Round Table on U. S. Policy on China

I found this round table at Foreign Affairs on whether U. S. policy was too hostile towards China interesting and you may as well. The panelists are pretty evenly divided with one more individual disagreeing that our policy is too hostile than agreeing albeit two with low confidence levels. The others seem to have pretty strongly formed opinions.

Contrary to what you might believe I am not anti-China in my views. I am strongly anti-CCP and, consequently, anti-Xi but not anti-China. Indeed, if anything I’m pro-China. But I’m pro-U. S. and I don’t think that present U. S. policy is sufficiently pro-U. S. So, for example, I think that the U. S. should be importing a lot less from China than it does, particularly with respect to commodities that have little labor component. We should be producing a lot more of what we consume than at present.

However, to persuade me the panelists would have needed to address two questions so I could calibrate my views:

  1. What is the U. S. policy with respect to China?
  2. What would a policy hostile to China look like? One friendly to China?

neither of which is addressed although one or two of the panelists come close. Some concrete examples might be helpful. Are freedom of the seas exercises in the South China Sea hostile to China? How about tariffs on Chinese goods? I don’t see either of those things as being anti-China but they do maintain longstanding U. S. interests.

Turning the question around are any of China’s policies anti-U. S.? If so what would be an appropriate response?


Two Birds With One Stone?

At The Week James Pethokoukis wonders why Democrats don’t kill two birds with one stone and enact a carbon tax rather than increasing the top marginal personal income tax rate:

But it’s an opportunity that comes, as all opportunities do, with a trade-off. The carbon tax is an elegant, seemingly win-win policy economists love. It would put an explicit price on carbon emissions from burning fossil fuels, and the goal is to nudge businesses and consumers to change their behavior in ways big and small. Higher gas prices, for instance, might encourage more carpooling or use of public transit. A carbon tax would also create incentives for entrepreneurs to find clean-energy alternatives. Markets, rather than government, would decide which options — solar, wind, nuclear, geothermal — make the most sense.

And while all this behavioral change and innovation was happening, the tax would be raising revenue. Now, given that I’m no fan of the Biden social spending agenda, I would prefer a carbon tax be used to pay for the bipartisan infrastructure bill also languishing in Congress. That said, Democrats could cover the social tab if they sub out their income and corporate tax ideas for a carbon tax.

The Tax Foundation finds that a carbon tax levied on all energy-related carbon emissions at a rate of $50 per metric ton and an annual growth rate of 5 percent would generate nearly $2 trillion in additional federal revenue over the next 10 years. Or a smaller carbon tax could be combined with other tax hikes — such as taxing unrealized capital gains or a minimum corporate tax — that Sinema might accept.

But this win-win policy plan does have a political downside, or at least a challenge, for Democrats. While folks on the left often stress the existential threat from climate change, my impression is there’s a lot more energy around the issues of wealth and income inequality. For example: Even though polls show Democrats say addressing climate change is extremely important, their tax plans are focused on inequality. That’s a pretty big tell. Embracing a carbon tax would mean, at least for now, abandoning high-profile income and corporate tax hikes

I can’t tell you what the House Democratic leadership is thinking but I can tell you why I’m wary of a carbon tax: it’s terribly regressive, i.e. it falls hardest on the poorest and won’t have nearly as much effect as most seem to think. Carbon emissions increase with income. Relatively few in the lowest income quintiles fly around in private jets, own multiple mansions, most of which sit idle most of the year but must be heated and/or cooled nonetheless, or drive around in gas-guzzling Humvees. A carbon tax of the size being discussed won’t do much to change the behavior of the top 1% of income earners who can afford to pay a little extra but will be disastrous for those in the lowest quintiles who will struggle to get to work or pay their heating bills.

A plan could be tailored that would avoid that but that would result in political opposition being mounted.


Reinvention or a New Strategy?

At New Atlanticist Harry L. Hannah says that the U. S. need to “reinvent” its alliances:

When it comes to working with allies, business-as-usual won’t cut it anymore for the United States—especially in the face of growing Chinese and Russian competition and expanding systemic, regional, and terrorist threats. This is why the United States needs to make strengthening its alliances, particularly in Europe and the Indo-Pacific, a core element of its national-security strategy.

Before World War II, alliances had been composed of two or more countries cooperating in an additive fashion to independently combat a specific threat: Country A plus country B yielded the alliance’s total capability and value. But during the Cold War, the United States began designing its alliances differently, with the understanding that integrated partners are greater than the sum of their parts.

Now, the strengths of country A plus country B are multiplied by the extent to which the partners intertwine their military organizations—including their staffs, rules, standards, and training—and share their capabilities.

While I agree that we should reconsider our alliances, I’m not sure that increased integration is the right direction and, indeed, I think he’s ignoring something fundamental. During the post-war period one of the largely unstated goals of our military strategy has been to increase our own security by assuming the security responsibilities of our allies. That was explicit in the cases of Germany and Japan but implicit in all others. Our standing up enabled them to stand down. Our increased military expenditures allowed them to spend less. We maintained our force readiness so they decreased theirs.

One of the great exceptions to that has been France which largely demurred from diminishing its own forces. Consequently, it maintains the highest degree of force readiness of any of our allies.

While I won’t argue with Mr. Hannah that integration can be a force multiplier, how do you integrate with a military that doesn’t buy enough equipment to train its soldiers with? A major military with no operational submarines or heavy transport?

I have always thought the practice was an error. What need do we have for unarmed provinces, especially provinces that don’t behave like provinces and pay no tribute? I think that a prerequisite for strong alliances is strong allies. Then we can discuss increased integration.

I’m also curious as to how Mr. Hannah proposes increased integration with the Hungarian or Estonian militaries? That hearkens back to an old Soviet-era joke (the Warsaw Pact was united in a common understanding of the Hungarian language).

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Factors in the Supply Chain Snarl

You might be interested in this letter from a veteran truckdriver, published at the Brownstone Institute. It provides some details that may be factors in the supply chain snarl we’re all experiencing. His basic message is that California regulations are a major part of the problem.


Should We Be More Like Japan?

The editors of the Washington Post take a lesson from the pandemic that I find odd and counter-intuitive:

Nearly two years into the pandemic, much has been learned: how the coronavirus transmits, how it can mutate, how vaccines can prevent sickness. But the biggest lesson of all has not sunk in deeply enough: The choices made by people, their individual and collective behavior, are key to human vulnerability and the outcome of the pandemic.

and they hold up Japan as a shining example:

The surge of infections in Japan is plummeting. From a peak of about 23,000 new daily coronavirus cases in August, Japan was down to 400 a day on Oct. 20. In Tokyo, the Associated Press reports that bars are packed, trains crowded and the mood is celebratory. In the capital, the positivity rate fell from 25 percent in late August to 1 percent this month. Why is this happening? Because the population decided to act. The percentage who had received full vaccination soared from 15 percent in early July to 65 percent in early October, and is now nearly 70 percent. This success reflects a choice people made to get vaccinated in large numbers just as a new wave of infection was hitting.

while holding Russia up for scorn:

Russia, by contrast, is stalked by pandemic misery. Daily new cases have topped 37,000 and deaths reached over 1,000 a day, both pandemic records. Russia developed its own vaccine, but the campaign for it has been a flop. Only 45 million people, or about a third of the population, are fully vaccinated. President Vladimir Putin on Oct. 20 ordered most people to take off work for a week starting later this month and stay home in an attempt to stanch the spread. Russia’s sorry plight is also a direct result of choices people made. For much of last year, Mr. Putin and his government said covid-19 had been conquered and was not a big deal. Vaccines were offered and not taken. Moreover, many Russians concluded the government was lying about the statistics and the extent of disease. A large swath of the Russian public does not trust its government and does not trust the vaccine.

Let’s take a more considered look at both countries. Japan is a group of islands comprising about 150,000 square miles of land. The people living in Japan are 98.1% ethnic Japanese. It is a consensus-based society in which the prospect of public shame is a serious deterrent. Confidence in the government is high in Japan and always has been. Russia on the other hand is a sprawling country of more than 9 million square miles—the largest in the world. Its population is multi-ethnic and multi-confessional. It is diverse in the extreme. In its entire history Russians have never trusted their government for a simple reason: the Russians have never had a government worthy of trust. Nonetheless President Putin’s approval rating remains high: 84%. That’s twice the approval that President Biden holds here.

I’ll leave it to the reader. Does the U. S. more closely resemble Japan or Russia?

I look forward to the editors’ proposal for transforming the United States into a mono-ethnic, homogeneous country with a strongly shame-based culture and a government the people should trust.

I don’t know what lesson if any can be learned from the pandemic. It is a force of nature not a moral dilemma. I guess my lesson would be:

I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.


Putting Down a Marker

Economists John Greenwood and Steve H. Hanke put down a marker in their op-ed in the Wall Street Journal. Inflation will be transitory but it won’t be transitory transitory:

Let’s take a look at the U.S. bathtub. During the early months of the Covid-19 pandemic, the faucet was wide open. Between December 2019 and August 2021, the U.S. money supply, measured by M2, grew by $5.5 trillion, a stunning 35.7% increase in only a year and a half, driven primarily by the Fed’s purchases of Treasurys and mortgage-backed securities. In light of anticipated Federal Reserve tapering, we estimate that by the end of 2024 the money supply will grow another $5.1 trillion.

Out of the total $10.6 trillion in new money, real GDP growth will drain roughly $1.4 trillion. Another $1 trillion will flow down the money demand drain. Since the amount of money flowing into the bathtub far exceeds the two outflows, the excess money in the tub—around $8.2 trillion—will hit the inflation overflow drain.

The huge monetary expansion—$5.5 trillion already in the bathtub—is starting to reach the overflow. Persistent, not transitory, inflation will be with us for the next two to three years.

The rest of the op-ed is devoted to their bathtub metaphor for money and inflation. Money pour in through the faucet and drains out via economic growth, money that the public wishes to hold relative to its income, and inflation.

If they’re correct, what’s the right policy response? And an additional extra credit question: can the president’s party hold onto their razor-thin majorities in Congress with the right policy response?


The Supply Chain Snafu Is Not Transitory

In an op-ed in the Washington Post Daniel Yergin and Peter Tirschwell explain what it will take to end the supply chain snarl-up:

The causes of this maelstrom are deeper-seated than any 90-day cure can address. During the pandemic, locked-down consumers, unable to go to stores, switched to e-commerce. Four to six years of anticipated e-commerce growth has been compressed into one year. All those personal computers, toys, power tools and Pelotons are typically shipped via container, mainly from Asia. Shipments into the United States surged.

The causes of this maelstrom are deeper-seated than any 90-day cure can address. During the pandemic, locked-down consumers, unable to go to stores, switched to e-commerce. Four to six years of anticipated e-commerce growth has been compressed into one year. All those personal computers, toys, power tools and Pelotons are typically shipped via container, mainly from Asia. Shipments into the United States surged.

What would need to happen to change the situation?

Distribution centers would need to be open 24/7 to receive trucks, but the centers typically are not. Expanding port hours accomplishes little if the truckers can’t drop off containers at distributions centers that are not open at night.

The continuing disruption is generating various legislative proposals, but they can’t address the sources of the imbalance. Lasting solutions instead must come from two elusive things: “more” and “less.”

More as in more workers — not a simple fix, because a shortfall in workers is bedeviling the entire U.S. economy.

Less as in an easing of consumer demand. That would relieve pressure on the entire system and help return it to balance.

That sounds a lot like the “lower your expectations” advice that’s been widely scoffed at.

I would add that “more workers” sounds a lot easier than it actually is. A “longshoreman” in the Port of Los Angeles or Port of Long Beach (those account for half of U. S. merchandise imports) is not a guy with a cargo hook. He (or she) is a highly-skilled operator of one of the largest robots in the world. Think the kaiju in the movie Pacific Rim and you’ve pretty much got it. They earn upwards of $100K per year and it takes years of training.

About 30 years ago I recall sitting in the boardroom of a major New York bank and being informed by top management that they had no intention of automating some of their processes because that made you dependent on the more skilled employees that requires. That’s one of the things that’s causing our present problems—we’re dependent on people with skills and experience who belong to a notoriously protective union.

With respect to long haul truckers, not only are the hours, working conditions, and pay lousy but I suspect it’s getting harder to find people who don’t test positive for drug use every year.

Meanwhile in China they actually have fully automated “lights out” ports. We should, too, but that will provoke an incredible battle.


How to Reduce Emissions

In his most recent Washington Post column Fareed Zakaria proposes something sensible:

A serious energy strategy would recognize that the most important task is to reduce carbon emissions fast. In the short term, the simplest way to do this is to move from coal to natural gas, which cuts carbon emissions almost by half. In fact, most of the reduction in the United States’ carbon dioxide emissions between 2005 and 2019 was because of the switch from coal to gas, with coal being the biggest producer of carbon dioxide emissions of the three main fossil fuels.

But there is even lower-hanging fruit. The journal Environmental Research Letters did a study of more than 29,000 fossil-fuel power plants worldwide and found that just 5 percent of them were responsible for 73 percent of global emissions from electricity. We could easily pay to convert those roughly 1,400 plants and reap a huge windfall in the reduction of carbon emissions. And the International Energy Agency estimates that over 70 percent of the methane leakage from oil and gas production can be stopped by using existing technologies.

That’s a strategy recognizeable to anyone familiar with the process of optimization: optimize first where there are the most benefits from optimization. How much could be achieved by doing that? According to the study he cites 25% of all emissions in power generation. Here’s a map of the top emitters:

Those red lines are the worst of the worst. Where are they? Poland, India, South Korea, Taiwan, China, Germany, Japan. We have our own major emitters, too, but none in the top ten. That list has remained remarkably stable over the last decade.

There’s another interesting table in the linked source which the authors refer to as “Gini coefficients for disproportionality in plant-level CO2 emissions for the ten nations with the highest CO2 emissions”. Translation: how much worse are the worst emitters in a given country as compared with the best. As should be surprising to no one the top countries in that list are China, the U. S., India, Japan, Russia. In other words as a matter of policy our near term strategy should consist of

  1. Producing more natural gas.
  2. Either shutting down the power generation facilities here in the U. S. that produce the most emissions or converting them to natural gas.
  3. Reduce imports from countries that aren’t modernizing their energy production. Tariffs are one way of doing that.

Another Mismatch

In a valedictory to a long-serving member of the House who has announced his retirement, Albert Hunt includes this interesting quote in his piece at The Hill:

I interviewed Price the day after his retirement announcement. He recalled, with fondness, those salad days when he first arrived in the late 1980s.

Since then, the House, he says, “has changed in major ways: some positive, others not so much.”

The positive is that it’s a much more inclusive, diverse place, especially the Democrats: “We have become small d in that sense.”

The “not so much” is the deep polarization and emphasis on grandstanding rhetoric over legislative achievement. “When I arrived, members came to get something done; now many see the House as a platform for their own pursuits, a stepping stone.”

Price doesn’t exempt some in his own party but believes there’s “asymmetrical polarization.” When Newt Gingrich, in 1995, became the first Republican Speaker in more than 40 years, he adapted the same political guerrilla tactics that were so successful on the campaign trail to the House leadership.

It has gotten worse, Price says, with the Tea Party and Trump takeover of the GOP: “The politics of the Republican base are driving it further to the right; this no longer is a center-right party. They drove away two Speakers, and we have a much more divided chamber.”

I agree with his marking of the point of inflection in American politics as Newt Gingrich’s term as House Speaker. I also agree that there is more diversity of opinion among Democrats than among Republicans.

I disagree with any notion that this is a recent phenomenon. After all it was a century ago that, when asked if were a member of an organized political party, Will Rogers responded in the negative that he was a Democrat. And Bill Clinton’s remark about Republicans wanting to fall in line while Democrats wanted to fall in love?

I also disagree strongly with his admiration of Speaker Pelosi. If you don’t like Trump, you should not like Pelosi: one of the factors that led to Trump was Speaker Pelosi’s rejection of compromise and narrow majoritarian approach to the House.


The Death of Strategic Ambiguity

Much is being made of President Biden’s remarks regarding Taiwan yesterday. From Reuters:

BALTIMORE, Oct 21 (Reuters) – The United States would come to Taiwan’s defense and has a commitment to defend the island China claims as its own, U.S. President Joe Biden said on Thursday, though the White House said later there was no change in policy towards the island.

“Yes, we have a commitment to do that,” Biden said at a CNN town hall when asked if the United States would come to the defense of Taiwan, which has complained of mounting military and political pressure from Beijing to accept Chinese sovereignty.

While Washington is required by law to provide Taiwan with the means to defend itself, it has long followed a policy of “strategic ambiguity” on whether it would intervene militarily to protect Taiwan in the event of a Chinese attack.

On the one hand that would appear to be a change in U. S. policy, away from “strategic ambiguity”. On the other hand it’s almost verbatim what President Bush said back in 2001. I thought it was imprudent then and I think that strategic ambiguity was a better policy. But I think we can now pronounce the policy officially dead.

Things are different than they were in 2001. China is assuming a “near peer” status, some would even say their forces are superior to ours. Why poke the bear? I can only speculate that President Biden sees some need to reassure Taiwan. I’m unconvinced that’s the right policy.