Watch Out: 2018's World Economy Resembles 2007’s

♠ Posted by Emmanuel in at 1/27/2018 04:59:00 PM

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing - Former Citibank CEO Charles Prince (2007)

At Davos, Barclays CEO Jes Staley expressed something that's been on my mind as of late: the world economy circa early 2018 sure looks a lot like the pre-subprime crisis / global financial crisis one. I'd even go one step further with this comparison: instead of looking like 2006, the world economy looks more like that closer to the eve of that cataclysmic event of a decade ago. Prior to the aforesaid event, there was some doubt as to whether a United States whose share of global economic activity is declining still mattered. After a localized problem in the US housing industry eventually led to problems in the broader world economy, this debate is a largely settled one: America still matters.

In this light, let us consider how the United States is doing at the current time and what its economic conditions mean for the rest of the world economy.  From the exuberance exhibited by many market participants, things are going swimmingly and may do so for the next 11 years or so. Like Charles Prince in 2007, people are in full party mode in 2018. Dance, dance, dance. It's a "nonstop euphoric cabaret." Have things improved significantly since then in its largest economy? And, have global economic imbalances righted themselves since then as to no longer pose a threat? The subtitle of this blog aside, I have strong doubts. Let us consider eight indications that matters haven't really improved:

I. A High and Rising Budget Deficit

Before Trump's election, forecasts for the United States' fiscal situation were already looking dire due to foregoing health and pensions obligations of an aging society (the so-called "mandatory" spending). Although some debate surrounds whether or not Trump's recently-passed tax cuts will boost economic growth--I have strong misgivings--the consensus is that it will only increase the United States' debt pile.

Actually, the 2001 and 2003 Bush-era tax cuts were made at a time when the US fiscal outlook was not as dire. From 1998 to 2001, the Clinton-era budget surpluses suggested that the country could begin reducing its national debt going forward, but we know what's happened since then. The difference with the Trump-era legislation is not so much its content--more of (unfunded) tax cuts absent tax reform--but its timing. Amid a worsening fiscal picture instead of an improved one largely inherited by George W. Bush, the Republican Party made a bad situation worse.

II. A High and Rising External Deficit

Dick Cheney famously said that "deficits don't matter." Despite alluding that these deficits do matter during his inaugural address, Trump has actually not done anything substantial to correct these deficits. (Starting trade wars doesn't count.) With regard to America's external deficit, it's actually become worse under Trump. Even if he continually bemoans how little the US exports relative to what it imports, they're, er, doing even more of the latter as of late.

In part, it's due to Trump not having any grasp of basic international economics. By worsening the United States' fiscal position, further government dissavings should, all else equal, result in a widening current account deficit. The most recent US trade deficit illustrates this phenomenon neatly. It's been rising as of late, with the goods deficit reaching $70B in November 2017 and a towering $71.6B in December 2017. From 2005 to 2008, the United States ran trade deficits larger than $700B annually, including services. To be fair, the US is running larger services surpluses nowadays than in 2005-2008. Even if the overall trade deficit is smaller relative to GDP as a result, the overall trajectory is the same: onward and upwards.

III. A Plummeting Dollar

Can you believe that Bush 42 officials actually stuck to "strong dollar" policy shtick? The combination of high and rising budget and external deficits would have been consistent with a weaker dollar, and that's what actually happened way back when the Euro reached higher than $1.50. Nowadays, of course, America's finance guy doesn't even bother with the pretense of having a "strong dollar" policy. Still, rhetoric matters less than actual policy, and the same dollar-toxic combination is very much in evidence.

Just as in 2008, the dollar is going where economic theory suggests it should--downwards. (Note that others also highlight increased global capital flows as a reason for dollar weakness. That the dollar strengthened in the wake of the global financial crisis is consistent with this interpretation.)

IV. A Rising Oil Price 

Since oil is denominated in dollars, demand for its should increase as the currency depreciates and others can buy more of the stuff for less with their respective currencies. The average price of a barrel of oil averaged over $100 in 2008; this time frame is one of continually rising oil prices as well vis-a-vis a plummeting dollar. It's not so much that high oil prices "caused" a global financial crisis, it's that it fits in with the current pattern of the world economy circa early 2018. That is, commodity prices are being buoyed by a weak greenback.

V. A Soaring Stock Market

Many adopted a sanguine outlook on asset valuations--like equity shares--during a time when the United States had the aforementioned high and rising twin deficits as well as a weak dollar. The premise of this exuberance largely resembles that of a decade ago. In fact, the then-US Treasury secretary cited global conditions that were better than ever right before things headed south:
Just how red-hot is the current worldwide expansion? "This is far and away the strongest global economy I've seen in my business lifetime," U.S. Treasury Secretary Hank Paulson declared on a recent visit to Fortune's offices [July 12, 2007; my emphases].
Maybe deficits don't matter. Maybe economic fundamentals don't matter, either. Just be mindful though of when folks were last saying the same sorts of things.

VI. A Movement Towards Financial Market Deregulation

Despite savaging bankers during his campaign, Trump has been as friendly to banks as you could possibly imagine, from cutting their taxes drastically to beginning to roll back crisis-era regulations meant to lower the possibility of another global financial crisis. With the pro-regulation Janet Yellen out of the way, the stage is set for further rollbacks on regulations set by the Federal Reserve.

VII. Dissavings-Fueled Household Consumption
In a truly "healthy" economy, additional household spending is funded by additional earnings. People spend more because they earn more. However, what if much of this spending is the result of dissavings? Obviously, there is an ultimate floor here since folks cannot deplete their savings forever to spend. In the run-up to the crisis, household savings were razor-thin, even becoming negative during some months. Is the story any different in 2018? I am afraid that it's not. The savings rate Stateside has just fallen to its third-lowest on record:
Overall, economic growth climbed by 2.6 percent on a quarterly basis at the end of 2018, data released Friday showed. The expansion was driven in large part by personal consumption, which picked up substantially in the fourth quarter -- a move that came as the savings rate slumped to 2.6 percent as a share of disposable income, its third-lowest on record.
Around 70% of American GDP is composed of consumer spending. If increases in consumer spending as of late have been driven by dissavings--other commentators note that the amount of increases in consumer spending has been approximately matched by falls in savings--then household consumption will inevitably fall back absent real income growth to continue elevated spending levels.

VIII. Growing Household Indebtedness

The last piece of the puzzle is overall household indebtedness. To no one's surprise, the United States' total household debt has eclipsed its pre-financial-crisis era highs reached in the third quarter of 2008. To be sure, the form of debt is rather different this time around: instead of housing loans during the subprime mess, the worrisome components this time around are student loans, auto loans, and credit card debt to a lesser extent. The intuition, however, is the same: monies going towards servicing these debts reduces disposable income in a consumer-driven economy. So, as these debt levels rise even further, consumer spending would be expected to take a concomitant hit.
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One saying is that something unsustainable has to, by definition, stop. Another saying goes the higher they rise, the more they have to fall. I have a bad feeling we're about to reach the sudden stop, and that the higher people push things without justification, then the dislocations that will result from returning asset valuations and the rest back to more reasonable levels will be larger.

It's hard to say that it's *only* a US phenomena here insofar as (1) the rest of the world is still funding American profligacy and (2) the rest of the world still relies on the United States as the consumer of last resort. Colloquially speaking, what happens economically in America does not stay in America. In all these respects, the world economy today is similar to the pre-crisis one, and sensible sorts will at least take caution in its possible implications.

1/30 UPDATE: The US household savings rate keeps dropping. For December 2017, it's reported to have fallen further to 2.4%. I really do worry about how America's fate often has negative implications for the rest for the world.

1/31 UPDATE: Also see this summary of risk factors identified by the World Economic forum. Many are similar to those identified above. 

It's About Time: US Admits Weak Dollar Policy

♠ Posted by Emmanuel in at 1/24/2018 05:52:00 PM

A suitably Lilliputian currency c/o the Munchkin [sic] man.
OK, OK so it's Steven Mnuchin, not Steven Munchkin. However, this unfortunate naming semblance is rather appropriate for a United States rapidly receding in influence in the international political economy. Since the time of Robert Rubin as Treasury secretary--when Bill Clinton was president--it's been customary for US officials to proclaim how their country pursued a "strong dollar policy." Sure, some treasury honchos have been more reserved in saying it. Regardless of how various aspects policies affecting the dollar's value--fiscal, monetary and trade policy among other things--went, though, it was never refuted outright despite the greenbacks mixed fortunes since 1995:
Since August 1995, the strong-dollar policy has consisted exclusively of periodic statements by government officials — mainly the Secretary of the Treasury, occasionally the Chairman of the Fed — insisting that the US continues to pursue a strong-dollar policy.
I suppose it was only a matter of time before we encountered a US Treasury Secretary explicitly espousing a weak dollar policy. Trump is profoundly unconcerned about foreigners, so it's his secretary who's now admitted to outright screwing over those holding US currency in a rather glib manner. At Davos, then, meet the Munchkin man...er, I mean Mnuchin:
A day before Trump’s scheduled arrival in the Swiss ski resort of Davos for the World Economic Forum’s annual meeting, Treasury Secretary Steven Mnuchin endorsed the dollar’s decline as a benefit to the American economy and Commerce Secretary Wilbur Ross said the U.S. would fight harder to protect its exporters.

"Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is "not a concern of ours at all,” he said. "Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency," he said.

The greenback, extending its 2018 slide after Mnuchin spoke, is now at its lowest in three years as measured by the Bloomberg Dollar Index. Investors have sold the currency in part because of concern over Trump’s protectionist push highlighted by this week’s slapping of tariffs on solar panels and washing machines.
This verbal intervention on Mnuchin's part is unlikely to make others happy, especially if "America First" involves pushing the dollar down in an act of competitive devaluation. If the United States has actually been pursuing the opposite "weak dollar" policy for a long time, it's only now that the pretense has been so brutally dispensed with.

We're really, really far from Robert Rubin now, not only in temporal terms but also the ability of the United States' money man to inspire investor confidence in the dollar, which was already waning before the Munchkin Man delivered the coup de grace. Sure, debasing your currency may lead to short-term gain, but a country as heavily indebted as the United States should really be more concerned about how such gimmickry will affect others' willingness to buy and hold dollar-denominated assets in the longer term.

How Will China Retaliate Against US Trade Penalties?

♠ Posted by Emmanuel in , at 1/23/2018 04:57:00 PM
Here are the washing machine tariffs just imposed by Trump.
Together with the rest of the world, I've long been waiting for the real Donald Trump--as his Twitter handle describes--to show up in the international trade arena. There is much on his plate at the start of 2018, from deciding of courses of action to take on the dumping of several products as well as determining the future of US trade agreements like NAFTA and the Korea-US Free Trade Agreement (NAFTA)--both of which are under discussion with American counterparts.

On Monday, we got our first installment of the trade-hating Trump as the US Trade Representative (USTR) unveiled fairly substantial tariffs on imported goods US manufacturers made complaints about--namely, solar cells and washing machines. Tariff rates of up to 50% are nothing to sneeze at. To be sure, these are not exclusively China-exported goods. Other affected countries like Mexico and South Korea are expressing discontent. (Quite a few Korean-brand washing machines made in Mexico are destined for the US market.) Actually, China is not among the largest exporters to America of washing machines. That said, trade observers have little doubt which country was in the USTR's crosshairs when announcing these tariffs to stop a "surge" of dastardly imports:
The Chinese Commerce Ministry on Tuesday expressed "strong dissatisfaction" over the move, saying it "aggravates the global trade environment."

The tariff of 30% on foreign solar panels is a blow for China, the world's biggest supplier of the products. Beijing has been widely accused of heavily subsidizing its domestic solar industry and flooding global markets with cheap panels...

The Chinese Commerce Ministry called the U.S. process that led to the tariffs "an abuse" of the trade measures available to the Trump administration. In its investigations, the U.S. International Trade Commission determined that imports of solar panels and washers had hurt American companies.
Once more, consider the loaded term "trade war." To correctly be described as such, we need a couple of things to happen. First, there needs to be tit-for-tat retaliatory action by the concerned parties. So, how can China get back at America? Let's just say there are countless ways, beginning with actions on US goods as the obvious targets:
China hasn’t been shy about threatening U.S. corporate interests. A Communist Party newspaper warned in late 2016 that a trade war would have economic consequences. "Boeing orders will be replaced by Airbus," the Global Times said in an editorial. "U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted."

The list of primary targets include U.S. exports to China of airplanes by Boeing Co., Apple Inc. products and soybean, says Michael Every, head of financial market research at Rabobank Group in Hong Kong.

"Chinese think-tanks are likely scrambling to identify the industries in the President’s support base that will lose out the most should it come down to a bare-knuckle fight," says Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong. Boeing, the largest U.S. exporter, has long been a key bellwether for trade relations. Xi gave Boeing a $38 billion order on a 2015 plant visit in Seattle.
Keep in mind that many of the buyers of American goods are inevitably state-owned enterprises given their sheer number and centrality in China's economy. Additionally, even privately-owned Chinese firms can be leaned on more readily by the authorities to stick to the party line on not complaining about retaliatory actions pursued by the government even if these actions go against private firms' economic fortunes.

Another way China can go about exacting punishment that Western observers haven't talked about by and large is to discourage Chinese tourists from visiting your country. See the case of South Korea and China's displeasure over it deploying American-made missile defense systems (THAAD).
Out of those nearly 76 million foreign visitors to the US in 2016, fully half came from Canada and Mexico. China accounted for just 3 million. But then look at the spending: those Chinese tourists spent US$33 billion – almost as much as Canadians and Mexicans combined.

If the 3 million Chinese who visited the US in 2016 spent US$33 billion, the arithmetic is clear: for every 1 million Chinese that choose not to travel to the US, but to travel elsewhere, that implies a US$11 billion annual loss in tourism revenue to the US economy.
The Chinese can easily pick and choose how to retaliate against American--or, perhaps more accurately, Trumpian--protectionism. My impression is that the Chinese are shrewd rather than stupid; they know which industries to target to get back the most at Trump voters to inflict maximum pain on the person they consider their chief antagonist here. The excuses for taking action are many, but (public) safety has been a perennial PRC favorite, especially for food imports. Failing to comply with PRC licensing requirements is another.

The tourism route is particularly interesting since service exports like it are where the United States has a surplus to help make up for its chronic goods deficit. A benefit of running a state where firms are more mindful of the will of the state is that trade measures are more easily facilitated. So, the Chinese authorities could easily pressure package tour operators like the case of South Korea into getting rid of the US as a travel destination.

It's really up to the United States how much farther they want to ratchet up this trade skirmish, with Trump's decision on other products pending like steel and aluminum which are being considered on "national security" grounds.

The US has mounted its opening attack and established its positions. Meanwhile, the Chinese are monitoring how far the Yanks will go before deciding how to push the foreign devils back. In trade war as in conventional war, I am afraid there are no real "victors."

Captain Caveman Meets Jetsons? Trump@Davos

♠ Posted by Emmanuel in , at 1/21/2018 12:13:00 PM
Unga bunga...build the wall...it's all the same.
A few days ago--before the US government shutdown became inevitable at least--Donald Trump was announced as an attendee at the annual Davos shindig of global movers and shakers. Obviously, the leader of the world's wealthiest country hobnobbing with the elites of this world makes sense. However, once you factor in the attitudes and behaviors of Trump, things become rather more interesting. What exactly do Trump and Malala Yousafzai have in common...except that he'd want to ban the Muslim woman from America like all the rest?

In most ways, Trump espouses views opposite of the cosmopolitan (the proper Bannonite-Trumpist insult is "globalist") Davos crowd: Trump is parochial instead of global in his outlook on politics and economics as well as bigoted instead of multiracial in terms of cultural disposition. His social attitudes are, of course, also decidedly prehistoric in championing white, male supremacy on a regular basis. If you grew up watching Hanna-Barbera cartoons, you will know exactly what I mean when I say Trump is Captain Caveman to the regular Davos attendees who are--or at least claim to be--more progressive like the futuristic Jetsons.

So this is the setup we have for Trump attending Davos--or at least until the government shutdown put some uncertainty as to his attendance:

Donald Trump was set to be the first U.S. president to attend the World Economic Forum in Davos, Switzerland, in nearly two decades, but the government shutdown might have scrambled those plans. White House budget chief Mick Mulvaney said Saturday that Trump's plans to travel to Davos next week are up in the air while Congress scrambles to strike a deal to fund the federal government."We're taking Davos, from the president's perspective and the Cabinet's perspective, on a day-by-day basis," Mulvaney told reporters during an impromptu briefing.
With a theme of "Creating a Shared Future in a Fractured World" [this is too funny for an event Trump will attend], this year's event would certainly generate considerably more interest from the attendance of the person doing more than his fair share of the fracturing by withdrawing from or threatening to withdraw from any number of trade arrangements; denying the shared menace of climate change; proposing to wall off the United States from foreigners; and generally withdrawing his country from institutions of global governance.

Old school European internationalists are also set to attend to counteract Trumpism. I believe that this part is the interesting one since Trump's absence would given them sole voice, albeit at an event that US audiences usually ignore:
European leaders will be out in force at the World Economic Forum in Davos this week to defend multilateralism before U.S. President Donald Trump arrives to deliver his “America First” message...

The charge will be led by French President Emmanuel Macron, the new star of European politics, who in an audacious move, has invited many of the business leaders who will be in Davos to the Palace of Versailles on Monday to press them to invest in France.

When he speaks in Davos on Wednesday, the former investment banker will offer his own “diagnosis” of globalization and set out a vision for addressing widening inequalities, global warming and the rise of nationalism, his advisers say. “I don’t think Macron will be able to resist being the counter-Trump,” said Robin Niblett, director of the Chatham House think tank in London. Macron will be joined by German Chancellor Angela Merkel, returning to the world stage after months of political limbo at home
In years past, the French have often been those critical of global economic elites. Neoliberalism and all that jazz. With Trump and Macron--a former investment banker, mind you--the United States and France appear to have switched places with the former now led by a self-styled protectionist and the latter by an unabashed internationalist.

Times change. While Trump likes the opportunity presented here to poke a finger in the eye of the so-called globalists as he is wont, it may yet backfire: his prehistoric views may further alienate very influential people around the world just as the United States' international reputation is in the dumpster thanks to him. Showcasing ignorance proudly is Trump in excelsis. Then again, being "America First" is a play to domestic audiences first and foremost, so even if he offends his hosts and their progressive sensibilities, it may not matter to Trump for as long as it plays well to his political supporters espousing similarly Trumpian views.

But will he be able to attend? The dynamics of the government shutdown--whether it approaches resolution, as well as its optics--should the president be seen as fleeing the arena when the action is at its peak--will help determine his presence or absence. As they used to say on TV, stay tuned for the continuing misadventures of Captain Caveman, I mean...Donald Trump.

IMF: From ‘Washington Consensus’ to ‘Soak the Rich’

♠ Posted by Emmanuel in at 1/14/2018 02:34:00 PM
Even the IMF has moved on from the 80s-vintage "Washington Consensus." Trump, however, still adores it.
In many ways, Donald Trump is a throwback to the past. Unfortunately, he wishes to bring back a lot of what was regrettable and not desirable about the past: militarism, racism, sexism, etc. Even in the international economic realm, he's a throwback to the 80s (your choice: 1980s, 1880s, 1780s or even before that) in bashing massive trade deficits with Japan, wishing for the "return" of American manufacturing, re-prioritizing the burning of fossil fuels over renewable energy sources and so on.

Instead of acting on his populist campaign promises to reduce inequality, Trump has actually brought about a lot of the things which reinforce it: Giving corporations massive tax cuts which working-class citizens will have to pay for in the future, gutting healthcare benefits provided by the state, selecting an education secretary whose cause is eviscerating public education in favor of private education...the list goes on and on.

Strangely enough for us at the IPE Zone, one of the international financial institutions that has long championed Trumpified, inequality-increasing policies no longer seems to be doing so. The IMF once pushed "Washington Consensus"-style policies that were said to worsen inequality by assuming that wealth will inevitably trickle down after liberalization, deregulation and privatization. These were, of course, massively controversial policies. I have colleagues who've made entire websites devoted to criticizing the IMF over such policies taht are still going strong. Sure, inequality may increase in the short run, the theory went, but in the long run more would benefit. The implication is that inequality itself should not be the focus of policy attention.

Actually, what Trump actually does nowadays--pursue policies widening inequality even further--is contrary to modern IMF policy prescriptions (at least in writing). Has this onetime bastion of economic orthodoxy gone all Marx on us? On fiscal policy, a report which came out late last year explained:
Rising inequality and slow economic growth in many countries have focused attention on policies to support inclusive growth. While some inequality is inevitable in a market-based economic system, excessive inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth. This Fiscal Monitor discusses how fiscal policies can help achieve redistributive objectives. It focuses on three salient policy debates: tax rates at the top of the income distribution, the introduction of a universal basic income, and the role of public spending on education and health.
Does the IMF really advocate "soak the rich" policies now? In so many words, yes, via the euphemism "progressive taxation" which it now regards as a positive with few caveats by deriding its opposite:
A substantial share of the differences in inequality across economic groups and over time can be attributed to differences in redistributive fiscal policies. In advanced economies, direct taxes and transfers reduce income inequality on average by about one-third, with three-quarters of this reduction achieved through transfers. In developing economies, fiscal redistribution is  much more limited, reflecting lower and less progressive taxation and spending and greater reliance on regressive indirect taxes.
You can read the rest, but the implications are clear: IMF member states should make inequality reduction a core concern in the interests of generating growth regardless of whether it's equitable or not. Taxing the rich more is part of the policy prescription package [gulp!]. By contrast, Trump is "Washington Consensus" in full pomp. The point is that if even a supposedly ideological and insulated institution can change, it remains to be seen if Trump can. After all, he is still, like Steve Spears who I have a much higher opinion of, stuck in the 80s.

Trump's USA & Norway: What's the 'Sh--hole' Country?

♠ Posted by Emmanuel in , at 1/12/2018 03:42:00 PM
Trump should dress in more appropriate garb...but we can do more sensible things.
(UPDATE: A new poll finds Norwegians have the lowest opinion of American leadership of any country surveyed, to no one’s real surprise.) I am utterly appalled, but not surprised, by American President Donald Trump's reported characterization of a number of developing nations as "shit--hole countries." In his rhetoric, Trump can be argued to subscribe to a global racial hierarchy which goes roughly like this:

White American > White European > White Australian/New Zealander > Japanese > Other East Asian > Southeast Asian > South Asian > South American > Caribbean > African

Variations on this kind of racist thinking have a long tradition, basing human capabilities on skin color, geography, or some other questionable criteria. While reducing immigration from non-white nations has been a central plank to Trumpism--AKA "terrorists," "drug dealers," "rapists," and "killers," his claimed desire to re-prioritize European migration is interesting. For a long time in its history, the United States of course gave preference to white European settlers. Aside from the demographics of aging European countries not being ideal for sending migrants, the question comes to mind as to whether today's United States can attract these more "desirable" people. Trump made the comparison himself when speaking about how people from Norway--whose leader recently visited the US--would make a far better source country for migrants to America.

The answer is a clear no. Statistically speaking, there are next to no reasons as to why a Norwegian national would desire to become an American national. Let's look at the numbers:

1. Norway has the highest human development index (HDI) rating in the entire world, the United States rather less so. The United States barely makes the top 10. The HDI is a useful indicator of human progress insofar as it not only considers economic measures--production per capita--but also those for health and education. I can go on and on about "American health" (an oxymoron if there ever was one). The United States has the fattest people among OECD nations and, on a related note, is remarkable in declining among the aforesaid nations in terms of comparative life expectancy. In other words, its momentum is sinking rather than rising in HDI judging by the health component. As for education, do you really have to ask? Of course Norwegian students outdo American ones in science, reading and mathematics.

2. Norway is so wealthy that its government has earmarked over $190,000 to each citizen. By contrast, the United States saddles each of its citizens with over $63,000 in debt (and rising). The United States is said to be a country rich in natural resources as well as human capital. For any number of reasons, however, the country has never had a sovereign wealth fund accumulating state revenues from resource extraction activities. As it so happens, Norway has one of the world's largest--which is exceptional for a country with such a small population. If you allocate holdings of the Government Pension Fund (~USD1 trillion) to its ultimate beneficiaries, each Norwegian citizen (~5.2 million), then each Norwegian has over $190,000 to bank on.

The United States is a rather more sobering story. Its national debt has climbed above $20.5 trillion and is set to rise much more quickly in the near future due to various health and pension obligations which have been largely unplanned for (unlike, say, by Norway). Distributed to each citizen, that's $63,000 so far. So, someone with a Trump-like worldview trading Norwegian for American citizenship instantly loses $253,000. What a deal.

3. The idea that greater inequality is tolerated in the United States because opportunities there are greater has long since been debunked. Economic mobility in Scandinavian countries like Norway is much greater than in the United States, where your financial condition is more significantly correlated to that of your parents. This finding is repeatedly shown in study after study; see Pew for a recent one.

So, here's the question for Trump since he's the one who brought up Norway in the first place: What reasons are there for Norwegians to move to what appears to be the "shit--hole" country here by way of comparison? The answer is very few, and that's actually what's happening. Instead of assuming how great the United States is and how others would die for the opportunity to become part of it, Trump and his ilk should see that it's really pathetic relative to other [OECD] countries in its peer group by most objective standards of human well-being.

Geography Flunkies: UK in Trans-Pacific Partnership?

♠ Posted by Emmanuel in , at 1/07/2018 10:40:00 AM
Can the UK join these Pacific nations in a regional FTA? It's far-fetched.
I am utterly befuddled by British officials giving lip service to the idea that they wish to join the Trans-Pacific Partnership (TPP) deserted last year by the United States. Now formally known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP with its 11 remaining parties working towards an agreement, its inclusion of the UK would be an eyebrow-raiser in many respects.

First off, and this is quite obvious, the UK is an outsider in geographic and organizational terms. Since it's neither in Asia or in the Pacific Ocean, it is obviously not qualified to be in the Asia-Pacific Economic Cooperation (APEC) which all CPTPP members are part of and which gave rise to the idea of a TPP. Or so I believe...
Britain is reportedly exploring joining the Trans Pacific-Partnership (TPP), as part of efforts to map out its trade future after Brexit. Ministers have held informal talks on joining the proposed free trade group that includes 11 countries bordering the Pacific Ocean, according to the Financial Times. And International Trade Secretary Liam Fox has not ruled out the UK joining the TPP.
Its qualifications to join CPTPP aside, the economic rationale may not be there despite Asian countries which form its backbone being faster-growing than mature European economies. Having complained about "Brussels" shaping UK policy without meaningful input, how do you think Asian countries would regard a European Johnny-come-lately making a long list of demands to join an FTA it isn't a natural fit for? Simply put, it would likely receive next to no concessions:
However, the very possibility of the UK entering into these talks has drawn criticism. Labour MP and Open Britain supporter Chuka Umunna says new trade deals "would not come close to making up for lost trade with the EU after a hard Brexit".

And if the UK did join the TPP, it risks holding "little leverage" in talks, according to Aaron Connelly, research fellow at the Lowy Institute for International Policy. He says nations are highly unlikely to reopen negotiations on sensitive matters, simply to accommodate the UK. Given the urgency to seal a deal, Mr Connelly warns the UK would be a "price taker" on the terms of the pact, particularly in areas like pharmaceuticals, state-owned enterprises, labour and the environment. "If Brexit was about symbolically taking back control in these areas, then joining the TPP would do little to accomplish that," he added.
If the UK was in such a hurry to get out of its region's integration effort, why is it in such a rush to get into another one where it doesn't geographically belong? That is the question. To most impartial observers, it was better off staying in the grouping where it already was instead of thinking the grass is greener on the other side of the world. Sure, it can make a bilateral FTA with CPTPP member countries if and when the latter is formed, but its chances of being a CPTPP "founding" member are rather iffy.

On CFIUS Dissuading Jack Ma's MoneyGram Purchase

♠ Posted by Emmanuel in , at 1/03/2018 04:27:00 PM
Is this ant a PRC Communist apparatchik? The CFIUS apparently thinks so.
There is a long history of Chinese companies being prevented from purchasing American firms on highly questionable "national security" grounds. The source of this discrimination is the Committee on Foreign Investment in the United States (CFIUS). What is interesting here, though, is that the PRC national attempting to buy an American firm was no less than Chinese multibillionaire Jack Ma. Unlike the often faceless heads of Chinese state-owned enterprises, Ma is a global icon and the founder of his own immense business empire.

What's more, he actually visited the orange-hued Donald at Trump Tower prior to the latter assuming the presidency in hopes of gaining better business treatment  Stateside. Promising to create a "million jobs," Ma appeared to be successful at sucking up to Trump then. Well, I guess the story continues: Ma tried to buy the US money transfer firm MoneyGram to append to his online financial services concern Ant Financial. However, the US government foreign investment watchdog CFIUS again raised longstanding concerns about a privately-owned Chinese firms' alleged Communist Party ties to deny the purchase of a fairly minor US company (its market capitalization is well under $1B at the time of writing):
Ant Financial’s plan to acquire U.S. money transfer company MoneyGram International Inc (MGI.O) collapsed on Tuesday after a U.S. government panel rejected it over national security concerns, the most high-profile Chinese deal to be torpedoed under the administration of U.S. President Donald Trump[...]

Ma, a Chinese citizen who appears frequently with leaders from the highest echelons of the Communist Party, had promised Trump in a meeting a year ago that he would create 1 million U.S. jobs[...] 

The companies decided to terminate their deal after the Committee on Foreign Investment in the United States (CFIUS) rejected their proposals to mitigate concerns over the safety of data that can be used to identify U.S. citizens, according to sources familiar with the confidential discussions.
If you are persistent enough, the identity of anyone using a commercially available cash transfer service can likely be revealed. However, the real security-related question is whether Jack Ma would have motives to obtain this kind of information. It is here where CFIUS' reasoning goes off-track in my opinion. First, you have to believe that the Communist Party would be interested in obtaining the identity of MoneyGram users. Given that the amounts transacted are usually small ones among retail clients, it's kind of hard to believe that the PRC would have interested in the transactions of economic migrants and suchlike.

Second, you would also have to believe Ma's Communist Party ties are such that he would willingly give up such information. Again, this is unlikely in that such a breach, if revealed, could torpedo the operations of MoneyGram/Ant Financial altogether. Why pay for the brand if you were to tarnish it in this manner by forking over identities to the reds?

It's truly farfetched that Jack Ma would have acted as a Communist infiltrator. Maybe CFIUS watches too many spy movies, but I believe that the security risk would have been negligible insofar as MoneyGram doesn't handle the transfers of exceptionally large amounts of money for clients whose financial transactions would be of interest to inquiring minds like those of the Communist Party.

Hijab-Wearing Barbie and Social Responsiveness

♠ Posted by Emmanuel in ,, at 1/02/2018 11:52:00 AM
Is so much ado about a Barbie doll warranted?
There's a hard-hitting op-ed in al Jazeera criticizing a move one of the United States' largest toymakers has made to produce a hijab-wearing Barbie. On the face of it, this action is a long-overdue one in recognition that the world's population is nearly a quarter Islamic. So yes, any move to make Barbie more "representative" of the countries Mattel sells this toy should include one who is appropriately dressed:
Earlier this month, it launched its first Barbie in hijab. Designed after Olympic fencer Ibtihaj Muhammad, this doll is part of its "Sheroes" series. Mattel portrays this doll as serving as an "inspiration for countless little girls who never saw themselves represented in sports and culture". Many Muslims and non-Muslims alike welcomed the doll as a sign of inclusion and diversity. In the words of Miley Cyrus, "Yay Barbie! One step closer to Equality! We HAVE to normalize diversity!"

Given the current context of large-scale demonisation of Muslims through institutional policies such as the "Muslim ban" and the dismantling of DACA, a Barbie in hijab (a headscarf worn by many Muslim women who feel it is part of their religion) appears to be a welcome respite. According to Pew Research Center, hate crimes against Muslims in the US have surpassed the 2001 level.
The author, Shenila-Khoja-Moolji, expresses several reservations about this move one would generally associate with an anti-capitalist perspective. First and foremost, it is an act of commercial exploitation of culture. Second, the design of this item has not been undertaken by groups of Muslim women presumably more aware of the intertwined nuances of gender and culture. (Rather, it was modeled after an idealized [read: more "active"] woman.) Third, Mattel does not really do anything about denigration of Islam in an age of xenophobia:
The assimilation of articles representing Muslim identity or religious life by for-profit corporations is, then, just a marketing/re-branding strategy, not a move informed by social justice concerns. It does little to disrupt racial hierarchies that undergird discrimination of Muslims in the first place. Significantly, it also stabilises a particular notion of Muslim womanhood. When influential organizations select the hijab as representative of Muslim women, those who do not don the hijab find themselves on the defensive about their authenticity as Muslims. They come out all guns blazing at the hijab, delegitimising women who actually choose to wear it for multiple reasons. Such moves then create fissures within Muslim women as well.

Rather than taking on the mantle of providing inspiration to Muslim girls, perhaps organisations such as Mattel should engage more Muslim women in their creative and production processes. Perhaps such engagements will enable them to not only understand the diversity of Muslim women globally, but also to provide much-needed opportunities to Muslim women to thrive economically and socially.
On the first point, I actually agree that it's a product borne of marketing spin. However, I do not see anything necessarily "wrong" with such a commercial move. If legitimization and mainstreaming are partly achieved by commercialization, then it actually helps the cause.  Unless you're a dyed-in-wool anti-capitalist, there is nothing essentially sinister here. On the second point, yes, Mattel could have improved its products' claims to authenticity if it had consulted more widely with Muslim women about the doll's presentation (and probably improved its commercial prospects).

On the third point, however, I disagree. Mattel is a for-profit enterprise, not a social enterprise. As such, "changing the world" is not its purpose by resolving the prejudices wrought by the current wave of Islamophobia. It suffices to recognize a well-intentioned move to counter such prejudicial sentiments, which Mattel is actually doing here. So, overall, it's a laudable action, though it could have been improved by more inclusiveness during the design process.

Given Islam's ethnic diversity as a globe-spanning religion, it should also be noted that blue-eyed, blonde-haired women are also followers of the faith.