How World Leaders Ruined the Global Economy

They took the best growth picture in a decade and put us in danger of recession.

Why are so many key global leaders pursuing so many stupid economic policies?

As recently as January 2018, the International Monetary Fund issued one of its most upbeat economic forecasts in recent years, extolling “broad based” growth, with “notable upside surprises.”

By last month, the fund had sliced its forecast for expansion this year to 3.2 percent — a significant falloff from the 3.9 percent projection reiterated just six months earlier — and had pronounced the economic picture “sluggish.” American investors are more concerned; the bond market is sounding its loudest recessionary alarm since April 2007.

The deterioration in the economic picture is not the consequence of irresponsible behavior by banks or a natural disaster or an unanticipated economic shock; it’s completely self-inflicted by major world leaders who have delivered almost universally poor economic stewardship.

The trade war initiated by President Trump sits firmly atop the list of bad policies. But Brexit has tipped Britain into economic contraction. With European governments unwilling to pursue structural reforms, the continent is barely growing. President Xi Jinping of China has focused on standing up to Mr. Trump and solidifying his own power. After a promising start reforming the economy, India’s prime minister, Narendra Modi, has turned instead to oppressing his country’s Muslim minority.

None of this was necessary. As the January 2018 I.M.F. report indicated, the world economy was firing on all cylinders — “the broadest synchronized global growth upsurge since 2010” — as jobs were being added and inflation remained subdued.

Yes, Mr. Trump’s trade war and Brexit loomed, but amid hope that the former would prove empty and the latter would be softened.

Not so today.

Often against the recommendations of his more sensible advisers, Mr. Trump has implemented the country’s most protectionist actions since the 1930s. As a result, world trade has begun to fall for the first time in a decade, with noticeable economic impact. Last week, Goldman Sachs cut its already modest projections for fourth-quarter growth to 1.8 percent from 2 percent.

That’s a far cry from the “4, 5, 6” percent that Mr. Trump talked about just before his tax cut passed.

Nor has that been Mr. Trump’s only misstep in economic policy. Instead of nurturing growth with important investments like a robust infrastructure program, Mr. Trump deployed his political capital to secure tax cuts that disproportionately favored business and the wealthy.

The “sugar high” they produced quickly wore off. And now, instead of developing better policies, the president has chosen to attack the Federal Reserve, whose independence is cherished by investors, business people and economists.

Boris Johnson, Britain’s new prime minister, abandoned his predecessor’s notion of a “soft Brexit” that would have maintained some ties with the European Union. Instead, he reaffirmed his promise that his country would leave the E.U. on Oct. 31 with or without a deal. The pound quickly fell to its lowest level against the dollar since 1985. (It has since recovered slightly.)

Then there’s China. By virtue of both its remarkably fast industrialization and its protectionist policies, the nation has long been a trade threat. But four years ago, the government issued its “Made in China 2025” economic manifesto, which put in writing China’s plans to attain a leadership position in key new sectors, including robotics, pharmaceuticals and aerospace.

The notion of China using its state power to take on important American and European industries instead of pursuing market reforms set off alarm bells across the political spectrum and provided a concrete underpinning for Mr. Trump’s trade confrontation.

Mr. Xi, rather than acknowledging China’s protectionist practices, has proved unwilling to accept a new trade agreement with effective enforcement provisions. That has raised doubts about whether China is seriously interested in reforming its unfair trade practices — keeping key markets fully or partially closed, using state subsidies to favor its companies, forcing American companies to transfer technology to China and the like.

Of course, at least in the world’s democracies, voters bear substantial responsibility for electing these inadequate leaders. The rise of populism as a reaction to disaffection about economic and social conditions has been well documented as a principal driving force.

Occasionally, good choices have been made, such as the election of President Emmanuel Macron of France. But even that has not led to progress; public support for Mr. Macron turned to opposition when he instituted the much needed policy changes that he promised.

Any chief executive officer who botched his or her job as badly as most of these leaders have would be fired. Let’s hope that voters come to that realization when given the chance.

In Defense of Liberalism

Staff writer for The New Yorker, Adam Gopnik, also author of A Thousand Small Sanities: The Moral Adventure of Liberalism Basic Books (Basic Books, 2019) argues that “liberalism” is not a political ideology, but a way of life.

9:30 In France, Emmanuel Macron attempted a Green New Deal with gasoline price hikes and faced revolts.

A Star Graduate of France’s Elite School Wants to Close Its Doors

President Emmanuel Macron suggests shutting the École Nationale d’Administration, a symbol of cronyism for many protesters

STRASBOURG, France—One school has been the cradle of the French establishment for decades, grooming future presidents, prime ministers and chief executives.

Now, one of its most illustrious alumni, President Emmanuel Macron, wants to shut his alma mater, the École Nationale d’Administration, or ENA, an institution that has become a symbol of France’s close-knit elite and persistent class divide.

Mr. Macron aims to placate yellow-vest protesters who have bedeviled his government for months, accusing him of paying too little heed to the economic pain of the working and rural class.

ENA has become a particular target, along with its graduates, known as énarques.

The president’s proposal comes at the end of months of high-profile public debates he organized in response to the demonstrations.

“We need to abolish ENA,” Mr. Macron said in April.

The school’s closure would be part of a broader push to overhaul France’s education system for high-ranking civil servants in an effort to improve opportunities for the underprivileged. Mr. Macron has pledged “to build something new that works better,” but hasn’t provided further details.

ENA was designed as a meritocracy to open better opportunities to all students regardless of their background. But critics say the school has become a breeding ground for cronyism, perpetuating a social pecking order that allows énarques to monopolize top positions in society. They run the prime minister’s office, the finance ministry, the central bank, two of the highest courts and many top private-sector companies. Three of France’s past four presidents are graduates of the two-year program.

“It’s a very French hypocrisy. The system is egalitarian on paper but unequal in practice,” said Jean-Pascal Lanuit, a senior official at the culture ministry and a former ENA student.

But many believe shutting ENA won’t change an elitist culture perpetuated by a two-tier education system. On one side, there are highly competitive institutions known as grandes écoles, public and private schools that are akin to the U.S. Ivy League schools, including engineering school École Polytechnique and business school HEC Paris.

On the other are universities open to almost everyone, but with sometimes crowded classrooms and crumbling facilities.

ENA was founded after World War II to better train high-ranking civil servants and open top government positions that had been reserved for “wealthy students living in Paris,” according to a 1945 government document. The creation was orchestrated by the then-general secretary of the French communist party, under Charles de Gaulle’s temporary government.

.. The Strasbourg-based school recruits about 80 students every year—compared with 2,000 undergraduates at Harvard University—based on a rigorous competitive entrance exam that includes five written tests lasting as long as five hours each in law, economy, social issues and public finances.

Tuition is free and students receive a monthly stipend to pay for books and housing.

But critics say ENA counts few students from rural, low-income families, and most current students are young white men.

The main reason, critics say, is the growing inequality of the French education system. Indeed, most ENA students have attended France’s top high schools and one of the best preparatory classes for the entrance exam. As a result, instead of promoting social mobility, the system ends up subsidizing the education of the rich with taxpayers’ money.

Many ENA students come from similar neighborhoods and attended the same schools. “I knew almost everyone there when I arrived in school,” said Florian Paret, a 27-year-old Parisian and second-year student at ENA, who graduated from the elite Paris Institute of Political Studies.

There are fewer opportunities for social advancement today compared with 40 years ago, said Ségolène Royal, a former minister and socialist candidate for the 2007 presidential elections who attended ENA and graduated in 1980.

“I’m not sure that it would have been possible for me today to follow the same path because there’s a kind of state aristocracy that has established itself,” said Ms. Royal, who came from a middle-income family in eastern France, recently. While at ENA, she met François Hollande, who would become her long-term partner and French president.

Once inside ENA, competition is fierce because top-ranked students can cherry-pick the most prestigious government posts upon graduation, including working at France’s highest courts or powerful state auditing bodies.

“Competition is part of the school’s DNA,” said Alexandre Allegret-Pilot, 30, who had degrees in biology, law and business before entering ENA.

After they graduate, énarques must work for the government for at least 10 years. If they leave earlier, they need to partly reimburse the school for tuition; usually private companies that hire young énarques pay back ENA as part of the hiring compensation.

Today, more former students move between the private and public sectors, deepening the perception that énarques monopolize top positions. After joining the state auditing body, Mr. Macron worked for private bank Rothschild & Cie. from 2008 to 2012, before moving back to government.

The vast majority of énarques, however, work for the government for their entire career. Few actually run for office, even if the school is known for producing presidents and ministers.

“ENA is being used as a scapegoat,” said Joachim Bitterlich, a former German diplomat and member of ENA’s board, who graduated in 1974.

More recently, ENA, which accepts a few international students a year, has sought to broaden its student body, notably by creating preparatory classes for the entrance exam for students from underprivileged areas.

“ENA can change,” said Daniel Keller, who heads the alumni association. “But I’m all for preserving the ENA brand. It’s a label that has value.”

It will be up to Frédéric Thiriez, an énarque Mr. Macron chose in April to lead the overhaul of France’s civil servants’ training.

Even if ENA were to close, it isn’t clear if that will be enough to appease the yellow vests.

“That’s secondary,” said Theo Feugueur, a 19-year-old law student in the Paris region, who takes part in yellow-vest protests every Saturday. “He should abolish all the grandes écoles.”

 

A Populist Surge Is Pulling Three U.S. Allies Into Political Crises

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Leaders in America’s top 3 European Allies face Crisis

  1. Britain: Teresa May tries to manage a Brexit vote motivated by anti-immigration
  2. France: Emmanuel Macron faces rioting in the streets over a carbon tax
  3. Germany: Angela Merkel has to step down as leader amid backlash over middle east immigration

Trump’s trip to Europe was a complete disaster, and not because he acted like a boorish bully

On his recent visit to Europe, he managed to convey once again his contempt for America’s European allies, and to demonstrate that he places more value on his own personal comfort than on the sacrifices that US soldiers have made in the past.

The trip itself cost millions of taxpayer dollars, yet Trump chose to skip a key ceremony honoring US war dead at Aisne-Marne American Cemetery because it was raining.

The White House offered up a cloud of unconvincing excuses for Trump’s absence, but other world leaders were not deterred by the fear of a few raindrops, and neither were past presidents ObamaClinton, Bush, or Kennedy back in their day.

By choosing to stay warm and dry in his hotel room while other world leaders acknowledged the heroism of those who fought and died for freedom, Trump gave the concept of “American exceptionalism” a whole new meaning.

Overall, Trump seemed intent on proving that while the obligations of being president might force him to go on such trips, he doesn’t have to behave himself while he’s there.

For example, Trump is correct to accuse China of engaging in a variety of predatory trade practices and of failing to live up to its World Trade Organization commitments. He is also right when he complains that Europe has neglected its own defenses and relies too much on American protection (though he still seems to think NATO is a club with membership dues)..

He is hardly the first US official to criticize European defense preparations but being unoriginal doesn’t make it wrong.

Trump is also correct in his belief that Europe, Russia, and the United States would be better off if the divisions that presently divide them could be bridged or at least alleviated.

It would be better for Europe if Russia withdrew from Ukraine, stopped trying to intimidate the Baltic states, and stopped murdering former spies in foreign countries.

It would be good for Russia if Western sanctions were lifted and it no longer had to worry about open-ended NATO expansion. And it would be good for the United States if Russia could be pulled away from its increasingly close partnership with China.

For that matter, Trump wasn’t wrong to see North Korea’s nuclear and long-range missile programs as a serious problem that called for creative diplomacy.

The real problem is that Trump has no idea what to do about any of these issues, and he seems incapable of formulating a coherent approach to any of them. To the extent that he does have an actual policy toward Europe, for example, it is the exact opposite of what the United States ought to be doing.

Trump’s broad approach to Europe is one of “divide and rule.” He’s called the European Union a “foe” of the United States, and he has backed a number of the political forces that are now roiling the Continent and threatening the EU’s long-term future.

He endorsed Brexit, expressed his support for Marine Le Pen in France, and thinks well of illiberal leaders like Viktor Orban of Hungary and Andrzej Duda of Poland. Why? Because he thinks dividing Europe into contending national states will allow the larger and more powerful United States to bargain with each European state separately rather than face all of them together, and thus secure better deals for itself.

This approach might be termed “Neanderthal realism.” Playing “divide and rule” is a good idea when dealing with real enemies, but it makes no sense to sow division among countries with whom one has generally friendly relations and close economic ties, and when their collective support might be needed in other contexts.

This approach also runs counter to Trump’s stated desire to reduce US security commitments to Europe and to get Europe to take on greater responsibility for its own defense.

If you really want the United States to get out of the business of protecting Europe, you should also want Europe to be tranquil, capable, prosperous, and united after the United States withdraws. Why? So that Washington doesn’t have to worry about developments there and can focus its attention on other regions, such as Asia.

A Europe roiled by xenophobia, resurgent hyper-nationalism, and persistent internal wrangling wouldn’t be to America’s advantage; it would be just another problem area we’d have to keep an eye on.

Nor would a divided Europe be of much use in addressing any of the other problems on America’s foreign-policy agenda.

Why doesn’t Trump see this? Possibly because he is reflexively relying on the same tactics that brought him to the White House.

It has worked tolerably well here in the United States, because a lot of Americans are still angry or fearful and Trump is both shameless and adept at fueling those emotions. This same instinct leads him to behave abominably abroad: Insulting British Prime Minister Theresa May and London Mayor Sadiq Khan, deriding Prime Minister Justin Trudeau of Canada as “Very dishonest & weak” or derisively tossing Starburst candies to German Chancellor Angela Merkel during a meeting of G-7 leaders.

.. The problem, of course, is that the boorish behavior and conflict-stoking policies tend to backfire on the world stage.

.. Trump’s bullying bluster didn’t win big trade concessions from Canada, Mexico, or South Korea; the shiny “new” trade deals Trump negotiated with them were nearly identical to the old arrangements and in some ways inferior to them.

And given how Trump has treated America’s allies, why would May, Merkel, Macron, Abe, or Trudeau do him (or the United States) any favors? The declining US image abroad compounds this problem, as foreign leaders know their own popularity will suffer if they help Trump in any way.

.. Trump’s personal conduct is not even the biggest problem. Arguably, an even bigger issue is the strategic incoherence of his entire transactional approach. His overarching objective is to try to screw the best possible deal out of every interaction, but this approach instead makes it more difficult for the United States to achieve its most important foreign-policy goals.

.. Threatening trade wars with allies in Europe or Canada makes little sense from a purely economic perspective, for example, and it has made it harder for the United States to address the more serious challenge of China’s trade policies.

If Trump were as worried about China’s trade infractions as he claims to be, he would have lined up Europe, Japan, and other major economic actors and confronted China with a united front. Similarly, pulling out of the Iran nuclear deal and threatening allies with secondary sanctions not only raises doubts about America’s judgment (because the deal was working, and the Europeans know it); it just fuels further resentment at America’s shortsighted bullying.

.. It is increasingly clear that Trump was never the brilliant businessman he claimed to be; he got most of his wealth from his father using various shady tax dodges, and the Trump Organization may have been heavily dependent on illegal activities like money laundering.

.. We should focus less on his personal antics and inadequacies and focus more on his inability to formulate effective policies, even on issues where his instincts are in fact mostly correct.

.. Sadly, the 45th US president possesses a world-class ability to get things wrong, even when he’s right.

Can the Euro Be Saved?

Across the eurozone, political leaders are entering a state of paralysis: citizens want to remain in the EU, but they also want an end to austerity and the return of prosperity. So long as Germany tells them they can’t have both, there can be only one outcome: more pain, more suffering, more unemployment, and even slower growth.

.. The backlash in Italy is another predictable (and predicted) episode in the long saga of a poorly designed currency arrangement, in which the dominant power, Germany, impedes the necessary reforms and insists on policies that exacerbate the inherent problems, using rhetoric seemingly intended to inflame passions.
.. Italy has been performing poorly since the euro’s launch. Its real (inflation-adjusted) GDP in 2016 was the same as it was in 2001.
.. From 2008 to 2016, its real GDP increased by just 3% in total.
.. the euro was a system almost designed to fail. It took away governments’ main adjustment mechanisms (interest and exchange rates); and, rather than creating new institutions to help countries cope with the diverse situations in which they find themselves, it imposed new strictures – often based on discredited economic and political theories
.. The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord.
.. Emmanuel Macron, in two speeches, at the Sorbonne last September, and when he received the Charlemagne Prize for European Unity in May, has articulated a clear vision for Europe’s future. But German Chancellor Angela Merkel has effectively thrown cold water on his proposals, suggesting, for example, risibly small amounts of money for investment in areas that urgently need it.
.. In my book, I emphasized the urgent need for a common deposit insurance scheme, to prevent runs against banking systems in weak countries.
.. The central problem in a currency area is how to correct exchange-rate misalignments like the one now affecting Italy. Germany’s answer is to put the burden on the weak countries already suffering from high unemployment and low growth rates.
..  The alternative is to shift more of the burden of adjustment on the strong countries, with higher wages and stronger demand supported by government investment programs.
.. Matteo Salvini, the party’s leader and an experienced politician, might actually carry out the kinds of threats that neophytes elsewhere were afraid to implement. Italy is large enough, with enough good and creative economists, to manage a de facto departure – establishing in effect a flexible dual currency that could help restore prosperity.
.. Whatever the outcome, the eurozone will be left in tatters.
.. It doesn’t have to come to this. Germany and other countries in northern Europe can save the euro by showing more humanity and more flexibility. But, having watched the first acts of this play so many times, I am not counting on them to change the plot.