The Trump-Davos Convergence

If history gods have a sense of humor, then they were on full display last Friday with the explicitly nationalist presidency of Donald J. Trump (DJT) starting on the same day that Davos was ending. This apocalyptic convergence of ideological opposites lead to endless reports of a nationalist miasma impacting the distinctly and explicitly pro-globalization Davos attendees. Its distressing to know that some of the attendees were so worried that it reduced their enjoyment of the conference, but these are indeed unusual and difficult times.

But how difficult are these times for the globalization project, and what can be expected to happen to globalization? Firstly, there is the matter of the reasons behind the project. Dick Cheney was decidedly pro-globalization, though that’s one supporter that Klaus Schwab may wish to forget, said that globalization can help many of the world’s poorest lift themselves from poverty while hurting very few people.

The problem is this isn’t quite true: it’s probably more accyrate to say that the benefits of globalization are concentrated and felt quickly while the costs of globalization are more diffuse and become apparent over the long-term. Although my experience is getting ever more seasoned, academia moves slowly, and the fields of economics and political economics don’t have a great track record of accounting for diffuse and long-term costs.

Moreover, some well-known economists were reduced to mere emotional political cheering rather than rational policy analysis during the Trump-Davos convergence. Reading the tweets of Nouriel Roubini of NYU, Dan Drezner of Tufts, Ian Bremmer of the Eurasia Group, and Paul Krugman of the New York Times definitely let me to wonder if perhaps their partisanship couldn’t be—uhm—somewhat better camouflaged. Also, please note that these were not the most egregious examples but merely those who most readily came to mind.

However, rather than casting stones seeing as how your poor correspondent (YPC) lives in a partisan glass house, let us instead consider how the economic analytic lacuna of long-term costs might be better addressed. What the Davos attendees call “populism” and what DJT and YPC call “nationalism” is fundamentally a group of political actors who have every right to organize and articulate their interests, even if that does upset the Davos attendees. Political economists Jeff Frieden and David Lake would recognize this split immediately as the traditional ideological separation of Nationalism, Marxism, and Liberalism has been augmented with the analytic tensions of elites and populations and institutions and economics. That is, with DJT and Davos, we see the classic tensions of elite institutions and the welfare of populations made manifest.

Recognizing this tension however begs the question of how the politics will play out over time. The Davos attendees fretted that the institutions of the post-war liberal international economic order (LIEO) such as the IMF, WTO, UN, and the World Bank will wither and die under the assault of populism and nationalism. To this YPC responds “perhaps,”  but rather than worrying about the future of these institutions, perhaps it would be better to consider what motivates these critics, consider why their criticisms were not heard, and then develop analytic methods and tools to address these issues. Just a suggestion.

Left’s Narrative Fail

On the day of Donald Trump’s inauguration, Your Poor Correspondent (YPC) must confess that he was confused by the leftists’ reaction, both in Washington, DC and Davos. Part of their distress seems to have been driven by their narrative falling apart. That is, the absence of Barack Obama and the presence of Donald Trump both elicits extreme emotion and indicates that something significant has changed. But the meaning of what has changed remains—elusive.

The problem the left has is an unexpected one, which is based on the tension between the social and natural environments. The social environment is based on popularity, the status of a person in the group, which is achieved in various ways. In democracies like the Unites States, popularity and status can lead directly to leadership. Moreover, the powerful media are kingmakers who have perfected the dark art of building up and tearing down status. Barack Obama is the media’s creation because he received glowing press coverage and very, very little negative reporting. It is for this reason that Obama was able to claim after a string of scandals including Obamacare, Benghazi, Internal Revenue Service, Trans-Pacific Partnership, the Iran appeasement, and epic deficits that his administration was the first in history that was free of scandal. From this purely social worldview, it the press doesn’t report it, then it didn’t happen.

The social environment however isn’t the final arbiter of success, the natural environment, physical world, or reality is. The problem is that reality is messy, hard, and often unpleasant, which works against the popularity and status of the social environment. Moreover, the policies and actions taken by popular leaders have consequences, and those consequences are ultimately the measure by which they should be evaluated and judged. In the long run though, consequences rather than popularity matters. This perspective is holistic, which makes it in turn holy. At some point, in some way, the social and natural environments must align. So the political left, who concentrate almost exclusively on the social environment, this results in a set of cognitive pathologies including an emphasis on speech, image, and intentions rather than technical competence, results, and history. It seems unlikely that the left will turn away from the behaviors that have led, until recently, to such great political success. However, paying attention to the details of policy consequences might help to explain the recent success of populist candidates. It also suggests that democracy is working as it was supposed to do.

 

Davos and Populism

One of the major themes of Davos has been the lack of understanding and appreciation of populism, which has three tightly interrelated populist components: (1) nationalism, (2) income, and (3) crime. The disconnect can be understood in contrast with political establishment concerns of: (1) globalism; (2) equality; and (3) struggle. From a systems perspective, note how the populist concerns are “bottom-up”, those of everyday, middle-class, law-abiding people who simply want to pursue their lives. The establishment concerns are, in contrast “top-down”, set up to achieve equal results in opposition to the process of life and living.

The Davos attendees are the epitome of the top-down political establishment, who play with the lives of middle-class people as if they were chess pieces to achieve the results they desire, envision, and have promised to their funders. And yes, there are always funders because it is incredibly expensive to attend these functions and live that lifestyle, which after a while, after you taste that lifestyle, maintaining that lifestyle becomes the goal as opposed to pursuing some highter abstract goal. I remember when I went to MIT and started pursuing my personal research interests. After a time, it became apparent that I needed to find some funding, and that meant pursuing somebody else’s research interests rather than my own. The term “poitically correct” has come to encompass those interests that are rigorously enforced by these top-down establishment funders.

The opposite is the bottom-up way of pursuing system change, and one of the best articulations that I’ve seen is D. Scott Mann’s Game Changers: Going local to defeat violent extremists. In Afghanistan, America and its NATO allies pursued a top-down approach out of Kabul for eight ineffective years. The war was pursued out of Kabul because the capital was in Kabul, diplomats felt comfortable in Kabul, and Americans knew their way around Kabul. The problem is, Afghanistan is not Kabul, and the American-supported Government of the Islamic Republic of Afghanistan (GIRoA) was not connecting with the people because they were not out among the people. That Taliban, in contrast, were out among the people, and by 2009, it became glaringly apparent that something needed to change, so US Army Special Forces (SF) or Green Berets left Kabul, left the big fortified bases, and went out to live among the people. There SF came to appreciate the villages of Afghanistan and the lives of Afghans.  They listened to the concerns of the people, began to understand what “right looked like,”  and took steps to improve their lives not from hundreds of miles away in the capital but from right next door in their villages.

The political establishment might do well to learn the lessons of SF because the mountain town of Davos is just as removed from the concerns of middle-class Americans, Britons, and Germans as Kabul was from the average Afghan. That is, senior government decision-makers cannot formulate and deliver policy top-down from within an insulated diplomatic bubble. This is a lesson that keeps needed to be relearned, which in retrospect seems so unnecessary and costly. However, ignoring the bottom-up concerns of the people one’s government is supposed to represent is dangerous for the establishment because the status they have come to enjoy can be taken away by populism more quickly and permanently than they think possible.

Davos System

The number of globalist establishment talking heads tut-tutting over threats to the Liberal International Economic Order (LIEO) seem to be never ending: Xi, Biden, Summers, Lagarde, Khalid al-Falih, Kerry (actually half of those who came to mind are American, huh?). The LIEO involves a set of trade, currency, and institutional relationship that have helped to form the international system since World War II, most notably starting with Bretton Woods in 1944.

However, these so-called luminaries are beneficiaries of the LIEO system, they work in the system, they talk about the system, they may be considered leaders of the system, and they may even feel deeply about the system, but they don’t understand the system. Now what is meant by that? It means that they don’t understand that the LIEO because it differentially generates costs and benefits, the balance of which changes over time. Specifically, after WWII the United States was sitting pretty with pretty much all the world’s wealth. Great position, but one can’t expect that to last. A dynamic has developed over the past 70 years now in which American politicians travel the world dispensing advice and wealth to adoring and appreciative crowds, which is fun for the American politicians and the foreign crowds, but not so fund for the American taxpayers. So long as America had most of the world’s wealth, it all worked out; but now that it no longer does, the dynamic has come to an end. That is the problem.

The costs associated with American preeminent leadership—that is, hegemony—also include global environmental degradation that will eventually limit the combination of economic and population growth. Already large migration flows are resulting due to the inability of geographic regions to support the populations they generate. Traditionally LIEO counties accepted American hegemony so long as they were paid for their allegiance. For example, European countries became welfare states with the money they didn’t have to pay for defense because the Americans provided their defense. Once again, this can no longer be the case, which is especially problematic with a resurgent Russia. The dynamic of the LIEO adjusting to the reduced ability of the United States to provide wealth transfers, foreign aid, and defense to LIEO members will dominate international relations for years to come. Where it will end, nobody knows.

Davos Man

It has been asked, “Why are Davos elites always wrong?” and it’s a fair question. Last year at Davos, nobody expected Great Britain to leave the European Union or for Donald Trump to become president, and yet they both did. The primary reason that the Davos attendees always get everything wrong is that their intellectual project is normative rather than positive—that is, it’s based on “the way things should be” rather than “the way things are,” which is required for accurate prediction.

The globalist intellectual predisposition of Davos was captured by the term, “Davos Man,” which was coined by Harvard political scientist Samuel P. Huntington. He described Davos attendees as “transnationals” who hold three core beliefs. First, they see very little need for national loyalty; second, they view national boundaries as obstacles that thankfully are vanishing; and third, they see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations. What results is a perspective that views nationalism not as part of the natural order but as something harmful to be overcome, a vestigial remain of a less sophisticated era. However, if the twentieth century has taught us anything, it’s that large-scale social change projects undertaken based on utopian visions and inadequate understanding of the social systems inevitably end in disaster. The Soviet Union is perhaps the largest example, but the social policy of Detroit, the replacement of Penn Station with Madison Square Garden, and the destruction of Christ the Saviour Cathedral in Moscow all provide similar examples. In the twenty-first century, the recent devastation of Venezuela provides an instructive case as well as the ongoing disasters of Stockholm, London, Paris, and Cologne due to excessive Muslim immigration. There is doubtless considerable social capital captured in nationalism, capital that underlies and makes possible the Davos meeting itself. However it appears that the grandees in attendance, the Davos People, are scarcely aware of what makes their attendance possible, so busy are they listening to themselves talk and congratulating themselves for being there.

Shakira at Davos

An important part of the World Economic Forum (WEF) annual meeting at Davos involves inviting stars who the billionaires and world leaders may not have met before. For example, the 2016 meeting ended with a cello performance by Zoe Keating. While excellent, I found wondering what this piece had to do with the world economy but was nevertheless happy that a talented musician was recognized.

This year Shakira will be attending to promote her “Barefoot Foundation” organization which helps vulnerable and impoverished children through quality education. While your poor correspondent (YPC) has certainly heard of Shakira, he can’t proclaim himself to be a fan. However, if Klaus Schwab has invited Shakira to Davos, YPC takes this as an opportunity to learn more about her work.

Shakira’s first US single was “Whenever, Whatever“, which goes back to 2001 and has 330M hits. That’s further back than I thought, and 330M is a lot of hits. Shakira’s music is a blend of world music and rock with a heavy Latin influence, which is not surprising as she is Columbian and lives in Spain. There is also a lot of dancing.

The Shakira expert living in our house, who I did not know was a Shakira expert, then told me the next song I must listen to is “Hips Don’t Lie“, which is from 2006 and has 400M hits. This Shakira expert then sang and extended section of the song and performed several dance moves of which I did not know she was capable. She also told me that Shakira’s baby is, “totally cute.”

Finally, Shakira recorded “Waka, Waka (This time for Africa)” for the 2010 World Cup in South Africa and has received 1.3 billion hits, which is a lot. I can’t say that I’m a huge Shakira fan, but I’m thankful for knowing more about her know and am especially impressed by her longevity, the professional quality of her videos, and the views they have received. So I feel like Klaus Schwab has helped me to make a connection and learn more about globe, and isn’t that really what Davos is all about?

The Davos Question

Welcome to the 2017 version of the World Economic Forum (WEF) annual meeting in Davos. This meeting has been going on in various forms since 1971, when it was known as the European Management Forum, but today it is known for its over-the-top excess. Two years ago, it was reported that 1700 private jets flew into Davos for the meeting to discuss global warming. This is not the kind of headline that WEF’s founder, Klaus Schultz, desires because while the Davos annual meeting in is known for its parties, famous people, and even the skiing, but Shultz wants the meeting to be known for the high-minded exchange of ideas, and not just any ideas, but globalist ideas.

While Davos has had a good run pursuing globalism, the mood in 2017 is less optimistic as there has been unprecedented pushback in the form of “populism,” which is more properly though of as “nationalism.” This essay is about trying to understand the tensions between these two perspectives, the globalist and nationalist. The globalist perspective goes back to the beginning of modern international relations (IR) after the beginning of World War I with the advent of the Carnegie Endowment for International Affairs, the Council on Foreign Relations, and the League of Nations, all of which were allied to further the worthy if elusive goal of ending war. There is a traditional tension within IR between the study of war and economics, between guns and butter. Pacifists concentrate on economics to help avoid war.

In its modern form, the WEF concentrates on a palate of issues that extend far beyond economics: (1) 4th industrial revolution, (2) responsive / responsible leadership, (3) global collaboration, (4) building positive identities (Soros), (5) fixing market capitalism, and (6) restoring economic growth. Beyond that this years WEF annual meeting will feature advocates for basic income, borderless migration, and women’s equality. A first this year will be the attendance of China’s president, Xi Jinping, who will be attending as an advocate of globalism. Seeing how China has taken such a lead as a world trading power, it has a vested interest in reducing national borders and nationalism. 

But the conspicuous consumption at Davos and the virtue signaling of the WEF serve to detract from the fundamental question of who is paying for all this? The WEF sells memberships, and the higher the level of membership, the better the access. The WEF webpage is understandably coy about the cost of membership, but let’s just say that if you have to ask you can’t afford it and the WEF  does pretty well.

One might gain some insight into how WEF by looking at how the Clinton Global Initiative (CGI) or Clinton Foundation is funded. Why is that? That is, why might the two organizations be considered similar? CGI notably features a similar palette of policy concerns. They are concerned about women’s issues, homosexual rights, wealth inequality, economic opportunity, and migration. In other word, CGI advocates the standard set of politically correct issues of the international political establishment.

However, the sources of GCI’s funding, being an American institution, is easier to determine than WEF’s. GGI’s funding comes from multiple countries including Saudi Arabia, who donated over $10 million, the Ukraine, which has donated millions, and Lebanese-Nigerian developer who donated more than $5 million dollars. Other significant donors to CGI include the United Arab Emirates (UAE), Qatar, Kuwait, Oman, Brunei, and Algeria. These are not countries that are noted for their notably progressive policies. In fact, these countries are often noted for their repression of women, intolerance towards gays, persecution of journalists, and corruption of their institutions.

So why do such countries give so much money to the Clinton Foundation? Bill and Hillary Clinton contend that CGI is a charity, that those who contribute do so because of the good work the Clintons do, and that anyone who questions CGI is opposed to charity and good works. This is of course highly suspect as Hillary Clinton was the US Secretary of State and a candidate for the US Presidency while CGI was collecting funds. In fact, Hillary Clinton made a range of ethically questionable policy decisions as Secretary of State that were described by Peter Schweizer’s Clinton Cash, the reporting of which was rewarded with endless denials and counter-accusations by Hillary’s campaign. Schweizer describes possibly influenced decisions made in Kazakhstan, Russia, India, Africa, Columbia, Haiti, as well as the global banks. Any one of those policy decisions that looks like shady deals might be able to be explained away, but in an international environment in which relationships are essentially transactional, the Clintons’ overall pattern reveals a disturbing pattern of behavior.

Examining the sources of the Clinton Foundation’s stated goals, its funding sources, and the decisions Hillary Clinton made as Secretary of State and those she might have made as president of the United States reveals a significant disconnect that has been noted by other investigative journalists and inadequately explained by political operatives. Because the idea that foreign governments are giving “extra” money to the Clintons to do work is very, very implausible, it therefore appears that the donors are getting something in return that is being hidden by the laudable goals so visible on the Clinton Foundation‘s website.

In conclusion, it is worth considering if the combination of WEF’s well-advertised good works and intentions combined with the sky-high entrance fees needed to attend and participate in the annual meeting at Davos, which is so similar to the Clinton Foundation, results in similar transactions that its participants would prefer to be hidden. Clearly Davos has invested over forty years of effort into a meeting that has a quality of participant and status that those with the money find it valuable to attend. But what might be available that is of sufficient value to be traded? Rich countries have assets that are immensely valuable, and several of Secretary of State Clinton’s shady deals allowed foreigners granted access those assets so long as the donation to the Clinton Foundation was large enough. The globalism advocated by WEF involves a similar commitment to the reduction of sovereignty. This reduction goes under the name of globalism, which by definition involves a diminution of sovereignty and national borders. Because there are good reasons for sovereignty and borders, the WEF’s advocacy of globalism has resulted in a reaction they call “populism” but could also be called “nationalism.” The WEF says that the populist reaction should be listened to, but whether it will be remains to be seen.

CNN’s Russian Intelligentsia

Just have a minute to dash off something quickly, but Your Poor Correspondent‘s (YPC’s) wants to focus on Glenn Greenwald’s recent article, “The Deep State Goes to War With President-Elect, Using Unverified Claims, as Democrats Cheer.” The article is based on reports released by both CNN and Buzzfeed that Russia had compiled a dossier on incoming president Donald Trump that featured all manner of sexual impropriety.

Even with YPC’s dilettante-level intelligence analysis capabilities, it was pretty clear that this dossier, a 35 page of very specious innuendo, had major problems. But that didn’t prevent CNN and Buzzfeed to run with it. They did, and it was discredited fairly quickly and had continued to be increasingly discredited over time.

And yet the report has been accepted by smart people who should otherwise know better, and I’m thinking particularly of economists and political economists. It seems that having a PhD makes one even more included to accept the idea that Trump, Comey, or the American public was influenced by Russia, when it is far more likely that the Clinton Foundation was judged as corrupt, Hillary Clinton was deemed unlikable, or the emails of her campaign manager, John Podesta, were seen as creepy.

But on the night the so-called “dossier”—if a bunch of obviously made up allegations can be called a “dossier”—I counted like five otherwise intelligent people who immediately believed the dossier, believed it with minor qualifications or misgivings, or found the dossier not credible but “thought it was funny” or “if it’s not true, it should be true.”

Much of this agreement by otherwise intelligent people is driven not only by selection bias, the idea of agreeing with evidence that conforms to one’s previously established ways of thinking, but the effect is magnified by the persistent leftward bias of journalists and academics as well as the power and pervasiveness of the mainstream media. The result is the groupthink of a dominant narrative in which the political establishment, which includes the intelligentsia of academics and journalists, are very invested. They are well compensated and, to use a Marxist phrase, control the “commanding heights” of political and economic power. Trump represents an “existential threat” to that power, and it will not be wrested from them without a fight.

Policy Math Mystery

The recent Nova documentary, “The Great Math Mystery,” addresses the question, is math a feature of the universe as an artifact of a brain trying to make sense of the universe. Rather than address that question, as interesting as it is, this essay addresses a different one. That is, what is the quality of mathematics that pertains to policy and its related fields of history, economics, and social science.

The first observation regards phenomena in which math applies well: well-specified physics, such as planetary motion, and experiments in which the number of interacting features is small and the time-scale is constrained. Given these constraints, then mathematical laws can provide almost perfect predictions. One need only think of Copernicus, Galileo, and Newton and their predictions to understand the confidence and promise of the explanatory capabilities of mathematics, a concept that was captured by a 1960 paper entitled, “The Unreasonable Effectiveness of Mathematics in the Natural Sciences.”

However, mathematics has not been as universally applicable as it once might have seemed, especially in the social sciences. Even in the natural sciences, the three body problem and Chaos, the subject of a 1988 book that provided insights into random and unpredictable behavior with the development of powerful computers, revealed that there were limits to mathematics and science. That doesn’t mean that mathematics and science aren’t applicable to the social and policy sciences, but it does mean that they won’t provide the certainty or exactness of other phenomena and that they need to be reconceptualized.

The Nova documentary explicitly compares the theoretical mathematics of physics with the more applied mathematics of electrical engineering and that, for these messy and inexact or complex domains, the applied mathematics of engineering is a better fit because it only needs to be good enough to get the job done. Naturally, there is a corresponding paper that addresses, “The Reasonable Ineffectiveness of Mathematics,” that addresses this challenge. This in itself is an exciting insight as applied problems often drive theoretical innovations. Current policy problems are increasingly complex and creating a demand for new and innovative ways to think about them, which creates an opportunity for those who can help to make what is currently confusing, understandable.

Davos Pregame

davos17As any deplorable knows, the pre-game was sometimes the best part of any National Football League (NFL) game, at least before Colin Kaepernick entered the league, and Davos is no exception. Sadly the Gulfstream of your poor correspondent (YPG) is in the shop, so we’ll have to do the pregame from somewhere other than Switzerland. The important thing about the pregame is that it puts the upcoming game in context, and that’s what we’ll do here for next week’s World Economic Forum (WEF) meeting in Davos.

First off, China’s president Xi JinPing will be there, a first for China. There are four major players in international relations—Americans, Europeans, Chinese, the Middle East—with the Russians are a wildcard. Normally the Americans, Europeans, and the Middle East dominate, but this year the Americans will be distracted with Trump’s inauguration, so JinPing’s presence means that the World Economic Forum will pivot east as well as the US Defense Department.

Of course the major topic of the conference, with the arrival of Brexit and Trump on the international scene, will be increasing populism that threatens globalism. Xi argues that the rejection of globalism risks “poverty and war,” and for China that may be true, but the shortcomings of globalization have significantly impacted voters in Great Britain and the US, and that’s what matters. The term “populism” however seems loaded and is often used along with “nativism” and “xenophobia,” but the most applicable term seems to be “nationalism.” The Davos grandees seem to be intent on acquiring national wealth and redistributing it, which has negative impacts on those whose wealth they’re appropriating. That they’ve responded to this purposive impoverishment by voting their economic interests is perfectly rational, but it does take some of the luster off of the WEF’s self-congratulations.

Finally, topics associated with relationships among nations like international relations, foreign affairs, and international political economy has a certain leftish, socialist, and pacifist component that, to YPC, was not completely obvious. Just think about the Peace Corps, the United Nations, or the US State Department, all of which both exhibit that peacenik vibe. The opposite side of that foreign affairs coin is the US Department of Defense and the intelligence community that, while they operate internationally, exhibit a distinctly nationalist vibe. Of course, the WEF attendees at Davos emphasize peace over the military, so they emphasize globalism over nationalism. Both are necessary and have their role, but globalism has been emphasized to the extent that nationalism has been maligned, and now large voter blocs of key countries have been impacted negatively. Now is the time to relearn the reasons why nationalism is important and necessary, but the odds of that being discussed at Davos are—small.