Tag Archives: US

Flash Point: View from the Empire

We have become aware of late of the portrayal of Russian activity as dangerous and aggressive while similar behavior from the Americans is seen as righteous. We came across a lovely example today in a Fox News interview with Carly Fiorina, a Republican Candidate for President (0:58 seconds):

(h/t Mike Shedlock: Trump vs. Fiorina vs. Obama on Isis; Fiorina and the “Law of Bad Ideas”)

Harper Blew It – Again

We have been tracking the final days of the Asian Infrastructure  Investment Bank (AIIB) drive for prospective founding members (PFM) (read Harper’s Days Are Numbered). At the close of the application process today, March 31, the approved members and the applicants for membership stand at 53 countries as shown below:

The Paradox of America’s Electoral Reform

By George Friedman

We are now in the early phases of selecting the president of the United States. Vast amounts of money are being raised, plans are being laid, opposition research is underway and the first significant scandal has broken with the discovery that Hillary Clinton used a non-government email account for government business. Ahead of us is an extended series of primaries, followed by an election and perhaps a dispute over some aspect of the election. In the United States, the presidential election process takes about two years, particularly when the sitting president cannot run for re-election.

This election process matters to the world for two reasons. First, the world’s only global power will be increasingly self-absorbed, and the sitting president — already weakened by the opposition party controlling both houses of Congress — is increasingly limited in what he can do. This is disturbing in some ways, since all presidential elections contain visions of the apocalypse that will follow the election of an opponent. During the U.S. election season, the world hears a litany of self-denigration and self-loathing that can be frightening emanating from a country that produces nearly a quarter of the world’s wealth each year and commands the world’s oceans. If Honduras were to engage in this behavior, the world would hardly notice. When the United States does it, the public discourse can convince others that the United States is on the verge of collapse, and that perspective has the potential to shape at least some actions on the global stage.

Tempering the Passions of Politics

The United States sees itself as the City on the Hill, an example to the world. But along with any redemptive sensibility comes its counterpart: the apocalyptic. The other candidate is betraying the promise of America, and therefore destroying it. Extreme messages are hardwired into the vision that created the republic.

The founders understood the inherent immoderation of politics and sought to solve problems by limiting democracy and emphasizing representative democracy. Americans select representatives through various complex courses. They do not directly elect presidents, but members of the Electoral College.

Likely an archaic institution, the Electoral College still represents the founders’ fear of the passions of the people — both the intensity of some, and the indifference of others. The founders also distrusted the state while fully understanding its necessity. They had two visions: that representatives would make the law, and that these representatives would not have politics as a profession. Since re-election was not their primary goal, they were freed from democratic pressures to use their own wisdom in crafting laws.

The founders saw civil society — business, farms, churches and so on — as ultimately more important than the state, and they saw excessive political passion as misplaced. First, it took away from the private pursuits they so valued, and it tended to make political life more important than it should be. Second, they feared that ordinary men (women were excluded) might be elected as representatives at various levels. They set property requirements to assure sobriety (or so they thought) in representatives and at least limit the extent to which they were interested in politics. They set age requirements to assure a degree of maturity. They tried to shape representative democracy with standards they considered prudent — paralleling the values of their own social class, where private pursuits predominated and public affairs were a burdensome duty.

It is not that the founders regarded government as unimportant; to the contrary, it was central to civilization. Their concern was excessive passion on the part of the electorate, so they created a republican form of representative government because they feared the passions of the public. They also feared political parties and the factions and emotions they would arouse.

Parties and Party Bosses

Of course it was the founders who created political parties soon after the founding. The property requirements dissolved fairly quickly, the idea that state houses would elect senators went away, and the ideological passions and love of scandal emerged.

Political parties were organized state by state, and within state by counties and cities. These parties emerged with two roles. The first was to generate and offer potential leaders for election at all levels. The second was to serve as a means of mediation between the public — for multiple classes, from the wealthy to the poor — and the state. The political machines that dominated the country served as feeders of the republican system and ombudsmen for citizens.

The party bosses did not have visions of redemption or apocalypse. They were what the founders didn’t want: professional politicians, not necessarily holding office themselves but overseeing the selection of those who would. Since these officeholders owed their jobs to the party boss, the boss determined legislation. And the more powerful bosses populated the smoke-filled rooms that selected presidents.

This was a system made for corruption, of course, and it violated the founders’ vision, but it also fulfilled that vision in a way. The party bosses’ power resided in building coalitions that they could serve. In the large industrial cities where immigrants came to work in the factories, that meant finding people jobs, securing services, maintaining the schools and so on. They didn’t do this because they were public-spirited, but because they wanted to hold power. Even if companies that kicked back money to the bosses built the schools or the brother-in-law of a party boss owned the company that paved the streets, the schools got built and the streets got paved. The political machines were very real in rural areas as well.

Every four years, party bosses gathered at the party convention with the goal of selecting a candidate who would win. They would allow the candidate his ideological foibles, so long as they retained the ability to name postmasters and judges and appoint federal contracts in their areas. The system was corrupt, but it produced leaders like Abraham Lincoln, Theodore Roosevelt, Woodrow Wilson, Franklin Roosevelt, Harry Truman and Dwight Eisenhower, as well as some less illustrious people.

The Boss System Breaks Down

Starting in 1972, following Richard Nixon’s presidency, the United States shifted away from a system of political bosses. This was achieved by broadly expanding primaries at all levels. Rather than bosses selecting candidates and controlling them, direct democratic elections were used for candidate selection. Since the bosses didn’t select candidates, the candidates were beholden to the voters rather than the bosses. Each election year, the voters would select the candidates and then select the officeholder. Over time, the power of the political machine was broken and replaced by a series of elections. The founders did not want this level of democracy, but neither did they explicitly want the party boss.

This change had two unanticipated consequences. The first was that the importance of money in the political process surged. In the old system, you had to convince bosses to support you. That took time and effort and required that promises be made, but it did not require vast amounts of money. Under the primary system, apart from the national election, primary elections take place in almost all states. Candidates must build their own machines in each state and appeal directly to voters. That means huge expenditures to create a machine and buy advertising in each state.

As the bosses’ corruption was curbed but money’s centrality soared, the types of corruption endemic to the political system shifted. Corruption moved from favors for bosses to special treatment of fundraisers, but it was still there. Reformers tried to limit the amount of money that could be contributed, but they ignored two facts. First, a primary system for the presidency is fiendishly expensive simply because delivering the message to the public in 50 states costs a fortune. Second, given the stakes, the desire to influence government is difficult to curb. The means will be found to donate money, and in some cases it will be done in the hope and expectation of favors. The reforms changed the shape of corruption but could not eliminate it.

The second unintended consequence was that it institutionalized political polarization. The party boss was not a passionate man. But those who go to the polls in primaries tend to be. Turnout at American elections is always low. The founders set the election for a Tuesday rather than a weekend as in many countries, and it is a work day, with children to be picked up at school, dinner to be cooked and so on. The founders designed politics to be less important than private life, and in the competition on Election Tuesday, private life tends to win, particularly in off-year elections and primaries.

The people who vote in primaries tend to be passionate believers. The center, which holds the largest block of voters in the general election, is not a passionate place. The kids’ homework comes first. Passion exists on the wings of both parties. This means that in the primaries, only two types of candidates win. One is the extremely well funded — and the passion of the wings make funding for them even more important. The other is the ideologically committed. The top fundraisers face the most passionate voters, and the contest is whether the center can be turned out with money. Frequently the answer is no. The result is that the wings, although likely a minority in the party, frequently select candidates in the primary who have trouble winning the general election. From their point of view, winning means nothing if you give up principles.

All of this applies equally to elections to the House and Senate. It has been said that there has never been less bipartisanship than there is now. I don’t know if that is true, but it is certainly the case that the penalties for collaboration with the other party, or for moving to the center, are extremely high. The only ones who can do it are the ones who can raise sufficient money to draw the center out. And that is hard to do. As a result, everyone must run to the extreme in the primary and run to the center in the general election. The reforms have institutionalized hypocrisy and outsized strength for marginal groups, though they succeeded in breaking the party bosses.

Since 1972, the United States has elected presidents like Ronald Reagan, the two Bushes, Bill Clinton and Barack Obama. I will leave it to the reader to determine how this compares to the boss-generated leaders. However, I would argue that the ombudsman system has broken down. Bosses, because they were corrupt, could provide an interface for voters with employers (who wanted contracts) and government. I suspect that the collapse of the boss system made it easier for the Italians, Irish and Jews to integrate into society, and harder for blacks and Hispanics. There are pockets of bosses, but they are not the norm, and they cannot offer as much without going to jail.

This is not meant to romanticize the bosses. We are, on the whole, better off without them, and we can’t resurrect them. I am trying to explain why our elections have become so long, why they cost so much money, and why the wings of the parties get to define agendas and legislative and executive behavior.

The Geopolitics of the U.S. Elections

There is a geopolitical side to this as well. The internal political process of the leading global power is always a geopolitical matter. The structure and method whereby leaders are selected shape the kinds of leaders who govern and define, to some extent, the constraints placed on governments. Geopolitics, as Stratfor uses the concept, argues that the wishes and idiosyncrasies of individual leaders make little difference in the long run. This is because leaders are constrained by global realities. It is also because internal political processes define what must be done to take and hold power. Those internal political processes have their own origins in impersonal forces.

There has been a long struggle between the founders’ vision of how politics should work and the reality of the process. The party boss was, in a weird way, an implementation of the principle of representative government. He was also a symbol of corruption and anti-democratic behavior. His demise has created the primary system, which carries with it its own corruption. Moreover, it has systematically limited the power of the center and strengthened the power of the most ideological. It has also caused U.S. elections to put the world ill at ease, because what the world hears in the Georgia, Vermont or Texas primaries can be unsettling. The American Republic was invented and it is continually being reinvented on the same basic theme. Each reform creates a new form of corruption and a new challenge for governance. In the end, everyone is trapped by reality, but it is taking longer and longer to enter that trap.

This situation is not unique to the United States, but the pattern differs elsewhere. Over the centuries, the U.S. public has been shaped by immigration, and the U.S. government was consciously constructed out of the theoretical constructs of its founders. It was as if the country were a blank slate. It was in this context that waves of reform took place, all changing the republic, all with unintended consequences.

I have tried to show here the unintended consequences of the post-Watergate reforms to illustrate why the American political system works as it does. But perhaps the most important point is that redrawing the government is endemic to the kind of government the United States has, and that the United States both absorbs change well and is frequently surprised by what change does. In other countries, there is less room to maneuver, and perhaps fewer surprises and standards of success. The political parties emerged against the founders’ intentions, because political organization beyond the elite followed from the logic of the government. The rise of political bosses followed from the system, and simultaneously stabilized and corrupted it. The post-Watergate reforms changed the nature of the corruption but also changed the texture of political life. The latter is the issue with which the United States is now struggling.

China, Russia and Europe are all struggling, but in different ways and toward different ends, frequently because of problems endemic to their cultures. The problem endemic in American culture is the will to reform. It is both the virtue and vice of the U.S. government. It has geopolitical consequences. This is another dimension of geopolitics to be considered in the coming weeks and months.

The Paradox of America’s Electoral Reform is republished with permission of Stratfor.”

The Intersection of Three Crises

By Reva Bhalla

Within the past two weeks, a temporary deal to keep Greece in the eurozone was reached in Brussels, a cease-fire roadmap was agreed to in Minsk and Iranian negotiators advanced a potential nuclear deal in Geneva. Squadrons of diplomats have forestalled one geopolitical crisis after another. Yet it would be premature, even reckless, to assume that the fault lines defining these issues are effectively stable. Understanding how these crises are inextricably linked is the first step toward assessing when and where the next flare-up is likely to occur.

Germany Emerges

German Chancellor Angela Merkel, accompanied by French President Francois Hollande, met with Russian President Vladimir Putin on Feb. 6. Then she met with U.S. President Barack Obama on Feb. 9. The primary subject was Ukraine, but the first issue discussed at the news conference following the meeting with Obama was Greece. Greece and Ukraine are not linked in the American mind. They are linked in the German mind, because both are indicators of Germany’s new role in the world and of Germany’s discomfort with it.

Canada: Whither Goest Thou?

A section in John Mauldin’s weekly eletter, Thoughts From the Front Lines, caught our attention. In particular he showed this chart:

The point here is that manufacturing costs (mostly labour) in Canada are 15% higher than in the US. This means that Canada needs the Loonie at 0.87 to be cost equal. To persuade manufacturing to move north however we need a marginal advantage which might be on the order of 5-10%.
This is what unions want of course because the competitive advantage is not achieved by labour cost adjustment and market reform but by currency market adjustment. The real issue to become competitive is to reduce the labour costs. This can be achieved by introducing technology such as robotics or by reducing wage and benefit costs. Unions will fight either approach.

Failure to make the adjustments means a continued loss of manufacturing jobs with a corresponding decrease in the collective standard of living. This will continue until living standards have declined to the point where the labour market will adjust internally to a point of competitive advantage again. Of course if this decline is happening broadly in the developed economies, the adjustment may take a long time and become severe. Can you say third world country?

The Virtue of Subtlety: A U.S. Strategy Against the Islamic State

By George Friedman

U.S. President Barack Obama said recently that he had no strategy as yet toward the Islamic State but that he would present a plan on Wednesday. It is important for a president to know when he has no strategy. It is not necessarily wise to announce it, as friends will be frightened and enemies delighted. A president must know what it is he does not know, and he should remain calm in pursuit of it, but there is no obligation to be honest about it.

This is particularly true because, in a certain sense, Obama has a strategy, though it is not necessarily one he likes. Strategy is something that emerges from reality, while tactics might be chosen. Given the situation, the United States has an unavoidable strategy. There are options and uncertainties for employing it. Let us consider some of the things that Obama does know.

Update on the Canadian Housing Bubble

When we were doing our monthly update of Tracking Canadian House Prices, we found (Teranet – National Bank House Price Index  –  Communiqués, research tab, Economic News, click for more information) a link to a monthly 2-page newsletter that Teranet publishes for the National Bank Financial Markets. It had a graph that showed the marked divergence between the Teranet house price index for Canada and the Case-Schiller house price index for the US. Through research we found a comparable graph shown in Figure 1 (multiple source attributions shown on the chart).

Figure 1. Canadian and US house price indices.

We took this graph from an April 29 newsletter from Otterwood Capital Management titled: Canadian housing crash? Not yet. Otterwood’s argument is that the strong Canadian housing market is a product of a strong economy (more or less) that is a product of a recovering American economy. One might infer the reverse from this: a US in recession would drive Canada into a recession which would pop the Canadian housing bubble.

The Inevitability of Foreign Entanglements

By George Friedman

The Fourth of July weekend gave me time to consider events in Iraq and Ukraine, U.S.-German relations and the Mexican borderland and immigration. I did so in the context of the founding of the United States, asking myself if America has strayed from the founders’ intent with regard to foreign policy. Many people note Thomas Jefferson’s warning that the United States should pursue “peace, commerce, and honest friendship with all nations — entangling alliances with none,” taking that as the defining strategy of the founders. I think it is better to say that was the defining wish of the founders but not one that they practiced to extremes.

As we know, U.S. President Barack Obama has said he wants to decrease U.S. entanglements in the world. Ironically, many on the right want to do the same. There is a common longing for an America that takes advantage of its distance from the rest of the world to avoid excessive involvement in the outside world. Whether Jefferson’s wish can constitute a strategy for the United States today is a worthy question for a July 4, but there is a profounder issue: Did his wish ever constitute American strategy?

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