When a nation historically has an inglorious past, a frightful present and an illusory future, its people develop a dogged determination of indefinite hatred against entire categories of strangers and also toward themselves. Distressingly, in its present moral as well as material condition, Hungary, like Afghanistan, resembles a state without any redeeming aspiration to overcome its hopeless despondency. Ubiquitously praised by the United States of America and Western Europe throughout the 1980s as “the happiest barrack in the Soviet Empire,” today’s Hungary mirrors more Stalin’s one-party dictatorship than a Westernized free and democratic state. The once hyper-liberal bunch of young anti-Communist-turned Communist rebels of the late 1980s, who called themselves the Alliance of Young Democrats (Hungarian acronyms: FIDESZ), have morphed into the authoritarian and kleptocratic gang of “Illiberal Democrats” of the 21st century. Clearly, Hungary, a member state of NATO as well as the European Union, has lost its way between 1990 and 2021 on the road to the accepted norms of prevailing democracy.
As the turbulent past of Hungary as well as the very recent failure of nation-building in Afghanistan have proved, almost all of the most terrific catastrophes of history have been the consequence of erroneous decision making that has always been based on a set of incompetently concocted realities. These incompetently concocted realities, having been mostly or completely devoid of truthful facts, have had with predictable regularity produced untold tragedies in the form of wars, genocides, and even civilizational destruction. And as in the case of Afghanistan, the entire federal bureaucracy in the United States of America, including all the intelligence agencies, the Departments of State and Defense, have been engaged with respect to the newly independent countries of Central and Eastern Europe in reporting to the White House as well as Congress ideologically tainted pseudo-realities. Deplorably, the American media too has been guilty of contributing to the general intellectual schizophrenia in the United States of America. These deliberately fallacious transmissions of realities to the decision makers, have long prevented all the knowledgeable individuals from asserting the truths over the politically motivated and maliciously disseminated cult-like lies.
A case in point that the American media, regardless of its political leanings, is trapped by the tainted ideologies of false realities, has been Fox News Channel’s host of “Tucker Carlson Tonight” reporting from Budapest, Hungary during the first week of August 2021. Having been totally silent about his father’s widely reported lobbying activities on behalf of the Viktor Orban-led government in Washington, D.C., Tucker Carlson sanctimoniously and hypocritically justified his long sojourn to the ivory tower of “Illiberal Democracy” thus: “If you care about Western civilization and democracy and families, and the ferocious assault on all three of those things by the leaders of our global institutions, you should know what is happening here right now.” Thus, Tucker Carlson the incorruptible champion of truth seeking, proceeded to uncritically sink into the poisonous swamp of ideological unrealities devised by Viktor Orban to fool his country’s friends and foes alike. In this manner, Tucker Carlson successfully recreated Franz Kafka’s world of fusing elements of pseudo-realism and outright lies about the extremely retrograd political regime of Viktor Orban the Hungarian autocrat.
Even as the bureaucracy as well as the media in general and Tucker Carlson in particular try to manipulate the decision makers and the people on their uninformed prejudices, they also turn otherwise ordinary persons into spiritual and emotional zombies, who would be incapable of distinguishing between obvious truths and deliberately mismanufactured lies. In addition to being driven by their aggressive careerism and boundless lust for power and money, these brothers-in-arms are blocking real talents from public life and the media, while supporting an army of counterfeit intellectuals with identical views.
Deliberately confusing good and evil, these unscrupulous demagogues also turn morality on its head by profaning the principle of reductio ad absurdum, or the law of non-contradiction. In these and countlessly similar manners, participatory politics as well as its pillars – political, economic, cultural and moral freedoms – are corrupted to a degree that will only produce a hellish dictatorship of crooked dunces. These crooked dunces, in turn, want to create an intellectual vacuum, in which they intend to pour nonsense to be sold to the unsuspecting people as the ultimate wisdom. The best examples of such an orgy of the incompetent opinion makers are the Soviet Communists’ creation of the category of “useful idiots” and the hate-based shauvinistic ideologies of Mussolini’s Fascism and Hitler’s National Socialism in the first half of the twentieth century Europe. In these worlds, political, ideological or moral neutrality are nonexistent. Either a person conforms willingly or opportunistically, or in case of resisting, will be eliminated mercilessly.
Thus, as in the case of Afghanistan for many decades, American politicians and the media are as clueless as they have been when it comes to the global political and cultural climate in today’s Hungary. Even if it were possible to leave aside the blind indifference displayed over the years by so-called American liberals and progressives toward hard realities outside the United States of America in general and underdeveloped and developing countries in particular, the notion that a magic wand of lies and deliberate distortions by politicians and the media could make human evil sudenly become nonexistent is idiotic. Yet, what the American bureaucracy in general and the opinion makers in particular, try to hide is that the civil wars in those countries, including Afghanistan and Hungary, is not just about the future political direction of those countries, but it is also about the destructively dangerous centrally organized cultural loathing of all those who dare to think differently.
Moreover, as in the case of Afghanistan, top American bureaucrats and media personalities appear to trade the stability of Hungary, and by extension, the security of the United States of America, NATO and the European Union, to promote unfounded scenarios about alternative political and cultural utopianism in faraway nations. Again, this is the defeatist fallacy that has been in full display in Afghanistan too. It turns reality into unscrupulous unreality, in order to hide evil to feel good and paint those who try to do good by unmasking this fraud as despicable inhuman beings.
Finally, top politicians and media personalities like Tucker Carlson employ fraudulent linguistic magic to transfer authority to ideologically tainted talking heads from the people who constitutionally must be in control of the elected politicians and the appointed bureaucracy. The juxtaposition of this repressive and authoritarian pseudo-reality, however, demonstrates how preposterous and dangerous this undignified and misleading fixation of this so-called establishment is with keeping the vast majority of the people in the state of slave purity and sick psychopathy.
Comparing the Stalinist-like “Illiberal Democracy” of Viktor Orban to the American constitutional democracy and doubly recommending the former to be emulated by the United States of America is evil par excellence. Even more precisely, it is outrightly idiotic. Particularly, in light of Viktor Orban’s reported speech at Kotcse, Hungary, on September 4, 2021. This scantily educated dimwit attempted to provide his followers with a political tour d’horizon laced with “philosophical” wisdoms about Hungary’s place and role in the world. Claiming that he represents “the call of the Hungarian people,” which he fails to define, he called on all Hungarians to adjust to his view of the new realities in world politics. Stating that the People’s Republic of China already defeated the United States of America globally, he mused about whether Europe or the United States of America would become the number two power behind the triumphant expansionist as well as authoritarian China. As far as the domestic situation of Hungary is concerned, he remained suspiciously silent. Yet, Hungary’s domestic state of affairs are in complete disarray. Instead of political, economic and financial stability, Hungary faces ubiquitous ruin. Brussels’ financial contribution as well as the taxpayers’ monies have been plundered and have been spent generously on building soccer stadiums that are empty, stuffing almost 1 trillion HUF into the coffers of soccer clubs that have become the joke of Europe and the world, enriching the Orban family and his coterie, and fueling hatred, lawlessness and shameless corruption across the nation. To wit, Viktor Orban has already lined up behind China’s global ambitions and all encompassing corruption – thus becoming the international pariah of his own stupidity.
Tucker Carlson’s kiss-up interview and comments about Hungary are misleading and destructive. Instead of being honest about the Stalinist nature of the Hungarian political regime, he falsely praised what he unambiguously rejects in the United States of America. Adding insult to injury, he even warmly recommends for the United States of America to follow Hungary’s political lunacy. However, Hungary today can be likened to a volcano that is about to erupt. Such an eruption would surely damage NATO and the European Union when unity is the most important imperative. Plainly, the United States of America does not need another Afghanistan. The Biden Administration must grow up to the challenge, appoint competent ambassadors and not political hacks to Budapest and the other Central and East European capitals. Concomitantly, the media will have to start reporting on Hungary in an unbiased and objective manner. Only this way, could Washington, D.C. avoid another catastrophe with worldwide repercussions.
he economic rebound that began as the pandemic-related lockdowns started to end in the states is producing strong results throughout the United States despite the considerable rise in inflation. While higher prices are wiping out the income gains workers made during the pre-COVID boom, the surging stock market helped the amount of money held in private retirement accounts reach some of the highest levels on record.
The number of 401(k) and IRA millionaires have hit all-time records, CNBC’s Jessica Dickler reported Thursday, suggesting good times may still be ahead even though the perception is growing that President Joe Biden and his economic team are mismanaging the economy. In the most recent IPSOS poll, 55 percent of those surveyed said they were “pessimistic” about the direction of the country, an increase of 20 points over late April when the question was last posed. Pessimism, the polling firm said, was rising across all age groups and income levels and was even down among Democrats.
The Biden economic plan includes higher taxes and increased spending despite the recurrence of notable inflation. If it passes, it would likely cause a contraction in an economy that has appeared to be growing again since people started going back to work after many of the nation’s governors – mostly from the so-called “Red States” – stopped the pandemic-induced unemployment emergency bonus payments that more than one prominent economist identified as a significant disincentive for people to get back on the job.
For retirees and investors, meanwhile, the surging stock market and the steady increase in retirement account balances is welcome news considering how badly these holdings fared during the government-imposed lockdowns, losing considerable value in many cases. According to data provided by Fidelity Investments, the nation’s largest manager of 401(k) savings plans, their overall average balance was up 24 percent from a year ago and hit $129,300 at June’s end. Individual retirement account balances were also higher, CNBC said, reaching $134,900, on average in the second quarter, up 21 percent from where they were a year ago.
American workers across the economy are participating in the wealth creation, not just the so-called “ultra-rich.” According to Fidelity, nearly 12 percent of workers increased the contributions they made to their plans over the period while a record 37 percent of employers also automatically enrolled new workers in their 401(k) plans.
This growth in the number of workers joining the investor class is a political problem for Biden and the progressive Democrats who control Congress. The tax, borrow, and spend plan they are trying to pass over an apparently unified Republican opposition includes, for the first time in decades, serious proposals to increase the tax on capital and returns on investment.
This step back towards the economic policies of the 1970s that produced high unemployment and high inflation – something the economic theories dominant in government and academia at the time said was an impossibility – would be a job killer. Yet, even above that, some Democrats are talking up the institution of a “wealth tax” assessed annually on total holdings rather than income as a “pay for” for policies progressives say they wish to enact like tuition-free community college, free pre-K childcare, and the transition of the U.S. to an economy based entirely on renewable energy. With Fidelity reporting the number of its plans “with a balance of $1 million or more” jumping to a record 412,000 in the second quarter of 2021 and the number of IRA millionaires also at an all-time high, the savings amassed in these accounts may prove an irresistible target for the wealth taxers if their proposals begin to gain momentum in Congress.
Tourists must now provide proof of vaccination. Illegal immigrants get a free pass.
For Europeans hoping to vacation in the United States anytime soon, a piece of advice: Entering through Laredo, Texas, might be easier than making it through JFK.
Reuters reports that the Biden administration will require tourists to provide proof of vaccination to enter the country because it’s the only way to safely boost the tourism industry. That’s a far more stringent standard than the White House is applying to those seeking to enter the country illegally via Mexico. White House press secretary Jen Psaki said this week that the administration’s border policy is “rooted in preventing the introduction of contagious diseases into the interior of the United States.”
That statement flies in the face of reality. The Texas border town of McAllen declared a local disaster this week after 1,500 of the 7,000 migrants released into the city by the Biden administration tested positive for COVID-19.
In July alone, 210,000 migrants crossed into the country from Mexico. That 21-year record comes as Dr. Anthony Fauci pushes for Americans to re-adopt extreme COVID precautions and warns that “things are going to get worse.”
Things are already getting worse on the border.
According to the assistant secretary for border and immigration policy, David Shahoulian, the rate of positive tests among migrants crossing the border has “increased significantly in recent weeks.” Those migrants are getting Border Patrol officers sick, Shahoulian said, leading “to increasing numbers of Customs and Border Protection personnel being isolated and hospitalized” even as vaccination rates increase for officers, suggesting some suffer from breakthrough infections. They are surely getting American civilians sick as well.
The Biden administration’s encouraging decision to delay the repeal of Title 42—which gives Border Patrol agents authority to immediately turn away most migrants—was an acknowledgment of how dire things have gotten, but it doesn’t go far enough. Ditching the Trump-era “Remain in Mexico” policy retards the effectiveness of any future plans by the White House to inoculate migrants at the border, given the fact that the Centers for Disease Control says the vaccine takes roughly two weeks to work. Overcrowded holding facilities will continue to serve as a vector for disease.
The Department of Homeland Security disclosed that 30 percent of all aliens in detention refuse a coronavirus vaccine. CBP holding facilities sit at around 700 percent capacity. Those kinds of numbers would bring CDC director Rochelle Walensky to tears if they were citizens packed into a Florida bar.
For all of President Joe Biden’s talk about how real “patriots” take the appropriate measures to stop the spread of the coronavirus, he seems uninterested in doing his part. Biden asks American businesses to wait for a badly needed tourism boost while his border policy exacerbates the need for public-health restrictions.
The Biden White House has tried to pin growing COVID numbers on Republican governors who have ended restrictions in their states. He says governors need to “get out of the way” of the government’s COVID response. It turns out the southern border is the only place the Biden administration is relaxed about the threat posed by rising COVID numbers.
Our thoughts on Biden’s selective concern were perhaps best encapsulated by Florida governor Ron DeSantis. “Why don’t you get this border secure,” DeSantis told the president. “Until you do that, I don’t want to hear a blip about COVID from you.”
President Joe Biden wants half of all cars sold in the U.S. to be electric within 10 years. Without new mines, China will maintain grip on battery supply.
President Joe Biden announced plans Thursday to push auto sales to be 50 percent electric by 2030 with new regulations, as part of the administration’s effort to promote cleaner energy.
“There [is] a vision of the future that is now beginning to happen,” Biden said at the White House. “A future of the automobile industry that is electric. Battery electric, plug-in, hybrid electric, fuel cell electric, it’s electric and there’s no turning back.”
That future however, may also feature swelling American reliance on one of its greatest overseas adversaries: China.
Less than five percent of all new cars on the U.S. market were purely electric vehicles and less than four percent were plug-in hybrids as of June, according to the Energy Department’s Argonne National Laboratory. Not only will the government-manufactured shift to up that number by 12 times require massive state subsidies for a slow-growing industry, as Biden promised, but it will exacerbate American dependence on Chinese mineral production to make the car batteries needed.
According to the New York Times, China makes “70 to 80 percent of the world’s battery chemicals, battery anodes and battery cells,” and dominates the market for electric motor magnets.
“China controls the cards in the battery supply chain,” Vivas Kumar, the former Tesla manager of battery materials, told the paper in February.
Meanwhile, the Unites States lags behind when it comes to even mining its own minerals such as lithium and cobalt, let alone processing them at home. While both are more common components of electric cars, the Chinese also remain dominant in the extraction and refinement of the 17 rare earth minerals, some of which are in the batteries too.
“The Middle East has oil, and China has rare earth,” said former Chinese Communist Party Leader Deng Xiaoping in 1992, as Beijing ramped up production to play the long game — which is now bearing fruit. Since then, China has outpaced the United States as the world’s largest producer of rare minerals, raising production by 500 percent, according to the Wyoming Mining Association.
“The [electric vehicle] industry can’t exist without China, and there is no plan to displace China as the supplier of these minerals,” former Trump administration EPA transition team member and founder of “JunkScience” Steve Milloy told The Federalist, adding that Biden’s latest initiative orders more dependency on Chinese imports.
Milloy is skeptical the electric vehicle industry will even take off with a 50 percent share of the car market altogether. He argues their high price and inefficiency will lead consumers to embrace their use far more slowly than the 2030 timeline suggests, if not reject them entirely.
The Biden administration is not blind to the dominance of Chinese mining. At his electric vehicle announcement Thursday, the president acknowledged the United States was in competition with China and its stranglehold on the world’s battery supply.
“Right now, China’s leading the race,” Biden said. The electric car market has also grownfar more and far faster in China than in the U.S., according to the Pew Research Center.
“And here’s the deal,” the president continued, “our national labs in America, our universities, our automakers, led in the development of this technology. We lead in developing this technology, and there’s no reason why we can’t reclaim that leadership and lead again.”
Biden said nothing about mining however, as the administration fills with radical environmental leftists who aim to lock up natural resources on federal land. The dramatic increase in battery demand that would accompany making 50 percent of new cars electric is a big win for Beijing.
The United States could reclaim its mineral dominance if it tapped into its own vast riches, unreachable by the cascade of burdensome regulation standing in the way of development. The short 6-minute video from Kite & Key Media sums up the entire debacle below:
Even if the lower 48 are kept off limits, Alaskan minerals could be mined to erase American dependence on Chinese supply, with lawmakers in the Republican state welcoming development.
“Experts predict a nearly 500 percent increase in mineral demand created by the push to decarbonize the world. Alaska is the place to find a responsible way to meet this demand,” wrote Alaskan Republican Gov. Mike Dunleavy in the Wall Street Journal three months ago. “No major mining accident has occurred in Alaska, yet the U.S. continues to sources its minerals from the Congo, South Africa and China while Washington regulators deny permits to projects on state of Alaska lands designed for mining.”
China, meanwhile, has made no secret of its plans to exploit American dependence on its mineral operations. The Wall Street Journal reported on a 2019 Beijing-funded report on rare-earth policy, which wrote, “China will not rule out using rare earth exports as leverage to deal with” a U.S.-China trade war.
With other nations, China already has weaponized its supply-chain power. In 2010, the country blocked rare-earth mineral exports to Japan, a developed but resource-poor country which relied heavily on the Chinese products.
Federalist Senior Contributor Helen Raleigh, an author and expert on Chinese affairs, chronicled the Japanese response, in which the government sought to diversify its source of minerals and drive innovation to encourage entrepreneurs to find substitute material.
In an interview, Raleigh emphasized that, while China is the world’s supplier of rare-earth minerals, it is not home to the most reserves, and the United States could find alternative production with an open look inward at its own supply which is mined far more cleanly and safely.
“Chinese dominance is in production and processing, not the world’s largest deposits,” Raleigh said.
While the Biden administration began to take steps in April to secure domestic supply for rare-earth minerals, Raleigh said the plans so far lacked “teeth” because “they focus on short-term optics,” such as initiatives to make 50 percent of the U.S. auto fleet electric within 10 years.
“We shouldn’t be so short-sighted,” Raleigh said, considering the Chinese plotted their dominance in the mineral arena decades ago.
In May, Reuters reported Biden was looking to Brazil, Canada, and Australia as potential sources for rare-earth minerals, as opposed to expanding America’s own mines to tap into its own reserves with its own labor.
Milloy said the issue with that proposal, aside from generating jobs abroad which could be available at home, is that neither country is a known host to resources as vast as those in the United States.
“We can’t just demand that Australia, Canada, [and] Brazil produce these for us,” Milloy said.
It was July 29, and the rent was coming due for tenants all over the country. That is, until it wasn’t. Pressed by the progressive wing of the Democratic Party, the Biden White House turned to the CDC to extend the eviction moratorium to October 3 of this year.
The White House maintains that this is not an extension of existing nationwide policy but a new, “targeted” moratorium. Housing groups aren’t buying it, irate with what they see as government overreach and a rebranding of the same policies that saw many landlords go months without collecting enough rent to break even on managed properties. One of those groups, the Alabama Association of Realtors, is challenging the order in court.
The CDC’s latest program, instead of being a blanket nationwide moratorium, uses a region’s COVID-19 infection status as the deciding factor for whether it qualifies. With this adjustment, the administration is attempting to disconnect the “new” moratorium from the past one, which came under intense legal scrutiny.
The former moratorium survived until July 31 only because Justice Kavanaugh thought a premature death for the policy would not “allow for additional and more orderly distribution of the congressionally appropriated rental assistance funds.” He wrote that the only way a moratorium could pass muster thereafter was if there were “clear and specific congressional authorization (via new legislation).”
Pundits and activists on the right and left have predicted the Biden administration may find it exceedingly difficult to argue this moratorium’s new and unique aspects relative to the last.
According to Luke Wake of the Pacific Legal Foundation, defenders of the most recent moratorium “are relying on the very same flawed statutory authority that they have since pronouncing the eviction moratorium last September. The only difference being that instead of a blanket, nationwide moratorium, they would only cover 90 percent of the country. But because they rely on the same supposed authority, their actions are still unlawful.” All Our Opinion in Your Inbox
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Individuals familiar with the plaintiffs’ strategy agreed with Wake, telling National Review that there’s little in the new order to meaningfully differentiate it from its predecessor. The sources pointed out that the new order retains the five eligibility requirements included in the initial moratorium, adding just the one, COVID-dependent, additional requirement.
Legal reaction to the CDC’s pronouncement is moving swiftly, explained Wake:
Now that the Government has renewed the moratorium order in apparent defiance of Kavanaugh’s warning, the Alabama Realtors have sought again to lift the stay in their case so that landlords can begin evicting. The Government was ordered [by the DC Circuit] to respond by the end of [Friday] to that emergency petition. If it’s granted, then that’s a big deal for landlords. If it’s denied, then we can assume they will immediately appeal to the DC Circuit and might very well be before the Supreme Court again quickly.
Kavanaugh granted grace to the CDC, stipulating any extensions would require legislative action. By circumventing him now, the Biden White House risks the Supreme Court’s wrath. Sources were confident that the CDC would not find Kavanaugh nearly as deferential to the government attorneys should they find themselves before him in court again.
Those familiar with the suit expect that sometime early this week, perhaps even Monday, D.C. District Court judge Dabney Friedrich will make a ruling, with a high probability that it lands in favor of the Alabama Realtors. It would then be on the government to appeal the case to higher courts.
Monday, August 9, had both sides’ attorneys before Judge Friedrich answering her questions and pleading their cases. She chose not to rule immediately, instead taking the case under consideration.
Wake estimated the Fifth Circuit would get to his firm’s case (Chambless) around October. A delay, but he figures the CDC will extend the rent moratorium during the winter months, meaning Chambless may be before the Supreme Court by year’s end.
The bipartisan infrastructure agreement contains billions of dollars to remedy supposed racial injustice and combat climate change.
The Washington Free Beacon obtained a Messaging Document circulating among Senate offices to rally support. Much of the document, which is aimed at winning over skeptical GOP lawmakers, appears to be taken word-for-word from a Biden administration fact sheet posted on the White House website on Wednesday.
Much of the highlighted spending aims to remedy discriminatory policies of the past. Part of the $110 billion earmarked for rebuilding roads and bridges is dedicated to fixing allegedly racist projects that “divided” black communities.The proposal specifically names highways such as I-81 in Syracuse, New York, that would be rebuilt around black communities, rather than through them. Secretary of Transportation Pete Buttigieg previously said that “there is racism physically built into some of our highways.”
Thousands of public school buses, according to the document, would be replaced with “zero emission vehicles” as part of a $7.5 billion effort to “modernize” the country’s transportation. These new buses “will benefit communities of color since these households are twice as likely to take public transportation,” according to the document.
The proposal advanced in the Senate Tuesday night with a vote of 67-32. Every Democrat voted “yes,” as did 17 Republicans, including Minority Leader Mitch McConnell (R., Ky.). With two-thirds support, the deal is expected to pass the Senate without a GOP filibuster although it faces steep obstacles in the House.
While the bill has the support of McConnell, not all Republicans are on board. Former president Donald Trump lashed out against Republicans who supported the deal, calling Sen. Mitt Romney (R., Utah), who led negotiations between the two parties, a “SUPER RINO.”
“This will be a victory for the Biden administration and Democrats, and will be heavily used in the 2022 election,” said Trump. “It is a loser for the USA, a terrible deal, and makes the Republicans look weak, foolish, and dumb.”
House Democrats, who hold a slim majority, can only afford losing a few votes. Already, Democrats like Rep. Pramila Jayapal (D., Wash.) said “the votes of Congressional Progressive Caucus members are not guaranteed on any bipartisan package until we examine the details.”
The document boasts of the “largest investment in clean energy in history,” which includes building a new “clean, 21st century electric grid” and billions of dollars “for supply chains for clean energy technologies.” The Department of Energy would also be tasked with creating a “digital climate solutions report, including potential for use of artificial intelligence as a climate solution.”
Residents along Amtrak’s Acela corridor will enjoy $6 billion for track maintenance, as part of the “largest federal investment in public transit in history.” Another $60 billion will be given for general passenger and foreign rail funding.
The document also proposes a variety of other ambitious initiatives, including the replacement of “all of the nation’s lead pipes.”
“Currently, up to 10 million American households and 400,000 schools and child care centers lack safe drinking water,” the messaging document says. “The deal’s $55 billion investment represents the largest investment in clean drinking water in American history, including dedicated funding to replace lead service lines. … It will replace all of the nation’s lead pipes and service lines.”
A separate document obtained by the Free Beacon explains how the government will finance the new spending. Most of the sources of revenue appear to be from a variety of accounting tricks, such as the $2.9 billion “from extending available interest rate smooth options for defined benefit pension plans.” Those who support the plan expect another $28 billion to come from “applying information reporting requirements to cryptocurrency.”
The largest portion of funding comes from the “repurposing of certain unused COVID relief dollars,” totaling $205 billion. Another $53 billion comes from “certain states returning unused enhanced federal [unemployment insurance] supplement.”
With growth so uncertain, it is understandable that central banks would be wary of beginning to taper monthly bond purchases before it is clear that inflation has taken off. But they would do well to recognize that prolonging quantitative easing implies significant risks, too.
Inflation readings in the United States have shot up in recent months. Labor markets are extremely tight. In one recent survey, 46% of small-business owners said they could not find workers to fill open jobs, and a net 39% reported having increased their employees’ compensation. Yet, at the time of this writing, the yield on ten-year Treasury bonds is 1.24%, well below the ten-year breakeven inflation rate of 2.4%. At the same time, stock markets are flirting with all-time highs.
Something in all this does not add up. Perhaps the bond markets believe the US Federal Reserve when it suggests that current inflationary pressures are transitory and that the Fed can hold policy interest rates down for an extended period. If so, growth – bolstered by pent-up savings and the additional government spending currently being negotiated in Congress – should be reasonable, and inflation should remain around the Fed’s target. The breakeven inflation rate also seems to be pointing to this scenario.
But that doesn’t explain why the ten-year Treasury rate is so low, suggesting negative real rates over the next decade. What if it is right? Perhaps the spread of the COVID-19 Delta variant will prompt fresh lockdowns in developed countries and damage emerging markets even more. Perhaps more nasty variants will emerge. And perhaps the negotiations in Congress will break down, with even the bipartisan infrastructure bill failing to pass. In this scenario, however, it would be hard to justify the stock-market buoyancy and breakeven inflation rate.
One common factor driving up both stock and bond prices (thus lowering bond yields) could be asset managers’ search for yield, owing to the conditions created by extremely accommodative monetary policies. This would explain why the prices of stocks (including “meme stocks”), bonds, cryptocurrencies, and housing are all a little frothy at the same time.
To those who care about sound asset prices, Fed Chair Jerome Powell’s announcement last week that the economy had made progress toward the point where the Fed might end its $120 billion monthly bond-buying program was good news. Phasing out quantitative easing (QE) is the first step toward monetary-policy normalization, which itself is necessary to alleviate the pressure on asset managers to produce impossible returns in a low-yield environment.
The beginning of the end of QE would not please everyone, though. Some economists see a significant downside to withdrawing monetary accommodation before it is clear that inflation has taken off. Gone is the old received wisdom that if you are staring inflation in the eyeballs, it is already too late to beat it down without a costly fight. Two decades of persistently low inflation have convinced many central bankers that they can wait.
And yet, even if monetary policymakers are not overly concerned about high asset prices or inflation, they should be worried about another risk that prolonged QE intensifies: the government’s fiscal exposure to future interest-rate hikes.
While government debt has soared, government interest payments remain low, and have even shrunk as a share of GDP in some countries over the last two decades. As such, many economists are not worried that government debt in advanced economies is approaching its post-World War II high. But what if interest rates start moving up as inflation takes hold? If government debt is around 125% of GDP, every percentage-point increase in interest rates translates into a 1.25 percentage-point increase in the annual fiscal deficit as a share of GDP. That is nothing to shrug at. With interest rates normally rising by a few percentage points over the course of a business cycle, government debt can quickly become stressful.
To this, thoughtful economists might respond, “Wait a minute! Not all the debt has to be rolled over quickly. Just look at the United Kingdom, where the average term to maturity is about 15 years.” True, if debt maturities were evenly spread out, only around one-fifteenth of the UK debt would have to be refinanced each year, giving the authorities plenty of time to react to rising interest rates.
But that is no reason for complacency. The average maturity for government debt is much lower in other countries, not least the US, where it is only 5.8 years. Moreover, what matters is not the average debt maturity (which can be skewed by a few long-dated bonds), but rather the amount of debt that will mature quickly and must be rolled over at a higher rate. Median debt maturity (the length of time by which half the existing debt will mature) is therefore a better measure of exposure to interest-rate-rollover risk. Sign up for our weekly newsletter, PS on Sunday
More to the point, one also must account for a major source of effective maturity shortening: QE. When the central bank hoovers up five-year government debt from the market in its monthly bond-buying program, it finances those purchases by borrowing overnight reserves from commercial banks on which it pays interest (also termed “interest on excess reserves”). From the perspective of the consolidated balance sheet of the government and the central bank (which, remember, is a wholly owned subsidiary of the government in many countries), the government has essentially swapped five-year debt for overnight debt. QE thus drives a continuous shortening of effective government debt maturity and a corresponding increase in (consolidated) government and central-bank exposure to rising interest rates.
Does this matter? Consider the 15-year average maturity of UK government debt. The median maturity is shorter, at 11 years, and falls to just four years when one accounts for the QE-driven shortening. A one-percentage-point increase in interest rates would therefore boost the UK government’s debt interest payments by about 0.8% of GDP – which, the UK Office for Budget Responsibility notes, is about two-thirds of the medium-term fiscal tightening proposed over the same period. And, of course, rates could increase much more than one percentage point.
As for the US, not only is the outstanding government debt much shorter in maturity than that of the UK, but the Fed already owns one-quarter of it. Clearly, prolonging QE is not without risks.
Washington does well as the world falls apart
On August 8 the White House chief of staff, Ron Klain, turns 60 years old. It is, writes Mark Leibovich of the New York Times, a much-anticipated event on the D.C. social calendar. Klain, you see, has commemorated earlier “round-numbered birthdays” by throwing large, sumptuous “blowouts,” including a fête at a Maryland farm in 2011 where hundreds of VIPs gathered to eat deep-fried Oreos and deliver “tributes to the honoree.”
Everyone who was anyone in Barack Obama’s Washington was there. One’s absence signified one’s exclusion from the tribe. To know Ron Klain, then, is to have entered the power elite. “Plans for his 60th,” Leibovich continues, “have become such a source of Beltway status anxiety that a small universe of Washington strivers is angling for details: Some have asked White House contacts whether a celebration is in the works and if invitations have gone out.”
Needless to say, I don’t expect to be invited. Nor is there anything wrong with Klain throwing himself a bash: Having just celebrated a “round-numbered” birthday myself, I can attest that there is nothing more fun than gathering a bunch of your family and friends in one place for an evening of food and drink (and more drink).
What struck me instead as I read Leibovich’s slightly tongue-in-cheek profile was the distance between the bourgeois comfort of Klain’s personal and professional life and the facts, as they say, on the ground. One cannot finish reading the Leibovich piece without coming to the conclusion that, all in all, things have worked out pretty darn well for Ron Klain. For America? Not so much.
Klain is the most powerful chief of staff in recent memory, the beating heart of Joe Biden’s White House, a man whose portfolio is so wide-ranging and whose boss is so (let’s face it) odd that Republicans on Capitol Hill refer to him as “Prime Minister Klain.” Like most Washingtonians, he is a well-degreed workaholic, a graduate of Georgetown and Harvard Law School who has spent decades rotating from positions in Democratic administrations to lucrative gigs at the intersection of law, technology, and finance. He calls his expensive home in Chevy Chase, Md., “the house that O’Melveny built,” after legal giant O’Melveny & Myers, where he was a partner from 2001 to 2004.
Among his clients there were AOL Time Warner and Fannie Mae. In 2004 the chairman of AOL Time Warner, billionaire Steve Case, invited Klain to join his D.C.-based venture capital firm, Revolution. Leibovich informs us that Klain’s salary in 2020 was some $2 million. That buys you a lot of hors d’oeuvres.
What Ron Klain actually did in the private sector—besides tweet—is no mystery. By the alchemical process through which influence is manufactured in Washington, he converted his relationships with Democratic power brokers into cash money. “At times,” wrote Michael Scherer in a November 2020 profile for the Washington Post, “Klain appears to have worked with every Democratic leader of the past three decades.” Such a network is worth something to the incalculable number of interests seeking out favors, damages, or relief from the federal government.
And such a network is all the more valuable when it includes a president. In addition to Klain’s smarts and drive, it has been his considerable luck that he has worked for Joe Biden in various capacities since the 1980s. Indeed, the only hiccup in what the Times calls Klain’s “ascension” was his boneheaded, finger-in-the-wind decision to endorse the campaign of the worst presidential candidate in modern history before checking in with Biden first.
When Klain signed on with Hillary Clinton in 2015, Biden had not yet removed himself from consideration for the Democratic nomination. The vice president interpreted Klain’s announcement as an act of disloyalty. Leibovich writes that the rupture with the Biden family, “especially with Jill Biden,” was intense, if relatively brief. Scherer of the Washington Post reports that, after Hillary managed to lose to Donald Trump, another longtime Biden aide, Steve Ricchetti, arranged for Klain to meet with the future president and come to terms. Klain was back on the inside. All was well.
Recent days have offered plenty of evidence of just how good it is to orbit President Biden. The lobbying firm of Steve Ricchetti’s brother Jeff saw a quadruple increase in fees between the first half of 2020 and the first half of 2021, according to the Wall Street Journal. So far this year, Ricchetti Inc. has taken in $1.67 million. “I do not lobby my brother, nor have I lobbied the White House this quarter,” Jeff Ricchetti said in an email to the paper, in one of the most cleverly constructed sentences I have read in a long time.
Surely Jeff Ricchetti understands that Counselor to the President Steve Ricchetti is not the only employee of the executive branch, that “lobbying” is an amorphous term, that the “White House” or Executive Office of the President is just one of innumerable executive and legislative bodies that make policy, and that “this quarter” is only the third of four per year. What did he do in the first two?
Frank Biden, the president’s younger brother, is a senior adviser to the Florida-based Berman Law Group and boastedof his genetic connection to the Oval Office in an Inauguration Day advertisement. As for the president’s son Hunter—well, words fail me. Suffice it to say that Hunter’s latest gambit to profit from his last name, selling his psychedelic abstract expressionist paintings to “anonymous” donors, is such a transparent grift that even big tech isn’t trying to censor criticism of it.
Yes, it’s good to know a president. But what about, you know, the rest of the country? “People in and around the White House describe Mr. Klain as the essential nerve center of an over-circuited administration whose day-to-day doings reflect how this White House works and what it aspires to,” writes Leibovich. What the White House aspires to, it would seem, is continuity and routine: Klain arrives early for work and leaves late, hardly travels with Biden, and spends his hours managing the rickety contraption that is this president’s agenda.
But the “normalcy” of White House operations contrasts sharply with the turbulence buffeting the world outside 1600 Pennsylvania Avenue. On the day Leibovich’s story appeared, for example, markets plunged over fears of the spreading coronavirus variant. Similar fears of inflation and crime are roiling the electorate. The southern border is experiencing the largest surge in illegal migration in 20 years.
On the global stage, the Taliban rampage throughout Afghanistan. Russian and Chinese cyberattacks continue despite Biden’s warnings to Vladimir Putin and Xi Jinping. The negotiations with Iran over its nuclear program go nowhere fast. For all of Biden’s rhetoric, which itself is often confusing, America is not in a good place.
“Party details for his 60th birthday on Aug. 8 remain elusive,” writes Leibovich, “although there has been talk that Mr. Klain might skip a big gala this summer and do a small family celebration instead on the big day.” I should hope so. The man has a lot of work to do. The Biden circle is living high on the hog while America and the world are coming apart. Prime Minister Klain, call your office.
Reports that Costco, one of the nation’s largest warehouse shopping chains, was no longer offering products manufactured by MyPillow to its members are being met with cheerful enthusiasm by progressives from coast to coast.
On Tuesday MoveOn.org, the leftwing group that pioneered the use of online petitions during the Clinton impeachment sent a message to its followers in which one of them, identified as “Dennis C.” of Tennessee, bragged about how an effort he started led to Costco’s decision to remove MyPillow products from its shelves several months ago.
“Within weeks, my petition grew to tens of thousands of signatures from people across the country, and over 250,000 MoveOn members signed onto my campaign in the following months. In April, I burst out in simultaneous laughter and tears of joy when I heard the good news that Costco stores stopped selling MyPillow products!”
MyPillow was founded by Mike Lindell, a conservative Minnesota businessman who transformed himself into a household name through a series of ads in which he pitched his products that appeared mostly on late night and cable television. An ally of President Donald J. Trump, Lindell campaigned vigorously in support of re-election and, later, was a major supporter of efforts intended to show the results of that election had been significantly tainted by voter fraud.
Lindell’s support for the controversial theory that the 2020 election was “stolen” by the Democrats has proven costly, as it led to the bedding products made by his company being “canceled” by Costco, which currently does not offer them for sale on its website.
When I learned that Costco was selling millions of dollars worth of MyPillow products, I was overwhelmed with confusion, disappointment, and anger. I love Costco and am a regular customer, but MyPillow CEO Mike Lindell is a massive supporter of far-right political activity and pushes conspiracy theories, including those espoused by the mob that stormed the U.S. Capitol.
I didn’t want one of my favorite companies, Costco, helping right-wing extremists make millions of dollars—especially as the gravity of the attack on the Capitol grew more clear by the day.
That’s when I thought of MoveOn and—inspired by previous experiences signing petitions—decided to start a petition of my own in January.
Within weeks, my petition grew to tens of thousands of signatures from people across the country, and over 250,000 MoveOn members signed onto my campaign in the following months. In April, I burst out in simultaneous laughter and tears of joy when I heard the good news that Costco stores stopped selling MyPillow products!1
This would not have been possible without the help of MoveOn members and our collective power. For that, I am eternally grateful.
I encourage you and all MoveOn members to find something that motivates you to start your own petition.
It’s incredibly frustrating at times for me to be living in a “red” state and unsure of who else will share my progressive values. It’s also frustrating to see the national news about how Congress is often slow to act on such massive problems as the rising cost of health care, obstacles to voting rights, fixing racism in the criminal justice system, and implementing immediate action on climate change.
However, my incredible experience working with MoveOn’s team and the free petition platform made the process of promoting and winning my campaign a lot more rewarding than I could have ever imagined.
Thank you to the hundreds of thousands of MoveOn members who signed my petition and remember that each of us has the power to create change when we work together.
Start a petition
MoveOn member in Tennessee
Missouri Congressman Blaine Luetkemeyer is taking on the Biden administration over policy moves that have caused higher prices and the return of noticeable inflation.
“Gas, milk, fruit, televisions, furniture, washing machines, car rentals, hotel rooms – what do all of these things have in common? Their prices have gone up under the Biden administration,” Luetkemeyer, the ranking Republican on the House Committee on Small Business wrote in an op-ed published Friday by Fox Business.
Data published by the U.S. Bureau of Labor Statistics showed prices up 5.4 percent last month over June 2020, the highest jump since the economic difficulties that began when the market for sub-prime home mortgages collapsed in 2008. That’s higher than the interest rate setting U.S. Federal Reserve expected and marks the sixth straight month in which prices have risen.
“While Democrats in Washington bulldoze a path for reckless government spending, small businesses and middle class working American families alike are left to pay the bill,” Luetkemeyer wrote, singling out the damaging impact the newest round of inflation is having on family-owned business.
“Small businesses are the backbone of the United States economy, and they were making huge economic strides before the Biden administration took over. Now, small businesses nationwide are facing the consequences of the Democrats’ massive government spending agenda in all sectors,” he wrote.
The U.S. says government nearly half the country’s small businesses were forced to increase prices in May, which Luetkemeyer said was “the largest percentage reported in 40 years.”
“From increased gas prices for delivering goods to rising food costs for restaurants, small business owners are bearing the brunt of Democrat-induced inflation,” he continued. “As more American consumers are spending and patronizing small businesses following the COVID pandemic shutdowns, this increased immediate spending has given our economy a bit of a shock. But rather than acknowledge this problem and correct the course, President Biden and Congressional Democrats are doubling down.”
“Make no mistake – inflation is taxation. Prices of the goods you buy go up, meaning the dollars in your pocket are worth less. It then takes more of those hard-earned dollars to purchase these goods.
“The Democrats’ proposed $3.5 trillion package will severely exacerbate the inflation problem for middle-class families and further crush Main Street U.S.A.
“Simply put, small businesses cannot afford the inflation tax that comes with the Democrats’ failed economic policies.
“As Republican Leader of the House Small Business Committee, my colleagues and I have worked tirelessly to provide much-needed relief for small businesses across the country as they regain their footing and reopen their doors to local communities.
“Unfortunately, there is no single COVID relief package that can simply fix inflation – the Democrats must stop their spending spree. As if the pandemic didn’t create enough of an economic burden for American families and workers, they now face an increased cost of living and consumer prices across the board with no end in sight.”
Luetkemeyer’s criticisms are being echoed by economists and others concerned about the effects ongoing inflation will have on the post-pandemic recovery.
Writing in mid-July for the Carsey School of Public Policy at the University of New Hampshire, Michael Ettlinger and Jordan Hensley observed that “As measured by Real Gross Domestic Product (GDP), 35 states and the District of Columbia have smaller economies, as of the first quarter of this year, than they did before COVID-19, while 14 states have seen a modicum of economic growth. Nationally, GDP remains 0.9 percent lower than it was before the pandemic struck.”
President Biden and others in his administration seem happy to claim credit for the good economic news but are rather cavalier about the impact the bad news is having, saying the spike in inflation is at worst temporary.
Biden himself recently dismissed the issue, saying his multi-trillion-dollar spending initiatives will “reduce inflation, reduce inflation, reduce inflation.” Some economists and business leaders fear, however, it is that very spending that is driving the hike in prices and that they will not stabilize or return to the levels at which they were at before the pandemic struck any time soon.
Americans for Tax Reform led a coalition with other center-right organizations flagging concerning developments in the infrastructure bill negotiations. Price controls and rate regulation; dramatic expansion of executive brand and agency authority; and government-controlled internet should never be on the table.
You can read the letter below or click HERE for a full version:
July 23, 2021
RE: Broadband Infrastructure Spending
We write to you today over some concerning developments in the bipartisan infrastructure negotiations on broadband. We are guided by the principles of limited government and believe that the flaws in the infrastructure framework go well beyond the issues discussed here. Nonetheless, our present aim is to advocate specifically against proposals that would enact price controls, dramatically expand agency authority, and prioritize government-controlled internet.
The infrastructure plan should not include rate regulation of broadband services. Congress should not authorize any federal or governmental body to set the price of any broadband offering. Even steps that open the door to rate regulation of broadband services will prove harmful in the long run.
Nor should Congress continue to abdicate its oversight responsibilities to executive branch agencies like the National Telecommunications and Information Administration. Giving NTIA unchecked authority to modify or waive requirements, renders all guardrails placed by Congress meaningless. There must be oversight of the programs to ensure that taxpayer dollars go toward connecting more Americans to broadband as opposed to wasteful pet projects.
Historically, attempts by NTIA to close the digital divide through discretionary grants have failed, leading to wasteful overbuilds, corruption, and improper expenditures. The American Recovery and Reinvestment Act of 2009 created the $4 billion Broadband Technology Opportunities Program (BTOP) grant program administered by NTIA. From 2009, when BTOP was instituted, to 2017, at least one-third of all the reports made by the Inspector General for the Department of Commerce were related to the BTOP program, and census data showed that the BTOP program had no positive effect on broadband adoption. And this was with only $4 billion in taxpayer dollars. We cannot afford to make the same mistake with much greater sums.
Legislation must be clear and not create ambiguities that are left to the whims of regulators. While “digital redlining” is unacceptable, the FCC should not be allowed to define the term however it sees fit and promulgate any regulations it thinks will solve problems—real or imagined. Doing so would give the agency carte blanche to regulate and micromanage broadband in any way it desires. This would be an egregious expansion of FCC authority. Moreover, definitions and regulations could change whenever party control of the agency changes, leading to a back-and-forth that creates uncertainty for consumers and businesses.
Legitimate desire to ensure that low-income Americans have access to broadband infrastructure should not be used as a smokescreen to codify aspects of the recent Executive Order on Competition, which should not be included in any bipartisan infrastructure agreement. Republicans fought hard to support the FCC’s Restoring Internet Freedom Order. Any legislating on the functions and deployment of Internet technologies must move as a standalone bill through regular order with committee review. These questions are far too important to shoehorn into a massive bill without rigorous debate.
Any funding for broadband buildout must target locations without any broadband connection first, and this should be determined by the Congressionally mandated FCC broadband maps. Congress has oversight over the FCC and the FCC has already conducted several reverse auctions. Reverse auctions get the most out of each taxpayer dollar towards closing the digital divide. Areas where there is already a commitment from a carrier to build out a network, should not be considered for grants, and the NTIA should not be able to override the FCC’s map to redefine “unserved” and subsidize duplicative builds.
Government-controlled Internet should not be prioritized in any grant program. With few exceptions, government-owned networks (GONs) have been abject failures. For example, KentuckyWired is a 3,000-mile GON that was sold to taxpayers as a $350 million project that would be complete by spring of 2016. Those projections could not have been more wrong. More than five years past the supposed completion date, fiber construction for KentuckyWired is still “in progress” in some parts of the state and a report from the state auditor has concluded that taxpayers will end up wasting a whopping $1.5 billion on this redundant “government owned network” over its 30-year life. NTIA should certainly not encourage these failures to be replicated.
We appreciate your work to help close the digital divide and agree that access to reliable internet is a priority, however we should not use this need to serve as a cover for unnecessary
government expansion. Please feel free to reach out to any of the undersigned organizations or individuals should you have questions or comments.
* individual signer; organization listed for identification purposes only
U.S. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi Friday that unless Congress acted quickly to raise the statutory limit on the amount of money the federal government can borrow, she would be forced to “start taking certain additional extraordinary measures” to prevent the United States government from defaulting on its financial obligations.
In a letter sent to Pelosi and other members of the congressional leadership in both parties, Yellen asserted that an increase or continued suspension of the debt limit “does not increase government spending, nor does it authorize spending for future budget proposals; it simply allows Treasury to pay for previously enacted expenditures.”
With just days to go before the statuary suspension of the debt limit ends at noon on July 31, the need for congressional action has already become a political football. Both parties are trying to use the issue on Capitol Hill to gain leverage over the other to either stop or move through to final passage several pieces of legislation that are a top priority for the Biden Administration.
The full text of the letter is as follows:
Dear Madam Speaker:
As you know, the Bipartisan Budget Act of 2019 suspended the statutory debt limit through Saturday, July 31, 2021. I am writing to inform you that beginning on Sunday, August 1, 2021, the outstanding debt of the United States will be at the statutory limit.
Today, Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities at 12:00 p.m. on July 30, 2021. The suspension of SLGS sales will continue until the debt limit is suspended or raised. If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations.
Increasing or suspending the debt limit does not increase government spending, nor does it authorize spending for future budget proposals; it simply allows Treasury to pay for previously enacted expenditures. The current level of debt reflects the cumulative effect of all prior spending and tax decisions, which have been made by Administrations and Congresses of both parties over time. Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans. Even the threat of failing to meet those obligations has caused detrimental impacts in the past, including the sole credit rating downgrade in the history of the nation in 2011. This is why no President or Treasury Secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States.
The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic. Given this, Treasury is not able to currently provide a specific estimate of how long extraordinary measures will last. However, there are scenarios in which cash and extraordinary measures could be exhausted soon after Congress returns from recess. For example, on October 1 alone, cash and extraordinary measures are expected to decrease by about $150 billion due to large mandatory payments, including a Department of Defense-related retirement and health care investment.
In recent years Congress has addressed the debt limit through regular order, with broad bipartisan support. I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible.
It is highly unlikely members in either party will allow the deadline to be reached without reaching some kind of compromise agreement to forestall the U.S. defaulting on its debt. Such a move would, most economists agree, that even a technical default would put in motion a disruption in the global financial markets of what one economist called “a global disruption of unknown and unknowable proportions.”
Such a collapse, which would provide China an ample boost in their campaign urging the replacement of the dollar as the global reserve currency, would likely be blamed on the Republicans. Fear that it might in turn limits the ability of spending restraint advocates to argue the deadline should be allowed to come and go unless reforms are made.
This game of economic chicken has been tried before, with the first one to blink generally considered the loser.
Forcing DiDi and Alibaba to toe the Communist Party line may help Xi build a police state but will stall the nation’s dynamic industry.
“Investors have to rethink the entire China structure,” David Kotok of Cumberland Advisers said last week. For Hong Kong, the One Country, Two Systems principle was “dead.” As for the crackdown on some of the nation’s tech giants, the Beijing government’s treatment of Alibaba “is not a one-off. Neither is DiDi. Everything China touches must be viewed with suspicion.”
Wait, you’re saying that investing in the other side in the early phase of Cold War II might have been a bad idea? You’re telling me that “long totalitarianism” was not a smart trade?
For the past three years, I have been trying to persuade anyone who would listen that “Chimerica” — the symbiotic economic relationship between the People’s Republic of China and the United States of America, which I first wrote about in 2007 — is dead. The experience has taught me how hard it can be for an author to kill one of his own ideas and replace it with a new one. The facts change, but people’s minds — not so much.
Chimerica was the dominant feature of the global economic landscape from China’s accession to the World Trade Organization in 2001 to the global financial crisis that began in 2008. (I never expected the relationship to last, which was why I and my co-author Moritz Schularick came up with the word: Chimerica was a pun on “chimera.”) At some point after that, as I have argued in Bloomberg Opinionpreviously, Cold War II began.
Unlike with a “hot” war, it is hard to say exactly when a cold war breaks out. But I think Cold War II was already underway — at least as far as the Chinese leader Xi Jinping was concerned — even before former President Donald Trump started imposing tariffs on Chinese imports in 2018. By the end of that year, the U.S. and China were butting heads over so many issues that cold war began to look like a relatively good outcome, if the most likely alternative was hot war.
Ideological division? Check, as Xi Jinping explicitly prohibited Western ideas in Chinese education and reasserted the relevance of Marxism-Leninism. Economic competition? Check, as China’s high growth rate continued to narrow the gap between Chinese and U.S. gross domestic product. A technological race? Check, as China systematically purloined intellectual property to challenge the U.S. in strategic areas such as artificial intelligence. Geopolitical rivalry? Check, as China brazenly built airbases and other military infrastructure in the South China Sea. Rewriting history? Check, as the new Chinese Academy of History ensures that the party’s official narrative appears everywhere from textbooks to museums to social media. Espionage? Check. Propaganda? Check. Arms race? Check.
A classic expression of the cold war atmosphere was provided on July 1 by Xi’s speech to mark the centenary of the Chinese Communist Party: The Chinese people “will never allow any foreign force to bully, oppress, or enslave us,” he told a large crowd in Beijing’s Tiananmen Square. “Anyone who tries to do so shall be battered and bloodied from colliding with a great wall of steel forged by more than 1.4 billion Chinese people using flesh and blood.” This is language the like of which we haven’t heard from a Chinese leader since Mao Zedong.
Most Americans could see this — public sentiment turned sharply negative, with three quarters of people expressing an unfavorable view of China in recent surveys. Many politicians saw it — containing China became just about the only bipartisan issue in Washington, with candidate Joe Biden seeking to present himself to voters as tougher on China than Trump. Yet somehow the very obvious trend toward cold war was ignored in the place that had most to lose from myopia. I am talking about Wall Street. Even as China was ground zero for a global pandemic, crushed political freedom in Hong Kong and incarcerated hundreds of thousands of its own citizens in Xinjiang, the money kept flowing from New York to Beijing, Hangzhou, Shanghai and Shenzhen.
According to the Rhodium Group, China’s gross flows of foreign domestic investment to the U.S. in 2019 totaled $4.8 billion. But gross U.S. FDI flows to China were $13.3 billion. The pandemic did not stop the influx of American money into China. Last November, JPMorgan Chase & Co. spent $1 billion buying full ownership of its Chinese joint venture. Goldman Sachs Group Inc. and Morgan Stanley became controlling owners of their Chinese securities ventures. Just about every major name in American finance did some kind of China deal last year.
And it wasn’t only Wall Street. PepsiCo Inc. spent $705 million on a Chinese snack brand. Tesla Inc. ramped up its Chinese production. There were also massive flows of U.S. capital into Chinese onshore bonds. Chinese equities, too, found American buyers. “From an AI chip designer whose founders worked at the Chinese Academy of Sciences, to Jack Ma’s fast-growing and highly lucrative fintech unicorn Ant Group and cash cow mineral-water bottler Nongfu Spring Co., President Xi Jinping’s China has plenty to offer global investors,” my Bloomberg opinion colleague Shuli Ren wrote last September.
Recent months have brought a painful reality check. On July 2, Chinese regulators announced an investigation into data security concerns at DiDi Global Inc., a ride-hailing group, just two days after its initial public offering. DiDi had raised $4.4 billion in the biggest Chinese IPO in the U.S. since Alibaba Group Holding Ltd.’s in 2014. No sooner had investors snapped up the stock than the Chinese internet regulator, the Cyberspace Administration of China, said the company was suspected of “serious violations of laws and regulations in collecting and using personal information.”
The cyberspace agency then revealed that it was also investigating two other U.S.-listed Chinese companies: hiring app BossZhipin, which listed in New York as Kanzhun Ltd. on June 11, and Yunmanman and Huochebang, two logistics and truck-booking apps run by Full Truck Alliance Co., which listed on June 22. Inevitably, this nasty news triggered a selloff in Chinese tech stocks. It also led several other Chinese tech companies abruptly to abandon their plans for U.S. IPOs, including fitness app Keep, China’s biggest podcasting platform, Ximalaya, and the medical data company LinkDoc Technology Ltd.
To add to the maelstrom, on Thursday Senators Bill Hagerty, a Tennessee Republican, and Chris Van Hollen, Democrat of Maryland, called on the Securities and Exchange Commission to investigate whether DiDi had misled U.S. investors ahead of its IPO. Also last week, U.S. tech companies such as Facebook, Twitter and Google came under increased pressure from Hong Kong and mainland officials over doxxing, the practice of publishing private or identifying information about an individual online.
For several years, I have been told by numerous supposed experts on U.S.-China relations a) that a cold war is impossible when two economies are as intertwined as China’s and America’s and b) that decoupling is not going to happen because it is in nobody’s interest. But strategic decoupling has been China’s official policy for some time now. Last year’s crackdown on financial technology firms, which led to the sudden shelving of the Ant Group Co. IPO, was just one of many harbingers of last week’s carnage.
The proximate consequences are clear. U.S.-listed Chinese firms will face growing regulatory pressure from Beijing’s new rules on variable interest entities as well as from U.S. delisting rules.
The VIE structure has long been used by almost all China’s major tech companies to bypass China’s foreign investment restrictions. However, on Feb. 7, the State Council’s Anti-Monopoly Committee issued new guidelines covering variable interest entities for the first time. Recognizing them as legal entities subject to domestic anti-monopoly laws has allowed regulators to impose anticompetition penalties on major VIEs, including Alibaba, Tencent Holdings Ltd. and Meituan. This new framework substantially increases risks to foreign investors holding American deposit receipts in the tech companies’ wholly foreign-owned enterprises. For example, Beijing could conceivably force VIEs to breach their contracts with their foreign-owned entities. In one scenario, subsidiaries of a Chinese variable interest entity that are deemed by Beijing to be involved in processing and storing critical data could be spun out from the VIE — just as Alibaba was reportedly forced to spin out payments subsidiary Alipay in 2010.
The stakes are high. There are currently 244 U.S.-listed Chinese firms with a total market capitalization of around $1.8 trillion, equivalent to almost 4% of the capitalization of the U.S. stock market.
In my recent Defining Ideas article titled “A Refresher Course on Free Trade,” I made the case for free trade. A large part of the economic case is that free trade makes people in the country that adopts it better off than if their government hadn’t adopted it. It makes imports cheaper, allows consumers to get a more varied range of goods, and causes labor and capital to be allocated to areas of the economy where they are most productive.
In the United States in recent years, there have been two main objections to free trade. The first is that when free or freer trade is introduced into a particular sector, producers in that sector, both owners of capital and laborers, will be worse off. Therefore, argue some of the people who make this point, either trade shouldn’t be liberalized or, at least, introduction of trade should be accompanied by government spending to compensate the losers. The second objection is that free trade benefits mainly the wealthy and does little for the workers who are living on the economic edge. The first objection is often true in the short run but almost always false in the long run; it also applies to any economic change whether that change is caused by international trade or purely domestic economic interactions; in short, the objection proves too much. The second objection is simply false.
Winners, Losers, and Compensation
In my earlier article, I pointed out that if the market for sugar were opened to unrestricted imports from other countries, the price of sugar in the United States would fall and US sugar producers would be hurt. That’s all true in the short run. In the long run, say ten years from now, it’s not clear that those who produce sugar now would be worse off then. Owners of capital would have had ten years in which to find alternate industries in which to invest and workers would have had ten years in which to find other jobs.
Still, ten years is a long time. Those who lose jobs can find others at lower wages but they might be employed at these lower wages for at least a few years before they build their skills and earn wages comparable to the ones they lost because of free trade. So one can understand why people who see the benefits of free trade want a government policy to subsidize the losers for a few years. Those who want such subsidies tend to focus on workers who lose their jobs but the same thinking would presumably apply to business owners, including shareholders, who suffer a wealth loss due to free trade.
There are a number of problems with such proposals, though. First, government is notoriously bad at targeting help to groups sorted by their particular circumstances. When politicians sense a gravy train coming, they tend to lobby their colleagues to include other groups and causes. We saw this with the initial Biden proposal for infrastructure. It included a large amount of money for activities that have never been considered to be infrastructure, activities like day care.
Second, there is nothing special about free trade. Indeed, in a large economy like that of the United States, most trade is not across borders but is between people within the US borders. In 2019, imports were about 14.6 percent of gross domestic product. That sounds high, and is high, but that number confirms that most trade in the United States is between and among people in the United States. When a new technology or even a new way of running a business helps consumers, it also destroys many businesses and hurts workers who lose their jobs or who must work at a lower pay to keep their jobs.
We don’t need to go back far to see such examples. When I taught in the business school at the University of Rochester in the late 1970s, some of my evening MBA students who worked at Kodak called it the “big yellow money machine.” Kodak was riding high on the technology that innovator George Eastman and his successors had created and perfected. But digital cameras in the 1980s and 1990s and, later, cell phones that got better and better at taking still shots and movies, virtually destroyed the market for Kodak’s product. It’s true that part of the causes was international trade in cell phones. But even without cell phones from other countries, US cell phone producers were plenty capable of competing Kodak into bankruptcy.
Few of those who advocate compensating those who lose due to expanded trade across borders advocate compensating those who lose due to increased trade within borders. I hasten to add that I’m glad that they don’t. But the principle is the same.
Are the Rich the Main Gainers from International Trade?
In early 2016, UCLA professor Mark Kleiman wrote:
But the bottom line is that all of the gains, not merely from trade but from economic growth, have been concentrated in the hands of a relative few.
I was surprised when I read that. Historically, the opposite has been the case. Before considering recent history, let us turn to the famous repeal of the British Corn Laws, which happened in June 1846. The Corn Laws disallowed the import of wheat (which the British called corn) unless the domestic price of wheat hit a very high level. In practice this meant that imports of wheat were effectively banned. Because lower-income people spent a much higher percent of their income on food than higher-income people did, repeal of the Corn Laws helped low-income people disproportionately. Those who lost were primarily rich owners of agricultural land who, after 1846, had to face competition from other countries.
In a recent discussion to celebrate the 175th anniversary of the repeal of the Corn Laws, British historian Steve Davies of the Institute of Economic Affairs in London put it well. The successful popular campaign to repeal the Corn Laws, he observed,
fixed in the minds of the British working class in particular, right up to the present day, the profound belief that free trade is good for the poor and the working man and woman and that protectionism is basically a conspiracy by the rich and special interests to screw over the working class.
Now let’s turn to recent history, which is quite consistent with the nineteenth-century British history.
Although trade may hurt various low-income people in their role as competing workers, it helps lower-income people, as consumers, proportionally more than high-income people. The reason is that the particular goods that are traded tend to be those that are a larger proportion of a lower-income household’s income. Think about who shops at Walmart and where Walmart buys many of the items it sells. Lower-income people are disproportionately represented among Walmart shoppers and many of the items, typically low-end, that Walmart sells are imported, especially from China. In an article in the Quarterly Journal of Economics, UCLA economist Pablo D. Fajgelbaum and Columbia University economist Amit K. Khandelwal lay out the facts about the gains from trade.
In correspondence with me about their findings, Professor Khandelwal considered the gains that would be captured by various income groups if prices for imports fell by 5 percent. For food, people at the 10th percentile—those whose income is below that of 90 percent of the population—would have an annual gain of 0.39 percent of income. People in the 90th percentile and 99th percentile, by contrast, would gain zero. Similarly, a 5 percent price cut for manufactured goods would raise real income for people at the 10th percentile by 0.81 percent and for people at the 90th and 99th percentile by only 0.22 percent and 0.10 percent, respectively.
In many cases, moreover, those who lost their jobs due to the opening of trade had had substantially higher incomes than the lower-income people who made out big from trade. Consider the case of clothing. The US economy lost 650,000 apparel jobs between 1997 and 2007, which was the period during which Chinese imports increased so rapidly. Not all of those people found jobs at a pay as high as they earned before. That’s the downside. The upside is that, with the increase in international trade, clothing became much cheaper. In his book The Rise and Fall of American Growth, Northwestern University economist Robert J. Gordon reports that between 1980 and 2013, clothing prices fell by an annual average of 2.6 percent. Compounded over the period from 1997 to 2007, that’s a 24 percent drop. The actual drop is probably even more because the opening to China brought down clothing prices annually even more quickly than the average annual drop from 1980 to 2013.
For 2019, the latest data available, households in the bottom two quintiles, which is about 53 million households, spent an average of $1,032 per year on clothing. That’s out of an average after-tax income of $22,591. So they spent 4.6 percent of their income on clothing. Because clothing prices fell over that time, they would have bought more clothing at the lower price. So we will understate their gain if we assume that they were insensitive to price and bought the same amount of clothing that they would have at the higher pre-expanded-trade price. Even assuming no further drop in clothing prices after 2103, the 24 percent drop in price was important for a household with such limited means. The clothing they would have bought in 1997 would have cost an inflation-adjusted amount of $1,358. So the average family in the two bottom fifths of the income distribution saved $326 on clothing alone. Over 53 million households, that is a gain of about $17.3 billion. Assuming that the 650,000 people who lost their jobs lost as much as $10,000 each per year, which is probably an overestimate, their loss was $6.5 billion, which is less than 38 percent of the gain. Moreover, the average worker in a clothing factory in the United States, along with her or her family, almost certainly earned more than $22,591, the average income of the bottom two-fifths.
There may be other objections to free trade but two objections fail. First, even though some people lose in the short run when trade is made freer, almost everyone gains in the long run. Second, those who gain disproportionately from free trade are lower-income people, not higher-income people.
The Biden Administration serves up complacency in the face of deterioration.
Joe Biden’s handlers and media friends continue to delude nobody but themselves that his legacy will land him in the history books alongside FDR and LBJ as a beloved, era-defining Progressive hero. His supposedly moderate priorities—infrastructure, family policy, and voting “rights”—have readily been exposed as deceitful partisanship and wasteful graft, and laden with power grabs so objectionable a senator of his own party had to distance himself to save face.
Further complicating his aspirational legacy, Biden is beholden to an eye-popping amount of dark money from leftist sources that propelled him to the White House in the first place. A careerist chameleon who knows the ultimate currency of the Washington favor economy is obedience to donors, he is obligated to indulge fringe priorities so repellent to the public that anti-police interest groups begged the White House to dial them back. Even with his public image plummeting from the self-made border crisis—now on pace to allow over 2 million illegal immigrants to enter and stay in the country every year—Biden acquiesced to bullying from activist groups (and NGOs whose lucrative business models depend on the public funding associated with high volumes of immigration) and raised the annual refugee cap.
As Biden’s early months lurched from one failure to stand up for our country to the next, it became clear that he is indeed era-defining, but not in the way his consiglieres would have hoped. Weak and negligent, derelict in the most basic duties a leader has to his people, licking ice cream to delight reporters as his homeland falls apart, Joe Biden is happily at your service as the concierge of decline.
The leader of the Free World routinely confounds with public with gibberish and outlandish assertions that the national press pretends not to notice. Last week, he attributed lower vaccination rates among black Americans to traumatic memories of “the Tuskegee Airmen,” apparently conflating the subjects of an infamous experiment conducted at the Tuskegee Institute with the squadron of World War II Army pilots. One day prior, he delivered a meandering disavowal of the Second Amendment, dismissing it as a gratuitous formality by insinuating the government could simply deploy “nuclear weapons” against rebellious armed citizens. The public, beseeched by the press to view Biden’s regime of managed decline as a return to normalcy, could be forgiven for wondering whether successful stewardship of a nation typically involves overt rationalizations for nuking one’s own citizens.
Essential elements of nationhood, including our borders, rule of law, energy pipelines, and food supply chains are disintegrating. Biden routinely appears apathetic, croaking “no comment” when a cyberattack took 45 percent of the East Coast’s energy supply offline—a response so lethargic it may have emboldened the cybercriminals who downed countless American facilities operated by the world’s largest beef supplier a few weeks later. With a resource as crucial as the food supply at risk, and minimal discussion on how to guarantee protection from such threats in the future, the White House again responded in almost ludicrously diffident fashion, weakly insisting they were “delivering a message” to Russia that if the hackers originated with them, that was very naughty indeed. The diplomatic decorum of managed decline forbids advocating too vociferously for our country’s interests. As its primary practitioner, Biden travelled halfway across the world to meet Vladimir Putin at the G7, handing over a list detailing our critical infrastructure sectors and politely requesting that he be kind enough not to hack those.
Back home, his staff obfuscates the fact that inflation is rising faster than nominal wages—meaning real wages are declining—and dismisses the higher prices burdening small businesses and families as a public relations inconvenience, even releasing a statement instructing the public to stop blaming them for high gas prices. Cities across the country are plagued with stomach-churning random assaults and open-air drug bazaars to such a degree the Democrats’ traditional media apologists are nervously signaling they cannot furnish effective propaganda to stave off a political backlash. Microchip shortages are roiling auto manufacturing and necessitating layoffs. In the face of record drug overdose deaths, his administration is offering subsidized drug paraphernalia to facilitate addicts’ injection of deadly narcotics. As the border crisis continues, the federal government rewards illegal border crossers with taxpayer-funded plane tickets to destinations across the country. Meanwhile, for citizens, the Biden administration is fixated on maximizing extractive, redistributive, and vengeful policies to “address” abstractions such as climate change, systemic racism, and the intelligence community’s latest absurd fiction designed to increase their budget, “terrorism from white supremacy.”
Despite his media portrayal as a great uniter, Biden cynically embraces talking points to divide Americans by race, encouraging citizens to blame each other for difficulties getting ahead instead of the destructive effects of policies he spent half a century voting for and now aims to revive. A long-time proponent of trade policies that dismantled our industrial base—sending millions of working-class jobs abroad—and of unfairly flooding the labor market with foreign workers, he appears committed to the belief that the inevitable decline in economic opportunity afflicting Americans of all races was in fact due to insufficient commitment to those policies instead of the other way around. Deploying theories of “systemic inequities” is a convenient pre-emptive strike for a man whose administration is officially forecasting economic decline.
In a demonstration of the sincerity of his administration’s commitment to black Americans’ success, his appointees congratulate themselves for frivolous interventions such as banning menthol cigarettes, but have little interest in addressing the fact that our public school system graduates a mere 7 percent of black 12th graders proficient in math. In fact, Biden’s most definitive contribution to the pitiful state of public education has been to assert in his State of the Union address that, when it comes to public education, “12 years is no longer enough” and “that’s why my American Families Plan guarantees four additional years of public education for every person in America.” Our concierge of decline does not demand higher-quality education—rather, he instructs Americans to spend four more years of their lives with the government’s educators, devoid of any obligation to the public to improve.
Such complacency in the face of deterioration is not only dysfunctional, but dangerous. Our adversaries are well aware: China’s delegation humiliated Biden’s Secretary of State and National Security Advisor to their faces on our own soil, asserting, “the United States does not have the qualification to say it wants to speak to China from a position of strength.”
To many Americans, the Biden Decline feels distinctly wrong. Do leaders who love their country typically stand idly by while so many urgent problems accumulate for their citizens? A president who supplants his obligations to the people with wildly impractical ideological fixations does not seem motivated to steward our country to success. He seems intent on ushering in an era of weakness that puts our country’s safety, prosperity, and future at risk. The American people are resilient, but the lengths to which our leaders have gone to subvert our country’s strength will require serious course-correction to return to fighting weight.