Economic and Political Security today


July 10, 2018

Economic and Political Security today

by Editorial Board, ANU

http://www.eastasiaforum.org/2018/07/09/economic-and-political-security-today/
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The Trump administration in Washington has invoked security threats under Section 232 of the Trade Expansion Act of 1962 to impose punitive tariffs on imports of steel and aluminium. The next target is automobiles and parts and US$34 billion of Chinese imports. While it may sound plausible that dependence on these crucial industrial imports from potential adversaries might affect national security interests, there’s absolutely no responsible analysis that suggests they do. Security policy is dominating broader national strategy in the United States, while economic considerations affecting security in more important ways are taking a back seat.

 

Only 2 per cent of US military steel supplies are sourced abroad. As for automobiles, as the global auto association recently pointed out, ‘America does not go to war in a Ford Fiesta’. The national defence requirement for imported cars and parts is virtually zero. If US capacity for the production of civilian autos and trucks is relevant to national defence, it is stronger now as a result of trade and import competition than it has ever been. As the US National Association of Manufacturers says, import restrictions simply give an edge to foreign production. The unilateral imposition of tariffs or quotas under Section 232 would undermine the sector and broader manufacturing production and jobs in the United States, the association suggests. A weaker American economy undermines America’s military power.

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Donald Trump declares a Tariff War on China

National security arguments for these tariffs simply provide a fig leaf of ‘legal’ authority for President Trump to impose penalties on US trading partners, including Europe, Japan, China (which incidentally supplies only 3 per cent of US steel imports), South Korea and Canada — Australia having done a WTO-illegal deal to wriggle out — for totally spurious reasons.

False claims about the relationship between trade and national security are not just a figment of Mr Trump’s fantastical imagination. They are reflected in US National Security statements and the pronouncements of national security authorities in other countries, including in Australia. The Trump administration’s first National Security Strategy called China a ‘revisionist power’ that seeks to ‘displace the United States in the Indo-Pacific region’ and ‘shape a world antithetical to US values and interests’. It said that the engagement policy had ‘failed’ and that ‘great power competition’ had returned between the United States, China, and Russia. Soon after, the National Defense Strategy changed the primary focus of US strategy from fighting terrorism to preventing the threat to ‘US prosperity and security’ and ‘international order’ posed by China’s quest for ‘global pre-eminence’ and the leadership of an ‘authoritarian’ world.

It’s not that these claims should not be seriously evaluated; that’s exactly what should happen. But they should not be accepted as unchallengeable holy writ and dominate the national strategies of the United States and other countries. The issues in national economic strategy at stake for the people of the United States and other countries extend well beyond the competence of the security policy establishment, just as security issues extend beyond the competence of the economic policy establishment. Each needs to inform the other.

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Peter Drysdale and Shiro Armstrong in our lead essay this week look at better processes for getting the hard choices that Australia faces in strategic policy right. Like a number of other countries in Asia, the United States is Australia’s principal security partner and its major trading partner is China. Australia’s national interest comprehends both China and the United States — and security and economics need to be integrated into strategic decision making from the outset. Australia needs to be better placed to deal with the ongoing challenges from both countries (and others) in a world that’s become more complex.

‘The problem’, Drysdale and Armstrong suggest, ‘lies in how Australia’s strategic policy choices are currently being framed and made’.

‘Strategic policy is overwhelmingly framed from a security perspective in political–military terms. Yet the economic dimension of national power and influence is also central to the hard choices to be made on strategic policy. Economic policy and engagement reinforce and habituate a rules-based international order and, significantly, they create bigger, broader interests and pluralities in countries. Incorporating economic options with political–military elements in thinking about strategic policy broadens options for attaining both national security and prosperity’.

Drysdale and Armstrong illustrate the problem through the lens of responses to China’s infrastructure initiatives such as the Asia Infrastructure Investment Bank (AIIB) and the Belt and Road Initiative (BRI). The security community in the United States frames these initiatives in concerns about territorial disputes and political developments in China, and represents them to their allies in Asia as designed to compromise willing partners in Chinese debt. That’s clearly not the whole story: though the AIIB and BRI do provide China with a means ‘to increase its influence, as other countries like Japan have in the past, [they are] also a way for China to support economic development and poverty reduction by building infrastructure and creating economic links between countries, and [for China] to become a responsible global and regional player commensurate with its growing economic size and power’.

‘The responses of the security specialist and the economist are each inadequate in themselves. But bringing them together offers a path of constructive and active engagement that can support both security and prosperity. Drawing away is not going to stop China pursuing the BRI, while engaging intelligently and systematically can mitigate some of the downside risks and help lift global prosperity and security’, Drysdale and Armstrong point out.

This problem is not limited to choices about China. Australia and its partners in Asia are now confronted with the reality that the United States, their primary security alliance partner is actively engaged in seeking to destroy the rules-based economic regime on which their prosperity and their political security is fundamentally based. This is an immediate and existential threat. The medium to longer term consequence of the United States’ own self-inflicted harm will, on all rational calculations, shrink its economic power and political influence. Where’s that reflected anywhere in Australia’s national strategy at this time?

The Drysdale–Armstrong analysis leads to the powerful conclusion that Australia’s national strategy policymaking is deeply flawed in the marriage of these two arms of the national interest. The system worked well when Australia’s main security and economic partners were the same. But that world has changed, and the way in which top political decisions on national strategy are framed as well as the foundations of policy advice on which they depend are overdue for significant reform.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

Trade, Technology, and Xi Jinping’s Question


July 7, 2018

Trade, Technology, and Xi Jinping’s Question

by Kaushik Basu

https://www.project-syndicate.org/commentary/digital-technology-trade-war-protectionism-by-kaushik-basu-2018-07y Kausik Basu

Despite unprecedented technology-enabled development, the world is beset with challenges, from violent conflict to rising inequality. The underlying reason for these problems may be that we have reached a turning point in the march of technological progress – and we are navigating it very badly.

Image result for xi jinping at davosThe Protectionist (Donald Trump) is the Loser. The Globalist (Xi Jinping) will emerge the winner eventually.

 

NEW YORK – “It was the best of times; it was the worst of times,” said President Xi Jinping, quoting Charles Dickens’ famous line to open his speech at the 2017 World Economic Forum. “Today,” Xi continued, “we also live in a world of contradictions.” On one hand, “growing material wealth and advances in science and technology” have enabled unprecedented rates of development. On the other hand, “frequent regional conflicts, global challenges like terrorism and refugees, as well as poverty, unemployment, and a widening income gap” are generating deep uncertainty.

Xi then posed a potent question: “What has gone wrong with the world?”

Perhaps the answer lies with the very technology that Xi regards as the key to China’s rise to high-income status. Specifically, it may be that we have reached a turning point in the march of technological progress – one that we are navigating very badly.

Technology has been shaping and reshaping our lives ever since early human beings discovered how to make tools from stone. It is only natural for such a long process to include moments when technological change generates unprecedented challenges.

One such turning point was the Industrial Revolution. In mid-eighteenth-century Britain, the revolution’s birthplace, progress entailed considerable adversity. Some workers toiled 12-14 hours per day, yet inequality surged. And the incidence of child labor rose beyond the levels seen in some of the poorest Sub-Saharan African economies today.

But Europe rose to the occasion. Groundbreaking research in economics was carried out by the likes of Adam Smith and Antoine Cournot, leading to novel interventions like progressive income tax, as well as new labor laws and regulations. As a result, the Industrial Revolution accelerated economic development and human welfare.

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Human development has seen other “industrial revolutions,” including the one that is currently unfolding. This so-called Fourth Industrial Revolution is centered on advances in digital technology, including “labor-linking technologies” (which enable workers across continents to work together in real time) and, more recently, artificial intelligence and robotics.

These advances have enabled economic globalization, which, like the Industrial Revolution, has brought unprecedented progress, as Xi acknowledged, while generating new challenges, including rising inequality and worker vulnerability. But instead of managing those challenges, as Europe did in the nineteenth century, much of the world is succumbing to political polarization, rising nationalism, and a toxic blame game. Most notably, the United States under President Donald Trump has initiated what is rapidly escalating into a tit-for-tat trade war – one that will be devastating for the entire world, but especially for the US itself.

What such behavior fails to take into account is that globalization is, fundamentally, a natural phenomenon. It is the result of billions of individuals going about their daily activities, making decisions based on the possibilities available to them. Arguing against globalization is as constructive as blaming gravity for a building’s collapse. As Xi pointed out in his WEF speech, it “is a natural outcome of scientific and technological progress, not something created by any individuals or any countries.”

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In the case of Trump’s trade war, US policy also reflects a misunderstanding – one that economists have repeatedly pointed out – about bilateral trade deficits. According to Trump, a trade deficit is essentially a loss, and the countries with surpluses vis-à-vis the US, such as Mexico or China, are behaving in unfair and exploitative ways. Thus, they should be made to pay.

To understand the fallacy, consider your interaction with the neighborhood grocery store. At the end of each year, you run up a large “trade deficit” vis-à-vis the store, because the store sells goods to you, whereas you do not sell anything to the store. To claim that China “owes” the US for its trade bilateral trade surplus would be like saying that your local grocery store owes you for the money you spent there during the last year. In fact, you were not cheated, just as your employer was not cheated by the bilateral deficit it runs with you. Rather, you made mutually beneficial transactions based on your needs.

The modern economy depends on bilateral trade deficits; it would collapse without them. In an age of advanced technologies and accelerating specialization, attempting to manufacture everything domestically or bilaterally would be prohibitively costly.

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The One and Only Harley defies Trump’s America First Trade Policy

For now, the US seems committed to its demands that its partners pay up. The more likely scenario, however, is that economies like Canada, Europe, and Mexico will seek to offset the impact of Trump’s tariffs by deepening their ties with China – an obvious win for America’s main global competitor. Meanwhile, US corporations will probably move production elsewhere to avoid retaliatory tariffs, as some – such as Harley-Davidson – have already threatened to do.

There is no denying that the technological turning point at which we find ourselves has caused strain for all countries. But instead of blaming one another for the challenges generated by technological progress – an approach that will only bring about the worst of times – we should work together to address them. Any country that refuses to do so will create strain for all – and end up condemning itself to being left behind.

Kaushik Basu, former Chief Economist of the World Bank, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

The End of Global Britain


July 5, 2018

The End of Global Britain

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In the two years since the Brexit referendum, the United Kingdom’s global influence has been significantly diminished. A country that once punched above its weight in international affairs now only punches down, and Brexiteers’ aspiration to lead the vast “Anglosphere” into a brave new world has become a comical delusion.

by Mark Malloch-Brown

 

LONDON – Nowadays, Britain’s words and actions on the world stage are so at odds with its values that one must wonder what has happened to the country. Since the June 2016 Brexit referendum, British foreign policy seems to have all but collapsed – and even to have disowned its past and its governing ideas.

Worse, this has coincided with the emergence of US President Donald Trump’s erratic administration, which is pursuing goals that are completely detached from those of Britain – and of Europe generally. Trump’s abandonment of the Iran nuclear deal, combined with Russian President Vladimir Putin’s increasing belligerence and Chinese President Xi Jinping’s growing ambitions, indicates that the world is entering an ever-more confrontational and dangerous phase.

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Trump’s evident lack of personal chemistry with British Prime Minister Theresa May – and the Anglophobia of his new national security adviser, John Bolton – ensured that this was never going to be the best of times for the United Kingdom. But it also doesn’t help that generations of British foreign-policy hands have regarded themselves as ancient Greeks to America’s Rome. To a Brit like myself, this analogy always seemed too confident. Having lived in America, I suspected that US leaders did not heed the advice of British diplomats nearly as much as those diplomats liked to think.

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Still, if ever there was a moment for Britain to sprinkle some of its characteristic calm and resolve over world affairs, that moment is now. And yet, the UK appears to have checked out. Since World War II, Britain’s close relationships with continental Europe and the US have served as the two anchors of its foreign policy. But now, both lines have essentially been severed.

At the same time, the British government’s all-consuming preoccupation with untying the Gordian knot of Brexit has blinded it to what is happening in the rest of the world. And its blinkered view seems certain to persist. Negotiating the terms of Britain’s withdrawal from the European Union is likely to take years, and the outcome will inevitably have implications for the country’s unity, given the intractable issue of the Northern Irish border. Even if that issue can be sorted out, a campaign in Scotland to link it to the EU rather than to London will continue to command the attention of the government and civil service for the foreseeable future.

At any rate, the promise of a “global Britain” freed from the chains of the EU was never more than idle talk and sloganeering. At the recent Commonwealth Heads of Government Meeting in London, business and political leaders from Commonwealth countries around the world heard plenty of Brexiteer bluster, but little concrete talk of future trade deals.

A country like India could potentially be a major UK trade partner after Brexit. The problem is that Indians see Britain and Europe as one market. To them, Britain’s quest to adopt its own rules and standards amounts to a frivolous inconvenience. Before expanding trade and investment with Britain, India will most likely pursue a deeper relationship with the EU. Indeed, India never saw Britain as a particular champion of its interests inside the EU.

The collapse of British foreign policy has come at a time of deepening uncertainty. The global re-balancing between the US and China is a generational challenge that will outlast Trump and even Xi, who is now unbound by term limits. In an increasingly off-kilter world, the duty will fall to Europe to serve as ballast. But a Europe without Britain’s traditional leadership, judgment, and diplomacy will be a lesser Europe. And Britain, by its own hand, risks being reduced to a footnote.–

Likewise, most of those outside of the “Leave” camp regard the Brexiteers’ aspiration for Britain to lead the vast “Anglosphere” into a brave new world as a comical delusion. To be sure, the show of US and European support after the nerve-agent attack on a former Russian spy and his daughter in Salisbury, England, might suggest that Britain is still punching above its weight. The coordinated expulsion of Russian spies from the EU and the United States was a victory for British diplomacy; and suspicions that the Russians were exploiting Britain’s increasing isolation seem to have mobilized NATO. But the larger truth is that the Russians are right: Britain is now Western Europe’s weak link.

Thus, it is only a matter of time before Russian President Vladimir Putin probes British weakness again. And, as if the old sin of turning a blind eye to Russian oligarchs laundering money through the UK were not problematic enough, the suicidal act of quitting the EU leaves Britain with fewer tools to combat Russian meddling in its affairs. Britain is losing its influence over EU cybersecurity and energy policies just as cyber warfare and energy geopolitics are becoming key fronts for hostile state and non-state actors.

Worse, at the same time that Britain is giving up its seat at the EU table, it also seems to be giving up its liberal-democratic values. During the Brexit referendum campaign, the Leave camp openly stoked hostility toward outsiders. And the recent “Windrush” scandal over the government’s poor treatment of Caribbean-born legal residents has reprised the illiberal legacy of May’s previous tenure at the Home Office.

But equally insidious has been the government’s embrace of “Britain First” mercantilism, under which arms sales to Saudi Arabia are not a matter for caution, but rather an opportunity for profit. When the UK joins the Trump administration in putting trade and investment before human rights and good governance, it is journalists, opposition politicians, and human-rights activists around the world who bear the costs. By retreating from liberal norms, the May government has become, like the Trump administration, an enabler of authoritarian behaviors around the world.

The collapse of British foreign policy has come at a time of deepening uncertainty. The global re-balancing between the US and China is a generational challenge that will outlast Trump and even Xi, who is now unbound by term limits. In an increasingly off-kilter world, the duty will fall to Europe to serve as ballast. But a Europe without Britain’s traditional leadership, judgment, and diplomacy will be a lesser Europe. And Britain, by its own hand, risks being reduced to a footnote.

 

Regional leadership needed to save trade regime


July 5,2018

Regional leadership needed to save trade regime

by Mari Pangestu, University of Indonesia, and Christopher Findlay, University of Adelaide

http://www.eastasiaforum.org/2018/06/24/regional-leadership-needed-to-save-trade-regime/

Image result for Mari Pangestu, University of Indonesia

The world in which Asia Pacific economies operate is changing. Two main forces are driving this change — one ‘top-down’, the other ‘bottom-up’.

The top-down force is the emergence of a world with a larger number of key economies. In recent decades, growth rates around the world have diverged. For much of Asia, this has meant dramatic improvements in incomes and a huge reduction in the number of people living in poverty. It has also meant a new order among countries — a multipolar world.

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Prof. Christopher Findlay, University of Adelaide

The bottom-up force is the change in the way production is organised, driven by progress in communications and information technology. Technological improvements have shifted the location of production, with production processes becoming increasingly fragmented across countries. The nature of work and the composition of skills within economies have changed.

Given the new order of production and trade, the Trump administration’s mercantilist focus on reducing merchandise trade deficits will end up hurting the United States, as well as disrupting global production networks.

As trade flows change, pressure for domestic structural change can arise. In the United States, a decline in support for international trade and openness has been exacerbated by a lack of adjustment support for geographically concentrated bearers of the burden. Their reaction via domestic political processes has shocked the international system.

In the United States and elsewhere, good macroeconomic outcomes no longer win elections. Much economic policy is now driven by nationalistic and protectionist politics. This is particularly evident in US initiatives to protect its domestic production and seek adjustments from China.

These political conditions were preceded by waning support for openness at a multilateral level. As multilateral negotiations stalled, the response has been the emergence of ‘mega-regional’ platforms such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP 11) and the East Asian Regional Comprehensive Economic Partnership (RCEP).

These initiatives sit atop a ‘noodle bowl’ of messy bilateral agreements. Before the current US America First regime, these mega-regional and bilateral agreements still operated under the lid of the World Trade Organization. The rules-based trading system was still an anchor for economic integration, especially the dispute settlement mechanism.

Today, the principles of openness, non-discrimination, transparency and open regionalism — which have helped generate prosperity in the region, especially for developing economies in Asia — are being severely challenged. When the United States leaves the TPP, undertakes unilateral action and declares that the multilateral rules have not served US interests, the anchor of the trading system is challenged. At most international forums like the G20, policymakers’ time is being wasted on phrasing defensive communiques instead of cooperating on the substantive trade and investment issues of the day.

At the same time, new issues are emerging in relation to trade and investment, such as the taxation of international income flows, the treatment of data flows and the management of intellectual property. Responding to climate change and finding appropriate policies to deal with inequality are also among the challenges.

Progress will be difficult in the multipolar world without clear leadership from the major economies.

Waiting for a consensus to emerge among key economies about the importance of maintaining these anchor principles — while at the same time dealing with the new issues that have emerged — is not an option. There are no obvious forces now at work to resolve this lack of consensus within a reasonable timeframe. Lower-income people in rural ASEAN areas, for example, should not have to wait for the rest of the world to figure out how to shift their own economies and communities to new sources of growth.

In the absence of leadership from the advanced economies, a shared leadership model in the region should be the answer. The key then is the response of the increasingly influential ‘second-tier’ economies. No actors are more important than Indonesia and Southeast Asia, operating through ASEAN and the ASEAN-plus regional agreements that are already in place and being consolidated under RCEP.

Recent statements by leaders in Indonesia indicate recognition of the role it can play and wants to play. But Indonesia’s contribution will be so much greater and more effective if it acts in concert with others. Concerted action could take multiple forms. It might include unilateral reforms, or working on sustainability initiatives that are in both local and global interests.

Effective concerted action depends on a few factors. Foremost, it depends on shared principles. Part of this is agreeing on a purpose, such as the basic principles of non-discrimination, transparency and support for the rules-based trading system. Other principles can relate to specifics, such as the management of open data flows. These principles provide important reference points as countries take their own actions. There is value in sharing experience and aligning countries’ expectations about each other’s reform programs.

These are not new approaches. Readers with long memories will recall efforts like the APEC non-binding investment principles and Individual Action Plans. But this is the point — we already have relevant structures for mobilising this cooperation that can be rejuvenated.

APEC is the most relevant example. Putting weight on APEC does carry a risk. But APEC has a well-developed network of second-track structures that can be engaged more deeply. Given the complexities of the new issues facing the regional economic order, it is even more imperative that there be wide, multi-stakeholder participation and input.

Even more importantly, APEC remains a forum in our region where key economies in the multipolar world and the leading second-tier countries can interact effectively, and where the major protagonist, the United States, can still be engaged.

Mari Pangestu is former Indonesian trade minister and Professor at the University of Indonesia. Christopher Findlay is Professor and Executive Dean of the Faculty of the Professions at the University of Adelaide.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Trade Wars in Asia’.

 

 

 

If an esteemed historian like PJ Thum can be fooled by fake news, what hope is there for us?


July 4, 2018

If historian PJ Thum can be misled by fakes…

TL;DR – But if you take some effort to google, actually, you can avoid embarrassing yourself.

Singaporean Historian PJ Thum became famous after he was grilled by Minister Shanmugam at the hearing of the Select Committee on Deliberate Online Falsehoods for six hours. Back then, he had made the audacious claim that the politicians of the PAP were the “clear source of fake news”. He based that claim on his work as a historian.

And PJ Thum appeared to be a historian with glowing credentials. He graduated from Harvard with a bachelors in East Asian Studies. He then went on to Oxford as a Rhodes Scholar and got a second degree in Modern History and Politics. He returned to Oxford on a Commonwealth Scholarship to get his Doctor of Philosophy. Since 2014, PJ has been a Research Associate at the Centre for Global History, University of Oxford; a Fellow of Green Templeton College, and coordinator of Project Southeast Asia, an initiative of the University of Oxford to expand its range of scholarly expertise on Southeast Asia. In 2015, PJ was elected as a Young Global Leader by the World Economic Forum.

Sounds impressive, right? A historian with such sterling credentials must be a really smart person. Someone who won’t be easily fooled by fake news. Someone who would think critically of the things he reads, cross-references multiple sources to ensure that he comes to the right conclusions. Right?

Well… not quite. At least not in this particular instance.

PJ Thum posted this on Facebook recently:

Just in case it gets taken down, it’s a post with this cartoon:

 

Two versions of the same event. What is the truth?

Accompanying the cartoon, PJ Thum had the following remarks:

“Another from the archives:

“At the end of (Lee’s speech to the joint session of the US Congress), there was a sustained standing ovation… Even before he started his speech, there was a standing ovation – such is the Prime Minister’s reputation.” – Straits Times, 10 October 1985.

“(Lee) was addressing a sparsely attended joint session and drew polite applause.” – International Herald Tribune, 10 October 1985.

Hmmm… now I’m wondering just how much of what Singaporeans believed to be LKY’s vaunted global reputation was actually manufactured by the government-controlled media, in the days when there were no alternative news sources?”

PJ Thum questioned whether the media, controlled by the Singapore government, had manufactured Mr, Lee Kuan Yew’s “vaunted global reputation”.

Is he once again insinuating that the Singapore government is a source of fake news?

Thankfully, there’s a video of the speech

Someone added this video in the comments to PJ Thum’s post, and the video proved PJ Thum wrong.

It’s a video of Mr Lee Kuan Yew speaking at a Joint Session of the US Congress taken off C-SPAN.

And at the 3:13 mark, and also 4:09 mark the video shows people applauding in a packed room.

At the 9:47 mark, the video shows Mr Lee Kuan Yew receiving a standing ovation when he wrapped up his speech.

Now we can’t possibly know from the video alone if the Congressmen really respected Mr Lee Kuan Yew, but the fact was that the Joint Session was well attended, and that Mr Lee Kuan Yew had received a standing ovation.

Those are facts.

Captured on video.

Facts which directly contradict what PJ Thum had insinuated. Facts which can be found if Thum had taken a little bit care and effort to verify and check.

Which unfortunately makes PJ Thum look rather bad

This could mean one of two things.

The first possibility is PJ Thum is a sloppy historian who doesn’t dig deeper and look for more sources of information so that he can come to a proper (and accurate) conclusion.

Or the second possibility is that he had deliberately put up the post and asked a question in such a way that would induce people to conclude that the Singapore government is a source of fake news.

Of course, we don’t know which is the truth. We don’t believe that PJ Thum is that malicious as to deliberately spread fake news. But we also don’t think PJ Thum is stupid. So… It’s hard to say. Having said that, if PJ Thum can be so wrong on this incident, what else could he or we have gotten wrong?

Whatever the case is, this incident has again demonstrated that we should all learn to google. And don’t automatically accept anything we read or what we’re told to be true.

ALWAYS check and look for more sources of information. Otherwise, we might end up looking like fools for believing that some piece of fake news is true.

 

Trump’s Potemkin Economy


July 1, 2018

by Dr. Paul Krugman

Image result for Paul Krugman

 

According to legend, Grigory Potemkin, one of Catherine the Great’s ministers (and her lover), created a false impression of prosperity when the empress toured Ukraine. He supposedly did this by setting up fake villages, or possibly just facades, along her route, then dismantling them after she passed, and setting them up again further down the road.

There probably isn’t much if any truth to the story — among other things, Catherine was too smart and tough-minded to be that easily deceived — but never mind: the legend has become a byword for the general idea of prettifying reality to please a tyrannical ruler. And it seems highly relevant to some of the economic “news” coming out of the Trump administration the past few days.

Just to be clear, the U.S. economy is still doing quite well overall, continuing the long expansion that began during Obama’s first term. Those of us who thought the economy would be hurt by political uncertainty have been wrong so far.

But Trump’s actual policy initiatives aren’t doing so well. His tax cut isn’t producing the promised surge in business investment, let alone the promised wage gains; all it has really done is lead to a lot of stock buybacks. Reflecting this reality, the tax cut is becoming less popular over time.

And the early phase of the trade war that was supposed to be “good, and easy to win” isn’t generating the kinds of headlines Trump wanted. Instead, we’re hearing about production shifting overseas to escape both U.S. tariffs on imported inputs and foreign retaliation against U.S. products. It’s really worth reading the submission by General Motors to the Commerce Department, urging a reconsideration of a tariff policy that “risks undermining GM’s competitiveness against foreign auto producers” and “will be detrimental to the future industrial strength and readiness of manufacturing operations in the United States.” In other words, “Don’t you understand global supply chains, you idiot?”

Actually, I’m waiting to hear that GM is really a Democratic company in league with the deep state.

But meanwhile, how is the administration responding? By making stuff up.

Now, making stuff up is actually standard operating procedure for these guys. We’re talking about an administration that’s taking children away from their parents and putting them in cages in response to a wave of violent immigrant crime that doesn’t, you know, actually exist. Trade policy itself is being driven by claims about the massive tariffs U.S. products face from, say, the European Union — tariffs that, like the immigrant crime wave, don’t actually exist.

But these are negative fictions, tales of wrongdoing by others. When it comes to Trump’s own economic policies, by contrast, it’s all puppies and rainbows — happy stories with no basis in reality.

Some of these come from Trump himself. For example, he declared that the head of U.S. Steel called him to say that the company was opening six new plants. It isn’t, and as far as we can tell the phone call never happened.

Meanwhile, reports say that the Council of Economic Advisers did an internal report concluding that Trump trade policy will cost jobs, not create them; Kevin Hassett, the chairman, pressed on these reports, said that he could neither confirm nor deny them; in other words, they’re true. But meanwhile Hassett is declaring that last year’s corporate tax cut has led to a “massive amount of activity coming home” — which is just false. Some companies are rearranging their accounting, producing what looks on paper like money coming back to the U.S., but this has no real effect on investment or employment.

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But the most Potemkinesque story of the past week was the declaration by Larry Kudlow, the administration’s top economic official, that the budget deficit is “coming down rapidly” as “those revenues come rolling in.”

Actually, the deficit is rising fast, mainly because of a plunge in corporate tax receipts — the direct result of the tax cut:

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The administration later tried to walk back Kudlow’s claim, saying that he was talking about great things that will happen in the future, not current events. Right.

OK, so Trump and company are making claims about the results of their policies that bear no relationship to reality. But reality has a well-known liberal bias. Will Trump’s habit of making things up, and his advisors’ willingness to celebrate imaginary policy triumphs, make any difference?

Actually, I think they might. The trade war is rapidly escalating, with our trading partners retaliating against US actions and reports that Trump wants to withdraw from the World Trade Organization. The best hope for breaking the cycle of retaliation would be for Trump to realize that the trade war is going badly, take a deep breath, and step back from the brink.

But who will tell him how things are really going? Given what we’ve seen the past few days, they’ll respond to plant closings and economic disruption with fantasies of triumph, while Trump will dismiss reports of problems as fake news. Reality will take a long time to break through, if it ever does. And by then the world trading system may be broken beyond repair.