How Economics Survived the Economic Crisis


January 19, 2018

How Economics Survived the Economic Crisis

by Robert (Lord) Skidelsky

https://www.project-syndicate.org/commentary/why-no-intellectual-shift-in-economics-by-robert-skidelsky-2018-01

Unlike the Great Depression of the 1930s, which produced Keynesian economics, and the stagflation of the 1970s, which gave rise to Milton Friedman’s monetarism, the Great Recession has elicited no such response from the economics profession. Why?

LONDON – The tenth anniversary of the start of the Great Recession was the occasion for an elegant essay by the Nobel laureate economist Paul Krugman, who noted how little the debate about the causes and consequences of the crisis have changed over the last decade. Whereas the Great Depression of the 1930s produced Keynesian economics, and the stagflation of the 1970s produced Milton Friedman’s monetarism, the Great Recession has produced no similar intellectual shift.

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The Conscience of a Liberal–Keynesianism, Friedmanian Monetarism— Macroeconomics still needs to come up with a big new idea.

This is deeply depressing to young students of economics, who hoped for a suitably challenging response from the profession. Why has there been none?

Krugman’s answer is typically ingenious: the old macroeconomics was, as the saying goes, “good enough for government work.” It prevented another Great Depression. So students should lock up their dreams and learn their lessons.

A decade ago, two schools of macroeconomists contended for primacy: the New Classical – or the “freshwater” – School, descended from Milton Friedman and Robert Lucas and headquartered at the University of Chicago, and the New Keynesian, or “saltwater,” School, descended from John Maynard Keynes, and based at MIT and Harvard.

Freshwater-types believed that budgets deficits were always bad, whereas the saltwater camp believed that deficits were beneficial in a slump. Krugman is a New Keynesian, and his essay was intended to show that the Great Recession vindicated standard New Keynesian models.

But there are serious problems with Krugman’s narrative. For starters, there is his answer to Queen Elizabeth II’s now-famous question: “Why did no one see it coming?” Krugman’s cheerful response is that the New Keynesians were looking the other way. Theirs was a failure not of theory, but of “data collection.” They had “overlooked” crucial institutional changes in the financial system. While this was regrettable, it raised no “deep conceptual issue” – that is, it didn’t demand that they reconsider their theory.

Faced with the crisis itself, the New Keynesians had risen to the challenge. They dusted off their old sticky-price models from the 1950s and 1960s, which told them three things. First, very large budget deficits would not drive up near-zero interest rates. Second, even large increases in the monetary base would not lead to high inflation, or even to corresponding increases in broader monetary aggregates. And, third, there would be a positive national income multiplier, almost surely greater than one, from changes in government spending and taxation.

These propositions made the case for budget deficits in the aftermath of the collapse of 2008. Policies based on them were implemented and worked “remarkably well.” The success of New Keynesian policy had the ironic effect of allowing “the more inflexible members of our profession [the New Classicals from Chicago] to ignore events in a way they couldn’t in past episodes.” So neither school – sect might be the better word – was challenged to re-think first principles.

Image result for Milton Friedman

This clever history of pre- and post-crash economics leaves key questions unanswered. First, if New Keynesian economics was “good enough,” why didn’t New Keynesian economists urge precautions against the collapse of 2007-2008? After all, they did not rule out the possibility of such a collapse a priori.

Krugman admits to a gap in “evidence collection.” But the choice of evidence is theory-driven. In my view, New Keynesian economists turned a blind eye to instabilities building up in the banking system, because their models told them that financial institutions could accurately price risk. So there was a “deep conceptual issue” involved in New Keynesian analysis: its failure to explain how banks might come to “underprice risk worldwide,” as Alan Greenspan put it.

Second, Krugman fails to explain why the Keynesian policies vindicated in 2008-2009 were so rapidly reversed and replaced by fiscal austerity. Why didn’t policymakers stick to their stodgy fixed-price models until they had done their work? Why abandon them in 2009, when Western economies were still 4-5% below their pre-crash levels?

The answer I would give is that when Keynes was briefly exhumed for six months in 2008-2009, it was for political, not intellectual, reasons. Because the New Keynesian models did not offer a sufficient basis for maintaining Keynesian policies once the economic emergency had been overcome, they were quickly abandoned.

Krugman comes close to acknowledging this: New Keynesians, he writes, “start with rational behavior and market equilibrium as a baseline, and try to get economic dysfunction by tweaking that baseline at the edges.” Such tweaks enable New Keynesian models to generate temporary real effects from nominal shocks, and thus justify quite radical intervention in times of emergency. But no tweaks can create a strong enough case to justify sustained interventionist policy.

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The problem for New Keynesian macroeconomists is that they fail to acknowledge radical uncertainty in their models, leaving them without any theory of what to do in good times in order to avoid the bad times. Their focus on nominal wage and price rigidities implies that if these factors were absent, equilibrium would readily be achieved. They regard the financial sector as neutral, not as fundamental (capitalism’s “ephor,” as Joseph Schumpeter put it).

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Image result for paul a samuelson

Paul Anthony Samuelson (1915-2009)

Without acknowledgement of uncertainty, saltwater economics is bound to collapse into its freshwater counterpart. New Keynesian “tweaking” will create limited political space for intervention, but not nearly enough to do a proper job. So Krugman’s argument, while provocative, is certainly not conclusive. Macroeconomics still needs to come up with a big new idea.

*Lord Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

 

Next to Read:

https://www.project-syndicate.org/commentary/paul-samuelson-economic-crisis-by-robert-skidelsky-2015-01

https://www.project-syndicate.org/onpoint/economics-in-transition-by-diane-coyle-2017-06

The one-year-old Trump Presidency


January 16, 2018

American politics

The one-year-old Trump Presidency

Is it really this bad?

Print edition | Leaders

Mr Trump has been a poor President in his first year. In his second he may cause America grave damage. But the presidential telenovela is a diversion. He and his administration need to be held properly to account for what they actually do.–The Economist

ALMOST one year into Donald Trump’s Presidency, you have to pinch yourself to make sense of it all. In “Fire and Fury”, Michael Wolff’s gossipy tale of the White House, which did not welcome Mr Trump’s anniversary so much as punch it in the face, the leader of the free world is portrayed as a monstrously selfish toddler-emperor seen by his own staff as unfit for office (see article). America is caught up in a debate about the president’s sanity. Seemingly unable to contain himself, Mr Trump fans the flames by taking to Twitter to crow about his “very stable genius” and, in a threat to North Korea, to boast about the impressive size of his nuclear button.

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Trump-watching is compulsive—who hasn’t waited guiltily for the next tweet with horrified anticipation? Given how much rests on the man’s shoulders, and how ill-suited he is to the presidency, the focus on Mr Trump’s character is both reasonable and necessary. But, as a record of his presidency so far, it is also incomplete and a dangerous distraction.

Many happy retweets

To see why it is incomplete, consider first that the American economy is in fine fettle, growing by an annualised 3.2% in the third quarter (see article). Blue-collar wage growth is outstripping the rest of the economy. Since Barack Obama left, unemployment has continued to fall and the stockmarket to climb. Mr Trump is lucky—the world economy is enjoying its strongest synchronised upswing since 2010. But he has made his luck by convincing corporate America that he is on its side. For many Americans, especially those disillusioned with Washington, a jeremiad over the imminent threat to all of America from Mr Trump simply does not ring true.

Image result for Donald Trump

Despite his grenade-throwing campaign, Mr Trump has not carried out his worst threats. As a candidate he spoke about slapping 45% tariffs on all Chinese goods and rewriting or ditching the North American Free-Trade Agreement with Canada and Mexico. There may soon be trouble on both those fronts, but not on that original scale (see article). He also branded NATO as obsolete and proposed the mass deportation of 11m illegal immigrants. So far, however, the Western alliance holds and the level of deportations in the 12 months to September 2017 was not strikingly different from earlier years.

In office Mr Trump’s legislative accomplishments have been modest, and mixed. A tax reform that cut rates and simplified some of the rules was also regressive and unfunded. His antipathy to regulation has invigorated animal spirits, but at an unknown cost to the environment and human health. His proposed withdrawal from the Paris climate agreement and the fledgling Trans-Pacific Partnership was, in our view, foolish, but hardly beyond the pale of Republican thinking.

His opportunism and lack of principle, while shameful, may yet mean that he is more open to deals than most of his predecessors. Just this week, he combined a harsh plan to deport Salvadoreans who have temporary rights to live and work in America with the suggestion of a broad reform to immigration (see article). He also said that he will be going to Davos, where he will rub shoulders with the globalists.

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The danger of the Trump character obsession is that it distracts from deeper changes in America’s system of government. The bureaucracy is so understaffed that it is relying on industry hacks to draft policy. They have shaped deregulation and written clauses into the tax bill that pass costs from shareholders to society. Because Senate Republicans confirmed so few judges in Mr Obama’s last two years, Mr Trump is moving the judiciary dramatically to the right (see article). And non-stop outrage also drowns out Washington’s problem: the power of the swamp and its disconnection from ordinary voters.

Covfefe and other mysteries

As we have written repeatedly over the past year, Mr Trump is a deeply flawed man without the judgment or temperament to lead a great country. America is being damaged by his presidency. But, after a certain point, raking over his unfitness becomes an exercise in wish-fulfilment, because the subtext is so often the desire for his early removal from office.

Image result for robert muellerUS Special Prober Robert Mueller–Someone is not telling the truth

 

For the time being that is a fantasy. The Mueller probe into his campaign’s dealings with Russia should run its course. Only then can America hope to gauge whether his conduct meets the test for impeachment. Ousting Mr Trump via the 25th Amendment, as some favour, would be even harder. The type of incapacity its authors had in mind was a comatose John F. Kennedy had he survived his assassination. Mr Trump’s mental state is impossible to diagnose from afar, but he does not appear to be any madder than he was when the voters chose him over Hillary Clinton (see article). Unless he can no longer recognise himself in the mirror (which, in Mr Trump’s case, would surely be one of the last powers to fade) neither his cabinet nor Congress will vote him out.

Neither should they. Alarm at Mr Trump’s vandalism to the dignity and norms of the presidency cuts both ways. Were it easy for a group of Washington insiders to remove a president using the 25th Amendment, American democracy would swerve towards oligarchy. The rush to condemn, or exonerate, Mr Trump before Mr Mueller finishes his inquiry politicises justice. Each time Mr Trump’s critics put their aim of stopping him before their means of doing so, they feed partisanship and help set a precedent that will someday be used against a good president fighting a worthy but unpopular cause.

That logic holds for North Korea, too. Mr Trump is not the first president to raise questions about who is fit to control nuclear weapons—consider Richard Nixon’s drinking or Kennedy’s reliance on painkillers, anti-anxiety drugs and, during the Cuban Missile Crisis, an antipsychotic. Ousting Mr Trump on the gut feeling that he might be mentally unstable smacks of a coup. Would you then remove a hawk for being trigger-happy or an evangelical for believing in the Rapture?

Mr Trump has been a poor president in his first year. In his second he may cause America grave damage. But the presidential telenovela is a diversion. He and his administration need to be held properly to account for what they actually do.

This article appeared in the Leaders section of the print edition under the headline “One year old”

Trump’s Threat to Democracy


January 13, 2018

by Nicholas Kristof

Image result for The Trump

Two political scientists specializing in how democracies decay and die have compiled four warning signs to determine if a political leader is a dangerous authoritarian:

1. The leader shows only a weak commitment to democratic rules. 2. He or she denies the legitimacy of opponents. 3. He or she tolerates violence. 4. He or she shows some willingness to curb civil liberties or the media.

“A politician who meets even one of these criteria is cause for concern,” Steven Levitsky and Daniel Ziblatt, both professors at Harvard, write in their important new book, “How Democracies Die,” which will be released next week.

Image result for Richard Milhous NixonWill Donald J. Trump do a Nixon, that is resign in the national interest?

“With the exception of Richard Nixon, no major-party presidential candidate met even one of these four criteria over the last century,” they say, which sounds reassuring. Unfortunately, they have one update: “Donald Trump met them all.”

We tend to assume that the threat to democracies comes from coups or violent revolutions, but the authors say that in modern times, democracies are more likely to wither at the hands of insiders who gain power initially through elections. That’s what happened, to one degree or another, in Russia, the Philippines, Turkey, Venezuela, Ecuador, Hungary, Nicaragua, Sri Lanka, Ukraine, Poland and Peru.

Venezuela was a relatively prosperous democracy, for example, when the populist demagogue Hugo Chávez tapped the frustrations of ordinary citizens to be elected president in 1998.

A survey that year found that the Venezuelan public overwhelmingly believed that “democracy is always the best form of government,” with only one-quarter saying that authoritarianism is sometimes preferable. Yet against their will, Venezuelans slid into autocracy.

Image result for Steven Levitsky and Daniel Ziblatt

“This is how democracies now die,” Levitsky and Ziblatt write. “Democratic backsliding today begins at the ballot box.”

Likewise, the authors say, no more than 2 percent of Germans or Italians joined the Nazi or Fascist Parties before they gained power, and early on there doesn’t seem to have been clear majority support for authoritarianism in either Germany or Italy. But both Hitler and Mussolini were shrewd demagogues who benefited from the blindness of political insiders who accommodated them.

Let me say right here that I don’t for a moment think the United States will follow the path of Venezuela, Germany or Italy. Yes, I do see in Trump these authoritarian tendencies — plus a troubling fondness for other authoritarians, like Vladimir Putin in Russia and Rodrigo Duterte in the Philippines — but I’m confident our institutions are stronger than Trump.

It’s true that he has tried to undermine institutions and referees of our political system: judges, the Justice Department, law enforcement agencies like the F.B.I., the intelligence community, the news media, the opposition party and Congress. But to his great frustration, American institutions have mostly passed the stress test with flying colors.

“President Trump followed the electoral authoritarian script during his first year,” Levitsky and Ziblatt conclude. “He made efforts to capture the referees, sideline the key players who might halt him, and tilt the playing field. But the president has talked more than he has acted, and his most notorious threats have not been realized. … Little actual backsliding occurred in 2017.”

That seems right to me: The system worked. And yet.

For all my confidence that our institutions will trump Trump, the chipping away at the integrity of our institutions and norms does worry me. Levitsky and Ziblatt warn of the unraveling of democratic norms — norms such as treating the other side as rivals rather than as enemies, condemning violence and bigotry, and so on. This unraveling was underway long before Trump (Newt Gingrich nudged it along in the 1990s), but Trump accelerated it.

It matters when Trump denounces the “deep state Justice Department,” calls Hillary Clinton a “criminal” and urges “jail” for Huma Abedin, denounces journalists as the “enemy of the American people” and promises to pay the legal fees of supporters who “beat the crap” out of protesters. With such bombast, Trump is beating the crap out of American norms.

I asked the authors how we citizens can most effectively resist an authoritarian president. The answer, they said, is not for Trump opponents to demonize the other side or to adopt scorched-earth tactics, for this can result in “a death spiral in which rule-breaking becomes pandemic.” It’s also not terribly effective, as we’ve seen in Venezuela.

Rather, they suggested protesting vigorously — but above all, in defense of rights and institutions, not just against the ruler. They emphasized that it’s critical to build coalitions, even if that means making painful compromises, so that protests are very broadly based.

Image result for Protesting in the US

“If these actions are limited to blue-state progressives, the risk of failure and/or deeper polarization is very high,” Levitsky told me in an interview. “Extraordinary measures are sometimes necessary to defend democracy, but they should rest on extraordinary coalitions — coalitions that include business leaders, religious leaders and crucially, as many conservatives and Republicans as possible.”

Trump’s Abominable Snow Job


January 12, 2018

Trump’s Abominable Snow Job

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“America first” means workers come last– The Abominable Snowman.

In the 2016 US Presidential Election, Donald Trump presented himself as a populist who would protect America’s “forgotten” workers from the disruptions of trade and immigration and the nefarious designs of unnamed elites. But, a year after assuming office, it has become abundantly clear that “America first” means workers come last.

Almost one year ago, beneath a gray sky and before a middling crowd, Donald Trump was sworn in as US President. In his inaugural address, he vowed that, “Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families.” And to the “forgotten men and women of our country,” he vowed, “I will never, ever let you down.”

Trump had campaigned on a promise to tear up “unfair” trade agreements and crack down on immigration. And in his first weeks and months in office, he abandoned the Trans-Pacific Partnership (TPP). He announced America’s withdrawal from the Paris climate agreement. He banned entry to the United States for Muslims from seven countries. And he has cleared the way for the deportation of hundreds of thousands of Latin Americans who have been living in the US legally for a generation or more.

But, as Trump prepares to deliver his second “State of the Union” address, it is clear that many other major promises have fallen by the wayside. The wall he promised to erect on the border with Mexico is no closer to being built than it was a year ago. The 2010 Affordable Care Act (Obamacare) remains un-repealed. American infrastructure remains neglected and underfunded. And, rather than “drain the swamp” of entrenched insiders and vested interests that shape so much US policy, he’s stocked it with bigger alligators.

To be sure, Trump’s predecessors had similar failures. Barack Obama never did manage to shut down the US military prison at Guantánamo Bay. George W. Bush failed to enact comprehensive immigration reform. And Bill Clinton could not deliver on health care. But they at least upheld the spirit of their commitments.

As Project Syndicate commentators have documented, the same cannot be said for Trump. During his first year in office, US domestic and foreign policies have amounted to a full-scale betrayal of American workers and families, including those in Michigan, Pennsylvania, and Wisconsin to whom he owes his presidency. And, with his approval ratings pinned at historic lows, many others who voted for him in 2016 presumably feel the same way.

Soaking the 99%

The Trump policies that will most obviously affect American workers and families relate to health care and taxes. After joining with congressional Republicans last spring and summer in a failed attempt to repeal Obamacare, the Trump administration introduced regulations to bypass key provisions of the law, such as a new rule allowing companies and organizations to band together to purchase skimpier coverage. Trump says his executive orders are intended to shore up wobbly insurance markets, but many observers expect the measures to drive up premiums for millions of Americans and introduce new inequities in coverage over time.

 Image result for joseph stiglitzColumbia’s Nobel Laureate Joseph Stiglitz

The Tax Cuts and Jobs Act of 2017, signed in December, similarly backloads the pain. In the near term, American workers will see modest bumps in their paychecks. But within the next decade, Nobel laureate economist Joseph E. Stiglitz notes, the law “will increase taxes on a majority of Americans in the middle (the second, third, and fourth quintiles),” and add at least $1-1.5 trillion to the deficit by 2027, all so that tax cuts for corporations can remain permanent.

That timing, says Nouriel Roubini of New York University, is no coincidence. The tax plan was designed with the 2018 midterm congressional election firmly in mind. Until then, Roubini explains, Trump and the Republicans “can brag about cutting taxes on most households.” And after that, “they can expect to see the economic-stimulus effects of tax cuts peak in 2019, just before the next presidential election – and long before the bill comes due.”

But both Stiglitz and Roubini are skeptical that the GOP’s ruse will work. After all, Stiglitz writes, “voters are not so easily manipulated,” and there is much in the Trump tax package that workers, in particular, should regard skeptically.

For example, despite Trump’s promise to “bring back” jobs to the US, Roubini shows that provisions in the tax law “will give US multinationals an even greater incentive to invest, hire, and produce abroad.” And, contrary to Trump’s campaign promise that “no one will lose [health-insurance] coverage,” the tax law repeals Obamacare’s individual mandate, which “will cause 13 million people to lose health insurance, and insurance premiums to rise by 10%, over the next decade.”

Moreover, as Stiglitz points out, contrary to Trump’s explicit promise to “eliminate the carried-interest deduction and other special interest loopholes that have been so good for Wall Street investors,” the dodges remain intact, and will continue to be exploited by “job-destroying private-equity firms.” The tax law also does little for workers whose jobs have been eliminated or displaced. As the University of California, Berkeley, economist Laura Tyson and Lenny Mendonca of New America observe, the law “prioritizes investment in physical and financial capital over what the US really needs: more investment in human capital and lifelong learning to help workers and communities cope with the disruptive effects of automation and artificial intelligence.”

 

Image result for laura tysonLaura Tyson@ University of California

 

But that is not all. Tyson and Mendonca remind us that the law will also heap costs on Americans living in Democratic-leaning states such as New York and California, by imposing an “across-the-board limit on mortgage deductions,” and “by capping the federal deduction for state and local income and property taxes.” The combined effect of these provisions, Tyson and Mendonca conclude, will be to increase “the marginal tax rate on millions of workers in the country’s most productive locales and industries.” Rather than encouraging innovation, Trump’s tax law will stifle it.

Economic Impossibilities for Our Grandchildren

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Jeffrey Frankel
Beyond the tax plan’s immediate, concrete effects, it could also have adverse long-term implications for US economic growth and prosperity. Harvard University’s Jeffrey Frankel points out that, whereas previous Republican tax cuts, such as in the early 1980s, came after economic downturns, the new law lands on an economy that is already near full employment. That means it could hasten the rate at which the US Federal Reserve will raise interest rates, which, Stiglitz notes, will lead to slower “investment, and thus growth,” regardless of whether “the consumption of the very rich increases.”
 

Frankel also laments that the law will reduce government revenue at a time when baby boomers are “retiring at a rate of about 10,000 people per day, meaning that Medicare and Social Security outlays – for health insurance and pensions, respectively – will increase rapidly.” Such cost increases, Roubini says, play directly into the “starve the beast” strategy long beloved of congressional Republicans, whereby party leaders will “use the higher deficits from tax cuts to argue for cuts” in social programs for “elderly, middle-class, and low-income Americans.” But, while Speaker of the House of Representatives Paul Ryan has already expressed his eagerness to pursue entitlement reform in 2018, Senate Majority Leader Mitch McConnell is much more reluctant.

In fact, the argument for entitlement reform – that US government debt is unsustainable and must be reined in – contradicts a central claim behind the Trump/Republican tax plan: that it will generate enough growth to cover most of its costs. As Stephen S. Roach of Yale University explains, this is the classic supply-side argument to which America now owes its swelling debt. After the Reagan-era tax cuts, Roach observes, “federal budget deficits ballooned to 3.8% of GDP during the 1980s, taking public debt from 25% of GDP in 1980 to 41% by 1990”; moreover, the US current account has “remained in deficit ever since (with the exception of a temporary reprieve in the first two quarters of 1991 due to external funding of the Gulf War).”

Higher deficits, former Greek Finance Minister Yanis Varoufakis reminds us, imply “higher long-term tax bills” for American workers down the road. Of course, taxpayers might be willing to accept that if the law’s corporate-tax provisions translate into higher wages across the board. But will they?

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Harvard’s Martin Feldstein

 

Harvard University’s Martin Feldstein, who believes the “economic benefits resulting from the corporate tax changes will outweigh the adverse effects of the increased debt,” is cautiously optimistic. Before the law passed, he predicted that reducing the corporate-tax rate from 35% to 20% (the final bill reduces it to 21%) would make the US far more competitive. And that, in turn, “will attract capital to the US corporate sector,” translating into higher “productivity and real wages,” possibly to the tune of “$4,000 per household in today’s dollars” by 2027.

But as Roach points out, US companies already “pay a surprisingly low effective corporate tax rate – just 22% – when judged against post-World War II experience.” The US is already third in the World Economic Forum’s yearly ranking of international competitiveness. And, at 9% of gross domestic income, “the current GDP share of after-tax [corporate] profits is well above the post-1980 average of 7.6%.”

Moreover, Tyson and Mendonca point to a “large body of economic research” showing that, “at most, 20-25% of the benefits of corporate tax cuts will accrue to labor; the rest will go to shareholders, about one-third of whom are foreign.” That suggests the long-run trend of wage gains trailing behind productivity growth could continue. While corporate profits have been rising, Roach observes, “the share of national income going to labor has been declining.” There is no reason to expect the Republicans’ tax legislation to change that.

The Great Growth Debate

Still, in the lead-up to the bill’s passage, Harvard’s Robert J. Barro pointed to three provisions in the tax plan that he believes will induce substantial business investment, and thus growth in output and employment. In addition to lowering the corporate-tax rate, the law also allows companies to write off the full cost of new equipment immediately, rather than over time; and it shortens from 39 to 25 years the period for writing off non-residential business structures. According to Barro’s calculation, the new tax regime will “raise long-run capital-labor ratios by 25% for non-residential corporate structures and 17% for corporate equipment,” implying “a large long-run increase in real per capita GDP – by around 7%.”

 

Image result for Harvard's Larry SummersHarvard’s Lawrence H. Summers

 

But Barro’s Harvard colleagues, Jason Furman and Lawrence H. Summers, who both served as senior economic advisers to Obama, criticized Barro’s analysis for making “the least favorable assumptions about current law and the most favorable assumptions about future policy” under the Trump/Republican plan. Using Barro’s own model, Furman and Summers calculate that the tax law will “yield an increase in the level of long-run GDP of about 1%.” That prediction is in line with assessments from most other economists and official budget scorers, including, they note, the “Republican-appointed Joint Committee on Taxation.”

In his own contribution to the tax debate, Stanford University’s Michael J. Boskin – who co-signed an open letter in November with Barro and seven other economists promoting the tax package’s growth potential – suggests that Furman and Summers have underestimated key effects of the bill. The impact of equipment investment on GDP growth, he contends, is “much larger than in the conventional models used in most studies, including those relied on by government revenue scorers,” owing to the “learning-by-doing effects” associated with new technologies.

Then again, tax policies are not the only factor weighing on investment decisions. Roach, for his part, suspects that weak business investment in recent years may be “due less to onerous taxes and regulatory strangulation, and more to an unprecedented shortfall of aggregate demand,” the latter being a more salient driver of capital expenditures. The extent to which the tax package will stimulate demand remains to be seen, and much will depend on whether Republicans follow through on spending cuts this year. If they do, Barry Eichengreen of the University of California, Berkeley expects the ax to fall on programs that benefit “hand-to-mouth consumers, who will reduce their own spending dollar for dollar, denting aggregate demand.”

“America First,” Workers Last

Furnishing workers with more bargaining power could help to boost wages, and thus demand. And yet, as Roubini observes, Trump’s “deregulatory policies are blatantly biased against workers and unions.” The Trump administration has proposed deep cuts to the Occupational Safety and Health Administration, which polices workplace safety. And it has sided with corporations over workers in pending court cases, including one before the Supreme Court that could decide whether employees may be forced to sign arbitration agreements barring them from joining class-action lawsuits against their employers.

Likewise, Christopher Smart of the Carnegie Endowment for International Peace argues that Trump’s decision to abandon the TPP will actually make it harder for American workers to compete with cheaper labor abroad. Under the TPP, Smart explains, “Countries as diverse as Peru, Vietnam, and Mexico would have signed on to labor laws enshrining workers’ rights to form independent unions and engage in collective bargaining,” thus raising the cost of their labor vis-à-vis American workers. Of course, if a new Japanese-led effort to resuscitate the TPP succeeds, the 11 remaining Pacific-rim countries could still agree to higher uniform labor standards. But with the US remaining outside the proposed trade bloc, it will have less leverage to address other countries’ violations.

 

Image result for Bill Emmott,Bill Emmott

Elsewhere on the trade front, Bill Emmott, a former editor-in-chief of The Economist, notes that, “Trump has often huffed and puffed about other countries’ unfair trade practices, just as he did during the 2016 election campaign; but he has done little to turn words into deeds.” After promising to label China a currency manipulator, for example, Trump has (wisely) abstained from following through. Still, Emmott expects Trump to ramp up his protectionist policies this year, now that tax cuts are behind him.

In December, the White House gave a preview of what that agenda might look like with the release of its National Security Strategy, which places an unprecedented emphasis on economics. In Feldstein’s view, the Trump NSS includes some “valuable initiatives” for “dealing with foreign trade” – including stepped-up efforts to crackdown on intellectual-property theft. The problem, for Feldstein, is that the NSS singles out “unfair policies pursued by China and other countries, without distinguishing between those that hurt American interests and those that, though ‘unfair,’ actually help Americans.”

The fear now is that Trump will take a broad approach and either eliminate Chinese policies that are good for American consumers – such as exporting excess goods at fire-sale prices – or precipitate a full-scale trade war. If the latter happens, Kaushik Basu of Cornell University warns, no country “will suffer more than the US itself.”

Trump’s first-year record on immigration is a similarly mixed bag. After multiple tries, he managed to implement a Muslim-focused travel ban that passes judicial muster (it now also bars travelers from North Korea and Venezuela). And yet it is not clear what, if anything, his immigration policies have done for American workers, even those who believe that immigrants take American jobs and contribute less to the economy than they consume in public services. After all, notes Roubini, “the ‘Muslim ban’ doesn’t affect the supply of labor in the US”; nor does “the administration’s plan favor skilled over unskilled workers.” In fact, as Harvard’s Kenneth Rogoff warns, measures that “sharply reduce immigration” would “have significant adverse effects on growth,” and thus on jobs and wages.

Nationalism for Dunces

In his inaugural address, Trump also promised to “reinforce old alliances and form new ones,” and to “seek friendship and goodwill with the nations of the world,” while always putting “America first.” Foreign policy does not have as obvious an effect on US workers and households as tax cuts do. But if an incompetent or dangerous administration were to undermine the US dollar’s standing as the world’s main reserve currency, that loss of status would most likely prove to be more consequential than any domestic legislation.

Image result for Benjamin J. Cohen Benjamin J. Cohen, University of California@ Santa Barbara

The dollar’s exalted status in global financial markets, explains Benjamin J. Cohen of the University of California, Santa Barbara, is what allows America to “go on spending whatever it needs to sustain its many security commitments around the world, and to finance its trade and budget deficits.” If other countries suddenly soured on the dollar, the US could experience capital flight; at a minimum, the government would have to pay more to service its existing debt, implying a larger burden on taxpayers.

As it happens, the dollar performed poorly during Trump’s first year, losing almost 10% of its value when one might have expected it to appreciate with the strengthening of the US economy, a widening interest-rate differential with other advanced economies, and the promise of corporate-tax cuts. Last August, Cohen observed that, after Trump’s tweet threatening North Korean dictator Kim Jong-un with “fire and fury” – and even before his refusal to recertify the Iran nuclear deal – investors were “looking for alternative safe havens in other markets, from Switzerland to Japan.”

Similarly, Eichengreen cautioned in October that if the Trump administration continues to discredit America in the eyes of its allies, it could provoke a dollar crisis. Eichengreen imagines a scenario in which South Korea and Japan – both of which are “thought to hold about 80% of their international reserves in dollars” – are forced to find a new financial refuge. A failure on Trump’s part to manage the North Korean nuclear crisis, for example, could create an opening for China to step in. “And where China leads geopolitically,” Eichengreen writes, “its currency, the renminbi, is likely to follow.”

 

Image result for Christopher R. HillAmbassador Christopher R. Hill

 

If that sounds far-fetched, bear in mind that North Korea has now bypassed the US altogether to hold talks with South Korea, with China’s blessing. Meanwhile, notes Christopher R. Hill, the chief US negotiator with North Korea during George W. Bush’s presidency, Trump has made it increasingly clear “that he has no idea what to do next” when it comes to Kim’s regime. Indeed, a year ago this month, Trump responded to Kim’s threat to test a new ballistic missile by tweeting, “It won’t happen!” Since then, North Korea has conducted eight missile tests – demonstrating, among other things, that the regime now has the capability to strike the US mainland – and what appears to have been its first test of a hydrogen bomb.

As 2017 came to an end, the Trump administration had further discredited itself with its approach to the Middle East. Trump’s unilateral decision in early December to recognize Jerusalem as Israel’s capital, notes Columbia University’s Jeffrey D. Sachs, was immediately and “overwhelmingly rejected” by most United Nations member states, including many US allies. According to the Palestinian journalist Daoud Kuttab, the decision also defies the wishes of most Americans, and seemed to be aimed at satisfying Trump’s “small base of US Christian Zionist evangelicals,” as well as leading Republican donors such as the casino magnate Sheldon Adelson.

As anyone familiar with the Middle East could have predicted, Trump’s Jerusalem policy has already proved self-defeating. According to Shlomo Ben-Ami, a former Israeli foreign minister, “anti-American powers” such as Hezbollah, Iran, Russia, and Turkey have wasted no time in taking “Trump’s divisive decision as an opportunity to enhance their own regional influence, at the expense of the US and its allies.”

 

Image result for Richard N. HaassCouncil on Foreign Relations’ Richard N. Haass

 

At the same time, Trump has invited still more international derision by insisting that his decision on Jerusalem – for which he received nothing in return from Israel – still leaves the door open for a two-state solution to the Israel-Palestine conflict. In fact, warns former German Foreign Minister Joschka Fischer, “America’s recognition of Jerusalem as Israel’s capital could mean the end of the two-state solution once and for all.” At a minimum, argues Richard N. Haass, the president of the Council on Foreign Relations, Trump has squandered the opportunity created by an ongoing rapprochement between Israel and Sunni Arab powers that share its interest in countering Iran.

Before Trump’s decision, Saudi Arabia might have been willing to back or even help lead an effort to end the Israel-Palestine conflict, which itself would have solidified the region’s anti-Iranian opposition. But now, Haass notes, the Saudis will be “reluctant to be associated with a plan that many will deem a sellout.” Ultimately, they “are likely to prove much less of a diplomatic partner than the White House had counted on.” In other words, Trump’s recklessness could leave the US sidelined and humiliated yet again.

As with Trump’s domestic record, it is hard to see how alienating allies, escalating nuclear tensions with North Korea, fomenting anti-American sentiment around the world, and threatening the international standing of the dollar will do anything to “benefit American workers and American families.” Far more likely, laments Ian Buruma of the New York Review of Books, is that the Trump presidency will “turn out very badly” for his supporters, to say nothing of the majority of Americans who never supported his agenda.

Debate Professor Shad Saleem Faruqi


December 25, 2017

Debate Professor Shad Saleem Faruqi

by S.Thayaparan @www.malaysiakini.com

COMMENT | “Iksim propounds the view that Islam does not come under the jurisdiction of any political power. According to it, religious enforcement authorities come under the patronage of the Sultans, not state governments. This is a remarkable vision of an autonomous, almost all-powerful, religious elite that is like a state within a state.” – Shad Saleem Faruqi

I have often referenced Pprofessor Shad Saleem Faruqi’s articles in my articles, sometimes agreeing; sometimes disagreeing with what he writes.

If someone were to tell me that Shad’s intention in anything he ever wrote was to insult or breach the peace, I would burst out in hysterical laughter. This academic (unlike this writer) has never written a polemic, as far as I can tell. In addition, I have probably read everything this man has written.

If you have not read the article, that has got Iksim all in a rage, I suggest that you read it and determine if anything in that article warrants the state security apparatus “probing” this academic under section 504 of the Penal code.

Image result for datuk noor farida ariffin

Instead of engaging intellectually with Shad, Iksim resorted to the Islamists playbook and issued a public statement claiming that Faruqi and the G25 (Noor Farida Ariffin specifically) were attempting to cause racial disharmony and subverting the Islamic agenda as enshrined in the Federal Constitution. You can read the full statement here but the relevant passage is this:

“Tohmahan-tohmahan liar berkenaan termasuk oleh Prof Emeritus Shad Saleem Faruqi dan Datuk Noor Faridah Ariffin dari puak G25 dilihat sebagai satu cubaan untuk mencetuskan perasaan permusuhan antara kaum dan agama di negara ini. Kedua-dua mereka jelas menentang pemikiranpemikiran ke arah mendaulatkan Islam sebagai agama Negara sekalipun ia jelas termaktub dalam Perkara 3(1) dan sumpah Yang di-Pertuan Agong di bawah perkara 37(1) Perlembagaan Persekutuan.” 

In the quote that begins this piece, the good professor, questions Iksim’s perspective that Islam does not come under the purview of any political power likening such a perspective to a “state within a state.”

If you read the press statement and consider Iksim’s rationale for going after Shad and the G25, you would come to the realisation that their “unique” interpretation of the Malaysian constitution and of Islam in general, is exactly the “state within a state” idea that Shad alludes to in the quote I referenced.

Have you noticed that Islamists always claim that the people they target are attempting to cause tension amongst the various ethnic groups here in Malaysia? Is there any evidence of this? Are non-Muslims threatened or provoked by what people targeted by groups like Iksim say and do? I would argue that the only people threatened or provoked are the Islamist and the reason why they are threatened is that their views or beliefs are challenged.

Furthermore, Iksim has not rebutted the points raised in Shad’s article. They have not claimed that what he wrote was false or fallacious. They have not denied the agenda he attributes to them. What they have done, is use the state to sanction the professor and intimidate any others who subscribe to his views.

Indeed by their own admission (as quoted by Shad referencing their March 28 booklet), – “secularism, liberalism and cultural diversity are elements that will undermine the Islamic agenda and destroy the country’s sovereignty”.

In other words, according to Iksim, everything that non-Muslims value and probably a majority of Muslims are detrimental to the Islamic agenda in this country. Therefore, when Umno potentates talk of cultural diversity and protecting the faiths of non-Muslims, this is detrimental to the Islamic agenda of this country.

When UMNO potentates talk about the rich cultural diversity and the need to respect different cultures as envisioned by the founders of this country and which is great for tourism, this is detrimental to the Islamic agenda of the country.

When “liberalism” redefined as “moderation” – Islamic or otherwise – is bandied about as the foundation for economic, social and religious success by the establishment, this undermines the Islamic agenda in this country.

And you know what, they are correct. If you believe in the kind of Islam they believe in and the kind of Islam that the House of Saud, is slowly and painfully attempting to reject, all these concepts are detrimental to turning this country into an Islamic state.

An Islamic state where the primacy of syariah law and the submission of Muslims and non-Muslims to a theocratic hegemon is the natural order of things which is the desired state – and state of being – of Islamists like Iksim.

‘Islamists not interested in debate’

A couple of months ago, the crypto-fascists got their knickers in a twist when I wrote that, liberalism is only a threat to the kind of Islam tyrants preach – “Those people who fear ‘liberalism’ however they define it, in reality, fear the loss of power when empowered societies choose alternatives. So yes, liberalism is a threat to the kind of Islam they preach. Mind you they may actually win in a ‘fair’ democratic contest because that is one of the perils of democracy. Beyond institutional safeguards, democracy is a risky endeavour, but I would take it to anything these Islamists have to offer.”

While Shad Faruqi has invited them to debate and challenge his views, the reality is that Islamists are not interested in debate or discussion. Their only interest is submission. This is why they have no need for freedom of speech and expression.

There is enough empirical evidence to demonstrate that such concepts are anathema to the kind of Islam they wish to promulgate.

In many of my articles where I discuss the numerous provocations of the state-sanctioned Islam in the private and public lives of non-Muslims in Malaysia, I have always made it clear that the people feeling the brunt of a state-sanctioned religion is the majority, Malay Muslim population.

I have also made it clear, that Malay Muslim public intellectuals, academics and writers, are at the mercy of the state conspiring with various Islamists groups – sub rosa and overt – who sanction behaviour that they and they alone determine to be a threat to the state sanctioned religion.

Ultimately, Siti Kassim (will someone elect her already) has the right of it, when in her Facebook page, she wrote: “We must stand with Professor Shad Faruqi. We should never allow these extremists group taking over our country. Never. Never. Never.”


S THAYAPARAN is Commander (Rtd) of the Royal Malaysian Navy

The United States of America Is Decadent and Depraved


December 23, 2017

The United States of America Is Decadent and Depraved

The problem isn’t Donald Trump – it’s the Donald Trump in all of us.

Image result for The Donald Trump in all of us

In The History of the Decline and Fall of The Roman Empire, Edward Gibbon luridly evokes the Rome of 408 A.D., when the armies of the Goths prepared to descend upon the city. The marks of imperial decadence appeared not only in grotesque displays of public opulence and waste, but also in the collapse of faith in reason and science. The people of Rome, Gibbon writes, fell prey to “a puerile superstition” promoted by astrologers and to soothsayers who claimed “to read in the entrails of victims the signs of future greatness and prosperity.”

Would a latter-day Gibbon describe today’s America as “decadent”? I recently heard a prominent, and pro-American, French thinker (who was speaking off the record) say just that. He was moved to use the word after watching endless news accounts of U.S. President Donald Trump’s tweets alternate with endless revelations of sexual harassment. I flinched, perhaps because a Frenchman accusing Americans of decadence seems contrary to the order of nature. And the reaction to Harvey Weinstein et al. is scarcely a sign of hysterical puritanism, as I suppose he was implying.

And yet, the shoe fit. The sensation of creeping rot evoked by that word seems terribly apt.

Perhaps in a democracy the distinctive feature of decadence is not debauchery but terminal self-absorption

Perhaps in a democracy the distinctive feature of decadence is not debauchery but terminal self-absorption

— the loss of the capacity for collective action, the belief in common purpose, even the acceptance of a common form of reasoning. We listen to necromancers who prophesy great things while they lead us into disaster. We sneer at the idea of a “public” and hold our fellow citizens in contempt. We think anyone who doesn’t pursue self-interest is a fool.

We cannot blame everything on Donald Trump, much though we might want to. In the decadent stage of the Roman Empire, or of Louis XVI’s France, or the dying days of the Habsburg Empire so brilliantly captured in Robert Musil’s The Man Without Qualities, decadence seeped downward from the rulers to the ruled. But in a democracy, the process operates reciprocally. A decadent elite licenses degraded behavior, and a debased public chooses its worst leaders. Then our Nero panders to our worst attributes — and we reward him for doing so.

“Decadence,” in short, describes a cultural, moral, and spiritual disorder — the Donald Trump in us. It is the right, of course, that first introduced the language of civilizational decay to American political discourse. A quarter of a century ago, Patrick Buchanan bellowed at the Republican National Convention that the two parties were fighting “a religious war … for the soul of America.” Former Speaker Newt Gingrich (R-Ga.) accused the Democrats of practicing “multicultural nihilistic hedonism,” of despising the values of ordinary Americans, of corruption, and of illegitimacy. That all-accusing voice became the voice of the Republican Party. Today it is not the nihilistic hedonism of imperial Rome that threatens American civilization but the furies unleashed by Gingrich and his kin.

The 2016 Republican primary was a bidding war in which the relatively calm voices — Jeb Bush and Marco Rubio — dropped out in the early rounds, while the consummately nasty Ted Cruz duked it out with the consummately cynical Donald Trump. A year’s worth of Trump’s cynicism, selfishness, and rage has only stoked the appetite of his supporters. The nation dodged a bullet last week when a colossal effort pushed Democratic nominee Doug Jones over the top in Alabama’s Senate special election. Nevertheless, the church-going folk of Alabama were perfectly prepared to choose a racist and a pedophile over a Democrat. Republican nominee Roy Moore almost became a senator by orchestrating a hatred of the other that was practically dehumanizing.

Image result for The Donald Trump in all of usAmerican voters disagreed with past Presidents. 2017 will be behind us soon. So the question is: Will  President Donald Trump be more presidential and can he behave like a global leader? He cannot be exclusively America First.–Din Merican

 

Trump functions as the impudent id of this culture of mass contempt.

Trump functions as the impudent id of this culture of mass contempt

Of course he has legitimized the language of xenophobia and racial hatred, but he has also legitimized the language of selfishness. During the campaign, Trump barely even made the effort that Mitt Romney did in 2012 to explain his money-making career in terms of public good. He boasted about the gimmicks he had deployed to avoid paying taxes. Yes, he had piled up debt and walked away from the wreckage he had made in Atlantic City. But it was a great deal for him! At the Democratic convention, then-Vice President Joe Biden recalled that the most terrifying words he heard growing up were, “You’re fired.” Biden may have thought he had struck a crushing blow. Then Americans elected the man who had uttered those words with demonic glee. Voters saw cruelty and naked self-aggrandizement as signs of steely determination.

Perhaps we can measure democratic decadence by the diminishing relevance of the word “we.” It is, after all, a premise of democratic politics that, while majorities choose, they do so in the name of collective good. Half a century ago, at the height of the civil rights era and Lyndon B. Johnson’s Great Society, democratic majorities even agreed to spend large sums not on themselves but on excluded minorities. The commitment sounds almost chivalric today. Do any of our leaders have the temerity even to suggest that a tax policy that might hurt one class — at least, one politically potent class — nevertheless benefits the nation?

There is, in fact, no purer example of the politics of decadence than the tax legislation that the President will soon sign. Of course the law favors the rich; Republican supply-side doctrine argues that tax cuts to the investor class promote economic growth. What distinguishes the current round of cuts from those of either Ronald Reagan or George W. Bush is, first, the way in which they blatantly benefit the president himself through the abolition of the alternative minimum tax and the special treatment of real estate income under new “pass-through” rules. We Americans are so numb by now that we hardly even take note of the mockery this implies of the public servant’s dedication to public good.

Second, and no less extraordinary, is the way the tax cuts have been targeted to help Republican voters and hurt Democrats, above all through the abolition or sharp reduction of the deductibility of state and local taxes. I certainly didn’t vote for Ronald Reagan, but I cannot imagine him using tax policy to reward supporters and punish opponents.

I certainly didn’t vote for Ronald Reagan, but I cannot imagine him using tax policy to reward supporters and punish opponents

He would have thought that grossly unpatriotic. The new tax cuts constitute the economic equivalent of gerrymandering. All parties play that game, it’s true; yet today’s Republicans have carried electoral gerrymandering to such an extreme as to jeopardize the constitutionally protected principle of “one man, one vote.” Inside much of the party, no stigma attaches to the conscious disenfranchisement of Democratic voters. Democrats are not “us.”

Finally, the tax cut is an exercise in willful blindness. The same no doubt could be said for the 1981 Reagan tax cuts, which predictably led to unprecedented deficits when Republicans as well as Democrats balked at making offsetting budget cuts. Yet at the time a whole band of officials in the White House and the Congress clamored, in some cases desperately, for such reductions. They accepted a realm of objective reality that existed separately from their own wishes. But in 2017, when the Congressional Budget Office and other neutral arbiters concluded that the tax cuts would not begin to pay for themselves, the White House and congressional leaders simply dismissed the forecasts as too gloomy.

Here is something genuinely new about our era: We lack not only a sense of shared citizenry or collective good, but even a shared body of fact or a collective mode of reasoning toward the truth.

We lack not only a sense of shared citizenry or collective good, but even a shared body of fact or a collective mode of reasoning toward the truth

 A thing that we wish to be true is true; if we wish it not to be true, it isn’t. Global warming is a hoax. Barack Obama was born in Africa. Neutral predictions of the effects of tax cuts on the budget must be wrong, because the effects they foresee are bad ones.

It is, of course, our president who finds in smoking entrails the proof of future greatness and prosperity. The reduction of all disagreeable facts and narratives to “fake news” will stand as one of Donald Trump’s most lasting contributions to American culture, far outliving his own tenure. He has, in effect, pressed gerrymandering into the cognitive realm. Your story fights my story; if I can enlist more people on the side of my story, I own the truth. And yet Trump is as much symptom as cause of our national disorder. The Washington Post recently reported that officials at the Center for Disease Control were ordered not to use words like “science-based,” apparently now regarded as disablingly left-leaning. But further reporting in the New York Times appears to show that the order came not from White House flunkies but from officials worried that Congress would reject funding proposals marred by the offensive terms. One of our two national political parties — and its supporters — now regards “science” as a fighting word. Where is our Robert Musil, our pitiless satirist and moralist, when we need him (or her)?

A democratic society becomes decadent when its politics, which is to say its fundamental means of adjudication, becomes morally and intellectually corrupt. But the loss of all regard for common ground is hardly limited to the political right, or for that matter to politics. We need only think of the ever-unfolding narrative of Harvey Weinstein, which has introduced us not only to one monstrous individual but also to a whole world of well-educated, well-paid, highly regarded professionals who made a very comfortable living protecting that monster. “When you quickly settle, there is no need to get into all the facts,” as one of his lawyers delicately advised.

This is, of course, what lawyers do, just as accountants are paid to help companies move their profits into tax-free havens. What is new and distinctive, however, is the lack of apology or embarrassment, the sheer blitheness of the contempt for the public good. When Teddy Roosevelt called the monopolists of his day “malefactors of great wealth,” the epithet stung — and stuck. Now the bankers and brokers and private equity barons who helped drive the nation’s economy into a ditch in 2008 react with outrage when they’re singled out for blame. Being a “wealth creator” means never having to say you’re sorry. Enough voters accept this proposition that Donald Trump paid no political price for unapologetic greed.

The worship of the marketplace, and thus the elevation of selfishness to a public virtue, is a doctrine that we associate with the libertarian right. But it has coursed through the culture as a self-justifying ideology for rich people of all political persuasions — perhaps also for people who merely dream of becoming rich.

Decadence is usually understood as an irreversible condition — the last stage before collapse. The court of Muhammad Shah, last of the Mughals to control the entirety of their empire, lost itself in music and dance while the Persian army rode toward the Red Fort. But as American decadence is distinctive, perhaps America’s fate may be, too. Even if it is written in the stars that China will supplant the United States as the world’s greatest power, other empires, Britain being the most obvious example and the one democracy among them, have surrendered the role of global hegemon without sliding into terminal decadence.

Can the United States emulate the stoic example of the country it once surpassed? I wonder.

Can the United States emulate the stoic example of the country it once surpassed? I wonder.

The British have the gift of ironic realism. When the time came to exit the stage, they shuffled off with a slightly embarrassed shrug. That, of course, is not the American way. When the stage manager beckons us into the wings we look for someone to hit — each other, or immigrants or Muslims or any other kind of not-us. Finding the reality of our situation inadmissible, like the deluded courtiers of the Shah of Iran, we slide into a malignant fantasy. 

But precisely because we are a democracy, because the values and the mental habits that define us move upward from the people as well as downward from their leaders, that process need not be inexorable. The prospect of sending Roy Moore to the Senate forced a good many conservative Republicans into what may have been painful acts of self-reflection. The revelations of widespread sexual abuse offer an opportunity for a cleansing moment of self-recognition — at least if we stop short of the hysterical overreaction that seems to govern almost everything in our lives.

Our political elite will continue to gratify our worst impulses so long as we continue to be governed by them. The only way back is to reclaim the common ground — political, moral, and even cognitive — that Donald Trump has lit on fire. Losing to China is hardly the worst thing that could happen to us. Losing ourselves is.

*James Traub is a contributing editor at Foreign Policy, a fellow at the Center on International Cooperation, and author of the book “John Quincy Adams: Militant Spirit.”

The United States of America Is Decadent and Depraved