Political Theater: In front and behind the curtain

The forthcoming Presidential election is troubling to all believers in America’s democratic traditions—although for widely different reasons. The principal agendas of various groups of Americans differ in substantial ways. In our view, it is the failing attention to both internal and external order by a long-run sequence of Presidents that is the ultimate danger. Forgetting the importance of both dimensions of order upsets an ancient requirement of any polity. Forgetting it as a leader of America is unforgivable…it is the very cornerstone of the American experiment.

Order at home and abroad are vigorously attested by the 85 Federalist Papers, but no less, by the so-called, but not frequently cited, essays of the Anti-Federalists who were deeply fearful of the signally strengthened Presidency of our new Constitution of 1787. The immediate passage of the first ten amendments (the Bill of Rights) attenuated some but not all such fears. More accurately, it was the bearing, diction and carefully staged military-like posture of our first President that buttressed the dignity and probity of the office. Washington was aware of the precedent-setting nature of those first terms. He actually became distressed over the rancor and apparent corruption that he encountered. It so angered him that he issued his famous “Farewell Address” and published it some two years before the end of his second term (also setting another precedent for future Presidents to follow with a “farewell address” upon their retirement).

The importance of dignity and probity in the highest office underscores its evident absence in the current Presidential campaign. The widely held suspicions of many voters descend from the speeches and remarks now made by both candidates and their multi-tongued supporters. Each has significantly demeaned the office of the presidency by the language they use in campaign appearances and the explicit indignities they heap on their opponent. It is likely that such verbal tactics do not improve either’s chances in attracting more than their existing bases, while they deeply demean the integrity of our election process.

It is not a mere issue of language use. The Presidency combines the office of the Head of State and the Chief Executive of the State as distinct from a Constitutional Monarchy where the offices are separate. In the latter, the Chief of State is the King or Queen, but the Government is headed by a President or a Prime Minister. The Royals rule by their majesty, not by officially designated power. It is symbolic and not by accident that they command devotion and respect. The long reign of Elizabeth II emphasizes that majesty and dignity gave her political power and influence. Those characteristics also produced reverence for her governance by her subjects and an appalling contrast to the current politics of America.

Candidate Trump denigrated his opponents both within his own party as well as his chief opponent who now sits in the White House. With an emerging age issue of his own, ridiculing the current 81 year-old Biden might enhance the ardor of the Trump base—which has nowhere else to go—but it continually causes irrationality among other potential supporters that Trump will need to win over to govern successfully. Trump is well-behind in funding his campaign as well as raising needed funds for the Congressional Republican campaign. Where are the resources to be found? They will not be found substantially among his déclassé base which shouts approval no matter how ugly his language gets. His current mode of address—focused on demeaning characterizations is a kind of ‘gutter-speak.’ It lacks the dignity, poise, and elevated sense of command that is needed for the epic decisions a President needs to make and for the public to follow!

Trump showed this technique early in the Republican Party debates of 2016. He belittled the physical characteristics of his competitors. He called them childlike names. Presumably, his victory as the nominee engraved that technique on his approach to communication, but it fails to reach out to the larger audience he needs to command in order to govern successfully. He countered it somewhat by his choice for Vice President, Mike Pence, who was his opposite in demeanor, courtesy and speech. That is now gone while Pence is reviled by the usual Trump mannerisms because Pence refused to go along with Trump’s effort to overturn the electoral vote. What the public largely credits Pence with is seemingly sober judgment on the institution of Presidential succession—the very decision that Trump chooses to slander by his verbal idiom.

If one were a Senior Advisor to Trump in this election, that advisor could possibly convince Trump to completely jettison his current mode of popular address; to take it out of the gutter; to use subtler humor and clever ripostes as a way of elevating his campaign for an enlarged audience. Those are the presentation characteristics displayed by very able large corporate leaders and historically important politicians. The country is aching deeply for such leadership at a time of extreme domestic and international disorder.

Could Trump make such a change? It seems highly unlikely. It is not even very likely that a Senior Advisor would attempt to make a strong pitch for such a change, given Trump’s record of discharging those with whom he disagrees. The singular mark of a ‘corporate’ approach to leadership is the ability to abide policy disagreement from well-established advisors with long histories of success. Governance today is far too complicated for the Chief to be expert in every area requiring his decision. Could Trump change course on his manner of presentation? Doubtful!

He misses many boats. He chooses the low road rather than a higher road of sober erudition. Whatever President Obama’s failures both domestically and internationally, he presented well—well enough that large portions of the commentariat avoided direct confrontation with his political decisions. It took evolving history to clearly reveal that real substance might be lacking. It is unlikely that Trump can absorb the self-criticism that a presentation change like this might require.

Given the somewhat shattered nature of the “Blue Alliance,” Trump can still possibly win—but he cannot govern successfully. The U.S. will again be bereft of both domestic and international allies necessary to implement thoughtful policies. It is sufficiently long that people forget how artful was Bush I’s presentation in the build-up of his successful coalition to remove Saddam Hussain’s army from Kuwait. Even the Russians contributed! Trump seemingly shoves away foreign and domestic alliance-building. He denigrates those who could be brought into a larger tent and often offends foreign leaders when keeping an alliance together is crucial to the policy agenda decided upon behind the curtain.

What history tells us about leadership—-particularly previously elected leaders who faced huge domestic and international crises—is that sober and sagacious words can count importantly. They can reflect meaningful purpose and the display of resolve. Politically “big” politicians win when they reflect those characteristics whether rhetorically or otherwise. “Little” politicians are seen as simple-minded or undignified. The “bigs” win by a combination of admiration, respect and a fear of being left out of a successful coalition, even when they practice skullduggery of purpose behind the curtain.

Politic begins as “Showtime.” We know this from FDR, from Reagan and from Washington and Lincoln. We don’t easily get behind the curtain to see the intricacies of geopolitical or domestic strategy or of the tradeoffs that tactics bring. What we see, however, is very important conditioning of our attitudes, and what other leaders often base their decisions upon. A good “Showtime” is the Overture and the First Movement. The FINALE is—behind the curtain—and involves the trades that get the potential allies on board to create the momentum for success.

Language gives flexibility to a superior politician. It mediates between his(her) own political interest and the encouragement of alliances which only may be knitted together for a moment. Good, attractive language resonates, and covers problems when they finally occur. Churchill was often better in defeat than in victory because he stitched the victims together who could otherwise be bent out of shape by a lack of sensed leadership. He survived Gallipoli and Narvik—bad political gambles—and survived long enough to win. His political defeat came when winning WWII was no longer in doubt and the electorate was very tired of the sacrifice he had motivated for so long. It echoes in his speeches such as June 4, 1940 after the disaster at Dunkirk.

Can we imagine a re-tooled Trump idiom like a Churchillian rouser? It should only happen!
It would catapult many dollars now held back by the suspicious and wealthy who have trouble digesting his lamentable language  that he has been using for so long, particularly as the aggrieved victim of a vast conspiracy against him. It is hard to get behind a perpetual victim. It would put resources into the Republican campaign and divert attention from the many legal contests scheduled to come to the current campaign.

The country wants a winner—a show of triumph by a leader, not a steady stream of invective. Pity is not the weapon of the hero. The country needs to believe that politics can be helpful. A pitch like this  awakens the many and would unnerve our foreign enemies. It would give Trump “Command Presence” where now his snide gutter-talk turns off potential supporters.

Surely, it is time that this White House and its prosecutorial allies in the Blue States and Cities have made a ‘life in court’ dominate the ‘behind the curtain’ deep think on policies for a winning Trump campaign. If Trump wants the glow of achievement and legacy, he can only get it with an appeal to grandeur, not by assaulting his competitors with verbal degradation.

This USA—now badly divided and disoriented—craves the gracious phraseology and inspiring word-smithing of a truly regal leadership. It hasn’t had that combination since the failed Obama two-term combination of soaring oratory but failed foreign and domestic policy.

Behind the curtain there must be thoughtful geopolitics and clever tactics to make the “other guy” die for his country! Behind the curtain there must be the willingness to listen to advice that the President may not wish to hear and to which he instinctively disagrees. He needs to deliberate more behind the curtain and needs to avoid the oft-fatal negative response because the advice is “not invented here.” Conflicting advice from partisan advisors is the threshing that leads to fewer mistakes later regretted.

Trump should hear the obiter dictum passed on Lincoln: ‘It was a cabinet of lawyers and Lincoln out-lawyered them all.’ And, if Trump’s willingness to change would lure a speech writer as capable as Lincoln, he might achieve the praise that Edward Everett gave Lincoln: “I should be glad if I could flatter myself that I came as near to the central idea of the occasion, in two hours, as you did in two minutes.” Lincoln mulled his words carefully as he trained to Gettysburg that very sorrowful day, but it was part of the binding that would heal a nation someday.

The renewal of internal and external order fatefully depends on Leadership. In turn, leadership has roles to play in front of the curtain and behind it. Gaining an enlarged audience requires skillful and attractive presentation. After building an enlarged audience comes the threshing that achieves better policies. Good policy depends upon thoughtful strategy and well-executed tactics. It begins with “Showtime” but it ends with victory. That is the one-two punch that Trump needs to develop and the nation needs to hear and see!

WHO PAYS FOR THE DAMAGES: Putin’s War on the Ukraine?

It’s not too early to think about the end game in Putin’s murderous war on the Ukraine.  There are, of course, two possibilities:

Russian Success and a continuing Russian war of aggression

Suppose the Ukraine falls and a Putin supported Government is installed.  Possibly, common sense will occur in the Kremlin and at least some of the physical damage is repaired so that a functioning Ukraine can emerge from the damages inflicted. Undoubtedly it will minimal.   It is highly likely that Putin will limit his expense in cleaning up the mess his attack has caused.  Clearly, there will be no Russian compensation offered to the human casualties.  The Ukraine will become a totalitarian state “loyal” to Russian aims.  It will be hostile to the West and a threat to NATO members.  It will entail a permanent state of cold war with Russian military assets being deployed both to suppress the Ukraine’s population while posing as a tangible threat to other ex-Soviet states that border either Russia proper or occupied areas also conquered by Putin’s prior attacks. We should expect it will be Cold War II, extended in any case and hopefully not leading to a hot version

Russian failure but withdrawal

Suppose the Russians recognize they have failed and withdraw their army and the Ukraine retains its present government?  There will remain mammoth damages to be repaired to the physical structures and perhaps some State compensation for the tragic deaths of innocent Ukrainians who lost their lives as a result of the Russian aggression.   Who will pay for the this?  Which State pays?

It is impossible to believe that Putin’s Russia will foot the bill, no matter what the West together with the Ukraine will claim.  Yet, the West is not without resources for extracting financial resources from Putin Russia and his Co-Thug’s using the resources he and they control.  Russian commodities will try to regain lost export markets or enlarge the markets to which they can still export.  To the extent that these products enter the commerce of the West, they should be taxed!   Unfortunately, the incidence of such taxes falls on both the suppliers (Russian resource owners) and the users who continue to buy these resources.  The key to making Russia and Russian Thugs pay is the design of the West’s tax system.

Unfortunately, until former Russian users of gas and oil, wheat, metals, etc., switch their source of supply away from Russian-origin goods, any taxes levied will raise their cost of acquiring such resources.  To the extent that these goods are controlled by the Oligarch’s that support Putin, they will in turn realize less from their sales in the West—and perhaps that is a fitting and just allocation.    These Oligarch’s are the minions of Putin.  Previously, they gained lavish rewards, and many continue to support Putin.   The damages to their ostensible income from exporting these resources—in whichever form they are now exported—should become a perpetual drain to such Oligarch’s.  Maybe, they will realize that by supporting the Chief Thug, they will continue to pay a price and look for another political answer?   In the meantime, the West can collect revenues largely paid by the suppliers and contribute those tax revenues to the rebuilding of the Ukraine.

Reparations déjà vu

This becomes is a modern version of reparations.  The trick is to make the tax “bearable,” but distinctly painful to resource owners in Russia, as a continuing reminder that doing business with a Thug who has an Army to use on the innocents, has a distinct cost to the operators of such enterprises.

Wood the West resort to this tactic?  Surely, free-trade advocates will raise objections that will be that combining conditions of Trade and International Politics is a bad mixture, and that what is really needed is a reformation of property rights in Russia.  As far as it goes, the argument is correct.   Some will say that to offer tacit forgiveness by not restricting Russian trade opportunities as punishment for the heinous damages that the Thugs have essentially financed, is equivalent to allowing Putin and his supportive Oligarchs to escape from their adventure far too lightly.

That has to change and at least the Co-Thugs will now have an incentive to drop their support of Putin. The trick will be to construct import restrictions through licensing in some form for all products from Russia, however they are described in bills of lading or certificates of origin and to tax them heavily wherever they arrive.  It will take international cooperation from the West to construct such a regime.  Sadly, we will create another bureaucracy to levy, collect and disburse the proceeds.  And, at the end of the day, who knows where this kind of punishment will lead?

Perhaps it will lead to much less international trade, which is an affliction to traditional importers in the West?  Yet, it will force down the prices received by Russia and its collection of war-supporting exporters.  It will make for some suffering of those in Russia who are engaged in the chain of production and export.  They too have a stake in throwing Putin out as a leader of Russia.  Whatever revenues are collected should be donated to relief from the destruction Russia has caused.  It is not much given the scope of the Russian inflicted damages to property and people, but it is a step the West needs to take.

In the last few days, we have seen films of Hitler-type rallies organized by Putin in which he raises the absurd claims of de-nazifying the Ukraine.   He does so by the same techniques utilized by Hitler in the 1930’s as he motivated the hate and anger of Germans in support of his ultimate war aims.   No doubt, in this digital age, some of that nonsense will be recorded and filtered into the digital world of Russia, however internet communication is restricted by Putin.  Will it arouse the mass of Russians to revolt?

We don’t know; nor can anyone be relied upon to predict how the Russian Masses will behave.  Will they support Putin’s failed logic, or begin to develop sufficient resources to force Putin to retreat or resign?   200,000 cheering partisans gives the impression that his war on Ukraine has broad support.  We doubt that, but have no counter evidence.

We also doubt that a revolt in Russia is possible in the near future—and we must always remember that a revolt against a failed government requires a mobilized elite to organize the discontent.  We don’t know if such an elite will or can arise in Russia policed as it is by state and military police.

Thus, it is in the now-organized West, that a response is needed.   The West must stiffen its spine and penalize Russia for its behavior; for the deaths it has caused and the emigration that it has inspired.  The West must raise cash for a fund that can be used by the Ukraine when it has finally defeated this orgy of destruction led by Putin’s malevolence and Hitlerite ravings.



Cold War II has begun: when is the U.S. going to recognize that?

Marx once said that history repeats, the first time as tragedy and the second time as farce.   Marx may have had it backwards.  The second Cold War has begun and it is clearly not a farce.   Ukraine is a tragedy of growing proportions and the U.S. is failing to recognize  a key aspect of revolutions: they are made by elites not by the masses.

Lenin knew that which is why after reading Marx’s treatment of the Paris Commune’s failure in 1871, Lenin took as his cardinal principal that a revolution must have a violent armed guard!  Ultimately, Lenin’s view led to the success of the Russian revolution.   America can learn that lesson too, but it must give up on current fantasies that limit its response to Russian aggression in the Ukraine.

Putin can win in the Ukraine, only if the U.S. continues to operate on the fantasy that strength is a weakness because it might lead to unwinable wars, or worse, to nuclear war.  Why is this wrong?  Because elites make and win revolutions, not the masses.   The latter only enter the game after the elites have defined the rules.   The Russian masses, as their German predecessors were in WWII, have been cowed by the power of the Russian Thug State and its Oligarch allies.  Yes, there are protestors, but the strength of the Russian police state is such that the current masses are largely quieted by economic incentives along with brutal force and threats.  They cannot be our allies in putting Putin in his place. Waiting for a revolt of the masses in Russia against Putin is a fool’s task.  This is not a waiting game.  Aggression never is.

That said, Putin does have vulnerabilities. His inept attack on the Ukraine reveals that the Russian military conscripts are like all conscripts:  they have incentive and motivation issues.  It also appears they are not well-trained in the art and logistics of “combined arms.”  The invasion force is not up to the task Putin gave them.

Where else are Putin’s potential weaknesses?  Very simply, with his co-opted thugs, the Oligarchs he has made wealthy with the resources of the Russian state.  The Oligarchs run  oil, energy,  banking, mining, shipping, pipelines, etc.  These Oligarchs have made vast fortunes.  They have massive yachts, planes, multiple estates outside of Russia and bank accounts all across the globe, particularly in more hospitable climes!   They have benefited hugely from their support of Putin. They will continue to be his henchmen in aggression until such time as their assets around the world are taken away from them, or the enlarged prospects of a nuclear war threaten both their lives and their property.    They play a role similar to the Russian military who revolted against Khrushchev when that “madman” threatened the U.S. with the Russian Navy sailing to Cuba with nuclear-tipped missiles aboard on the way to Cuba in 1962.  When the U.S. finally applies really tough measures on those Oligarchs, we may begin to see some moderation begin in the Russia’s aggression.  Surely, Putin will hear about their confiscated assets.  The Oligarchs want they and their families to enjoy their Putin generated wealth.

The Thug-Oligarchs are corrupted by the rewards of Putin’s total control of the forces of discipline within Russia.   Corruption is legion in Russia.  It affects the Police, the Army and the Scientists who tool Russian military expenditures with new ideas and techniques.  That’s where U.S. pressure could be effective.  It is essential if the US is to fight COLD WAR II.  Nuclear destruction is two sided.  One side can’t rule the roost.

By the way, it is not different in China.  Corruption has a role there too. Remember Deng Hsiao Peng’s reply to the Peoples’ Army after they lost their attack on North Viet Nam in 1979.  North Viet Nam kicked the Chinese Army in the groin.  China lost more men in six weeks than the U.S. did in 10 years!   As the new leader in China, Deng told his military, ‘go into business and I will get you modern weapons for a modern army!’   The Chinese Army did exactly that and Deng kept his word as well.  So, their Generals are also part of the corruption-laden regime.

Corruption is like a pandemic.  It doesn’t stop with a certain group—it invades the entire country.  Chinese beneficiaries know that and that is why Ji Pin has been punishing some select beneficiaries.   He can’t afford to have his own Oligarchs revolt.  Consequently, selective punishment is meted out and that cows the rest of the corruption tribe.  He may indeed lessen his present support of Putin because he can read the tea leaves of a toughened American response.

The U.S. has a problem in the application of this “Punish the Thugs” strategy.  It involves a lot of very powerful people and their companies in the U.S.  Take Apple for example, or the mainstay financial houses of Wall Street.  They are beneficiaries of the global transfer of technology and capital to China (despite the hickeys now being taken in the Chinese Real Estate sector).  Globalization cuts many different ways.  Yes, it makes the supply chain more efficient.   By that token, however,  it creates industrial and commercial hostages who don’t want to lose their advantage, both from a corporate standpoint and from the personal rewards it brings to its major executives.  We have just sketched another problem in American diplomacy:  our own corruption with the Chinese experience.  In our view, it silences much of Washington and New York  intelligence that should know better!

The U.S. possesses a peculiar kind of Capitalism.  Nominally, we worship the efficiencies Capitalism brings to capital and labor markets by inducing innovation stimulated by the prospect of profits.   But, in dealing with a non-democratic state, all too often, American capitalists recruit the local, corrupt foreign politicians, generals, and advisors to the main foreign political heavyweights, in order to gain entry and advantage in the foreign country.  Deals get done by who you know rather than what you know.  Exports of our industries that can serve a market of a billion and a half people are important. Who gets there first with whatever special advantages the Chinese partners can bring, is often the most important aspect to a deal.

In such corrupted-market environments, real economic risk is also limited by who you know, not by what you know.  Concessionary capitalism is often the way of the world in the global market.  Breaking the backs of the already corrupted Chinese will be far more difficult than in Russia.  There are more than a few.  China is a much bigger economy and its tentacles into American industry and finance are far more intricate and run deeper.  Russia is a small boy with a big nuclear punch, but its economics are definitely small scale.   It is largely a raw materials producer with competitors.  Americans buy few if any final products from Russia and produce very little in Russia for export back to the U.S.  China is a different animal all together.

For this reason, the implications of Russian aggression into the Ukraine are highly important to understand when it comes to a possible Chinese takeover of Taiwan by military means.  The U.S. doesn’t have a lot of time to prevent that eventuality.  It most re-arm Taiwan to the teeth and make perfectly clear to the Chinese that Taiwan will be defended even if it takes American direct intervention.   Being coy with a Thug is not a good policy.  Be direct and clear, Washington!  Sanctions don’t prevent aggression.  Certainly, that follows from the Russian experience.

The U.S. may be getting negative feedback from its most important strategic partner in NATO:  Germany.  The Germans want to limit their response and ours too.  The Germans are already hostage to Russian corruption.  Half of their petroleum-based energy is Russian in origin and Germany has achieved (or should we say re-achieved) a huge presence in the current Russian economy.   The German counterpart companies will not easily disengage in their Russian adventures.  In fact, despite their sympathy with the suffering Ukrainians, they probably have to be pushed to disengage.

Germany’s Russian adventure is a century old.   It started in the early 1920’s when Germany was facing the draconian Reparations of the Versailles Peace Treaty.   And, it started up again after the fall of the Berlin Wall in 1989.  German business has strong connections and strong profit positions coming from its Russian agenda.   The Germans have in fact been stronger in their resistance to Russian aggression than many here in the US expected.  That is a pleasant surprise, but we should be warned, however, that such financial interests are powerful incentives to avoid a further Russian confrontation.

Perhaps more surprising is the extent of German cooperation with the U.S. in trying to tame Putin.  But, don’t bet on a long game in that arena from Germany.  It is now a major hostage of Russian energy resources as well as a continuing supplier of industrial materials to Russia.  The German nuclear power industry has largely been shut down.  Petroleum based energy counts more in Germany than in the U.S.  That mistake cannot be addressed in Germany for many years.

There are reports from Vienna showing a possibility of a new Iranian-nuclear control agreement and the release of sizable amounts of Iranian crude oil.  It might be a winner politically for the Biden Administration (in its efforts to slow inflation), but it works adversely in Cold War II. The Iranians have repeatedly shown that any such agreement offers them cover for refining more nuclear material and perfecting suitable delivery missiles.  Iranian ambitions in the Middle East have not changed, but the temporary allure of more crude oil and possible a lower price at the American gas station is alluring to some American politicians who will shortly have to face their voters.  Signing an agreement with the Iranians can make the U.S. a hostage to the Iranian Mullahs bent on mischief of their own making.

The characteristics of Cold War II should determine American Strategy.  The first characteristic is Time!  The war in the Ukraine will not be over quickly.  Russia is not going to just quit tomorrow and stop with its debilitated attempt to take over the Ukraine.  There are other Russian targets as well in their geopolitical gunsights.  All of the areas that used to be constituent parts of the old Soviet Union are up for grabs, now or in the near future.  The U.S. has to plan for a long war,  and it must start by arming its allies thoroughly with whatever they need to defeat a Putin attack.  The difficulties the Biden Administration has today are nothing they could face in the future, if American unwillingness to confront Russia now continues during this recent aggression.

Our national interest is for a complete stop of the Russian invasion as quickly as possible with the Ukraine being returned to its former free nation status.  Without forceful and immediate aid from the U.S., that is an impossibility.   This Administration cannot afford to lose this opening battle of Cold War II.




An enduring truth of economics is that by and large, people consider their own financial fortunes more seriously than they do when they are caring for other people’s money, Sadly, that is also true of our political governors. They systematically are patently stupid when handing out government funds, particularly when the appropriation is based on a claimed national emergency.

In a rush to show that Government is the source of the peoples’s welfare, not only are legislated appropriations accompanied by imprudent controls against fraudulent disbursement, but this pattern persists over time through many Administrations. Markets do a far better job of punishing inadequate controls on fraud by punishing corporate executives once the fraud becomes a public matter. CEO’s and CFO’s are regularly fired and entire Boards can be replaced if the scandal is big enough. What about Government? Hardly ever!

Even when a Government is attacked by its own watchdogs, little is done to the failed Administrators who allowed or worse participated in the fraud. We should expect such exposés when the massive appropriations stimulated by Covid come to be matters of future election campaigns. Watch for them. They are the next attraction in Political Theater in your local election district.

The problem with ex post revelation and punishment is that the next national emergency will feature a similar lack of financial prudence regarding “other peoples’ money.” Legislators applaud themselves for simply passing emergency funding and clearly not for prudential financial watchman-ship, They leave that to the administrative bureaucracy which suffers “agency” issues like all other delegated activities in Government,

Primarily, when disbursing funding to the public suffering from an involuntary emergency, the main criteria for legislation succor are size, timeliness and the description of beneficiaries. If Government functionaries regarded the protection of tax revenues, (the People’s Money), one might expect more care of such resources. That some unqualified individuals or fictitious firms are able to obtain these funds is a sign of woeful neglect and awful political governance. It is a major failing of US political governance over the vast resources generated by taxation.

When news stories such as this referenced story in THE WASHINGTON POST appear, one has to wonder about the activities of the senior Senator from Massachusetts? She is constantly trying to introduce regulations to protect citizens from the alleged rapaciousness of private financial companies? Where is this Senator on the issue of protecting the resources of the public weal?

We know the answer, It is not a meaningful inducement to her political campaign. As an aside: Senator Warren widely announced on television that she wouldn’t vote for the renomination of the current Chairman of the Federal Reserve because of his alleged neglect of the poor and needy! It will be interesting if she reverts to the political consensus among Senate Democrats when Powell’s reconfirmation is voted on again. My skepticism is unbounded.

DISORGANIZED CRIMES goes international…

Accounting fraud at WIRECARD.

Every so often a seemingly deliberate accounting fraud deceives investors and accountants and winds up stimulating regulatory zeal.   The financials debacles of 2001-2 and 2008-9 led to Sarbanes-Oxley and Gramm-Dodd. We should expect that if the Corona-virus causes immense financial dislocations, we will see financial fraud and regulatory actions grow apace. Before the curtain on new episodes of Congressional Propriety goes up, we should begin to ask whether regulators have succeeded in the past and what costs are imposed? The recent disclosure of a large financial fraud in a large German public company (Wirecard) is a signal for the fraud parade is beginning. We don’t really have the essential facts to analyze this case but the similarity to our previous work elicits a few comments

1) Most accounting frauds of major public companies are detected by some market participants long before regulators are ever alerted.   Regulators don’t like short sellers so they are often late to the crime and by then the major damage to the “longs” has been done.  Next come the lawyers, but that is a story about insurance law and rewards to successful class action litigators.  There are several lessons here worth remembering. One might be if E&Y, Wirecard’s auditor noticed anything from Wirecard’s price volatility much earlier? If so, why didn’t they act much earlier. The usual answer is that they don’t wish to lose a client. More on this below

  1. such frauds usually begin with companies already on a losing path.  The resulting frauds are designed to conceal true operating losses.  Enron and WorldCom are class one exhibits

  2. frauds of this kind usually involve auditors who have long standing ties to the fraud company. (ah, yes… should we be asking for term limits for auditors once again?). We can count on the advocacy of those most affected (accounting firms) and political friends to be assured that meaningful term limits are not likely

  3. another question to ask is “Where were the Directors?” But even without the facts in this case, we know that Directors are more often there to bless and shield their managements. They are not likely to probe too deeply in searching potential corporate financial behavior for mismanagement or fraud cases. Company managements get very uncomfortable with a overly-zealous Director

2) Is regulation imperfect as an answer to deter financial fraud?  Again, case details are important, but generic punishments without individual liabilities for Directors, Auditors and Corporate General Counsels make ongoing investigation difficult and unrewarding to outside agencies tasked to protect investors.  Conclusion:  the corporate establishment that includes auditors, directors, general counsels, credit raters, underwriters, and even some bankers is all to willing to sacrifice by investing in more errors and omissions insurance and reliance on the long lag between crime and punishment in exchange for avoiding personal liability. (“You can’t blame me for dishonest clients!”)

It is another example of the famous line in the movie A Few Good Men, when Defense Counsel (Cruise) demands the truth, Colonel Jessup (Nicholson) answers, “YOU CAN’T HANDLE THE TRUTH.” We call this Jessup’s Law. It needs to be a part of every class in Corporate Governance!

In short, Frauds like Crime are inevitable because for some individuals, the probable rewards of fraud exceed the expected value of their personal losses.

Of course, we could do better, but the costs of fraud protection via regulations rise as well.   We could do better, perhaps, but we infer that Society believes the optimal quantity of financial fraud is not zero. The costs of prevention are not zero, while the praise for corporate honesty from Philosophers, Pastors and Op-ed Writers is insufficient to enforce a more rigorous anti-fraud environment.

Bloomberg’s report on Wirecard can be found at https://www.bloomberg.com/news/articles/2020-06-26/wirecard-auditors-say-elaborate-fraud-led-to-missing-billions

TRUMP’S POLICIES: campaign promises and the realities of governance

please find our post at www.ecomentary.com and use any browser EXCEPT GOOGLE CHROME You can use the following URL http://ecomentary.com/trumps-policies-campaign-promises-and-the-realities-of-governance/

As we have reported before, Google Chrome tagged the www.disorganizedcrimes.net web site even though there is NO MALWARE.Unfortunately, Google Chrome runs by its own rules and no matter what is submitted to them they post the “potential Phishing site” even if one tells them otherwise and makes sure the site is clean.Power Corrupts Absolutely


Happy Thanksgiving

TRUMP’S POLICIES: campaign promises and the realities of governance

The surprising electoral victory by Donald Trump (and his loss in the popular vote) has the media intensely speculating on the likely domestic and international polices of the incoming Administration. The pre-campaign rhetoric is being searched for relevant inferences on the new Administration ‘s likely policy agenda of economics and international policies. That is likely to be misleading precisely because Trump ‘s election campaign was so different from traditional Presidential campaigns. What it took to win might be quite different than what it will take to govern. Even the early appointments do not yet give us a definitive picture to the actual governance menu that Trump presents.

The gap between campaign promises and likely policies should serve as a warning that predicting the actual policy menu of this President is likely to be fraught with more than the usual uncertainties. Without sufficiently definitive statements from the President elect, since his victory, preconceived hopes and inherited prejudices rule, particularly in the media. After Henry Kissinger’s meeting with Trump, his comments to the press referred to the difference between election promises and substantive policy. He was puzzled as well.

Still, markets are forward looking and responses have been seemingly positive at least regarding economic policies thought to be likely. Yet, market reactions often fasten on previously noted criticisms of people and industries without any definitive explication of what actual Presidential preferences will be. Trump ‘s criticism of some major Silicon Valley giants has been cited as a reason in the decline in their shares, but at this point no one really knows how policy will be shaped by his relatively weak connections to the Hi-Tech industry. The transition between the old and new Administration is likely to contain unexpected surprises.[1]

Presidential transitions have traditions and both the President and the President Elect at their first meeting seemed to recognize that both can gain from a smooth transition that excludes painful pre-election charges and focuses instead on what will be good for Americans of every stripe. The “progressive and/or liberal” media has been less forgiving of the transition process, as have some of the badly bruised Democratic politicians. Democrats are still in disbelief that voters turned against what they thought were their needed “progressive” ideas, particularly since major polls predicted victory. Rather than looking at their own their own agenda and bias, the “kept” media and the progressive zealots are trying to assign blame to external events, such as the querulous behavior of the FBI, to explain the Democratic Party defeat. The claim that FBI Chief Comey caused Clinton ‘s loss seems like “sour grapes,” but it will provide impedance to a smooth transition and opposition to the Trump policy agenda in its first 100 Days. Perhaps even more importantly, that continuing disbelief and heavy criticism of the President Elect will serve to prevent the Democrats from a useful inward meditation over what American voters want as opposed to what Democrats told them they ought to want.

We had long thought the Republican Party would need a thoroughgoing internal revolution beginning with what they believed their Party stood for, but as it has turned out, their victory has closed off that review, at least for now. Instead, it is the Democratic Party that has been badly split open. The split between the parties, however, surely will widen once the actual Trump agenda becomes public accompanied along with the appointments in the new Administration. As the new Administration formalizes its policies, it is quite likely that bitter factional disputes will still emerge from under the Republican tent.

At this stage, then, appraising the likely Trump legislative and administrative agenda is chancy and predictions may fail when the rubber finally meets the road. Nonetheless, we try below to put together what we think the top policy advisors and the President Elect will choose as their main lines of policy. We divide our analysis between International Economics and Politics and Domestic Affairs, even though they are clearly interdependent.

Geopolitics and Geo-economics

As Commander-in-Chief, the President will be faced with immediate decisions because while our troop involvement is in the anti-ISIS campaign is small, significant military and economic resources are deployed and there is no immediate “discharge of the war.” Trump is on record saying, “I will destroy ISIS” but the practical content of that intended destruction has not been made clear.

Trump’s foreign policy pronouncements have also included objecting to the Iran “deal,” supporting Israel, demanding NATO members increase their support, a possible change in our stance toward Russia, immigration reform (including the Wall), protecting the homeland, China (both currency “manipulations” and Chinese exports) and ending the traditional “free trade” orientation of American international economic policy. That forms a very big agenda and clashes with traditional Republican preferences in many areas.

The list requires attention to both foreign and domestic affairs and would tax even the most well prepared President Elect. Unfortunately, after such a strenuous political campaign, the new Administration has to have policies for these areas immediately without perhaps sufficient internal deliberation as to the form such policy changes are to take.

It doesn ‘t seem that Trump undertook major policy reviews during the campaign and with less than two months before inauguration, the new Administration is going to be extremely busy developing the details of its policy agenda. Moreover, because the Trump utterances during the campaign challenge traditional Republican ideas, Trump will have to spend a major effort to argue his policy case to the American and foreign publics. At the same time, we should expect significant interruptions to policy formulation from events outside the US that operate on their own time clock.

Iran and Russia: Trump repeatedly denounced the Iran deal. He claimed US negotiators got snookered. A simplistic approach that worked in the campaign requires significant articulation when it comes to implementing changes. Still, it seems that Trump will be unlikely to leave this running wound alone. He will need to do something not only to be consistent with his campaign statements, but also because Iran is so heavily involved with the various American allies in the Mideast. The news will still carry reports of deaths and casualties to our troops abroad, so the wars there can scarcely be avoided. In addition, European allies of the United States endorsed the agreement and already are promoting business deals in Iran. Can Trump construct a strategy that is at least consistent with his pre-election critiques while maintaining the support of European allies that previously supported the ending the Iran embargo Possibly, by linking a change in the Iranian agreement with a new look ‘ at Russia. If he chooses to deal with both Iran and Russia (Putin) at the same time, he may find he has some leverage. This would be a bi-modal policy menu. Let’s begin with Russia.

Clearly, the embargo has hurt the Russian economy. Without access to international capital markets, much investment to improve the Russian economy has been neglected. This surely affects Putin directly, but in a larger sense, reviving economic growth in Russia benefits not only Putin, by solidifying his position with his own people, but also such investment could improve Russian life while creating better tax resources for the Russian government.

Suppose Trump offered Putin an end to the embargo and entry into western capital markets in exchange for Russia ending its Iranian love affair Would Putin be willing to substantially cut back support for Iran and perhaps withdraw Russian military support for Assad How much benefit does Russia gain from shipping military hardware to Iran and spending precious resources keeping the Russian military occupied in Syria The devil will be in the details of any Russian pull back in Iran. Trump could offer US relief on Crimea and the Ukraine if Putin agreed to move out of Syria and stop supplying weaponry to Iran. Trump would also have to find a way to separate US interests in the Baltic States from his apparent disinterest in the Ukraine and Crimea. Separating Iran and Russia could offer additional benefits for Trump. A weakening of the military supply pipeline to Iran might make it easier for the US to exert tighter control on Iranian support for terrorism around the world (particularly for Hezbollah) and tamp down terrorist threats to Israel. That might create further openings for peace negotiations between Israel and the Palestinian Authority. In addition, negotiating an accommodation with Putin would bring German domestic politics into play because a substantial portion of inbound Russian investment has traditionally come from Germany. With the possible exit of the UK from the EU, German business might well be supportive of a Putin-Trump negotiated end of the Russian embargo. The political left in the EU that wanted expansion to the East is not a Merkel ally anyway, and she will need to button down her center and right wing support for the upcoming elections this spring. Merkel undoubtedly was not pleased by the Trump rhetoric on Muslims, but her own political survival will be her immediate focus. If Trump can move the Russians out of Syria, the enormous pressure of potential Muslim immigration into Europe could be relieved, making Germany’s neighbors in the EU much happier with their prospects.

The Obama administration was addicted to a kind of naive idealism that sacrificed the domestic interests of many of its allies. That came back to haunt Democrats in American voting booths, even when not well revealed by faulty polling. One could not expect Clinton to have gone back on the Iranian deal that she so heavily endorsed, but Trump ‘s victory has left him with an opening to satisfy both foreign and domestic critics of his election rhetoric. A successful deal with Putin would mark finished to the Democratic Party contention that Trump was “unqualified” to be President.

China: Trump’s focus on “exported American jobs,” and his complaints about Chinese currency manipulation have also seemed simplistic. The progressive media denounced his views on China because they claimed a trade war would ensue, but one can also read this situation quite differently. Given the collapsing bubble in China, does it make sense for the Chinese to take a hard line against Trump if he tries to tamp down Chinese exports to the US, particularly steel and aluminum China has an immense capital flight problem that exacerbates its currency depreciation. Suppose China is induced by Trump negotiators to put on its own export quotas (a feat that the Clinton administration accomplished when faced with rapid Japanese auto exports in the 1990’s) Trump could claim some victories for his “Art of the Deal,” technique. How many jobs such export controls would produce is perhaps less meaningful then the demonstration of loyalty to the blue-collar Democrats that crossed over and sustained his election. Similar export quotas applied to a few other “visible” industries would give Trump some credibility with his new domestic allies. Would China be willing to do that

An export quota also offers the Chinese Communist Party some leverage on its own cronies. China has an extensive crony reward system, so it could help XI Jin-ping to discipline some members of the industrial elite and their allies in the CCP. After all, it is the rich who have the money that seeks exit from China. Export controls offer a new stick with which to beat the Chinese moneyed classes. China is not a “Free Trader,” so they would have no ideological reservations of exerting more controls at their own border. They can ration the implied rents that come from enforcing such export controls. Export controls reward the “old” versus the “new,” and it is the old industrialists that they need to keep in tow. If China would put non-cooperation with North Korea on the negotiating table, they might get some additional leverage in future negotiations with the new US Administration. By now, even the Chinese realize that controlling North Korean nuclear and ballistic missile ambitions is becoming more dangerous for China itself.

Critics will assert historic Chinese pride that resists “bowing down” to an American President and would likely doom such an outcome from the beginning. Perhaps, but Great Powers can still negotiate without appearing to be subservient. It is always a balancing of interests. There is leverage here for both political leaders. Giving kudos to Trump, the Chinese could also earn some credit at the table on other issues important to China in the geopolitical arena. Trump is not an ideologist. He will look for short-term gains wherever he can find them. The “Art” in such a “Deal” will appeal to Trump.

Trump on Brexit: The new administration can hardly object to the UK’s wish to regain its domestic sovereignty and thereby control its own borders. Trump is preaching from the same pulpit to a similar American choir. He wants to be less tied down by foreign entanglements, and be less responsive to European demands on climate and immigration. The UK will still be the US’s closest ally and supporting the UK will put pressure on NATO members in the EU to carry more of the defense burden that Trump has criticized. It may also make EU members more willing to be supportive of a program to crush ISIS. Trump inherits a lot of possibilities that his predecessor has left him, and he can continue to draw the line more solidly between his new administration and the policies of his defeated opponents

Immigration, the Wall and North American economic relations: Now elected, Trump can gain domestic political support by showing he is going to carry out his “Wall” proposal even if in a less drastic way than implied during the campaign. The Wall doesn’t have to be a huge infrastructure project that will be difficult to finance and to engineer. He can build a bit of brick and mortar and use chain-linked fence and then move to a much more sophisticated monitoring program, carrying a “Big Stick to get some help from Mexico. What he really needs is improved joint-enforcement. Mexico can reduce extensive brick and mortar by actually helping to police trips to the border by Mexican and other Latino migrants. Once it becomes known that Mexico itself is policing the new “Wall,” we might expect a much smaller volume of immigration. More adequate surveillance can come from better technology on both sides of the border instead of brick and mortar. If Trump builds a little (probably essential to calm his supporters to build a “Great Wall” structure) while massively engaging in digital deterrence, it will slow down illegal crossings and win support of US technologists. He can even make hay politically by showing he is “rounding up some of the usual suspects” without appearing to be a “racist.” Furthermore, capturing and deporting those immigrants who have committed crimes or those who don’t have the proper documents, need not trigger huge outcries from civil libertarians, if done thoughtfully and humanely. He will, however, have to face the “family breakup” issue. Legal support for such a program doesn’t need new Congressional agreement. The law is already there, but it does need thoughtful and sensitive enforcement. His ideological critics will shriek, but this could be managed with conscience and constant monitoring of the program. It will need support of the bureaucrats, as will other domestic programs (see below). With the right kind of leadership, it is definitely possible. His first requirement is to show he is stopping the flow.

International Climate Policies: The politically motivated assertion by the Obama Administration that climate issues were already scientifically determined and only right wing ideological objections remained to be quashed was both misleading and actually counter-productive. Trump has a chance to lead with a fresh stance. There are many thoughtful scientists who don’t think the climate issue is merely politics. The inability of long-term climate models to predict shorter-term climate behavior has led to some serious questioning of whether or not we already have the proper model. Nonetheless, Trump can steer around the current impasse by coming to a nuanced position that says in the absence of certainty, policies should go part of the way. Then, the argument shifts to how much, at what cost, and which nations will jointly underwrite the cost of less carbon in the atmosphere. Broached this way, some of the political toxicity is taken out of the argument while a focus on the efficacy and the cost of such measures comes to the fore. That can be welcomed by both climate change doomsayers and climate skeptics. It also points the way to deal with the international aspects of large-scale coal burning in developing countries such as India and China. Shifting the debate from the extremes has to be a plus for all participants, although we should recognize it will not still the voices of those who have made “saving the planet” a religious undertaking. The Art of the Deal cannot please everyone. The lesson is not to try to please everyone, but move ahead on a defensible basis. A similar approach can be implemented with regard to issues such as overfishing and forest burning.

The extreme climate crowd shouts doom and gloom. A thoughtful approach that moves coherently and economically might never quell the alarm of the “doomsayers,” but it does not have to face the criticism that “nothing is being done.” A simple program of carbon taxation will take out much of the bite from the climate crowd.

Domestic Economics

Trump is in a good position to move ahead on tax policies as long as he is caring of traditional Republican budgetary concerns. Again the Art of the Deal means essential focus on the details of cutting taxes but not throwing the US onto a sharply growing budge deficit path.

The economy has grown far too slowly over the period since 2009. While the deficit has shrunk as a percentage of GDP, that percentage could fall even faster with faster growth GDP growth. The Democratic taunt of “trickle down economics” can be defanged. Tutoring Trump ‘s enlarged voting public on the importance of increasing economic growth can weaken those fears. Even Larry Summers spoke to this issue during the campaign, chiding his Democratic colleagues that they needed to be growth-oriented. Getting to 3 or 3.5% growth will take a lot of strain out of the tough decisions over Medicare and Social Security. Growth of business investment spending has been poor during the past eight years and if a higher growth rate is to be achieved, business spending must grow sharply. Cutting corporate taxes should help, but quelling erratic and inconsistent Government regulatory interference will create a more certain environment for CEO’s and CFO’s to invest. A multi-year tax plan will give business the chance to properly isolate better from poorer projects and give business confidence that increased earnings will turn out to be increased earnings net of tax. Proper incentives are the first step in winning this game. In addition, the Trump Administration can hold the carrot of a much reduced “repatriation” tax (say cut to 7 or 10%) that will quell much of the concern of domestic business over higher interest rates in the future and generate needed tax revenues. Again, it is a question of details, not direction. The progressives will cry “trickle down,” but if the Administration moves strongly in the first year, some results might well appear before the next bi-election in 2018 and perhaps cement Republican control in the Senate even further.

Trump appointees will have to concern themselves with two potential pitfalls: thousands of bureaucrats who are in charge of implementation and the inertial momentum bureaucrats supply and second, the “balanced budget” Republicans that are rightfully (no pun intended) concerned with allowing the deficit to grow after a major tax reform is put in place.

The corporate and personal income tax rules must be drastically changed. Simplicity, lower rates, and less cumbersome collection procedures would improve growth and incentivize expanded business investment and personal savings. This is supply side economics coming to the fore. It couldn’t happen at a better time. If US imports are restricted by either foreign- operated export controls or higher tariffs, US exports will not grow as fast or may actually decline. That means the economy will need more stimulus from domestic consumption and investment. A more predictable tax environment will enhance both. Trump rightfully criticized the lack of transparency and the crony capitalism of the prior administration. He has a chance to show he can that he can lead but also demonstrate credible results through a simplified tax code that leaves less to crony manipulation and more to predictable tax receipts. Provided that budget savings can be found, a simplified tax code that doesn’t lead to excessive deficits will provide great economic thrust in the coming years.

Most economists would prefer a simple consumption tax that rewards savers, but that might be one bridge too far in the initial year of the Trump administration. Progress on tax code simplification will open that door to even a more simplified tax system if ensuing growth causes Trump to be re-elected. The charge that growth leads to very unequal income and wealth outcomes can be answered by stripping special provisions such as incentives to convert income gains to capital gains due to large differences between tax rates on income and capital gains. An income tax rate of say 20% and a capital gains tax rate of 20% have much to recommend it. It avoids the shifting issue and the distortions that ensue from that differential. The new Trump tax techies should be running the numbers now on what might occur from a huge simplification of tax rates on income and capital plus eliminating much or all of the penalties on repatriating overseas business income.

Finally, we come to perhaps the most political parts of the tax code, estate taxation. From his earlier statements, one might predict that Trump will seek a substantial reduction in the estate tax rate, if not eliminate it entirely. The estate tax doesn’t raise sufficient revenues to create concerns for the deficit monitors, but it is a highly charged from the standpoint of growing wealth disparities. (Estate and Corporate taxes at the Federal level represents some 9% and 11% of Federal Tax Revenues). In addition, wealthy taxpayers are the source of significant charitable contributions, often motivated, at least partially, by the fact that the donor has a partner—The US Internal Revenue Service—in making gifts. A top marginal federal tax rate of nearly 40% implies that the cost to the giver is only 60 cents for every dollar gifted. Will the wealthy be less giving if marginal income tax rates drop sharply along with substantial reductions in estate taxes

Economic forecasting, much as we might think it is scientific, is likely to stumble when predicting in an environment of rapidly changing economic growth and complex changes of both income and wealth taxation changes at the same time. One can hazard a guess that rising wealth that can be passed to heirs at relatively low or zero tax rates might well create even more charitable giving on the grounds that a larger relatively untaxed estate would provide even more reasons for the wealthy to increase their charitable activities.

While this is an interesting theoretical problem for tax experts, the real debate will not be about efficiency and growth. It will be about perceived wealth and income inequality politicized by incorrectly characterized by the inequality issue. What we saw in the Sanders and Clinton campaigns was a huge display of rhetoric, not much based on solid economics. For example, the 99%-1% juxtaposition turns out to be quite faulty. Where inequality has really shown up is not in the 1%, but in the .001 (a tenth of one percent) segment of the income distribution. The progressive argument against the wealthy is more noise than substance. That debate, however, will pale against the claims and cries of the Progressives who have long built their case on massive wealth redistribution. What is needed is a factual debunking of the argument, but the data are there to do just that. Trump will have to tread artfully through this political economy jungle to hew a thoughtful program of tax reform.

Health Care: If it was not clear during the campaign that the simple statements about abolishing Obamacare were at best wishful thinking, it has since been made quite obvious, even admitted by the President Elect in his “60 Minutes interview with Leslie Stahl on November 13th. The new administration can ‘t just abolish the Affordable Health Care Act. Too many people would be left without any healthcare program. That means that the obiter dictum will be change, not abolition.

Here, the terrain gets tricky as the new Administration must navigate between the extent of coverage and the coverage costs. The new Administration will start from the fact that rising costs to those now covered are making potential converts on both sides of the aisle. The existing structure of coverage and the shattered private insurance market that has been created by the rise in costs has created a sharp break in expectations. Even those arguing for a more extensive health care system now realize that rather than “bending the cost curve downward,’ (the mantra of those policy wonks that supported the AHC act), has been an illusion. Moving 20 million people onto the health care rolls plus the rising costs of an aging population simply overwhelmed any cost saving that might have arisen by covering everyone. Much sooner rather than later, health care costs have risen so sharply that even the most progressive of the health care advocates realize the present plan is unsustainable. This means that the debate must shift and that will test the political acumen of the New Boys in Town. A Trump health care plan will come, but the tug of war between budget sanity and the political necessity that government provided health care is here to stay. That will define the playing field. Some tough choices will have to be made between how much expense the changed health care system will allow for the aged. Extending massive health care to those in their last few years of life is not a pleasant theme even for dedicated Progressives. At the end of the day, there is neither a free lunch nor free health care. If cost controls are not put on the expense of the ‘last years of life,’ there can be no permanent cost control. Conservatives rejected the death panel approach to governing the extent of care that should be paid by Government, but some answer to this vexing question will have to emerge if health care costs are to be controlled. This issue remains in the background, but since 60% or more of the health care budget comes from those in the last two to three years of life, it is an issue that cannot be avoided. For the country, it may be better that the past opposition to AHC must re-frame the issue and its solution.

The last hurdles will be pre-existing conditions and coverage of young adult family members living at home. The President Elect has already conceded on these two points so the struggle will be over the precise content of the reformed features, not the essential element of Government coverage. The Progressives on the Democratic Party side will attempt to skew the argument to show that the new Trump administration is “taking benefits away.” That is politics within the Beltway. At the end of the day, the Republican majorities in both Houses confirm the fact that changes that satisfy the budget watchers will be the only ones that pass both houses of Congress.

A similar kind of argument will take place over changes in Social Security, even though the time line of Social Security Insolvency is longer. It is possible that with so much to do on other domestic issues a well as a considerable agenda on the foreign policy side, that the new Administration might not get anything done substantively in its first two years. The domestic priorities will be tax reform and health care. Reforming Social Security may slip even if it too is a ticking time bomb.

Financial institutions Reform: Despite the throaty moral outrage of Senators Sanders and Warren, the 24,000 odd pages of the Dodd Frank (DF) bill need real scrutiny. It is questionable whether DF has really solved the To Big To Fail problem. It is has clearly made large banks less willing to take risk and the Volcker rule has cut earnings of these denizens of the finance world. It has done so however through an enormous posse of regulators now housed in the banks themselves while moving much lending to the shadow banking market that is not heavily regulated. This confirms the well-known effect that regulation changes where the problem is pushed without solving the issue. Dodd Frank directed attention away from the GSE ‘s who were considerable contributors to the collapse of 2008/2009. Worse, the Obama Administration restructured property rights of the owners of GSE debt which was raised by the GSE ‘s before they were conservatorized. That issue is still in the courts, but the current Administration has adroitly hidden the causal role played by the GSE ‘s in the mortgage market collapse of 2007-2008. Almost surely, had Fannie and Freddie not underwritten the subprime market, the housing bubble could never have grown to the size it did in 2007. Neither of these entities were paragons of accounting virtue prior to the collapse, but they were intimately involved with the Congress and were difficult to stifle. Neither Sanders nor Warren discuss the cronyism and corruption of the GSE ‘s despite prior criminal cases successfully prosecuted against them. This is only one of the main areas that need to be cleaned up for the US to have a viable and sensibly regulated financial sector.

During the current Administration, the largest financial institutions paid literally billions of dollars in fines that nearly always were set by agreement rather than definitive court proceedings. That is an unhealthy process for Government and it is part and parcel of the cartelization of the finance business that has taken place during the Obama administration. Similarly, competition in other areas of the economy, such as media and communications, airlines and internet sales, to name just a few industries, is now characterized by a few large firms with plenty of clout within the Beltway. Whether the Trump administration is willing to take on the anti-competitive pressures that have built over the last eight years is questionable despite Tumpis express concerns over AT&T ‘s proposed acquisition of Time Warner and his concerns about Amazon ‘s principal shareholder, Jeff Bezos. While nothing explicit has been said about these areas of the economy, they clearly need attention. Cartelized capitalism is neither good for growth nor for freedom.

The Judiciary and the Fed

It is easy to see that Republicans dodged a generational bullet in the Supreme Court by holding the Senate and winning the Presidency. A much more liberal (statist) Supreme Court would have certainly arisen with a Clinton victory. While the Democrats may now play the old Republican filibuster card on Supreme Court nominees, the new Republican Senate majority can, if it so chooses, change the voting rules by using its majority. Despite Senate Majority Leader reluctance to end the filibuster, it might be the only alternative in order to fill the vacancy on the Supreme Court. The famous line in the movie Independence Day, says it all: payback is a bitch! That said, this is not a major strategic issue. It is simply tactical maneuvering.

The Federal Reserve: Another area for payback stems from the eight-year period of low interest rates engineered by the Fed. Oversight is coming, notwithstanding the attempts by the Fed to escape a legislative lasso. Among many economists, former Chairman Bernanke’s immediate efforts in 2008/2009 to resurrect our credit markets, are applauded, but that support does not extend to the long period of QE and a near decade of low, often zero interest rates. Savers have been punished and the reach for yield suggests significant distortions in the allocation of savings and credit.

The fact that the Fed has been able to do this largely without significant Congressional oversight doesn’t mean it will be able to do this again in the future. The Congress will in fact pass legislation to interrupt the Fed’s total independence. Chairman Yellen ‘s reign extends only until February 2018, and she will not be reappointed. While there is no current suggestion she will resign before her term expires that could occur if the Congress gets extremely testy with the present Chair. The new administration will be appointing two new members of the Fed’s Board of Governors and it is likely that the new appointees will pair with some of the current members who oppose Yellen’s policies. This will create an unusual situation in an institution that thrives on consensus decision-making. It could create momentum for Yellen to end her Chairmanship prior to the end of her designated term, because a badly split FOMC would create great incredulity in financial markets. How the Fed is finally treated by the new administration will also be related to how this administration deals with the much-hated Dodd Frank bill. Dodd Frank reform will become a circus dominated by cronies and lobbyists. There is considerable support to end the autonomous and separately funded, Consumer Protection Bureau. It is hard to see that agency not getting its wings severely clipped. The Congress wants to and will assert its powers of governance over the Bureau, if it does not kill it entirely. Surely, Congress will end its unlimited funding via the Fed.

The Clinton-Trump contest offered voters a juxtaposition of two rather distinct economic policy formulations. Clinton ‘s focused on further regulation of economic agents. Her menu would have replaced market choices with regulatory expansion and increasing taxes to pay for more Government programs notorious for their inefficiency. Inevitably, that would have meant even more cronyism and corruption. Whether it would have produced more equality of outcome is doubtful because the wealthy have more access to modifying offensive regulation than the poor.

The Political Revolution What did voters choose

The ideology behind the Clinton policy menu implied that Democratic policy mandarins would have been happier if the economic pie were more equitably distributed perhaps even if that resulted in a smaller pie. Aside from the morality of such a choice, it is a highly questionable political theory because the wealthy invariably have more escape remedies than the poor. The proof may lie in the simultaneity of massive regulatory expansion and the evident decline in the US economic growth rate over the past decade. Is the alleged reduction in equality of income and wealth that we now observe merely an accident or a principal outcome of increased regulation and interference over many decades One suspects that there is a latent connection here.

The Trump menu also has two prongs: one is to diminish our integration with the rest of the world economy. One implication of such policies is rising prices of imports and import substitutes and a reduction of labor supplies formerly produced by immigrants without proper papers. That has to raise costs to consumers which is welfare reducing. Reducing the international specialization of labor could produce more domestic jobs, although that is not clear. Current exports could be reduced or grow more slowly either through higher costs or retaliatory measures from overseas customers. In that case, domestic jobs growth could slow or even decline. Indirect effects are often not properly foreseen when a major policy orientation takes place.

The second prong encompasses proposed tax rate reductions on personal income, corporate income and inherited wealth. Taken in isolation tax cuts should stimulate economic growth. Unfortunately, while growth could improve, tax reduction is likely to have negative consequences for the US budget deficit. That means that the outcome is not likely to be predictable until one specifies the rest of the economic policy menu. One needs to know what will be cut from the budget as a consequence of decreased tax revenues. Put another way, there are supply side effects and likely aggregate demand effects at work at the same time. Without specifying the mix, it is difficult to be confident when predicting the impact on growth from each of the two parts of the Trump menu.

In many ways, neither the Clinton nor the Trump campaign promises represented optimal strategies for the US from a strictly economic point of view. That was not their intent. Both candidates focused intensely on bringing different slices of the voting population to their cause, and neither spoke to the larger dimensions of stimulating economic growth sufficiently. By way of contrast, forgetting which classes of voters benefit most, what would a more ideal policy menu look like

The dominant economic problem in America is the evident decline in our growth rate. Choice expands when economic growth improves; both at the household and firm level but also at the policy level as well. When the economy moves from a 2% to a 4% growth trajectory, the traditional guns ‘ ‘ versus butter division gets much less constraining. However costly our current health care policy is, a bigger economic pie and larger government revenues make the collapse of the health care system much less imminent. Similarly, fixing Social Security gets a longer time horizon. Moreover, financing substantial infrastructure improvement becomes more plausible.

What about jobs, even for those whose skill content has not kept pace with modern technology It is inevitable with higher growth that the demand for labor all kinds of labor—will improve. Higher growth does not mean that the wages of the less skilled will become relatively more attractive, although tightening labor markets undoubtedly will push up wages across the board. Will tax reduction move the economy toward a higher growth path Nearly all economists would agree this is the most likely outcome although the distribution of income and wealth might not become more equal.

The only negative aspect of more growth comes from the old Starve the Beast argument: namely, there will be much less pressure to reduce the scope of Government activity when the Government coffers are fatter.

The second part of the story relates to the increased constriction of our possible economic growth possibilities due to increased regulation. It is not just a question of reducing taxes. It is surely a question of simplifying our tax codes and reducing the punishment on the supply side of the economy from the existing, overly complicated and activity-reducing tax mix at the margin. Corporate taxes are shifting American industries abroad. High personal tax rates create huge incentives for tax avoidance through complex tax schemes. High corporate tax rates lead to more tax competition between countries. If we wish to increase growth, we have to reduce the disincentives to growing.

The same incentive theme appears throughout any sensible economic policy agenda. Our regulatory state offers disincentives for both investment and saving at the corporate and personal level. We can see this most clearly by the sharp drop over the past two decades in new business formation as well as the reduced levels of business investment in current GDP measures. It has simply become too complicated and too expensive for many entrepreneurs to create new firms. New firms are the source of job growth. Older firms buy expansion through external acquisition, often reducing jobs as a consequence. This is where the growth story is most telling and where the job story is so depressing. Less new firm growth means fewer new jobs. It also means that large corporate enterprise finds more opportunities from external acquisition rather than internal growth. That leads to more cartelization of the economy and expands the crony capitalism that has become such a political hot button.

Going forward, the Trump administration will be constrained by the promises made during the campaign. That is an unfortunate consequence of a democratic republic. It is simpler on the campaign podium then it will be when policy choices have to be made within the new Administration. Simplicity of campaign slogans disappear when real governance must begin.

Elections have consequences: let the games begin

As Obama famously said at the beginning of his first term: “elections have consequences. I won.” This one will be no different, and the ire of individual Congressmen, now empowered by Trump’s unexpectedly long coat tails, will play out, as they become judge and jury on pet Obama-inspired programs. The ancient Chinese proverb, May you live in interesting times, should be remembered for how it was first uttered: it was the curse of a defrocked Chinese Mandarin, exiled after being fired from his Government post in the capital.

The games formally begin on January 20, 2017 but the jockeying for priorities and for the people who will lead the new Administration has begun in earnest. Political leaders in countries outside of the US don’t quite know what to expect from this new Administration. This is true in the U.S. as well. We really don ‘t know the who and the what of the Trump program at this stage. The power of the Presidency is unlike almost any other democratic republic, and this President has gotten his win by articulating complaints more than by making many promises to his rather widened constituency. Some of these promises worked to attract voters, but cannot largely satisfied as stated.

Some astute historians and political writers have likened Trump’s win to Andrew Jackson’s win in 1828. Jackson was also angry and outspoken, but was a hero to many. He was a very active President, known for inviting in the “Folk” to the White House, mud on their boots notwithstanding. He offended the powers of then Washington political denizens and he flouted his authority by tossing insults their way at every occasion. He saw his victory as one of the “people over the political elites.” Sounds like Trump, doesn ‘t it with the Tweet replacing the Shout Jackson was very ‘down home’ and when he didn’t like something, he said so. Trump has insulted many and was particularly scathing to his opponent. American Presidents wind up with cronies no matter how they vituperate against the existing Beltway crowd. Jackson had his, and we can be sure, this President will have his own as well. Trump liked to claim he would drain the Swamp within the Beltway. It is doubtful he has a big enough pump. American history has rhymed, once again, even if it has not repeated.

[1] Amazon, whose founder, Jeff Bezos, owns the Washington Post was criticized by Trump. AMZN trade above 844 on October 5 but fell to 719 on November 14 (the week following the election). It has since risen to 785 on November 22.

Indexing Stock Options or Granting Stock: which is a better method of compensating executives?

Rewarding a CEO (or for that matter, any senior corporate official) by using an indexed stock option only goes part of the way in properly compensating management and they fail to adjust for the risk that managers take but do not disclose.[1] In nearly every case over the past several decades of corporate misgovernance, shareholders and sometimes Boards, only learn after a corporate disaster that huge, undisclosed risks were taken along the way. Options, indexed or not, offer leverage to managers but provide no downside penalties for bets that turn out badly for the shareholders. One-way optionality is a serious problem for corporate governance.

It is not wrong for corporations to take risks, nor is it wrong that benefits from risk taking are shared with management. What does matter, however, is that equity holders be well informed about the kind of risks to which their investment is exposed well before they purchase their shares. For that, shareholders depend not only upon what managers tell them in quarterly and annual reports, but also upon competent and well informed Boards who monitor the managers. Our current system of corporate governance doesn’t accomplish that as we have clearly outlined in our book, Disorganized Crimes that captures many of these issues since the 1990’s Boom through the financial disasters of 2007/2008.

It is highly unusual for Boards to reward significant performance without judging corporate performance against the company’s corporate peers. Sadly, however, Boards often don’t know or understand the risks that their managers take and are less likely to know about risks taken by competitors. Indexing stock options doesn’t do anything to disclose those risks. Options are still a one-way bet with no downside for managerial misbehavior, incompetence or excessive risk taking.  What’s the alternative

Granting stock, rather than a stock option, is a better alternative. It would at least put managers in the same risk position as their less than well-informed shareholders. It would also make managers far more aware that they are gambling their own money as well as that of their shareholders when they place the company into a high-risk situation.   ‘Heads I win, tails you lose,’ is a bad compensation metric, even if it is indexed against the performance of the industry.

It’s about time to deal with the real problem, not the taxation aspects of different compensation forms. If it ever turns out that income tax rates on currently earned income versus capital gains income get equalized, the real issues of managerial compensation would appear far more distinctly.   Compensation based upon transparent risk reporting and corporate accountability is what shareholders really need.

Let’s focus on the real problem to be solved, not the tax system that makes option compensation seem so attractive. Options distort the reality of undisclosed managerial risk taking. It’s time we pay attention to the

[1]This is a reply to the OpEd of Robert C. Pozen that appeared in the WSJ on November 14, 2016. See “A Nobel Idea to Pay CEOs What They’re Actually Worth: Indexing stock options would reward only skilled executives who beat their industry average.” http://www.wsj.com/articles/a-nobel-idea-to-pay-ceos-what-theyre-actually-worth-1479168732

Options, equity grants and corporate governance

The following post was sent to the WSJ as a reply to Robert C. Pozen’s Op Ed (WSJ 11/14/2016) ostensibly as praise for the recent Nobel prize awarded Professor Bengt Holmstrom.   As the Journal didn’t reply (surprise), we post it here to our smaller but more well informed audience!

Paying a CEO (or for that matter, any senior corporate official) using an indexed stock option only goes part of the way to properly reward management for its efforts. It fails, however, to adjust for the risk that managers take but do not disclose to achieve the results which their efforts sometimes achieve. In nearly every case of corporate misgovernance over the past several decades, shareholders and sometimes Boards, learn that huge risks were taken along the way only after a corporate disaster. Options, indexed or not, offer leverage to risk taking managers with no downside penalties for bets that turn out badly for the shareholders. Indexed options don’t solve that problem and such misaligned incentives are indeed a significant cause of corporate misgovernance.

It is not wrong for corporations to take risks. They should and do so every day as a matter of normal corporate strategy. What does matter, however, is that equity holders be well informed about the kind of risks to which their investment is exposed even before they purchase their shares and the sometimes disguised incentives for risk taking given to management.   Shareholders depend not only upon what managers tell them in quarterly and annual reports, but also upon competent and well informed Boards to monitor what managers do on a day to day basis. Our current system of corporate governance doesn’t accomplish that as we have clearly outlined in our book, Disorganized Crimes and which captures many of these issues from the 1990’s Boom through the financial disasters of 2007/2008.

It is highly unusual for Boards not to reward significant performance and frequently Boards do judge the particular company against its peers in distributing such rewards. But, Boards are often unaware or understand the risks that their managers have taken. They hear good news quickly and easily. Bad news arrives slowly, often only after financial disaster strikes the shareholder. Indexing stock options doesn’t disclose those risks when the company’s share price is rising. Equity options are still a one-way bet with no downside for managerial misbehavior or incompetence. Granting stock, rather than an option, however, would at least put managers in the same position as their less than well informed shareholders.  Granting the stock itself would make managers far more aware that they are gambling their own money as well as that of their shareholders when they take the company into a high risk situation. Heads I win, tails you lose is not a good compensation metric, even when the option is  indexed against the performance of the industry. It’s about time to deal with the real problem, not the taxation aspects of different compensation forms.

If income tax rates on currently earned income versus capital gains income get equalized, something implicit in the incoming Administration tax proposals, the real issues of managerial compensation would appear more distinctly. Compensation based upon transparent risk reporting and corporate accountability is what shareholders really need. It’s time to focus on the real problem to be solved, not the tax system that distorts the common reality of undisclosed managerial risk taking and the no lose equity option that promotes that behavior.

RIPON-RIPOFF: knowing nothing and promising everything

The immigration Trigger

Observers of the current Presidential campaign who are familiar with American political history cannot ignore the striking parallels between this election and the electoral scene of America in the mid 1850s. In that pre-Civil War period, the Whigs and the Democrats were torn apart over the issue of slavery while the country was also deeply troubled by large flows of Catholic immigrants coming to the United States from Germany and Ireland. The decades prior to the Civil War also featured significant reductions in shipping and communication costs that stimulated large movements of foreign direct investment as well. It was a period similar to our recent era of globalization. Capital from Europe flowed into railroads, coal mining and many new factories accompanied by a plentiful supply of labor willing to work at what seemed to the existing work force to be low wages. While international trade and finance expanded, there was a rapid rise in discontent from both the labor and middle class over the new immigrants that in turn caused huge political upheavals.

Beginning in the 1840s, the anti-immigration wave coalesced in a number of political parties. By 1843, these nativist sympathies coalesced into the American Republican Party and spread into Pennsylvania under the name of The American Native Party, even sending a representative to Congress in 1844. Perhaps the best known was the No-Nothing party. Stimulated by anti-Catholicism and nativism, local and state elections were heavily impacted in the 1840s and 1850s. . The No-Nothings swept state elections in Massachusetts and were influential in a number of other states. Secret orders were started that reflected these prejudices and the feelings of disenfranchisement threatened by the flow of cheap labor.

The Anti Slavery Movement and the new Republican Party

The more vocal issue in the 1850s was of course slavery and the anti-slave movement weakened the Whig Party (the major alternative to the Democratic Party). By the 1850s the surge of immigration had quintupled the immigrant flow of a decade earlier. It wasnt outsourcing that aroused the political passions of the day. It was the in-sourcing of cheaper labor fleeing disturbed conditions in Europe while American industry expanded through foreign capital inflows and cheap European labor. Inflamed passions riled the traditionalAmerican political parties, leading to the view that the extant Party structure no longer reflected the needs ofAmerican voters. To respond to these passions effectively, however required political leadership.

The split in the Whig party over slavery irrupted in Ripon, Wisconsin in 1854 culminating in the formation of the Republican Party and the early emergence of Abraham Lincoln as a national politician. In 1856, the Republicans unsuccessfully ran a Presidential candidate, General John Fremont. The die was cast for the struggle over the Union. While Lincoln lost his seat in Congress, he became a growing force in the new Republican Party through speeches and press coverage. His famed debates with Senator Stephen Douglas in the Illinois senatorial contest of 1858 increased his national prominence.

In a democratic society, Politics often reflects the passion rather than the insight of voters. Consequently, the true leadership quality of a candidate is frequently obscured until after the votes are counted. It is a danger that the Founders recognized, but never were able to totally circumvent. Rational politics begins with a more careful assessment of both abilities and plans laid out by the candidates. The endgame is measured by electoral success.

The Republican Party was very clever. It needed mass and in order to gain sway over a larger portion of the voters, it allied itself with the Know-Nothings (in spite of their nativism) as well as other parties (e.g. the Free Soilers) that did not share many Republican views on other issues. With the breakdown of political amity in Washington, the election of 1860 was the quintessential fragmenting experience for America. Lincoln became President, but he but did not represent a majority of voters. He also didnot disavowed some of the more extreme nativist sentiments of the Know Nothings. He was a thoughtful politician who didnt want to make enemies. He won by focusing on what he stood for and ignored extremist views of his own allies. He won in the electoral college where it counted, letting ambiguity rule over extremist views of his allies. In 1861, his leadership gifts allowed him to take each of his principal rivals for the Presidency into his cabinet. He was a living realization of the old Mafia shibboleth about keeping ones friends close but ones enemies even closer.

Nativism and Immigration in the Current Campaign

This campaign illustrates what can happen to more traditional politics in a time of great economic dislocation. Trump expresses a kind of nave nativism in his tortured presentation of Muslims migrating into America masking the entrance of potential Jihadists. Even when called out for his nativism, he identifies Islam with terrorism, slipping away from a more careful and nuanced delineation that is needed between a religion and terrorism.

Great leadership could make that distinction, but itt appears Trump is not interested or not capable of drawing a fine line between the two. He appeals to more base sentiments. He relishes his nativism as if it really pointed to solutions for America as a whole. Similarly, he espouses a modern form of America First, jettisoning more than a century of American tradition to be a banner for liberty and the bearer of the torch of freedom internationally. He disdains European allies as weak and unable to carry out their mutual defense burdens with the United States. He even goes so far as to praise the leadership of Americas former Cold War enemy. His slogan make America great again, is devoid of any practical content. He waves the flag, but is unclear what his flag stands for. Careless phrases and potentially divisive sloganeering are his daily script. Who can sit under his flag today in America: the disgruntled; those who seem to have fared less well in our rapidly globalizing economy; those who feel theyhave been disadvantaged by Americas attempt to right its blighted racial history. Were he to be elected, it is unclear what his policies would embrace. His tax and spending plans are as mysterious as his unrevealed tax returns. He promises nothing to our modern-day Know Nothings.What about his opponent

Mrs. Clinton seems to have a program for every claimed ailment in America. She evidently believes that by changing the law or the administration of the law she has a fix for every minority. On the economics front, it is a return to Keynesian spending but ignores the fundamental forces that promote growth: incentives to invest in both physical and human capital. This may be a winning political strategy, but it is an economics strategy that can only lead to disaster. Without growth, even the current commitments of our Federal system cannot be supported.

Her most well known economist advocate, Larry Summers, has recently written about the necessity for the Democratic Party to pay attention to measures that will improve our growth rate. That said, one is not sure that anyone in the Democratic Party is listening or even recognizes the difference between Keynesian spending and curing the disincentives that militate against revived economic growth. Nine tenths of the iceberg is beneath the water. Without growth, even when you cant see how it is going to occur, the Titanic of Federal Expenditures will overwhelm us all in the next two decades. Democrats tend to think of Big Government as the equalizer for the disadvantaged, but fail to see the conflict with proper incentives for economic growth.

Big Government has neither achieved the sought for equality or the economic growth that are cardinal elements in an enlightened Democratic view of contemporary economic problems. Clinton bashes Wall Street, setting up the straw man that Wall Street banks are the enemy of the people while running away from the inferences that the Clinton foundation trades access for donations. A plan for all problems is not a plan. A plan means choosing between competing alternatives while paying attention to the national budget constraint. A program to fix everything provides a rhetorical excuse to fix nothing. The great irony of the 2016 campaign is that it has become a contest between knowing nothing and getting nothing important done.

The present contest fits a sad historical pattern of America in the middle years of the 19th century. We have seen it before. Our inability to reach a political settlement between North and South resulted in the worst casualties of any war in our history. It left a legacy of disenfranchisement and ultimately an attempt to make Government provide what economic progress had not.

What is the likely outcome of Nothing vs. Everything A failure to deal with the root causes of slowing economic growth and diminished opportunity. Blame replaces insight, but blame doesnt cure. It just provides a rhetorical excuse for empty-headed policy making. We have heard this music before. It is not the sound of a lively march into the future. It is a dirge that memorializes our failures. Every band and every parade needs a leader, not just followers. What the election of 2016 represents is a massive leadership deficit, a turn to the past and a very clouded future. A modern day Lincoln we do not have,

The disorganized crime of this election is the disorganized politics of its two candidates and its two disheveled Parties. Despite our need, another Lincoln is not waiting in the wings. Neither Nothing nor Everything will work. Its time for a new Ripon for the Republicans. Its time for the Democrats to stop Ripping Off the tax paying electorate by promising both bread and circuses to its sliced and diced voting minorities. Leadership is what we badly need and do not have.

The Upside of the Downside

The election is a bitter pill for Americans looking to end the dissonance and hoping for a government that does what it can and should while recognizing the limits that Big Government presents. If, as is likely, the Democrats not only win the White House but recapture the Senate, many things will change, not all of them beneficial to a resumption of growth or the defeat of excessive inequality. In fact, low growth really means even less equalitarian outcomes are on the horizon. Rapid growth is the best weapon against poverty.

The downside of a Republican defeat is the likely hood of larger tax burdens on the rich, on corporate profits, the collapse the Trans Pacific Trade Agreement and the strong likelihood of an activist Supreme Court that further unbalances our politics. But surely, after themassive defeat thatseems to be likely, there will be strong forces to re-make the Republican partyto end its flirtation with nativism—and to develop a comprehensive program of tax reform.

Above all else, defeated Republicans should look for a new Ripon based upon competitive and free markets, free trade, muscular internationalism and constitutional restraints on the actions of the Federal Reserve. The Republican Party has to open its doors to all races and religions by stressing its desire for equal access not equal outcomes. The incentive to improve is the sine qua non of rapideconomic growth. Republicans need to march away from their own cronyism and open the tent. They must not be afraid to deal with environmental or infrastructure problems. They need to reaffirm their faith and support of free, competitive markets here and within the economies of their trading powers. Above all, they need to constantly renew their focus on creating the right incentives for human capital and physical capital improvements. Their narrative must shift from the condemnation of certain minorities toa re-assertion that America welcomes those who can contribute to its citizens well being. Not every great idea or innovation is American, but an American economy free of the vast constraints now imposed and now projected can provide the bountiful harvest needed to satisfy our many residents. Its time to go back to work.

Ripon revisited cannot come any too soon. Maybe the new slogan should be A Positive Program for American Progress. A great deal can change from January 2017 toNovember 2020. Its time for vision and great leadership. If necessity is indeed the mother of invention, it is time to realize how necessary it is to create a new, progressive American conservatism open to all and focused on all. On to Ripon II.