The Iran Sanctions Are Gone — For Good

WASHINGTON – During the Iran nuclear negotiations, we would often get TV footage and photos of the negotiators in Switzerland or Austria. Federica Mogherini, the EU foreign policy chief, always looked serious, in fact stern. Her expression seemed to indicate that she was engaged in really serious business, with uncertain outcomes.


But now, fast forward to the brand new atmosphere created by the UN Security Council vote that enthusiastically endorsed the deal signed by Iran and the Western Powers, with the US in the lead.

Only days after this “green light”, Mogherini traveled to Tehran. And the message conveyed by her truly happy demeanor is clear. “All is well, my dear Iranian friends. With this annoying nuclear issue out of the way, now it’s party time. Let’s go back to business. Let’s have some fun”. And her body language tells the story. Gone is the stern look. In Tehran, Mogherini looked like a young woman getting married. Big smiles, and a positively relaxed look while she was posing for pictures with the Iranian Foreign Minister Mohammad Javad Zarif. He was also smiling a lot.

The French are back 

And there is more. French Foreign Minister Laurent Fabius seemed to be a tough guy during the negotiations. But now, with the nuclear agreement signed, he also rushed to Tehran for high level talks with Foreign Minister Zarif and President Rouhani.

And he was also smiling a lot. After all, France used to have a lot of business with Iran prior to the sanctions. And clearly the French want to regain their privileged positions. Car maker Renault wants to get back into the country. Oil company Total is already busy looking for new investments and joint venture opportunities.

No more sanctions

Well, what is the point of all this? The point is that the Iran sanctions are gone –for good. Which is to say that the idea of going back to sanctions, (remember what Obama said about “snap back”), should Iran misbehave, is a fantasy, stuff for the birds.

The mad rush to Tehran, coupled with Mogherini’s smiles, tell you the real story. The EU will never –and I mean never– go back to sanctions against Iran. Even if the IAEA inspectors gained evidence of Iranian cheating, (and this is unlikely, given the soft inspection regime), all violations will be explained away. There will be a million reasons for having more talks and negotiations instead of sanctions.

Now we are back to business. And this is all that matters.

So much for strict verification and tough enforcement of this make-believe “agreement”.

US Media Tell Us That America Is Doing Well

WASHINGTON – Despite evidence to the contrary, most media tell us that all is well with the US economy. The subtext is that the worst post-recession recovery in history is now the accepted “New Normal”. Therefore what we used to call disappointing mediocrity is in fact good. Likewise, low growth rates are impressive. Overall, as a buoyant stock market indicates, we are clearly headed higher. 

Slow growth is the norm 

Here are the facts. The stock market levels are artificial. Everybody knows that current high valuations are largely the effect of zero interest rates mandated by the US Fed that have “forced” investors to buy stocks, as there are no viable alternatives left. Therefore, since all investors are buying stocks, we have inflated Wall Street valuations.

Regarding macro economic data, in the second quarter of 2015 the US economy grew by 2.3%. This is by no means terrible. But it is bad compared to a post war 3% average. Sure enough, we are growing, but at a rate that is about 30% less than what used to be considered the norm.

So, which is which? Are we saying that the post war average was an aberration? Are we saying that growth around 2% is just about right, the best that we can do?

Cheerful headlines 

Well, if you look at the headlines announcing just released second quarter GDP figures, the implicit message is that US mediocre performance is actually quite good.

Reuters: “Consumer spending bolsters US second quarter growth”, The Washington Post: “US economy expands at 2.3% in second quarter, picks up speed”. USA TODAY: “Economy bounces back”.

Look, let’s be clear, these are not lies. They are however embellishments. It is true that the US economy has done better in the second quarter of 2015. But then you have to point out that the ultra-anemic 0.6% growth we had in the first quarter was really bad.

Under performance 

Whichever way you look at this, the media have become cheerleaders of an economy that by any measure is under performing. Average growth is lower than the post war average. The number of Americans with a job as a percentage of the working age population is lower. Unemployment is finally almost back to historical average; but only if we agree to count as employed millions of people who have part-time jobs, while they would like to have full-time employment, and if we agree to exclude from the ranks of the unemployed millions who have dropped out and so are no longer counted.

Once again, this is not a “glass half full or half empty” debate. This is about recognizing what consistently mediocre data, year after year, tell us. America is slowly but clearly sliding into what I would call “European mediocrity”.

2.3% growth in the second quarter, coming after 0.6% growth in the first gives you less that 1.5% for the first half of 2015. It takes heroic optimism to label these disappointing numbers as an indication that the overall economy is “picking up speed”.

Denial is the worst problem

Here is the thing. We have actually two problems. Number one: for a variety of reasons we have lost our past economic vigor. Number two: our elites –the experts whom we rely upon– tell us that all told we are still doing pretty well. Nothing to worry about.

And I suggest that this is the worst problem. We are slowly going down, and we are told by the experts that we are alright, in fact we are trending up.

How Bad Is The Chinese Economy?

WASHINGTON – There is no way to tell which way the Shanghai Stock Market is headed. However, it is clear that the July 27 8.5% loss is not just an ugly day in a period of unusual volatility that will eventually come to an end.

A bad day in Shanghai

The fact is that this collapse, the worst one day decline in many years, took place despite highly publicized and very costly ($ 200 billion) government-led counter measures aimed at stabilizing the markets, after a massive rout in early July.

Counter measures 

The Beijing authorities watched (probably in horror) a precipitous share prices decline, day after day. They got really worried that a true stock market collapse would ruin millions of retail investors, this way creating a political problem for the national leadership.

And so they rapidly concocted a series of massive interventions to support share prices. They suspended trading. They ordered brokerage houses to buy selected stocks. They made public funds available to execute these trades.

And, sure enough, the $ 200 billion medication worked, at least for a while. For a few days the markets calmed down. On account of the government administered shock therapy, share prices stabilized. In fact, there was some recovery from the huge dip that had taken place in early July.

No real confidence

But on Monday there has been another major collapse, despite the massive intervention aimed at restoring investors’ confidence. And this is truly worrisome, because it means that millions of Chinese investors deep down do not believe that the government has either the ability or the staying power to stabilize the markets, this way saving their investments.

That said, despite this set back, the Beijing government cannot stop intervening. It simply cannot take a chance and allow a market led by millions of scared investors who would love to run for the exit to find its natural bottom. This bottom may be much, much lower then the lows experienced in early July.

What’s really going on? 

And this is only half the story. Forget for a moment about manipulated and therefore meaningless share prices. The fact is that most of China’s economy is manipulated. Therefore, it is next to impossible to determine its real health conditions, in the midst of signs that indicate a slow down.

Unfortunately, many Western observers keep forgetting that a large chunk of China’s economy is controlled by the state through State Owned Enterprises (SOEs), always funded by state controlled Banks. These large corporations do not follow market rules as we understand them. You can rest assured that government appointed managers will hide losses, while highlighting bright prospects. You see, the government cannot fail.

What we know

Still, despite this fog, we know a few things, none of them reassuring. We know that, thanks to an ill-advised gigantic stimulus plan aimed at facing the 2008 international financial crisis, in the last few years there has been an unprecedented, in fact grotesque, overbuilding of “everything” in China.

We also know that, in order to support its gigantic construction projects, China added an enormous amount of capacity to every industrial sector supporting it: steel, cement, glass, copper, appliances, furniture, and so on. Taken together, these sectors amount to anywhere between 25 and 30% of GDP.

We know that, on account of this construction frenzy, overall supply of commercial and residential properties now vastly exceeds demand. There are way too many vacant villas, apartments and half empty shopping malls.

As a result of this property glut, construction –the main driver of China’s economic growth– had to slow down, dragging down not just unlucky developers but also a huge part of the economy. We know that factory utilization is down to 70%, a pretty bad number.

Debt-financed investments 

Given all of the above, we can conclude that most of China’s recent growth is based on debt-financed excessive investments in unneeded capacity. The stimulus policy aimed at countering the ill effects of the 2008 international financial crisis led to a colossal level of malinvestment.

Still plenty of cash 

The Chinese Government does not have to pull the plug, right now. It still has plenty of cash reserves (trillions of dollars) to fuel this madness a little longer. But how much longer? How much more good money can they throw at zombie companies, in order to prolong the illusion that they are viable? How much more cash will they use to support shares that investors would love to unload?

It is a political issue 

In the end, this is not an economic policy issue. This is a political issue. In a true free market, the state would not massively intervene in the economy. It would allow private companies to compete, while allowing foreign investors to participate on an equal base. This way, without state interference, markets would eventually re-balance demand and supply.

But it is hard to see how China can get from here to there. Hard to believe that the national leadership will liberalize the economy right now, when things are slowing down. There are just too many risks.

Without the recent massive interventions, the Shanghai Stock Market might have collapsed, this way ruining tens of millions of small investors. Likewise, forcing zombie firms to shut down may be good for the future health of the Chinese economy; but it would cause short term misery for millions of workers, suddenly without a job.

The instinct is to control 

I just cannot believe that a political leadership that can claim legitimacy mostly on the basis of a long (past) record of impressive growth would accept a most serious retrenchment of the Chinese economy. Their instinct is to intervene, extend credit, mask problems, and prop up failing companies.

Of course, this means burning cash for no good economic purpose. But this is the only way to survive politically, at least for a while.


The Enormous Value Of Subsidized Child Care

WASHINGTON – Most advanced countries are experiencing low or very low fertility rates. Anything below 2.1 children per woman signals population decline. In some cases the fertility collapse has reached truly alarming proportions.

Elderly Asia

The absolute worst is Singapore. With a fertility rate below 1 child per woman, this rich, well-managed city-state will soon be a country of very few old, or very old people. Within Asia, Japan and South Korea are also doing poorly, with around 1.4 children per woman. (In China, with a mandated “one child policy”, the state created the declining population problem).

Declining birth rates in Europe 

In most of Europe, same story. Fertility rates are well below population replacement level. The steepest decline is in the East and in the South. Fertility rates in Italy and Greece are very close to Japan’s.

France is the only bright exception. And, according to The Economist, (Baby Love, July 25, 2015), this has mostly to do with public policy. The French state subsidizes child care services.

Either children or a career

Here is the story. The main reason why women in developed countries marry much later and have far fewer children is that many women who have entered the labor market are unable to successfully mix a job or career and motherhood. Not surprisingly, it is really difficult, in many cases impossible, to have both: a demanding job and children.

Therefore, as many women nowadays choose to have a career, this means fewer children. Of course, there may other reasons as well. But demanding work and children in many if not most cases tend to be mutually exclusive.

The result of women opting for work is fewer babies and declining populations. And declining populations create all sorts of problems. Among them: shrinking labor markets, and less economic dynamism.

Social security systems will have to be redesigned 

In developed countries we have to add another major public policy problem. Most Western nations adopted retirement systems in which the active working population pays into the national fund that delivers financial assistance to the retirees. This system was conceived a long time ago. It was based on the assumption that there would always be a large active population that pays into the fund, while the number of retirees would always be relatively small. Therefore, the fund would always be solvent. Well, not so anymore.

Due to declining fertility rates, now there are fewer workers paying into the system; and tomorrow there will be an even smaller number. At the same time, there are more elderly people who live much longer lives on account of health care improvements. So you have very few active workers who are supposed to provide the funds necessary for the retirement and health care needs of more older people who live much longer, and therefore cost more. This system cannot work anymore as originally designed.

Let’s follow the French example

Anyway, if we agree that falling birth rates create major problems, then let’s do what France has done. Subsidize nurseries and other child care services. When women realize that society will pay for their child care, they will no longer be forced to choose between a career or motherhood. Knowing that there will be good and reliable child care facilities available to them at no cost, or at a nominal cost, they will be able to have both a career and children.

A worthy investment 

Of course, taxpayers will have to absorb this significant new financial burden. But it will be worth it. There will be a great gain for society. Millions of women will be free to pursue job opportunities. Women who already work will not have to drop out in order to take care of their newborns. The economy will gain because of the added contributions coming from 50% of the population. And societies will be rejuvenated and enriched.

The alternative is to let this trend continue. Think of the consequences. Countries  composed mostly of old people are not appealing markets; and they are unlikely to be or become great laboratories of innovation and forward-looking ideas.

Let’s help women live productive and fulfilled lives; and they will help us all.

Obama’s Nairobi Speech In Praise of Enterprise Not Well Reported – A Pity

WASHINGTON – US President Barack Obama traveled to Nairobi, Kenya to address a US-sponsored international forum on entrepreneurship. He said a lot about the value of enterprise in modern societies.

The key point

And yet this is what most international media quoted from his speech: “Entrepreneurship offers a positive alternative to the ideologies of violence and division that can all too often fill the void when young people don’t see a future for themselves.”

That’s it? 

Let me understand this. According to world media, of all the things that Obama said, the most quotable sentence is that Africans (and others) should foster entrepreneurship because it provides a good antidote to “ideologies of violence and division”? That’s it? This is the value of enterprise? An antidote to political extremism?

This is how you narrow down what the leader of America, the most successful capitalistic economy in history –an economy, mind you, founded on free enterprise– has got so say about the value of entrepreneurship?

There is a lot more in Obama’s speech

Obama said a lot more in his speech, a lot more. He talked about the power of innovative ideas, creativity, risk taking, meeting challenges. He talked about ways in which America plans to support private sector entrepreneurship around the world. He talked about the role of women.

But none of this has been reported at any length. This is a missed opportunity. A speech extolling the value of enterprise in emerging countries, precisely because it has been delivered by an American President, illuminates why the capitalistic industrial democracy model that we would like other countries to embrace, is better.

The enabling environment 

Sure enough, enterprise is not everything. You need a real “enabling environment”. You need good laws that defend private property and investors rights. You need an independent judiciary, simple regulations, and a true commitment to fight corruption.

And there is more. You need infrastructure (power generation and distribution, railways, good highways, ports, and what not). Of course you need all this. And Obama talked about this in his Nairobi speech.

Enterprise is key 

And yet, the truth is that, if a society is unable to produce a robust group of future oriented entrepreneurs willing to take risks, you can have all these “building blocks” without making any real economic progress.

Look, it is very difficult to “breed” entrepreneurs. But one way to encourage more people to take a chance by starting a business is to make it clear to them that risk taking can have great rewards. You can make money. You introduce a new product or service. You can offer employment to others. You contribute to the overall progress or your society. And this is what Obama said in his Nairobi speech.


And this is why it is a great pity that most media chose to focus only on what Obama said about enterprises as antidotes to political violence. The US President said a lot more.

He said that enterprise is the engine of growth and innovation. He said that it is the best way to have faster economic growth. He said that America encourages women entrepreneurs in emerging countries. He talked about broad-based initiatives that will link US investors and technology leaders with young entrepreneurs world-wide. All this may not be revolutionary. But it is important.

Too bad that Obama’s message extolling free enterprise was not properly reported, and therefore it was lost.


End Of China Boom Caused Commodity Prices Collapse

WASHINGTON – Global mining giant Anglo American just announced that it will downsize –in a dramatic way. It will cut 53,000 jobs. This is no surprise. It is the painful consequence of the end of the crazy China bubble.

Commodities are down

Indeed, all commodity prices are significantly down. Compared to 2014, iron ore is down 45%, copper down 25%, aluminum down 18%, and so on. And this collapse is due mostly to lack of demand from China.

If these are the painful consequences of the end of the China boom, it may be instructive to go back and see how it started.

How it all started

When China’s leaders announced a gigantic, publicly funded, stimulus package to counter the ill effects of the US-induced 2008 global financial crisis, the world applauded. “There you go. This is how you deal with this problem caused by the short-sighted and in the end stupid Wall Street crowd. This is a real fire wall. Nothing like the puny, timid package passed in Washington. You counter a major crisis with a really big package. This one will do it”.

Well, the package was big, no doubt. In fact it was so big that it unleashed a gigantic China boom. Goaded by the central authorities, the Chinese provincial Communist Party chiefs ordered massive construction projects. They built and they built “everything”: luxury housing, commercial real estate, shopping malls, infrastructure. And of course, for a while this worked out well. Companies were doing well, workers were employed, and so on.

They over did it

Yes, except that the Chinese over did it. And not just a little bit. They over did it in a grotesque, historically unprecedented way. They overbuilt everything, everywhere. And of course, in order to fuel this boom, they added too much capacity in all the sectors that supported it. Too many steel mills. Too many ships to carry what seemed to be an ever growing supply of iron ore. They augmented capacity in glass, cement, copper wire, you name it.

Boom in commodity producing countries

And this is only half the story. Until this craziness lasted, the Chinese boom fueled an economic boom in commodity producing countries. Brazil did extremely well by boosting its exports to China. Same for Australia, and many African countries.

But this Chinese debt fueled boom, induced by ill-advised public policies ordered by Beijing, had to come to an end. Simply stated, there is too much supply, not enough demand. And in the meantime, China total debt skyrocketed to unprecedented levels.

Mining companies trying to adjust

And now? Well now we see the outcome of this gigantic malinvestment. As indicated above, British mining Giant Anglo American is trying to cut its losses by eliminating 53,000 jobs. World wide the mining industry is in bad shape, and so are the countries whose growth depends on it.

China’s policies did not work

What is the lesson of this? The lesson is that Chinese policy makers are just sorcerer apprentices who believed that their smart ideas would provide effective tools that would beat a negative global trends caused by reckless American policies.

True enough, all governments around the world tried to enact measures that would limit the damage. Washington intervened massively to prevent the collapse of American financial institutions. It also bailed out General Motors, the giant car manufacturer that was already in serious difficulty before the Wall Street financial collapse. Still, while we can debate the wisdom of the counter measures, overall Washington did not make the problem worse.

The Chinese wanted to avoid the economic consequences of a financial crisis they did not create. And this is understandable. However, in their zeal, in the end they created a huge debt-fueled boom that caused a massive misallocation of capital, in China and across the world. If you just lost your mining job in Australia, Brazil or South Africa you know this.

Chinese over capacity will be sold to us

And this is not the end of the bad news from China. If you were wondering what will China do with its massive over capacity in practically every industrial sector, here is the answer. They will do their very best to sell their gigantic steel (and everything else) surplus to us, at rock bottom prices.

You see, this being China, they simply cannot shut down money-losing steel mills, this way causing massive unemployment. No, they will keep producing, at a loss if necessary, and dump the stuff here, this way causing US steel producers to go out of business.

The Senseless Death Of Kathryn Steinle

WASHINGTON – The senseless killing of Kathryn Steinle by Francisco Sanchez, a Mexican illegal immigrant with a long criminal history, stunned America. 32-year-old Kathryn was simply taking a walk with her dad in San Francisco. Sanchez, for unknown reasons, shot her and killed her.

Illegal immigrants come back

Sadly, this is not just another homicide. This killing highlights the tangled mess of American immigration policies and selective enforcement. In an ideal world, Sanchez, an illegal immigrant with a long criminal record, should not have been in the USA. Or he should have been in a US jail.

Well, then how is it possible that he was freely walking around in San Francisco?

We know that many people from Mexico and Central America manage to cross the US border illegally. What is worse, many of those who are apprehended and sent back simply turn around and try again, multiple times. And this is because essentially there is no penalty for illegally crossing the border.

Sanctuary cities

If this were not enough, many US municipalities declared themselves to be “sanctuary cities”. This means that illegal immigrants who settle there are welcome. No one will ask them questions about their immigration status. The local authorities will not arrest them and turn them over to the US immigration authorities.

The original purpose of creating “sanctuary cities” was to allow illegal immigrants living there to come forward and cooperate with local law enforcement in cases of crimes affecting their communities, without fear of revealing their status, this way facing deportation.

Well, may be this was a good idea. But now sanctuary cities have become magnets for more and more illegal aliens.

So, here you have it. We have a porous border that allows illegal immigrants to get into the United States. And then you have many cities, including San Francisco, that provide safe haven to those who go there.

This is bad. America is a country of laws. The fact that the Federal Government does nothing when City Councils and Mayors enact provisions that protect and in a sense encourage illegal immigration sends a horrible message of confusion, weakness and eventually lawlessness.

Illegal immigrants with felony convictions

But wait, it gets worse, much worse. Francisco Sanchez, the man who killed Kathryn Steinle in San Francisco, has a long record of arrests and felony convictions on drug charges, here in the US. He was arrested, convicted and deported several times.

And –guess what– each time he came back.

This time, Sanchez purposely went to San Francisco in full knowledge of the sanctuary policy of the city. And then, (prior to the murder), while he was caught by the federal authorities, he fell through the cracks of unclear provisions and conflicting jurisdictions that, according to the San Francisco police, included improperly crafted instructions they received from the federal immigration authorities.

With a straight face, the San Francisco police claim that they could not hold an illegal immigrant with multiple felony convictions because they had no legal ground to do so. This looks incredible, and in fact incomprehensible. But, technically speaking, they may be right.

Unusual but not unique story

The story of Francisco Sanchez and Kathryn’s tragic death may be unusual. But it is not unique. Among the many illegal immigrants who manage to slip through and settle in a sanctuary city there are criminals. Certainly they are not a majority. But they are there. And, on occasion, they commit violent crimes.

The senseless murder of a young woman who was just taking a walk with her father encouraged emotional reactions, including new federal laws that will punish “sanctuary cities”. But this is mostly noise.

Serious immigration reform

The real issue is that America’s immigration policy is broken. It is a monumental mess that needs to be fixed. As a minimum, we need to:

1) Secure all our borders. People with no visas or other legal permits will not get through. No exceptions;

2) Prioritize the legal immigrants that we want to have, and this should include highly educated people who can contribute to our economy;

3) Create a robust guest workers visa program that will take care of seasonal workers who come to America to be employed in agriculture and other non permanent occupations;

4) Offer a realistic path to legalization to the millions of law-abiding illegal immigrants who are already here and who have not broken laws, (except for the immigration laws).

Political paralysis in Washington

This is complicated. But not impossible. Those who oppose reform (mostly conservative Republicans) affirm that all the illegal aliens should be deported –that’s about 11 to 12 million people. (This would be un unprecedented undertaking, a monumental effort that would cause national chaos).

They also maintain that any path to legalization amounts to “amnesty”. And amnesty would send the message that there will be more amnesties in the future, therefore encouraging more illegal entries, and so forth.

This political paralysis in Washington is most unfortunate. Because of outdated laws, we have unclear priorities, provisions that are not enforced, local initiatives that go against federal laws, and conflicting jurisdictions.

This is a real mess.

Kathryn’s death

The senseless death of Kathryn Steinle is a sad example of what happens and may happen again when illegal immigrants who are also criminals can take full advantage of policy confusion in America, a major, advanced country that lacks the will to pass sensible immigration reform.

FT: Europe Undergoing High Tech Transformation – Really?

WASHINGTON – If you look at mainstream media, the news is that slowly but surely “Europe is back”. With a degree of optimism bordering on lunacy, we are told by many analysts and commentators that Europe’s economies are doing so much better, these days.

Europe is back

Yes, we are talking about a Eurozone growth rate for this year that may go beyond 1%. Can you imagine? More than 1% growth? Unheard of.

Well, this is Europe’s “New Normal”. A new normal in which debt to GDP ratios are now close to 100% in most countries, while in Italy the national debt climbs to 125% of GDP and in resurrected and officially “saved” Greece it is close to 180%. This is the new normal of structurally high unemployment (above 10%) with peaks around 25% in Spain and Greece. Not to mention catastrophic youth unemployment (about 30% or higher) in most of Southern Europe.

And yet, notwithstanding this rather dismal picture, the news is that things are essentially back to normal or getting back to normal.

Deluge of cash into high-tech startups?

Case in point an FT front page title encouraging readers to get to the story on page 9 says: “A deluge of cash – Venture capital is pouring into Europe’s tech start-ups”. “Deluge of cash”? Now here is a story. If the authoritative FT writes a special report on an explosion of venture capital supporting new high-tech enterprises in Europe, there must be something really important going on.

Well, no, there isn’t. And it is clear that there is no revolution when you read the article. It is true that now there is a lot more venture capital supporting European tech ventures. In the digital sector there has been an increase from $ 4bn a year in 2010 to $ 7.7 bn in 2014. This is indeed almost double.

Modest funding

However, compared to the $ 160bn invested in the US, of which $ 70 bn have been invested just in Silicon Valley, this is nothing. And yet the EU economy is just as large as America’s, (about $ 18 trillion).

The difference is that there is very little innovation in Europe. The long FT survey describes only a couple of major success stories. And some experts and practitioners quoted in the long article expressed strong skepticism about Europe’s chances to become a real high-tech hub.

And yet, while the actual news is not that good, the FT editors thought that it would be OK to dress up a not so interesting story about Europe’s so-so high-tech companies with a teaser that announces a “Deluge of cash”. As a minimum this is a distortion.

Lamentable record in innovation

The WSJ is more realistic. In a piece titled “Post Bailout Risks Loom for Eurozone Investors” (July 23, 2015), we read that: “Europe’s lamentable record in innovation and startups means a lack of fast-growing new companies with big investment plans”. Got that? Lamentable record in innovation and startups”. No mention here of any “Deluge of cash”.

Look, economic affairs reporting is not an exact science. But both papers cannot be right on the truly significant issue of innovation in Europe. The macro statistics about growth, public debt and unemployment support the WSJ: Europe’s  economies are stagnating.

Wishful thinking

Unless we want to cling to our hopes and say that the FT is right because it is anticipatory. Its reporters have identified below the horizon transformative trends in Europe that others have yet to grasp.

Look, it would be great if this were true. It would be great to witness a European economic renaissance. But it is not there.

And preposterous headlines that announce the massive capitalization of high-tech revolutions, when there is little evidence of anything truly significant underway, are very unhelpful.


Republicans Love Donald Trump?

WASHINGTON – Both the Republicans and the Democrats have to deal with an odd character as would be president. The Republicans have Donald Trump, a boisterous business man, the Democrats have Vermont Senator Bernie Sanders, an old but feisty socialist.

The difference

The difference between Republican contender Donald Trump and Democratic would-be president Bernie Sanders is that, in a really crowded field, (16 declared candidates),Trump is now leading in the polls taken among likely Republican primary voters. Bernie Sanders has significant following within the left of the Democratic Party; but there is no chance that he will be the upset nominee, beating ultra-favorite Hillary Clinton.

GOP loves Trump

Therefore, in a truly disingenuous way, the liberal media can say that Donald Trump, with all his outrageous bombast, is the candidate favored by most Republicans. This being the case, the pundits and the rest of sane America can conclude that most Republicans are lunatics, espousing hatred for immigrants and a confrontational foreign policy.

This is technically true, at this early stage. But it is also patently false. There are 16 Republicans in the race for the GOP nomination. The fact that Trump is now leading the pack with less than 20% of the votes does not mean anything.

Be that as it may, the sad truth is that many voters, especially independents, will stay away from a Republican Party that allows Donald Trump to run for president. And this is a real “image” problem.

Of course, many are hoping that sooner or later Trump will say something so outrageous that it will turn off the would be voters. I would say that there is no chance of this happening.

Americans love the outsider

There is a significant segment of the American electorate that loves a man “who tells it how it is“. They love a non professional politician who does not need to curry favors because he can burn his own cash to run for president.

Being independent of the party elites, he can tell them what many rank and file voters really believe: “You are all weak. You are stupid. You do not know how to negotiate anything. You have allowed America to become the world’s laughing stock. No wonder we get no respect. But I’ll fix all this. I know how to get things done.” 

Yes, a significant segment of the American population loves this kind of bombast. As Trump is now the self-appointed “truth teller”, he can say whatever he wants.

In fact, the more offensive, the better. His supporters certainly do not expect him to apologize or retreat after having said that Republican Senator John McCain is no war hero, because his fame comes from having been a prisoner during the Vietnam war.

Media love this

And the mostly liberal media love this spectacle. Imagine this: the entire Republican Party establishment labeled as stupid amateurs by an outsider with ultra radical and in many ways crazy positions on almost everything who is actually leading in the polls.

Isn’t this truly wonderful?

Here is the emerging narrative. “Because of Donald Trump, the whole world can see that deep down most Republicans are just as crazy as he is. Even though they have a wide choice, they really like Trump. And you want to vote for this party? Please…”.

As I said, do not expect Trump to withdraw from this race, or flame out any time soon because of self-inflicted wounds. His hard-core followers love all this. In fact, the more outrageous his behavior, the better.

Some details, please

The only way to show the voters that there is little substance beyond boisterous statements, is to dig deep into his policy statements. Sooner or later someone will have to ask specifics.

Is it really enough to say that a Trump administration will build a wall between the USA and Mexico, while it will force the Mexican government to pay for it? Isn’t anybody curious to find out how he will manage to accomplish this?

Likewise, when he says that China and Japan are taking advantage of America in  trade relations, isn’t it appropriate to ask how he intends to reverse this trend? How is he going to force China to buy large amounts US goods and services?

If indeed most immigrants from Mexico are criminals and rapists, what is he going to do about the 11 to 12 million Latinos who are already here in America? Deport them all? And how long will this take? What are the likely consequences of such a drastic action?

What will president Trump do to balance the federal budget? Does he have a health care reform plan? What about taxes, and social security?

And what about his statement about creating prosperity and jobs? So far, we have heard nothing about how will do any of this.

No questions asked

For the moment, Trump gets a free ride because he is admittedly a novelty. But Americans get tired of novelties very quickly.

While I believe that Trump will have a solid group of followers until the very end of this race, it should become clear to most voters pretty soon that he is unable to explain in a convincing fashion how he will accomplish any of his declared objectives.

For the moment, lots of people are satisfied with Trump’s generalities: “Trust me. I became very wealthy because I am a skilled negotiator. I shall bring my business expertise into the policy-making arena. I shall transform America because I know how to do this”.

My hope is that voters will soon require a few more policy details. As there are none, they will realize that this noisy outsider is probably not good presidential material. Again, this is only a hope…

The Republicans Must Articulate A Message Of Growth And Expanded Opportunity

WASHINGTON – I just read a long and detailed analysis written by a well-known conservative political commentator. The focus is on how the Republican nominee must capture a larger slice of the Latino vote in order to get elected president of the United States.


Well, there may be good analysis in this piece, and possibly good ideas about campaign tactics and strategies. But this is not the right way to expand your base. In this op-ed piece the argument is that a Republican (unfortunately?) will need a larger share of the Latino vote in order to gain some key states. Therefore the nominee will have to speak to the Latino voters in order to sway at least some of them.

Change your message in order to get votes 

As I said, this is terribly wrong. This approach is about saying whatever you need to say in order to get elected. And this means that a Republican candidate will have to invent a new political message that hopefully will please at least some Latino audiences. The implicit message here is: “Sorry guys. You may not want to do this. But this is how the system works. If you want to get elected president, given the changed American demographics, you must get a bigger chunk of the Latino vote. So get busy instructing your staff to put together TV commercials in Spanish. I wish it were not so, but this is what you must do in order to get elected.” 

Really? And you expect that nobody will notice what amounts to deception? You expect that nobody will see that you are engaged in cynical manipulation?

Small government and more opportunity 

The truth of the matter is that at the national level the Republicans have been unable to extend their appeal much beyond the White middle class. They are unable to explain in a convincing way how their core beliefs in individual responsibility and self-reliance are perfectly well aligned with public programs aimed at enabling the weak to stand up, and eventually become self-reliant.

Yes, the Republican Party is about small government, low taxes and minimal regulations. These are the basic precondition for having a pro-growth environment that favors the creation of new enterprises, new employment, and eventually more prosperity.

However, the Republican Party is also the party that wants to promote opportunity and wider access to opportunity for all. And therefore, without any contradiction, it is possible to talk at the same about deregulation and about ways in which the poor and the working poor can be assisted, so that they can improve their chances to get into the American mainstream.

Give tools, not subsidies

Therefore good Republicans can and should talk about true public education reform. After all, now as never before a good education is a mandatory prerequisite for having a shot at any meaningful job or career. They should have programs that will help low-income people with child care, health care and more.

Of course, there is a critical qualitative difference between public assistance designed to be there for ever and assistance programs aimed at giving people, for a limited period of time, essential tools so that they can become self-reliant and independent.

By default, if not by design, the Democrats created larger and larger social programs with no sunset clauses. The implicit assumption is that the poor and weak will be poor and weak for ever, and therefore for ever in need.

The Republicans must push for a completely different approach that can and will resonate with low-income Americans. “We are here to help. We want to give you tools. But you have to work with us. You have to do your part”. 

This is the message that should be sent out to all Americans, rich and poor. This is the way to arouse the interest of all, including millions of Latinos and other minority voters. The Republicans must believe in and forcefully articulate a message of hope and inclusiveness.

An opportunity society 

The message to the country should be: “We want to promote more growth. Once we have improved the conditions for conducting or starting new economic activities, those who already have the means will get busy. They will do well on their own.

But we know that there are others who do not have the tools. They do not have capital. They do not have enough education, they do not have skills. Smaller government, low taxes and deregulation mean little or nothing to them.

Well, here is where government and private sector organizations, working together, can provide real help. It will be hard, but it is possible to give meaningful tools –as opposed to subsidies– to those who do not have them, so that they will have a good chance of joining the mainstream. Our vision is that America has to be a truly inclusive society, with real opportunity for all”.