EconVue Spotlight: The State of the State

The modern nation state has been the subject of countless books and essays, and is the foundation for almost all political economic theory from Kant to Keynes.  Since 2008, economists have been struggling. Is there something about the post-crisis world we are still not understanding? As missiles flew over Damascus this weekend, and US-China trade tensions spill over to competition, technology, and security issues, it is worthwhile examining our basic assumptions. In spite of globalization, Kant’s Perpetual Peace has certainly not arrived.

New thinking is tackling this foundational topic. In his personal blog China analyst Andrew Batson reviews Timothy Snyder’s book Black Earth: The Holocaust as History and Warning. “The main ‘warning’ of the title” he says, “is that the collapse of the state creates the conditions in which humanitarian disasters and mass killing are possible. If this was the lesson that had been learned from the Holocaust, perhaps it would have been easier to see how foreign interventions that destroyed functioning states without replacing them (Iraq, Libya) would lead to evil consequences for their people.”  

It is also well worth listening to China Power’s podcast with Evan Feigenbaum of the Paulson Institute at the University of Chicago. He’s an Asianist who avoids the siloed approach, and provides an illuminating construct: Asia is not driven by ideology but by history and nationalism. He says there are two Asias, “Security Asia” driven by those forces, and “Economic Asia” focused on trade & growth. Are Asian nations fundamentally different from Western states?

My conclusion is that although there might be different archetypes, we should not hope for a weak state anywhere.  In a surprise move, the US is set to back a $13B capital raise for the World Bank in order to make it self-sustaining. This does not support the narrative that the US is turning inwards and eschews global organizations, and should add a fillip to the World Bank/IMF Spring Meetings this coming week.

Given its critical nature, I’ve included below a number of perspectives on US-China trade issues.

RESEARCH BY ECONVUE EXPERTS

China Is Bluffing on U.S. Tariffs, and Trump Knows It
Michael Lewis 

China will suffer far more economically and politically from a protracted trade dispute with the U.S. Without continued strong economic growth, Xi cannot control his own Communist Party apparatus let alone the general population. 

Goodbye “Dr. Know-It-All”: Medicine’s Liberating Knowledge Explosion
David W. Johnson 

The digitization and globalization of medical information is overwhelming traditional medical practices. Physicians confront a continuous avalanche of medical discoveries on disease origins, symptoms and treatments. By 2020, medical knowledge will double every 73 days.

Asking about Citizenship Status in the 2020 Census Is Dangerous and Politically Inept
Robert Shapiro

My arithmetic, detailed below, suggests that some 24.3 million people would have good reason to skip the 2020 Census if they believe their names and addresses could be shared with law enforcement. 

STORIES IN OUR SPOTLIGHT

The advanced economies’ lost decade
Robert Skidelsky 4/13/2018 Project Syndicate

A decade after 2008, are we still paying the price for stepping into the austerity puddle too soon after the Global Financial Crisis? Worth a slow read this weekend.

U.S. 

US poised to support $13bn capital increase for World Bank
Shawn Donnan and Sam Fleming 4/14/2018 Financial Times

Financial Fulcrums: Podcast with James Bianco
Interviewed by Jim Grant 4/9/2018  Grant’s Podcasts

Chicago’s Jim Bianco talks interest rates, inflation fears, and where bonds yields are headed.

Why aren’t US bond investors panicking?
Anatole Kaletsky 3/27/2018 Project Syndicate

Because 1) they don’t believe in the demand story that would drive inflation, 2) they do believe that technological advances will continue to drive down prices, and 3) they are sanguine about global political stability.

The work ahead: Machines, Skills, and U.S. Leadership in the Twenty-First Century
Penny Pritzker and John Engle 4/2018 Council on Foreign Relations

A new report on a critical subject--work. Doctors rather than truck drivers might be optional in this brave new world.

Junk cities: Resolving insolvency crises in overlapping municipalities
Aurelia Chaudhury, Adam J. Levitin & David Schleicher 4/10/2018 SSRN

This is a blueprint for the future of Illinois and the Chicagoland area unless we make some hard choices very soon. And I don’t think we will.

China 

This Pentagon Paper Explains Why the Trump Administration Is Reining In Tech Trade with China
Patrick Tucker 4/6/2018 Defense One

The newly released paper describes how technological progress fits into China’s long-term strategic plans.

US-China tensions in light of game theory
Mohamed A. El-Erian 4/6/2017 Project Syndicate

Current trade tensions could conceivably destroy this cooperative game, triggering a shift to a non-cooperative one, with elements of a “prisoner’s dilemma,” in which self-interested action turns out to be both individually and mutually destructive. But, given that this would mean losses for virtually all countries, it may be possible to avoid it, with the help of a few targeted policy responses.

Endgame: Tariffs, technology and China
Sean Randolph 4/13/2018 Silicon Valley Business Jounal

View from the Valley, spot on analysis.

Will China really supplant US economic dominance?
Kenneth Rogoff 4/3/2018 Boston Globe

Insight on employment challenges in China. Actually US monetary policy is also focused on full employment-we just have fewer people to care for who have been or will be displaced by automation. So the burden is proportionately higher regardless of structural issues.

The hidden risks of China's war on debt
Henny Sender 2/28/2018 Nikkei Asian Review

An underestimated risk to the US economy is the health of the Chinese economy-especially its domestic debt markets. Great Nikkei cover story by one of Asia's best financial journalists.

China to adopt system of punitive damages for intellectual property rights infringements
4/12/2018 Reuters

Protecting innovation is just as important for domestic Chinese companies as it is for multinationals. But enforcement will be the key.

China asserts firm grip on research data
Dennis Normile 4/9/2018 Science Magazine

In a move few scientists anticipated, the Chinese government has decreed that all scientific data generated in China must be submitted to government-sanctioned data centers before appearing in publications. At the same time, the regulations, posted last week, call for open access and data sharing.

The world’s emptiest airport is a red flag
Holly Robertson 4/9/2018 Next City

When politics overrules economics.

Rest of the World

Gold to surge as U.S.-North Korean summit cages the dragon
Albert Goldson 4/2 2018 Seeking Alpha

I am not a gold bug, but this article on the mutual interests of the US and North Korea is quite thought provoking. The previous status quo, although somewhat of an irritant, had been in China's best interests.

Brexit won't kill as many U.K. finance jobs as we once thought
Natasha Bach 3/28/2018 Fortune 

Bankers prefer London, Paris, then Frankfurt.