Dark Skinny

At the last G20 meet in London, there was much hullaballoo and emphasis about all nations keeping a steady and similar  economic  course, and above all to particularly avoid  any self-serving protectionist measures during the economic crisis.

Last Friday, President Obama — out of the blue — harshly implemented a tariff or import tax on all Chinese tire imports.  And not just a small tax either. This is a 35% extra tariff on all Chinese tire imports !! Apparently, Obama implemented this tariff in response to pressure from the auto unions — particularly from The United Steeworkers Union. Therefore, could Obama’s punitive  action itself not be be interpreted as self-serving and protectionist?

Understandably antagonized and in response, China has loudly denounced the US tire tariff on its exports and today the Chinese have announced that they will be instigating heavy taxation via tariffs on chicken and automotive products imported from the US. From the New York Times:

“China exported $1.3 billion in tires to the United States in the first seven months of this year, while the United States shipped about $800 million in automotive products and $376 million in chicken meat to China, according to data from Global Trade Information Services in Columbia, S.C.”

Here is comment from various US Government and industry officials:

“Our view is that enforcing trade laws is not protectionism,” said one senior White House official, who refused to be identified.

“For far too long, workers across this country have been victimized by bad trade policies and government inaction,” United Steelworkers President Leo Gerard said, welcoming the decision.

Robert Gibbs, Obama’s news aid, puts it this way:

“The president decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case,” the president’s spokesman, Robert Gibbs, said in a statement Friday night.

Reallly? What and whose law exactly Mr Gibbs?

Perhaps Mr Gibbs was referring to the laws of The World Trade Organization.

The decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001.

Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

A special safeguard?

Well is that so? Does that therefore mean that the laws of the WTO  are only protecting American workers, American industry and American interests then? And isn’t that also a form of protectionism?  Read the history of the WTO and get the facts (try reading  Super Imperialism: The Economic Strategy of American Empire by Michael Hudson if you want a good backgrounder on the real US protectionist intentions of organizations such as the WTO, IMF and World Bank. And its a very dirty read).

From an article in the New York Times –  China Blasts U.S. Tire Duties as Protectionist Blow:

China’s minister of commerce, Chen Deming, indicated he took this latest trade dispute with Washington especially seriously.

“This is a grave act of trade protectionism,” Chen said in a statement put on his ministry’s website (www.mofcom.gov.cn) on Saturday.

“Not only does it violate WTO rules, it contravenes commitments the United States government made at the G20 financial summit, and is an abuse of special safeguard provisions that sends the wrong signal to the world.”

I’ll agree with Chen Deming I think, because he makes some good points. Without any doubt, President Obama is in for some serious criticism from the Pittsburg G20 Summit on September 24. I wonder how President Obama will explain away his reasons for this recent tariff  to this trustworthy gathering. How will Obama answer criticism for his China policies being so ruthlessly protectionist? In other words, while President Obama has agreed and even strongly advised other world countries to avoid protectionist policies at the last G20 meet, his blatant  and current economic actions against China has revealed a surprisingly treacherous form of two-faced hypocrisy.

And with this serious breach of Obama’s economic word, is it now to be “One economic law for America and another law for the Rest of the World”? These won’t just be my criticisms, these will be the opinions and conclusions that are bound to be assumed and broadcast widely by the likes of China, Russia and the Middle East states, thus further weakening Obama’s — read America’s — credibility and leadership abroad.

Although Obama’s economic strategies may seem confusing, crass and really dumb, since mutual protectionism is bound to hurt both the Chinese and US economies — I am now moving towards another opinion — one where Obama and his economic and political government planners know exactly what they are doing. I will  try and address this at another time and in another article when I’ve done a bit more research.

Crunch time
From The Economist print edition

IF THE opinion polls are to be believed, Barack Obama is now, six months into his presidency, no more popular than George Bush or Richard Nixon were at the same stage in theirs. His ratings are sagging particularly badly with electorally vital independent voters: two-thirds of them think he wants to spend too much of their money. Two of the most specific pledges he made to the electorate—to reform health care and to produce a cap-and-trade system to curb greenhouse-gas emissions—are in trouble. And an impression is being formed in Washington of a presidency that is far too ready to hand over the direction of domestic policy to Congress; that is drifting either deliberately or lethargically leftwards; and that is more comfortable with lofty visions than details. On the campaign trail Mr Obama showed an impressive ability to change gears. He needs to do so again this summer.

His cause is by no means hopeless. Just as his initial Messianic polling numbers were misleadingly optimistic, his problems should now be put into context. Most obviously, nearly 200 days into office, he has avoided making any horrific mistakes, especially in the fraught business of economic policy. On the hardly insignificant matter of restoring America’s reputation in the world he has delivered a degree of what he promised (though even there the tough times are still ahead of him, as our next leader makes clear). He has had to cope with the worst recession for half a century. He has been curiously ill-served by a press short of useful criticism, with liberal America prepared only to debate what sort of water he walks on best, while conservative radio hosts argue over when exactly he became a communist. And of course, government is darned hard: even when you make the right decision—to close Guantánamo, for instance—it can take years to put into effect.

So Mr Obama’s underperformance is relative and partial; but it is serious, especially in domestic policy. And if his schemes at home come to naught, then his credibility abroad will wither. That is why the next few weeks are crucial.

Taking too much care of Hillarycare

In foreign policy an American president enjoys the most freedom of operation. At home the man in the Oval Office is mightily constrained by Congress. It is the artful combination of arm-twisting, compromise, rhetoric and gritty attention to detail that make the difference between an FDR and a Jimmy Carter. Back in his honeymoon days Mr Obama was constantly compared to Roosevelt. No longer.

The suspicion is that the president has taken the experience of Bill Clinton too much to heart. The previous Democratic presidency got off to a rocky start for many reasons, but his failed attempt to impose health-care reform on Congress in 1993-94 bulks largest. Putting Hillary Clinton in charge of an unwieldy, secretive task-force that attempted to present powerful senators with a masterplan backfired. Congress promptly shot it down—and Mr Clinton lost both the House and the Senate to the Republicans in 1994.

A president plainly should not ignore Congress. But Mr Obama has veered to the opposite extreme. Although he has a White House stuffed full of first-rate policy wonks, he has repeatedly subcontracted the big decisions—the $787 billion stimulus bill, cap-and-trade, health reform—to the Democratic leadership in Congress. At times Mr Obama’s role has seemed limited to deploying his teleprompter-driven oratory to sell whatever Congress proposes to the public, even before it is clear what exactly those proposals amount to.

Nobody voted for President Pelosi

Worse, the plans have usually ended up running away from tough decisions. With the stimulus bill the flaws were forgivable: there was an urgent need to give the economy a boost. But the House of Representatives has produced a cap-and-trade bill that is protectionist, riddled with exemptions and which gives away the permits that are supposed to force carbon-emitters to change their ways. There is a growing danger that this bill will not be passed through the Senate and reconciled with the House version in time for the Copenhagen summit on climate change in December.

With health care, Mr Obama’s preference for vague statements of principle rather than detailed specification has led to a House proposal that loads taxes onto the rich, sets up a state-run insurance scheme that many fear will put private-sector providers out of business and fails to contain, let alone reverse, the escalating costs of treatment while adding an expensive requirement that everyone have health insurance, with large subsidies where needed (see article). Barely any Republicans could support this proposal as it stands. Frantic efforts to save the reform effort are under way in the Senate, but it is distinctly odd to note that the president’s signature policy is now being devised for him by a gang of six senators. Financial regulation is also stuck (see article).

A policy of ramming bills through Congress on a party-line basis might suit Nancy Pelosi, the Democrats’ leftish leader in the House. But, from Mr Obama’s point of view, it is bad politics in two different ways. It is shifting the presidency to the left, annoying centrist voters who worry about the swelling government debt. And it may not even get the bills through. Conservative Democrats, many of whom represent right-leaning states and districts recently captured from the Republicans (see article), are nervous about backing bills without bipartisan support. Over 40 of them broke ranks in the House over the climate-change bill. Now there is the likelihood that health reform, like the climate-change bill, will be deferred until the autumn, when fears about the deficit will have grown and the two expensive bills could combine to spook voters.

What should Mr Obama do? He must come down from his cloud and start leading. The House Democrats could be usefully reminded that their present 78-seat margin owes everything to the president’s coat-tails; they are endangering his popularity. Mr Obama should also court centrist Republicans. That means getting into the nitty-gritty: Republicans can hardly be expected to save Mr Obama’s presidency unless they get something solid in return. For instance, one way to pay for bringing the uninsured into the health-care system (a noble Democratic priority) is to scrap a distorting tax-deduction that veils the true cost of health insurance, a policy espoused by John McCain last year. A real “post-partisan” president would be trying to bully through this compromise, not talking dreamily about wanting health care for all at no cost to anybody but the rich. And on the subject of detail, precise talk from the president about how he intends to grapple with government debt would reassure a lot of centrist waverers.

None of this is impossible. As The Economist went to press, hopes were rising that the Senate finance committee might soon produce a bipartisan version of the health bill. But then the final version of that bill will have to be reconciled with the much-worse House version. If the result is another lazy deficit-boosting, hard-decision-avoiding scheme (like George Bush’s rotten Medicare bill), what president would want to be remembered for that? Mr Obama remains an inspiring figure. But he needs to get his hands dirty this summer if he is to rescue a presidency that has started to slip.

In the plethora of various articles that I’ve been reading, the common theme that escapes from, particularly,  the modern dumbed-down US media is that the only way to defeat this incumbent and seemingly tenacious recession is to chuck vast quantities of fiat paper at all the corrupt, insolvent and unreliable banks and corporations  in America. Even certain posts here propose and support the same as America’s only salvation from the closing economic jaws of its persistent and devastating recession.

Time and time again, I’ve been warning that the economic policies as suggested by Summers, Krugman, Stiglitz and Reich will never work in the long term. The US government’s departure from sensible, logical, tried-and-true economics into the dark, stinking alley of extreme and never-before-tried-or-tested Monetarist debt-promoting policies such as the artificially depressed interest rates and massive QE, combined with the blind, ineffective, pandering and expensive social policies of Obama will undoubtedly lead to slow but sure economic ruin for America. This persistent conflict between democracy and practical government economics was identified some years ago by Alexander Tyler, a Scottish economist:

‘A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always vote for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.’

So what are these ‘generous gifts’ then? These may be clearly defined as generous  government tax handouts and social policies (which the government simply cannot afford) that always steer  towards pleasing its citizens rather than making sound economic sense — now clearly extended to the massive, unending bailouts and spend for all the insolvent, too-big-to-fall banks and industrial corporations of America. And that the only purpose of these soft and economically uninspiring policies is simply to get elected. The American public’s inevitable support for these debt-promoting ‘generous gifts’ is what is presently garotting the American economy and the dollar now. After all, and I’ve said this before, how can you possibly cure a massive credit and debt crisis by adding more huge debt to the problem? This is completely insane.

Even in my regular reads of Krugman articles in the New York Times, within his articles and  blogs that supposedly emit profound opinions from the hallowed halls of academia, he consistently supports his buddy Larry Summers (The Mr Infix of Wall Street) and, in his criticism of current policy,  urgently proposes a much higher spend and debt that must be accrued by the US government for success. But in Krugman’s fuzzy economic critique, amongst all his exacting mathematical graphs, formulas and the continuous Monetarist spoutings in promoting that  government debt and spend — via trickle-down economics –  as the only cure, I have yet to read his value definition of Enough Debt. Krugman, as do the rest of the Monetarist flock,  consistently avoid accurately defining the exact necessary amount of vast debt injection that is required for a recession cure-all (which Krugman curiously and deliciously refers to as ‘The Optimum’). He even admits, in several of his articles and blogs, that he honestly doesn’t know the answer to this. Also, when asked “How are we going to address and pay back all this massive spend and debt that he proposes?”, Krugman avoids this one like the plague. The Big Spend Monetarists have no sufficient  or appropriate answer to this question, probably still oddly  believing and desperately hoping in their souls that, as before, the rest of the world — through its own heavy dependence on the US dollar and Treasuries  within the ‘Dollar Trap’ — will so joyfully and continuously submit to paying back America’s ever-growing and self-inflicted debt mountain forever, just as it has always done since the Nixon era.

And, as I’ve consistently bleated in many of my articles, why should the likes of China, Russia, Europe and the Middle East so enjoy paying back America’s own rampant, ever-growing debt? Therefore this assumption by Monetarists  is very flawed indeed, and can hardly be seriously promoted as good, sound economic policy.

If Krugman still believes in this form of indirect debt payback as legitimate, necessary and deserved, I would urgently suggest that he obtains his economic news and data from a more neutral and accurate source (from outside the biased US media would be useful), since the likes of Russia, China and the Mid-East all appear to have clocked the US Government’s intention of inflating away  their Treasury savings in a puff of smoke and are now all slowly but most definitely disentangling themselves from America’s tragically weakening dollar.  Isn’t it odd that major debtor consumer Nations such as the US or UK  all seem to follow Monetarist or Keynesian debt-driven policies whereas the creditor nations all seem to follow economic principles that are so shy of massive  national debt promotion. If these creditor nations all ruthlessly continue to rebel and reduce their purchase of US Treasuries, then what  other economic strategies do the Friedmanites and Keynesians have up their dirty sleeves to rescue debt-ridden America ? As I see it, Monetarist slight-of-hand economics will no longer work for all reasons given here, the trick has been revealed, so what other legal economic contingencies would Mr Krugman suggest ?

Perhaps the best and simplest common-sense economic  view on monitoring the effects of debt that I’ve ever read was from an article by Professor Antal Fakete called The Marginal Productivity of Debt(MPD). This article is so easily understood. MPD is defined very simply as the effect on an economy or GDP, when an additional amount of GDP arises from an injection of an additional amount of debt into the economy over a period of time.  This is, therefore, a quality measurement which directly measures the success or failure of the effects of debt on an economy. When the MPD ratio  goes negative, then no further amount of additional credit or debt will have any effect whatsoever on an economy and it therefore becomes a huge waste, which creates further significant monetary problems within the economy,  manifesting itself as money thrown  into a voracious Black Hole. Bye the way, the MPD of the US economy has been negative since 2006.

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The Wizard of All Bailouts

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