Political Economics Prof

Tag: American Politics

  • Religion and American Politics: A Historic Perspective

    Religion and American Politics: A Historic Perspective

    Carrie Nation – Prohibitionist


    RELIGION IN AMERICA

    There is an interesting dynamic in
    the history of Protestantism in     America.  As different
    Protestant churches became the “established” or mainstream churches, many Americans turn away to form and join more evangelical or Pentecostal churches and
    sects. This began in colonial America. Following the spectacular success of itinerant evangelical preacher George Whitefield in 1740 (the first Great Awakening), the evangelical New Light movement and independent itinerant preachers swept America. They challenged the established (tax supported) churches with emotional appeals for salvation. Although the fervor died down in the 1750s, it never disappeared.

    The large and sudden popularity
    of Baptists and Methodists in the first half of the 19th century was a revival of the reaction to the less fervent Puritan (Congregational) and Episcopal
    churches.  As Methodist and some Baptists
    groups became less evangelical and more “mainstream,” there were numerous
    breakaways to found evangelical, enthusiastic and Pentecostal churches.  

    America has a long history of itinerant preachers and camp meetings. Enthusiastic preaching, as opposed to fixed
    liturgies and long, rational sermons, can now reach national and international audiences
    through mass media.

    Competition in the religious
    marketplace, the lack of one dominant religious group or “established” church after the Revolution, is one reason for the enduring important role that religion
    plays in American life.      America is the exception to the general tendency that as Christian
    countries experience rising income, religious participation and influence declines. It is only recently, as many     evangelical groups ally themselves with far-right political positions and politicians, that religious participation may be declining.

    RELIGION AND
    POLITICS

    Religion, and religious-based
    morality, has played an important role in American politics.  Bernard Bailyn, in his classic Ideological
    Origins of the American Revolution    , documents the increasingly radical
    anti-British sermons of Puritan ministers. 
    Revivals, “Great Awakenings,” and evangelical Protestantism have been
    part of the American landscape as far back as the wildly popular colonial
    preaching of the itinerant George Whitefield. 
    The “Great Awakening” revivalist crusades of Charles Grandison Finney in
    the 1820s and 1830s along the     Erie
    Canal    , whose book on how to
    organize a religious crusade influenced Billy Graham, led to the belief that
    the second part of being “reborn” was to fight to reform society. He supported many of the reform movements of the 19th century. Many believed a reformed Christian society would hasten the Second
    Coming. 

    Finney’s followers and Protestant
    ministers became key figures in many of the reform movements of the 19th
    Century, including suffrage (women’s right to vote), abolitionism (abolishing
    slavery), temperance (volunteer not drinking of alcohol), and a whole host of
    religious-based groups to fight immorality and reform society.  More recently, one thinks of the Civil Rights
    Movement led by black ministers. 

    But religion can also be used to
    justify racism, prejudice, and reactionary political movements. Colonial established churches believed that women should be silent on religious matters.

    Defenders of slavery, including Southern
    ministers, often quoted the Bible to justify slavery. Prohibitionists in the 19th Century were
    not above blaming much of the “immorality” of the times on Catholic immigrants,
    especially the Irish.  The same
    religious-influenced populist movement has been used against the teaching of
    evolution in public schools.

    By historic standards, the United States has been a radical society.  All areas of life are always changing,
    including movement, social mobility and immigration.  In an earlier post, I summarized this
    dynamism as “permanent revolution.” It is not surprising then that at any given time, many people feel threatened or
    morally repulsed by     some aspects of social and cultural change. The long-held belief that power and status in America belonged to white, native-born Protestants continues into a more diversified society.

    Times of heightened social or cultural change, such as the forces
    unleashed in the 1920s or 1960s, and recently, seem to lead to a political backlash to slow
    down or criminalize new types of behavior. There is often a moral or religious basis to this backlash.

    Sometimes it is difficult to tell if religion’s influence is progressive
    or reactionary.

    Social change has political
    consequences.  Civil rights for blacks
    led to the political issue of affirmative action.  The changing role of women in American
    society led to political issues like birth control and abortion.  Legal tolerance of homosexuality led to the issue of gay marriage. 

    Religious-based moral reform
    groups are single issue groups that are outside the political structure but attempt
    to influence public policy and law.  They
    are willing to use the coercive powers of the state to impose their moral and
    religious beliefs. They become political
    pressure groups. 

    Like today, reform movements first
    had success at the local and state levels before their reforms were adopted at
    the national level.

    In the 19th Century,
    there was a widespread belief that Christian-based social reform would hasten
    the Second Coming.  Some conservatives today
    believe that American society has become so evil that it will lead to the
    Second Coming.   Michele Bachmann all but
    called President Obama the Anti-Christ and predicted his policies were leading
    to the “end of days.”  This
    type of rhetoric is not new.  Puritan
    ministers like Cotton Mather were constantly berating New Englanders for the
    “declension” (decline) of Puritan orthodoxy and looking for signs of the Second
    Coming.  He supported the Salem Witch
    Trials as a tool to stop the spread of the devil’s influence, and only changed
    his mind after dozens of witches (and one Puritan minister) were burned at the
    stake. (In a typical     New England coincidence, the interrogator at the Salem Witch Trials was the
    grandfather of Nathaniel Hawthorne.) 
    Many people in     America see moral decline as the most important issue in American
    politics.

    With the increased influence of
    fundamentalism in American religion and culture, maybe the idea of Armageddon
    has become a mental reality for more Americans.  There seems to be a
    lot of Armageddon movies in the last few years.  Just as Martin Luther
    called     Rome “the whore of Babylon,” many Americans seem to think the same way about Washington.  They see presidents and other elected politicians who support laws and programs they believe are evil.  Not wrong, but evil.  There can be no
    compromise with evil.  Arguments about reasonableness, tolerance, fairness, rule of
    law, democratic process, fall on closed ears and minds.  Opponents are demonized.

    Americans have had a strong tendency to see social problems as moral
    issues.  Social issues usually have a
    strong component of religion-based morality.  Drugs is a current
    example.  Punishment for illegal
    behavior, not reduction of usage or social costs, is the preferred policy.  Until recently, only libertarians and most
    economists, two notoriously materialistic and overlapping groups, disagreed. While some marijuana use is now legal, America has been racked by waves of illegal drugs use over the last six decades. Not even the wave of opioid and     fentanyl drug deaths among young, male, white Americans has changed national opinion.

    Over the last 60 years, we have
    become a much more tolerant society. This has angered a lot of people,
    especially older white, native-born Americans, the predominant constituency of
    the social conservative and the tea party movements. It has also contributed to     politicizing organized religion.


    Great preachers in the past – Whitefield, Finney, Moody, Sunday, Billy Graham – were institution outsiders. They were not members of a particular Protestant denomination. If they founded a physical church, it was independent. They understood how to use the mass media of the day. Aimee Semple McPherson, who founded the widely popular “Foursquare” megachurch in 1923 after a long career as an itinerant preacher in America and Asia, had her own radio license and had applied for a TV license just before she died.


    They did not identify or support any organized political group or party. They did not endorse political candidates.  But for the last 40 years, the Republican Party has made conservative Christians and their organizations an important part of their political base. Republican elected officials and candidates appear at religious conferences. Religious leaders and denominations take political positions aligned with the right wing of the Republican party.


    What will happen after Trump? The cooperation between some organized religious groups and religious leaders and the Republican party will probably continue. The legal barrier between the separation of church and state will continue to be challenged. Far-right politicians will continue to be speakers at national religious conventions.

    INTERNATIONAL IMPLICATIONS

    There are international implications to the political role of evangelical Protestantism. There are more Protestants in sub-Sahara Africa than in the United States. A large and rising minority of people in countries like Brazil, Guatemala and South Korea have become Protestants.  Pentecostal groups have been particularly successful in Brazil and Guatemala, and among Latino immigrants to America. Protestants, predominately Pentacostals, make up over 25% of the population of Brazil. Jair Bolsonaro, the right-wing former president of Brazil, made Protestant evangelical groups an important part of his political base.  

    The number of Protestants is also rising among the ethnic Chinese throughout East Asia, including China. Evangelical religion is also an important influence in Korean politics. In the future, there may be a religious overlay to the interaction of internal politics and American foreign policy in Asia and in Africa. 

    CONCLUSION

    Political observers who assume
    that American politics is about rationality, economic interests, and compromise have
    underestimated the role of religious-based moral beliefs in politics.      Economic analysts, with their libertarian bias and cost/benefit rationality, are tone deaf to the moral aspects of political conflicts. Voters will ignore their economic interests
    if they strongly believe that government is supporting or protecting immoral
    behavior.

    In American history,
    religious-based moral movements have strong staying power.  They are sustained by deeply-held religious
    beliefs that determine political reactions to continuous economic and social
    change.  The current ones are not going
    away.



  • “Pax Americana”: America as a Global Power

    “Pax Americana”: America as a Global Power

    President Trump

    Might
    Washington, like Rome, fall victim to imperial overstretch?

    Could
    military force abroad eventually have to be withdrawn because of bankruptcy at
    home?

    Might
    the whole idea of America eventually be challenged and destroyed by some
    charismatic new faith: some fundamentalist variant on Christianity?

    Or
    will nature disrupt America’s new world order?


    Robert Harris, “Does Rome’s fate await the
    US?,” The Mail on Sunday, October 12, 2003 (1)





    INTRODUCTION:  FOREIGN POLICY AND DOMESTIC POLITICS

    This post will discuss American foreign policy, with an emphasis on economic aspects. It will focus on the structure of America’s trade treaties and policies, and the interaction of America’s foreign economic policies and domestic politics. The companion post, “Pax Americana”: The World That America Made, the will discuss America’s projection of global power and influence through military power, security arrangements, global economic institutions, and ideological influence.


    During the Cold War (1940s – 1991) and until recently, Americans tended to separate foreign policy and domestic policy. This is no longer true.


    For Americans, there was prosperity at home and security abroad. There was a foreign policy consensus around anti-Communism, that America should take the lead in containing the Soviet Union and China. This consensus made possible large military and national security expenditures. Fortunately, this was a prosperous time for America. There was economic growth, fueled by new technology and pent-up demand following World War II. America was by far the world’s largest economy and American companies did not have to worry about imports from other countries. There were some concerns – Vietnam in the 1960s, supply and price of imported oil in the 1970s, and Japanese competition in the 1980s – but they were peripheral to the core objective of defending western Europe and matching Soviet military forces. 


    Americans no long see foreign policy and domestic policy as separate. Al-Qaeda’s attack on the World Trade Center came as a terrible shock. America’s subsequent attempt to contain Islamic fundamentalism has been inconclusive at best. China is now the main concern. Unlike Russia or Japan earlier, China is seen as a foreign rival and a threat to the domestic economy. America’s networks of military and economic alliances seem to be unraveling. The value of the most important military alliance, NATO, is being questioned. Multilateral agreements are attacked as constraints on national actions and concerns. 


    America is no longer isolated from the global economy. Imports and exports as a percent of GDP are rising, although still lower than most industrialized economies. Industrial supply chains are global. The largest American corporations have become multinational, making investment decisions increasingly independent of America’s national economic interests and policies. 


    President Trump believes in negotiating bilateral (country to country) economic agreements and ignores multilateral organizations. Multinational companies generally prefer global rules. They are opposed to President Trump’s nationalistic economic policies of increased tariffs and other barriers to trade.


    TRADE TREATIES AND AMERICAN FOREIGN POLICY


    What we might be seeing in
    the United States and globally is the end of the post-WWII era, the “American
    Century.” Why have a majority of Americans stopped supporting the global
    institutions that the United States created after World War II? Will America
    react creatively to guide the world to a new set of rules and regulations? Or
    will the United States revert to isolationism and protectionism, as it did
    after World War I, the last time America tried to impose a “New World Order”? 


    America, through many
    rounds of multilateral and bilateral trade negotiations since World War II, has
    set the rules and regulations for the current global economy. These trade
    treaties had three aspects:


    ·     
    Reduce barriers
    to trade such as tariffs and quotas.

    ·     
    Economic and
    political integration of the non-Communist world.

    ·     
    Access to the huge American market in exchange for military alliances and bilateral security
    agreements, including American bases abroad.


    With the collapse of the
    Soviet Union in 1991, it appeared that the economic and the national security aspects
    were separated. The global economy continued to expand. The combination
    of relatively free trade and new communications and transportation technology made it possible for
    large national corporations to evolve from exporters into multinational
    corporations. Technology, capital, management, finance and labor became mobile,
    creating complex financial structures and supply networks.


    AMERICA AND THE GLOBAL ECONOMY


    But there was growing opposition in America to the global economy. Presidential candidate
    Donald Trump tapped into and focused widespread discontent with free trade and
    the global economy.


    89% of Americans
    think that the loss of US jobs to China is a somewhat or very serious issue,
    according to Pew Research statistics…Only 46% of Americans think NAFTA was good
    for the economy.

    Business Insider, November 13, 2016.


    As in Europe, nationalist,
    anti-immigration politicians have turned long-standing economic problems and
    rising discontent into a political agenda. Rather than dealing with them
    domestically, these politicians blame outside groups and institutions –
    international organizations, immigrants, “unfair” foreign competition.
    Strangely, they don’t blame the organizations that actually moved jobs and
    investment overseas – multinational corporations. Top managers and owners of
    multinationals with large overseas investments are well represented in the
    current administration – Rex Tillerson, Wilbur Ross and Donald Trump.


    What is the source of this
    discontent? One source is the change in the global economy. From the 1940s to
    roughly the 1980s, American corporations owned the American economy and didn’t
    worry about foreign competition. The rest of the world was devastated by World
    War II. There was new technology to develop, pent-up demand, and wartime
    savings. The result was rising real wages and employment security.


    By the 1980s, that began
    to change. The success of Japanese exports of autos and consumer electronics to
    the U.S. created a U.S. trade deficit with Japan, which became a political
    issue. American corporations found themselves competing with foreign companies
    at home and abroad. Capital (automation) continued to replace production and
    assembly labor even as industries such as autos and steel recovered. Real wages
    and real incomes stagnated for workers in the older industries. Job security
    and pensions disappeared.


    REALITY CHECK: 
    THE GLOBAL ECONOMY


    President Trump has a
    simple-minded view of global trade and the structure of the global economy that
    is at least two generations out of date. As a consequence, there is a disconnect
    between economic reality and political rhetoric.


    In outline:


    ·     
    Countries don’t
    trade, corporations do. About 60% of “Chinese” exports are produced by foreign multinational corporations. 

    ·     
    The mental
    picture of a country’s companies producing at home and then exporting is
    obsolete.

    • o  
      There are complicated
      global supply networks and an every-changing dynamic international division of labor.
    • ·     
      Where goods are
      produced is less important than where value is added.
    • o  
      Nike does not
      produce any shoes in the U.S. but most of the value-added occurs here. Same for
      Apple and many consumer electronics companies.
    • ·     
      There are
      complicated relationships between American and foreign companies.
    • ·     
      Over 25% of
      American manufacturing is owned by foreign corporations.
    • o    Foreign car
      companies account for most of American production.
    • ·     
      About 20% of
      America’s merchandise trade is intra-company.
    • ·      About half the
      sales and profits of America’s 500 largest corporations are outside the United
      States. Overseas operations account for most of their growth in investment, sales, and profits.
    • ·     
      A large part of
      American imports is of products and services created and marketed in the United States and
      produced by American companies abroad.
    • ·     
      The fastest
      growing part of American exports is high value-added services. This creates high-paying jobs. The U.S. runs a large trade surplus in services.


    ·     
    As discussed
    later, consumers in the United States, not “Mexico” or “China,” pay increased
    tariffs (taxes) on imports.


    The economic reality is that
    multinational corporations, made possible by the global economic order that
    America created, are crucial to American economic growth. A return to
    nationalism will increase conflict between domestic politics and the economic
    growth needed to address domestic problems.


    As discussed below,
    attempting to reduce America’s trade deficits through increased tariffs and
    other trade restrictions will not work.


    TARIFFS AND TRADE


    What would happen if U.S.
    unilaterally renounced trade agreements and imposed tariffs? A tariff is a tax.
    The income from tariffs goes to the U.S. government. It is a tax mostly
    paid by American consumers. It would raise prices on imports, including imports
    of inputs like parts and subassemblies. It would also raise prices on some
    American-produced products that compete with imports. 


    Other countries would
    retaliate. (2) The net result for America would be higher costs and prices
    (inflation), and lower standards of living. There would be few if any net new
    jobs in assembly or manufacturing. 
    Multinational corporations would direct new investment to countries that
    were not threatened, that didn’t retaliate or to countries that depreciated
    their currencies against the dollar since they would have relatively lower costs. Chinese and American
    companies in China are already moving labor-intensive production and assembly to countries like Vietnam,
    Bangladesh and Malaysia. Even hi-tech companies like Chinese solar panel
    producers have started doing this. (3)


    American exports would
    suffer as other countries retaliate. Companies in the U.S. would accelerate
    research and investment in robotics and AI in the United States, substituting
    fully automated assembly lines for manufacturing workers.


    America’s economic growth
    depends on innovating new products and services, keeping the high value-added
    part in the U.S., outsourcing the low value-added part to the global supply
    chain, and selling in the global market. Much of U.S. imports are raw materials
    such as crude oil and other inputs into processed or final assembled products
    with high labor, low wage content. Much of America’s exports are processed or
    manufactured goods with high capital and human capital content such as refined
    petroleum products and aircraft. We also run a trade surplus in services such
    as financial, consulting, and software. Any retaliation will damage American
    research and development, the source of economic growth. So will the proposed
    cutbacks in federal support for basic research, especially in the area of
    biotechnology.


    The stated goal of
    reducing the U.S. trade deficit might not happen. A reduced trade deficit could
    lead to an appreciation of the dollar against other currencies. This would
    increase the cost of American exports and reduce the cost of all imports,
    offsetting the economic effects of increased tariffs.


    Jobs leave the U.S. for
    other reasons besides lower wages. In the Carrier example, the president of the
    parent company, United Technologies, said the Mexican workforce is not only
    cheaper but also more productive, easier to train, and has lower rates of absenteeism
    than the American workforce.



    REDUCING DOMESTIC AND GLOBAL ECONOMIC GROWTH


    President Trump can reduce
    global growth through his trade and tariff policies. A president can raise
    tariffs or label a country a “currency manipulator” through executive
    privilege, without Congress’ approval.


    Candidate Trump promised to
    put a 45% tariff on Chinese exports, brand China a currency manipulator, tax
    Mexican imports, increase tariffs on German and Japanese cars, “rip up”
    existing trade agreements and kill the Trans-Pacific Partnership (TPP), which
    he called “a rape of our country.” If he did all this, he would ignite a global
    trade war, which the chief economist of Citi said “could easily trigger a
    global recession.” Other bank economists have said that even modest increases
    in tariffs on Chinese and Mexican imports could reduce real GDP growth by 0.5 –
    1.0%. (Business Insider, November 13,
    2016)


    Summarizing his analysis,
    Citi’s chief economist, Willem Buiter, concluded:


    The
    U.S. has been the champion of free trade and open borders for decades. A
    retreat from globalization by the US would likely lead to reciprocal actions
    from other countries, and reinforce the latest shift towards deglobalization
    and could be another nail in the coffin of the liberal global economic world
    that has supported prosperity since 1948. (Business
    Insider    , November 13, 2016) 



    DOMESTIC AMERICAN POLITICS AND FOREIGN POLICY


    Imperial overstretch, also
    known as imperial overreach,
    is a hypothesis which suggests that an empire or world power can extend itself
    beyond its ability to maintain or expand its military and economic commitments.
    The idea was popularized by Yale University historian Paul Kennedy in his 1987
    book The Rise and Fall of the Great Powers.


    America has financed its
    global military and economic commitments through borrowing, much of it in
    recent years from foreign governments and institutions. The Federal budget
    deficits over the last 16 years have been roughly equal to Defense Department
    spending. (Total spending on national security is higher.) The Chinese
    government is the largest foreign holder of U.S. government debt.


    A great power like the
    United States can also retreat into isolationism and protectionism if its
    people lose the will or ability to pay the costs or believe they are not
    benefiting from foreign commitments. A sense of frustration sets in. Foreign
    economic ties may be seen as a source of domestic economic and social problems.
    The American president and foreign policy strategists stop talking about the
    primacy of democratic governments and American ideals in foreign affairs.

    During the Cold War with the Soviet Union, Americans were willing to accept the idea of prolonged conflict without certain victory. Since the collapse of the Soviet Union, domestic support for prolonged wars and political conflicts to contain enemies rather than defeat them has been seriously eroded.

    There is irony when the
    country that built the greatest wall in history is now talking about open trade
    while the country that has led the post-war campaign to expand trade is talking
    about extending a wall. As Chinese emperors knew, walls are as much
    psychological as physical.


    Domestic problems may take
    precedence and divert resources. The combination of the rapidly rising cost of
    health care and social security for an aging population, large military and
    national defense expenditures, a rising backlog of public investment, proposed tax
    cuts, larger fiscal deficits, and large trade deficits is not sustainable. The
    proposed programs of the Trump administration will make the problem worse and
    probably accelerate the crisis.


    Decades of fiscal deficits
    and trade deficits, financed increasingly by foreign borrowing, have led to
    high and rising levels of the national debt-to-GDP ratio. Borrowing at low
    interest rates has made this possible. If the Federal government had to borrow
    at the post-war average, it would add over $250 billion to annual deficits.


    The next round of tax cuts
    for upper-income households and corporations will lead to larger structural
    deficits even in years of economic growth. The United States will find it
    increasing expensive (higher interest rates) to finance national defense and
    global commitments. This will reinforce President Trump’s call for reduced
    American involvement abroad. (4)


    Donald Trump blamed job loss
    and stagnant incomes on imports, particularly from China. While economic
    studies show that over 80% of job loss is due to technological change, and some
    of the rest to domestic trends like leveraged buyouts and corporate cost
    cutting, blaming “unfair” trade rules and other countries had more political appeal. As president,
    Donald Trump has said he will oppose the trade agreement with Pacific Rim
    countries (TPP), intends to unilaterally change some of the tariffs and trade
    rules of NAFTA, and has no intention to continuing trade negotiations with the
    European Union (this may change). Candidate Trump also singled out Japanese and
    German auto companies as targets for increased tariffs, despite the fact their
    investment in the United States revitalized the American auto industry.


    The related campaign theme
    was the emotional issue of immigration, both legal and illegal. Donald Trump
    demonized Mexicans and Muslims, blaming them for job loss of Americans, crime
    and domestic terrorism. Travel bans on Muslim countries, revoking of visas, and
    mass deportations were begun as soon as he became president. Combined with
    rhetoric that was racist and xenophobic, this will not endear the United States
    to its Latin American and Muslim allies, and fuels anti-American feeling. 

    President Trump has
    encouraged similar rhetoric in European and South American countries. He has
    antagonized and isolated America’s strongest ally on the European continent,
    Germany.


    Immigrants are vital to
    American economic growth and development. Graduates of elite foreign
    universities often came to the United States; “over 75 percent of the graduates
    of the Indian Institutes of Technology in the 1980s emigrated to America.” (5) Over
    half of the science and math graduate students in American universities are
    foreign. Keeping them in the U.S. with H1-B visas is vital. Immigrants and
    their children are entrepreneurial, accounting for a disproportionate share of
    new businesses. Managers from all over the world are necessary if American
    multinationals are to remain competitive.


    Mr. Trump’s call for
    economic nationalism and isolationism reverses 70 years of American foreign
    economic policy. Global economic integration will continue but without the
    United States setting the rules. The United States has pulled out of global organizations attempting to reduce global warming and intends to loosen domestic environmental regulations. China, on the other hand, is taking up leadership to
    combat climate change.


    Exports, including tourism,
    will suffer, thus reducing a major driver of American economic growth and job
    creation. Tariff and trade wars will hurt U.S. economic growth and development.
    They will increase the insecurity and frustration of more Americans. 


    Blaming the social costs of
    technological and economic change on foreign scapegoats will make it more
    difficult to deal with these ongoing problems. This will continue to fuel
    domestic anger and support for isolationist and protectionist policies.


    President Trump does not
    believe that government is responsible for dealing with the “negative
    externalities” or social costs of industrialization and rapid economic and
    social change. The Trump administration is not concerned with pollution and
    climate change. This reduces American influence in dealing with these important
    global problems. This makes the transition to non-fossil fuel energy more
    difficult. It also means that new energy technologies such as solar panels and
    wind turbines cannot expect any government support, ceding these high-tech,
    growth industries to corporations in other countries.


    The issue of global warming
    illustrates the loss of American leadership in international attempts to solve global
    problems. The American denial of global warming will have consequences to
    American influence. Candidate Trump denounced global warming as a “hoax.” As
    president, he has quickly supported of fossil fuel companies by relaxing environmental
    rules on the production of oil, natural gas and coal, particularly on the
    release of methane and carbon into the atmosphere. His first proposed budget
    slashes support for climate research, solar and wind turbine power, and
    electric cars. President Trump has also announced that he does not support the
    latest global agreement setting targets to reduce carbon emissions. Appointing
    the CEO of Exxon/Mobil as Secretary of State, in charge of America’s foreign
    policy, is a clear message.



    POSSIBLE SHIFTS IN FOREIGN POLICY


    President Trump is pessimistic
    about the global order and America as a global power. If he believes America
    can influence global events from behind “Fortress America,” he is deluding
    himself and the American people. If he thinks he can be isolationist, protectionist,
    and xenophobic without damaging American power and influence, he is deluding
    himself.  If he thinks he can praise Putin
    and support right-wing, anti-EU parties in Europe without damaging American
    influence, he is deluding himself. If he thinks he can insult the governments
    of Germany, England and other allies without consequences, he is deluding himself. If he
    thinks he can denounce, repeal or unilaterally change trade treaties without
    consequences to the U.S. economy, the global economy and American leadership,
    he is deluding himself. If he thinks he can reduce America’s commitment to NATO
    without reducing American power and influence in Europe, he is deluding himself. And us.


    The damage has already been
    done.  Even if President Trump backtracks
    on some of his threats, no one can trust that what he says
    at any moment will not change. For domestic political reasons, he will probably
    return to the nationalist, anti-global themes that got him elected, and could
    get him reelected. America has become an unreliable ally. Allies will reevaluate their national interests and foreign policies in light of uncertain American support.


    CONCLUSION


    The last presidential
    election shows that many Americans, probably most, are no longer willing to pay
    the cost of maintaining American power and influence in the world. Domestic
    problems are blamed on “unfair” global competition, global institutions,
    immigrants and foreign governments.


    It matters little if
    President Trump does not follow through with his threats. The damage has been
    done. Increased tariffs and trade restrictions will hurt the American economy
    and make it more difficult to deal with domestic political issues. Scapegoating
    foreign governments, minority groups and corporations will fuel anger and discontent,
    making it less likely America will react creatively to its economic challenges. The coming massive disruptions of robotics and artificial intelligence will increase domestic tensions.


    More Americans are against
    global institutions and against the United States bearing the cost of being the
    world’s global power. Pew Research polls showed that this trend started well
    before Donald Trump ran for president. Mr. Trump has tapped into these feelings,
    making them the driving force of a successful presidential campaign. His continued focus on these themes will probably continue to erode American support for the post-war economic institutions and rules America established.


    America’s commitment to
    promoting democracy and free trade around the world is waning. America’s
    current president seems comfortable with authoritarian rulers and
    anti-democratic far-right political leaders in Europe. Many of these leaders
    want to dismantle the European Union and return to national currencies and national economic policies. Some,
    like Marine Le Pen of France, want out of NATO.


    China has replaced Japan as
    the cause of America’s economic problems. America’s relationship with China is
    moving from détente to confrontation.
    America’s allies in Europe and Asia are recalibrating their relations with
    Russia and China as the American president talks of isolationism. America is
    becoming an unreliable ally.


    America’s resolve to bear
    the costs of being a global power is waning. America’s domestic social and
    economic change has generated a politically powerful backlash. Most white
    Americans do not want their government to support or promote social change, do
    not support the open global economic order America created, do not want to bear
    the cost of being a global superpower. These are related. Continued
    presidential rhetoric, despite his policies, will encourage and broaden these
    beliefs. Trump’s dark, pessimistic picture of America’s isolationist,
    protectionist future may be a self-fulfilling prophecy.


    America’s “New World Order”
    is coming apart. The last election and opinion polls indicate that most
    Americans do not believe in it. America’s allies in Europe are under attack
    from nationalist groups that want to dismantle it and appease the Russian
    autocrat. These groups are given vocal support and encouragement by the
    American president.


    President Trump, by
    renouncing TPP, has signaled America’s abdication of influence in East Asia;
    allies now have to look to a combination of nationalism and accommodating
    China. New national security and economic arrangements among Asian countries will be considered. For example, South Korea has taken the first steps to signal easing tensions with North Korea, over the objections of the United States. The TPP countries intend to continue with the treaty without the United States.  China has started an ambitious economic and strategic program called “One Belt, One Road” to circumvent American military and strategic containment. Economic growth for East Asian countries will be increasingly tied to economic
    alliances and trade agreements with China.


    All of the political and
    economic institutions that the United States created or supported after World
    War II, mostly in response to the Communist challenges of the Soviet Union and
    China, are now under domestic attack. One group believes the post-war
    framework has outlived its usefulness, that it no longer deals with changed
    geopolitical and economic circumstances and is need of drastic reform. Probably
    a larger group no longer supports the foundations of the American world order.


    ——————————————————————————————————

    1. For
    suggestive analogies between America and the Rome, see “The Roman Republic Commits Suicide:  A Cautionary Tale for America,” June 19, 2011.
    https://politicaleconomicsprof.com/2011/06/pax-americana-i-washington-imperial.html


    2. Reuters, “China prepares
    to counter any U.S. trade penalties:  sources,”
    March 20, 2017

    http://finance.yahoo.com/news/china-prepares-counter-u-trade-093343375.html


    3. The New York Times, “When
    Solar Panels Became Job Killers,” April 9, 2017, page 1 of the Sunday Business
    section.


    4. “The Economy After the
    2016 Elections,” November 26, 2016

    https://politicaleconomicsprof.com/2016/11/the-economy-after-2016-election.html


    5. Fareed Zakaria, The Post-American World, 129.


    ============================================================


    See the companion post:  “Pax Americana”:  The World That America Made.”  https://politicaleconomicsprof.com/2017/03/the-beginning-of-end-of-pax-americana.html

    If you like history and speculative historical analogies, you might like the following two essays:

    The Roman Republic and America

    The Roman Republic Commits Suicide:  A Cautionary Tale for America

    For a list of all posts and economic tutorials in Pages, see Guide to Posts.


  • President Obama Learns Some Game Theory

    President Obama Learns Some Game Theory


    INTRODUCTION


    For background, see prior post
    on The Limits of Negotiation.


    ECONOMIC NEGOTIATIONS


    Basic game theory works best
    in economic negotiations.  The players
    have the same assumptions (act rationally, make money), enter into the negotiations
    voluntarily and negotiate which positive payoff matrix they will agree on.  Economists usually assume that people are
    playing a positive sum (win – win) game. 
    That is, how to divide up the monetary or utility gains.


    Game theory indicates there
    is a better chance at cooperation or reaching good faith agreements if the
    players know they will be playing the game repeatedly or if both players see an
    advantage to a long-term agreement.


    Economic rationality implies
    that an agent will not agree to an outcome if the individual will be worse off
    than not negotiating. The alternatives
    are not to negotiate or find another party with whom to reach a positive or
    better agreement. A competitive economy,
    however imperfect, provides alternatives.

     

    ECONOMIC GAMES AND
    INFORMATION


    In simple games, the players
    know what the payoff matrix looks like when the two players try to decide which
    strategy to use and what their opponents’ strategy is.  Economists know that even a simple, deterministic
    outcome is unlikely.  One reason is
    asymmetric information.


    Economic theory usually
    assumes that all parties (agents in econspeak) have total information.  This is especially true in finance
    theory.  But in the real world, this is
    often not true.  The agent with superior
    information has a negotiating advantage. 
    It is likely that the outcome will be different than the full
    information outcome.  The more informed
    agent will probably end up with a larger share of the profits.  The increased profits may be a function of
    the difference in the relative information known by the players.  But it is still a positive sum game.


    POLITICAL NEGOTIATIONS


    Political negotiations are
    different.  Other factors are important –
    ideology, moral beliefs, coercion, threat of violence, and a sense of fairness, in
    addition to not negotiating.  Zero and
    negative sum games are more likely, especially if an alternative strategy is
    violence. History is full of  such examples, where politics is seen as a
    kill or be killed zero-sum game. Since the end of World War Two, there have been over 150 civil wars. 


    The payoff matrix of
    political games is often measured in power, not money. The value of the payoffs is more difficult
    to quantify and more uncertain.  Often,
    negotiations are delaying tactics and agreements are broken. 


    In American politics, there
    are political incentives not to agree. 
    An example occurs when there are term limits, especially in the second
    term of the president.  The opposition
    has no incentive to agree to a reasonable policy if they believe the
    president’s party will benefit politically. 
    They have every incentive to attack the president’s policies, even if
    they agree with the objective.  Even
    members of the president’s own party may not support him as they maneuver to
    become future presidential candidates.


    CREDIBLE THREATS

    An important aspect of political conflict is the concept of “credible threats.”  If a country or group wants another country or group to change its behavior or negotiate, one means is to threaten it with some action.  A threat is like a bluff. If an opponent calls a country’s bluff, the country must be willing to carrying out the threat. If if doesn’t, it loses credibility and is more likely to be ignored when it makes future threats. It is more likely that other countries or groups will continue or increase their behavior. Power and influence declines.

      

    PRESIDENT OBAMA LEARNS GAME
    THEORY


    President Obama became
    president with a belief that he could negotiate rationally, that he could use
    logic and persuasion to convince
    political opponents and special interests to compromise for the general good.  He played an economic game. His opponents here and abroad played political
    games. President Obama has finally
    realized that.


    He has had to deal with an
    increasingly conservative Republican party, many of whose most active members
    personally detest him. 10% of Americans, presumably Republicans and
    conservatives, believe Obama is the Anti-Christ.  Internationally, he has had to deal with
    Islamic fundamentalist groups, Iran, Syria, Iraq, Afghanistan, North Korea, armed militias
    of ethnic groups, the chaos of the aftermath of the overthrow of Quadaffi in
    Libya, Hugo Chavez in Venezuela and Vladimir Putin in Russia.  None of these groups and their leaders fit
    the rationalist profile of a game theory player.

    President Obama inherited a number of immediate and
    long-term problems.     He believed that
    there were rational solutions to the problems, which could be reached through
    logical arguments based on facts and reason, leading to negotiations and
    mutually beneficial compromises.      His
    political opponents didn’t share this assumption.     Again and again, President Obama appeared
    exasperated by the irrationality of his political opponents, both at home and abroad.     He shouldn’t be surprised any more. 

    ========================================================

    Please see related post, American Foreign Policy Since 1991.


    Also, The Limits of Negotiations:  A Little Applied Game Theory

      

  • The Limits of Negotiation: A Little Applied Game Theory

    The Limits of Negotiation: A Little Applied Game Theory

    INTRODUCTION

    Much of the political news
    is about negotiations.  American
    politicians, in both domestic and foreign disputes, don’t seem to know much
    about negotiation strategy.  Maybe a
    little applied game theory would help.

    IS NEGOTIATION POSSIBLE? 

    The first question is
    whether or not negotiation is possible or just a waste of time and effort.

    Negotiations will be
    fruitless if at least one party believes there are no possible outcomes that are
    better than not negotiating.  Compromise
    is impossible.  Fanatics, true believers,
    proponents of “Victory at any cost” or “Give me victory or give me death” or
    parties who believe their opponents are evil are not likely to negotiate.

    Sometimes leaders act to
    limit their options or those of their followers.  The famous historical example is when Cortes
    burned his boats that brought him and his men to Mexico.  Returning to Cuba was no longer an
    option.  Cortes forced his men to make
    the “credible” commitment to conquer the Aztecs.  By their past actions, Israel’s policy of
    never negotiating with airplane hijackers is credible.

    Bashar al-Assad of Syria has
    put himself and his regime in this situation through the brutality of their
    past actions.  He has eliminated any
    option for himself except being dictator or being killed.  At this point, there is nothing to be gained
    by negotiating a political settlement.

    In business and other types of negotiations, there are two stages. Both sides of a potential agreement must believe that they will benefit from an agreement – increased sales, reduced costs, increased profit. This is the “win-win” or “positive sum” stage. The second stage is how the increased benefits are to be split. This is a “zero-sum” negotiation.

    THE LIMITS OF NEGOTIATION

    There are limits to what a
    party to a negotiation will accept. 
    These limits are set mostly by a party’s perception of the consequences
    if no agreement is reached.   When
    President Obama negotiated budget reductions in 2011 under House Republicans’
    threats to shut down the Federal government, he was facing reelection and felt
    pressure to compromise.  In 2013, after
    winning reelection, he felt he was in a stronger position to resist Republican
    demands.  The consequence of losing an
    election had disappeared.

    Knowing this, why did the
    Republicans again threaten to close down the government?  Because they perceived that the consequences
    of not challenging the president were greater than challenging the president
    and losing.   The Republican Party was
    becoming increasingly conservative.  The
    vast majority of House Republicans knew they came from safe districts.  The major threat to reelection in 2014 was
    losing to a more conservative Republican in the primary.  By again threatening the extreme action of
    shutting down the government they eliminated the main argument of a potential
    Republican primary rival.

    In addition, although
    circumstances had changed, President Obama’s compromises in 2011, seen as a
    victory by many Republicans, cast doubt on the credibility of his threat not to
    negotiate. 

    INCREASING THE CHANCES TO
    NEGOTIATE

    One way to increase the
    chances the other party will negotiate is to change the “payoff matrix” or
    cost/benefit of analysis of the other party, preferably before negotiations
    begin.  The idea is to raise the cost of
    not negotiating or increasing the options of the other party in negotiations.

    Iran is a recent
    example.  For years, Iran went through
    the motions of negotiating a moratorium on enriching uranium to develop an
    atomic bomb.  As long as the rest of the
    world thought there might be a chance of Iran slowing or stopping its atomic
    bomb project, there were no consequences to Iran of continuing the program.  They were even able to buy thousands of
    centrifuges from a West German company. 
    It was only after the United States and Western Europe finally imposed
    economic and financial sanctions that Iran was willing to seriously
    negotiate.  The sanctions had wrecked the
    economy and threatened the ayatollahs’ rule.

    THE ULTIMATUM GAME 

    This has become one of the
    most famous games in game theory.  It has
    been played many times by different groups in different countries.

    There are two players.   One player is given an amount of money.  He has to offer part of the amount to a
    second player.  If the second player
    accepts, they split the gain.  If the
    second player refuses, neither player gets any money.  This puts a limit on the number of possible
    outcomes.  One party maybe be better off
    accepting a proposal than refusing to negotiate but may decline the proposal
    because it is not “fair.” 

    To an economist, the offer
    is obvious.  If the amount is $1, the
    first player offers the second player the minimum, one cent.  The second player is better off accepting
    than refusing, so he accepts.  But that’s
    not what happens when the game is actually played.  For almost all groups and across different
    cultures, the second player typically rejects offers below 25-30% of the
    total.  There is an almost universal
    sense of “fairness.”  Even worse, the
    second party may feel insulted by the offer, making future and better offers
    more likely to be refused.

    MORE THAN TWO PLAYERS 

    In general, the more players
    there are in a game, the more difficult it is to reach an agreement.  Even a relatively weak or unimportant player
    can threaten to “hold up” an agreement at the last minute unless they get a
    better payoff.  This is true of global
    trade agreements and close votes in Congress.

    This is also one reason that
    the Assad regime in Syria has a good chance of surviving.  There are at least 20 anti-government
    organizations fighting the regime.  They
    have different sponsors and different visions of what a post-Assad Syria should
    be like.  Recently, they have been
    fighting among themselves.  In addition,
    the Syrian regime can count on financial and military support from Iran and
    military assistance from Hezbollah.  The
    regime also has some military support and diplomatic cover from Russia.

    CONCLUSION 

    While much of the discussion
    about negotiation is about how to negotiate, assumptions about the players are
    important.  Negotiations have a greater
    chance of succeeding if all the players share some basic assumptions, see a
    noticeable advantage of negotiating versus not negotiating, see the game as
    fair, and intend to actually abide by the agreement.  Even when negotiations lead to a treaty or
    agreement, they are often only a ploy by one side to buy time, to temporarily
    ward off sanctions or conflict.

    ==================================================================

    Related Post:

    President Obama Learns Some Game Theory