NATO Is Indeed Obsolete

WASHINGTON – The Atlantic Alliance, or NATO, is an old security arrangement (founded in 1949) that no longer has a clear purpose. In his habitual blunt style Donald Trump, the leading candidate for the Republican nomination in the upcoming presidential elections, recently said that NATO “is obsolete”. In fact, while Trump is certainly not a leading foreign and defense policy expert, he is mostly right.

No mission

Indeed, what is NATO’s mission today? And, related to that, what means does NATO have at its disposal to execute this mission? On the first question, now that the Soviet Union is gone, the mission of a military alliance created to face it is murky. On the second question, NATO has very few military means, as defense budgets in most members states have been shrinking, year after year. (In the US, despite cuts, the Pentagon’s budget is equal to 3.6% of GDP. Germany’s defense spending is 1.2% of GDP. In Belgium it is 0.9%, in Spain 0.9%, in Italy 1.0%)

The old rationale

The initial rationale for the creation of Atlantic Alliance, the very first peace time integrated military structure, was the Soviet threat against Western Europe at the beginning of the Cold War. Europe’s proximity to the expanded Soviet Bloc, (it included all of Eastern Europe and East Germany), combined with Europe’s economic and military weakness, (due to the lingering effects of the destruction caused by WWII), prompted America to commit itself to the defense of Europe. Hence the creation of NATO in 1949, with tens of thousands of US troops permanently stationed in West Germany and elsewhere in Europe, with tanks, guns, aircraft, and nuclear weapons.

No more Soviet Union 

But then the Berlin Wall came down in 1989, and the Cold War ended because the Soviet Union imploded shortly thereafter. The Warsaw Pact disappeared. The New Russian Federation lost control over all of Eastern Europe. Germany was reunified. Moscow also lost large pieces of the old Soviet Union, including Ukraine, Belarus and the three Baltic States.

NATO is still here 

However, NATO was not disbanded in response to the withering away of the old existential threat to Europe’s security. Perhaps it was prudent to keep the old institution in place, just in case. And may be it was a good idea to allow the former members of the Soviet Bloc to join NATO, even though the new Russian leaders saw this as an eastward expansion of NATO, and therefore a potential threat to them.

Still, be that as it may, an Alliance’s strength is based not on how many members it has, (28 countries), but on its shared purpose and on its ability to deploy the military tools to secure them. And here NATO shows its inherent weakness. No clear purpose, and drastically reduced military forces.

A new threat from Russia? 

If we fast forward to today, many will argue that NATO is still quite relevant because Putin’s Russia has demonstrated to have aggressive tendencies. in 2008 it went to war with Georgia. More recently it grabbed Crimea, a piece of Ukraine. Many say that, if unchecked by NATO, Russia would keep moving westward into Poland, the Baltic States, and may be beyond.

I believe that Russia is mostly interested in neighboring regions that historically were part of Russia. The idea that Ukraine is just the appetizer for a famished Russia, while Portugal or at the very least Germany will be the pudding seems quite preposterous.

Inadequate military means

But even if we assume that this unlikely theory of Russian resurgent expansionism were in fact correct, then where is NATO’s demonstrable military deterrent to counter it?

Indeed, if NATO is still standing and operational because Russia is a threat to its members, then we should also see robust defense spending aimed at creating a war fighting force that can credibly deter aggression by showing Russia that any threat to NATO members’ security would be met by a formidable force.

Unfulfilled commitments

Well, it is not so. Because of economic weaknesses and competing social spending priorities, most European countries have allowed defense spending to go into free fall. In theory, all NATO members are unequivocally committed to spend at least 2% of GDP on defense. In practice, only 5 countries, out of 28 NATO members, have honored this pledge. Most of the others spend around 1% of GDP on their military, or less. This is half of what they promised. If you take the U.S. out, The European members of NATO have only limited air power. Practically no sizable expeditionary forces. No meaningful airlift capabilities.

During the Libya mission, confronted with a third-rate enemy, the French and British air forces run out of smart bombs only a few weeks into the conflict. Even that limited operation could not have been executed without US support in key areas such as air defense jamming and suppression, and overall logistics.

Not serious 

Quite frankly, this reluctance to field credible military forces makes NATO into a joke. You cannot say that we have to keep NATO together and strong in order to face an aggressive Russia and then have a virtually disarmed military alliance on account of the fact that nobody wants to spend diminished revenue on defense in economically weak countries.

Limited support to US-led operations 

As far as what used to be called “out of area” (that is possible threats outside of Europe) NATO does not have clear objectives and a credible strategy to achieve them. Yes, NATO countries participated in the difficult Afghanistan and Iraq conflicts. NATO countries intervened in Libya. All true. But in all these efforts (Libya is a partial exception) the US was leading, and selected NATO countries followed.

At present, while the US (with little enthusiasm) is leading a military effort against ISIL in Iraq and Syria, some NATO countries are contributing some aircraft to the air war. But there is no clear NATO policy. And certainly no commitment by all NATO members to participate.

No clear purpose 

So, here is the thing. With the end of the Cold War, NATO lost its original purpose. What we have now is murky strategic objectives and lack of military means to accomplish even slightly ambitious missions.

The NATO Alliance is now mostly a talking shop with too many members who contribute almost nothing of value. While something may change after the US elections, it is unlikely that anybody will ask the hard questions about purpose, strategy and means.

No debate on difficult issues 

Nobody wants to have an open debate within NATO that would inevitably expose deep political divisions and embarrassing military vulnerabilities. For this reason, I suspect that the old institutional framework will be left as is, even though most analysts recognize that it is obsolete and virtually meaningless when it comes to core military capabilities.

In the future, if we are lucky, the US may be able to create ad hoc  “coalitions of the willing” and work selectively with the 4 or 5 NATO countries that still have modern armed forces.




America Is Not Suffering Daily Terror Attacks

WASHINGTON – One of the most damaging –and completely unchallenged– myths propagated by some candidates in this surreal presidential campaign, and reinforced by almost all national media, is that America is targeted, on a daily basis, by terrorists. Indeed we Americans are all potential (and defenseless) victims of a well orchestrated campaign of Islamic terror expertly managed by ISIL, its agents, and thousands of radicalized sympathizers.

Terrorism in America 

Yes, of course, in recent years there have been a few well publicized terror attacks perpetrated by individuals who declared to be followers of the Islamic Caliphate still ruling over parts of Syria and Iraq, and other Islamic radical groups.

But a recent WSJ editorial lists a total of only 5 violent actions on US soil by Islamic terrorists since October 2014. By far the worst among them is the San Bernardino mass killing that occurred in December 2015. More broadly, a total of 45 Americans have been victims of terror attacks since 9/11.

Terrorism is serious business 

Of course, terrorism is bad stuff. No doubt about it. But we are talking about only a few incidents that involved very few terrorists, and a relatively small number of victims. However bad, none of this suggests the existence of a relentless “terror campaign”, with mass killings of innocent Americans occurring on a regular basis.

Of course, law enforcement and all our intelligence and counter terror agencies should stay on top of this Islamic terror issue. As we have had these incidents, there is no doubt that others are plotting some more.

And the very fact that there have been high-profile terror attacks in other countries (Paris, Ankara, Istanbul, and most recently Brussels) suggest that we may have more and may be better planned terror plots targeting the US in the near future.

We are not under attack 

Still, with all due respect for the victims and their families, the extremely limited proportions of this phenomenon in the USA hardly suggest that we are in the midst of a national security crisis.

If we look at the number of violent deaths in America, the total number of victims of terrorism are very low on any list. in 2014 in California there were 1,699 homicides; in Houston, 239 murders, in Indianapolis, 138. But none of this makes headlines. Drug related crimes, conflicts among criminal gangs leading to homicides, and armed robberies gone bad are so common in America that they only deserve a quick mention in the evening news.

Given this context, it is frankly baffling that isolated terror attacks are portrayed by the media, several politicians, and many experts as part of a wave of planned attacks aimed at destroying America. Indeed some have described our current predicament caused by terror plots as a “fight for survival”. Talk about exaggeration.

Very frequent non political killings get much less media attention 

For some reason, when a deranged former employee completely loses his mind and goes to his old work place and starts shooting everybody in sight, we say almost nothing. No banner headline the next morning. Somehow these mass killings are “normal”. As bad as these episodes that result in many deaths may be, we are used to them. Being shot and possibly killed by a disgruntled former co-worker is a possibility that we all accept.

Tens of thousands die in car accidents 

From a different perspective, as a society, we are perfectly willing to accept that any time we get into our cars we expose ourselves to the possibility, remote but real, that we may get killed in an accident. Indeed, tens of thousands Americans die because of car accidents, every year. (32,000 in 2014). We know this. And yet we keep using our cars; even though we are fully aware that this routine activity involves a significant level of risk.

We demand total protection 

However, the extremely remote possibility of being shot by an ISIL supporter while he screams “God is Great”, somehow is a totally unacceptable level of risk. Therefore, we feel perfectly entitled to be scared to death.

The fact that a few such terror incidents have indeed occurred has been turned into a collective belief –in fact certainty– that, here we are, totally defenseless and exposed, in the midst of a major national security crisis. We are unprotected and afraid. And so we scream, and demand guarantees of 100% protection from such evil doers.

And yet, this fear is totally irrational, and therefore unjustified. Based on current data, the odds of getting killed by a terrorist in America are extremely small.

Why the hyperbole?

So, why all the hyperbole about terrorism? Who knows really? There is absolutely no rational explanation for this. However, the fact that many politicians and most media keep repeating that we under daily assault, with plenty more to come, does not help recreate any sense of proportion.

The media love this

All media are at fault. They know that stories on terror attacks, and stories on potential terror plots get large audiences. Fear sells. And so the media provide maximum coverage, using every possible hyperbole to magnify any terror related news story.

As an example, just look at the 24 hours non stop coverage of the recent terror attacks in Brussels. For sure, this is a newsworthy tragedy. More than 30 people killed, hundreds wounded. But, once the news has been given, do we really need this level of total saturation, almost obsessive coverage? No new facts are revealed during these fake “news reports”. Most of the “coverage” consists on asking hypothetical questions to terrorism experts who make a living telling us that this horrible and of course bound to get much worse.

Sure, this way cable news outlets get bigger audiences; and so the media companies get higher prices for TV commercials they put on the air that advertise detergent and pain killers.

Phony story 

But the American public is fed a phony “Islamic terrorists are determined to kill all of us” story that fuels a climate of fear and uncertainty. Even if we take into account major acts of terror that have occurred outside of the United States, the emerging picture does not even remotely justify the term “war” to describe the phenomenon.

Yes, the media make more money. Some politicians magnify the terror danger, while promising that when they get elected they will finally take care of the problem, and all will be well again. But in all this America loses perspective and good judgement.

I am not suggesting that terrorism is not a serious problem. It is a major issue to be handled by competent US intelligence and counter terrorism professionals, hopefully working together with their counterparts across borders.

Terrorism is indeed a serious matter. But it is not a national crisis.




Americans Dream Of A Savior Who Will Fix All Problems

WASHINGTON – We Americans would like to think of ourselves as reasonably rational people who make choices on the basis of what makes sense. Well, may be so in some areas. But when it comes to the political process we are quite willing to enter a Fantasyland where normal categories and values do not apply.

The year of the Savior 

For mysterious reasons, this is the year of the Savior. By luck or by design, a large chunk of “the people” have decided that Donald Trump is just that: “The Savior”. He will make everything right. And how can he do it? Because he is smart. Because he is successful. Because he is rich.

None of this has anything to do with the rational evaluation of anything. This is about Faith. Not in a religious sense. But his followers really believe that Trump has something akin to magic powers that will allow him to fix everything.

The Constitution does not allow a strong President 

Never mind that the American Constitution is designed to prevent any President from fixing anything all by himself. We have a system founded on the principle of separation of powers. A President, even a popular President, cannot force Congress to pass laws, even when the Congress is led by his own party. In fact the powers of the US President are rather limited. (In contrast, the British Prime Minister is the unchallenged national leader of the party that won the elections, and the head of the executive. And he can count on the loyalty of a parliamentary majority which in almost all circumstances will obey his orders, and pass all the legislation he proposes).

He will fix everything 

But none of this –the constitutional constraints on presidential freedom of action– matters. Trump is smart. And he is after all a “Great Negotiator”. Therefore, he has unlimited “Powers of Persuasion”. He knows how to get people to agree. As he put it, he will get all the relevant players in a room and he will get them to agree on what he wants done. And all will be well. Isn’t it wonderful?

What inconsistencies? 

And what about major inconsistencies in his policies? What about his plan to cut taxes without cutting entitlement spending? No problem, argues an enchanted supporter on TV. This lady, a major national leader of the tea party movement, stated with a straight face that it is quite possible to cut federal taxes with no corresponding deep cuts in federal entitlements. For some reason this folly (far less revenue, same or higher spending) will have no negative effect on deficits and on our growing national debt.  There will be no deepening of our fiscal crisis.

Of course, this is absolute nonsense. As scores of experts have pointed out, Trump’s numbers simply do not add up. But, hey, the lady on TV is happy. And she added that, of course, Trump will get top-notch subordinates and collaborators who will take care of all the details. After all he is so smart that he will figure out how to deal with the national debt without cutting benefits. Yes, this is the Trump version of “the free lunch”. Except that this will a free banquet, every day.

Fantasies and more fantasies 

indeed. But this is only a dangerous a fantasy. Most government spending in all Western countries these days goes to retirees and to pay for health care. The only way to have a major tax cut without causing a fiscal catastrophe is to convince millions of voters that we should drastically overhaul –and this means reduce– this massive social spending.

The problem is that reducing social spending is so difficult that nobody has done it. Ronald Reagan, the US president who embraced free market capitalism like a religion and whose campaign slogan was “get the government off the backs of the people”, could not reform entitlement spending. In fact, with lower taxes and higher defense spending, he started the era of fiscal irresponsibility that resulted in perennial budget deficits that got progressively larger year after year, under different administrations. (There was only a brief counter trend under Bill Clinton. But it was way too short).

Of course you can have your cake and eat it too

But Trump declared that he can cut taxes while keeping current levels of social spending; and this will have no impact on our fiscal deficit. This is absolutely crazy.

Yes, except that for his supporters none of this matters. When politics becomes the secular equivalent of religion, choices are based on emotions and beliefs. The candidate says things that do not make any sense? Well, we just erase them, or rationalize them. “For sure, when he gets to be President, Trump will think of a great solution for this”.

No rational evaluation 

And so millions of Americans have checked any sensible rationality at the door. Right now they just want to be mesmerized. They want to be and stay in love. They want to believe that finally there is a Savior who will take care of all problems: lack of national pride, lack of jobs, negative balance of trade, terrorism, dangerous Muslims.

Self-Government is predicated on sensible citizens 

Yes, this a dream. And a dangerous one. Effective Self-Government –this is what a strong Republic is founded on — is predicated on rational citizens who can be counted on to make reasonable choices most of the time. When we allow our very consequential political choices, like electing a President, to be based on dreams and fantasies, we are no longer rational people capable of managing self-government in a reasonably effective way.

We become a confused mob desperately seeking a leader. And this is not what a Republic is about.

 

 




German Voters Fear Difficult To Assimilate Immigrants

WASHINGTON – German Chancellor Angela Merkel and her political allies just took a big hit in three states elections from voters seemingly upset with her open door policy that will allow very large numbers of Syrians to be accepted into Germany as refugees.

Elections setback 

The CDU (Merkel’s party) suffered major losses. The political map in the three German States that just held elections has been changed, quite dramatically. The openly anti-immigrant Alternative for Germany party has done quite well, especially in poorer Saxony-Anhalt, where unemployment is higher than in the rest of Germany.

Anti immigrant revolt? 

So, is this sign of a brewing Europe-wide anti immigrant wave that will crush all the established political forces that are still trying to find a balance between humanitarian aspirations and popular concerns about having too many immigrants?

Hard to say. As the German vote shows, the anti-immigrant sentiment is strong; but not yet overwhelming. The AfD political victories in Germany are noticeable but not stunning. Despite this political setback, Angela Merkel and her coalition are still very much in control in Berlin. And as many opinion polls indicate, her immigration policies still enjoy wide approval.

Fear

That said, we are seeing that lots of voters (in Germany and elsewhere in Europe) now are truly afraid that their countries soon enough will be unrecognizable, because of the impact of too many immigrants from distant lands with completely different customs and religions. This is a bit far-fetched. Europe is not about to be “taken over” by Arab asylum seekers, or more simply by large numbers of economic immigrants from Africa and the Middle East.

Not today, that is.

Something needs to be done 

Which is to say that, while the mostly unchecked immigration problem is still somewhat manageable today, unless something really serious is done –quickly– to heavily restrict immigration from Africa and the Middle East, in a few years Europe will be indeed unrecognizable.

Focus on Syria 

Let’s clarify this. Right now the media focus is almost entirely on the millions of Syrian refugees driven out of their semi-destroyed country by a bloody and most destructive civil war. Given the focus on Syria, people in Germany and in the rest of Europe may be led to believe that, once peace returns to Syria, this immigration emergency will be over.

May be so regarding Syria. However, the point here is that Syria is only the most noticeable and tragic component of a slow but relentless secular migration from Africa and the Middle East into Europe.

It started decades ago

This phenomenon started decades ago. Every year hundreds of thousands or more sail from North Africa to Italy, Greece or Spain. Some of them have been driven away by conflicts. But most of them are economic migrants.

They have been told that life in Europe is much better. And, in any event, in most instances these poor people are leaving behind a life of never-ending poverty, hardships and lack of opportunity. To them Europe represents hope. Then why not go there?

And they have big hopes, based on good stories. The Europeans are generous. In Europe refugees get shelter, food, medical attention, schools for their children. True or not, these dreams of material improvements available in Europe are strong enough to motivate people to begin long, dangerous and often costly journeys that will lead them to this Promised Land.

Nothing to do with Syria

My simple point is that the hundred of thousands who have been landing for years and years in Southern Italy, after having sailed from North Africa on overcrowded crafts, have absolutely nothing to do with the Syrian crisis. They have been coming into Europe for decades, driven by poverty, way before Syria had become an issue.

And they will continue to come long after the Syrian crisis will have been forgotten. This wave will not stop by itself. It may lose impetus only if at some point in the future African countries will be able to offer to all or most of their citizens attractive economic and education opportunities. At this time, despite higher rates of growth in some African countries, most of them cannot.

The migration into Europe will not stop 

To put all this together, the acute immigration crisis caused by the Syrian civil war eventually will come to an end. But the secular wave of migration from Africa and the Middle East to Europe will continue. Day after day, large crafts full of Africans seeking a better life will continue to land in Sicily and other Italian smaller islands. 

And these thousands upon thousands who taken together have already become many millions will keep fanning out across Europe.

Time to take action 

Therefore, while today’s fears of a “take over of Europe by immigrants” may be excessive, the European anti immigrant political forces have a very valid point. Unless the political leaders do something right now to stop this steady inflow, soon enough most of their countries will be unrecognizable.

And those who would conclude that this is just racism should consider the hard realities. Integrating hundreds of thousands of immigrants who keep coming and coming is difficult as a matter of course. But in the case of these immigrants mostly from very poor countries it is a lot more complicated.

Integration is difficult 

These are not highly educated Indians with Ph.Ds in computer science. We are talking about integrating mostly illiterate village people, with little or no knowledge about modern societies, and no skills. Add to this the fact that they come from vastly different cultures, with different (and in some cases incompatible) customs and religions, and anybody should understand that integrating them is and will be extremely complicated, and very costly. While racism may play a role in fueling anti immigrant feelings, the truth is that many Europeans are really afraid.

Real fear

They fear that they will have to coexist indefinitely with large, non assimilated alien communities of new immigrants who settle at the margins of their societies.

And this is a very unsettling prospect.

 




Hillary Clinton Will Ban Fracking -Less Energy For America

WASHINGTON – When it comes to America’s energy needs and viable alternatives to fossil fuels, it looks as if Democrats running for the White House live on another planet. Front runner Hillary Clinton recently declared that, as President, she would place so many restrictions on extracting oil and natural gas from shale formations using hydraulic fracturing, or fracking, that this will amount to a complete ban. Her opponent Bernie Sanders declared that he is totally against fracking.

The benefits of fracking 

Indeed. And yet fracking has been one of the few pieces of real economic good news of the last decade. Thanks to fracking America doubled its oil production. This means importing less crude oil, and keeping billions of dollars at home, every day. And fracking used to produce natural gas means abundant supply and lower electricity prices.

But no, this is not good news. The Democrats are telling us that this energy revolution that increased supply and lowered prices is actually bad, because of the environmental impact of fracking. Well, this allegation, even though endlessly repeated by the green movement, is almost entirely baseless.

Fracking is safe 

Of course there have been incidents of pollution deriving from poorly constructed wells and other sub standard practices. But there is no evidence of any systemic risk. If energy companies follow best practices and established industry standards, and most of them do, fracking is safe. And, by the way, this industry is regulated, and heavily monitored.

Environmental protection agencies at the state level keep an eye on it. At the federal level the Environmental Protection Agency, EPA –certainly no friend of oil and gas companies– reviewed the entire US fracking industry and could not come up with anything bad to say about it. Again, while the Obama EPA is certainly not in the pocket of the energy lobby, it could not come up with any justifications to restrict fracking, let alone banning it.

Renewable energy will become more important… 

If we look at the broader world context, it is clear that fossil fuels, (and natural gas in particular), will continue to dominate as essential energy sources. It is true that the most recent energy outlook produced by the energy company BP clearly indicates that the renewable energy sector is rapidly growing. It is gaining a bigger share of total energy consumption. But it starts from a very low base. Therefore, even if it continues its impressive growth, it will take years before it will be able to displace fossil fuels.

…But oil and gas cannot be replaced

In the meantime, oil and gas will continue to dominate. In particular, natural gas share of total energy consumption will grow significantly. And –guess what– most of the new natural gas produced in the USA comes from fracking shale formations.

The very tangible economic benefits coming from new natural gas extracted via fracking are stable or lower electric rates, (natural gas is used mostly for electric power generation), and huge advantages for US petro-chemical industries that use natural gas as feed stock. Cheaper natural gas means lower costs, and therefore more competitive prices for finished products.

Therefore, all sane people know that until we shall have truly cost-effective alternatives to oil and gas the fracking revolution is and will continue to be a major asset for the US economy. It allowed America to become once again a major energy producer, with clear advantages for industry, US global competitiveness, and huge savings for millions of consumers in terms of lower energy bills.

Politics 

So, why do Clinton and Sanders make such outlandish statements about banning or restricting fracking? Very simple. This is just politics. They both want to appeal to the Democratic Party far left where the greens and the pure environmentalists are strongly positioned. In order to get their precious votes, they need to assuage these ideologues with ritualistic anti hydrocarbon policy statements.

This makes no sense 

And yet, if you think of it, all this is absolutely crazy. In the real world, for would be presidents of the USA –one of the largest oil and gas producers on this planet — to state that they will ban a significant component of the production of this vital source of energy should be dismissed as totally preposterous.

But no, nothing happens. Both Clinton and Sanders declared that they will ban fracking. And no one says anything. I wonder how will Democrats in North Dakota, Pennsylvania, Ohio, and Texas –all of them major energy producers– react to this nonsense.




Sinking Japan Keeps Adding To The National Debt

WASHINGTON – As we Americans watch with growing concern our crazy presidential elections politics, other crazy things are happening around the world, without anybody paying any attention. Western governments (US included) keep piling up more and more debt, while Central Bankers do all they can to keep interests rates at zero, or close to it, this way allowing the insane perception that getting deeper into debt is painless, and therefore fundamentally OK.

Japan’s enormous public debt 

David Stockman illustrates this point very well in a recent piece in his www.davidstockmanscontracorner.com that focuses on Japan:

“The government of what can only be described as an old age colony sinking into certain bankruptcy sold 30-year bonds at an all-time low of 47 basis points. Let me clear here that we are talking about a record low not just for Japan but for the history of mankind. [Emphasis added]

To be sure, loaning any government 30-year money at 47 basis points is inherently a foolhardy proposition, but it’s just plain bonkers when it comes to Japan.

Here is its 30-year fiscal record in nutshell. Notwithstanding years of chronic red ink and its recent 2014 consumption tax increase from 5% to 8%, Japan is still heading straight for fiscal oblivion. Last year (2015) it spent just under 100 trillion yen, but took in hardly 50 trillion yen of revenue, stacking the difference on its already debilitating mountain of public debt, which has now reached 240% of GDP.”

“That’s right. A government which is borrowing nearly 50 cents on every dollar of outlays should be paying a huge risk premium to even access the bond market. But a government with a 240% debt-to-GDP ratio peering into a demographic sinkhole would be hard pressed to borrow at any price at all on an honest free market.

[This is] what lies 30 years down its demographic sinkhole. To wit, Japan’s population will have declined by 30% to 90 million, while its working age population will have plummeted from 78 million to about 52 million or by 33%. Moreover, its labor force participation rate has been declining for years, but even if it were to stabilize at the current 60% level, it would still mean just 31 million workers.”

A horrible picture 

Yes, these are the facts. Japan’s revenue covers at best 50% of its spending. The remaining 50% is financed by issuing bonds. As a result, the national debt is now equivalent to 240% of GDP. And yes, as Stockman points out, going forward this horrible picture gets a lot worse. Given Japan’s rapid demographic decline, the number of active workers and therefore tax payers is rapidly decreasing, while the number of retirees receiving pensions, health care services and other benefits is increasing relative to the overall population. This means that going forward there will be even more spending for seniors, while less revenue will be coming in.

No trouble selling bonds 

And in all this, notwithstanding this brewing fiscal catastrophe, the Japanese government has no trouble selling 30 year bonds at a nominal interest rate. How is that possible? In a sane world, no government in this fiscal predicament would be able to sell any bonds, let alone at these rates!

Yes, as Stockman points out, there is a fix. Bond traders “know” that the Bank of Japan, BOJ, eventually will buy these bonds. So, they are not concerned that these will turn out to be like Argentina’s bonds right before bankruptcy. There will always be a reliable buyer.

But here is the question. The BOJ will keep buying worthless paper, paying real money for it, for ever?

Everybody is doing it

As absurd as this sounds, at the moment this seems the consensus. What makes things worse is that this insanity linking fiscal profligacy and Central Bankers’ madness is now the official orthodoxy. Indeed, what Japan is doing is pretty much in line with what other Central Bankers in Europe and America are doing. The difference is only one of degree.

Getting into debt is good 

So, here is the picture. Formerly rich Western countries keep spending way beyond their means, this way accumulating more and more debt. However, thanks to their Central Banks, the cost of borrowing is way below what it should be. And this of course encourages more fiscal irresponsibility. Indeed, at least in the short term, there is essentially no heavy price to pay for profligacy. Japan is an extreme case, but all the others, the US included, are quickly catching up.

More red ink with Trump 

And, by the way, if we take a quick detour back to US politics, most estimates indicate that Donald Trump’s proposed public policies would add another $ 10 trillion in 10 years to the US national debt. This staggering figure would be on top of the $ 19 trillion the US already owes.

And, of course, Trump is leading in the polls. Amassing more public debt seems to be a good way to “Make America Great Again”.




The Moral Case For Capitalism

WASHINGTON – Would Hillary Clinton make a moral case for American capitalism? I am not so sure. First of all, let’s point out that Hillary Clinton will not be Bill Clinton 2.0. Remember that Bill Clinton came along in 1992 as a “sobered up” new centrist Democrat who proclaimed the end of the era of Big Government and actually as President passed welfare reform, notwithstanding the fierce resistance of the left of the party. (More on this later).

But that was then. Today, strongly challenged from the left by a vociferous Bernie Sanders openly advocating wealth redistribution, Hillary Clinton’s message is about expanding benefits, subsidies, tax breaks to the poor, the disadvantaged and the minorities. Her presidency will be about more of the neo-Keynesian deficit-spending stuff that failed over and over again, and yet seems to be the only medication in the cabinet of most Western left of center political forces.

More failed neo-Keynesian remedies 

Therefore, should Clinton become President, this will be America’s death by a thousand cuts. More public programs, more welfare, more aid and assistance to this or that needy constituency. More unproductive publicly funded jobs. More stupid and counter productive regulations; and, of course, higher taxes needed to finance all this ill-advised social engineering. The combination of ad instincts and bad policies will stifle innovation, enterprise and private sector jobs creation.

Nobody makes the case for capitalism 

Here is the real tragedy of American politics. In this critical election year, no one has been able to articulate in a simple, clear and cogent manner the moral case for free market capitalism. (In fact those who tried, mostly Jeb Bush and John Kasich, did not do it well, and got no attention)

By this I mean the ability to convince people, especially the poor and disadvantaged, that capitalism and free enterprise are good for everybody, including those who are currently at the bottom of the pile. And by that I do not mean that people should be convinced that on balance capitalism delivers better results than social democracy. This is true in principle. But this truth does not resonate with people who are and feel helpless because they believe that they do have any open path forward.

By “morally superior” I mean the ability to explain how capitalism empowers people, and therefore makes them better human beings.

Here is the simple truth. Even if well-intentioned, welfare programs make recipients perpetually dependent and listless. Whereas a system that fosters personal responsibility encourages people to take charge of their own lives. And this makes them more self-confident, more optimistic.

Bill Clinton’s welfare reform worked 

Let’s go back to Bill Clinton’s partial welfare reforms. That was about public aid to single mothers. These were mostly uneducated, poor African American young women with small children, trapped in an endless cycle of dependence on public subsidies.

Being poor, they were entitled to get enough money to survive. But the programs as designed provided no incentives so that recipients had to do something in order to get out of poverty. The reform passed by Clinton was about sun setting benefits, while giving the women tools, so that they could find work.

“It will not work” 

The critics cried that this would never work. This bad reform was about taking the life jackets away from shipwrecked, defenseless women, thereby drowning them.

Well, the reformers argued instead  that the goal was to teach these women how to swim before taking their life jackets away.

And, on balance, it worked. With assistance, women found jobs. There were lots of testimonials by women who had received training, and found work, so that they could care of themselves and their children. As a result, they felt more optimistic and more confident.

The “moral case” for capitalism

This is what I mean when I talk about “the moral case for capitalism”. An economic system that encourages people to become self-reliant and independent is morally superior.

If we recognize this basic premise, then the purpose of enlightened public policy should be to make sure that all citizens “learn how to swim”, so that they do not need the perpetual life jacket of public assistance.

In today’s ultra competitive world, this means that all children should have access to quality public education. And meaningful adult education and/or training should be made available to all adults who did not have a chance to get an education as children.

Educated citizens do not need welfare 

I am not suggesting that this is easy. It is not. But deep down this is the case for a rules based competitive system in which all participants have a fair shot at doing something and making a decent living without help, because they are empowered by a good education that gives them the tool to become active participants.

Of course, there are special circumstances in which public assistance is warranted. But these should be the exceptions, not the rule. Temporary relief should not morph into a permanent subsidy.

Making a case

What both Democrats and Republicans have failed to do is to make a moral case for free market economics and the role of public policy in enabling and fostering it. Indeed, if we are convinced that free market capitalism on balance works, then public policy should be about making sure that everybody can and will participate.

Public policy is about giving everybody a good chance 

Good public policy is not about more subsidies or about creating fake jobs. It should be about making sure that all citizens get into adulthood “knowing how to swim”. And this means that everybody –all Americans– should be reasonably healthy and educated.

It is obvious that education is the functional equivalent of knowing how to swim. Without good to superior public education, the poor do not have a chance to get out of poverty. They really do not. Again, if we want capitalism to be fair, then all people should have good tools, so that they will be able to participate.

Until know we have tried to deal with poverty attacking the symptoms. While well-intentioned, this approach has done nothing to eliminate it, or substantially reduce it.

Capitalism works well if all citizens are active participants 

The “moral case” for capitalism is about reaffirming the superiority of a free market economy, because it empowers people; making them self-reliant and self-confident, therefore better human beings.

At the same time, the goal of public policy, (this is the job of elected officials), must be to enable everybody to participate. Sound public policy will focus on health and education, so that all Americans can do their best, without the burden of feeling perennially disadvantaged.

It is going to be difficult

I realize that transforming our value systems and the content of public policy so that it will focus on these objectives is very difficult. But this is a worthwhile cause. Perhaps the most critical one we can think of.

In the end, a successful moral case for capitalism is about more prosperity, and about self-confident citizens who know that they have the ability to take care of themselves.

 




There Is No European Identity

WASHINGTON – For the outside world, the current political debate within Great Britain about staying in the European Union, EU, or leaving, depending on the outcome of a June referendum, looks like arcane stuff, and probably not that interesting. Another strange internal European thing that foreigners, and Americans in particular, do not understand much, and frankly do not care that much about.

What difference does it make? 

In the end, what difference does it make to America if Britain, a much diminished second rate power, belongs or does not belong to an assorted group of medium, mediocre, and poor European countries tied together by a complicated web of trade agreements?

Well, it probably does not make a huge difference to Americans.

Failure of the “Idea of Europe” 

But this issue matters in Europe. And I am not referring here to the ripple effects of a British Exit, or “Brexit”, when it comes to trade between the UK and the rest of the EU, or the possible consequences on the City of London as a key global financial center, should Britain begin to operate outside EU banking and securities rules.

No, I am referring to something else. I am referring to this. The very fact that Britain is openly debating whether or not it is good for the country to stay in the European Union attest to the failure of the “Idea of Europe”.

The unfulfilled promise of a “European Union” 

The very denomination “European Union” suggests a relevant and powerful new entity that is and will be involved in a lot more than agricultural subsidies and regulating the allowable size and shape of vegetables.

True, from the other side of the Atlantic, the EU looks mostly like an over complicated, and rather cumbersome arrangement among under performing economies, run by bureaucrats who seem intent on regulating everything.

A Big Project 

But, in Europe, the expression “European Union” is supposed to have a strong meaning. In Europe, at least for some, the European Union is an unfolding “Big Project”. It is the plan to progressively unify almost 30 countries, eventually creating a United European Super State, (or something close to that), so that the new entity would be much more relevant than the sum of its individual parts, (the member states).

And this Big Project supposedly is the pull factor attracting so many applicants. The EU is the future; and they want to be part of it.

Well, this is the official, or semi-official narrative.

Lack of shared strategies

In practice, the picture is far less attractive. Cohesion and solidarity, let alone unity of purpose among members, is rather low. Getting to an agreement on practically anything within the EU involves an immensely laborious process aimed at reaching a consensus among almost 30 governments.

And when the focus is on major policy choices, common strategies, the EU members find watered down unity at the lowest possible common denominator. In simple terms, this means that whatever the EU declares, nobody listens to it, because it is usually just empty rhetoric.

Right now the EU is trying, with little success, to forge a common policy to face a major refugee and immigration crisis triggered in part by the civil war in Syria. It is obvious that there is very little common ground among member states.

Furthermore, there is no discernible European foreign policy; let alone security policies based on a genuine consensus on external threats and appropriate countermeasures. Threat perception in Portugal is not the same as threat perception in Greece or Poland.

Europe is not irrelevant

Do not get me wrong. I am not suggesting that the EU is inconsequential across the board. On matters of global trade, anti-trust, financial arrangements, and a lot more the EU is very consequential. And for foreign investors and exporters into the EU, the harmonization of rules within the EU, plus the existence of a pan-European market where the same norms are applied across almost 30 countries, from Finland to Croatia, is a major advantage.

No European Identity 

Still, all this notwithstanding, the EU failed in its ultimate goal: the creation of a genuine “European Identity” that successfully replaced or will soon replace national identities. If this shift had been accomplished, then the issue of Britain leaving Europe would have never come up. Nobody would want to leave a new Super State that all citizens strongly identify with and that brought about so many advantages to all its members.

What will Britain do? 

And yet, the debate about leaving the EU is going on in Great Britain. In June there will be a referendum that will allow voters to settle this issue. My hunch is that eventually the British people will decide to stay in the EU.

Still, the very fact that no one dares to predict the outcome of this referendum is an indication that Britain is deeply divided on an issue that should have been settled decades ago. Other countries that are not planning any “In or Out” vote are also deeply divided on whether EU membership is a good thing or not. (Think of Poland, Denmark, Greece, and to a lesser extent France and Italy).

EU will survive; but it will stay weak

Here is the thing. With or without Britain, the complex inter-governmental arrangements that make up the European Union will survive.

But Europe will continue to be a rather weak hybrid in which some components of national sovereignty have been delegated to EU functionaries in Brussels, while others remain under the control of national political authorities. All these competing authorities and jurisdictions created a recipe for confusion and weakness.

With or without quarrelsome Britain, forget about a strong Federal Europe. And, most of all, forget about a strong Europe playing a decisive role in world affairs. If the Europeans do not believe that much in Europe, why should the rest of the world take the EU seriously?

 




Romney Attacked Trump – Called Him “Phony, A Fraud”

WASHINGTON – If you are a convinced Donald Trump supporter, Mitt Romney’s scathing personal attack against the Republican front-runner will not mean anything. For the Trump true believers it is a given that the “Republican Establishment” fears the New York billionaire, and so that they will do whatever they can to stop him from becoming the party nominee.

Romney’s attacks Trump  

Let’s put this in perspective. Mitt Romney was the 2012 Republican presidential candidate. Although he lost to Barack Obama, for some time he was the national leader of the Republican Party. So, at least some people will listen to what he says on issues of Republican Party national politics in a decisive election year.

And now Romney, using surprisingly strong language, called Donald Trump “a phony, a fraud”. He stated that “dishonesty is Trump’s hallmark”. And he added that “his promises are as worthless as a degree from Trump University” , (a clear reference to the higher education institution created by Trump that is now being sued by former students who claim the whole thing was a scam). Beyond attacking Trump’s character and morality, Romney clearly stated that Trump’s policies would lead America to economic and foreign policy disasters.

Does this make any difference? 

In his speech, Romney pointed out that this race is not over. There is still a good chance to stop Trump. There are other candidates in the race. Trump, while ahead in the delegates count, has not amassed a prohibitive lead. He can be beaten.

Alright, Romney delivered his broadside. But will the Republican Party members who are about to vote in the upcoming –and indeed decisive– primaries really listen? Or is this a wasted effort on the part of a man who after all was defeated back in 2012, and has since practically disappeared from the national political scene?

Well, there is a good chance that at least voters paid attention to Romney’s warnings. True enough, Trump has a hard-core of adoring supporters who will be behind him, no matter what Romney or anybody else, will say about him.

More than half of the Republican voters not with Trump 

But the record shows that in the primaries held so far about 2/3 of the voters are not with Trump. Worse yet for Trump, many among the non-Trump voters have proclaimed that they will never vote for him, even if he is the official Republican nominee. 

In other words, while Trump’s support may go up some from 35%, he faces serious difficulties in getting enough votes to  secure the nomination. If his opponents are more organized, they can make sure that Trump’ support stays at 35%, or below that. 

Energize the anti-Trump voters 

Obviously, with his speech Romney tried to energize the non-Trump, or anti-Trump, camp. He wanted to convince millions of Republicans who are hesitating that this contest for the party nomination is far from over.

Well, who knows how all this will play out. Sadly, the other three contenders for the GOP nomination, Ted Cruz, Marco Rubio, and John Kasich are either mediocre candidates, (Cruz and Rubio), or bad campaigners (Kasich).

While Trump is certainly not polished when it comes to articulating credible policy positions, he is not facing a formidable opposition. (This in part explains his surprising success).

Something  will happen 

Still, it is quite possible that something will happen. Romney’s open frontal attack against Trump will have ripple effects. Others will join the anti-Trump coalition. Yes, this means donors, and millions of dollars of PAC money going to fund anti-Trump TV ads. Of course, all this also means creating a civil war within the Republican party. This fight will get really ugly.

Slow down Trump 

But the net effect will probably be to slow down the Trump Express. If in the upcoming primaries Trump does reasonably well; but not well enough to secure the number of delegates that will guarantee his nomination prior to the Convention, then his claim to be the anointed Republican leader is voided.

Based on results so far, this scenario is quite possible. Note that In Virginia, as well as other states, most late deciders, primaries voters who made up their minds at the last minute, opted for someone other than Trump.

Therefore, Romney’s scathing attack may very well sway many among the millions of undecided who are about to vote in many more primaries in the next couple of weeks. Here is Romney’s simple message:“”Fellow Republicans, whatever you decide, do not vote for Trump”. 

Everything is possible 

In the end, if Trump gets to the Republican Convention without the pledged 1,237 delegates he needs to seal the nomination, almost everything is possible. After the first ballot, all delegates are released from their pledge, and free to vote as they please. Who knows what may happen. Yes, this war within the Republican Party is going to get a lot worse.

However, for Mitt Romney and many others, avoiding the prospect of Trump as the official candidate of the Republican Party is worth the ugliest of fights.




Trump Leads a Large Movement – But It Is Not A National Wave

WASHINGTON – After Super Tuesday, we can say that Donald Trump is still very much in the lead among the Republican contenders for the presidential nomination. However, he certainly did not exceed expectations.

Solid, but not overwhelming victories 

Trump won several states in different parts of the country; but only with about 35% of the votes cast. He is ahead; but he has not obliterated his opponents. Ted Cruz won big in his own state of Texas. Then he added Oklahoma and Alaska. This gives him enough reasons to stay in the race as a credible contender. (Rubio instead turned out to be a “light weight”, just as Trump described him. He won the Minnesota caucus, and that’s his only victory to date).

Still, be that as it may, if Trump keeps winning with good but not overwhelming margins, it will take him quite a while to get the majority of delegates that will secure his nomination at the Republican Convention. If his percentage of the vote shrinks a bit in future contests, he may not get a majority by the time of the Convention. (Of course, if Trump ends up ahead, even by small margins, in “winner take all states” this will change the dynamics of the race. He can jump ahead in the delegates count, even having gained only a plurality of the votes in some key states).

Bad news

Here is the thing. Steady but slow progress is bad news for the self-proclaimed leader of a national movement that is supposedly revolutionizing American politics.

Indeed, part of the Trump mystique is his inevitability. A large component of his appeal is that he is the historic political tsunami that is sweeping the country, turning millions of disillusioned voters into a vast army of enthusiastic supporters.

Well, now that we are counting votes, we see that the Trump supporters are there, but their numbers are a quite bit less impressive than we thought. 35% is good. But not that good.

Will Trump be the nominee? 

My point is that If Trump keeps advancing, but not at lightning speed, this will give many voters the chance to think again about what they want to do. Will they think twice before jumping on the Trump band wagon?

And keep in mind that many non-Trump Republican voters have declared in several polls that they will never vote for him –under any circumstances.

Still, even if we discount all this, and assume that Trump will pick up speed and quickly secure the Republican nomination, then what?

Strong but narrow support 

Well, as things stand now, his chances of getting elected President do not look so good. Even leaving aside opinion polls that see Hillary Clinton beating him by a decent margin in November, (polls so early in the race do not mean that much), any dispassionate analysis reveals that Trump’s base of support, while solid, is too narrow to win a national election. And his chances of expanding it are not that good. His “negatives” as noted above are really strong.

Best case scenario, Trump will be able to get the nomination and the support of a vast majority of Republicans, come November. But nationally Republicans are not the majority.

Therefore this achievement will not easily translate into a majority of American voters, if he is unable to sway millions of independents. Besides, it is clear that there are many moderate Republicans who will not vote for him. In fact they may end up voting for Clinton, or not voting at all.

Clinton likely to win 

As the likely Democratic nominee, Hillary Clinton will be able to count on the votes of most White union members, women, young people, Blacks, Hispanics, and other minorities. And if you add to her natural constituencies many moderate Republicans and millions of independents who may vote for her, because they are seriously worried about the possibility of a Trump presidency, this easily adds to a Clinton national majority.

The Trump phenomenon 

So, what do we make of the Trump phenomenon? Based on what we know so far, even in the light of Trump’s Super Tuesday victories, we can say that Trump convinced a substantial percentage of Republicans, and may be many independents and a few disgruntled Democrats, that he is the Man of the Future. The New Leader who will take over and (magically?) transform Washington.

Not a majority 

But this core base of Trump supporters is not a majority of Americans –not even close. In fact, as the Super Tuesday numbers revealed, this is not even close to a clear majority of Republican primaries voters.

And I do not see how Trump will be able to expand his base, considerable as it is, so that it will become a solid national majority.

Undoubtedly many Republican primaries voters like him, a lot. But many more do not like him. And among them, there are many who absolutely loath him.

And this is just within the Republican Party.

Not a national revolution 

No doubt, Trump created a political revolution. But it is a revolution affecting the Republican Party, whose final outcome, by the way, is not yet clear.

One thing however is clear. Whatever Trump provoked, it is not a national revolution.  A large majority of Americans are not on board, and are unlikely to jump on board.

If Trump wins the internal battle and becomes the Republican Party nominee, Hillary Clinton will be America’s next President.