Nouriel Roubini, “Dr. Doom” himself, has an op-ed at Project Syndicate in which he lists the likely “negative supply shocks” that could bring on a recession:

he first potential shock stems from the Sino-American trade and currency war, which escalated earlier this month when US President Donald Trump’s administration threatened additional tariffs on Chinese exports, and formally labeled China a currency manipulator. The second concerns the slow-brewing cold war between the US and China over technology. In a rivalry that has all the hallmarks of a “Thucydides Trap,” China and America are vying for dominance over the industries of the future: artificial intelligence (AI), robotics, 5G, and so forth. The US has placed the Chinese telecom giant Huawei on an “entity list” reserved for foreign companies deemed to pose a national-security threat. And although Huawei has received temporary exemptions allowing it to continue using US components, the Trump administration this week announced that it was adding an additional 46 Huawei affiliates to the list.

The third major risk concerns oil supplies. Although oil prices have fallen in recent weeks, and a recession triggered by a trade, currency, and tech war would depress energy demand and drive prices lower, America’s confrontation with Iran could have the opposite effect. Should that conflict escalate into a military conflict, global oil prices could spike and bring on a recession, as happened during previous Middle East conflagrations in 1973, 1979, and 1990.

predicts a stagflationary recession, and makes some recommendations for dealing with it:

Given the potential for a negative aggregate demand shock in the short run, central banks are right to ease policy rates. But fiscal policymakers should also be preparing a similar short-term response. A sharp decline in growth and aggregate demand would call for countercyclical fiscal easing to prevent the recession from becoming too severe.

In the medium term, though, the optimal response would not be to accommodate the negative supply shocks, but rather to adjust to them without further easing. After all, the negative supply shocks from a trade and technology war would be more or less permanent, as would the reduction in potential growth. The same applies to Brexit: leaving the European Union will saddle the United Kingdom with a permanent negative supply shock, and thus permanently lower potential growth.

I think he mischaracterizes the second supply shock. The Chinese authorities want to dominate emerging technology markets and all future technology markets as they do the present, low-margin commodity technology markets through a combination of theft, other illegal practices, homegrown R&D, and low production costs. We don’t want them to because that would leave us stuck in the unprofitable middle ground not to mention leaving us strategically vulnerable.

Note that other than mouthing a few platitudes about trade and globalization Dr. Roubini has little to say about the roots of the conflict between the United States and China. The Chinese authorities have pursued a concerted, illegal, and mercantilist bundle of policies that are the opposite of free trade. Under a system of free trade the parties benefit in direct relation to how free their trade is. Under the present system the more you trade with China the worse off you are.

The particular victims of the Chinese authorities’ policy are people in smaller developing countries like Mexico whose trade with China should result in the Chinese buying more manufactured goods from them, making both China and Mexico better off. Instead the Chinese primarily buy raw materials from their trading partners, dumping subsidized manufactured good on them.

In his Chicago Tribune column John Kass ‘fesses up and acknowledges the kind of president he would prefer:

Some readers, who’d like nothing better than to jeer at my sightless head on a pike, keep making a mistake in thinking that I’m a Trump guy because I’m not of the left.

But I was for Republican Sen. Rand Paul of Kentucky in 2016. Why? I loathed the Clintons. And I thought Paul, unlike Trump, had the temperament to be president. And Paul talked constantly and in glowing terms about the Constitution.

The republic is what I care about. And the only way to keep it is through the Constitution.

The framers truly understood human nature, the temptations that come with holding awesome federal power, and the problems with factions and blind partisanship.

They understood what would happen if a people lost faith in their institutions, if those institutions were shaped, in grotesque partisan fashion, to serve only the elite, now often called the best and the brightest.

I think his support for Rand Paul was misguided. What we really need is something that may well be impossible: someone who is on the inside but not of it. The “Deep State” is too deep, so intertwined, and so corrupt that it cannot be reformed from outside.

I think that’s why, in desperation, some people put their faith in Trump. I may be mistaken but I think he’s about as much a political and governmental outsider as anyone who’s ever been elected to the presidency and, frankly, the Deep State has kept him tied in knots for more than two years now, will continue to do so, and are fully able to continue to do so throughout a second term. It’s why I’ve said that had I been in Trump’s shoes I would have fired every political appointee in the federal government on the day that I took office.

Now many people are longing for a “return to normalcy” but I think that dream is in vain. IIRC the phrase was the campaign slogan of Warren G. Harding which should tell you something. I believe it is the earliest known use of the word “normalcy”. The media have spent the last 2+ years undermining our institutions. The “collusion” case on which they staked so much has failed to gain the empirical support they assumed just must be there so in turning their attention to white supremacy they will further undermine our institutions, presumably in the hope that something good will rise from the ashes. That hope is forlorn. I think they are more likely to move whites to vote as an interest group than to impel a return to normalcy.

The City of San Francisco adopted the phoenix as its symbol following the earthquake in 1906. Keep in mind that San Francisco’s homeless are covering the city with human excrement. That city, increasingly divided between the rich and the poor, may be a fine example of what will emerge from the ashes of American institutions.

For sheer comedy it’s hard to beat Justin Fox’s observation at Bloomberg. Of the G-7 leaders only Japan’s Shinzo Abe is more popular than Donald Trump:

Donald Trump is an unpopular president. According to the Real Clear Politics polling average as of Friday afternoon, only 43.3% of Americans approve of his performance. FiveThirtyEight, which weights polls by quality, sample size and partisan lean, puts the average at 41.6%.

But as the president meets with leaders of the other G7 countries in the French resort city of Biarritz this weekend, he can take solace in the fact that he’s more popular than almost all of his peers. The lone exception seems to be Japanese premier Shinzo Abe, whose cabinet’s approval rating is 48.8% (to only 35% disapproval) in the Japan Political Pulse poll aggregator maintained by the Sasakawa Peace Foundation USA.

Only 32% of Germans polled for broadcaster ARD a few weeks ago said they were satisfied with German Chancellor Angela Merkel’s government. In Canada, Prime Minister Justin Trudeau’s approval rating was 41% in one recent poll and 39% in another (and in the second poll, by Ipsos, only 33% agreed that he “has done a good job and deserves to be re-elected”). In the U.K., only 31% have a positive opinion of brand-new Prime Minister Boris Johnson, according to YouGov. Italian Prime Minister Giuseppe Conte just resigned, so while he remains in office until a new government is formed and the current governing coalition still has a majority in polls, I don’t think he can really be counted as riding on a wave of approval.

Then there is French President Emmanuel Macron, the one other more or less directly elected head of state (as opposed to leader of a parliamentary government) coming to Biarritz. In so many ways, he’s the diametric opposite of Trump: young, cosmopolitan, well-spoken, technocratic. He’s the least popular of the lot, with a 28% approval rating in the most recent poll listed by the diligent editors of the “Opinion polling on the Emmanuel Macron presidency” Wikipedia page and 22% percent in the one before that.

According to Gallup, Trump is almost precisely as popular as President Obama was at this point in his presidency, a little less popular than Bill Clinton or Ronald Reagan, and a lot more popular than Jimmy Carter was.

At the Wall Street Journal Swedish author and historian Johan Norberg explains Sweden’s system:

Sweden was one of the world’s fastest-growing economies for nearly a century. But by the 1960s, the country began to take its wealth-creating prowess for granted. I tell Mr. Norberg about New York Mayor Bill de Blasio ’s assertion: “There’s plenty of money in this world, it’s just in the wrong hands.” In 1960s Sweden, Mr. Norberg replies, “that’s almost verbatim what they said back then: ‘Now we’re this rich. Shouldn’t we just distribute it, and give it to the people and the places we like?’ ” Such thinking overtook the country’s dominant center-left Social Democratic Party.

“We thought we could do anything, and we had all of those other preconditions: the work ethic, some sort of social pressure, which meant that people were doing the right things, and they wouldn’t want to live on the dole,” Mr. Norberg says. “And then for 20 years, from 1960 to 1980, we doubled the size of the government spending as a percentage of GDP. That’s the aberration in Swedish history.” The Swedish welfare state first was a safety net for the needy. Over time the political class moved to “socialize the lives of the middle classes as well.” The plan: “Increase their taxes, and their benefits, and then they will buy into this system.”

The consequences were predictable. “It resulted in less work, people preferring to stay at home and paint the house rather than hiring someone to do it, general lack of getting the kind of education that matters. It led to entrepreneurs leaving Sweden.” Private-sector employment declined from the 1970s to the ’90s, while disposable-income and economic growth was relatively slow. Some of the country’s best companies and brightest minds fled an onerous inheritance tax.

Plenty of economists knew Sweden needed reform, but undoing the damage would take years. A critical figure was Prime Minister Carl Bildt of the center-right Moderate Party. He came to power in 1991, as the rigid Swedish economy struggled to cope with an economic crisis. Mr. Norberg calls the former prime minister “an ideas politician” who understood free-market principles. Mr. Bildt’s coalition government cut capital-gains and corporate taxes, while the top marginal income-tax rate shrank to 50% from around 90%. Sweden deregulated the telecom and energy industries while introducing school vouchers and other market-oriented reforms. The Social Democrats retook the government in 1994, but the trend toward economic liberty continued for another quarter-century.

“One thing the left gets wrong is that they think that Sweden has this sort of warm, friendly, fuzzy capitalist thing—no layoffs, no fierce competition, protecting the old companies and so on. And it’s really the total opposite,” Mr. Norberg says. “It’s more deregulated. The product markets are much fiercer competition, much more free trade. All of the companies know that they have to be world champions or they will be destroyed.”

American leftists, even those who shy away from the “socialist” label, generally call for higher taxes on “the rich” to support an expanded welfare and entitlement state. That, too, misapprehends the Swedish example. “We have much higher taxes on the poor and the middle classes than you do,” Mr. Norberg says. “And this is the dirty little secret that no one in the American left wants to talk about.” Nonprogressive taxes on consumption, social security and payroll are 27% of Swedish gross domestic product, 16 points higher than in the U.S.

Assumptions about Swedish health care often are wrong too: “Lots of Americans think it’s a Medicare for All thing. But it’s not even a national system. It’s a regional system.” Largely funded by a flat tax, the system isn’t all government-run: “We had a problem with productivity and investment in the health-care sector. So now we have more freedom of choice and more competition in the provision of health care.” Whereas American Democrats aspire to abolish private insurance, “one of the biggest hospitals in Stockholm was privatized, and you can go to private providers. And the first line of health-care defense, in a way, is often private clinics.”

There are some things that Denmark, Norway, Sweden, and Finland (allegedly the happiest country in the world) have in common and it’s not socialism. It’s that they’re all nation-states (a nation state is one in which ethnicity and citizenship are identical), culturally Lutheran, with high levels of societal cohesion and social consciousness. Their governments and other bureaucracies tend to be honest and efficient, simply because doing anything else would be wrong.

Those who look to Sweden as a model tend to look at a single point in time: 1970. Those days are gone, even in Sweden.

This morning the editors of the Wall Street Journal, playing “gotcha”, chide Elizabeth Warren for not having a plan for health care reform other than vague support for “Medicare for All”. My advice: be careful what you wish for.

However, there is one plan that I believe that Sen. Warren needs to outline. How does she plan to induce Americans to pay taxes at the level that will be required to finance all of her other plans? A pledge to raise marginal tax rates isn’t enough. She needs to explain how she plans to increase the effective tax rates.

Americans have never tolerated that level of taxation, not even at the height of World War II which most Americans believed was a matter of survival. If the taxes she wants fall mainly on “the rich”, how will she prevent them from fleeing to avoid the tax? I strongly suspect that even the members of the Business Roundtable pledging their fealty to stakeholders will avoid or evade taxes to the greatest extent of their powers which are considerable.

In my view taxes are a cultural issue. Some countries, e.g. Denmark, Sweden, have a tradition of consensus and cultural solidarity and don’t find their high levels of taxation onerous. They are convinced they can trust their countries’ bureaucrats and elected officials not to enrich themselves at the taxpayers’ expense.

Our situation is almost the opposite. I suppose we could just issue ourselves the credit to pay for all of the extravagant, ill-considered plans but that has implications. At some point the Chinese will tire of accepting ever-shrinking dollars for actual goods. At some point Americans will lose confidence in the dollar.

I’m trying to get my head around the recommendations of the editors of the Washington Post to the leaders of the G-7 regarding China:

This weekend’s summit of the Group of Seven industrial democracies offers an opportunity for those governments, including the United States, to send Mr. Xi a clear message: If he chooses to crush Hong Kong’s democracy movement, there will be far-reaching consequences for China’s political and economic relations with the West. The G-7 leaders should make clear that they will not hesitate to adopt punishing sanctions, including the immediate revocation of Hong Kong’s special economic status, which facilitates flows of trade and investment to the mainland.

Such a declaration is needed because, until now, the West’s response to the Hong Kong crisis has been weak. Official statements, such as one issued last week by the European Union and Canada and another by the State Department, have mostly stuck to generic diplomatic calls for “restraint” and “deescalation” and “dialogue.” While supporting Hong Kong’s “fundamental freedoms,” neither the E.U.-Canada statement nor the State Department’s explicitly backed the mass protest movement or its entirely reasonable demands.

Worst of all has been the performance of President Trump, who has repeatedly made statements siding with Mr. Xi. In July, he declared that the Communist ruler had handled the protests “very responsibly” because “he has allowed that to go on for a long time.” A couple of weeks later, he called the demonstrations “riots” and mused that China might “want to stop that” before flashing a green light: “But that’s between Hong Kong and that’s between China, because Hong Kong is a part of China.”

They have routinely ignored China’s disregarding of the commitments it made when admitted to the World Trade Organization. They don’t care about China’s violations of the UNCLOS law of the sea agreement to which China is signatory. The Chinese authorities are supposed to take them seriously now?

If world leaders want the countries of the world to take international law seriously, they must enforce it even in small things. Even when it hurts their own countries.

In his column in the Wall Street Journal in reaction to the CEOs of the Business Roundtable’s averring that they would place stakeholders above stockholders, Holman Jenkins remarks:

Widely cited is the 1970 article by the late Milton Friedman, arguing that a public company’s purpose is to increase its profits legally and nothing else. Supposedly his wisdom is now obsolete. But his most important words, in the same article, may be a conditional statement questioning whether any corporate sloganeering to the contrary should ever be taken “seriously.”

After all, CEOs will still be hired by boards who are elected by shareholders; they will still be rewarded under contracts that pay them for producing sustainable increases in the stock price (that’s what those vesting requirements are for). Before this week’s statement, CEOs boasted freely about their employee-happiness ratings, their sustainability programs, their diversity efforts, as if these were perfectly consistent with shareholder wealth-maximization duties. What changed?

My reaction was that I’ll believe it when I see it. IMO they’re engaging in self-defense against the prospect of an Elizabeth Warren presidency, hoping to be eaten last.

However, it does raise the possibility of a wonderful opportunity. Boards of directors should stop giving corporate CEOs stock options as part of their compensation packages in favor of compensating them by some evaluation of how well they look out for the concerns of stakeholders. Indeed, CEOs should demand it. Then I’ll believe they’re sincere.

Update

Better yet, take a page from China’s book. Put the CEOs under 24 hour video surveillance and have their actions reviewed by representatives of various stakeholders’ groups who will assign each a social score. Compensate them based on their social scores.

C’mon, guys. Be part of the wave of the future!

At the Wall Street Journal Elizabeth Braw wonders whether insurance should cover damages due to hacking:

In the best-case scenario, today’s hybrid warfare drives up the cost of insurance enormously, as in the Strait of Hormuz. Anthony Gurnee, CEO of Ardmore Shipping, told CNBC in July that the cost of covering a trip through the strait had grown 10-fold in two months.

Other corporate victims of foreign assaults are even unluckier. Two years ago, the NotPetya attack, a virus targeting Ukrainian government agencies and businesses, spread to various multinational corporations. It caused an estimated $870 million in losses to Merck; $400 million to FedEx ’s European subsidiary, TNT Express; $300 million to Maersk, the Danish shipping giant; and $188 million to Mondelez, which makes Oreos.

It’s unclear if some of those companies will get an insurance payout. Mondelez’s and Merck’s claims have both been denied on grounds that the NotPetya attack was an act of war—an argument supported by the fact that several countries including the U.K. and the U.S. attributed the attack to Russia. Both companies are fighting in court with their insurance companies.

Attacks on businesses linked to foreign governments are becoming increasingly frequent. Hackers working for Beijing and Pyongyang regularly target Western companies. Last year the U.S. Department of Homeland Security and the Federal Bureau of Investigation reported that hackers linked to Russian government operatives have attacked American firms in a variety of sectors, including energy, water, aviation and manufacturing. This is the new state of foreign policy. Earlier this summer the U.S. reportedly hacked the Russian grid.

If the risks of hybrid warfare become too high, certain business activities—think sending cargo ships along particular routes or operating critical national infrastructure such as power plants—may become uninsurable. Businesses are cheap, easy and largely risk-free targets. Western countries’ march toward smart cities, and their increasing use of the internet of things, make their companies and residents more vulnerable still.

My answer is it depends. Maritime insurance usually covers damages due to acts of piracy but not from foreign navies. Consequently and in full recognition that often it’s very difficult to tell, I would think that the source of the hacking would determine whether the risk was insured or not.

As to the broader question she asks, yes, government-sponsored hacking is an act of war just as espionage or sabotage by foreign agents are. The factor that links private hacking with the government-sponsored sort is that government action is required. Just as tamping down the damage done by piracy required intervention by governments, so does that done by hacking.

Under a Westphalian system it is the responsibility of governments to control wrongdoers operating within their own borders and we should requiring Russia, China, or North Korea (the big three of hacking) to deal with hackers operating from within their countries.

Whether they or we take hacking seriously or not, insurance companies should be pricing insurance according to the risk and that includes risk from hackers. We should not be subsidizing shipping companies by indemnifying them against losses. It may be that globalization and global communications networks are a lot more expensive than had been thought.

I found this story, reported at Buzzfeed, disturbing:

Extending the reach of its propaganda beyond its borders, Chinese state-owned media is running ads on Facebook seemingly designed to cast doubt on human rights violations occurring under the government’s mass incarceration of Muslim minorities in the country’s northwest Xinjiang region.

BuzzFeed News found three ads — two active and one inactive — within Facebook’s ad library extolling the alleged success stories of detainees at the camps and claiming that the detention centers were not meant to interfere with religious beliefs and practices. The two active ads had been placed in the last four days and were targeted to an audience in the United States and other countries.

Doesn’t running paid advocacy ads constitute agency? Is Facebook a news organization? I thought the company had explicitly denied that. If it’s not a news organization it isn’t excluded from the requirement to register under the Foreign Agents Registration Act.

Just for the record I don’t think that Facebook is a foreign agent. I just think they’re stupid, sloppy, and greedy. They shouldn’t be serving ads from foreign governments to U. S. users at all.