Arizona Senator John McCain: The American Legislator


October 20, 2017

The Essential Arizona Senator John McCain: The American Legislator

by David Brooks

The moral fabric of society is invisible but essential. Some use their public position to dissolve it so they can have an open space for their selfishness. McCain is one of the strongest reweavers we have, and one of our best and most stubborn teachers.–David Brooks

It turns out that John McCain’s most important service to American democracy was not rendered in a P.O.W. camp in Vietnam. It’s being rendered right now in the U.S. Senate.

In the first place, McCain seems to be the only member of Congress who insists on holding hearings and working toward compromise before passing major legislation. This would seem to be the very elemental prerequisite of good government — like a doctor seeking a diagnosis before performing surgery — but McCain appears to be the only member, or at least the only Republican, willing to risk unpopularity to insist upon a basic respect for our sacred institutions.

Second, McCain is one of very few Republicans willing to stand up for the American story. Human beings can be rallied around one of three things: religion, tribe or ideals.

Donald Trump and the campus multiculturalists want to organize people by ethnic tribe, which has always been the menacing temptation throughout our history. But McCain seeks to preserve our traditional rallying point — our ideals. My colleague Bret Stephens has already quoted from McCain’s speech on Monday at the National Constitution Center. I’d encourage you to read the whole thing because this should be the rallying cry around which the nation rediscovers its soul.

Third and most important, McCain still believes that paideia is essential for democracy. Paideia is the process by which we educate one another for citizenship. Paideia is based on the idea that a healthy democracy requires a certain sort of honorable citizen — that if we’re not willing to tell one another the truth, devote our lives to common purposes or defer to a shared moral order, then we’ll succumb to the shallowness of a purely commercial civilization, we’ll be torn asunder by the centrifugal forces of extreme individualism, we’ll rip one another to shreds in the naked struggle for power.

As the brilliant Spanish philosopher Javier Gomá Lanzón reminds us, most moral education happens by power of example. We publish the book of our lives every day through our actions, and through our conduct we teach one another what is worthy of admiration and what is worthy of disdain.

Public figures are the primary teachers in this mutual education. Our leaders have outsize influence in either weaving the moral order by their good example or ripping it to shreds by their bad example.

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McCain’s career has had its low moments, as all of ours do — a banking scandal, Sarah Palin — but he exemplifies a practical standard of excellence to an extraordinary degree: enduring in Vietnam, seeking compromise legislation on everything from immigration reform to campaign spending, condemning torture after 9/11.

Moreover, I don’t think there’s another politician now living who devotes so much of his speeches to little biographies of his own exemplars, people like James Stockdale, Bud Day, Morris Udall and Master Sgt. Roy Benavidez. He has turned his own heroes into educational resources for his country, and used them to evangelize our national ideals.

These sorts of testimonies help weave a shared moral order, which is necessary to unite, guide and motivate a diverse country.

That is an essential bulwark in the age of Trump. That is what needs rebuilding. Books will someday be written on how Trump, this wounded and twisted man, became morally acceptable to tens of millions of Americans. But it must have something to do with the way over the past decades we have divorced private and public morality, as if private narcissism would have no effect on public conduct.

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It must have something to do with the great tide of moral libertarianism from Herbert Marcuse on down. This tide taught that progress meant emancipating the individual from shared moral orders. It taught transgression was always delightful and that morality was individual and optional.

The acceptability of Trump must also have something to do with millions of religious voters being willing to abandon the practical wisdom of their faiths — that what exists inside a person is more important than what is external, that no bad tree yields good fruit, that you should never trade spiritual humility for worldly ferocity because in humility there is strength and in pride there is self-destruction.

We’ve reached a point in which the tasks of paideia have been abandoned and neglected. “One could say,” Gomá writes in his book “Public Exemplarity,” “that we are looking for the ideal of a virtuous republic composed of citizens relieved of the burden of citizenship.”

It’s not working out. Gomá continues, “In a time of freedom such as ours marked by subjectivism and vulgarity, a tolerance not tempered by virtue will lead inevitably toward barbarism.”

Barbarism and vulgarity we have in profusion. Through his daily utterances, Trump is influencing the nation in powerful ways, but none would call it paideia. Few would say he is spreading a contagion that we’d like our children to catch.

The moral fabric of society is invisible but essential. Some use their public position to dissolve it so they can have an open space for their selfishness. McCain is one of the strongest reweavers we have, and one of our best and most stubborn teachers.

Deja Voodoo–Trump’s Tax Reform


October 20, 2017

Deja Voodoo–Trump’s Tax Reform

by Joseph E. Stiglitz*

http://www.project-syndicate.org

A Trump administration staffed by plutocrats – most of whom gained their wealth from rent-seeking activities, rather than from productive entrepreneurship – could be expected to reward themselves. But the Republicans’ proposed tax reform is a bigger gift to corporations and the ultra-rich than most had anticipated.

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NEW YORK – Having failed to “repeal and replace” the 2010 Affordable Care Act (“Obamacare”), US President Donald Trump’s administration and the Republican congressional majority have now moved on to tax reform. Eight months after assuming office, the administration has been able to offer only an outline of what it has in mind. But what we know is enough to feel a deep sense of alarm.

Tax policy should reflect a country’s values and address its problems. And today, the United States – and much of the world – confronts four central problems: widening income inequality, growing job insecurity, climate change, and anemic productivity growth. America faces, in addition, the need to rebuild its decaying infrastructure and strengthen its underperforming primary and secondary education system.

But what Trump and the Republicans are offering in response to these challenges is a tax plan that provides the overwhelming share of benefits not to the middle class – a large proportion of which may actually pay more taxes – but to America’s millionaires and billionaires. If inequality was a problem before, enacting the Republicans’ proposed tax reform will make it much worse.

Corporations and businesses will be among the big beneficiaries, a bias justified on the grounds that this will stimulate the economy. But Republicans, of all people, should understand that incentives matter: it would be far better to reduce taxes for those companies that invest in America and create jobs, and increase taxes for those that don’t.

 

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After all, it is not as if America’s large corporations were starved for cash; they are sitting on a couple of trillion dollars. And the lack of investment is not because profits, either before or after tax, are too low; after-tax corporate profits as a share of GDP have almost tripled in the last 30 years.

Indeed, with incremental investment largely financed by debt, and interest payments being tax-deductible, the corporate tax lowers the cost of capital and the returns to investment commensurately. Thus, neither theory nor evidence suggests that the Republicans’ proposed corporate tax giveaway will increase investment or employment.

The Republicans also dream of a territorial tax system, whereby American corporations are taxed only on the income they generate in the US. But this would only reduce revenue and further encourage American companies to shift production to low-tax jurisdictions. A race to the bottom on corporate taxation can be prevented only by imposing a minimum rate on any corporation that engages in business in the US.

America’s states and municipalities are responsible for education and large parts of the country’s health and welfare system. And state income taxes are the best way to introduce a modicum of progressivity at the subnational level: states without an income tax typically rely on regressive sales taxes, which impose a heavy burden on the poor and working people. It is thus perhaps no surprise that the Trump administration, staffed by plutocrats who are indifferent to inequality, should want to eliminate the deductibility of state income taxes from federal taxation, encouraging states to shift toward sales taxes.

Addressing the panoply of other problems confronting the US will require more federal revenues, not less. Increases in standards of living, for example, are the result of technological innovation, which in turn depends on basic research. But federal government support of research as a percentage of GDP is now at a level comparable to what it was 60 years ago.

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While Trump the candidate criticized the growth of US national debt, he now proposes tax cuts that would add trillions to the debt in just the next ten years – not the “only” $1.5 trillion that Republicans claim would be added, thanks to some growth miracle that leads to more tax revenues. Yet the key lesson of Ronald Reagan’s “voodoo” supply-side economics has not changed: tax cuts like these do not lead to faster growth, but only to lower revenues.

This is especially so now, when the unemployment rate is just over 4%. Any significant increase to aggregate demand would be met by a corresponding increase in interest rates. The “economic mix” of the economy would thus shift away from investment; and growth, already anemic, would slow.

An alternative framework would increase revenues and boost growth. It would include real corporate-tax reform, eliminating the tricks that allow some of the world’s largest companies to pay miniscule taxes, in some cases far less than 5% of their profits, giving them an unfair advantage over small local businesses. It would establish a minimum tax and eliminate the special treatment of capital gains and dividends, compelling the very rich to pay at least the same percentage of their income in taxes as other citizens. And it would introduce a carbon tax, to help accelerate the transition to a green economy.

Tax policy can also be used to shape the economy. In addition to offering benefits to those who invest, carry out research, and create jobs, higher taxes on land and real-estate speculation would redirect capital toward productivity-enhancing spending – the key to long-term improvement in living standards.

An administration of plutocrats – most of whom gained their wealth from rent-seeking activities, rather than from productive entrepreneurship – could be expected to reward themselves. But the Republicans’ proposed tax reform is a bigger gift to corporations and the ultra-rich than most had anticipated. It avoids necessary reforms and would leave the country with a mountain of debt; the consequences – low investment, stalled productivity growth, and yawning inequality – would take decades to undo.

Trump assumed office promising to “drain the swamp” in Washington, DC. Instead, the swamp has grown wider and deeper. With the Republicans’ proposed tax reform, it threatens to engulf the US economy.

*Joseph E. Stiglitz, recipient of the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979, is University Professor at Columbia University, Co-Chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and Chief Economist of the Roosevelt Institute. A former senior vice president and chief economist of the World Bank and chair of the US president’s Council of Economic Advisers under Bill Clinton, in 2000 he founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University.His most recent book is The Euro: How a Common Currency Threatens the Future of Europe.

 

McCain-The Hedgehog–Honor First for America


October 19, 2017

It isn’t hard to guess who John McCain had in mind when, in a speech on Monday at the National Constitution Center in Philadelphia — the finest speech of his storied political career — he denounced the “half-baked, spurious nationalism cooked up by people who would rather find scapegoats than solve problems.”

It’s easy to guess, too, the names of the Senate and House Republicans Stephen Bannon had in mind when, at a Values Voter Summit in Washington over the weekend, he declared “a season of war against the G.O.P. establishment.”

McCain and Bannon are the antipodes of the Republican Party. The institutionalist versus the insurgent. The internationalist versus the America Firster. The maverick versus the ideologue.

Above all, the hedgehog versus the honey badger.

The hedgehog, said the Greek poet Archilochus, knows one big thing. McCain knows honor. He refused early release from prison camp in Hanoi to save his honor. He reproved Republican voters for calling Barack Obama an Arab in 2008 to save his party’s honor. He championed the surge in Iraq when it was least popular, to save the country’s honor.

He paid for all of it and will be remembered as a giant among dwarves because of it.

Right now, McCain, his allies and their ideas appear to be a waning force in the Republican Party. They are RINOs, cucks, and “globalists.” Many of them, like Tennessee’s Bob Corker, will retire rather than face bruising primary challenges from the ever-farther right. On Monday McCain called America “the land of the immigrant’s dream,” and said: “We live in a land made of ideals, not blood and soil.” To a large and growing segment of the G.O.P., which thinks magnanimity is for losers, these statements amount to a form of treason.

The honey badger, by contrast, will do anything to get what it wants. It is wily, nasty and has as much use for honor as a pornographer has for dress. In the 2016 presidential campaign, according to biographer Joshua Green, Bannon treated white supremacists as useful fellow travelers and urged Donald Trump to persist in what seemed to many to be his use of anti-Jewish tropes. Later he waged a smear campaign against H.R. McMaster on the grounds that the national security adviser was anti-Israel.

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Donald Trump and his pet Honey Badger (Steve Bannon)

For the honey badger, it’s whatever works: anti-Semite one day; Israel’s make-believe champion the next. Bannon is the most revolting operator in American political life since Roy Cohn. He is also the most consequential one.

In his speech, Bannon asked of the Senate majority leader, Mitch McConnell: “Who’s going to be Brutus to your Julius Caesar”? Caesar was stabbed 23 times on the floor of the Roman Senate on the 15th of March, 44 B.C. John Wilkes Booth also invoked Brutus from the stage of Ford’s Theatre after he had assassinated Lincoln, the father of the Republican Party. This is what now passes for acceptable speech among the G.O.P.’s “values voters.”

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Bannon thinks he can get away with this because he already has. He did so to spectacular effect last year with Donald Trump, and again last month in Alabama with Judge Roy Moore. He will run this play as often as he can, whether his candidates win or lose. The goal isn’t to win elections but to purge the party and remake it in Bannon’s image. He wasn’t kidding when he told historian Ronald Radosh in 2013 that he’s a “Leninist.”

It also helps Bannon that the Roll-Over Republicans who might oppose him lack the political courage to do so. Winston Churchill said of the neutral countries in World War II, “each one hopes that if he feeds the crocodile enough, the crocodile will eat him last.” Think of Paul Ryan as the moral equivalent of Norway.

What might stop Bannon? Nobody should expect G.O.P. invertebrates to ever gain a spine. But Judge Moore is in a dead heat with Doug Jones, his Democratic opponent, in what should be the easiest Republican cakewalk of the season. Even the stupid party might remember its Senate nominations of Delaware’s Christine “I’m not a witch” O’Donnell and Missouri’s Todd “legitimate rape” Akin.

But parties need more than just the spur of defeat to give voters a sense of moral belonging and political purpose, and in his speech Monday McCain did that:

“We live in a land made of ideals, not blood and soil. We are the custodians of those ideals at home, and their champion abroad. We have done great good in the world. That leadership has had its costs, but we have become incomparably powerful and wealthy as we did. We have a moral obligation to continue in our just cause, and we would bring more than shame on ourselves if we don’t. We will not thrive in a world where our leadership and ideals are absent. We wouldn’t deserve to.”

This is the finest expression of the American cause uttered by any major political figure in a generation. It could yet serve as a rallying point for a Republican Party that can save itself from dishonor, win its share of elections, and stand up to the honey badgers who mean to pillage it.

 

Stress-Testing American Democracy: Nine Months of President Trump


October 19, 2017

Despite his promise to “Make America Great Again,” Trump has delivered practically nothing except chaos, bombast, and division. As long as he occupies the Presidency, an office for which he is blatantly unsuited, he will continue to chip away at the country’s foundations. Right now, only his Cabinet colleagues and the Republicans on Capitol Hill have the power to bring this great ordeal to an end. There is little sign of them summoning the necessary will and courage to act.

Stress-Testing American Democracy: Nine Months of President Trump

On Friday, Donald Trump will have been in the Oval Office for nine months. In some ways, it feels like it’s been longer. (Can you remember life before Trump tweets?) And it’s become harder to step back from the daily madness and consider what Trump’s record means for the U.S. and its future. But maintaining that perspective is necessary if we’re to keep track of what matters amid the feuds, spats, meltdowns, and turmoil that are the Trump Administration.

There are two sides to the story. If we consider Trump’s Presidency a stress test for American democracy, the system has responded pretty well, hemming him in, challenging him, and frustrating some of his more illiberal designs. But there are worrying signs, too. Every day Trump remains in office, he further polarizes the country and diminishes its international standing. And, as he contemplates the looming reality of being written off as a Presidential failure, there is no knowing where his demons will lead him.

With the notable exception of the Republican Party, most of the institutions of state and civil society have responded forcefully to Trump. The federal courts knocked down his first two anti-Muslim travel bans. The Justice Department appointed a special counsel after Trump fired James Comey, the director of the F.B.I. Intelligence officials have leaked damaging information about Trump’s associates and their dealings with Russian officials. The military command, including Defense Secretary Jim Mattis, successfully leaned on the President to support Article 5 of the NATO treaty. Even inside the Trump White House—which Senator Bob Corker has deemed an “adult day care center”—staffers “spend a significant part of their time devising ways to rein in and control the impetuous president,” as the Washington Post reported on Monday. Stories like this emerge virtually every day. The U.S. media, which Trump labelled an “enemy of the people” shortly after he took office, has never been so energized. Outside Washington, meanwhile, there is a large popular resistance movement that the President single-handedly spurred into being. In addition to riling up traditional supporters of the Democratic Party, he has drawn into activism a lot of people who previously didn’t think of themselves as very political. Even in a democracy beholden to large interest groups, determined public engagement can still have a big effect—for an example, look at the Republican Party’s failure to repeal Obamacare.

That is the plus side of the ledger. If the question, on Inauguration Day, was whether American democracy would prove to be bigger than a President Trump, the answer, so far, is largely in the affirmative. However, it is no time to relax. Unless Trump resigns or is removed from office, he will have at least thirty-nine more months in power. (And a lot longer if he gets reëlected.) The key question is how much damage he will have done by the time he is gone.

Although his legislative agenda has so far proved a bust, he’s making progress (by his lights) in other ways. Last week, the White House took several steps to sabotage the Obamacare insurance exchanges. This week, Trump’s modified and open-ended travel ban will go into effect. Neil Gorsuch, whom Trump nominated to the Supreme Court, has restored a conservative majority to the Court. And his appointees at agencies including the Environmental Protection Agency, the Federal Communications Commission, and the National Labor Relations Board are busy—largely away from the public view—rolling back regulations that addressed climate change, market competition, the new economy, and workers’ rights. Over time, these administrative changes will have a huge impact.

On the foreign-policy front, Trump’s advisers apparently persuaded him not to scrap the Obama Administration’s nuclear deal with Iran and settle, instead, for publicly disavowing it and tossing the issue to Congress. Given Trump’s prior rhetoric, that was a mildly encouraging development, but his isolationism and belligerence are alive and well. Under his leadership, the U.S. has pulled out of the Trans-Pacific Partnership, the Paris climate-change agreement, and UNESCO. NAFTA could be next. In the place of Pax Americana, we have what Richard Haass, the president of the Council on Foreign Relations, calls “The Withdrawal Doctrine.”

And the national-security establishment hasn’t yet faced the ultimate test. A couple of weeks ago, Sarah Huckabee Sanders, the White House press secretary, virtually admitted that Trump was trying to persuade the North Korean leader, Kim Jong Un, that he is mad enough to launch a nuclear strike. In the internal logic of brinkmanship, it can perhaps make sense to sow doubt in your opponent’s head about whether you are fully rational. But what if Trump really is demented enough to order a preëmptive attack on Pyongyang? Would the three generals who serve as top Administration officials—Mattis; John Kelly, the White House chief of staff; and H. R. McMaster, the national-security adviser—be able to stop him?

It’s also terrifying to consider what Trump might do in response to an ISIS-inspired terrorist attack on U.S. soil. In such a case, the country would be forced to mourn the victims while dealing with a President who in 2015 talked about forcing Muslims to carry special identity cards, raiding mosques without search warrants, and instituting mass surveillance in Muslim communities. He has also called for a return to torturing terrorism suspects.

Even if we are lucky enough to escape a deadly war or a terrorist atrocity, the cumulative impact of having Trump in the White House for another thirty-nine months, or possibly even longer, is hard to fathom. Since the first day of his Presidential campaign, he has been busy agitating against many of the norms associated with U.S. democracy. “It is frankly disgusting the press is able to write whatever it wants to write,” he told an interviewer last week. A day later, he talked about pulling emergency responders out of stricken Puerto Rico, whose inhabitants have been American citizens for a century.

To be sure, many of Trump’s utterances don’t come to much in policy terms. But that doesn’t excuse them, or mitigate the psychological onslaught he is unleashing on the American polity. The United States is a huge, heterogeneous country with deep social, racial, and economic fissures. To maintain unity, it has constructed an elaborate narrative (some of it based on myth) that everyone subscribes to the same basic values, and that everyone gets accorded equal treatment and respect.

Practically every day, Trump undermines this narrative, spewing forth a never-ending torrent of divisiveness and venom. When he isn’t targeting those he views as his political enemies—NBC News, CNN, the Times—he often lashes out at members of minority groups, such as black N.F.L. players or the mayor of San Juan. The racists and hatemongers see what he is doing, and they are encouraged. People who have witnessed other democracies fray and other divided countries come apart are looking on in dismay.

Despite his promise to “Make America Great Again,” Trump has delivered practically nothing except chaos, bombast, and division. As long as he occupies the Presidency, an office for which he is blatantly unsuited, he will continue to chip away at the country’s foundations. Right now, only his Cabinet colleagues and the Republicans on Capitol Hill have the power to bring this great ordeal to an end. There is little sign of them summoning the necessary will and courage to act.

Malaysian Reactions and the Political Calculus of Prime Minister Najib’s White House Visit


October 19, 2017

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Number 401 | October 18, 2017

ANALYSIS

Malaysian Reactions and the Political Calculus of Prime Minister Najib’s White House Visit

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On September 12, 2017, Malaysian Prime Minister Najib Razak met with US President Donald Trump in the White House as part of his three-day visit to the United States. Within Malaysia, reactions to the meeting – in terms of both optics and substance – are bitterly divided; falling mostly along political lines. Notwithstanding the domestic reactions, Trump’s invitation to the controversial Malaysian prime minister and the deliberate shirking of the 1 Malaysia Development Berhad (1MDB) issue during the visit leave Najib in a position of perceived strength as he looks to extend his tenure as Prime Minister.

Meeting Hailed as a Milestone by Some, a Disgrace by Others

The Trump-Najib meeting went smoothly in diplomatic terms, with both leaders treating each other warmly and discussing agreeable agenda items. In the public meeting Trump extolled Malaysia’s role in investing in the United States, countering ISIS, and limiting its ties with North Korea. The Malaysian prime minister in turn offered “a strong value proposition” to the United States in terms of helping boost the US economy and being a loyal partner in eradicating terrorism. A joint statement addressed enhancing US-Malaysia defense ties, Malaysia’s progress to obtain visa free status to the United States, the situation in the South China Sea, the Rohingya crisis, and protecting human rights. If there were any private disagreements, they were not leaked.

For Najib’s domestic supporters and prominent government lawmakers, the meeting with Trump was seen as an unprecedented success and a legitimization of Najib as Malaysia’s elected leader. The optics couldn’t be better. The invitation to visit the White House was the first since former Prime Minister Abdullah Badawi visited in 2004 and comes in the first year of the Trump presidency. Additionally, Najib’s visit was the second by an ASEAN leader, after Vietnamese Prime Minister Nguyen Xuan Phuc, and ahead of Prime Minister Lee Hsein Loong of Singapore – traditionally America’s most trusted Southeast Asian partner.

Substantively, Najib’s supporters saw the meeting and its deliverables as recognition of Malaysia as a key strategic partner and successful economy. In public remarks during the meeting in the Cabinet Room between the Malaysian delegation and Trump administration officials, Trump praised Najib’s domestic counterterrorism efforts against ISIS, highlighted Najib’s reluctance to do business with North Korea any longer, and hailed Malaysia as a big investor in the United States. Malaysia’s mainstream and government-affiliated media emphasized this, crediting Najib with expanding Malaysia’s international profile and role. Najib also scored a PR win with the US-Malaysia joint statement that condemned the violence against ethnic Rohingyas in Myanmar, touting it as a promise kept to Malaysians to raise the issue with the United States.

Image result for Trump and Najib at The White HouseGua Tolong Lu, Lu Tolong Gua (You help me, I help you)

This rosy picture of Najib’s visit, however, did not reflect the opinions of all Malaysians. Many – especially opposition supporters – while acknowledging the importance of their leader meeting the US president, focused on Najib’s personal and political gains, rather than gains for Malaysia. To them, optics surrounding the meeting were questionable. First, Najib and his entourage were alleged to have stayed at the Trump International Hotel, giving the impression that Najib sought to curry favor with Trump. Given media attention on possible conflicts of interest on the part of the US President, the decision to have a presence at the Trump hotel seemed like a calculated risk Najib was willing to take. Second, the glaring absence of a joint press conference during Najib’s visit to the White House reinforced the view among Najib’s opponents that he was skirting controversial questions – namely the 1MDB scandal and political repression in Malaysia.

Image result for Malaysia buys BoeingMany Malaysians were dismayed by the commercial “value proposition” offered by Najib to the United States.

 

In terms of deliverables, many Malaysians were dismayed by the commercial “value proposition” offered by Najib to the United States. Najib had announced that Malaysia Airlines, whose majority stake is owned by state sovereign wealth fund Khazanah Nasional, will purchase high-capacity, long-distance Boeing aircraft worth $3 billion, with the possibility of more purchases in the future. Additionally, Najib stated that Malaysia’s retirement fund, the Employers Provident Fund (EPF), intended to invest $3-4 billion in Trump’s initiative to redevelop American infrastructure. Malaysians were indignant at possible diversion of funds to the US instead of fixing deteriorating infrastructure back home. And with the rising cost of living being a sore point for many people, the political opposition ridiculed Najib as being aloof and for selling Malaysia’s assets for his personal benefit. Najib’s fiercest critic, former Prime Minister Mahathir laughed at the idea of a developing country helping a developed country and opined that this was another illustration of Najib giving money to obtain political support.

“Exercises, training, and interoperability are the new emphases, and many Southeast Asian countries – unlike most in the South Pacific – no longer need extra funding to participate in exercises.”

The importance of protecting human rights aspect in the joint statement will appear ironic to many Malaysians as the authorities have been prosecuting opposition members and dissenters and stifling civil society activism in recent years

1MDB – the Elephant in the Room    

  
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The 1MDB issue was conspicuously left out at the Trump-Najib Meeting

At the time of the meeting, the 1MDB scandal continued to dog Najib. The US Justice Department was in the midst of civil lawsuits seeking to seize US assets worth about $1.7 billion linked to 1MDB. But the subject was conspicuously left out in all official proceedings. The only response from the White House communications when quizzed by reporters after the meeting was that they weren’t aware of conversations that came up in the meeting.

To Najib, his political coalition, and supporters, this omission was strategically crucial because it lent legitimization to Najib’s position as Malaysia’s leader and it gave him a strong case to repudiate the opposition’s charge linking him to the 1MDB scandal. Najib flying in to meet Trump without being denied entry or arrested by US law enforcement – as was claimed would happen by the political opposition – was spun by Najib’s supporters as proof that the opposition’s 1MDB allegation was nothing more than a political ploy. Domestically, Najib hopes to capitalize on this by allaying suspicions supporters and political fence-sitters have about his culpability in the scandal.

About the Author

Matthew Kah Weng Wong is a former researcher at the East-West Center in Washington. He can be contacted at matthew.wongkw@gmail.com.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Peter Valente, Project Assistant, East-West Center in Washington

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

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The Demise of Dollar Diplomacy


October 17, 2017

The Demise of Dollar Diplomacy

by Barry Eichengreen*

http://www.project-syndicate.org

Pundits have been saying last rites for the dollar’s global dominance since the 1960s – that is, for more than half a century now. But the pundits may finally be right, because the greenback’s dominance has been sustained by geopolitical alliances that are now fraying badly.

WASHINGTON, DC – Mark Twain never actually said “Reports of my death have been greatly exaggerated.” But the misquote is too delicious to die a natural death of its own. And nowhere is the idea behind it more relevant than in discussions of the dollar’s international role.

Pundits have been saying last rites for the dollar’s global dominance since the 1960s – that is, for more than a half-century now. The point can be shown by occurrences of the phrase “demise of the dollar” in all English-language publications catalogued by Google.

The frequency of such mentions, adjusted for the number of printed pages per year, first jumped in 1969, following the collapse of the London Gold Pool, an arrangement in which eight central banks cooperated to support the dollar’s peg to gold. Use of the phrase soared in the 1970s, following the collapse of the Bretton Woods system, of which the dollar was the linchpin, and in response to the high inflation that accompanied the presidencies of Richard Nixon, Gerald Ford, and Jimmy Carter in the 1970s.

But even that spike was dwarfed by the increase in mentions and corresponding worries about the dollar starting in 2001, reflecting the shock of the terrorist attacks that September, the mushrooming growth of the US trade deficit, and then the global financial crisis of 2008.

Yet through all of this, the dollar’s international role has endured. As my coauthors and I show in a new book, the share of dollars in the foreign-currency reserves held by central banks and governments worldwide hardly budged in the face of these events. The greenback remains the dominant currency traded in foreign-exchange markets. It is still the unit in which petroleum is priced and traded worldwide, Venezuelan leaders’ complaints about the “tyranny of the dollar” notwithstanding.

To the consternation of many currency traders, the value of the dollar fluctuates widely, as its rise, fall, and recovery in the course of the last year have shown. But this does little to erode the attractiveness of the dollar in international markets.

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America First–Then What is Future of the US Dollar in the Trumpian Era?

Central banks still hold US Treasury bonds because the market for them is the single most liquid financial market in the world. And Treasury bonds are secure: the federal government has not fallen into arrears on its debt since the disastrous War of 1812.

In addition, US diplomatic and military links encourage America’s allies to hold dollars. States with their own nuclear weapons hold fewer dollars than countries that depend on the US for their security needs. Being in a military alliance with a reserve-currency-issuing country boosts the share of the partner’s foreign-exchange reserves held in that currency by roughly 30 percentage points. The evidence thus suggests that the share of reserves held in dollars would fall appreciably in the absence of this effect.

This under-appreciated link between geopolitical alliances and international currency choice reflects a combination of factors. Governments have reason to be confident that the reserve-currency country will make servicing debt held by its allies a high priority. In return, those allies, by holding its liabilities, can help to lower the issuer’s borrowing costs.

Here, then, and not in another imbroglio over the federal debt ceiling this coming December, is where the real threat to the dollar’s international dominance lies. As one anonymous US State Department official put it, President Donald Trump “does not seem to care about alliances and therefore does not care about diplomacy.”

South Korea and Japan are thought to hold about 80% of their international reserves in dollars. One can imagine that the financial behavior of these and other countries would change dramatically, with adverse implications for the dollar’s exchange rate and US borrowing costs, were America’s close military alliances with its allies to fray.

Nor is it hard to imagine how this fraying could come about. President Donald Trump has painted himself into a strategic corner: he needs a concession from North Korea on the nuclear-weapons issue in order to save face with his base, not to mention with the global community. And, for all of Trump’s aggressive rhetoric and posturing, the only feasible way to secure such a concession is through negotiation. Ironically, the most plausible outcome of that process is an inspections regime not unlike the one negotiated by Barack Obama’s administration with Iran.

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Visualizing the Size of the U.S. National Debt

How big is the U.S. National Debt?

The best way to understand these large numbers? We believe it is to represent them visually, by plotting the data with comparable numbers that are easier to grasp.

Today’s data visualization plots the U.S. National Debt against everything from the assets managed by the world’s largest money managers, to the annual value of gold production.

1. The U.S. national debt is larger than the 500 largest public companies in America.
The S&P 500 is a stock market index that tracks the value of the 500 largest U.S. companies by market capitalization. It includes giant companies like Apple, Exxon Mobil, Microsoft, Alphabet, Facebook, Johnson & Johnson, and many others. In summer of 2016, the value of all of these 500 companies together added to $19.1 trillion – just short of the debt total.

2. The U.S. national debt is larger than all assets managed by the world’s top seven money managers.
The world’s largest money managers – companies like Blackrock, Vanguard, or Fidelity – manage trillions of investor assets in stocks, bonds, mutual funds, ETFs, and more. However, if we take the top seven of these companies and add all of their assets under management (AUM) together, it adds up to only $18.9 trillion.

3. The U.S. national debt is 25x larger than all global oil exports in 2015.
Yes, countries such as Saudi Arabia, Kuwait, and Russia make a killing off of selling their oil around the world. However, the numbers behind these exports are paltry in comparison to the debt. For example, you’d need the Saudis to donate the next 146 years of revenue from their oil exports to fully pay down the debt.

4. The U.S. national debt is 155x larger than all gold mined globally in a year.
Gold has symbolized money and wealth for a long time – but even the world’s annual production of roughly 3,000 tonnes (96 million oz) of the yellow metal barely puts a dent in the debt total. At market prices today, you’d need to somehow mine 155 years worth of gold at today’s rate to equal the debt.

5. In fact, the national debt is larger than all of the world’s physical currency, gold, silver, and bitcoin combined.

That’s right, if you rounded up every single dollar, euro, yen, pound, yuan, and any other global physical currency note or coin in existence, it only amounts to a measly $5 trillion. Adding the world’s physical gold ($7.7 trillion), silver ($20 billion), and cryptocurrencies ($11 billion) on top of that, you get to a total of $12.73 trillion. That’s equal to about 65% of the U.S. national debt.

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To get there, Trump’s administration will have to offer something in return. The most obvious bargaining chip that could be offered to make the North Korean regime feel more secure is a reduction in US troop levels on the Korean Peninsula and in Asia in general, With that, the US security guarantee for Asia will weaken, in turn providing China an opportunity to step into the geopolitical breach.

And where China leads geopolitically, its currency, the renminbi, is likely to follow.

*Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. His latest book is Hall of Mirrors:The Great Depression, the Great Recession, and the Uses – and Misuses – of History.