Manufacturing GDP and the Trade Deficit Rise and Fall Together

As The Wall Street Journal notes, “Mr. Trump and his advisers see the U.S. goods trade deficit as an indicator of U.S. economic weakness.” Manufacturing Output and Goods Trade Deficit

Yes, they do. But why?  As the graph clearly shows, the real gross output of U.S. manufacturing rises when the goods trade deficit (both measured in 2009 dollars) is also rising.  When trade deficits fall, so does U.S. manufacturing.  Sinking industries need fewer imported parts and materials, and their unemployed workers can’t afford imports.

Measured in 2009 dollars, the goods trade deficit fell from $863.4 billion in 2006 to $525.2 billion in 2009.  Peter Navarro, the President’s liberal protectionist trade adviser, would apparently call that good news.  The rest of us called it The Great Recession.

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Event February 27th: U.S. Military Posture and Persian Gulf Oil

Since at least World War II, U.S. foreign policy has been shaped by the necessity of securing scarce oil supplies. And for more than 30 years, it has been shaped by a commitment to safeguard the flow of oil from the Persian Gulf. Many of the defining moments in U.S. foreign policy since then– including the Arab oil embargoes of the 1970s, the 1980s ‘tanker war’ and even the 1991 Persian Gulf War – have been shaped by this commitment, perhaps most clearly articulated by President Carter in 1980:

Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.

Yet recent years have seen profound changes in the global oil market. Growth in U.S. domestic production – a result of the shale gas revolution – has returned the United States to the top of global hydrocarbon producer rankings for the first time in decades. A more general shift in production from global south to north has made the United States substantially less reliant on Middle Eastern sources of oil, and more on close neighbors like Canada.

These changes, combined with dramatic shifts in the Middle Eastern balance of power raise a key question: should the United States continue to use its military to guarantee the flow of oil from the Persian Gulf?

On February 27th, Cato will host a book forum to discuss the recently published book Crude Strategy: Rethinking the U.S. Military Commitment to Defend Persian Gulf Oil. The book addresses many of these key questions, pulling together an interdisciplinary team of political scientists, economists, and historians to explore the links between Persian Gulf oil and U.S. national security.

The book’s essays explore key questions such as the potential economic cost of disruption in oil supply, whether disruptions can be blunted with nonmilitary tools, the potential for instability in Saudi Arabia, and the most effective U.S. military posture for the region. By clarifying the assumptions underlying the U.S. military presence in the Persian Gulf, the authors conclude that the case for revising America’s grand strategy towards the region is far stronger than is commonly assumed.

The discussion will feature the book’s editors, Charles Glaser, Professor of Political Science and Director, Institute for Security and Conflict Studies at the George Washington University and Rosemary Kelanic, Assistant Professor of Political Science, Williams College. Joining them will be Kenneth Vincent, Visiting Fellow, Institute for Security and Conflict Studies, George Washington University and John Glaser, Cato’s Associate Director of Foreign Policy Studies.

The event promises a fascinating discussion on the energy security roots of America’s foreign policy in the Middle East, and the future of the U.S. commitment to the region’s oil supplies. You can register for the event here.

Margaret Thatcher’s $3 Trillion Revolution

Margaret Thatcher came to power in 1979 determined to revive the stagnant British economy with market-based reforms. During her 11 years as prime minister, she deregulated, cut marginal tax rates, repealed currency exchange controls, and tamed militant labor unions.

However, it was privatization that became Thatcher’s most important and enduring economic legacy. She popularized the word privatization and oversaw the sale to the public of British Airways, British Telecom, British Steel, and British Gas, and other major businesses.

Spurred by the success of Thatcher’s reforms, privatization swept the world. Governments in more than 100 countries moved thousands of state-owned businesses to the private sector. Since the Iron Lady’s campaign to give ownership of Britain’s economy back to the people, more than $3.3 trillion of government businesses have been privatized around the world.

I take a look back at Thatcher’s privatization reforms in this month’s Cato Journal.

What is the relevance for U.S. policymaking today? Many types of businesses that Britain privatized are still partly or fully owned by governments in this country, including airports, seaports, postal services, air traffic control, electric utilities, and passenger rail. So there is an opportunity here for our leaders to spur growth and innovation by adopting Thatcher’s playbook.

But privatization is important for more than just the economic benefits. Thatcher said privatization is also about “reclaiming territory for freedom” and ensuring that “the state’s power is reduced and the power of the people enhanced.”

In toasting Margaret Thatcher in Washington, February 27, 1981, President Ronald Reagan said “everywhere one looks these days the cult of the state is dying.” Thatcher’s privatization program would help make that promise come true.

The photo shows the free-market friends at the White House, February 28, 1981.

Book Forum: Do States With Nukes Have More Coercive Leverage?

There is considerable debate in both academic and policy circles about the utility of nuclear weapons. Of what use are they? Some say just about all nuclear weapons are good for is self defense. States that possess them can more easily deter attack or invasion. Others argue that possessing nuclear weapons also gives states added leverage to get their way in international politics. In this conception, nuclear weapons add to the ability to coerce other states. Not only can they deter actions we don’t like, but they can help compel others to take actions that we do like.

A new and important book, Nuclear Weapons and Coercive Diplomacy by Todd S. Sechser and Matthew Fuhrmann, evaluates the empirical record to test whether or not nuclear weapons aid in coercive diplomacy. Their findings are clear: no, nuclear weapons do not have much coercive utility. States with nukes don’t have more leverage in settling territorial disputes, they’re not more likely to initiate military challenges, they are not more likely to escalate ongoing disputes, and they are not more successful in blackmailing rivals. 

This has significant implications for U.S. foreign policy. What do these findings suggest we should expect from our nuclear-armed rivals, like Russia and China? Does it make sense to undertake preventive military action against nascent nuclear weapons programs in countries like North Korea? If Iran were to get nuclear weapons once the time-limited restrictions in the JCPOA expire (as critics of the deal suggest), how would that influence its behavior in the region?

The authors are coming to the Cato Institute on March 7 to discuss their book and explain their theoretical and empirical findings. Matthew Kroenig will be a discussant and offer comments on the book. You can register to attend the event here

Early Returns on President Trump

During Trump’s surprising presidential campaign, pundits became fond of pointing out that Trump’s supporters took his often-shocking rhetoric seriously, but not literally, whereas his opponents took his rhetoric literally, but not seriously. Today, however, it is obvious that one should take Trump’s words both seriously and literally. In his first month Trump has been busy matching actions to words, temporarily banning immigration from seven Muslim-majority nations and ordering sanctuary cities to detain illegal immigrants, launching work on the U.S.-Mexican border wall, and preparing to lift the ban on the CIA black sites where the United States carried out “enhanced interrogation techniques.”

For those who voted for Trump this first month must surely be a heady viewing experience. For much of the country, however, Trump’s efforts are taking things in the wrong direction, as even his most extreme campaign proposals become reality. From the perspective of the polls, Trump’s first month has met decidedly mixed reviews.

On immigration, for example, Trump signed a short-lived executive order threatening to halt federal funding to so-called “sanctuary cities” that offer protection to illegal immigrants if they do not detain illegal immigrants and turn them over to federal authorities. And before signing two executive orders directing the construction of the U.S.-Mexican border wall, Trump argued that the United States is “in the middle of a crisis border” and that “A nation without borders is not a nation.”

Most Americans see things differently. When asked about illegal immigrants currently living in the United States, a CBS News Poll this month found that 74% of the public thinks they should be allowed to stay, while just 22% thinks they should be required to leave. 61% believe illegal immigrants should eventually be allowed to apply for citizenship. The same poll found that 59% oppose Trump’s plan to build a wall along the U.S.-Mexico border, with 37% favoring it.

Remembering Calvin Coolidge’s Record on Civil Rights

Libertarians often point out that Progressive-era President Woodrow Wilson (in office 1913-1921), together with his other bad qualities, was thoroughly awful on the subject of civil rights for black Americans: he re-segregated the federal civil service, demoted and snubbed black federal officials and dignitaries, and wrote favorably about the Ku Klux Klan, even helping bring in D.W. Griffith’s Klan-fest “The Birth of a Nation” as the first motion picture to be screened in the White House. Soon a revived version of the Klan had picked up enormous momentum, peaking by the early 1920s at a membership of millions, hostile not just to blacks but to Catholics, Jews, urban intellectuals, and cosmopolitan influences in general.

Then the spell broke. In the second half of the 1920s the Klan’s ranks collapsed, and by 1930 it was but a shadow of its former self, down from millions to perhaps tens of thousands. What happened?

Many things happened, but one of them was the presidency of Calvin Coolidge, who served from 1923 to 1929. The Coolidge Presidential Foundation recently published a piece by University of Baltimore president Kurt Schmoke, formerly mayor of Baltimore, entitled “The Little Known History of Coolidge and Civil Rights.” As Schmoke makes clear, the Vermont-born president’s record was a shining spot in an era that otherwise reflected little credit on American race relations. 

Consider, for example, the practice of lynchingwidespread and informally tolerated around much of the nation. With the sole exception of the war year of 1917, which had 36, America saw at least 50 lynchings in each year between 1883 and 1922, the last year before Coolidge took office; the recent peak had come at war’s end with 70 lynchings in 1919 followed by a drop to 51 by 1922.  But 1923, the year Coolidge took office, saw a drop to 29, and never again was the number to rise above the mid-20s; in his final year, 1929, there were 7. In the 1930s, Congress debated a national anti-lynching law, but Democratic president Franklin D. Roosevelt was notably tepid toward the idea. Not until 1936 was the number of lynchings consistently reduced to below 10 a year.

Coolidge took a particular interest in the cause of Howard University in Washington, D.C. And he spoke out on behalf of the interests of blacks, the foreign born, and other minorities on many other occasions as well, grounding his views in a civic patriotism that held its distance from nationalist passions of blood and soil. Writes Schmoke: 

Coolidge gave his most pointed rebuke to the Klan spirit during his 1925 speech to the American Legion in Omaha, where he said “whether one traces his Americanism back three centuries to the Mayflower, or three years of the steerage, is not half so important as whether his Americanism of to-day is real and genuine. No matter by what various crafts we came here, we are all now in the same boat.”

Something to think about on this President’s Day.

Time for a War on Presidents’ Day

It’s nice to combine a long weekend with a chance to pick up some bargain kitchenware; but outside of that, what’s the point of Presidents’ Day? Modern presidents are ubiquitous and inescapable: hectoring us from above every treadmill at the gym and meddling in every area of American life, from where we get our groceries to which bathroom we’re allowed to use. It’s not as if we’ll forget they exist without setting aside a special day to salute them. Besides, neither the individual presidents we inflict on ourselves every four to eight years nor the institution itself is worth celebrating.

It’s some consolation, then, that, at the federal level at least, there’s no such thing as “Presidents’ Day.” The official designation for the third Monday in February is “Washington’s Birthday.” That’s been the case since one of our less meddlesome presidents, bewhiskered nonentity Rutherford B. Hayes, signed the holiday into law in 1879. 

Granted, it hasn’t been observed on the first president’s actual birthday, February 22, since the Nixon administration. With the 1968 Uniform Monday Holiday Act, Congress sacrificed accuracy in order to give Americans the benefit of three-day weekends, stipulating that “Washington’s Birthday” would be observed on February’s third Monday.

Still, every so often, some civic-minded busybody insists that it’s presidents—or worse, the presidency in general—that we should be commemorating. In the late ‘90s, for example, Sen. Dick Durbin (D-Ill.) introduced a bill (cosponsored by Ted Kennedy and Tom Daschle) to redesignate “the legal public holiday of Washington’s Birthday as Presidents’ Day … in recognition of the importance of the institution of the Presidency and the contributions that Presidents have made to our nation’s development and the principles of freedom and democracy.”

Bah, humbug. Our presidents—especially the “great” ones—have more often trampled those principles than upheld them. When scholars rank the presidents, their “Top 10” lists typically include a Murderers’ Row of chief executives whose “contributions” to freedom and democracy include Japanese internment, Indian removal, unconstitutional wars, illegal spying, and the imprisonment of peaceful dissenters.

And while there’s no denying “the importance of the institution,” what freedom and self-government we still enjoy persists in spite, not because of, our presidential system. In a pioneering 1990 article, “The Perils of Presidentialism,” the political scientist Juan Linz argued that presidential systems—those that feature a powerful executive, directly elected by the people and serving for a fixed term—are prone to catastrophic breakdowns and degeneration into autocratic rule. By combining the roles of head of state and head of government in one figure, such systems encourage presidents to imagine themselves the living embodiment of the popular will. The president “becomes the focus for whatever exaggerated expectations his supporters may harbor,” Linz writes, and in turn may “conflate his supporters with ‘the people’ as a whole.”

Worse still, the rigidity of presidential terms makes it far harder to throw the bums out if they go rogue. Prime ministers serve at the pleasure of parliament and can even be replaced by their own party. But in all of U.S. constitutional history, we’ve never successfully used the impeachment process to remove a president (Nixon quit). Unless he’s catatonic or certifiable, we’re stuck with him for the duration. 

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