Warning!Everything is going Deep: The Age Of ‘ Surveillance Capitalism’


February 3, 2019

Around the end of each year major dictionaries declare their “word of the year.” Last year, for instance, the most looked-up word at Merriam-Webster.com was “justice.” Well, even though it’s early, I’m ready to declare the word of the year for 2019.

The word is “deep.”

Why? Because recent advances in the speed and scope of digitization, connectivity, big data and artificial intelligence are now taking us “deep” into places and into powers that we’ve never experienced before — and that governments have never had to regulate before. I’m talking about deep learning, deep insights, deep surveillance, deep facial recognition, deep voice recognition, deep automation and deep artificial minds.

Image result for thomas friedman

Some of these technologies offer unprecedented promise and some unprecedented peril — but they’re all now part of our lives. Everything is going deep.

We sure are. But the lifeguard is still on the beach and — here’s what’s really scary — he doesn’t know how to swim! More about that later. For now, how did we get so deep down where the sharks live?

The short answer: Technology moves up in steps, and each step, each new platform, is usually biased toward a new set of capabilities. Around the year 2000 we took a huge step up that was biased toward connectivity, because of the explosion of fiber-optic cable, wireless and satellites.

Suddenly connectivity became so fast, cheap, easy for you and ubiquitous that it felt like you could touch someone whom you could never touch before and that you could be touched by someone who could never touch you before.

Around 2007, we took another big step up. The iPhone, sensors, digitization, big data, the internet of things, artificial intelligence and cloud computing melded together and created a new platform that was biased toward abstracting complexity at a speed, scope and scale we’d never experienced before.

So many complex things became simplified. Complexity became so fast, free, easy to use and invisible that soon with one touch on Uber’s app you could page a taxi, direct a taxi, pay a taxi, rate a taxi driver and be rated by a taxi driver.

That’s why the adjective that so many people are affixing to all of these new capabilities to convey their awesome power is “deep.”

On Jan. 20, The London Observer looked at Harvard Business School professor Shoshana Zuboff’s new book, the title of which perfectly describes the deep dark waters we’ve entered: “The Age of Surveillance Capital.”

“Surveillance capitalism,” Zuboff wrote, “unilaterally claims human experience as free raw material for translation into behavioral data. Although some of these data are applied to service improvement, the rest are declared as a proprietary behavioral surplus, fed into advanced manufacturing processes known as ‘machine intelligence,’ and fabricated into prediction products that anticipate what you will do now, soon and later. Finally, these prediction products are traded in a new kind of marketplace that I call behavioral futures markets. Surveillance capitalists have grown immensely wealthy from these trading operations, for many companies are willing to lay bets on our future behavior.”

Unfortunately, we have not developed the regulations or governance, or scaled the ethics, to manage a world of such deep powers, deep interactions and deep potential abuses.

 

Two quotes tell that story: Last April, Senator Orrin Hatch was questioning Facebook C.E.O. Mark Zuckerberg during a joint hearing of the commerce and judiciary committees. At one point Hatch asked Zuckerberg, “So, how do you sustain a business model in which users don’t pay for your service?”

Zuckerberg, clearly trying to stifle a laugh, replied, “Senator, we run ads.” Hatch did not seem to understand that Facebook’s business model is to mine users’ data and then run targeted ads — and Hatch was one of Facebook’s regulators.

But then Zuckerberg was also clueless about how deep the powers of the Facebook platform had gone — deep enough that a few smart Russian hackers could manipulate it to help Donald Trump win the presidency.

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When faced with evidence that fake news spread on Facebook influenced the outcome of the 2016 election, Zuckerberg dismissed that notion as a “pretty crazy idea.” It turns out that it was happening at an industrial scale and he later had to apologize.

Regulations often lag behind new technologies, but when they move this fast and cut this deep, that lag can be really dangerous. I wish I thought that catch-up was around the corner. I don’t. Our national discussion has never been more shallow — reduced to 280 characters.

This has created an opening and burgeoning demand for political, social and religious leaders, government institutions and businesses that can go deep — that can validate what is real and offer the public deep truths, deep privacy protections and deep trust.

But deep trust and deep loyalty cannot be forged overnight. They take time. That’s one reason this old newspaper I work for — the Gray Lady — is doing so well today. Not all, but many people, are desperate for trusted navigators.

Many will also look for that attribute in our next President, because they sense that deep changes are afoot. It is unsettling, and yet, there’s no swimming back. We are, indeed, far from the shallow now.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Thomas L. Friedman is the foreign affairs Op-Ed columnist. He joined the paper in 1981, and has won three Pulitzer Prizes. He is the author of seven books, including “From Beirut to Jerusalem,” which won the National Book Award.

 

@tomfriedman Facebook

 

 

 

interactions and deep potential abuses.

https://tpc.googlesyndication.com/safeframe/1-0-31/html/container.htmlImage result for thomas friedman

 

Two quotes tell that story: Last April, Senator Orrin Hatch was questioning Facebook C.E.O. Mark Zuckerberg during a joint hearing of the commerce and judiciary committees. At one point Hatch asked Zuckerberg, “So, how do you sustain a business model in which users don’t pay for your service?”

 

Zuckerberg, clearly trying to stifle a laugh, replied, “Senator, we run ads.” Hatch did not seem to understand that Facebook’s business model is to mine users’ data and then run targeted ads — and Hatch was one of Facebook’s regulators.

But then Zuckerberg was also clueless about how deep the powers of the Facebook platform had gone — deep enough that a few smart Russian hackers could manipulate it to help Donald Trump win the presidency.

When faced with evidence that fake news spread on Facebook influenced the outcome of the 2016 election, Zuckerberg dismissed that notion as a “pretty crazy idea.” It turns out that it was happening at an industrial scale and he later had to apologize.

Regulations often lag behind new technologies, but when they move this fast and cut this deep, that lag can be really dangerous. I wish I thought that catch-up was around the corner. I don’t. Our national discussion has never been more shallow — reduced to 280 characters.

This has created an opening and burgeoning demand for political, social and religious leaders, government institutions and businesses that can go deep — that can validate what is real and offer the public deep truths, deep privacy protections and deep trust.

But deep trust and deep loyalty cannot be forged overnight. They take time. That’s one reason this old newspaper I work for — the Gray Lady — is doing so well today. Not all, but many people, are desperate for trusted navigators.

Many will also look for that attribute in our next president, because they sense that deep changes are afoot. It is unsettling, and yet, there’s no swimming back. We are, indeed, far from the shallow now.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Thomas L. Friedman is the foreign affairs Op-Ed columnist. He joined the paper in 1981, and has won three Pulitzer Prizes. He is the author of seven books, including “From Beirut to Jerusalem,” which won the National Book Award. @tomfriedman Facebook

 

A version of this article appears in print on , on Page A23 of the New York edition with the headline: Warning! Everything Is Going Deep. Order Reprints | Today’s Paper | Subscribe

 

Everything You Know About Global Order Is Wrong


January 31, 2019

Everything You Know About Global Order Is Wrong

If Western elites understood how the postwar liberal system was created, they’d think twice about asking for its renewal.

 
 
 
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Klaus Schwab, impresario of the World Economic Forum, released a manifesto in the run-up to this year’s annual meeting at Davos, Switzerland, in which he called for a contemporary equivalent to the postwar conferences that established the liberal international order.

“After the Second World War, leaders from across the globe came together to design a new set of institutional structures to enable the post-war world to collaborate towards building a shared future,” he wrote. “The world has changed, and as a matter of urgency, we must undertake this process again.” Schwab went on to call for a new moment of collective design for globalization’s alleged fourth iteration (creatively labeled Globalization 4.0).

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Schwab is not the first to make this kind of appeal. Since the financial crisis, there have been repeated calls for a “new Bretton Woods”—the conference in 1944 at which, in Schwab’s words, “leaders from across the globe came together to design” a financial system for the postwar era, establishing the International Monetary Fund (IMF) and the World Bank in the process. It was the moment at which U.S. hegemony proved its most comprehensive and enlightened by empowering economist-statesmen, foremost among them John Maynard Keynes, to lead the world out of the postwar ruins and the preceding decades of crisis. Under Washington’s wise leadership, even rancorous Europe moved toward peaceful and prosperous integration.

This is a story with wide support in places like Davos. It’s also one that deserves far more scrutiny. Its history of the founding of the postwar order is wrong; more important, its implicit theory about how international order emerges—through a collective design effort by world leaders coming together to reconcile their interests—is fundamentally mistaken. What history actually suggests is that order tends to emerge not from cooperation and deliberation but from a cruder calculus of power and material constraints.

 

Bretton Woods may have been a conference of experts and officials, but it was first and foremost a gathering of a wartime alliance engaged in the massive mobilization effort of total war. The conference met in July 1944 in the weeks following D-Day and the final Soviet breakthrough on the Eastern Front. As a wartime rather than a postwar meeting, disagreements were minimized. Though the conference was about the future order of the international economy and though the aim of the talks was to link national economies back together, the building blocks were centralized, state-controlled war economies. The Bretton Woods negotiators were government officials, not businessmen or bankers. As they had done since the collapse of the global financial system in the early 1930s, central bankers played second fiddle to treasury officials. The Americans who were bankrolling the Allied war effort called the shots.

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The basic monetary vision of Bretton Woods was to create order by establishing fully convertible currencies at fixed exchange rates, with the dollar pegged to gold. But the tough conditions of the Bretton Woods monetary architecture set by the United States proved far too demanding for war-weakened European economies. When Britain, the least damaged economy in Europe, tried to implement free convertibility of pounds into dollars, its attempt collapsed at the first hurdle in 1947; the social democratic Labour Party government in London quickly moved to stop the subsequent drain of precious dollars by reimposing exchange controls and tightening import quotas. Meanwhile, the grand design for a free trade order embodied by the Havana Charter and the International Trade Organization fell afoul of the U.S. Congress and was thus stopped in its tracks. The General Agreement on Tariffs and Trade (GATT) was its cumbersome and slow-moving replacement.

The talk of a connection between the present and the Bretton Woods moment is legitimated perhaps above all by the claimed continuity of the IMF and the World Bank, which were duly set up in December 1945. But beyond institutional titles, this supposed continuity is largely false. Within a year of the founding of its key institutions, almost the entire global agenda of Bretton Woods was put on ice. Already in 1946 the Soviet Union absented itself from the formation of the IMF and the World Bank.

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Milton Friedman

With the Cold War paralyzing the U.N. institutions that had originally been intended to frame Bretton Woods, what emerged under U.S. hegemony was a far narrower postwar order centered on the North Atlantic. The Marshall Plan of 1948 was not so much a complement to Bretton Woods as an acknowledgement of its failure. For true liberals in both the United States and Europe, who hankered after the golden age of globalization in the late 19th century, the resulting Cold War economic order was a profound disappointment. The U.S. Treasury and the first generation of neo-liberals in Europe fretted against the U.S. State Department and its interventionist economic tendencies. Mavericks such as the young Milton Friedman—true advocates of free markets in the way we take for granted today—demanded a bonfire of all regulations. They insisted that rather than exchange rates being fixed, currencies should be allowed to float with their value defined by competitive markets. In the 1950s, Friedman could be dismissed as eccentric.

The reality of the liberal order that supposedly came into existence in the postwar moment was the more or less haphazard continuation of wartime controls. It would take until 1958 before the Bretton Woods vision was finally implemented. Even then it was not a “liberal” order by the standard of the gilded age of the 19th century or in the sense that Davos understands it today. International mobility of capital for anything other than long-term investment was strictly limited. Liberalization of trade also made slow progress. The gradual abolition of exchange controls went hand in hand with the lifting of trade quotas. Only when these more elementary limitations on foreign trade were removed did tariff negotiations become relevant. GATT’s lumbering deliberations did not begin making major inroads until the Kennedy round of the 1960s, 20 years after the end of the war. And rising global trade was a mixed blessing. Huge German and Japanese trade surpluses put pressure on the Bretton Woods exchange rate system. This was compounded in the 1960s by the connivance of U.S. Treasury and U.K. authorities in enabling Wall Street to sidestep financial repression and launch the unregulated euro-dollar market, based in bank accounts in London.

By the late 1960s, barely more than 10 years old, Bretton Woods was already in terminal trouble. And when confronted with demands for deflation, U.S. President Richard Nixon reverted to economic nationalism. Between 1971 and 1973, he unhitched the dollar from gold and abandoned any effort to defend the exchange rate, sending the dollar plunging and helping to restore something closer to trade balance. If our own world has a historic birthplace, it was not in 1945 but in the early 1970s with the advent of fiat money and floating exchange rates. The unpalatable truth is that our world was born not out of wise collective agreement but out of chaos, unleashed by America’s unilateral refusal any longer to underwrite the global monetary order.

As the tensions built up in the 1960s exploded, foreign exchange instability contributed to a historically unprecedented surge in inflation across the Western world. We now know that this era of inflationary instability would be concluded by the market revolution and what Ben Bernanke dubbed the “great moderation.” But once again hindsight should not blind us to the depth of the crisis and uncertainty prevailing at the time. The first attempts to restore order were not by way of the market revolution but by the means of corporatism—direct negotiations among governments, trade unions, and employers with a view of limiting the vicious spiral of prices and wages. This promised a direct control of inflation by way of price setting. But its effect was to stoke an ever-greater politicization of the economy. With left-wing social theorists diagnosing a crisis of capitalist democracy, the trilateral commission warned of democratic ungovernability.

What broke the deadlock was not some inclusive conference of stakeholders. The stakeholders in the 1970s were obstreperous trade unions, and that kind of consultation was precisely the bad habit that the neoliberal revolutionaries set out to break. The solution, as U.S. Federal Reserve chair Paul Volcker’s recent memoirs make embarrassingly clear, was blunt force wielded by the Fed. Volcker’s unilateral interest rate hike, the sharp revaluation of the dollar, de- industrialization, and the crash of surging unemployment dealt a death blow to organized labor and tamed inflationary pressure. The Volcker shock established so-called independent central bankers as the true arbiters of the new dispensation.

They put paid to what Margaret Thatcher referred to as the “enemy within.” But the global victory of the liberal order required a more far-reaching struggle. The world of the market revolution of the 1980s was still divided between communism and capitalism, between first, second, and third worlds. The overcoming of those divisions was a matter of power politics first and foremost, negotiation second. The United States and its allies in Europe raised the pressure on the Soviet Union, and after a period of spectacularly heightened tension, Mikhail Gorbachev chose to de-escalate, unwittingly precipitating the union’s collapse.

The truth is that the postwar moment that the Davos crowd truly hankers after is not that of 1945 but the aftermath of the Cold War, the moment of Western triumph. It was finally in 1995 that the Bretton Woods vision of a comprehensive world trade organization was realized. A sanitized version of this moment would describe it as a third triumph of enlightened technocracy. After Bretton Woods and the defeat of inflation, this was the age of the Washington Consensus. But as in those previous moments, its underpinnings were power politics: at home the humbling of organized labor, abroad the collapse of Soviet challenge and the decision by the Beijing regime to embark on the incorporation of China into the world economy.

Since 2008, that new order has come under threat from its own internal dysfunction, oppositional domestic politics, and the geopolitical power shift engendered by truly widespread convergent growth. The crisis goes deep. It is not surprising that there should be calls for a new institutional design. But we should be careful what we wish for. If history is anything to go by, that new order will not emerge from an enlightened act of collective leadership. Ideas and leadership matter. But to think that they by themselves found international order is to put the cart before the horse. What will resolve the current tension is a power grab by a new stakeholder determined to have its way. And the central question of the current moment is whether the West is ready for that. If not, we should get comfortable with the new disorder.

Adam Tooze teaches history at Columbia University. His latest book is Crashed: How a Decade of Financial Crises Changed the World. @adam_tooze

Everything You Know About Global Order Is Wrong

 

Could a Green New Deal help Malaysia invest in clean energy?–Getting our Priorities Right.


January 20, 2019

Could a Green New Deal help Malaysia invest in clean energy?–Getting our Priorities  Right.

Opinion  |  Kenneth Cheng, Penang Institute

   Image result for antonio guterres

United Nations (UN) Secretary-General, António Guterres

COMMENT | The United Nations (UN) Secretary-General, António Guterres, did not mince words when he proclaimed in March last year that climate change is “the most systemic threat to humankind”.

The report subsequently issued in October 2018 by the UN Intergovernmental Panel on Climate Change (IPCC) was equally damning when it stated that the Earth is projected to reach a 1.5 degree Celsius increase in average global surface temperatures compared to pre-industrial levels between 2030 and 2052.

Once that happens, sea levels will rise and this translates to increasing instances of floods and heatwaves. Some parts of the world would experience either intense droughts or rainfall.Malaysia will not be absolved of the sobering reality the world is currently grappling with. It is saddening that the devastating impact wrought upon Malaysia through floods, droughts and extreme wildfires are becoming an accepted truth to most Malaysians. According to the findings of the International Disaster Database, major floods are the most frequent natural disaster in Malaysia, while their impacts are also getting more severe. Floods, especially in the east coast region, in 2014 and 2017 were arguably the worst climate disasters in Malaysian history.

Ironically, the attitude of Malaysians towards our planet’s greatest threat remains lukewarm at best.

Pertinent environmental issues are not usually on the minds of most Malaysians.

The survey by Merdeka Centre in December 2016 found that under a third of Malaysians showed great concern about climate change.

However, 42.5 percent of Malaysians do concede that they have been not contributing enough in terms of protecting the environment, and more than half of Malaysians, in the same survey, also admitted the average temperature has been higher in the last three years.

Malaysians are generally perceived to be indifferent to the environmental challenges the world is facing now, but at the same time, they do acknowledge that the responsibility of protecting the environment lies with each individual and that the climate is indeed changing abruptly.

Existing measures

Thus, the onus remains on the government to take an active role in educating the public about the importance of preserving the environment.

Initiatives such as introducing environmental subjects, as was mooted by the previous government, should be debated once again within the cabinet. Early exposure to various environmental issues during adolescence would inculcate within young Malaysians the sense of civic responsibility that is much needed in preserving the environment.The government – having rightly recognised the threats posed by climate change – has tried to focus on ensuring continued economic growth through environmental sustainability, while building Malaysia’s resilience against natural disasters.

For example, the government has a Government Green Procurement (GGP) policy, whereby the procurement of products or services by any ministry or government agency is required to meet strict environmental criteria and standards set by the government.

According to the government, the implementation of GGP resulted in a reduction of 100.431 kilotonnes of carbon dioxide emissions in 2016 alone. The government also believes that the implementation of GGP would encourage the growth of a more environmental-friendly market.

Malaysia should also be applauded for introducing alternative green financing schemes such as green sukuk (bonds) and the Green Technology Financing Scheme (GTFS), to finance and stimulate sustainable projects. Both of these schemes are touted to be instrumental in growing Malaysia’s clean technology industry.

Green technology is loosely defined as technological processes which would keep environmental damage to the minimum.

Green sukuk is hailed as an innovative manner through which to raise funds to support environmentally sustainable infrastructure projects. Meanwhile, the GTFS was introduced with the aim of inducing the private sector into supporting the development of the green technology industry.

Areas for improvement

While the government’s numerous policies to combat climate change are commendable, they do not go far enough in terms of climate change mitigation.

Firstly, Malaysia’s research and development (R&D) in the fields of the environment and climate change is still lacking.

While the aforementioned financing schemes may bring inventive new technologies to the mainstream, its effects are limited as long as Malaysia’s green technology industry is stagnated as a whole.

This would further disincentivise the private sector from dipping their hands into the green economy, since the availability of green technology in Malaysia is limited and would result in a high capital cost should the private sector utilise such technology.

Moreover, government-backed financing schemes are limited in terms of being able to provide fundamental R&D for green technology. For instance, R&D projects are not included in GTFS, as it can only finance projects which are ready for commercialisation.Arguably, the biggest barrier towards successfully tackling climate change in Malaysia, and changing the preconception of climate change in Malaysia, is the dichotomy between economic development and environmental protection.

As a nascent developing nation, Malaysia – perhaps being desperate to rise through the economic ranks internationally – is more likely to forego environmental sustainability in pursuit of present-day development.

Malaysia’s climate change dilemma is also exacerbated by how its economy is predicated upon coal, natural gas or palm oil – natural resources which bring about enormous and irreversible impacts on the environment.

Green New Deal

Having said that, what if there was a way to propel the economy forward and yet, at the same time, preserve our environment?

Lately, the United States has been contemplating a ‘Green New Deal’ in an attempt to kick start the country’s slowing economy, while ensuring reductions in carbon dioxide emissions.The essence of a green new deal is simple enough: a government economic stimulus aimed specifically at clean technology designed to modernise the American economy while achieving the effect of mitigating climate change.A green new deal aims to energize the economy through huge public investment with the focus of constructing a more extensive renewable energy infrastructure.

The spillover effects of these public green investments would also lead to the creation of a swathe of green jobs and, crucially, expand the job market in renewable energy technology.

The Malaysian context

I believe it is worth contemplating the possibility of replicating a stimulus policy akin to the green new deal in America within the context of Malaysia. As I mentioned earlier, there is currently a dearth of investment in green technology in Malaysia, since the private sector is reluctant to invest in green technology as of now. Therefore, we are left with only the government as our only viable source to kickstart investment in green technology.

Significant but wisely targeted investments in clean, low-carbon technology would have the multiplier effect of boosting our economy and leading to the creation of modern and sustainable green energy jobs.The merits of such a move cannot be overstated enough. Aside from protecting the environment, the introduction of green energy jobs in Malaysia would also have the knock-on effect of transitioning Malaysia’s economy from one relying on non-renewable resources to a strong but self-sufficient economy powered mostly through renewable energy.

Green energy jobs also have the advantage of being mostly high-skilled jobs. The creation of such jobs would give the employment markets in Malaysia a much-needed lift, since we are currently suffering a mismatch of having too many low-skilled jobs but a large quantity of skilled labour.

It is no surprise that China, despite being the world’s largest coal consumer, is equally committed toward investing in green energy because of the economic potential it entails. By investing heavily in green energy, China is actually outpacing the US in terms of creating clean energy jobs.

Major public green investment does not appear to be popular enough, since it usually suffers from the time-lag effect and requires consistent funding.However, this wouldn’t be the case if the Malaysian public was aware of the huge monetary costs of natural disasters in Malaysia, and the projected future costs of climate change.

The floods in Kelantan between 2014 and 2015 caused an estimated RM200 million in losses, with buildings and government infrastructure most affected.

Additionally, the Penang state government has allocated a total of RM22.7 million for rebuilding infrastructure damaged by floods in 2017.

Heavier investment in clean energy will likely give us the opportunity to avoid such economic damage moving forward.Nevertheless, it would be difficult to obtain the approval of Malaysians to increase public investment in green technology at this current juncture, let alone have it debated in Parliament. But I argue that this is the only possible way to steer our country towards a modernised economy that truly puts the term ‘sustainable development’ into actual practice.Most importantly, it also ensures that our children possess the same privileges as us to take pleasure in what this planet offers us. Therefore, it is about time Malaysians started talking and acting strongly on the issue of climate change.


KENNETH CHENG is an analyst at Penang Institute. He holds a bachelor’s degree in economics and graduate diploma in politics. Hailing from the Silver State (Perak), he believes the challenge of a researcher is to temper his/her ‘pessimism of the intelligence’ with ‘optimism of the will’.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Trump vs. the Economy


 

Trump vs. the Economy

December 30, 2018  by

https://www.project-syndicate.org/commentary/trump-behavior-causes-stock-market-drop-by-nouriel-roubini-2018-12

Between publicly chastising US Federal Reserve Chair Jerome Powell and escalating his trade war with China, US President Donald Trump has finally rattled the markets. While investors were happy to look the other way during the first half of Trump’s term, the dangerous spectacle unfolding in the White House can no longer be ignored.

NEW YORK – Financial markets have finally awoken to the fact that Donald Trump is US president. Given that the world has endured two years of reckless tweets and public statements by the world’s most powerful man, the obvious question is, What took so long?

For one thing, until now, investors had bought into the argument that Trump is all bark and no bite. They were willing to give him the benefit of the doubt as long as he pursued tax cuts, deregulation, and other policies beneficial to the corporate sector and shareholders. And many trusted that, at the end of the day, the “adults in the room” would restrain Trump and ensure that the administration’s policies didn’t jump the guardrails of orthodoxy.

These assumptions were more or less vindicated during Trump’s first year in office, when economic growth and an expected increase in corporate profits – owing to forthcoming tax cuts and deregulation – resulted in strong stock-market performance. In 2017, US stock indices rose more than 20%.

But things changed radically in 2018, and especially in the last few months. Despite corporate earnings growing by over 20% (thanks to the tax cuts), US equity markets moved sideways for most of the year, and have now taken a sharp turn south. At this point, broad indices are in correction territory (meaning a 10% drop from the recent peak), and indices of tech stocks, such as the Nasdaq, are in bear-market territory (a drop of 20% or more).

Though financial markets’ higher volatility reflects concerns about China, Italy and other eurozone economies, and key emerging economies, most of the recent turmoil is due to Trump. The year started with the enactment of a reckless tax cut that pushed up long-term interest rates and created a sugar high in an economy already close to full employment. As early as February, growing concerns about inflation rising above the US Federal Reserve’s 2% target led to the year’s first risk-off.

Then came Trump’s trade wars with China and other key US trade partners. Market worries about the administration’s protectionist policies have waxed and waned throughout the year, but they are now reaching a new peak. The latest US actions against China seem to augur a broader trade, economic, and geopolitical cold war.

An additional worry is that Trump’s other policies will have stagflationary effects (reduced growth alongside higher inflation). After all, Trump is planning to limit inward foreign direct investment, and has already implemented broad restrictions on immigration, which will reduce labor-supply growth at a time when workforce aging and skills mismatches are already a growing problem.

Moreover, the administration has yet to propose an infrastructure plan to spur private-sector productivity or hasten the transition to a green economy. And on Twitter and elsewhere, Trump has continued to bash corporations for their hiring, production, investment, and pricing practices, singling out tech firms just when they are already facing a wider backlash and increased competition from their Chinese counterparts.

Emerging markets have also been shaken by US policies. Fiscal stimulus and monetary-policy tightening have pushed up short- and long-term interest rates and strengthened the US dollar. As a result, emerging economies have experienced capital flight and rising dollar-denominated debt. Those that rely heavily on exports have suffered the effects of lower commodity prices, and all that trade even indirectly with China have felt the effects of the trade war.

Even Trump’s oil policies have created volatility. After the resumption of US sanctions against Iran pushed up oil prices, the administration’s efforts to carve out exemptions and bully Saudi Arabia into increasing its own production led to a sharp price drop. Though US consumers benefit from lower oil prices, US energy firms’ stock prices do not. Besides, excessive oil-price volatility is bad for producers and consumers alike, because it hinders sensible investment and consumption decisions.

Making matters worse, it is now clear that the benefits of last year’s tax cuts have accrued almost entirely to the corporate sector, rather than to households in the form of higher real (inflation-adjusted) wages. That means household consumption could soon slow down, further undercutting the economy.

More than anything else, though, the sharp fall in US and global equities during the last quarter is a response to Trump’s own utterances and actions. Even worse than the heightened risk of a full-scale trade war with China (despite the recent “” agreed with Chinese President Xi Jinping) are Trump’s public attacks on the Fed, which began as early as the spring of 2018, when the US economy was growing at more than 4%.

Given these earlier attacks, markets were spooked this month when the Fed correctly decided to hike interest rates while also signaling a more gradual pace of rate increases in 2019. Most likely, the Fed’s relative hawkishness is a reaction to Trump’s threats against it. In the face of hostile presidential tweets, Fed Chair Jerome Powell needed to signal that the central bank remains politically independent.

But then came Trump’s decision to shut down large segments of the federal government over Congress’s refusal to fund his useless Mexican border wall. That sent markets into a near-panic, and the government shutdown was soon followed by reports that Trump wants to fire Powell – a move that could turn a correction into a crash. Just before the Christmas holiday, US Treasury secretary Steven Mnuchin was forced to issue a public statement to placate the markets. He announced that Trump was not planning to fire Powell after all, and that US banks’ finances are sound, effectively highlighting the question of whether they really are.

Recent changes within the administration that do not necessarily affect economic policy making are also rattling the markets. The impending departure of White House Chief of Staff John Kelly and Secretary of Defense James Mattis will leave the room devoid of adults. The coterie of economic nationalists and foreign-policy hawks who remain will cater to Trump’s every whim.

As matters stand, the risk of a full-scale geopolitical conflagration with China cannot be ruled out. A new cold war would effectively lead to de-globalization, disrupting supply chains everywhere, but particularly in the tech sector, as the recent ZTE and Huawei cases signal. At the same time, Trump seems to be hell-bent on undermining the cohesion of the European Union and NATO at a time when Europe is economically and politically fragile. And Special Counsel Robert Mueller’s investigation into Trump’s 2016 election campaign’s ties to Russia hangs like a Sword of Damocles over his presidency.

Trump is now the Dr. Strangelove of financial markets. Like the paranoid madman in Stanley Kubrick’s classic film, he is flirting with mutually assured economic destruction. Now that markets see the danger, the risk of a financial crisis and global recession has grown.

Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

 

 

Good Riddance to 2018


December 23, 2018

Good Riddance to 2018

Those who oppose democracy, the rule of law, and multilateralism have had a good year. But there have also been signs suggesting that those who uphold these principles have not lost the will to fight back.

MADRID – Sadly, 2018 will not be remembered as a year of political and diplomatic success. Though the international order had already begun to erode in 2017, the global political environment became downright chaotic, combustible, and hostile this year. That is no coincidence, as these are perhaps the three adjectives that best describe the United States under President Donald Trump.

Since January 2018, when the Trump administration announced tariffs on imported solar panels and washing machines, the year has been marked by an escalating “trade war,” waged primarily – but not exclusively – by the US against China. The ongoing tariff disputes have seriously undermined the World Trade Organization and deepened mutual distrust in Sino-American relations.

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For its part, China this year eliminated presidential term limits, raising fears that President Xi Jinping’s so-called new era will end the period of collective leadership ushered in by Deng Xiaoping’s reforms, which were themselves a corrective to Mao’s cult of personality. This move could also herald a further deviation from Deng’s trademark foreign-policy restraint.

Similarly, Russian President Vladimir Putin was reelected in March, to no one’s surprise. Under Putin, Russia has been re-emerging as a geopolitical force. And yet, its economy is essentially stagnant, owing in part to its excessive dependence on hydrocarbons. In the absence of growth, Putin has relied on foreign policy to shore up his domestic popularity.

For example, Putin’s campaign press secretary welcomed the British government’s response to the nerve-agent attack on Sergei and Yulia Skripal, because it may have mobilized Putin’s supporters in the run-up to the presidential election. And the Kremlin’s recent decision to blockade Ukrainian ports in the Sea of Azov may also have been designed to boost Putin’s domestic approval rating, among other goals. The danger now is that both the US and Russia will cease to implement the 1987 Intermediate-Range Nuclear Forces Treaty, posing a new and acute threat to Europe in particular.

 

Meanwhile, the Middle East has continued to serve as a battlefield for some of the world’s most violent conflicts. Though the Islamic State (ISIS) has continued to lose ground, it is far from defeated – contrary to what Trump has claimed – and the death toll in Syria’s civil war continues to climb. Likewise, the humanitarian calamity in Yemen has deepened, though negotiations that ran aground in 2016 have at least resumed and made some progress. In Afghanistan, what is widely regarded as the longest-running war in US history continues, and it is estimated that the Taliban now controls more territory than at any time since their government was overthrown in 2001.

Despite some recent developments in the aforementioned conflicts, the underpinnings of the Trump administration’s general strategy in the Middle East remained intact in 2018. The US has reaffirmed its support for the axis of Israel, Saudi Arabia, and the United Arab Emirates, which it regards as a bulwark against Iran. In May, the Trump administration moved the US embassy in Israel to Jerusalem. That same month, it abandoned the 2015 Iran nuclear deal and announced an abusive re-imposition of extraterritorial sanctions, which reflects the increasing .

Moreover, by siding with the Saudi government over his own intelligence agencies in the of journalist Jamal Khashoggi in October, Trump has made clear that opposing Iran and purchasing US arms is one of the quickest ways to his heart. The result of his broad approach to the Middle East has been to empower military hardliners throughout the region. In fact, Israel and Iran this year engaged in their first-ever direct military encounter.

 

Trump has also contributed, in one way or another, to the advance of populism around the world in 2018. In Latin America, Mexican President Andrés Manuel López Obrador (AMLO) and Brazilian President-elect Jair Bolsonaro have shown that “populism” can encompass diverse ideologies. While both claim to speak for “the people” against “the elites,” the leftist AMLO was elected partly as a rebuke to Trump, whereas Bolsonaro embraces a Trump-like brand of right-wing nationalism, and enjoys the support of many Brazilian elites.

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Trump has also contributed, in one way or another, to the advance of populism around the world in 2018. In Latin America, Mexican President Andrés Manuel López Obrador (AMLO) and Brazilian President-elect Jair Bolsonaro have shown that “populism” can encompass diverse ideologies. While both claim to speak for “the people” against “the elites,” the leftist AMLO was elected partly as a rebuke to Trump, whereas Bolsonaro embraces a Trump-like brand of right-wing nationalism, and enjoys the support of many Brazilian elites.

The Russian philosopher Aleksandr Dugin, often regarded as one of the Kremlin’s main ideologues, argues that “populism should unite right-wing values with socialism, social justice, and anti-capitalism.” This “integral populism,” he believes, is perfectly illustrated by Italy’s current governing coalition, which comprises the anti-establishment Five Star Movement and the nationalist League party.

In October, Italy’s government instigated a conflict with the European Union (which has fortunately subsided) by proposing a budget that defied EU fiscal rules. Italy’s leaders justified their policies in the name of an outdated interpretation of “sovereignty,” one similar to that of the United Kingdom’s Brexiteers, whose haphazardness has left the UK’s future shrouded in uncertainty.

There were a few positive developments in 2018. Certainly, the easing of tensions between the US and North Korea, and the even deeper rapprochement between North and South Korea, should be welcomed. Much credit belongs to South Korean President Moon Jae-in, who used the occasion of the Winter Olympics in Pyeongchang to reach out to North Korean leader Kim Jong-un. Trump’s subsequent turn toward diplomacy – which led to his historic summit with Kim – should also be applauded, though his administration has yet to achieve anything more than symbolic progress toward denuclearization of the Korean Peninsula.

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The result of the US midterm elections was also good news. Democratic control of the House of Representatives means that, from January 2019, there will be more checks on Trump’s policies. And there have been welcome developments in the Republican-controlled Senate, where a recent resolution condemning Saudi Crown Prince Mohammed bin Salman for the murder of Khashoggi, and another to end US support for the Saudi campaign in Yemen, passed with bipartisan support.

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In Europe, the prospects for 2019 will depend primarily on three factors: Brexit, German Chancellor Angela Merkel and French President Emmanuel Macron’s push for EU reform, and the European Parliament election in May. In each case, one hopes that the supporters of democracy, the rule of law, European integration, and multilateralism will prevail.

Those who oppose these principles have had a rather good year. But they would be mistaken to think that those who uphold them have lost the will – and the ability – to cultivate a spirit of cooperation and harmony.

*Javier Solana was EU High Representative for Foreign and Security Policy, Secretary-General of NATO, and Foreign Minister of Spain. He is currently President of the ESADE Center for Global Economy and Geopolitics, Distinguished Fellow at the Brookings Institution, and a member of the World Economic Forum’s Global Agenda Council on Europe.