and uncaring refusal to handle such problems as illegal immigration, when those leaders commit a great nation to wars they blithely assume will be quickly won because we’re good and they’re bad and we’re the Jetsons and they’re the Flintstones, and while they were doing that they neglected to notice there was something hinky going on with the financial sector, something to do with mortgages, and then the courts decide to direct the culture, and the IRS abuses its power, and a bunch of nuns have to file a lawsuit because the government orders them to violate their conscience . . .

 

.. The idea that a lot had to go wrong before we had a President Trump, and the celebrity who follows him, has gotten lost in time, as if someone wanted to bury it.

Sometimes I see a congressman or senator shrug and say, in explanation of something outlandish, “It’s Trump.” And I think: Buddy, you’ve been on the Hill 20 years, and we didn’t get to this pass only because of him. That’s a deflection.