Economics

Biden's Green New Deal

    This is a high risk moment for the long term economic viability of the United States.  We are exhausted and disoriented by the Coronavirus and the spending that has been undertaken to blunt the pandemic and stimulate economic activity.  In about a year Nancy Pelosi's House has generated "relief" bills for $2.2 trillion and $.9 trillion signed by President Trump, and a bill for $1.9 trillion signed by President Biden. For reference, the total value of all goods and services produced in the United States in a year is about $21 trillion, and our national debt is now about $28 trillion.  A prudent person would think that this is a good time to focus on implementing the $5 trillion in new spending, eradicating the virus, and planning how to avoid future disasters.  Not so for Ms Pelosi who takes to heart Rahm Emanual's maxim to never let a good crisis go to waste. 

    The new $2 trillion American Jobs Plan, announced by the White House on the day before April Fool's Day, contains everything that Bernie Sanders, Alexandria Ocasio-Cortez, or Nancy Pelosi could think of - a bit of traditional infrastructure to provide cover, a large amount of spending to usher in a green utopia in which all good investments are subsidized, and a set of new or greatly expanded programs to make society more fair. Let's try to untangle the content from the marketing. 

         "Infrastructure" takes on a ridiculous meaning to include: popular basics like roads, ports, bridges, the electric grid, and water systems which are investments to sustain the economy and society over long time spans and which are generally seen as government responsibilities (28%); other discretionary "upgrades" to a wish list including AmTrack expansion, broadband expansion, retrofitting of housing and schools, 500,000 electric vehicle charging stations, and building in "climate change resiliency" (37%);  a new ongoing social spending program of wage subsidies for caregivers (20%);  and greatly expanded support for manufacturing and research and development with a focus on climate change, workforce retraining, and semiconductors (15%). 

        In a normal world this agenda would be broken into dozens of components and the various Congressional committees would prioritize the most important (and politically attractive) within a broad budget framework. In the Democratic world of 2021, the first question is whether the Senate parlimentarian will allow the mess to be called a modification to the 2021 budget, and therefore appropriate for reconciliation which requires only a simple majority to pass. The second is whether Nancy Pelosi can hold together her majority of six in the House and Chuck Schumer can hold together his caucus of 50 in the Senate to pass the funding necessary to implement the Left's new vision - most likely in at least two tranches.   

        The shell game of how to pay for this transformation of America is equally disappointing. (The spending increases are positioned as a 10 year plan - on average $200 billion per year; the corporate tax increases $2.5 trillion over 15 years or $167 billion per year.)  As a starting point, in the economic boom year of 2019 we had a deficit of $984 billion - about 4.6% of GDP.  All of the current discussion of tax increases starts with the assumption that the ingoing deficit rate is OK, with the debate being about how much of new spending needs to be covered by increased taxes.  That said, there will be (and should be) increases.

            - The Trump tax cuts of 2017 reduced the top corporate rate from 35% to 21%; Biden proposes to increase it to 28%. Janet Yellen is taking on a global effort to set a minimum corporate rate of 13.5% to reduce the attractiveness of tax haven shopping among global companies. Efforts will be made to capture companies who still manage to pay no taxes with a minimum 15% tax on reported profits, . The discussion is reasonable, but in the context of ongoing deficits and vastly increased spending, it is under what is necessary. 

            - Personal taxes will also go up, but Biden has committed that increases will not impact couples earning under $400,000. Concepts under discussion for high earners include increasing the top rate from 37% to 39.6%; capping itemized deductions; extending Social Security taxes from the current limit of $142,800; taxing capital gains at 39.6% rather than 20%; lowering the estate tax exemption from the current $11.7 million and increasing the maximum rate from 40% to 45%.  There is no appetite for Elizabeth Warren's proposal to tax accumulated wealth in addition to income, and there is little appetite to change the limit of a $10,000 deduction for state and local taxes. The impact will be gentle. 

     Joe Manchin has made some noise about a 28% corporate tax rate being too high, and he and Kyrsten Sinema of Arizona have committed to retain the 60 vote majority for non-budgetary items like gun control, voting rights, immigration, and the minimum wage, but much of the damage will be done through reconciliation , which allows a simple majority to approve changes to the current year's budget. Thus will we get substantial federal government expansion and increased deficits with virtually all Democrats supporting and virtually all Republicans opposing.  One can only reflect how much difference one Senate seat in Georgia made.

                                                                                                            -----

       bill bowen - 4/8/2021


Bringing Our "A" Game

    The issue of the day  - as clearly framed at the March 18-19 meeting of top U.S. and Chinese and officials in Anchorage - is whether China's ascendency over the past four decades is matched by an inevitable decline of the United States.  The New York Times professed  in 2012, that the centralized authority of the Chinese planning system was superior to messy Western democratic capitalism, and a quick Google of "Chinese System Superiority" provides a flood of similar sentiment today.  The tone of Chinese Foreign Affairs Commissioner in his 20 minute attack  was reminiscent of Nikita Khruschev's "we will bury you; your children will live under communism" rant in 1956.  Whereas Russia had a relatively small population and an economy based heavily on oil, gas, and wheat. China has more than four times our population and a diverse, robust manufacturing economy. The implications for American primacy are worth contemplating.

    Those of us born in the United States around the end of World War II have enjoyed an unusual period in world history, with one country representing about 5% of the world's population, setting up the management structure and writing the rules - particularly since the collapse of the Soviet Union in the 80's. We have occasionally found limits - the Vietnam War; the 2008 economic crisis - and we have relied on allies - particularly western Europe, Japan, the British Commonwealth, South Korea - but it has been our game. We have run the international banking system and enjoyed the global currency; English is the de facto international language (for civil aviation for example); when things go wrong we have deployed our overwhelming military strength.  American companies have dominated the age of the internet. Our farmers feed much of the world. At the moment this legacy remains ours, but the Chinese have overtaken us in patents issued and will soon in Gross Domestic Product (although we remain far ahead per capita.) With this competitor we will need to bring our "A Game" 

  The editors of the Wall Street Journal are fearful that, despite a hostile assessment of China  and some rhetoric matching the perspective of the Trump administration, Team Biden (with many of the same players) will revert the Obama administration's feeble response to challenges from Russia (Crimea; eastern Ukraine), China (cyber attacks; intellectual property theft), and Iran (Suleimani's local wars; the nuclear deal on which the WSJ believes that John Kerry was "fleeced".)  Beyond some specific decisions and rhetoric, there are a few things to watch to see if what results will be China achieving near parity with a still  vibrant America or whether our paths are going in the opposite directions.  

    1. Whether our politicians and our thought leaders can objectively analyze strengths, weaknesses, and recent events. The Trump administration cleaned up the mess that it inherited in the Middle East, and shifted the national attention to China with a major emphasis on trade - a  subject of central importance to the Chinese and leverage for us. The fact that trade was a Trump focus cannot be allowed to put it off limits for the Biden administration. The fact that Trump was more active than recent presidents in supporting Taiwan should not result in a retreat by Team Biden.

    2. Whether we can end our flurry of woke self-flagellation that has been driven by several high profile killings of Black males by police and the NYT-driven narrative that our society has always been racist and sexist.  Chinese propaganda draws heavily on Black Lives Matter talking points and stresses  the moral bankruptcy of the imperialist West. US advocates need to move beyond "consciousness raising" to proposing solutions. The American model is the embodiment of Enlightenment thinking; generations of legal immigrants have come here successfully seeking liberty and opportunity; we are a "Work in Progress", but far superior to the dehumanizing, centralized control model of the Han Chinese. If we are to remain the world leader, we need to have confidence in our principles. 

     3.  Whether we can get control of our mushrooming debt.  The self-absorbed Baby Boomers (ages 57 to 75) and Millenials (ages 41 to 56) have discovered that they can have guns, butter, and low taxes by passing on the bill to Generations X, Y, and Z. The Coronavirus relief bills have provided a break with the traditional American values of fiscal discipline and personal responsibility. We have crossed over from debating how low personal taxes should go to debating how high government payments should be for people who are not working - and whether there should be any work requirements at all. Now comes the Infrastructure Bill spending with some investments which will have a long term benefits, but with many which are liberal wish lists of government expansions such as child care and free community college. If we are willing to trade off a bit of growth for higher taxes on corporations, that could be a rational decision, but more unfunded spending on social programs will sink us when that day eventually comes. 

    And then there is the problem of Joe Biden whose mental health has held up better than expected in his first few months in office.  There is a reason that Xi Jinping is asking to meet with him despite Biden calling him a thug, and there is a reason that Vladimir Putin has proposed a debate with Biden despite Biden calling him a murderer.  And then there's Hunter ....  Leadership matters also. 

                                                                                                                         -----

   This week's subject seemed to call for an old favorite from Bob Dylan. 

 

Bill Bowen - 4/1/2021 

   


Vaccine Diplomacy

    Within the next few months Operation Wharp Speed 2.0 will deliver enough doses to vaccinate all Americans, and the domestic focus will turn to encouraging the reluctant, expanding service to children and underserved communities, and developing vaccines for new virus variants. We've got enough focus, expertise, and money to handle this. Now let's poke our heads out of the foxhole, and look at the rest of the world. 

The setting:

    As of March 24, some 130 million doses had been administered in the United States, at a running rate of about 2.5 million per day, and with commitments from Moderna, Pfizer, and Johnson & Johnson to provide enough doses t0 vaccinate 300 million Americans (out of a population of 330 million of all ages) by the end of May. Add to that AstraZeneca which has been the global leader - approved in 100 countries, and committed to producing one billion doses for global use -  but which has run afoul of US testing bureaucrats. Also add  Novavax which has tested well in the UK and South Africa, but which has been slow in it's 30,000 person US trial. The gusher of federal money has included $22 billion for testing and vaccine distribution before President Trump left office. The faucet is full ON.  

    The rest of the world is not so lucky. Israel, Chile, and a handful of small countries exceed the US rate of 15% fully vaccinated. The UK made the apparently correct decision to delay second shots in favor of maximizing the 76 % effective AstraZeneca first shot and now have 53% with one shot.  Canada is about 2% fully vaccinated; Mexico is .6%. 

    Europe is a mess - what EU Commission President Ursula Von der Leyen called the "crisis of the century" - as the EU passed legislation to ban exports of vaccines.    Even the constantly "why can't we be more like Europe?" New York Times has discovered that the continental vaccination rate has lagged far behind Great Britain and the United States because the bureaucrats are more concerned about criticism for risk taking and nationalist infighting  than a mounting death toll.  It is each country for itself, with regulations preventing exports.

    The international vaccination response for 92 low and middle income countries is coordinated by COVAX (Covid 19 Vaccines Global Access), begun by the World Health Organization, the European Commission, and the government of France in April 2020, and promptly joined by 165 countries.  WHO's role includes sharing statistics and best practices, and providing Emergency Use Authorizations for candidate vaccines. While COVAX claimed to "have access to" 2 billion doses in December, actual deliveries from Pfizer and AstraZeneca will be under 5 million doses in the first half of 2021. Funding comes from 30 countries, plus philanthropies: the European Union promised about $1.1 billion; China $20 million over five years. President Trump opted out due to his conflict withe the World Health Organization, whose investigation of the disease's origin is still blocked by China. In January President Biden committed the lion's share of the group's funding, at $4 billion. 

    India which produces 60% of the world's vaccines in normal times,  is perhaps second in importance to the United States in terms of defeating Covid.  Bharat Biotech intends to produce 700 million doses of their traditionally produced vaccine by the end of the year, having begun their innoculation program in January while testing was still in progress. The Serum Institute of India is producing about 50 million doses per month of AstraZeneca's vaccine, also skating on the edge of technical approvals. India has exported both versions with a total of 58 million doses going to 71 countries - some commercially, some as diplomatic "gifts", and some under the COVAX umbrella - but has recently cut back to concentrate on the  needs of their 1.4 billion people. 

    In February the Chinese began exporting vaccines produced by Sinovac and Sinopharm - without publishing clinical trial data or gaining WHO approval - to 22 countries with a goal of reaching 53, including Pakistan, Mexico,  and many of the Belt and Road development partners. This month the United States, Australia, India, and Japan (the evolving Quad alliance) committed 100 million doses of Johnson & Johnson's vaccine to other Asian countries. Game on. 

    The next phase of Covid will be ugly, with countries representing the top 19% in wealth having purchased 54% of the committed vaccines, and projections that global supply will not meet demand until 2023. A dialogue is needed about increasing supply and balancing distribution for humanitarian reasons and because we are all at risk of mutations while the disease is rampant anywhere on the globe. 

    Some suggested American priorities:

        - Mexico and Central America. Disease stifles economies; immigrants carry disease; the Chinese would love to make inroads in our back yard.  (An easy opening gambit for VP Harris' new task as immigration czar.) 

        - Support for Israeli exports to Middle Eastern countries. (Start with those who have recognized her.) 

        - Technical and logistics support for Indian exports to South and Southeast Asia. (Particularly Taiwan and South China Sea countries threatened by China.) 

        - South Korea - with an understanding that North Korea will receive all that they will acccept.  (An ice breaker for nuclear negotiations, preferably with South Korea in the lead.) 

        - Allies like Japan and Canada who need help. (An apology for the assault on Canada's oil and gas industry.) 

        - Production; production; production. 

                                                                                                                     -----

bill bowen - 3/25/21

    

 


An Alaskan Opening Gambit

    Next Thursday and Friday Secretary of State Antony Blinken and National Security Advisor Jake Sullivan will meet in Anchorage with their Communist Chinese counterparts, Foreign Minister Wang Yi and Politburo member Jang Jiechi, to lay out an agenda for engagement between the ascendent Chinese and the Biden administration. The meeting was initially requested by the Chinese in December, and follows several preparatory discussions: a two hour February 10, phone call between  Premier Xi Jinping and President Biden; meetings of Blinken and Secretary of Defense Austin with counterparts in South Korea and Japan; and  a March 12 meeting between Biden and the leaders of Australia, Japan, and India.  The Biden administration is emphasizing that the first meeting will be on American soil, that it will be preceeded by dialogue with allies, and that the posture will be resolute. Good positioning. 

    The two day agenda is extensive: Hong Kong; the Uighurs; Taiwan; the South China Sea; calibration on Trump-administration trade agreements; climate change;  China's trade embargo of Australia; cybersecurity; intellectual property theft; perhaps American debt.  There will be no significant agreements. Specific commitments on our ongoing $300 billion trade deficit (down 25% from pre-Trump),  China's goal of reaching peak CO2 emissions by 2030 (we are decreasing), or cessation of excalating massive hacking are unlikely. Much will be declared "off limits" internal Chinese matters. Our real leverage rests with trade - but that is so Trump. 

    The China internal media - and much in the West - will position this as a meeting between an America which has lost its footing, and the rising superpower who will soon boast the world's largest economy, enjoys the stragtegic advantage of a strong central government, is consolidating the periphery of former Chinese empires, and is gaining influence internationally through its Belt and Road Initiative, leadership in traditional international organizations, and investment agreements such as that recently signed with the European Union.  There is good reason for concern, but this is not a zero sum game, and our recent decades of unchallenged supriority have made the rise of a rival seem more threatening than it need be. 

    A premise: Despite the constant drumbeat of anti-Trump pessimism over the past four years, the United States remains the overwhelming world leader in terms of the global financial system (the global reserve currency; the primary destination for investment capital), military power (roughly half of the world's military budget; 11 Aircraft carrier groups), and technical innovation (the Chinese targets of Artificial Intelligence, quantum computing, semiconductors, space, and biotech are all American strengths).  The institutions which we put in place after World War II continue to serve the interests of  the great majority of countries. Most of the world looks to us to maintain freedom of nautical travel, and to deter or mediate conflict on Europe's or Asia's periphery. China's neighbors are looking for a counter-weight, and offer a resuscitated version of the Trans Pacific Partnership. China is becoming a worthwhile rival, but our fate (and the world's) is in our hands. 

    That said, Three large currents have been running against us, and are getting significantly worse in the early days of the Biden administration:

        1. Our belief in ourselves as a united, morally worthy nation. Led by the New York Times, and punctuated by several police killings of Black men, the narrative that we are irredemably flawed has been pounded by Democratic politicians and the media.  Schools teach a history which has been re-written to the extent of condemning George Washington and Abraham Lincoln. Dissenting voices are cancelled. Childrens books are banned. Social media - the preponderant majority of whose political contributions go to Democrats - control much of the national conversation, and ban Republicans. Liberals are encouraged to shun family and friends who voted for a presidential candidate who received 75 million votes. If a foreign propagandist wanted to undermine the United States, this is what it would look like.  Common sense, respect for alternative opinions, and balanced news coverage need to return if we are to remain the leader of the free world. 

        2. Our debt. We have become numb to the implications of having federal government expenditures more than double federal government income, and represent about a third of the economic activity in the country - from every factory producing railroad cars, to every farmer growing wheat, to every doctor treating cancer, to every government worker processing your tax return.  On the heels of a fourth Coronavirus Recovery Bill (7% of which went to vaccines, testing, and tracing), Team Biden will be back for another totally partisan trillion dollar "Infrastructure" bill.  This will not end well. 

        3. More subtly, but most importantly, reliance on government rather than personal responsibility. When Press Secretary Psaki called the $1,9 trillion Coronavirus bill "the most progressive piece of legislation in history", she meant it. When presidential candidate Andrew Yang first introduced the concept of a universal basic income of $1000 per month in 2019, it seemed revolutionary (and to most people crazy)  - detaching labor from reward, and elevating the state to the role of benificent patriarch of the people. We now have it, if just for a year or two at this point: $1400 checks for almost everybody (on top of past $1200 and $600 checks); child credits of up to $3600 per kid.  The idea that individuals reap the benefits of their work is so bourgeoisie;  Equality demands that the government print money for everybody. 

    This observer has confidence in the wisdom of the American people.  We are the most successful large, racially, ethnically and religiously diverse nation in human history. We have been successful because we have been governed by the ideas of the Enlightenment and the Constitution.  The First Amendment's guarantees of freedom of religion, speech, press, and assembly will survive the Cancel Culture because the people will demand it.  Unlike today's Democratic leaders, Martin Luther King Jr. looked forward to the day when "people will not be judged by the color of their skin, but by the content of their character."  We will return to a place where it is not racist to have  "race blind" policies. If we don't return to traditional American common sense, in time the immutable laws of economics will prevail over those who would claim that we can indefinitely consume more than we produce.  If  not, we had best hope that future meetings with our Chinese overlords go well.  It is up to us. 

                                                                                                                                -----

bill bowen - 3/11/2021


Biden's Debt

    On behalf of the Baby Boomers, I would like to issue a hearty "Thank You" to our parents' generation who saved the world from Hitler and Tojo, and to our kids and grandkids who will pay for our profligacy over the past few decades. We've been in the sweet spot.

    Democratic leadership has chosen to make huge further debt increases a hallmark of the Biden administration with the $1.9 trillion Covid bill, which has little to do with fighting the disease,  and a subsequent $2.0 trillion Infrastructure Bill. Their political gamble: independents and Democrats who claim to be "fiscal conservatives" don't mean it; voters are addicted to "free stuff". 

    How bad is it? 

        - For those who love numbers, the National Debt Clock shows a concise summary of federal, state, and local income, spending, and debt. Currently Federal debt is 129% of the value of all of the goods and services produced and sold in the United States annually (up from 104% in 2016). Official Federal spending is 193 % of revenue (up from 115% in 2016.)  For every dollar that the Federal government takes in, it spends two.  

        -  As a baseline pre-Covid, the Federal Fiscal Year 2021 budget of $4.829 trillion projected a deficit of $966 billion. Spending was 60% mandatory (Social Security; Medicare; Medicaid; food aid), 20 % military; 1 % interest on debt, and 20 % all other (Health and Human Services; Education; Housing; Transportation; Parks; whatever).  Thus far, Congress (with Pelosi, Trump, and McConnell at the controls) has passed five Covid relief bills costing a total of $3.5 trillion. 

        -  International comparisons are risky, but China reports about $8 trillion of debt, or about 55% of GDP, and the paths are diverging.  

        - Perhaps most disturbingly, Congress has given up on the budget process in place since 1974. Instead of Congress adjusting the President's proposals and negotiating trade-offs, eight of the last ten budgets have resulted from last minute Continuing Resolution Authorities, which just agree to keep on keepin' on with what the government is doing.  

     Let's try to distill the most common debt arguments from the cacaphony of special interests, doomsayers, and political panderers. 

            For the Democratic team who would layer on a few more trillion dollars: 

                1. Debt doesn't matter. Since the US dollar is the international Reserve Currency (generally used for global financial transactions) the Federal Reserve can just print more money.  In a different era the Federal Reserve saw a primary obligation to protect the value of the currency; today's chair emphasizes the "twin mandate" to  maintain full employment, and vows to keep interest rates low for years.  The premise is that the economists will foresee the inflation problem before it arises, and take timely difficult political decisions when they need to.   In essence, the financial world is full of fairies and unicorns. 

                2. We need to invest in infrastructure; it will pay for itself.  This is true in some areas - notably the interstate highway system;  perhaps the airline industry; broadly in education; perhaps in some aspects of "Green Energy".  But some rigor in calculating a Return on Investment is necessary. California's High Speed Rail "train to nowhere" provides a cautionary tale of fraudulent promises and political corruption. Most of the Corona virus spending is designed to mitigate pain rather than to build lasting infrastructure for the future. Beware the lobbyists.  

                3. This is an opportunity to address wealth inequality. Substantial taxes on the super rich would help to close the gap. True, but a couple of cautions: the addition of a tax on existing wealth is problematic, so we are probably talking about income taxes which would produce much less, and the likes of Bezos, Zuckerberg, Bloomberg, Gates, Steyer, and Benioff are not stepping up. Ditto the Wall Street donors who support the non-Elizabeth Warren wing of the Democratic Party.  The days when the rich voted Republican are long gone, so the Democrats would need to gore their own ox.  

        And for the Republican / conservative folks who are concerned for their grandchildren:

                1. Today's interest rates are about 1.3 % on the 10 year Federal bond; over the past 50 years they have been as high as 15%, averaging about 6%. When they return to "normal", there will be a brutal squeeze on funding for the "discretionary" 40 % portion of the Federal budget, particularly the 20% non-military portion.   

                2. Deficits will ultimately be solved by budget constraint with higher taxes (unlikely) or by inflation which targets people living on fixed incomes such as pensions, bonds, or Social Security.  Older citizens vote disproportionately.    

                3. China has aspirations to replace the dollar with the yuan as the global reserve currency. In terms of global influence, it is far better to be a lender than a borrower. 

    Within the next few weeks the debt question will come to a head. Nancy Pelosi wants to give no quarter, passing the next Corona virus relief bill at $1.9 trillion, with Chuck Schumer relying on the "reconciliation" process in the Senate with 50 Democratic votes.  The Democratic establishment has not allowed Biden to negotiate with 10 moderate Republicans who have a proposal which strips out the extraneous junk. The diversion of including a $15 minimum wage will apparently fall off - either because the Senate Parlimentarian does not think it qualifies for reconciliation, or because Joe Manchin and Kyrsten Sinema have vowed to vote against it. But Democratic leadership wants a fight and the $1.9 trillion boondoggle is it unless Manchin or Sinema signal otherwise. 

    A few decades ago our politicians realized that they could have both guns and butter with lower taxes if they just passed on the bill to future generations.  The virus accelerated the process, but the direction has been clear for awhile. 

 

bill bowen - 2/25/21


Engaging China - Background

    The history, culture, and world view of China are very different from that of Europe and North America. Some background refreshment is needed before assessing current events and suggesting policy positions. 

    Important guidance is contained in Sun Tzu's Taoist classic, The Art of War. Written some 2500 years ago during a period of warfare between competing Chinese kingdoms, the short book is a staple of Chinese education and American business schools.  Two themes recur throughout the short 13 chapters: the importance of profound knowledge about yourself, your adversary, and the terrain in which you are engaged; and the goal of winning through maneuver, with conflict a last resort.  Consider the advantage of having over 300,000 Chinese students in the United States, up from 100,000 a decade ago.  Consider the advantage of broad  English language proficiency on the one hand, and the lack of Westerners' ability to read Chinese newspapers on the other.  Consider the 2014 Chinese hacking of the the US Office of Personnel Management's records of some 22 million Americans, including sensitive background check information - who can be blackmailed?; who can be recruited? Consider Chinese government-connected telecommunications manufacturer Huawei which has been banned by the US and  intelligence-sharing allies.  We start with a major disadvantage in the "profound knowledge" dimension. 

    A brief Chinese history is also enlightening: 

        - 1839-1860: The Opium Wars with England and France which resulted in ceding territory (Hong Kong), legal rights over foreign nationals, commercial concessions, freedom of navigation on Chinese waterways, and unfettered prosteletyzing by foreign missionaries. 

        - 1850-1864: The Taiping Rebellion, led by Christian millenarian Hong Xiuquan. Millions killed.  

        - 1862 - 1877:  The Dungan "Muslim Rebellion" in western China. Millions killed; survivors moved to Russia.  

        - 1911:  The collapse of the Qing Dynasty, with the eventual emergence of the Koumintang  party under Sun Yat-Sen, and the Chinese Communist Party. 

        - 1927-1949:  Civil war between the Koumintang under Chiang Kai-Shek and the Chinese Communist Party under Mao Zedong, with an interruption for World War II. Communists win; Koumintang retreats to Taiwan. Millions killed. 

        - 1942-1945: World War II. Japanese occupation of northern and coastal China. Millions killed. 

        - 1950 - 1953:  The Korean War. 180,000 Chinese soldiers killed. 

        - 1958-1962:  The Great Leap Forward. Forced collectivization of agriculture. Some 30 million died, largely of starvation. 

        - 1962:  Brief war with India which secured Chinese position along mountainous border. Preceded Chinese support for Pakistan in the India-Pakistan War of 1965.  

        - 1966 - 1976:  The Cultural Revolution. Youthful Red Guard - led effort to exorcise remaining elements of pre-communist thought. Ended in 1976 with the death of Mao and the ascention of Deng Xiaoping. 1.5 million killed. 

        - 1969: Brief clashes with Russia in the Far East and in central Asia. 

        - 1979: China invades Vietnam in response to Vietnam's deposing the Chinese-aligned Khmer Rouge in Cambodia. Small clashed continue for a decade. 

        -  2001: China joins World Trade Organization as an advantaged "developing nation", with the US and Europe hoping to spread Western trading practices, including restrictions on state-owned or sponsored enterprises. By 2020, the global Chinese trade surplus was $535 billion - $317 billion with the United States. 

        - 2009: China issues extensive sovereignty claims to the South China Sea and begins to build military facilities in the Spratley and Paracel Islands. Minor skirmishes with Philippine and Vietnamese fishermen. 

        -  2012:  Xi Jinping (age 59) assumes leadership of Chinese Communist Party. Exempted from term limits in 2018.

        - 2013:  Belt and Road Initiative adopted by Chinese Communist Party to invest some trillion dollars in infrastructure projects in Asia, Africa, and Europe to create trading network, recruit allies, and employ Chinese labor and manufacturers.  

        - 2015:  Made in China 2025 Initiative adopted by the Chinese Communist Party to move manufacturing toward high technology with mostly domestic produced components in information technology, robotics, aerospace, pharmaceuticals, semiconductors, rail, agricultural equipment, new energy vehicles, advanced materials, and ocean shipping. Intellectual property targeted. 

        - 2017: Forced assimilation of Muslim population in western China begins with construction of concentraion camps for some 1,000,000 Uighurs.  

        - 2020:  New Hong Kong security law, which contravenes the 50 year "One Country, Two Systems" agreement which underpinned the turnover of the former British colony in 1997. 

        - 2020:  Amid the coronavirus disruptions, China surpasses the United States as a destination for foreign direct investment from other countries.  Based on current exchange rates, the US Gross Domestic Product is 50% greater than China's, but at projected growth rates, China will catch up by 2028. On a per capita basis we remain well ahead.  

    That is a lot to absorb. A few themes can guide next week's assessment of the Trump administration approach and the early indicators of the Biden administration approach:

        1. After centuries of carnage and humiliation, it is logical for the Chinese people to accept a trade-off between stability and growing prosperity on the one hand, and restrictions on individual liberty on the other. 

        2. The Chinese have a long history of  modest-sized military border disputes.  An American military presence is appreciated by many of China's neighbors.  

        3. A centrally planned, well disciplined industrial and financial system can achieve strong results (at least in the span of decades), particularly if trading partners and competitors are fragmented and undisciplined. The contrast with the decentralized, entrepreneural, capitalist system of the United States is intellectually interesting, and of global importance. 

        4. Up until 2016, American presidents were preoccupied with the Middle East while Chinese leaders laid out clear plans to surpass the United States economically, and to dominate their neighbors militarily.  Trump brought the focus of American foreign policy to China. 

   There is much to ponder in this most important relationship ... and whether ther Biden team will have the skill, interest, and fortutude to take it where it needs to go. 

bill bowen - 2/4/21

 


Biden's Establishment Team

      When Donald Trump entered American politics he blew up the Republican Establishment. One implication was that he wound up with a lot of third rate people briefly on his team - Paul Manafort; Steve Bannon; and Anthony Scaramucci to name a few.  Rience Priebus did bring the national Republican Party to the campaign and was briefly rewarded as Chief of Straff, and there were several qualified former generals who temporarily stepped up - John Kelly; James Mattis; HR McMaster -  but by and large this was deliberately not an administratiion for the Establishment. 

    Joe Biden is the polar opposite. After 47 years in Washington, and eight near the pinnacle of the last Democratic administration which ended just four years ago (is that even possible?), he is the ultimate candidate of the Democratic Establishment, pulled out of the dust bin when it looked like Bernie Sanders might sink them all. His personnel selections go to the Establishment - for better when it means that most are qualified and experienced; for worse when it means that they may well be prisoners of past failed policies or just adept at currying bureaucratic favor. 

    First, the domestic crew, where like it or not, they will do their best to implement the policies which they believe got them (oops, him) elected: expansion of public medical coverage; phasing out carbon based energy; somehow stimulating the economy; making it easier for illegal immigrants;  restricting charter schools; protecting abortion; not being Donald Trump. For most of these things, the department head doesn't much matter. The Congress may provide a check - assuming a Republican Senate - but the executive branch will march to the Left. 

    Some thoughts on key players who might make a difference: 

        - Janet Yellen: As Treasury Secretary, perhaps a lateral transfer or demotion from her time as Federal Reserve Chair.  She is well qualified in terms of both technical knowledge, and experience working in the politics of Washington.  One concern: she has a long history of wanting low interest rates to help the economy in the short term. With 27 trillion of debt and ongoing trillion dollar deficits, we will be entering a period where fiscal prudence is demanded. Federal Reserve Chair Powell is committed to low interest rates for years. The Senate can only do so much. 

    - Prospective Chief of Staff Ron Klain has been  with Biden since the 80's, most recently as Vice President Biden's Chief of Staff, with a focus on the 2009 Recovery Act (among the slowest in history), and the administration's Ebola czar. While the Obama administration's Ebola response was not impressive, Klain knows all of the domestic and international agencies and should be helpful in the next phase of the coronavirus response. 

    - The announced candidate for head of the White House's Office of Management and Budget, Neera Tanden, whose role involves negotiating the many trade-offs that have to be made, was a Hillary confidant, helped write the Affordable Care Act, and most recently has headed the uber-liberal Center for American Progress. She tweets more than Trump and has recently gone out of her way to insult Trump, his supporters, and Lindsey Graham. (And that's the Washington Post biography.) Senate confirmation is uncertain.   

     Second, the international crew, where Biden has more latitude to act, and where he is committed to reverse Trump's emphasis on what is best for America. 

    - John Kerry is a "twofer": 

        As President Biden's Special Envoy for Climate, he will be empowered to bring the United States back into the Paris Climate Agreement which he helped to create as President Obama's Secretary of State, and which President Trump left in 2017. He will be asked to implement Biden's commitment to spend 2 trillion dollars to transform the transportation and power sectors of the economy. For what it is worth, the stark change of policy with each administration change shows the folly of making major changes by executive order rather than by treaty, which would require building national consensus, as was most recently done on the North American free trade agreement.    

    Most troubling about Kerry, Biden has placed the climate czar on the National Security Council with  the Secretaries of State, Defense, and Treasury and the Director of National Intelligence.  It is hard to believe that Kerry will stay in his lane amid discussions about the Iran nuclear deal, which he also negotiated.  That he (illegally, but openly)  had discussion with Iranian and European leaders in the early years of the Trump administration suggests Biden may not be in charge of this most important risk.  

   - The rest of the national security team  include some with experience on VP Biden's staff (Anthony Blinken as Secretary of State and Jake Sullivan as National Security Advisor); some with significant Obama Administration experience (Alejandro Mayorkas -who led DACA implementation - as Homeland Security Secretary); and some careerists (Avril Haines as Director of National Intelligence, and Linda Thomas-Greenfield as UN Ambassador.)  The Secretary of Defense position remains open, with Michele Flourney the most qualified  to make the difficiult financial prioritizations which are to come - but while she would check the female box, she would continue Biden's failure to appoint Blacks to senior positions.  Like Biden, the group has a history of being wrong on Afghanistan, Libya, Iraq, Syria, and ISIS, and none posesses significant experience with China, which outgoing Director of National Intelligence John Ratcliffe emphatically calls the greatest threat  to democracy and freedom since World War II. 

    Don't look for any carry-overs.  Searching for middle ground is a good campaign slogan.  

 

bill bowen - 12/4/20