Right-wing Welfare: US Defense Budget

US military budget is clearly both indefensible and unsustainable. 

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After spending almost 4 trillion dollars in a disastrous military engagement in Iraq,

US continues to overspend the rest of the world to act as an international police and army on US taxpayers' pockets.

US defense spending was among the things president Trump sensibly denounced as absurd, signaling an initial impulse to control.

But like most of his predecessors, Trump has just put Defense-subsidized state jobs (and votes) ahead. turning from critic to cheerleader of "two more years" of increased spending

Whether Trump will get Europe and Middle East partners to pay for US military services is still to be seen, but at least he has made clear they have to increase their share of funding military alliances. On this, he has once again flip-flopped dangerously, from critical:

to self-congratulatory conciliation

Both substantial increase on military partners and beneficiaries contributions and results- and foreign strategy-focused spending cuts are necessary.

In absence of a clear international strategy, both spending control and effective military alliances became more unlikely. 

Meanwhile,  the tab keeps running and US politics continue to depend on the perverse incentives of its military-industrial complex -as President Eisenhower warned back in 1961-

Democratic Socialism in Action: Puerto Rico

For those interested in "democratic socialism" Puerto Rico comes handy as the closest US-made example. 

WSJ's columnist Mary Anastasia O'Grady summarized Puerto Rico's situation:

"More than two years into bankruptcy, there is still no agreement on the budget and no access to capital markets. On July 3 the oversight board sued the governor in federal court over his decision to allow municipalities to transfer some $330 million in pension and health-insurance costs to the bankrupt commonwealth."

The island got a pass from US Republican and Democratic Congress (a rare coalition between Paul Ryan -remember that fiscal plan?- and Nancy Pelosi) to bypass its Constitution and declare default. 

The banana republic picture completes with across the political spectrum accusations of corruption and mismanagement. 

Puerto Ricans keep voting with their feet, migrating to continental US, like Alexandria Ocasio-Cortez's parents did a generation ago, migrating from Puerto Rico's misery to Bronx's low income class. 

Download pdf report

US capitalism gave ther daughter the chance to go to college where -like many second-generation migrant children- she became fascinated with the eternal promise of "democratic socialism". At just 29 years, the young and talented Alexandria became congresswoman for her adoptive Bronx.

Puerto Rico didn't do so well. Thanks to the kind of policies now promoted by AOC and her progressive "squad" caucus, net migration remained negative

Leaving an overpopulation of pensioners without working-age contributors to the pension system:

Which is exactly what happens when welfare states grow without welfare. Florida will benefit from working-age Puerto Ricans paying into Social Security and pension systems:

The next step of this example of "democratic socialism" will be a haircut for American bond holders.

More on Puerto Rico's bankruptcy and Puerto Rico's PROMESA

Trump's 180 on Iran: Refusing the Iranian bait

For all the post-fact criticism it receive from both sides of the political spectrum, Trump's zig-zagging course of action with Iran might have more than meets the eye. True to their chess tradition, Iranians tried a gambit, provoking US's military reaction.

Looking at the course of events, it is evident that the weaker player, Iran is playing the aggressor instead of US. First, with the attacks to tankers menacing with cutting the strait of Hormuz. Then, doubling down by downing an unmanned drone.

Trump was in both cases forced to react. His first reaction was foreseeable: threatening military action. The second -calling out an air strike- was not.

Most partisan pundits focused on Trump rather than Iran. Let's turn the attention to the aggressor.

Why a weaker country in dire economic straits invites military aggression from a rival with overwhelming superiority? 

What is Iran to win with provoking US to bomb its military installations?

The answer is clear: jacking up  oil price. 

An US attack would rise significantly giving Iran's economy a desperately needed shot in the arm. Trump's first vague threat of military action sent oil price 6 % up in an instant.

Prices could rise up to 100 usd per barrel giving an immediate 50% revenue boost to Iran's exports. Moreover, US efforts in keeping Hormuz strait open would paradoxically benefit Iran. 

Iran is playing the "mouse that roared" tactic. Like in Peter Seller's classic movie, war with US can pay handsomely to the defeated. 

That's why not taking the bait can be a good response, saving not only Iranian lives, but keeping the choke hold on Iran's economy while assessing more strategic military options, such as setting up a NATO/ Gulf nations joint force to protect Hormuz or even destroy Iranian anti-aircraft and anti-ship capabilities.

Both countries seem to play their national games: Iran's chess gambit is met with US's poker's bluff.

Beyond the "Tale of Two Models": Texas and California in the long view

Texas and California are often used as belt-weathers to compare GOP and Democratic policies in practice, as The Economist recently did in a special report.

The "Blue-Red" stereotype of the two states is both historically and demographically misleading, a tired "tale of two countries" used for partisan polarization.

From 1848 up to 1952, Texas voted Democratic.   Texas voted for JFK and Lyndon Johnson during the 1960s and up to 1991 elected a Democratic, pro-choice woman like Ann Richards  as governor. 

Since 1936, California showed a  voting history characterized by strong swings between short Blue dominance (1936-1948) and much longer Red supremacy (1952-1960, 1968-1988) periods, in which it elected Richard Nixon, Ronald Reagan and Arnold Schwarzenegger as Republican governors.

Both states are testing grounds for  Republican and Democratic models of economic and social governance and beyond ups and downs, both show long-term success. 

Both states have economic entrepreneurial powerhouses in the Bay Area and Silicon Valley and the Texas Triangle, respectively. 

Both states have shown the ability to learn from mistakes and change course, often guided by the least-expected. Under the once ultra-liberal Jerry Brown, California  straightened its finances, controlled its deficit and turned around its economy.

Partisan views usually describe the contrast in tone-deaf, "B&W", "Hell vs Heaven" terms. Pundits such as libertarian Stossel

and progressive Robert Reich

duel like real estate agents over a candid customer.

Reality is more complex and more interesting.

The Economist report suggests looking at  Texas as a younger version of California, more free enterprise, low-tax like California was at the beginning of the 20th century, now trending towards an expansion of its welfare state network. That trend might be based on two key factors: increased affluence and Californian immigrants.

Voting trends seem to support this hypothesis, showing that Democrats have been making inroads in recent Texan elections.

Conversely, Californians have turned to Republican policies of austerity to stop losing business and jobs to lower taxed neighboring states (Texas first among them) and to shore up their bankrupt pension system.

If something can be learned from Texas and California's swinging politics is that there is no "Red or Blue"  model but rather policies that work, such as Texas' low taxation, business-friendly regulation or California's long-term investment in top universities, research and talent-friendly, internationally-minded ecosystems.

From a long view perspective, demographics will keep changing with success and growth. dictating long term social changes that politicians will follow rather than lead, as they always do. 

Looking at Californians migrating to Texas as a signal of victory for Republican views is most likely wishful thinking. 

Californians -quite like Europeans or Latin Americans- will happily take lower taxes and friendlier regulation without leaving behind their like for the kind of welfare benefits they grew accustomed.  

The electoral trend towards Democrats is a good indicator of it. Partisan Republicans might cheer the Californian exodus at their own peril. For them, it has all the makings of a Pyrrhic victory. The Hill explains why:

"Hundreds of thousands of new residents are moving into Texas every year, choosing to live in fast-growing cities and suburbs around the state’s four largest metropolitan areas. Six of the nation’s 10 fastest-growing counties are in Texas. About one in every 10 Texas residents did not live in the state when Sen. Ted Cruz (R) first won his seat six years ago.

“We have a lot of new voters who have held up their hands. There’s thousands of new voters moving to Texas every week,” said Chris Homan, a veteran Texas Republican strategist.

Those new residents are changing the partisan hue of once-reliably Republican suburbs and fueling a massive surge in new voters in solidly Democratic urban cores that even Republicans acknowledge will put the state’s massive haul of electoral votes in play for the first time in a generation."

Politics are a lagging, not a leading indicator.

Policies are just the opposite.

In any case, the Texas-California rival models are a good lab for testing ideas for the future of the country.

Purple Hearts: US Electoral College Reform

At the heart of the current fight between the Trump administration and the Democratic party is the dispute about the legitimacy of electing a President that lost the popular vote.

Instead of trying to win through impeachment (as the GOP in opposition tried also with Clinton) or reforming the Constitution -which the Framers wisely designed to preserve smaller states right and requires an almost impossible two thirds majority- there is a simpler and fairer way: turning the election of states delegates for the Electoral College from "winner-takes-all" to some proportional system (I suggest checking the Swiss D'Hontd system also known in US as the Jefferson method) 

If each state were able to allocate electors for both parties in a proportional way there will be immediate benefits for both those who want a more "democratic" election and for those wot want a more "state-rights" representative one:

1. Both states rights and majority rule would be better protected
2. The reality of "purple" states (almost all) would be better reflected
3. Candidates should campaign and visit all 50 states more often and more likely
4. Voters in small and large states would feel treated more fairly.
5. There would be less interest in using impeachment to uphold "legitimacy" claims, and less sore losers.

Proportional systems have been implemented in some states.

Who would have been elected if implemented in past elections? Just take a look and make up your mind. You might want also to check the Jefferson method.

Notice that in all close elections (2000, 2016) third parties would have made also a difference by becoming "king-makers" and forming coalitions.

That would also give those outside the two-party system more relevance and dilute extreme partisanship.

Rule of thumb: you know the system is fair when no partisan soul is happy with it.

One Down, One to Go: Fixing the Asylum problem

The asylum system is one of the key factors behind the  flood of migrants from Central America overwhelming US's immigration systems. After receiving 490,000 new asylum-seekers since the beginning of 2019, it's evident that "humanitarian reasons" are a bad and fuzzy concept to handle immigration from failed countries south of the Rio Grande border.

The Democratic La Raza-lobbied Congress must be forced to act in putting strict restrictions to asylum eligibility.  Economic need or general insecurity are unacceptable, unworkable criteria to accept migrants, much less minors. 

Mexico has responded to the menace of crippling tariffs with a promise of militarizing its Southern border sending 6,000 troops of its newly created National Guard. Wall Street Journal specialized editor in Latin America Maria Anastasia O'Grady and former Mexico's Foreign Minister under Vicente Fox, Carlos Castaneda have pointed out to Mexico's evident lack of institutional capacity and spotty record of following through its US agreements as major factors that make the new agreement unlikely to succeed. 

The alternative of the current status quo is unsustainable and much worse. Economic pressure will certainly work better than words and paper to make Mexico act on at least part of its commitments.

Now is time to turn to fixing US's institutional weaknesses: asylum and enforcement.

Here are some concrete proposals to do it.

A Maverick Kissinger

Whether you agree or disagree with Steve Bannon -and it's likely that the word "strongly" will be attached to either sentiment- it's clear that his track record reveals more than what his rather sparse words show. For all his enormous influence Bannon, like the young Kissinger, prefers to stay away from cameras and public statements.

After helping Trump win the US presidential election, Bannon fell out of good graces with him and turned to Europe to work as a self-appointed shadow Secretary of State. During his two years in "wilderness", Bannon managed to help seat Victor Orban in Hungary, Matteo Salvini in Italy, turn Brexit into the default position in UK politics and the rise of Marie Le Pen and the yellow vests protesters in France, Vox in Spain and build a formidable bloc to take over the European Union.

Kissinger would certainly envy such accomplishments, but Steve Bannon is a man on a mission and unlike his former boss and current ally President Trump, he's not running for or to stay in office. He's single-mindedly focused on politics and long-term, structural changes in the balance of power in the West, engaged and engaging in a crusade against what he sees as US's foes in a Second Cold War: China and Islamic fundamentalist powers, the Europe promoted by George Soros' Globalist Left.

In spite of his Breitbart, Far Right-, Tea Party- track record, Bannon remains in an almost cynical, pragmatic stance, providing critical views of all his current allies, including Trump, speaking at large to the most recent Martin Wolff's insiders' expose. Bannon's previous declarations in Wolffs book Fire and Fury precipitated his fallout with Trump and his ousting from Breitbart, turning him into his favorite role: a maverick and a loose cannon.

Unlike Kissinger, Bannon is not a prisoner of his former boss, nor he depends on a White House or DoS job. He runs his own operation, initially funded by the Mercer family and later with other wealthy donors coming from his newly acquired connections and fund raising ability. He's a maverick Kissinger rearranging the world order to the nationalist, anti-globalization Right as much as his arch rival George Soros is a Metternich trying to tilt the world order towards the progressive, cosmopolitan Left.

His Oxford speech shows his extreme ideological bent as well as his vision of a worldwide "war" between Left and Right in its extreme versions:

A force to be reckoned with, sooner better than later. Those who ignore or underestimate his influence do so at their own peril.

• Bannon's views on Europe (interview)
• Nougayrede, N. (2019) Bannon is on a far-right mission to radicalise Europe

Mexico's lesson: TR/Trump sticks work better than Obama/Bush carrots

President Trump's tariffs' threat worked, forcing Mexico to commit to serious and accountable actions to stop and stem illegal immigration.

The result was a US-Mexico Joint Declaration, which summarizes Mexico's acceptance to comply with US's demands:

“those crossing the U.S. Southern Border to seek asylum will be rapidly returned to Mexico where they may await the adjudication of their asylum claims.In response, Mexico will authorize the entrance of all of those individuals for humanitarian reasons, in compliance with its international obligations, while they await the adjudication of their asylum claims. Mexico will also offer jobs, healthcare and education according to its principles.The United States commits to work to accelerate the adjudication of asylum claims and to conclude removal proceedings as expeditiously as possible.” 

Looking from a long view perspective, this success might indicate that Theodore Roosevelt (TR) policies of "carry a long stick and a big smile" work if applied in such order -first show the stick or give a first hit with it, then smile, not the other way around- precisely because of the credibility generated by Trump's unpredictable, belligerent and heavy-handed approach to long-time deadbeats like Mexico and China.

The art of the Mexico deal is in understanding that AMLO -as President Andres Manuel Lopez Obrador is known- is a populist that uses far Left rhetoric but has a long track record of cutting pragmatic deals with "foes" that generate taxes, investment or exports revenue.  After a few rounds of posturing, AMLO sent a commission to capitulate in Washington, quite much like Generalissimo Santa Ana did 150 years ago.

Obama's and Bush's rational diplomacy were seen as signs of weakness and opportunities for cheating and taking advantage of a naive or self-doubting neighbor.

At the root of the problem lay the Schengen-inspired migratory policies that both Republicans and Democrats have kept since Reagan's 1986 Amnesty in the hope that the problem would correct itself. Those policies, designed to capture (and or manufacture) Hispanic votes metastasized even further in the form of  "sanctuary cities" that openly ban migratory laws' enforcement in exchange for a permanent majority-making  influx of voting- and welfare net- enabled constituency.

The proponents of such policies have suffered a major blow that will reverberate in the coming 2020 elections against their candidates.  Instead of choosing to bargain with the wall for accommodation, they preferred to sustain a ridiculous denial of the chaos in the border that self-fed into a Tsunami of asylum seekers, scaring a sizable majority in all border states.

Trump and his foreign policy instincts have a point: raw power seems to be more effective than nice words with authoritarian governments with a track record of serial cheating.

Nice words and noble self-criticism -such as Obama's Cairo speech- seem only to encourage more abuse by ceding the moral ground to declared enemies of most of what US stands for: free trade, free markets, freedom of the press, rule of law.

China's next.

• DoS (2019) US-Mexico Joint Declaration

"Stop China" Kumbaya: Tom Friedman joins Steve Bannon

Trade wars make strange bedfellows. So is the current standoff between US and China. After three decades of diplomacy and WTO-like agreements, President Trump is trying sanctions and open confrontation to cajole China into respecting international rule of law and intellectual property.

According to Friedman -the most iconic mouthpiece for globalization since its famous book "The Lexus and The Olive Tree" coined the term twenty years ago, back in 1999-, it's due time for a "High Noon" moment of reckoning. Here's Friedman on the subject and on the record in his NYT op ed column:

"I’m glad Trump is confronting China on its market access barriers. Those are the real issue — not the bilateral trade imbalance. This is long overdue. But trade is not a zero-sum game. China can thrive and rise, and we can, too, at the same time. That’s what’s been happening for the past 40 years. But we’d be even better off if China offered the kind of easy access to its market for U.S. manufacturers that it enjoys in America. It’s time to recalibrate U.S.-China economic ties before it really is too late.  

What do I mean? China’s formula for success had three pillars. 

The first was a lot of hard work; delayed gratification; high savings; smart investments in infrastructure, education and research; and a Darwinian system of capitalism. In China’s “jungle capitalism,” 30 companies in the same business emerge and compete to see which becomes the alpha male and wins the government’s backing to go global. This system has produced high levels of innovation — Alibaba, Tencent, DJI — despite a censored internet, lack of a free press and an authoritarian government.

The second pillar was a system of cheating on World Trade Organization rules; the forced transfers of technology; the stealing of the intellectual property of others; nonreciprocal trade rules; and massive government support for the winners of both its Darwinian competitions and inefficient state-owned industries. 

The third pillar — never acknowledged by China — was a stable global trading system built by U.S. statesmen and sustained by the U.S. Navy. It’s been the U.S. Navy in the Pacific that has assured China’s trading partners there that China’s economic domination wouldn’t result in China’s geopolitical domination over them — and therefore made them open to massive trade and investment from China."

Bannon used the financial CNBC network to celebrate Trump's war trade stance:

This "coming together" in a tough stance reached even the Democratic trade committee chair, the rabid anti-Trump Chris Van Hollen, asking for even tougher stances on chinese companies such as ZTE

Economic forces seem to be realigning against China in a long-term game-changing bet. Market signs seem to indicate that there is no shortage of players wanting to gamble for this option. The stakes are high, the dimensions and global character of China's economic position in the world make the ripple effects on the interconnected international economy hard to predict:

In any case, the new strategic scenario seems headed to break the self-imposed boundaries of conventional wisdom, particularly the myth of an invincible authoritarian, state-controlled China model advantage over free market, entrepreneurial economies of the West.

For Trump's base, the realities of his trade war look different:

Free trade doesn't necessarily mean "free range" , one-sided trade deals, particularly when the other side has been voicing for years a "Made in China 2025" plan with targets of 90 percent "made in China" products.

It begs to wonder what kind of free trader is the government that accepts deals with an ultra-nationalist partner with an ultra-mercantilist policy such as China.

In any case, Trump is not provoking a trade war, but reacting to one that started decades ago and has been escalating at broad daylight.

It takes two to tango. This might be a rocky dance.

Betting the Ranch: Trump's tariff war gamble

Trade wars should be regulated by Congress. So should raising taxes such as tariffs on farmers and consumers . 

Success may dilute the risks and gravity of leaving such degree of power out of the control of Congress (COTUS) , but for those who (correctly) criticized executive over-extension in the cases of Iraq war and Obamacare, this war without troops (for now) should be equally put under constitutional surveillance, since the Constitution is pretty clear: 

It’s in Congress’s power “to lay and collect taxes, duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States,” and regulate trade between the US and other countries.

Over the years, and with the excuse of "war powers" and "national security", COTUS has turned this critical power to POTUS, with far-reaching, long-term consequences now in stark evidence. 

Would President Trump be able to start a trade war of this magnitude if he had to pass a law through Congress as the Constitution requires? 

One thing is for sure, even for those who oppose protectionism and correctly consider tariffs taxes on US consumers and companies (remember the GOP platform?): a trade war with China is a national security matter.

A trade war between US and China -which directly involves and affects EU and the rest of the world economy- has as much an impact -or perhaps even more- than a World War. If taken to the last consequences, it is a World War.

President Trump is betting the house in which 340+ million Americans live. Regardless of the fact that most of them didn't give him the popular vote, much less a mandate for a wide-range protectionist policy, they should be consulted through Congress as the US Constitution specifies.

This -not impeachment nor "Russian collusion" charges- is a constitutional crisis.

Protectionism goes against the very foundations of a country that was born out of a protest against tariffs, on the very year that Adam Smith published The Wealth of Nations and on the very principles of free trade and free markets that Smith proposed in 1776.

In a turn that reflects a significant change in the historical positions of the Republican Party,  a RINO president is embracing a long-held Democratic and Trade Union position, one that Bernie Sanders and the farthest Left of US's political spectrum would (and will) enthusiastically endorsed.

Precedent is a poor consolation, but it happened before: the Smoot-Hawley Act of 1930 -which arguably sank US back into the Great Depression- was launched by two Republican senators. 

So President Trump is not without party precedents nor company on this gamble.

Chances are that this will be -as Trump's sales argument goes- a tactical movement that will bring China into the fold of law-abiding nations and serious trade agreements and negotiations. History tells otherwise, both about China's WTO track record and the impacts (short and long-term) of tariffs. The graph below shows how low-tariffs after 1950 ushered a long, uninterrupted era of almost 90 years of US growth:

The current situation is no other thing -as Peter Navarro and Robert Lighthizer (the contemporary equivalents of Republican Senator Reed Smoot and Republican Representative Willis C. Hawley) disingenuously pretend- than the first salvo of a long and protracted protectionist era, which will exacerbate nationalist parties and rise social and ethnic tensions, not to mention plunge good part of the world -Europe, Asia, Latin America- into recession.

Note as an important point that Reed Smooth and Willis C. Hawley were elected members of US Congress, and Mr. Navarro and Mr. Lighhizer are not.

US Congress (COTUS) has abdicated its constitutional responsibilities.

"America First" is not a strategy, but a slogan. It's not even a new slogan. It used to be written in union's symbols. Of course, it doesn't take a rocket scientist to figure out that "China first", "Europe First" and "(whomever else) First" will follow. 

In a zero-sum game there is a winner and many losers. Over time, as in the classical Prisoner's Dilemma, there is a net loss for everyone, since the only "winning" strategy is  not to "win" deals but to accept moderate losses and win by growing the shared market. 

That is the only way to break away from "zero-sum" growth strategies and turn toward non-zero-sum , or "win-win" strategies that actually have grown the global economy during the past 30 years of globalization.

This is not an argument, but a proven truth that every student of 101 economics know.

But, as George Orwell famously said: "truth is the first victim of war".

I set this article for the record, hoping with Churchill, that "Americans will do the right thing after they have tried everything else."

EU Parliament elections: Populism Turns to the Right

The coming EU Parliament elections will check the strength and sustainability of the populist wave that has taken over UK and Italy, most of Eastern Europe and some smaller countries like Austria.

After an initial wave with Brexit and the triumph of Five Stars in Italy, the populist trend seems to have peaked. Part of this has to do with the poor government performance of the first wave in Spain and Greece -where the far left  Podemos lost votes and Syriza ended implementing an impopular but necessary stabilization program with the IMF-. 

Other, without doubt, with the chaotic and protracted drama around Brexit, which pitted Scotland, Ireland and London against the economically declining regions of England. The Brexiteers didn't have a clear plan nor credible leadership to form a government, and turned to a Remainer PM like Theresa May to implement a deal with EU. The result has been a long stalemate and cold feet for business that have been hemorrhaging out of UK for two years already.

According to a comprehensive Financial Times poll in all EU countries, UK and Italy will increase the seats for EU populists, but far short from a working majority able to elect a populist for the position of EU PM. (click to enlarge) 

While Spain turned to the moderate social-democratic center-left with PSOE, France  -which still has a dominant centrist in power- seems to be wobbling under the street riots promoted by the Yellow Vests anti-European populists.

A closer look by Politico polls show that the moderate center-Right and the center-Left will still hold majorities in the 2019-2024 EU Parliament, with the Liberal centrists as "king-makers" but also needing populist votes to form government.

The growth chart seems to show populists plateauing and moderates bouncing back, most likely as results of Brexit/UKIP, Podemos' and Syriza's fizzling after government and opposition fiascos.

Pro-EU forces hold a healthy 467 majority seats almost doubling Euro-skeptics.

All this said, the situation for the coming five years (2019-2024) is fluid, highly dependent on the economy, mostly at the mercy of the US-China trade brinkmanship.

Last but not least significant, US anti-EU nationalist Steve Bannon is working overtime propping up Trumpian-esque forces in UK (Brexit-UKIP) Italy (Salvini), France (Gillettes Jaunes),  Spain (Vox), Hungary (Orban) and even Brazil (Bolsonaro).

Those who underestimate Bannon's impact and power do so at their own peril. Trump might be less ideological and more pragmatic, but Bannon is a man on a mission, and that mission can generate a Second Coming for right-wing populism in EU. Is good to remind those who look down on this phenomenon that the  First Coming brought Hitler, Mussolini, Franco and WWII during the 1922-1932 decade, right (pun intended) for the hundred anniversary of the crowning of European fascism that preceded World War II.

The Long View: European history tends to repeat itself. During the 20th century two world wars erupted for the same reasons -nationalism, populism, economic depression, anti-immigration and the perennial antisemitism (particularly in Eastern Europe)-