Opinion

Surviving America’s Political Meltdown

NEW YORK – The US is in the midst of a political meltdown, unable to manage a domestic economic agenda or a coherent foreign policy. The White House is in turmoil; Congress is paralyzed; and the world is looking on in astonishment and dread. If we are to survive and overcome this collapse, we must understand its sources.

There are two power centers in Washington, DC: the White House and the Capitol. Both are in disarray, but for different reasons. The dysfunctionality of the White House is largely a matter of President Donald Trump’s personality. To many experts, Trump’s behavior – grandiose self-regard, pathological lying, lack of remorse or guilt, expressive shallowness, parasitic lifestyle, impulsiveness, failure to accept responsibility for his own actions, and short-term marital relationships – are symptoms of narcissistic personality disorder.

The consequences could be dire. Pathological narcissists have a tendency to indulge in violent conflicts and wars (think of Lyndon Johnson and Vietnam or of Andrew Jackson and the ethnic cleansing of Native Americans). At a minimum, Trump lacks the psychological characteristics needed for constructive governance: honesty, dignity, competence, empathy, relevant experience, and the capacity to plan. According to some observers, Trump also shows signs of diminished mental capacity.

The hope in Washington is that “adults in the room” will keep Trump’s dangerous tendencies in check. But the “adults” in Trump’s administration are increasingly military figures rather than civilians, including three generals (John Kelly, the new White House Chief of Staff, National Security Adviser H.R. McMaster, and Secretary of Defense James Mattis). Wise civilian leaders are the key to peace, especially given that America’s vast war machine is always revving. Recall John F. Kennedy’s military advisers, who advocated war during the Cuban Missile Crisis, or consider Mattis’s anti-Iran belligerence.

There are two other escape valves: the 25th Amendment, which charts a course for removing a president who is unable to discharge the responsibilities of office, and impeachment for “high crimes and misdemeanors.” Both measures are extreme in the US constitutional order, and both would depend on the agreement of Republican leaders. Nonetheless, one or the other may prove necessary and even urgent in the event that Trump’s psychological instability or political weakness leads him to launch a war.

The political meltdown in Congress is less dramatic, but serious nonetheless. There, the cause is not a personality disorder; it’s money. The legislative branch has been deeply corrupted by corporate lobbying and campaign contributions. Two brothers, the industrialists David and Charles Koch, worth a combined $100 billion, virtually own the votes, and voices, of Speaker Paul Ryan and Senate Majority Leader Mitch McConnell.

The result is politically perverse. Ryan and McConnell relentlessly push legislation favored by the Koch Brothers rather than the American people. The attempted repeal of President Barack Obama’s signature health-care legislation, the 2010 Affordable Care Act (“Obamacare”) had nothing to do with voters’ views or interests; it was simply what the Koch brothers (and other Republican mega-donors) wanted.

That’s why the repeal legislation was kept secret until the last moment and was never subjected to expert testimony or analysis – or even considered by a Congressional committee. The legislation could pass only if it was hidden from view and voted on in the middle of the night. In the end, three Republican senators jumped ship, siding with the American people rather than with the Kochs.

Between Trump’s narcissism and the Koch brothers’ money, the US government has become a shambles. Washington is still filled with many smart and talented people of both parties, but America’s political institutions and formal processes are diminished. The federal government is hemorrhaging scientific expertise, as researchers leave or are purged, and as agency budgets are targeted for deep cuts. Seasoned diplomats are flooding out of the State Department. Lobbyists, meanwhile, are installing cronies and hacks throughout the government.

Through the din, new drumbeats of war can be heard, most ominously against Iran and North Korea. Is it posturing or real? Nobody knows. Trump’s foreign and military policies are now announced in early-morning tweets, without the foreknowledge of the White House staff or senior officials. The situation is dangerous and deteriorating.

I suggest three immediate steps, and a fourth longer-term step.

The first step is to take Trump off Twitter. The US – and the world – needs public policy by consultation and deliberation, not one man’s worsening pathology. The American people, by a large margin, concur that Trump’s tweets are hurting national security and the presidency.

Second, congressional leaders should agree, on a bipartisan basis, to constrain Trump’s belligerent proclivities. Article I, Section 8 of the US Constitution vests the authority to declare war with Congress, and Congress needs to reassert that authority now, before it’s too late.

Third, the world’s major powers – most urgently, America’s NATO allies, China, and Russia – should make clear that any unilateral US attack on Iran or North Korea would constitute a grave and illegal violation of the peace, and that matters of war and peace must be agreed within the UN Security Council. If the US had heeded the UN Security Council’s collective wisdom in the recent past, it would have avoided several ongoing disasters, including the chaos in Iraq, Libya, and Syria, and saved trillions of dollars and many hundreds of thousands of lives.

The fourth, longer-term step is constitutional reform to move away the US away from its volatile presidential system to a parliamentary system, or at least to a mixed presidential-parliamentary system, as in France. The power of the president – and therefore the danger of a runaway presidency – is far too great.

Much more needs to be done to restore democratic legitimacy in the US, including introduction of stricter limits on campaign financing and lobbying. First and foremost, however, we must survive the dangerous Trump presidency by preserving the peace.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and the UN Sustainable Development Solutions Network.

By Jeffrey D. Sachs

Britain’s Road to Perdition

LONDON – Full English Brexit is off the menu. Before leaving the European Union altogether, the British government now wants an “interim period,” in which the United Kingdom would retain the commercial rights of EU membership, while still contributing to the EU budget, observing EU regulations and legal judgments, and allowing the free movement of people. This period would last for at least two years after March 2019 – the official deadline for the Brexit process – meaning that until 2021, Britain would essentially be an EU member state without any voting rights.


In the meantime, British Prime Minister Theresa May’s government, having promised to maintain a “deep and special” relationship with Europe, would try to negotiate a new “treaty-based arrangement” with the EU. But Britain will have a vanishingly small chance of concluding a new treaty in so short a time.

Indeed, come 2021, the UK will still be hurtling toward a “cliff edge”: a full break from Europe, with no alternative arrangement in place to cushion the blow. Politically, that timing would pose even greater risks for May’s government than it faces today, since the next general election must be held by June 2022. So the UK may try to extend the transition period beyond 2022. And as past experience tells us, once an extension is granted, it may never end.

The UK seems to be approaching the scenario I outlined three months ago. May’s fateful decision to hold an early election in June has allowed her opponents to demand that the UK negotiate a transitional arrangement similar to what Norway has as a member of the European Economic Area. The EEA was originally created in 1994 as a temporary framework for various countries preparing to join the EU. But because Norwegian voters rejected a referendum on EU membership 11 months later, the EEA has now lasted for 24 years.

Nobody can predict what will happen in 24 years. But the good news for Britain is that the EU may already be moving slowly toward a two-track structure. To prosper, the eurozone will need to establish a political union. This will leave non-euro countries such as Denmark, Poland, and Sweden forming an outer ring of economic cooperation outside the eurozone. These countries would have membership in the single market, but not in the monetary or political union.

A two-track Europe would be very different from the “two-speed” model that applies to Europe today. In the latter, every country is theoretically heading toward “ever-closer union,” just at different rates. In a two-track scenario, by contrast, Britain could comfortably re-join the outer track along with Norway and, perhaps, Switzerland.

Now for the bad news. A transition arrangement for the UK may be unacceptable to both EU governments and British voters. Committed federalists in the EU want Britain out as quickly as possible, because Britain has long given cover for others – such as Denmark, Poland, and Sweden – to resist deeper integration.

Federalist zealots hate the idea of a two-track Europe. They want to force all EU member states to adopt the euro within the next decade, and to embed themselves permanently into a full-scale political and fiscal union. And they rightly believe that achieving this goal will be easier with Britain out of the picture.

But a transition period is no panacea for the UK either. Britons have already started to get a glimpse of the economic costs of Brexit, as international businesses that once used Britain as a hub for their European operations have started to relocate some of their activities. As the UK government tries to maintain the fiction of a strictly time-limited transition, this process will accelerate further. Moreover, the EU will use the transition period to change its own regulations, so that businesses generating employment and large tax revenues will have to move onto EU territory.

For example, the European Banking Authority and the European Medicines Agency are already relocating from London, meaning the many legal, managerial, and lobbying jobs connected to highly regulated activities such as finance and pharmaceutical research will have to relocate, too. A transition period would thus hit international businesses based in Britain with a regulatory double-whammy: they would be subject to the whims of UK and EU bureaucracies at the same time.

Making matters worse, the promise of a long transition could delay the shift in public opinion needed to reverse Brexit before it is too late. After March 28, 2019, the UK will be officially out of the EU, where economic growth has already started to overtake that of Britain. If it ever wants to be readmitted, it will have to settle for far less attractive terms than what it enjoys today. Not only would it no longer receive budget rebates or special treatment on social regulations; it might even be forced to join the euro.

Even the 48% of British voters who voted “Remain” might reject such humiliating terms. Britain would thus be stuck in limbo – like Norway, but without the oil wealth or social cohesion. As the Labour Party’s trade spokesman has aptly put it, a semi-permanent transition period based on the “Norway model” would turn Britain into a “vassal state.” It would still pay large sums into the EU budget and adhere to EU laws, but it would have no say over how that money is spent or how those laws are made.

In the months ahead, the British public may start to foresee this humiliating endgame. The Norway model will satisfy neither Britain’s elderly, provincial Europhobes, nor the young, urban voters who want to preserve the rights of EU citizenship that they have taken for granted all their lives.

With this depressing prospect setting in, British voters could change their minds about Brexit before their leaders go through with it. But for such a Damascene conversion to happen, the country would have to experience a political or economic crisis large enough to shake public opinion out of its fatalistic complacency. As things stand, Britons have been emulating that beloved national slogan, “Keep calm and carry on.” Before things can get better for Britain, they will probably have to get much worse. Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy.

By Anatole Kaletsky

The Crown Prince’s New Clothes

PARIS – This June, Bahrain, Egypt, Libya, the Maldives, Saudi Arabia, the United Arab Emirates, and Yemen cut diplomatic and economic ties with Qatar. This Gulf crisis will, one way or another, come to an end. But whether that end will be good for the chief instigator of the crisis, Saudi Arabian Crown Prince Mohammed bin Salman (MBS), remains to be seen.


An extreme but unlikely solution to the crisis could come in the form of military-enforced regime change, whereby the Emir of Qatar, Sheikh Tamim bin Hamad Al-Thani, would be replaced by a more pliant member of the Al-Thani family. In a more likely scenario, Qatar may stop providing sanctuary for a few members of the Muslim Brotherhood and Hamas, and discreetly promise to rein in Al Jazeera, its state-funded television network, which broadcasts throughout the region.

In the latter scenario, diplomats from Kuwait and Oman, who are mediating the dispute, would hold themselves up as peacemakers, and MBS would claim to be a statesman. Western governments worried about the price of oil and the future of America’s Al Udeid Air Base in Qatar would rest easier, at least until the next Gulf crisis. But if MBS continues to pursue headstrong policies, and Qatar keeps using its oil wealth to punch above its weight in regional politics, such a crisis may not be all that far off.

The latest Saudi-Qatari contretemps is hardly an example of the “Thucydides trap,” in which an incumbent hegemon is tempted to suppress a rival whose power is approaching its own. Saudi Arabia is host to around 32 million people, one-third of whom are foreign workers; Qatar is host to just 2.6 million people, 90% of whom are foreign.

Instead, at the heart of the matter is a semi-paranoid conviction among Saudi Arabia’s Sunni Arab leaders that Iran – which is predominantly Shia and non-Arab – is vying for superpower status in the Middle East. The Saudis are convinced that Qatar is aiding Iran in this quest, even though Qatar’s leaders share the Saudis’ Wahhabi brand of Islam.

Of course, Saudi Arabia has some grounds for suspicion. After the Iranian Revolution in 1979, Ayatollah Ruhollah Khomeini advocated revolution throughout the Muslim world. A generation later, Iran has a foothold in Iraq, Lebanon, Syria, and Yemen, where it is helping Houthi rebels disrupt MBS’s ill-considered foray into that country. And now that Saudi Arabia has imposed a blockade on Qatar, Iran has come to the country’s aid, delivering food and allowing Qatar Airways to use its airspace.

It is worth asking whether MBS is misreading political and economic realities. Having been invested with unprecedented powers as the favorite son of King Salman, has he bitten off more than he can chew?

MBS has been Saudi Arabia’s minister of defense since January 2015. But Saudi Arabia’s war in Yemen, now two years old, has become a humanitarian disaster, complete with a naval blockade that has led to widespread famine and 500,000 cases of cholera.

Meanwhile, in the civil war in Syria, the Saudis (and the Qataris) have backed several unsavory Islamist groups, but still have not managed to topple Syrian President Bashar al-Assad’s regime. In the region’s balance of power, the Saudi-sponsored anti-Assad alliance – with America providing air support – pales in comparison to the alliance that Assad’s Shia-affiliated Alawite regime has made with Iran and Russia.

MBS is facing even greater challenges at home. As the world’s petro-state par excellence, Saudi Arabia has long mollified the Saudi populace with dollops of welfare spending. Meanwhile, it has sustained the Wahhabi clerical establishment’s loyalty by keeping social changes to a minimum. But with oil prices remaining relatively low, the Kingdom can no longer rely on its traditional policy of buying friends and buying off enemies.

To his credit, MBS recognizes that things must change. Saudi Arabia’s financial reserves are diminishing, and younger Saudis – whose numbers have quadrupled in the past 30 years – want more freedoms, and will need jobs outside of the oil sector. To address these issues, MBS came up with “Vision 2030,” a bold but not necessarily realistic plan to diversify the economy, privatize part of the national oil company, Aramco, and expand the private sector. In addition, MBS apparently has a plan to create hedonistic tourist resorts to rival those of Dubai.

Given the problems abroad and grumbling at home, where some in the Saudi royal family resent his meteoric ascent, MBS now needs to prove that he has the maturity and experience to lead. Here, he may receive help from an unlikely source. At the end of July, MBS hosted Muqtada al-Sadr, the leader of Iraq’s most powerful Shia militia, for his first visit to Saudi Arabia since 2006. And earlier this year, Iraqi Prime Minister Haider al-Abadi paid a visit to Saudi Arabia, just after the Saudi foreign and energy ministers made trips to Baghdad.

These trips – the first such delegations between the two countries in decades – suggest that Iraq and Saudi Arabia might be forging a new, mutually beneficial relationship. With closer ties to Saudi Arabia, Iraq’s leaders could free themselves from Iran’s overbearing grip on their decision-making, leverage Saudi Arabia’s influence over Iraq’s Sunni tribes, and procure Saudi investments to rebuild Mosul following its recapture from the Islamic State (ISIS).

Saudi Arabia, for its part, stands to gain from Iraq’s success against ISIS, a sworn enemy of the House of Saud, and from its help in calming Shia dissent in Saudi Arabia’s oil-rich eastern province. At the same time, MBS would be able to portray himself as a strategic thinker who is capable of bridging old Arab divides, and limiting Iran’s influence in the region.

Still, many questions remain. It is unclear when the disastrous operation in Yemen will end, or whether Iran and Turkey will continue undermining the blockade on Qatar. And it remains to be seen if Qatar will cave to Saudi Arabia and the other Gulf states’ demands – especially the call for Al Jazeera to be shut down.

In any case, none of these developments seems imminent, so the 31-year-old crown prince will have to learn to temper his impetuosity. As the Arab proverb puts it, patience is the key to happiness. John Andrews is the author of The World in Conflict.

By John Andrews

Surviving America’s Political Meltdown

NEW YORK – The US is in the midst of a political meltdown, unable to manage a domestic economic agenda or a coherent foreign policy. The White House is in turmoil; Congress is paralyzed; and the world is looking on in astonishment and dread. If we are to survive and overcome this collapse, we must understand its sources.


There are two power centers in Washington, DC: the White House and the Capitol. Both are in disarray, but for different reasons.The dysfunctionality of the White House is largely a matter of President Donald Trump’s personality. To many experts, Trump’s behavior – grandiose self-regard, pathological lying, lack of remorse or guilt, expressive shallowness, parasitic lifestyle, impulsiveness, failure to accept responsibility for his own actions, and short-term marital relationships – are symptoms of narcissistic personality disorder.

The consequences could be dire. Pathological narcissists have a tendency to indulge in violent conflicts and wars (think of Lyndon Johnson and Vietnam or of Andrew Jackson and the ethnic cleansing of Native Americans). At a minimum, Trump lacks the psychological characteristics needed for constructive governance: honesty, dignity, competence, empathy, relevant experience, and the capacity to plan. According to some observers, Trump also shows signs of diminished mental capacity.

The hope in Washington is that “adults in the room” will keep Trump’s dangerous tendencies in check. But the “adults” in Trump’s administration are increasingly military figures rather than civilians, including three generals (John Kelly, the new White House Chief of Staff, National Security Adviser H.R. McMaster, and Secretary of Defense James Mattis). Wise civilian leaders are the key to peace, especially given that America’s vast war machine is always revving. Recall John F. Kennedy’s military advisers, who advocated war during the Cuban Missile Crisis, or consider Mattis’s anti-Iran belligerence.

There are two other escape valves: the 25th Amendment, which charts a course for removing a president who is unable to discharge the responsibilities of office, and impeachment for “high crimes and misdemeanors.” Both measures are extreme in the US constitutional order, and both would depend on the agreement of Republican leaders. Nonetheless, one or the other may prove necessary and even urgent in the event that Trump’s psychological instability or political weakness leads him to launch a war.

The political meltdown in Congress is less dramatic, but serious nonetheless. There, the cause is not a personality disorder; it’s money. The legislative branch has been deeply corrupted by corporate lobbying and campaign contributions. Two brothers, the industrialists David and Charles Koch, worth a combined $100 billion, virtually own the votes, and voices, of Speaker Paul Ryan and Senate Majority Leader Mitch McConnell.

The result is politically perverse. Ryan and McConnell relentlessly push legislation favored by the Koch Brothers rather than the American people. The attempted repeal of President Barack Obama’s signature health-care legislation, the 2010 Affordable Care Act (“Obamacare”) had nothing to do with voters’ views or interests; it was simply what the Koch brothers (and other Republican mega-donors) wanted.

That’s why the repeal legislation was kept secret until the last moment and was never subjected to expert testimony or analysis – or even considered by a Congressional committee. The legislation could pass only if it was hidden from view and voted on in the middle of the night. In the end, three Republican senators jumped ship, siding with the American people rather than with the Kochs.

Between Trump’s narcissism and the Koch brothers’ money, the US government has become a shambles. Washington is still filled with many smart and talented people of both parties, but America’s political institutions and formal processes are diminished. The federal government is hemorrhaging scientific expertise, as researchers leave or are purged, and as agency budgets are targeted for deep cuts. Seasoned diplomats are flooding out of the State Department. Lobbyists, meanwhile, are installing cronies and hacks throughout the government.

Through the din, new drumbeats of war can be heard, most ominously against Iran and North Korea. Is it posturing or real? Nobody knows. Trump’s foreign and military policies are now announced in early-morning tweets, without the foreknowledge of the White House staff or senior officials. The situation is dangerous and deteriorating.

I suggest three immediate steps, and a fourth longer-term step.

The first step is to take Trump off Twitter. The US – and the world – needs public policy by consultation and deliberation, not one man’s worsening pathology. The American people, by a large margin, concur that Trump’s tweets are hurting national security and the presidency.

Second, congressional leaders should agree, on a bipartisan basis, to constrain Trump’s belligerent proclivities. Article I, Section 8 of the US Constitution vests the authority to declare war with Congress, and Congress needs to reassert that authority now, before it’s too late.

Third, the world’s major powers – most urgently, America’s NATO allies, China, and Russia – should make clear that any unilateral US attack on Iran or North Korea would constitute a grave and illegal violation of the peace, and that matters of war and peace must be agreed within the UN Security Council. If the US had heeded the UN Security Council’s collective wisdom in the recent past, it would have avoided several ongoing disasters, including the chaos in Iraq, Libya, and Syria, and saved trillions of dollars and many hundreds of thousands of lives.

The fourth, longer-term step is constitutional reform to move away the US away from its volatile presidential system to a parliamentary system, or at least to a mixed presidential-parliamentary system, as in France. The power of the president – and therefore the danger of a runaway presidency – is far too great.

Much more needs to be done to restore democratic legitimacy in the US, including introduction of stricter limits on campaign financing and lobbying. First and foremost, however, we must survive the dangerous Trump presidency by preserving the peace.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and the UN Sustainable Development Solutions Network.

By Jeffrey D. Sachs

Empowering the Other Half of Africa’s Economy

JOHANNESBURG – Julius Nyerere, the founding president of Tanzania, once said that “unity” will not make Africa rich, but “it can make it difficult for Africa and the African peoples to be disregarded and humiliated.” But, two decades later, Africa remains divided along a key fault line: gender. To realize Nyerere’s vision of a strong, dignified continent, Africa needs a new era of liberation, one that is fueled by the economic empowerment of the continent’s women.


Although projections by the consultancy McKinsey anticipate that by 2040, Africa will have the world’s largest labor force, with more than 1.1 billion people of working age, more than 60% of Africa’s current population still survive on less than $2 a day. It is obvious that while many Africans have benefited from political emancipation – the legacy of Nyerere’s generation – poverty remains a significant obstacle. Unleashing the employment potential of African women is the best way to overcome it.

As it stands, Africa’s women continue to be underrepresented in key industries and executive roles, owing to workplace discrimination and patriarchal expectations at home. Unless barriers to entering the formal economy are removed and women are presented with options that enable them to realize their full potential, Africa’s socioeconomic development will continue to be impeded. But while women are essential to the continent’s progress, they are still too often regarded as being secondary. Women must therefore claim their right to sit where decisions are made, and to shape the policies, plans, and strategies that will affect their lives and the lives of Africans for generations to come.

Studies have shown that if more women had access to male-dominated occupations in Africa, worker productivity would rise by as much as 25%. That would be good for the overall economy, but also for women in general, as it would open up new avenues for social empowerment. When women participate in the job market and engage actively in business or political decision-making, patriarchal power dynamics shift, elevating the social status of women. Economic equality also challenges accepted beliefs, and dispels harmful myths that perpetuate narrow definitions of gender norms. In other words, bringing more women into the workplace leads to an emancipation of mindset – in men and women alike.

What Nyerere so eloquently said of Africa as a whole is no less true for its women: unity is the key to realizing our potential. When we come together as generators of wealth, it becomes impossible for us to go unrecognized for our economic contributions and marginalized in our entrepreneurial endeavours.

At the Graça Machel Trust, we are joining together with civil-society actors, the private sector, and governments across the continent to lead a new economic liberation movement for women. Divided, we are weak, but together, Africa’s women have the ability to confront and overcome the barriers that have kept us from full participation in our respective economies.

There is power in networks. My organization’s approach to economic advancement is to establish and strengthen informal and official networks, through which women can, in time, increase their participation and visibility in key sectors. That is why we are launching the “Women Advancing Africa” initiative, which is part of our ongoing effort to amplify the voices of Africa’s underrepresented and to establish a pan-African women’s movement, in which women can come together to transform the continent.

The inaugural Women Advancing Africa Forum will take place this week in Dar es Salaam, Tanzania, and will convene more than 250 women leaders from across the continent. Under the overarching theme of “Driving Social and Economic Transformation,” the Forum will focus on three strategic goals: promoting financial inclusion, increasing market access, and driving social change. We aim to emerge from the Forum with a common agenda for our participation as full economic actors.

It has been just over 20 years since Nyerere encouraged us to work toward African unity. Today, Africa’s women are helping to shape the policies and practices that will bring about economic and social liberation in their respective countries. We have some way to go before African unity is fully realized. But enabling women to become full partners in Africa’s economic future, is among the best ways to ensure that we succeed. Graça Machel, the founder of the Graça Machel Trust, is a member of the Africa Progress Panel and The Elders.

By Graça Machel

Finishing the Post-Crisis Job

LONDON – August 9, 2017, is the tenth anniversary of the decision by the French bank BNP Paribas to freeze some $2.2 billion worth of money-market funds. Those of us who were active in financial markets at the time remember that event as the beginning of the worst global financial crisis since the Great Depression.


Many economists and financial observers argue that we are still living with the consequences of that crisis, and with the forces that incited it. This is partly true. Many developed economies still have in place unconventional monetary policies such as quantitative easing, and both productivity and real (inflation-adjusted) wage growth appear to be mostly stagnant.

But it is important to put these developments in perspective. Many people, including the Queen of England in November 2008, still ask: “Why did no one see it coming?” In fact, many financial observers did warn that housing prices in the United States were rising untenably, especially given the lack of domestic personal savings among US consumers.

As Chief Economist of Goldman Sachs at the time, I had written three different papers over a number of years showing that the US current-account deficit was unsustainable. Unfortunately, these findings largely fell on deaf ears, and the firm’s foreign-exchange salespeople probably got bored passing on yet more of the same pieces to their clients.

At one point in 2007, the US current-account deficit was reported to be 6-7% of GDP (it has since been revised down to around 5% for the full year). This high figure reflected the fact that the US trade balance had been steadily deteriorating since the 1990s. In the absence of any obvious negative consequences, however, complacency had set in, and the US continued to spend more than it saved.

Meanwhile, China had spent the 1990s exporting low-value-added products to the rest of the world, not least to US consumers. In 2007, its current-account surplus was around 10% of GDP – the mirror image of the US. Whereas the latter was saving too little, China was saving too much.

For some observers, this huge international imbalance was the source of the crisis. In the years leading up to the crash, they argued that the global financial system was simply doing its job, by finding increasingly clever ways to recycle the surpluses. Of course, we now know that it performed that job rather poorly.

Much has changed in the intervening decade. In 2017, China will run a current-account surplus of 1.5-2% of GDP, and the US will most likely run a deficit of around 2% – but possibly as high as 3% – of GDP. This is a vast improvement for the world’s two largest economies.

Still, other countries have built up ever-larger current-account imbalances over the past decade. Chief among them is Germany, whose external surplus now exceeds 8% of GDP. Germany’s current account suggests that there are deep imbalances that could lead to a new crisis if policymaking is not well coordinated. The last thing that Europe needs is another sudden reversal, as we saw at the height of the Greek debt crisis.

The United Kingdom, for its part, will have a current-account deficit above 3% of GDP this year, which is nearly three times what it was ten years ago. But that is not to say that the UK’s trade balance has significantly deteriorated. Rather, it reflects the fact that the UK is a major financial center, and that investment returns have shifted more in the UK than elsewhere.

All told, the global economy today is much healthier than it was ten years ago. Many are disappointed that real global GDP growth since the crisis has undershot performance in the previous decade. But since 2009 – the worst year of the recession – the global economy has grown at an average rate of 3.3%, just as it did in the 1980s and 1990s.

Of course, this is largely owing to China, the only BRIC country (Brazil, Russia, India, and China) that has met my growth expectations for the decade (although India is not too far behind). The size of China’s economy has more than trebled in nominal terms since 2007, with GDP rising from $3.5 trillion to around $12 trillion. As a result, the aggregate size of the BRIC economies is now around $18 trillion, which is larger than the European Union and almost as big as the US.

There will inevitably be another financial bubble, so it is worth asking where it might occur. In my view, it is unlikely to emerge directly from the banking sector, which is now heavily regulated. The bigger concern is that many leading companies across different industries have continued to focus excessively on quarterly profits, because that determines how executives are remunerated.

Policymakers should take a hard look at the role of share buybacks in this process. To her credit, in the Conservative Party’s 2017 election manifesto, British Prime Minister Theresa May announced that her government would do this. One hopes that May’s government follows through. Doing so could strike a symbolic blow against the underlying malaise of post-crisis economic life. The West needs real investments and higher productivity and wage growth – not more economically unjustifiable profits.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Honorary Professor of Economics at Manchester University and former Chairman of the British government’s Review on Antimicrobial Resistance.

By Jim O’Neill

What Makes a Human?

ST ANDREWS, SCOTLAND – Last month, moviegoers flocked to theaters to see War for the Planet of the Apes, in which an army of retrovirus-modified primates wage war against humanity. Chimpanzees on horseback, machine-gun-wielding gorillas, and scholarly orangutans undoubtedly make for good theater. But could anything like this ever happen in real life?


In Planet of the Apes, Pierre Boulle’s 1963 novel upon which the films are based, space traveler Ulysse Mérou is stranded on a terrifying planet ruled by gorillas, orangutans, and chimpanzees who have copied their former human masters’ language, culture, and technology. The humans, meanwhile, have degenerated into brutal and unsophisticated beasts.

Much of the sinister realism in Planet of the Apes stems from Boulle’s impressive attention to scientific detail and knowledge of research into animal behavior at that time. His book tapped into the still-popular notion that animals such as chimpanzees and dolphins have complex but covert communication systems that humans cannot even fathom. Many people would prefer to think that all those “arrogant” scientists who have concluded that animals cannot talk have simply failed to decode animals’ calls.

But Boulle’s book is decidedly a work of fiction, because apes here on Earth could never actually acquire human culture solely through imitation. In reality, complex culture requires underlying biological capabilities that are fashioned over long periods of evolution. Chimpanzees simply do not have the vocal control or physiology to produce speech.

Moreover, modern apes could not be made highly intelligent even with brain-enhancing drugs. And although microbes can change behavior – such as when rabies renders its host violent and aggressive – they could never bestow language upon a species.

We know this because animal communication has been investigated extensively for more than a century, and the scientific evidence yields few hints of truly complex communication faculties in non-human species. For example, in the 1940s, researchers raised a chimpanzee named Viki in their home. But Viki learned just four words – “mama,” “papa,” “cup,” and “up” – which was more than could be said for an earlier experiment in which a chimpanzee and a human child were reared together. That exercise had to be abandoned after the chimpanzee failed to learn a single word, and the child actually started imitating chimpanzee sounds.

In the following decades, studies teaching apes sign language generated much excitement. And yet virtually all linguists would agree that the apes in these experiments had not produced language. They could memorize the meanings of signs, but they could not learn the rules of grammar.

Tellingly, utterances by “talking” apes proved to be exceedingly egocentric. When equipped with the means to talk, apes’ communications are limited to expressions of desire such as “Gimme food.” The longest recorded statement of any “talking” ape, by a chimpanzee named Nim Chimpsky, was, “Give orange me give eat orange me eat orange give me eat orange give me you.” It turns out that chimpanzees, bonobos, and gorillas make for poor conversationalists.

By contrast, within months of uttering their first words, two-year-old children can produce complex, grammatically correct, and topically diverse sentences comprising verbs, nouns, prepositions, and determiners. They can do so because human minds have evolved to comprehend and produce language.

Many scholars believe that language emerged from the use of meaningful signs. Our ancestors were immersed in a symbol-rich world, and this generated evolutionary feedback favoring the neural structures that enable us to manipulate symbols efficiently. The syntax in human language today was made possible by our ancestors’ long use of symbolic proto-languages. Genes and culture coevolved to reorganize the human brain.

The same is true of warfare, which is much more than just scaled-up aggression. In war, complex institutions dictate strict behavioral codes and individual roles that facilitate cooperation. Research suggests that this level of cooperation could not evolve in a species that lacked a complex culture and such features as institutionalized punishment and socially sanctioned retaliation.

Most of these norms are not obvious, and thus have to be inculcated, usually during youth. But even among apes that are proficient imitators, there is little compelling evidence that behaviors are actively taught. When apes do cooperate, it is largely to help relatives. The scale of human cooperation, which involves huge numbers of unrelated individuals working together, is unprecedented largely because it is built upon learned and socially transmitted norms.

There is now extensive evidence that our ancestors’ cultural activities changed the human brain through natural selection, which then further enhanced our cultural capabilities in recurring cycles. For instance, milk-drinking began with early Neolithic humans, who were consequently exposed to strong selection favoring genes that break down energy-rich lactose. This genetic-cultural coevolution explains why many of us with pastoralist ancestors are lactose tolerant.

It is little wonder that Boulle put such an emphasis on imitation. Humans are descended from a long line of imitators, who mimicked each other’s fear responses to identify predators and avoid danger. Today, this is reflected in empathy and other forms of emotional contagion that make movies a heartfelt experience. Without these traits, we would all watch movies like sociopaths, equally unmoved by a murder or a kiss.

It was also through imitation that our forebears learned how to butcher carcasses, build fires, and make digging tools, spears, and fishing hooks. These and countless other skills left us supremely adapted to decipher others’ movements, and reproduce them with our own muscles, tendons, and joints. Eons later, today’s movie stars demonstrate the same aptitude when imitating the movements of other primates, with a precision that no other species can match.

Human culture, having evolved over millennia, is not something that another species can easily pick up. We can rest assured that there will be no inter-primate war on Earth. For that to happen, another species would have to undergo a similarly prolonged evolutionary journey. And the only real warmongering ape on the planet seems hell-bent on preventing that.

Kevin Laland is Professor of Behavioral and Evolutionary Biology at the University of St Andrews, UK, and author of Darwin’s Unfinished Symphony: How Culture Made the Human Mind.

By Kevin Laland

The New Socialism of Fools

BERKELEY – According to mainstream economic theory, globalization tends to “lift all boats,” and has little effect on the broad distribution of incomes. But “globalization” is not the same as the elimination of tariffs and other import barriers that confer rent-seeking advantages to politically influential domestic producers. As Harvard University economist Dani Rodrik frequently points out, economic theory predicts that removing tariffs and non-tariff barriers does produce net gains; but it also results in large redistributions, wherein eliminating smaller barriers yields larger redistributions relative to the net gains.


Globalization, for our purposes, is different. It should be understood as a process in which the world becomes increasingly interconnected through technological advances that drive down transportation and communication costs.

To be sure, this form of globalization allows foreign producers to export goods and services to distant markets at a lower cost. But it also opens up export markets and reduces costs for the other side. And at the end of the day, consumers get more stuff for less.

According to standard economic theory, redistribution only comes about when a country’s exports require vastly different factors of production than its imports. But there are no such differences in today’s global economy.

In the United States, a balance-of-payments surplus in finance means that more Americans will be employed as construction workers, capital-goods producers, and nurses and home health aides. Similarly, a surplus in services means that more Americans will work not only as highly educated (and well-remunerated) consultants in steel-and-glass eyries, but also as, say, janitors and housekeepers in motels outside of Yellowstone National Park.

At the same time, a deficit in manufacturing may create more manufacturing jobs abroad, in countries where labor costs are low relative to capital; but it destroys relatively few jobs in the US, where manufacturing is already a highly capital-intensive industry. As Stanford University economist Robert Hall has been pointing out for three decades, more Americans are employed selling cars than making them. The commodities that the US imports from abroad embody a significant amount of relatively unskilled labor, but they do not displace much unskilled labor in America.

So, at least in theory, the shift in US employment from assembly-line manufacturing to construction, services, and caretaking may have had an impact on the overall distribution of income in terms of gender, but not in terms of class. Why, then, has there been such strong political resistance to globalization in the twenty-first century? I see four reasons.

First and foremost, it is easy for politicians to pin the blame for a country’s problems on foreigners and immigrants who do not vote. Back in 1890, when politicians in the Habsburg Empire routinely blamed Jews for various socioeconomic ills, the Austrian dissident Ferdinand Kronawetter famously observed that “Der Antisemitismus ist der Sozialismus der dummen Kerle”: anti-Semitism is the socialism of fools. The same could be said of anti-globalization today.

Second, more than a generation of inequitable and slower-than-expected economic growth in the global North has created a strong political and psychological need for scapegoats. People want a simple narrative to explain why they are missing out on the prosperity they were once promised, and why there is such a large and growing gap between an increasingly wealthy overclass and everyone else.

Third, China’s economic rise coincided with a period in which the global North was struggling to reach full employment. Contrary to what the followers of Friedrich von Hayek and Andrew Mellon have always claimed, economic readjustments do not happen when bankruptcies force labor and capital out of low-productivity, low-demand industries, but rather when booms pull labor and capital into high-productivity, high-demand industries.

Thus, neoliberalism does not just require open and competitive markets, global change, and price stability. It also depends on full employment and near-permanent booms, just as economist John Maynard Keynes had warned in the 1920s and 1930s. In recent decades, the neoliberal order failed to deliver either condition, most likely because doing so would have been impossible even with the best policies in place.

Fourth, policymakers did not do enough to compensate for this failure with more aggressive social policies and economic and geographic redistribution. When US President Donald Trump recently told upstate New Yorkers that they should leave the region and seek jobs elsewhere, he was simply echoing the past generation of center-right politicians in the global North.

The global North’s current political and economic dilemmas are not so different from those of the 1920s and 1930s. As Keynes noted then, the key is to produce and maintain full employment, at which point most other problems will melt away.

And, as the Austro-Hungarian economist Karl Polanyi argued, it is the role of government to secure socioeconomic rights. People believe that they have a right to live in healthy communities, hold stable occupations, and earn a decent income that rises over time. But these presumed rights do not stem naturally from property rights and claims to scarce resources – the coins of the neoliberal realm.

It has been ten years since the global financial crisis and the start of the “Great Recession” in the global North. Governments still have not repaired the damage from those events. If they do not do so soon, the “-isms” of fools will continue to wreak havoc in the decades ahead.

J. Bradford DeLong, a former deputy assistant US Treasury secretary, is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.

By J. Bradford DeLong

America’s Dangerous Anti-Iran Posturing

NEW YORK – In recent weeks, US President Donald Trump and his advisers have joined Saudi Arabia in accusing Iran of being the epicenter of Middle East terrorism. The US Congress, meanwhile, is readying yet another round of sanctions against Iran. But the caricature of Iran as “the tip of the spear” of global terrorism, in Saudi King Salman’s words, is not only wrongheaded, but also extremely dangerous, because it could lead to yet another Middle East war.


In fact, that seems to be the goal of some US hotheads, despite the obvious fact that Iran is on the same side as the United States in opposing the Islamic State (ISIS). And then there’s the fact that Iran, unlike most of its regional adversaries, is a functioning democracy. Ironically, the escalation of US and Saudi rhetoric came just two days after Iran’s May 19 election, in which moderates led by incumbent President Hassan Rouhani defeated their hardline opponents at the ballot box.

Perhaps for Trump, the pro-Saudi, anti-Iran embrace is just another business proposition. He beamed at Saudi Arabia’s decision to buy $110 billion of new US weapons, describing the deal as “jobs, jobs, jobs,” as if the only gainful employment for American workers requires them to stoke war. And who knows what private deals for Trump and his family might also be lurking in his warm embrace of Saudi belligerence.

The Trump administration’s bombast toward Iran is, in a sense, par for the course. US foreign policy is littered with absurd, tragic, and hugely destructive foreign wars that served no real purpose except the pursuit of some misguided strand of official propaganda. How else, in the end, to explain America’s useless and hugely costly entanglements in Vietnam, Afghanistan, Iraq, Syria, Libya, Yemen, and many other conflicts?

America’s anti-Iran animus goes back to the country’s 1979 Islamic Revolution. For the US public, the 444-day ordeal of the US embassy staff held hostage by radical Iranian students constituted a psychological shock that has still not abated. The hostage drama dominated the US media from start to finish, resulting in a kind of public post-traumatic stress disorder similar to the social trauma of the 9/11 attacks a generation later.

For most Americans, then and now, the hostage crisis – and indeed the Iranian Revolution itself – was a bolt out of the blue. Few Americans realize that the Iranian Revolution came a quarter-century after the CIA and Britain’s intelligence agency MI6 conspired in 1953 to overthrow the country’s democratically elected government and install a police state under the Shah of Iran, to preserve Anglo-American control over Iran’s oil, which was threatened by nationalization. Nor do most Americans realize that the hostage crisis was precipitated by the ill-considered decision to admit the deposed Shah into the US for medical treatment, which many Iranians viewed as a threat to the revolution.

During the Reagan Administration, the US supported Iraq in its war of aggression against Iran, including Iraq’s use of chemical weapons. When the fighting finally ended in 1988, the US followed up with financial and trade sanctions on Iran that remain in place to this day. Since 1953, the US has opposed Iran’s self-rule and economic development through covert action, support for authoritarian rule during 1953-79, military backing for its enemies, and decades-long sanctions.

Another reason for America’s anti-Iran animus is Iran’s support for Hezbollah and Hamas, two militant antagonists of Israel. Here, too, it is important to understand the historical context.

In 1982, Israel invaded Lebanon in an attempt to crush militant Palestinians operating there. In the wake of that war, and against the backdrop of anti-Muslim massacres enabled by Israel’s occupation forces, Iran supported the formation of the Shia-led Hezbollah to resist Israel’s occupation of southern Lebanon. By the time Israel withdrew from Lebanon in 2000, nearly 20 years after its original invasion, Hezbollah had become a formidable military, political, and social force in Lebanon, and a continuing thorn in Israel’s side.

Iran also supports Hamas, a hardline Sunni group that rejects Israel’s right to exist. Following decades of Israeli occupation of Palestinian lands captured in the 1967 war, and with peace negotiations stalemated, Hamas defeated Fatah (the Palestine Liberation Organization’s political party) at the ballot box in the 2006 election for the Palestinian parliament. Rather than entering into a dialogue with Hamas, the US and Israel decided to try to crush it, including through a brutal war in Gaza in 2014, resulting in a massive Palestinian death toll, untold suffering, and billions of dollars in damage to homes and infrastructure in Gaza – but, predictably, leading to no political progress whatsoever.

Israel also views Iran’s nuclear program as an existential threat. Hardline Israelis repeatedly sought to convince the US to attack Iran’s nuclear facilities, or at least allow Israel to do so. Fortunately, President Barack Obama resisted, and instead negotiated a treaty between Iran and the five permanent members of the United Nations Security Council (plus Germany) that blocks Iran’s path to nuclear weapons for a decade or more, creating space for further confidence-building measures on both sides. Yet Trump and the Saudis seem intent on destroying the possibility of normalizing relations created by this important and promising agreement.

External powers are extremely foolish to allow themselves to be manipulated into taking sides in bitter national or sectarian conflicts that can be resolved only by compromise. The Israel-Palestine conflict, the competition between Saudi Arabia and Iran, and the Sunni-Shia relationship all require mutual accommodation. Yet each side in these conflicts harbors the tragic illusion of achieving an ultimate victory without the need to compromise, if only the US (or some other major power) will fight the war on its behalf.

During the past century, Britain, France, the US, and Russia have all misplayed the Middle East power game. All have squandered lives, money, and prestige. (Indeed, the Soviet Union was gravely, perhaps fatally, weakened by its war in Afghanistan.) More than ever, we need an era of diplomacy that emphasizes compromise, not another round of demonization and an arms race that could all too easily spiral into disaster.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and the UN Sustainable Development Solutions Network.

By Jeffrey D. Sachs

Recovery is Not Resolution

CAMBRIDGE – Earlier this year, the consensus view among economists was that the United States would outstrip its advanced-economy rivals. The expected US growth spurt would be driven by the economic stimulus package described in President Donald Trump’s election campaign. But the most notable positive economic news of 2017 among the developed countries has been coming from Europe.


Last week, the International Monetary Fund revised upward its growth projections for the eurozone, with the more favorable outlook extending broadly across member countries and including the Big Four: Germany, France, Italy, and Spain. IMF Chief Economist Maurice Obstfeld characterized recent developments in the global economy as a “firming recovery.” Growth is also expected to pick up in Asia’s advanced economies, including Japan.

As I noted in a previous commentary, Iceland, where the financial crisis dates to 2007, has already been dealing with a fresh wave of capital inflows for some time, leading to concerns about potential overheating. A few days ago, Greece, the most battered of Europe’s crisis countries, was able to tap global financial markets for the first time in years. With a yield of more than 4.6%, Greece’s bonds were enthusiastically snapped up by institutional investors.

Greek and European officials hailed the bond sale as a milestone for a country that had lost access to global capital markets back in 2010. Greek Prime Minister Alexis Tsipras said the debt issue was a sign that his country is on the path to a definitive end to its prolonged crisis.

In the US, the Federal Reserve’s ongoing exit from ultra-easy post-crisis monetary policy adds to the sense among market participants and other countries’ policymakers that normal times are returning.

But are they? Do recent positive developments in the advanced countries, which were at the epicenter of the global financial crisis of 2008, mean that the brutal aftermath of that crisis is finally over?

Good news notwithstanding, declaring victory at this stage (even a decade later) appears premature. Recovery is not the same as resolution. It may be instructive to recall that in other protracted post-crisis episodes, including the Great Depression of the 1930s, economic recovery without resolution of the fundamental problems of excessive leverage and weak banks usually proved shallow and difficult to sustain.

During the “lost decade” of the Latin American debt crisis in the 1980s, Brazil and Mexico had a significant and promising growth pickup in 1984-1985 – before serious problems in the banking sector, an unresolved external debt overhang, and several ill-advised domestic policy initiatives cut those recoveries short. The post-crisis legacy was finally shaken off only several years later with the restoration of fiscal sustainability, debt write-offs under the so-called Brady Plan, and a variety of domestic structural reforms.

Since its 1992 banking crisis, Japan has suffered several false starts. There were recoveries in 1995-1996 and again in 2000 and 2010; but they tended to be cut short by the failure to write down bad debt (the so-called zombie loans), several premature policy reversals, and an increasingly unsustainable accumulation of government debt.

The eurozone emerged from the financial crisis in 2008-2009 with some economic momentum. Unlike the Federal Reserve, however, the European Central Bank hiked interest rates in early 2011, which contributed to the region’s descent into a deeper crisis.

History, therefore, suggests caution before concluding that the current recovery has the makings of a more sustainable and broad-based variety. Many of the economic problems created or exacerbated by the crisis remain unresolved.

All of the advanced economies (to varying degrees) have significant legacy debts (public and private) from the excesses that set the stage for the financial crisis, as well as from the prolonged impact of the crisis on the real economy. Low interest rates have eased the burden of those debts (in effect, negative real interest rates are a tax on bondholders), but rates are on the rise.

Political polarization in the US and the United Kingdom is at or near historic highs, depending on the measure used. As a result, many critical but politically sensitive policies to ensure future fiscal sustainability remain unresolved in both countries.

The UK’s withdrawal from the European Union – and Brexit’s medium-term impact on the British economy – is another source of risk that has yet to be tackled. How Japan will resolve its public and private debt overhang is yet to be determined. I have argued elsewhere that inflation will likely be part of that resolution, as it is improbable that an aging population will vote to raise its tax burden and reduce its benefits sufficiently to put Japan’s debt trajectory on a sustainable path.

In Europe, the high level of non-performing loans continues to act as a drag on economic growth, by inhibiting new credit creation. Furthermore, these bad assets pose a substantial contingent liability for some governments. Target2, the euro’s real-time gross settlement system, has emerged as the eurozone’s mechanism for financing the emergence of widening structural balance-of-payments gaps, whereby capital flows out of southern Europe into Germany. For Greece, Italy, Portugal, and Spain, public-sector debt must now also include the central bank’s sharply rising debts.

Perhaps the main lesson is that even more caution is warranted in deciding whether the time is ripe to “normalize” monetary policy. Even in the best of recovery scenarios, policymakers would be ill-advised to kick the can down the road on structural reforms and fiscal measures needed to mitigate risk premia.Carmen Reinhart is Professor of the International Financial System at Harvard University’s Kennedy School of Government.

By Carmen M. Reinhart

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…