Geopolitics Trumps the Markets

America led a 30-year hiatus from history. It was nice while it lasted, but it’s over.

That crashing sound you heard in world markets last week wasn’t just a correction. It was the sound of the end of an age.

During the long era of relatively stable international relations that succeeded the Cold War, markets enjoyed an environment uniquely conducive to economic growth.

.. The results were extraordinary. Between 1990 and 2017, world-wide gross domestic product rose from $23.4 trillion to $80.1 trillion, the value of world trade grew even faster, more than a billion people escaped poverty, and infant-mortality rates decreased by more than 50%. The number of people with telephone service grew roughly 10-fold.

This hiatus from history was, by most measures of human flourishing, a glorious era. Now it has come to an end, or at least a pause, and the world is beginning to see what that means.

.. the basic elements of economic globalization appeared firmly in place.

  • Russia, the most obvious challenger to the geopolitical order, was an insignificant and diminishing player economically.
  • And China, notwithstanding its rapid economic growth and its anxiety about American military power, was unlikely to challenge the economic basis of its own success. Geopolitics might have been back, but that wasn’t an issue for markets.

That complacency was misplaced. The return of geopolitics means the basic framework for economic policy has changed. In periods of great-power rivalry, national leaders must often put geopolitical goals ahead of economic ones. Bismarck’s Germany could have saved money buying armaments from Britain, but building a domestic arms industry was worth the cost. If the U.S. is in a serious strategic competition with China, an American president might well be willing to sacrifice some economic growth to banish China from important supply chains.

,, by invoking “national security,” the Trump administration has found a legal basis, with roots in the Cold War and even earlier, to assert sweeping powers over the nation’s commerce. It has upended a generation of U.S. trade policy in a dramatically short period of time.

.. The new era of geopolitics is unlikely to be an era of small government.

.. The Trump administration is

  • reversing some of the regulatory excesses of the Obama era, and
  • the president’s judicial appointees are prepared to rein in the administrative state.

.. A recalibration of the U.S.-China relationship was likely inevitable as the world’s oldest civilization became an economic superpower.

Hillary Clinton, who as secretary of state clashed with Mr. Obama over the need for a tougher approach to China, would not be a popular figure in Beijing if she had won the 2016 election.

Wages Are Rising in Europe. But Economists Are Puzzled.

In Europe, experts attribute the spike to an acute shortage of workers in countries like Germany, but there are many other theories.

.. Economists there offered numerous theories to explain the phenomenon. The decline of unions has taken away employees’ bargaining power, some said. Globalization, outsourcing, and the easy flow of money and information across borders have also forced workers in wealthy countries to compete with those in poorer ones.

.. Another suggestion is that the rise of companies like Apple, Google and Amazon as industry behemoths has concentrated power in fewer companies and squelched competition. And the so-called sharing economy, exemplified by Uber or Airbnb, has made many people into freelancers with few benefits.

.. In one much-discussed paper presented at Sintra, Uta Schönberg, a professor at University College London, compared data from Germany and France and came to the conclusion that low wage growth and rising inequality were a result of diminished bargaining power by workers.

Flat wage growth in Germany during the last two decades coincided with reforms that allowed companies to opt out of collective bargaining agreements, weakening union power.

In France, where union agreements applied to whole industries and were binding for companies, wages continued to climb and inequality was less pronounced.

.. But France paid a price. While unemployment fell below 4 percent in Germany, it remains above 9 percent in France. The implication is that companies may not hire as much if they are locked into union wage contracts.

.. This hidden reserve of workers is bigger than economists thought, Mr. Talavera said. But in Europe it appears to have finally been exhausted. “That is one of the reasons you haven’t seen wage growth picking up substantially,” he said.

How to Destroy Democracy, the Trump-Putin Way

All around the world, strongmen are seizing power and subverting liberal norms.

fascism came out of particular historical circumstances that do not obtain today—

  • a devastating world war,
  • drastic economic upheaval, the
  • fear of Bolshevism.

.. When Naomi Wolf and others insisted that George W. Bush was taking us down the path of 1930s Germany, I thought they were being histrionic. The essence of fascism after all was the obliteration of democracy. Did anyone seriously believe that Bush would cancel elections and refuse to exit the White House?

.. So maybe fascism isn’t the right term for where we are heading. Fascism, after all, was all about big government—grandiose public works, jobs jobs jobs, state benefits of all kinds, government control of every area of life. It wasn’t just about looting the state on behalf of yourself and your cronies, although there was plenty of that too. Seeing Vladimir Putin and Donald Trump at the press conference following their private meeting in Helsinki, though, I think maybe I’ve been a bit pedantic. Watching those two thuggish, immensely wealthy, corrupt bullies, I felt as if I was glimpsing a new world order—not even at its birth but already in its toddler phase. The two men are different versions of an increasingly common type of leader:

  • elected strongmen ‘who exploit weak spots in procedural democracy to come to power, and
  • once ensconced do everything they can to weaken democracy further,
  • while inflaming powerful popular currents of
    • authoritarianism,
    • racism,
    • nationalism,
    • reactionary religion,
    • misogyny,
    • homophobia, and
    • resentments of all kinds.

.. At the press conference Putin said that associates of the billionaire businessman Bill Browder gave Hillary Clinton’s campaign $400 million, a claim Politifact rates “pants on fire” and about which The New York Times’ Kenneth Vogel tweeted, “it was so completely without evidence that there were no pants to light on fire, so I hereby deem it ‘WITHOUT PANTS.’”

.. A Freudian might say that his obsession with the imaginary sins of Clinton suggests he’s hiding something. Why else, almost two years later, is he still trying to prove he deserved to win? At no point in the press conference did he say or do anything incompatible with the popular theory that he is Putin’s tool and fool.

.. These pantsless overlords are not alone. All over the world, antidemocratic forces are winning elections—sometimes fairly, sometimes not—and then using their power to subvert democratic procedures.

There’s Recep Tayyip Erdoğan in Turkey—remember how when he first took office, back in 2014, he was seen as a harmless moderate, his Justice and Development Party the Muslim equivalent of Germany’s Christian Democrats? Now he’s shackling the press, imprisoning his opponents, trashing the universities, and trying to take away women’s rights and push them into having at least three, and possibly even five, kids because there just aren’t enough Turks.

.. Then there’s Hungary’s Viktor Orbán, who coined the term “illiberal democracy” to describe these elected authoritarian regimes, now busily shaping the government to his own xenophobic ends, and

.. Poland’s Andrzej Duda, doing much the same—packing the courts, banning abortion, promoting the interests of the Catholic church.

Before World War II Poland was a multiethnic country, with large minorities of Jews, Roma, Ukrainians, and other peoples. Now it boasts of its (fictional) ethnic purity and, like Hungary and the Czech Republic, bars the door to Muslim refugees in the name of Christian nationalism.

One could mention

  • Philippine President Rodrigo Duterte,
  • Egyptian President Abdel Fattah el-Sisi,
  • Israel’s Benjamin Netanyahu, and
  • India’s Narendra Modi as well.

Pushed by anti-immigrant feeling, which is promoted by

  • unemployment and
  • austerity,

right-wing “populist” parties are surging in

  • Italy,
  • Greece,
  • the Netherlands,
  • France,
  • Germany,
  • Austria, and even
  • Sweden and
  • Denmark.

And don’t forget Brexit—boosted by pie-in-the-sky lies about the bounty that would flow from leaving the European Union but emotionally fueled by racism, nativism, and sheer stupidity.

.. At home, Donald Trump energizes similarly antidemocratic and nativist forces. Last year, outright neo-Nazis marched in Charlottesville, and Trump called them “very fine people.” This year, Nazis and Holocaust deniers are running in elections as Republicans, and far-right misogynist hate groups like the Proud Boys are meeting in ordinary bars and cafés.

.. The worst of it is that once the leaders get into power, they create their own reality, just as Karl Rove said they would:

  • They control the media,
  • pack the courts
  • .. lay waste to regulatory agencies,
  • “reform” education,
  • abolish long-standing precedents, and
  • use outright cruelty—of which the family separations on the border are just one example—to create fear.

While everybody was fixated on the spectacle in Helsinki, Trump’s IRS announced new rules that let dark-money groups like the National Rifle Association and the Koch brothers’ Americans for Prosperity keep their donors secret. 

.. American democracy might not be in its death throes yet, but every week brings a thousand paper cuts.

.. There’s nothing inevitable about liberal democracy, religious pluralism, acceptance of ethnic diversity, gender and racial equality, and the other elements of what we think of as contemporary progress.

.. He has consolidated a bloc of voters united in their grievances and their fantasies of redress. The

  • fundamentalist stay-home moms, the
  • MAGA-hat wearing toughs, the
  • Fox-addicted retirees, the
  • hedge-fund multimillionaires and the
  • gun nuts have found one another.

.. Why would they retreat and go their separate ways just because they lost an election or even two? Around the world it may be the same story: Democracy is easy to destroy and hard to repair, even if people want to do so, and it’s not so clear that enough of them do.

How to Debate a Populist

In the 1960s, much like today, people with opposing viewpoints struggled to communicate with one another. Yet there was a civility to that era’s public debate that is nowhere to be found today, owing to liberal elites’ understanding that refusing to engage would only reinforce the “us versus them” mentality that fuels radicalism.

.. Dutschke tried to “unmask” Dahrendorf – the liberal establishment intellectual – as exploitative and undemocratic; Dahrendorf countered that Dutschke’s revolutionary rhetoric was naive, more hot air than substance, and ultimately dangerous.
.. The debate began with Thadden detailing his political views, offering an unapologetic assessment of Germany’s role in WWII, and explaining the rise of the NPD. Dahrendorf, a sociology professor, followed with an analysis of the NPD’s diverse membership, which included old Nazis, disillusioned identity seekers, and opportunistic anti-modernists.
..  Dahrendorf was adamant that the NPD’s fate should be decided by the voters, rather than the courts, which had declared the Communist Party illegal. Kaul reiterated this idea in a passionate statement (which had undoubtedly been agreed in advance by East German leaders) about the exclusion of West Germany’s Communists from the debate. Other panelists agreed. A liberal democracy, Dahrendorf concluded, cannot exclude radicals on one side, while tolerating those on the other.
.. It is hard to imagine today’s mainstream politicians and public intellectuals engaging publicly in such profound and mutually respectful debates with today’s radicals and upstarts, whether populists, economic nationalists, Euroskeptics, or something else. Those on the far left and the far right certainly are not engaging one another in this manner. Each side would rather preach to its own audience, accessible within media bubbles where there is little demand for genuine discussion of opposing views.
.. Many establishment leaders nowadays – the so-called elites who are the standard-bearers of the liberal democratic order – seem to believe that the risks of engaging with radical figures are too great: more exposure could mean more legitimacy. But this stance is itself highly risky, not least because it has translated into a willful blindness to the social changes that have fueled extremist ideologies – an approach that comes across to many as arrogant.
.. Recall US Democratic presidential candidate Hillary Clinton’s flippant assertion that half of her rival Donald Trump’s supporters comprised a “basket of deplorables.”
.. One cannot simply wish away extremists. Letting radical movements run their course, as some have suggested, is both reckless and dangerous, given the amount of damage they can do before they fail. To fulfill their responsibility as stewards of the public good, cultural and political “elites” must eschew elitism and find formats and formulas that enable more constructive engagement among diverse groups, including – as difficult as it may be – radical and populist movements.
.. Dahrendorf rightly proclaimed that extremists’ success was a measure of democratic elites’ failings. Like the NPD in the 1960s, the far-right Alternative for Germany (AfD) owes its success in last September’s federal election to the refusal of the country’s political, economic, and academic elites to engage constructively with the public, much less with those the public believed were willing to address their concerns.
.. Defenders of liberal democracy must debate the populists not to change the populists’ minds, but to make the public understand what each party really stands for, not simply against. Yes, this could mean giving populists more airtime, and it risks normalizing extreme views. But the threats associated with an aggressively polarized public sphere – one that extremists have proved adept at exploiting – are much greater.