Millions Can Hardly Get By In Full Employment America

By Paolo von Schirach –

WASHINGTON – Especially if compared to barely alive, anemic Europe, America’s GDP and employment growth rates look absolutely sensational. As always, even if there is little or no justification, the incumbent president (Donald Trump in this case) takes all the credit, witness his recent Davos speech.

Millions US workers make very little

However, if we look under the hood, the picture is far, far less attractive. In a recent Letter to the Editor, The Wall Street Journal, (January 23, 2020), Martha Ross, an economist who works at the prestigious Brookings Institution, a major Washington, DC think tank, pointed out that “53 million Americans –44% of workers aged 18-64– earn low wages, with median earnings of $ 10.22”. Got that? 44% of US workers make a little more than $ 10 an hour. And, Martha Ross adds, these are not just kids starting out in life using low wage jobs as entry points into the labor force. These are ordinary adults, folks trying to make a living.

Insignificant wages growth

Sure enough, it is a good thing to note real, inflation adjusted, wage growth. However, as Martha Ross points out in her letter, this growth means that for non supervisory retail workers the bump amounts to an increase from an average of $ 16.28 an hour to $ 16.81. Not exactly a sensational jump.

Here is the thing. A single adult, with no children or other dependents, may be able to get by with such meagre earnings. But a family cannot. As Ross concludes: “Despite a recent uptick in wages and a low unemployment rate, tens of millions of Americans earn barely enough to live on”.

Indeed. And this is a national tragedy; even though not talked about much because the overall picture looks rosy. The US economy is growing at more than 2% a year, the stock market jumps from record to record, there is hardly any inflation, and the unemployment rate is at 3.5%, a historic low.

Low wages tied to bad education

So, why is it that in the midst of a booming economy millions of Americans are paid so little? One of the reason must be that millions of Americans can compete only for low paying jobs because they have no marketable skills since they received a truly bad or mediocre education. Sadly, our American public schools system is a disaster. This has been proven time and again through countless domestic and international academic tests.

Sure enough, America can be proud of being home to many excellent private schools and most of the top ranked private universities. However, these prestigious institutions are accessible only to the wealthy and the super gifted who may receive merit scholarships. For sure, these young people, once they graduate, will have access to good or excellent jobs that will launch them into great careers.

All the others, however, the millions who could enroll only in mediocre to bad high schools, combined with all those who did not manage to finish school and obtain a high school degree, get only the scraps. Hence the sharp socio-economic divide and the sad, in fact dramatic, statistics cited by Martha Ross in her letter to the WSJ.

Two tier America

So, here is the thing. For all practical purposes, we have two separate countries here in America. In the upper tier, young people receive a good or excellent education. Armed with that, they can aspire to highly rewarding careers.

In the lower tier we find instead the unlucky ones who were stuck in inner cities and did not have access to a good or even decent education. In fact, many of them, even those who received a high school diploma, received almost no real education. And the unlucky ones in this lower tier tend to be mostly minorities and poor.

Which is to say that in our America, the country that used to be admired across the world as an “open access to all society” and for its “upward mobility”, nowadays “birth is destiny”, just like in Europe in the Middle Ages.

Indeed in today’s America, if you were born poor, in a bad neighborhood, your chances of getting the education you need to climb the socio-economic ladder are close to zero. Therefore, even in a growing economy with full employment, millions can only get dead-end jobs that pay a bit more than $ 10 an hour.

This is a national disgrace.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.




Free Markets, Anybody?

By Paolo von Schirach –

WASHINGTON – Let’s be honest. The free markets that we learn about in school do not exist. They never did and never will. What we have instead are very imperfect approximations. What we have, at least in some parts of the Western world, is a declared intention to have a level playing field in which different corporations try their best to offer products and services, without enjoying any special advantages. For this purpose, governments established, (among others), antitrust authorities tasked with the goal of preserving free markets and fair competition.

Gaming the system

But this is an effort, a goal, an aspiration. In reality, most big corporate players do their very best to game the system in their favor. The dark secret of all true blue free market capitalists is that they all aspire to have and keep an impregnable rent position, whereby they will continue to dominate their market sector, hopefully for ever.

In pursuit of this anti-free market goal, US companies and trade associations spend larger and larger amounts of money on Washington, DC-based lobbyists whose only mission is to obtain, via legislation or specially designed regulations, set-asides, tax breaks, quotas, restrictions on imports, and whatever else may make it easier for their clients to protect their market positions and fend off competitors.

A semi-market

Therefore, what we have in America is a semi-market. In many ways there is competition, access and opportunity for new comers to come in and do their best to offer their products and services. But this system is quite imperfect.

And, again, the thriving, in fact almost monstrous, lobbying industry in Washington, DC illustrates how everybody, from dairy farmers to sugar growers, from the auto industry to the film industry, is trying to get special favors from Congress, the Executive Branch and all sorts of regulators, or prevent their competitors from getting them.

Europe pushing champions

That said, it seems that in Europe they are about to take this game up one level. Afraid of losing not just a few battles but the actual war on innovation and competitiveness, the Brussels-based European Union technocratic elites are now dreaming of creating EU Champions in leading tech sectors, (batteries for electric vehicles, telephony, artificial intelligence, robotics, you name it). This will be done by creating partnerships between the private sectors, national governments and EU institutions.

Well, this is a lot more than just lobbying. This is about openly subsidized new conglomerates created for the specific purpose or carving pieces of markets now occupied by American and increasingly Chinese tech giants.

Airbus worked

There is, of course, an illustrious (and remarkably successful) precedent to all this. And this is the Airbus consortium created back in 1970 by the Europeans to compete against America in the critical sector of passenger jets, and more. At the time, US companies dominated world markets. Europe had nothing.

If the intent was to carve a space for European companies, the notion of different companies in different European countries (France, Germany, Britain and Spain), enjoying varying degrees of state aid, being capable of designing, manufacturing, and selling state of the art jetliners for the global market seemed truly preposterous.

Indeed, many skeptics predicted that this Airbus consortium would turn out to be a gigantic waste of time and money. To begin with, the business model seemed most improbable, since it rested on the willingness and ability of various corporate entities located in different countries, with distinct agendas and corporate cultures, to successfully cooperate in a major effort aimed at designing, producing, and selling state of the art jetliners.

Success

Well, surprise! it worked. In fact it worked extremely well. Nowadays, Airbus is the undisputed number one or number two (depending on the year) manufacturer of jetliners. However, Airbus, especially in its early years, managed to survive because, beyond its now undisputed ability to make good airplanes, it enjoyed various subsidies. Could Airbus have survived without them, especially in the difficult early years? May be not.

Of course, Boeing, the US aerospace conglomerate that suffered the most on account of this new, well heeled competitor, cried foul. How can a US private sector company compete against a European conglomerate that benefits from various states aid, while its customers (the airlines) could obtain extremely generous finance terms for purchasing Airbus products?

The Airbus reply was that Boeing enjoys its own subsidies. It gets a lot of business from the US Defense Department. With those profits it can finance its civilian airliners sector.

However, even though there is some truth in the argument that Boeing is not a pure private sector company fighting against many competitors, it is absolutely clear that Airbus could not have been conceived without the massive state subsidies that gave the company the staying power (especially in its early years) it needed in order to consolidate its fragile market positions.

More subsidized consortia in the EU?

So, is the EU idea now to repeat the Airbus formula, extending it to different critical industrial sectors? Can this be done? Will it work? Well, it seems that this is the only idea that might work in Europe. The European private sector, (assuming we can talk about a EU-wide private sector), is just not capable of doing important, ground-breaking things on its own. And this reality has critical implications. Europe is already falling way behind in tech innovation. If nothing happens, the competitiveness war will be lost very soon. Europe will be an industrial backwater.

China, the emerging world economic power, does not have any problems pushing its own national champions, be they state owned enterprises, or nominally private enterprises, (think Huawei), that clearly enjoy special status as favored companies. Clearly China is not a market economy.

Free markets are an abstraction

Alright. The above tells us that truly free markets, with open and unfettered competition, are an abstraction. In varying degrees, everybody is exhibiting rent-seeking behavior. Everybody is trying to game the system via carve-outs, set-asides, protectionism, ad hoc regulations, and other non-tariff barriers in order to keep the competition out, or at least in a disadvantaged position.

More lobbyists in Washington, DC

Comparatively speaking, the US seems a bit better. However, do not expect the armies of Washington, DC lobbyists to disappear any time soon. If anything, they are becoming bigger, more sophisticated, and more expensive. And this is a worrisome trend. We preach free markets. Some politicians may actually believe in them. But corporations currently enjoying a dominant position are not really committed to this idea.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.




Trivializing Impeachment

By Paolo von Schirach

WASHINGTON – The Democrats who hold the majority in the US
House of Representatives did their best to present their vote leading to the
start of an impeachment process, potentially leading to the removal of
President Donald Trump from office, as a solemn and sad moment dictated by the
gravity of the charges and the urgency of the constitutional crisis created by
a criminal president.

Solemn moment

With solemn voices accompanied by serious demeanor they told the nation that
while impeaching Trump is the last thing they wanted to do, they simply “had
to”
. The gravity of the situation left them no choice. They recognize
the profound implications of this move. They are fully aware that the US
Constitution contemplates impeachment as an extreme remedy for extreme
circumstances in which a president must be removed from power, without waiting
for the end of his four years mandate. But they had no choice.

Guardians of the Constitution

As they told America, in their constitutional role as guardians of our
institutions, the House Democrats could not ignore a president who has
deliberately and consciously broken his Oath of Office. On this Ukrainian
matter, he clearly abused his power as president, this way acting in open
disregard of the Constitution. And so the Democrats in the House, conscious of
their solemn constitutional obligations as public servants, simply had
to act.

Swift action

Furthermore, they had to act swiftly; because the evidence shows that this
president is busy engaging in unconstitutional conduct on a daily basis. He is
such a menace that he needs to be stopped, now, lest he
destroys the entire fabric of our cherished democratic institutions.

Exaggeration

Well, this narrative presented by the House Democrats is outlandishly
exaggerated. By inventing this notion of Trump as a monstrous creature living
in the White House, intent on shredding our American Constitution, the House
Democrats have turned this impeachment process into a farce. Many Americans
(may be most) have seen through this manufactured drama and concluded that this
impeachment process is nothing but “politics”, and not a
serious constitutional crisis, and so they have tuned out.

Real charges against Trump

Let me be clear. This is not an invented story. Ample evidence, now
corroborated by multiple witnesses who have first knowledge of the “Ukraine
military and economic aid matter”
conclusively proves that President
Trump tried to twist the arm of Ukrainian President Volodymyr Zelensky, (by
threatening to withhold aid for Ukraine already voted by Congress), so that
Zelensky would commit to dig up dirt on Hunter Biden, Joe Biden’s son, this way
helping Trump’s to get re-elected.

All this is beyond dispute. And it is bad. Really bad. It is most
inappropriate for any US President to mix the foreign policy of the United
States with personal electoral politics. President Trump acted most
inappropriately; and in so doing he tarnished his office.

Impeachable offense?

So, something bad happened and the president did it. However –and this is
the critical question– is this an “impeachable offense“?
The country is deeply divided on this. Most Democrats hate Trump as a matter of
course, and so they would like to see him gone, whatever it takes. Most
Republicans believe he is OK. The independents are divided.

That said, notwithstanding the anti-Trump media hype, most Americans who
live outside of the Washington, DC bubble do not care much about the complex
constitutional arguments dished out by legal experts appearing non stop on
cable TV.

The charge of “abuse of power” against this president for
most people is an abstraction that few are willing to dig into in order to
determine whether or not this particular instance of abuse rises to the level
of an impeachable offense that warrants removing a president from office,
especially when president Trump can be removed from office via regular
elections scheduled to take place this coming November. “You want to get
rid of Trump? Well, vote for the other candidate come November”.

For sure, most Americans would agree that they do not want “a
criminal”
in the White House. However, the “crime”
the president is accused of has to be something most people can relate to.
There is no clear majority that would agree that Trump’s conduct regarding the
whole Ukraine messed up affair clearly constitutes “criminal
behavior”
. Bad behavior, most probably; but not something that rises
to the level of an impeachable offense.

Inflated case against Trump

In other words, it is not that the House Democrats “invented”
a case against Trump. Far from it. There is plenty of evidence that there is a
case. Their political miscalculation has been to inflate the
dimensions of the “Ukraine story” up to ridiculous proportions.

Yes, President Trump behaves in an erratic, often bizarre fashion. He says
plenty of outlandish things. And in this Ukraine case he tried to use the
considerable power of his office to obtain from another head of state something
that would probably benefit him politically by threatening to withhold a large
package of economic and military aid duly approved by Congress that the
Executive Branch was obliged by law to deliver to Ukraine.

But to assert that Trump needs to be removed from office, RIGHT
NOW
, as opposed to allowing the voters decide in the upcoming November
elections, because the future of America as a viable constitutional republic
hangs in the balance, is silly.

No, we are not about to fall into an abyss. You may have plenty of reasons
to dislike Trump; but he is not in the process of dismantling the US
Constitution.

Impeachment trivialized

The end result of this rushed impeachment process based on significant
evidence of serious misconduct which however does not jump at you as obvious
criminal behavior is to have trivialized impeachment. Impeachment should be
viewed by all as an extreme remedy for truly extreme circumstances. And this is
not the case right now.

By labeling Trump’s abuse of power as an impeachable “high
crime”
, the Democrats ended up with the unintended consequence of
trivializing impeachment. Do not be surprised if in the future, whoever will be
in the White House, a hostile House majority will threaten to impeach another
president whom they profoundly disagree with.

I do not believe that the Founders decided to include impeachment provisions
in the US Constitutions as just another tool to fight inevitable political
battles. For that purpose we have free elections held at regular intervals.

Paolo von Schirach is the Editor of the Schirach Report He is also the
President of the Global Policy Institute,
a Washington DC think tank, and Chair of Political Science and International
Relations at Bay Atlantic University, also in
Washington, DC.




Self-Driving Electric Cars Coming Soon

By Paolo von Schirach –

WASHINGTON – Imagine this: affordable, driverless electric cars, EVs. This would be the true game changer for urban transportation and urban living. I say “would be” because this revolution, prophesized and announced many times, has not quite arrived. We know that there has been significant technological progress in these areas in the last few years; but not enough to make this vision into a reality. Still, I am hopeful that some day we shall see it.

When the revolution comes

If and when these affordable, autonomous EVs will hit the road, the impact of this radical technological revolution will be immense. I am not just talking about the environmental gains deriving from zero emissions electric engines, and therefore the overall reduction of greenhouse gases and significant air quality improvements in all large urban areas.

The real game changer will be that most people will no longer want to own a car, because hiring one will be very easy, and very cheap. Hence a true revolution in the way most of us will deal with all personal mobility needs, especially in large urban areas.

Changes in the way we think of mobility and cars

Even today, relying only on established, gasoline powered cars driven by humans who need to be paid for their driving, the availability of app-connected transportation services like Uber and Lyft convinced many city dwellers that calling a vehicle via smart phone whenever needed is easier and probably cheaper than owning and driving your own car.

How so? Uber of course is not free. However, for many users who rely on Uber or equivalent services any app-connected car service is more cost-effective than going through the trouble of buying and keeping a car.

It is true that you have to pay for each Uber ride, while you pay only a little (the cost of gasoline) each time you drive your own car. Still, you have to consider all the costs connected with owning a vehicle. You have to factor the substantial cost of the initial purchase, plus the cost of registration, insurance, parking, fuel, ordinary (oil changes) and extraordinary maintenance, (new tires, new brakes, new transmissions). Then add odds and ends like the cost of parking tickets, (some people collect many of those), the cost and aggravation caused by possible car accidents, and then the aggravation of the daily stress of driving on congested roads, and all of a sudden the Uber option, while it has a price, seems more cost-effective, at least for some.

Driverless, electric Uber

Well, if relying on smart phone connected car services as opposed to owning a car is the emerging trend today, imagine the appeal of this car hire option in a not so distant future in which your Uber or equivalent vehicle will have an electric engine and no driver. These radical innovations obviously will mean very low operating costs for the service provider, hence much lower fees charged to users, and guaranteed, fast 24 hour service.

The rides will be cheaper because there will be no payments to a human doing the driving. Besides, the driverless car will stay on the road day and night. It does not get sick and it does not need to take a break. And the cost of the electric charges will be much lower than gasoline.

The future of personal mobility

So, here is tomorrow’s scenario. Think of driverless EVs that will be on the road almost 24/7, (taking a break only for the time necessary to recharge the car’s battery). Since these vehicles will cost much less to operate, the companies providing the service will be able to pass on to the consumers significant savings.

And this will mean that almost anybody will be able to afford rides, probably several rides a day. At the same the service providers will be able to guarantee that there will be plenty of vehicles constantly on the road available to quickly meet demand for rides. And this means almost no wait time for your ride.

No more need for private cars

In this new scenario, for the vast majority of urban dwellers, owning a private vehicle will become unnecessary, because all mobility needs will be easily and inexpensively met by driverless EVs. If this is so, let’s think about the significant ripple effects of this radical reorientation of consumers’ preferences.

Fewer cars

As a result of all this, there will be a complete restructuring of the automobile industry. Only EVs will be manufactured, of course; but fewer of them, because it will no longer be one vehicle per individual driver. One vehicle on the road 24/7 will serve many customers during the day. This will mean far fewer cars on the road. And probably improved road safety, because driverless vehicles will not get distracted, they will not cause accidents. They will not be under the influence of alcohol. They will not be tired and sleepy.

Empty parking garages

Furthermore, far fewer cars constantly in circulation will mean plenty of redundant parking spaces. In most large cities enormous parking garages have been built for commuters. They are filled every day by tens of thousands of cars parked there by commuters. In the future commuters will be able to rely on services provided by driverless cars, therefore all these parking lots and garages will sit empty. This will create an opportunity for re-purposing a great deal of valuable urban real estate.

A better future

So, here the picture. No more private automobiles on the roads, or at least far, far fewer of them. And this means that the substantial capital devoted by millions of individuals to purchasing a vehicles will be used for other goals. Besides, given far fewer cars on the road, there will be no more road congestion, and no more street noise caused by the internal combustion engines and related air pollution. And, finally, no more stressed out drivers/workers who have to fight the traffic twice a day, every day, commuting to and from their work places. All in all, with the driverless EV doing the driving, this will translate into a much more enjoyable, more relaxing urban life experience for millions of people across the globe.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC




Europe’s Dreams

By Paolo von Schirach –

WASHINGTON – We heard from Ursula von der Leyen, the new President of the European Commission, that she will lead a “geopolitical” Commission. So, we are led to believe that, under her leadership, there will be deep thinking and strategizing about how to effectively combine the significant European economic, business, investments and military assets so that the EU will play a leading role on the world stage. From climate change to global development, international stability and cyber warfare, expect a cohesive, proactive Europe to be assertive and forceful when it will be necessary to foster stability and sustainability.

Big numbers hide structural weakness

Nice plan. Except that it is a total fantasy. The EU does not have and will not have the tools to become a dynamic force in world affairs. Sure, on the surface some EU numbers look very impressive. the EU total population is 512 million, much larger that America. If we put together the GDP of all its 27 members (UK on its way out) we get to about $ 19 trillion, almost the same as the US. If we combine defense spending of all EU Members we have the second largest defense budget in the world. And the EU is the largest foreign aid donor. Not to mention the clout of the EU in determining competition policy standards around the world, and a lot more.

So, a global force to be reckoned with? No, not really. The sad story about the EU is that these aggregate numbers are almost meaningless, simply because the EU, as conceived and currently structured, is unable to effectively combine the resources of all its members in order to obtain real synergies. And do not expect major institutional changes any time soon.

Dreams of a Federal Europe

Sadly, s strong Europe is destined to remain an unrealized dream. Right after WWII, there were a few fervent believers in a truly integrated new Europe that would have helped to eliminate the old intra-European rivalries, while redirecting the enormous potential of various European countries towards the goal of creating a new European Federal State. The European Federalist Movement led by Altiero Spinelli, and later on the Union of European Federalists, are the manifestations of this vision. However, these organizations never gained any real traction. They were and are essentially irrelevant.

EU is not a Federation

There is a European Union, of course; but it is not a Federal State, and it will never become one. Born out of the European Coal and Steel Community created in 1952 as a French olive branch to defeated Germany, the actual European project, (officially created in 1957, with the Treaties of Rome), went through many phases. It began as a European Common Market, then it developed into the European Community, and finally into the European Union. These name changes suggest an incremental integration process. And , in truth, there is more integration.

But Europe remains at its core an inter-governmental arrangement among sovereign states. Sure enough, a number of institutions have been created and nurtured, and all the EU Members agree to enforce EU norms and regulations on a large number of issues.

However, the qualitative step of merging all the Members States with the goal of creating a vibrant, unified European Federation was never taken, and I doubt that it will ever be taken. As a result, we have a hybrid. Certainly much more than a Free Trade Area, but a lot less than a real unified state.

A set of complex structures, laws and regulations

Over time, the EU created an extremely complex set of laws, rules and regulations enforced by a bureaucracy managed by Brussels based EU governing bodies. There is also a European Parliament that looks like a legislative body, however without the full sovereign powers of national parliaments. Some key EU states gave life to the Euro, the very successful European currency. And, of course, at the top of the pyramid, there is the EU executive body, the Commission, now presided over by Ms. von der Leyen. But the Commission President is not the elected Leader of Europe. She was nominated.

The Commission is led by a functionary

Therefore Ms. von der Leyen is not an elected political leader. She is a functionary. A very important functionary, with significant prerogatives, but still a functionary. The EU Commission enforces policy. Except for clearly designated areas, the EU carries out policy. It has no real, autonomous powers to make policy for Europe without the prior consent of the Member States.

No EU armed forces, no effective foreign policy

And this is only half the story. In order to affect global geopolitics, Europe should have credible tools. A critical one is a European foreign policy supported by real European armed forces.

Well, the EU has neither. Yes, it created the embryo of a foreign policy making body with a high official, (another appointed functionary), running it. But its discretionary powers are very limited. The EU can act in world affairs as one only if and when all the key Members agree on something. And this is very difficult, to put it mildly.

And when it comes to creating the backbone –that is real European armed forces– forget about it. There is nothing; and there will be nothing, except for high level commissions, studies and debates. And this is the case for various reasons. For a true European military force to be created, you would need as a foundation a robust political agreement among all EU Members on the size, purpose and command structure of such a force. And then Members would have to agree on an appropriate level of spending and how to pay for it.

Let NATO defend Europe

Politically, this is just too complicated. Besides, most EU Members are also NATO Members. Admittedly these days NATO’s purposes, force structure and capabilities are debatable. Still, NATO has the advantage of having been around since 1949. Whatever its shortcomings, it exists; while most European countries continue to believe that they are safe under what they would like to think is a still credible US security blanket.

Dreams and wishful thinking

So, here is the picture. In Europe dreams and fantasies abound, when it comes to a new, assertive EU role in the global arena. But there are no tools and therefore no real substance when it comes to the ability to play a credible, major role in world affairs. Ms. von der Leyen may talk about geopolitical goals for her Commission; but this is another instance of wishful thinking.




Cyber War Happening Now – We Are Not Ready

By Paolo von Schirach –

WASHINGTON – We are at war. Aggression which one day can take devastating dimensions is targeting America on a daily basis. I am talking about cyber warfare. Unfortunately, it is very hard to label cyber war as “war”, simply because it is vastly different from the “conventional war” we are used to study, discuss and prepare for.

Intellectual obstacles

Sadly, our ability to think intelligently and proactively about this potentially fatal form of aggression is seriously hampered by our old-fashioned categories. Much to our disadvantage, when it comes to warfare, we are still prisoners of largely obsolete concepts, scenarios, international law definitions, strategies and tactics that do not allow us to fully comprehend the extent of unconventional warfare, in particular cyber war.

The UN Charter allows self-defense

All students of international law know that Article 51 of the UN Charter clearly affirms the right of self-defense that can be exercised by any UN Member, irrespective of any action that may or may not be taken by the UN Security Council to deal with that specific breach to international peace. It sounds right. Self-defense is an inherent right of all sovereign nations. Except that Article 51 specifies that self-defense is justified “if an armed attack occurs”.

Armed attacks

And here –in this narrow and quite frankly obsolete definition– is our problem. This classic definition indicates that an illegitimate war of aggression has occurred if and when there is an “armed attack”. And we know what that is. This is Pearl Harbour. This is Nazi Germany moving into Poland on September 1, 1939. We picture armies shooting their way across internationally recognized, sovereign boundaries. We know a war of aggression when we see one.

Deliberate obfuscation in semi-conventional conflicts

But today we are confronted with a vastly different universe when it comes to warfare. Even when we are dealing with quasi-conventional conflicts, in recent years the lines have been deliberately blurred by bad actors who do their best to muddy the waters, with the goal of denying responsibility for their actions.

Indeed, Crimea was taken over in 2014 not by the Russian Army but by “Green Men” whose uniforms did not have any insignia. Likewise, officially no Russian forces are taking part in the bloody conflict in the Donbas region in eastern Ukraine. The Iranians have proxy forces in Iraq and Syria, trained and armed by them. But they are not technically part of the Iranian Army. And we could go on and on.

When there is no armed attack

While it is not that complicated to see through these disguises in semi-conventional conflicts, when it comes to cyber operations, cyber attacks, and cyber terror, we are in uncharted waters. To start with, it is often hard to determine that there was an attack, let alone who the attacker is. Whatever they are, these actions are not “armed attacks” as defined by Article 51 of the UN Charter, and as most practitioners think about acts of aggression.

We do not recognize cyber war as war

And here is our main problem. Our weakness as a society, and I suspect this includes key policy-makers, is that we have a psychological resistance in recognizing that cyber attacks are pure “acts of war”, simply because they do not look like the conventional aggressive military operations we are used to.

Furthermore, since cyber war is relatively new, we still do not have the intellectual and technical tools to fully comprehend the extent of this threat, and how devastating large scale cyber attacks could be. Are we talking about a few cyber probes here and there? Are we talking about discreet actions of cyber theft or cyber espionage? We know about all of them. But is this really war? Yes, it is.

Prepare for the worst scenario

And it will get worse. Count on it. There will be new, stealthy and deadly tools. It would be foolish, if not criminally negligent, not to think about all this and try to prepare for the absolute worst. I mean well coordinated cyber attacks that could cripple our country, (for instance, attacks that would completely and permanently disable our national power grid), without a single shot being fired by enemy forces.

Our problem

And here is our problem. Right now we are at the very beginning of a very dangerous new era in which cyber tools are used as weapons. To date, aggressive cyber capabilities are probably still relatively modest. But they will inevitably grow, along with the growth of cyber science and the numerous new applications that will be created. And the temptation to do bad things is very strong. Hostile forces can always hope to hide behind anonymity.

We sort of know all this. But in a rather nebulous way. Most of all, there is no real sense of urgency, most likely because these acts of aggression take place in this intangible cyber space, whose dimensions and relevance are generally unknown to most of us and that would include policy-makers who do not have the sophisticated technical background that would allow them to immediately grasp the dimensions of this ominous threat.

The challenge

So, here is our challenge. How do we mobilize all relevant policy and scientific resources against a war we are already involved in that does not look at all like the wars we are used to? How do we mobilize and sustain national efforts aimed at countering invisible cyber attacks that may soon be replaced by much bigger, perhaps fatal attacks?




When The Coal Mine Closed Down

By Paolo von Schirach

WASHINGTON – Not long ago, I read a vivid account of a small town in West Virginia facing the demise of a coal mine, the major employer in the area. It is a real tragedy. Many people in the small town worked there. Their families depended on their salaries; while the entire local economy thrived because of the money coming directly or indirectly from the mining operation. No mine, no nothing. Only semi-desperate unemployed miners, empty stores, empty restaurants. You get the idea.

Gas is cheaper and cleaner

And why did the mine close down? Mostly because of the competition created by cheaper, super abundant, (and much cleaner), natural gas as the new fuel of choice for electric power generation plants. Considering lower prices and lower emissions, utilities across America have been switching to natural gas.

Hence the slow demise of coal. Quite frankly, from a most elementary economic stand point, this switch from coal to natural gas makes perfect sense. Having a choice, utilities go for the fuel that costs less and pollutes less.

Indeed, as a nation, we should be extremely grateful to the entrepreneurs who a couple of decades ago unleashed this incredible “fracking revolution” and created this almost unthinkable natural gas bonanza. Once gas poor, America has now so much natural gas that it is exporting it, with obvious advantages for our balance of trade.

No reason to be happy

However, if you grew up and live now in that West Virginia community, you have no reason to be happy. The coal mine was all they had; and now it is gone. How are the people going to create, out of nothing, a new local economy that will provide income and a decent standard of living for all? The reality is that this is almost impossible.

Creative destruction

Capitalism is a process of “creative destruction”. Unfortunately the “creation” and thedestruction” components are not nicely harmonized. There is no “system” that will guarantee that when jobs are lost because a new technology has made the old one obsolete, (or as in this case a better fuel becomes available this way replacing the old one), enough new, well-paying jobs will be created, just when they are needed.

In the end, if one looks at the big picture, if an innovative economy works, eventually the entire society will be better off. New technologies mean new and better products or services. New investments mean higher productivity and higher salaries. Yes, this is true…eventually.

What about the victims?

In the meantime, what will be the fate of this West Virginia rural community now that their main source of income has disappeared, victim of the “destruction” component of “creative destruction”? Unfortunately, as a society we have not managed to create the necessary shock absorbers, the transition tools that could eliminate or at least alleviate the frictions caused by painful economic change affecting people with no defenses.

Sure enough, in America we have retraining programs, vocational schools, Community Colleges, and more. But these resources are scattered. They are not well organized. Most tragically, usually they are not available when and where they are needed the most.

A future smart society will provide tools

A future smart society should have this reassuring message for all workers: “Do not worry. If you lose your current job, and this is quite possible given the rapid pace of change in this hyper competitive global economy, we have many resources for you. You will quickly learn new skills. You will become employable in new sectors where there is a strong demand for qualified workers. You will be OK. Your family will be OK.”

Sadly, we do not have anything like this in place today in America. Yes, there is unemployment compensation, food stamps, Medicaid, and other state or federal subsidies. But these are just bandaids. These are no long term solutions.

May God help those poor people in that West Virginia small community. Without the coal mine they are lost.




Bad Human Behavior Is The New Killer Disease

By Paolo von Schirach –

WASHINGTON – When it comes to taking care of our health, we Americans are really going backwards –in a most spectacular way! We are now well into an era in which by far the main enemy of our health and therefore of the opportunity to live a mostly disease free, long life, are no longer untreatable viruses or bacteria. NO, IT IS US.

We are killing ourselves

Yes, we are slowly killing ourselves. And the silent killers are the terrible dietary habits millions of Americans have mindlessly embraced over the last few decades, (eating and drinking way too much bad stuff), and zero exercise. The manifestation of these truly bad habits are well known. I am talking about our gigantic –and worsening– obesity epidemic, the consequent explosion of type two diabetes and the various ailments caused by this debilitating, chronic disease.

In a nutshell, we are killing ourselves because –as a Nation– we have adopted a horrible diet and no exercise as our norms. The cumulative effect of these terrible habits practiced by millions over many decades is deteriorating health, (more cardiovascular afflictions, more hypertension), for tens of millions of Americans. Of course, these chronic conditions get worse as we age. And If you add to the mix the serious crisis caused by various addictions, (drugs, smoking, alcohol), America –a rich, well resourced country– is getting close to a basket case.

We spend a fortune on health care

And all this is happening notwithstanding the stupendous amount of money the US spends on health care. Indeed, America has the odd record of spending double what other rich countries spend on health, (about 18% of GDP, a staggering amount), with truly mediocre if not bad health statistics when it comes to incidence of chronic diseases and declining life expectancy. (At a little above 79 years, US life expectancy is very close to Cuba, Portugal and Albania).

Science defeated many diseases

As I said, when it comes to our health as a society, we are really going backwards. Think about it. The 19th and the beginning of the 20th Century were all about understanding and then successfully fighting deadly bacteria and viruses that were at the source of often incurable maladies. Finally, cures and vaccines were discovered that could successfully fight back smallpox, tuberculosis, sifilis, pneumonia, and polio.

Public health standards

Closer to our times it became routine, first in developed countries and then progressively elsewhere, to have massive immunization programs, so that infants and children would be protected from many potentially lethal infectious diseases. Furthermore, basic norms of cleanliness were identified and and then taught, such as frequent hand washing with soap, refrigerating perishable food items, and rinsing fresh fruits and vegetables before eating them.

At the same time, authorities understood the importance of public hygiene. They started providing treated, clean water to households. They built modern sewage treatment plants, along with modern trash removal services, so that urban waste would not become the breeding ground for bacteria and vermin (such as rats) that could carry and spread disease.

Major victories

These are major victories. Vaccinations, immunizations, the availability of antibiotics, combined with vastly improved standards aimed at safeguarding public health, cut down infant mortality and allowed millions of adults to live longer, healthier lives.

If we fast forward to today, for sure thousands of dedicated scientists keep working on major medical issues, such as various forms of cancer, dementia, Alzheimer, and a plethora of genetic ailments. And this is good. Much, much more needs to be discovered and understood.

US health is declining

That said, if we look at broad US health statistics, we see an enormous paradox. As I said, we conquered major diseases a long time ago. And America spends literally a fortune on various forms of health care delivery, almost double the average of what is devoted to health in other affluent societies. And yet the overall health conditions of the American populace are actually declining on account of the epidemic proportions of ailments such as obesity and type two diabetes caused not by mysterious germs but only by our bad personal habits.

In other words, our declining health is totally self-inflicted.

We know the problem

The sad fact is that everybody with a modicum of education knows exactly why we are dealing with these epidemics. It is all about over eating bad stuff, (mostly processed food, sodas, and too many fatty, sugary snacks), combined with too much alcohol, and lack of even a modicum of physical exercise in our daily routines. And if you add to this already toxic mix millions of Americans addicted to alcohol, cigarettes, and a large variety of drugs, you have the paradoxical picture of a wealthy, reasonably well educated society that is also very sick. This is the really bad news.

It is all rooted in bad habits

But the good news is that this catastrophic deterioration of the overall health conditions of millions of Americans is not about bad luck. It is rooted in our freely adopted BAD HABITS. Habits are not genetic. We learn them, and then we adopt them. And this means that given proper guidance and education, once we realize how toxic these habits are, we can ditch them and embrace new, healthy ones.

Yes, it really is as simple as that. We became accustomed to unhealthy processed foods. We drink rivers of sugary sodas. We eat too much junk food which is mostly fat, sugar and salt. Most of us do not exercise at all. I am not sure how these habits came to be embraced. But is is time to get rid of them. And it is quite possible, even though doing so will require an extensive, focused public education campaign, starting with children, and quite a bit of self-discipline.

Yes, ditching bad habits is a major challenge

I fully recognize that changing the entrenched bad habits of millions of Americans looks too big a task, in fact an impossibility.

And yet it is doable.

We can all learn what a healthy diet is, and then embrace it as our new habit. There is nothing magic or mysterious about it. Fruits and vegetables are good for you. Snack food is not. Plain water is good for you. Green tea is good for you. Sugary sodas are not. Furthermore, once we understand the horrible long-term consequences of a sedentary life, we can all engage in some form of exercise, (walking just 30 minutes a day can be a life changing new habit for mostly sedentary people).

As I said, unless we ditch our truly bad habits, we are slowly killing ourselves, while we waste billions of dollars every year treating mostly preventable diseases that we inflicted on ourselves.

Are you telling me that we cannot do better than that?




Boris Johnson’s Gamble Will Fail

by Paolo von Schirach – 

WASHINGTON – Boris Johnson won the UK political elections –in a most spectacular way. Indeed, it seems that his new version of British Conservatism cum Populism upended British politics. Old Labour Party bastions located primarily in the North of England fell, this way transforming the British political map. Congratulations on this splendid and unanticipated performance. This is the good news.

The bad news

And now, for the bad news. Johnson won by shamelessly over promising almost everything to everybody. There will be Brexit, of course, and this was baked in the cake anyway. But Brexit, according to Johnson, will not cause any pain or discomfort to the UK –a country that does most of its business with the European Union. On the contrary, we are told that Brexit will be a salutary tonic. It will unleash the long dormant British creative spirit. It will trigger a new wave of innovation and entrepreneurship, this way unleashing unprecedented prosperity for the British people. This fantasy land proposition is credible only if you believe in miracles.

Well, the truth is that this uplifting vision is not just uncertain, it is in fact a most improbable dream, simply because Britain today (in case you missed this) is no longer the mythologized Great Britain that pioneered the industrial revolution. Today’s Britain is a sleepy country where not much happens, except for a few islands of innovation. So, please forget about creating –almost overnight– Singapore-on-the-Thames, once the ties with the EU have been cut.

Delivering growth to the North

But the real problem for Johnson will be delivering a tangible level of new, top-down development and attendant prosperity to the Labor bastions in the semi-impoverished North of England that decided to give him a chance by switching sides and dumping the Labor Party, at least for now. In order to lure them to his re-engineered Conservative-Populist camp, Johnson deliberately promised all sorts of goodies: better health care, better public education, better transportation systems, and more money for all sorts of services.

So, there you have it. Johnson promises a smooth and painless exit from the EU, robust growth caused by new investments in productive enterprises, (this is absolutely necessary in order to get the extra revenue to pay for at least some of the infrastructure and social services he promised), and new prosperity and security for the neglected British working class. And all of this between now and the next elections in five years!

It will not happen

Without getting into too many details, it is clear that this is not going to happen, at least not between now and the next elections. Common sense and the long record of mixed results –at best– for welfare policies and top-down government-led investments indicate that profligate spending, after the initial sugar high, does not change any of the pre-existing negative fundamentals. Indeed, the only measurable change will be widening budget deficits. And this will create pressure down the line to increase interest rates in order to attract buyers for the growing national debt.

Jump-starting a sleepy economy?

As for the otherwise noble goal of restarting the economy and aspiring to remake Great Britain into a dynamic global hub of innovation and enterprise, the only thing I can say is: “Good Luck”. Mountains of evidence indicate that genuine entrepreneurship, (as opposed to subsidized half-baked efforts), cannot be willed into place by well-meaning governments relying mostly on cheap credit, tax holidays, incubators, or other gimmicks.

Create a business friendly eco-system

The best that a government can do to stimulate innovation is to create and sustain a credible business friendly ecosystem: reasonably low taxes, good education institutions, including at least some top notch research universities, robust IP protection, easy to understand laws, reliable dispute resolution mechanisms, healthy financial markets, well-funded venture capital firms, and reliable state of the art infrastructure. And these –mind you– are just preconditions. Indispensable preconditions, but only preconditions. Indeed, while absolutely necessary, having them in place and functioning gives you a chance to compete; but they are by no means a guarantee of success.

I wish that Johnson’s optimism could be truly contagious. I wish he could inspire would-be innovators to innovate and –most critically– bring to market commercially viable new products and services. I just do not think this will happen, at least not between now and the next elections, and on the scale that would be necessary to transform in a meaningful way this aged developed country that lost its spirit of discovery and adventure a long time ago.

Big programs will cost real money

That said, while future growth is aspirational, the promises made to the new former Labour and now Conservative voters are real. If Johnson wants to consolidate his newly broadened electoral base, he will have to deliver. And this will cost real –not hypothetical– money. Extra money that the British Treasury does not have. And this inevitably means higher deficits and more debt.

Of course, for many “progressive” economists (strange adjective indeed!),  all this –higher deficits and a swelling national debt—seems perfectly alright. Indeed, looking at the rest of Europe, the US and Japan, it is clear that these days more spending and bigger government programs benefiting retirees or other deserving constituencies, all of them financed with more borrowing, are the norm.

Most Western governments –and the UK is no exception– are now defying gravity, or so it seems. They keep borrowing in order to finance bigger entitlements, while the monetary authorities keep interest rates at zero, this way making it easier to finance larger deficits, while –so far at least– there is practically no inflation. These policies once were called lunacy inevitably leading to fiscal disaster. Today, they are main stream. Well, truth be told, so far no catastrophe ensued. Or at least this is what appears.

Atrophy is here

My contention is that whatever else may happen down the line (in the UK and elsewhere) when the debt burden will become unsustainable, a real (albeit silent) catastrophe has already happened: and it is called atrophy.

This is not about the apocalypse, about countries going down in flames convulsed by the pain and despair of bankruptcy. This is about becoming comfortable with the new normal of anemic growth, or no growth at all, as long as the government keeps doling out some subsidies relying on borrowed money to all deserving constituencies.

This is about redirecting increasing percentages of static tax revenue away from productive investments and on to more public services and debt service. As this process continues, eventually there will be zero money to invest in future growth. In a word, this is about secular stagnation. However, since this most insidious phenomenon manifests itself only slowly and incrementally, it is easy to explain it away, or ignore it altogether.

I wish Prime Minister Boris Johnson best of luck. Still, I am quite skeptical about his ability to deliver innovation, growth, prosperity, and more entitlements –and all of it within the next 5 years.




Good Values at the Root of Utah’s Success

By Paolo von Schirach

WASHINGTON – A recent article pointed out how, year after year, Utah is on top of the national list of the best states to do business in America, not to mention that the state gets very high marks on good governance; while in Utah there is very low unemployment, lower than the historically low national average of 3.5%. And in Utah kids attending public schools on average do rather well compared to the rest of the U.S., notwithstanding the fact that in Utah spending per pupil is quite below the national average. Well, what is the secret of this success?

Nothing special about Utah

There is absolutely nothing special about this Western landlocked state. Sure, there are mountains, and parks and a great deal of pristine nature. But this natural beauty is not at the foundation of Utah’s growth, and therefore it cannot explain sustained prosperity. And yet, year after year, Utah stays on top of many significant national rankings dealing with easiness to do business, governance, quality of life, and more.

The secret is the people and their values

Well, here is the reason: the people of Utah. Yes, the people of Utah and their values. We know that most people in Utah are Mormons, (62%). Whatever your opinion about this rather mysterious religion, we know that this faith strongly promotes values of thrift, frugality, sobriety, honesty and charitable giving. Could this –deeply held values that promote best practices in education, business and government– be the ingredients of Utah’s secret sauce? I think so. The spiritual values held by many Utah’s citizens do indeed have a beneficial impact on the society they built.

So, there you have it. Sustained economic growth and good governance reinforce each other, and both of them are the byproduct of good values sincerely embraced by the people.

No proprietary economic development strategies

Utah’s, “economic miracle” is not the outcome of following sophisticated, complex investment and economic development strategies, or proprietary computer generated models developed by a team of management super gurus.

The truth is disarmingly simple. Values that hold in high regard a good education, entrepreneurship, honesty, hard work, frugality and lean but effective government inspire productive, honest behavior and good public administration. And all this eventually translates into prosperity.

“You mean, that’s it?”

Yes, that’s it.