Trump and Foreign Policy -- Korea

Although people like me tend to assume that putting someone in charge of foreign policy who knows absolutely nothing about it and who bases foreign policy decisions on who flatters him most cannot possibly go well, I have to admit that nothing disastrous has happened so far, and that at least to major foreign policy triumphs may be in the works, although the old rule about not counting your chickens till they hatch still applies. 

Triumph One:  Korea.  North and South Korea have held a summit, and we will be holding a summit with North Korea in a month or two.   I was as alarmed as anyone over Trump's saber rattling toward North Korea.  I also thought it unfortunate that the South Koreans voted for the conciliatory party just as tensions were escalating, although given the scandals surrounding the hardline party, it was probably inevitable.  But it actually looks as though belligerence by the US and conciliation by the South Koreans is quite an effective combination, a good game of good cop/bad cop.  So good job all around (so far).

Just for the record, I am not one of those people who think that just talking to a hostile government is an immense unilateral concession, or that we should never negotiate until the other side surrenders. I had some concerns about the Trump Administration lacking finesse to plan the summit out in advance, but they actually seem to be doing a reasonably good job of it. 

My sense of caution would be this.  After observing any number of summits in the Middle East, I have found that they follow a certain pattern.  During the summit and in the immediate aftermath, a mood of euphoria takes hold.  A general honeymoon is underway and all things seem possible.  We are seeing that today with talk of North Korea giving up its nuclear arsenal, the two Koreas signing a peace treaty, and the US withdrawing its forces from the Korean peninsula.  But let's not get carried away just yet. 

Invariably the mood of euphoria is followed by an outbreak of disillusionment as things don't go as quickly and smoothly as seemed possible during those first heady days.  Inevitably it will turn out that Kim Jong-un is not willing to give up his entire nuclear arsenal in exchange for promises of sanctions relief somewhere down the line, and that the prospect of the US leaving South Korea will generate a huge outcry.  All will seem futile and tensions will rise again.

The secret to success is to be able to ride out the euphoria and the disillusionment.  Recognizing that disillusionment is itself a phase to be expected and not a sign that all is lost is critical.  Because if one can do that, then when the disillusionment fade, it will be possible to finally accomplish something, even if the "something" is less than one hoped for in those early, heady days.  I have no idea what can be accomplished  in Korea, but I am betting that persuading Kim to give up his entire nuclear arsenal is not going to be on the menu.  But freezing it, or scaling back, or reducing tensions between the two powers are all worth accomplishing.  And even if the only effect is to scale back tensions to what they were when North Korea first started testing bombs and rockets and Trump first started texting, that will be well worth doing.

Republicans are Playing Fizzbin with the Budget

At least we got a tax cut

So what is fizzbin?  Well, fizzbin is sort of like Calvinball if Calvinball was played with cards, and why shouldn't it be?

Captain Kirk explained the rules to three gangsters with sub-machine guns:

KIRK: The name of the game is called, uh, fizzbin.
KALO: Fizzbin?
KIRK: Fizzbin. It's not too difficult. Each player gets six cards, except for the dealer, uh, the player on the dealer's right, who gets seven.
KALO: On the right.
KIRK: Yes. The second card is turned up, except on Tuesdays.
KALO: On Tuesday.
KIRK: Oh, look what you got, two jacks. You got a half fizzbin already.
KALO: I need another jack.
KIRK: No, no. If you got another jack, why, you'd have a sralk.
KALO: A sralk?
KIRK: Yes. You'd be disqualified. You need a king and a deuce, except at night of course, when you'd need a queen and a four.
KALO: Except at night.
KIRK: Right. Oh, look at that. You've got another jack. How lucky you are! How wonderful for you. If you didn't get another jack, if you'd gotten a king, why then you'd get another card, except when it's dark, you'd give it back.
KALO: If it were dark on Tuesday.
KIRK: Yes, but what you're after is a royal fizzbin, but the odds in getting a royal fizzbin are astron. Spock, what are the odds in getting a royal fizzbin?
SPOCK: I have never computed them, Captain.
KIRK: Well, they're astronomical, believe me. Now, for the last card. We'll call it a kronk. You got that?
KALO: What?

Kalo now being completely confused, the party takes the opportunity to overpower him and the other sub-machine gun wielding gangsters.  (Don't try this at home).

So, let's play fizzbin with the budget.  Each player gets an uncertain but very large number of cards.  These cards stand for spending and revenue.  The shortfall of spending compared to revenue is called a "deficit."  Except when it's caused by deliberately cutting revenue, in which case it's called "skranch."  The object of the game is to get rid of the deficit.  A skranch, no the other hand, is just fine and does not have to be cut at all.  Unless a Democrat is in the White House, in which case the skranch turns back into a deficit and must be cut at all costs.  Unless the cost is restoring the revenue you deliberately cut while the Republicans were in power.  That would be a disaster.  And remember, if by some miracle the Democrats actually do get rid of the deficit, that is no obstacle to Republicans running up a skranch.  Then you can turn it back into a deficit next time the Democrats come along.

Come to think of it, this doesn't really sound like fizzbin.  The rules in fizzbin were were completely arbitrary, but at least they pretended to be randomly arbitrary.  They were not in obvious bad face, merely deliberately confusing.  To get the the level of bad faith Republicans play with the deficit, you really need to go back to Calvinball.

One More Note on Trump and Domestic Policy

Matt Yglesias and others have argued that the only way to peel away Trump supporters is on ordinary, mundane politics and specifically issues that hurt them personally.  And, indeed Republicans members of Congress are actually beginning to criticize Trump over the prospect of a trade war with China.  And why?  Because they know that their constituents stand to be hurt personally if a trade war actually comes about.

The Most Likely Trump Disaster -- Healthcare

So, I am prepared to concede that in the first year plus of the Trump presidency, nothing disastrous has happened except in Puerto Rico, which no one ultimately cares about.

To supporters, the lesson is obvious.  By wrecking the federal government through corruption and incompetence, Trump has released the economy from its crushing burden and freed it to prosper as never before.  By behaving like a bull in a china shop in foreign policy, Trump has intimidated the rest of the world into doing our bidding.  All is well!

Liberals like me nonetheless remain convinced that you can't keep wrecking the government through corruption and incompetence without running into problems sooner or later.  I will address the subject of foreign policy later.  But in the meantime, what of domestic policy.  What is most likely to go wrong there.

The main focus right now is on tariffs and whether we are at the beginning of a trade war.  Although I fully agree that a trade war will do no one any good, my guess is that it will not be as disastrous as many fear.  Yes, some industries will take a hit, but so long as the economy continues to grow, it should be able to take up the slack.  Estimates of the jobs a trade war will cost are in the six figures -- no more than the number being added monthly right now.

No, by far the most likely disaster in the immediate future is in health care.  Repeated Republican attempts to repeal Obamacare in 2017 failed as Republicans learned to their astonishment that stripping 20 million people of their health insurance overnight is a surefire political loser.  But that does not mean that Republicans reconciled themselves to Obamacare; it merely means that they replace sudden and outright repeal with gradual sabotage.  Such attempts have failed so far, but next year may be the chance to make a real difference.

Already Republicans have repealed the individual mandate, meaning that people are not required to buy health insurance and can refrain from doing so until they develop serious medical conditions.  This goes a long way toward encouraging healthy people to leave the exchanges, thereby forcing insurance companies to raise prices for the sick people who remain and inducing a death spiral.

Furthermore, for people who fear that the death spiral may take too long to materialize, Iowa  and Idaho have come up with a way to accelerate it.  They are allowing companies to issue "health benefit plans" that take monthly premiums to pay for subscribers' medical expenses but are not health insurance and therefore not bound by Obamacare rules, or any other rules, for that matter. This will allow companies offering such plans to achieve what Republicans consider most important -- offer low rates to health customers.  Such plans will also be able to exclude people with preexisting conditions, so sick people will be uninsurable, which has always been one of the effects of Republican plans.  However, as any economic royalist would assure you, completely unregulated plans will, by definition, be optimal, and if that means that sick people are uninsurable, that must be optimal, too.

The result will be that, although Republicans will not succeed in inducing a death spiral everywhere at once and crashing the exchanges altogether, they should be able to crash the exchanges in at least a few states and probably at least begin the death spiral in others.

It should go without saying that if Democrats win control of Congress (or even just one house of Congress) in November, Republicans in general and Trump in particular will blame them for anything bad that happens from then on.  Unfortunately for Trump and Republicans, Obamacare premiums will start skyrocketing before the upcoming election, as sign-ups begin in October.  And it will put Republicans in an awkward spot -- should they start throwing confetti and dancing for joy that Obamacare exchanges are finally crashing, or should they pretend to have regrets.

I suppose at least Republican have finally found an alternative to Obamacare -- totally unregulated plans offered at the state level.  As with all major policy changes, this one will have both winners and losers.  The winners will be healthy people who can pay very low rates for plans that don't cover much, but who don't need much coverage anyhow.  The losers will be sick people, who will become uninsurable.

Unfortunately for Republicans, losers tend to attract a lot more attention than winners.

The Future of The Trump Economy

Let us say this much for Trump.  The economy has prospered under his watch.  I am not convinced it has prospered because of tax cuts or gutting regulations, but simply because an extended recovery has been gathering steam.  So the obvious question is, how long will it continue.  Any time before, the sort of conditions we are seeing today would be a sign that we are nearing the peak of the business cycle and that recession cannot be far away.  Is that still the case?

I will begin by digressing and pointing out that there has not been any significant change in the condition of the economy since the 2016 election.  The general trajectory was one of improvement before the election and it has continued since the election.  The stock market has grown faster since the election, no doubt in part as a result of enthusiasm over lower taxes and less regulation, but the stock market is not the real economy and is subject to "irrational exuberance." 

Pre-election, Trump presented this as a false prosperity headed for certain disaster.  If the stock market was surging, it was because of a bubble which was about to burst.  If the economy seemed prosperous, it was a sham prosperity buoyed up by low interest rates and bound to end when rates were inevitably raised.  And if unemployment was only 4.2%, it was because labor statistics undercounted unemployment, excluding discouraged workers and involuntary part-time workers.  The real number was closer to 10% or 15%.  Trump even said 42%, although this was generally agreed to be just crazy.  Certainly my boss -- a Republican, although Trump was his last choice on the Republican side -- was caught up in the sense of gloom and doom and said (when defeat for the Republicans seemed certain) that it was for the best because then when inevitable disaster struck, everyone would understand the Democrats were to blame.

And then a funny thing happened when Trump won the election.  All those statements about impending disaster -- well, apparently all it took was an election to dispel them.  Overnight the bubble in the stock market filled in and all growth became solid.  After just one day, false prosperity became real.  And all those fake statistics about unemployment became genuine next time they came out.  Apparently unemployment fell from 42% the  month before Trump was elected to 4.2% the month after, a 90% drop in record time!

In all seriousness, what is one to make of all this?  Well, for one thing, the economy continues to add jobs at an incredible clip, with no significant decline in the headline unemployment rate (I think it fell from 4.2% to 4.1%), without significant wage increases, and with no sign of inflationary pressure.  All this is a sign that there really was considerable slack in the economy, that unemployment was much higher than the headline figure because of the large number of discouraged workers.  The discouraged workers are coming back, so there is still significant room for growth by eliminating slack.  Other signs of economic slack have been large business cash reserves going uninvested and persistently low long term interest rates.

How much slack?  Time alone will tell.  But eventually we will run out of slack in the economy and then what?  Time was when it meant we had reached the peak of the business cycle and there would be a recession.  Is that still the case?  At least some theories suggest no.

To understand why, the first thing to understand is that there are at least two types of recession.  One occurs when central banks tighten monetary policy to stop inflation and a recession results.  Since the recession is induced, recovery is rapid when central banks relax monetary policy.  During the Great Moderation from the 1980's to the latest financial crisis, this sort of recession appeared to end, possibly because central banks had figured out how to fight inflation without causing recessions.

But this did not mean that recessions ceased, merely that they became less frequent.  A second kind of recession continued to occur, the kind that follows a bubble bursting and an overhang of bad debts.  Recovery from this type of recession is slower than than from a recession induced to fight inflation.  So, less frequent recessions and longer expansions were paid for by slower recoveries.  But the first two recessions under the Great Moderation (circa 1991 and 2001) were mild ones.  Then with the 2008 financial crisis a really bad recession occurred, followed by a slow and painful recovery.

So the real question is whether the economic crisis produced some sort of change in the economy that means the business cycle has finally ceased.  There are some theories that suggest it is so, although they differ as to why. 

One suggestion is that a really bad financial crisis has finally scared sense into the banking industry and will keep it from ever creating a bubble again.  Pardon me if I am skeptical.  In the 19th century, serious financial crises happened every 20 years or so, and banks never learned a thing.  And, indeed, banks seem eager to engage in reckless behavior any time they get the change.

The other theory is that stringent financial regulations will prevent any more bubbles from forming.  If that is the case, Trump and the Republicans (with significant assist from Democrats) are working on it.  Nonetheless, I will concede that we aren't seeing signs of a bubble at least so far.  So maybe our economy really will reach capacity and just stay there for years and years until the next bubble strikes.

But I am inclined to believe that business cycles are still with us, and that once our economy reaches capacity, a recession will follow as it always has before.

I just have no idea when that will be.

Donald Trump Assessed to Date (Domestic Policy)

So, Donald Trump has been President for over a year now.  How has it worked out?  This tweet  says it well.  "We have no 'White House' we have no president & Trump is destroying the entire executive branch."  The entire executive branch would be an exaggeration.  The military and border security are, after all, part of the executive branch and Trump shows no wish to destroy them.  But it does seem his mission to destroy the civilian portions of the executive branch through corruption and incompetence, and by all accounts he is doing quite well at it.  We daily get stories about the unprecedented levels of dysfunction swirling about the White House and the wreckage wrought at various levels of the federal bureaucracy.  I once said my real fear in our polarized landscape was government becoming dysfunctional to the point of being non-functional, and we are well on our way there.  And yet, nothing disastrous has happened so far -- except in Puerto Rico.* Our economy remains strong, no serious foreign policy disasters have occurred, and the only crisis of this presidency so far have been the hurricanes, which FEMA handled quite well -- except in Puerto Rico, which Trump supporters don't care about and our national media can only briefly notice.

From the perspective of ordinary people who don't follow the news closely, I imagine all that matters is that nothing disastrous has affected their own lives, so why care about the drama swirling around Washington.

Presumably the Trump base enjoys the spectacle.  They elected Trump to shake up Washington, and he is shaking it up.  If Washington insiders are upset by what he is doing, no further proof is needed that it must be good.  The swamp is being drained!**  The MAGA base are politiphobes who believe, as the article puts it that:

[O]bvious, commonsense solutions to the country’s problems are out there for the plucking. The reason these obvious solutions are not enacted is that politicians are corrupt, or self-interested, or addicted to unnecessary partisan feuding. Not surprisingly, politiphobes think the obvious, commonsense solutions are the sorts of solutions that they themselves prefer. 

Trump shaking up Washington means getting rid of all these things and implementing the easy, common-sense solutions to our existing problems.  And even if he doesn't, he sure is making Washington entertaining in a reality TV sort of way.

Then there is the perspective of economic royalists, who believe that most of the civilian government shouldn't exist at all.  The reason the economic is flourishing is that Trump, in cutting taxes, gutting regulations, and wrecking much of the federal government by corruption and incompetence, has freed the economy from the dead hand of government and allowed it to achieve its potential.  (I am guessing the MAGA crowd shares this view at least to some extent).  And the royalists are, after all, the ones who have real power and influence.

From the perspective of an economic royalist, everything is based in property.  Fundamental to all freedom and prosperity is the absolute right to property -- to own and use it with no outside constraints.  Since taxes take away people's property and regulations interfere in what people can do with their property, both are inherently illegitimate.  At the same time, anarcho-capitalists are a distinct minority in the libertarian movement.  Most economic royalists concede government as a necessary evil and taxes as the price of civilization.  The goal, then is to hold government and taxes to an absolute bare minimum.  And that means holding government to its "essential core functions."

For the most part, essential core functions mean a criminal justice system -- police, courts (both for trying criminals and for civil actions) and prisons, presumably with a few chits thrown in for prosecutors.  But the criminal justice system in the US belongs at the state level, and economic royalists consider the federal government even worse that the states.  From a royalist perspective, the federal government should not consist of much more than the military.  Admittedly, a true libertarian would want to limit the military to the bare minimum necessary to deter invasion, which is probably not much.  But economic royalists are nothing if not flexible.  The nature of political alliances brings them into alliance with foreign policy hawks, so they will concede a much larger military than would otherwise be necessary.  Since these foreign policy hawks would eschew diplomacy in foreign policy (more on that later) economic royalists are happy with a major shrinking of the State Department, though presumably they would keep it in much smaller form to perform consular functions, coordinate with allies, and deliver ultimatums to enemies.  In another bit of flexibility for the sake of political alliances, economic royalists are probably now willing to concede border security.  And a small Justice Department for the very small portions of law enforcement that legitimately take place at the federal level.  Throw in a few chits for federal courts, and for a Treasury Department large enough to collect the taxes for all this (in the form of sales taxes and now imports taxes, but definitely not income taxes) and write the necessary checks.  Finally, although there is a vocal  minority of goldbugs among the economic royalists, the majority probably recognize the need for a central bank printing money.

A few points here.  First of all, if we cut government back to all these functions, it would allow for some very large tax cuts while keeping the budget balanced.  Thus Republicans keep passing massive tax cuts in hopes of forcing government to be cut back to its essential core functions.

Second, please note that these are all "daddy" functions, with the possible exception of the State Department.  (Possibly another reason right wingers hate it so much).  Economic royalists invariably see all "mommy" functions as redististributionist and therefore illegitimate.

I have no doubt that royalist would prefer to see these government functions dismantled in an orderly fashion, rather than wrecked through corruption and incompetence.***  But they have been waiting since Ronald Reagan's time for someone to shut down most of the federal government in an orderly fashion, and it hasn't happened.  They may therefore very well regard wrecking the federal government through corruption and incompetence as a second-best alternative.  I do recall that during the Bush II Administration, political appointees kept the Securities Exchange Commission (SEC) from doing its job, so employees spent their days viewing internet pornography.  No one, least of all an economic royalist, wants to pay federal employees to watch internet pornography all day.  (What a waste of taxpayer money!)  But from the perspective of an economic royalist, an SEC that pays employees to watch internet pornography is at least preferable to an SEC that does its job and interferes with the free market by engaging in economic regulations.

Furthermore, from an economic royalist perspective, there is a real danger in merely suspending the operations of the federal government rather than shutting it down.  Sooner or later, a Democrat will be elected President again and may resume operations.  But really effectively wrecking the federal government through corruption and incompetence will make it unsalvageable and a Democrat won't be able to revive it.

The next point -- wouldn't economic royalists prefer to wreck the federal government by honest incompetence without the corruption?  After all, libertarians have long made an exception to the generalization that capitalists can do no wrong -- capitalists can no no wrong, unless they enlist the state to their aid.  Granted, big capitalists might be willing to set aside their principles in favor of self interest so long as they are the ones benefiting from the corruption.  But then there is the whole matter of systematic corruption, i.e., not dismantling the state regulatory apparatus, but using it as an instrument to reward supporters and punish enemies.  (Such as threats to Amazon because of its association with the Washington Post).  This sort of thing should scare the hell out of Republican donors and economic royalists.  I can only assume they are unconcerned because they see Trump as too incompetent for this sort of thing and his destruction of large swaths of the federal government as making this type of corruption impossible anyhow.  (And, indeed, his attacks on Amazon remain no more than tweets, with no serious plans to act on them).

And it may be the economic royalists, though sincerely opposed to corruption in government, nonetheless welcome it in what Marxists call a "heightening the contradictions" sort of way.  In other words, the more corrupt government agencies are, the more public opinion can be turned against them, and the stronger the case for shutting down such agencies altogether.

Of course, there are those crazy liberals, who believe that sooner or later wrecking vasts swaths of the government through corruption and incompetence will cause problems.  I assume that economic royalists will dismiss such concerns with the assurance that even if there is some inconvenience in the short run, the unregulated workings of the free market will always bring about the optimal result in the long run, so deliberately wrecking the federal government couldn't possibly cause any problems.

 Or at least it wouldn't if only people would get over their false consciousness (to use another Marxist term).  Hurricane Katrina is an excellent case in point.  The Bush Administration was highly successful in wrecking FEMA by corruption and incompetence.  When disaster struck FEMA did a terrible job.  Success!  But instead of leading to calls to abolish FEMA, Hurricane Katrina just led to pressure to make FEMA work better.  Reforms were made to improve its performance.  Libertarians can take comfort in the knowledge that FEMA agreed that it was a mistake to rely altogether on the feds to handle disaster relief, and that the best approach was to mobilize people in the area of the disaster as a resource.  But, alas, coordination is needed for such mobilization to work efficiently, and FEMA has gotten quite good at such coordination.  So instead of being abolished, FEMA has become much more effective, which makes in politically unassailable, and libertarians have failed.

And if the Trump Administration wrecks the VA (as they seem to be working on), they may soon run into the same problem.

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*Just to be obvious, of course Trump had nothing to do with Hurricane Maria striking Puerto Rico.  But his reaction afterward can only be described as willful neglect.
**Once again, from the perspective of a Trump supporter, the "swamp" does not mean big money interest, so much as experts, career government employees, and the civilian federal bureaucracy of any kind.
***This article explains very well the dangers of shutting down large swaths of government without advance planning.