Monday, December 16, 2019

Boris Johnson’s Conservative Party Blowout Win In Britain On December 12, 2019, Foretells President Trump’s Reelection in 2020

President Trump will be reelected in 2020.

The Hoover Institution lists 200 Fellows on its website.  Some are full-time, some part-time, some in residence, some off-campus, some short-term visitors, some long-term visitors, and so on.  Of the 200 or so affiliated with Hoover in 2016, I was the only Fellow to predict that Trump would win.  I did so in writing two weeks before the election.  My witnesses included Professor David Brady, General Jim Mattis, and a handful of others.

I based my prediction on what is known as “the shy Tory voter.”  When Prime Minister Theresa May’s June 2016 referendum on Brexit was approved, the result shocked almost all British pollsters and political experts.  The explanation was “shy Tory voters” who did not tell the pollsters their real voting intentions.

From Brexit, I surmised that Presidential Candidate Donald Trump would be the beneficiary of “shy Trump voters,” who would not tell American pollsters their true voting intentions.  I further surmised that Hillary Clinton would not do as well among Black voters as Barack Obama had done in 2008 and 2012.  I was right.  I put my money where my mouth was and won a spectacular one-star restaurant lunch.

Fast forward to December 12, 2019.  In the final days of the five weeks Parliamentary elections campaign, British polls showed Jeremy Corbyn’s Labor Party narrowing the lead of Johnson’s Conservatives.  Many headlines speculated on a ”Hung Parliament,” in which no party wins an absolute majority.

Once again, “shy Tory voters” turned out, this time in greater force than in the 2016 referendum.  Conservatives won constituencies that had been reliably labor for decades, in one case for a century.  Browse British media on December 13, 2019, and you will find lots of differing explanations.  I’m not a student of British politics, so I’ll let the experts fight it out.

Between now and November 2020, American pollsters, media, pundits, and professors will point to polls showing Trump losing supporters from all walks of life.  They will try to explain why 2020 is different from 2016, and that Johnson’s huge victory in Britain cannot be duplicated in America because conditions in the two countries are different.  They will be wrong again.

Trump will win at least as many electoral votes as in 2016, perhaps even more.  You can trust my forecast with a high degree of confidence.  After all, I was the only Fellow among 200 Hooverites who got it right.

Wednesday, November 27, 2019

Hong Kong People Vote Overwhelmingly For Freedom And Democracy, Repudiating Pro-China Establishment Politicians and Business Elites

On November 24, 2019, Hong Kongers went to the polls to elect 452 members who serve on 16 District Councils.  Turnout was 71% compared with 47% in 2015.  Compared with 2015, Pro-democracy candidates won 388 seats (+262), Pro-Beijing candidates 59 seats (-239), and Unaligned candidates 5 seats (-2).  Pro-democracy candidates won a majority in 15 of the 16 District Councils (+15).

On March 29, 2019, China’s hand-picked Chief Executive Carrie Lam and her appointed Councilors published an Extradition bill in the Legislative Council, which would allow the Hong Kong Government to extradite Hong Kong residents to China for trial. Hong Kongers first demonstrated two days later and continued demonstrating every week demanding the bill be withdrawn.  Hong Kongers know the difference between the Anglo-American “rule of law” and Chinese-Communist tyranny.

To put 2019 in perspective, Britain transferred sovereignty over Hong Kong to China at the stroke of midnight on June 30, 1997.  The demonstrations broke out three months before the 22nd anniversary of the handover.  This means that every Hong Konger under 22 years of age had not lived under British administration.  Everyone under 32 was aged 10 and under in the new Hong Kong Special Administrative Region (HKSAR).  Everyone 40 years and under was no more than a teenager under British administration.

Amazingly, the youth of Hong Kong led the demonstrations.  The Joint Declaration and Basic Law of Hong Kong promised that Hong Kong people would govern Hong Kong, and that Hong Kong would maintain its separate social, economic, and political systems unchanged for 50 years to 2047.  In Xi Jinping’s worldview, Hong Kongers were supposed to welcome Chinese sovereignty.  Instead, they waved British and American flags, defaced the Communist Party’s Liaison Office in Hong Kong, and burned Chinese flags.

Let me repeat this.  Hong Kongers with little or no experience living under British rule clamored for the maintenance of British institutions.  They want universal suffrage which they were promised.  They want Western law and order.  They want private property, freedom of speech, freedom of assembly, freedom of religion, freedom of association, and all the other Western freedoms stipulated in the Basic Law.  Hong Kong voters repudiated the Chinese Communist Party.

Chief Executive Carrie Lam is tone deaf.  She reluctantly withdrew the proposed Extradition bill on October 23, 2019, after nearly six months of demonstrations.  Had she withdrawn it immediately, calm might have been quickly restored. Following the huge victory of the Pro-democracy candidates, she has again displayed tone deafness, only wanting to dialogue with the protestors.  Let’s face it.  She is a toady, having no authority except what Beijing allows her to exercise.  Her best option is to go abroad for medical care and not return.

Beijing’s best option is to restore the spirit and letter of the Joint Declaration and Basic Law and wait out the 50 years of autonomy until July 1, 2047.  Why provoke the world over a small territory that is steadily becoming less important to China?  Think of the long-term benefits to China if the nations of the world actually believe China’s promises and agreements.

Is there any way to persuade Xi Jinping to honor the Joint Declaration and Basic Law?  Would it be possible to assemble a coalition of leaders of a hundred countries to sign a statement endorsing a live and let live approach to Hong Kong?  That would be the ultimate win for everyone.

Thursday, September 26, 2019

Why It’s So Hard To Withdraw U.S. Troops From Afghanistan, The Middle East, And Other Regions

First, some facts, based on U.S. Department of Defense statistics as of June 30, 2019.  The data are by region, identifying the most important countries.

Europe:  (NATO):  64,702
            Germany:  35,232  (20 U.S. military bases in Germany)
            Italy:  12,843

East Asia (Excluding Hawaii and Guam):  84,593
            Japan:   55,327
            South Korea:  26,086

West Asia, Central Asia, South Asia, Africa, and Indian Ocean:  10,683
            Bahrain:  4,371

Unspecified:  9,076
           
Afghanistan (Q4 2017):  11,100

Iraq (Q1 2012):  11,445

U.S. troops have been in post-war Europe for 74 years, providing stability and preventing Soviet (Russian) expansion into Western Europe.  U.S. troops have been in Japan for 74 years and in South Korea for 59 years, protecting Japan from Russian encroachment and helping to secure stability and prosperity in South Korea.  Since 2001, U.S. troops have fought wars in Afghanistan, Iraq, Syria, and Libya, and are stationed in bases in Bahrain and Qatar.

The annual cost of maintaining U.S. troops in Europe, Japan, and South Korea is relatively modest compared with the past two decades of “hot” wars in Afghanistan and the Middle East.

An official estimate of the cost of the war in Afghanistan between 2001-19 is $975 billion in overseas contingency operations dedicated specifically to the war.  During 2001-14, Operation Iraqi Freedom cost $815 billion.  In addition, the base budget for the Department of Defense increased about $250 billion and the Veterans Affairs budget increased by more than $50 billion since 2001.

A Brown University study estimated the direct cost of the wars in Iraq, Afghanistan, Pakistan, and Syria between 2001 and 2016 at about $3.6 trillion.  Adding in money appropriated for war spending and on homeland security for 2017-19, the total surpasses $5 trillion (includes future obligations of $1 trillion through 2053 for veterans medical and disability costs, as well as interest on borrowing for wars).

Should the United States continue to deploy over 100,000 troops and spend hundreds of billions of dollars to stabilize Europe and East Asia?  A case can be made that the U.S. has benefitted from a stable global economic order.  A case can also be made that fewer troops in Germany, Japan, and South Korea could also do the job.

In contrast, the Middle East and Afghanistan lack the stability of Europe, Japan, and South Korea.  Without a major U.S. presence, the Taliban might be able to take over Afghanistan, an aggressive Iran could threaten Iraq and other Arab countries, and ISIS could resurface.

But it can also be asked if thousands of casualties and the expenditure of trillions of dollars since 2001 have brought security, stability, democracy, and prosperity to these countries.  Those who served in political, diplomatic, or military office in the Bush and Obama years are generally opposed to even minor withdrawals of U.S. troops.  Apart from President Trump, antiwar activists, and  those who believe the money should be spent on domestic programs, there are few influential interests advocating a significant withdrawal of U.S. troops from the Middle East and Afghanistan.  They are no match for the Diplomatic, Military, Industrial, Political Complex.

The Diplomatic, Military, Industrial, Political Complex

Before naming names, let’s start with an overview.  The Project on Government Oversight has documented that as many as 380 high-ranking Defense Department Officials and officers over the past decade have left government to become lobbyists, corporate board members, and defense contractor consultants.  The list includes 25 four-star generals, 9 admirals, 43 three-star lieutenant generals and 23 vice admirals.  A quarter went to work for the top five defense contractors (Boeing, General Dynamics, United Technologies, Lockheed Martin, Northrop Grumman).

Former Defense Department officials and officers are only a part of the DMIPC.  Prominent consulting groups generally support continued involvement in the Middle East and Afghanistan.  

Let’s take a look.  (Rather than list all the important names affiliated with each group, I think you would benefit from the research exercise of looking up each group, examining the scope of their global operations and personnel, and letting the information sink in.  I’m not being lazy.)

Albright Stonebridge Group.  ASG was founded by former Secretary of State Madeline Albright and merged with Stonebridge international.  Its heavy hitters include the former U.S. Commerce Secretary, former foreign ministers from Spain, Germany, and Portugal, and a former Swedish Minister of Finance.

Kissinger Associates, Inc.  It’s a Who’s Who of the powerful and influential.

The Cohen Group.  TCG was founded by former U.S. Secretary of Defense William S. Cohen.  Its staff and counselors come from the White House, the departments of State, Defense, and Commerce, and Congress.

Rice Hadley Gates.  RHG was founded by former U.S. Secretary of State Condoleezza Rice, former Secretary of Defense Robert Gates, and former Assistant to the President for National Security Stephen Hadley.

The Clinton Foundation.

Members of Congress generally support large defense appropriations and military bases in their districts to provide jobs and income for their constituents.

Several important think tanks concentrate on defense and foreign affairs.  The majority of their experts do not support withdrawing troops from Afghanistan and the Middle East.

Several of my military and diplomatic Hoover colleagues serve on the boards of directors of top defense contractors and are principals and counselors of global consulting groups.  Do not construe this post as criticism of their activities.  These individuals can bring their vast experience and expertise to bear upon important matters of foreign policy and national security.

My point is that they and their employers have little incentive to support reduced military expenditure and involvement in Afghanistan, the Middle East, Europe, East Asia, and other real and potential trouble spots.

It takes a major shock (e.g., Kent State) to reverse military policy.  Any major shock that occurs in the near future is likely to strengthen the argument for continued or even increased U.S. military involvement in geostrategically important regions. Iran, Russia, and China loom on the horizon.

Monday, September 9, 2019

Understanding Chinese President Xi Jinping’s Motivation And Ambition

Apart from a brief flirtation with democracy immediately after the fall of the Qing Dynasty in 1911 and the emergence of multi-party democracy in Taiwan in 1992, autocrats have ruled China throughout its history.

China has been governed by regional nobles, national emperors, warlords, and Communist Party leaders.  The current Communist leader is Xi Jinping, author of “Xi Jinping Thought on Socialism With Chinese Characteristics For The Modern Era,” a 14-point statement that has been incorporated into the Constitution.  President Xi has eliminated the traditional limit of two five-year terms for the Chinese Communist Party paramount leader.

China’s Communist leaders have worked hard to eliminate the stain of Western imperialism that began with the Opium War in 1839 and ended on the Chinese mainland with the founding of the Peoples Republic of China in 1949.  Mao Zedong’s successor, Deng Xiaoping, formulated the doctrine of “one country, two systems,” under which Hong Kong and Macao were promised a high degree of autonomy to maintain unchanged their capitalist way of life for 50 years.  Recovering Hong Kong (1997) and Macao (1999) eliminated the remaining enclaves under Western control on the Chinese mainland.  Absorbing the Republic of China on Taiwan into the mainland is the remaining objective to complete the unification of China.

The philosophy and practice of Communist Party governance has not taken the form of a straight upward trajectory.  There have been bumps along the road.  Think in terms of “two steps forward one step backward,” “one step forward one step pause,” and other combinations of advancement, retrenchment, and holding patterns.  President Xi’s current dance with President Trump over a trade agreement may appear that Xi is making concessions to Trump to avoid risking a slowdown in China’s growth.  That would be wrong.  Any concessions Xi makes should be seen as a temporary measure along the way to fulfilling his (and China’s) domestic and foreign policy goals.

What is Xi’s ambition?  First is securing China’s dominance in economic, political, and military power throughout East Asia, pushing the West, specifically the United States, away from  China’s sphere of influence.  Second is expanding China’s influence throughout Southeast Asia, South Asia, and Central Asia, concurrent with a gradual reduction of America’s military presence in Afghanistan, Central Asia, and the Middle East.  Third is increasing Chinese influence in Europe (“one belt one road”) and enhancing China’s influence in Africa, the Caribbean, and Latin America.  President Xi can deploy the wealth generated from decades of high growth in pursuit of China’s regional and global ambitions.

Does President Xi really understand American politics?   Or is he getting mistaken advice that America can be pushed out of Asia and lacks the will to complete with China for global influence?  Perhaps Xi was poorly advised about President Trump in his early encounters with him.  Perhaps Xi believes that Trump desperately wants a trade deal to win reelection in 2020 and that Trump will make concessions.  Perhaps he believes U.S. polls showing Trump trailing several Democrat candidates and that he can wait until 2021 when a Democrat takes over the conduct of U.S. foreign policy.  Even if Xi signs what seems to be a one-sided deal in America’s favor, do not expect China to adhere to the spirit and letter of an agreement.  If you want evidence, Hong Kong people were promised that they could elect their Chief Executive by universal suffrage.  So much for that promise!

Xi is well on the way to attaining Chinese dominance in East Asia.  The U.S. cannot deploy all its military and economic resources to contain China as America also confronts problems in Europe, the Middle East, the Arctic, and Africa.  The U.S. has also entered a period of increasing racial/ethnic and other political divisions which will occupy political attention at home.  China can bide its time till it takes the net big step forward.

It would be a mistake to listen to the American doomsayers of China’s diminishing economic prospects.  They have been wrong for 40 years.

Tuesday, September 3, 2019

Why Aren’t The Presidents Of America’s Leading Universities Publicly Supporting The Quest of Hong Kong Students For Democracy And Freedom?

Almost every leading university in America has a center for the study of democracy and encourages its students to help build democracy around the world.

But why haven’t the leaders of these same universities signed and published a letter supporting the students in their quest for freedom and democracy against repressive rule from China?

Perhaps they fear losing their mess of Chinese pottage.  The most recent data I could find (2017-18 academic year) reported 363,341 mainland Chinese students attending U.S. tertiary institutions, a nearly fivefold increase from 62,523 in the 2004-05 academic year.  Mainland Chinese make up about a third of all international students in U.S. tertiary institutions.

The 363,341 students paid an estimated $12 billion in tuition and fees to U.S. colleges and universities, an average of $33,000 per student.

About 36% of mainland Chinese students are enrolled in Bachelor’s programs, 32% in Master’s programs, 15% in doctoral programs, and 17% in community colleges.  Elite private universities collect well above the $33,000 average.

About a tenth of all mainland Chinese students enroll in just ten schools:  Michigan State, Ohio State, Illinois, Purdue, Michigan, Southern California, UCLA, Columbia, Berkeley, and NYU.  Most have large STEM programs.  They would face financial strain if Chinese enrollment dried up.

Given the increasing political, social, and economic importance of China, many leading American universities also have affiliations with Chinese universities that they want to maintain.

China could use its tuition paying students and its hosting of branches of U.S. universities as pawns in any major dispute with the United States.  The presidents of U.S. universities are not likely to risk billions of dollars and ties to China in support of student protests in Hong Kong that have little chance of overcoming Chinese opposition.

Friday, August 16, 2019

Want To Halt The Spread Of Socialist Ideas On American Campuses? Send All First-Year Students To Hong Kong For Orientation Week.

Let’s send the Class of 2023 to Hong Kong for Orientation Week instead of the university to which they have been admitted.  Let American students meet with their Hong Kong counterparts to see why Hong Kong youngsters are on the front line risking life and limb for Liberty and standing up against socialist Tyranny in China.

For Hong Kong, Liberty is not an abstract ideal.  It is life itself.  Socialism is not an abstract ideal needing only good men and women to achieve its noble goals. It is Tyranny.

There is no greater struggle going on in the world today between Liberty and Tyranny than in the streets of Hong Kong.

Tuesday, August 13, 2019

Hong Kong Residents Are Writing Their Chapter In The Annals Of Freedom

Against impossible odds, Hong Kong youngsters and their supporters among the population, are making a remarkable stand for Liberty.  Ten weeks and counting, they are resisting a proposed law permitting extradition of Hong Kong residents to China and demanding  the right to elect their leaders, not having them picked by China.

All four Chief Executives of Hong Kong, ostensibly legitimized through controlled elections, have been dismal failures.  The first, Tung Chee-hwa (1997-2005), resigned during his second term following a futile attempt to impose an anti-subversion law.  Tung now blames America for inciting and supporting the resistance.  The second, Donald Tsang (2005-2012), spent time in jail on corruption charges after finishing up the balance of Tung’s term and completing his five-year term as Chief Executive.  The third, C.Y. Leung (2012-2017), got caught up in the Umbrella Revolution, was tagged with financial hanky-panky, and declined to run for a second term.  Now Carrie Lam, by far the worst, could not leave well enough alone.  She forgot Mao Zedong’s great essay:  A Single Spark Can Start A Prairie Fire.”  She lit the match, poured gasoline on the fire, refuses to withdraw the proposed extradition law, and reiterates she will do a better job of listening to the people of Hong Kong in the future to help restore stability and prosperity. Credibility gap, anyone?  Carrie Lam, her government, the Hong Kong Police, and China have all lost face.  If this all ends badly, as happened in Tiananmen, Lam will go down in history as the woman who destroyed Hong Kong.  Lam should have retired to Britain with her family in 2012 as she then hinted she might.

Hong Kong residents are risking life and limb to maintain their civil liberties (echoing Patrick Henry).  Indeed, were a referendum held with two options, (1) restore British rule or (2) continue as a Special Administrative Region of China, Hong Kong residents would doubtless choose Britain.  Must be a bitter pill for Chinese President Xi Jinping to swallow.  Too bad he didn’t learn from China’s great leader Deng Xiaoping, who invented the “One Country, Two Systems” formula.

Monday, July 29, 2019

Why Are Americans Much Richer Than Mexicans?

According to the International Monetary Fund, per capita gross domestic product (GDP) in purchasing power parity (PPP) in the United States in 2017 was $59,495.  In Mexico, it was $19,480, 32.7% of that in the U.S.

The income of the average American is three times that of a Mexican, a ratio that has been relatively constant since 1990.  Mexicans have not narrowed the gap in purchasing power in close to three decades.

“Why” is a subject for serious research.  Answers lie in economic, political, cultural, and historical factors for later posts.  Here I want to ask a related question.

The conclusion of the Mexican-American War resulted in the 1848 Treaty of Guadalupe Hidalgo (the Mexican Cession).  The United States government paid Mexico $15 million for 529,000 square miles of territory that included the current states of California, Nevada, Utah, Arizona, one-half of New Mexico, one-quarter of Colorado, and a small sliver of Wyoming.

The U.S. paid another $10 million for the Gadsden Purchase of 1853, an 29,670 square miles region along Southern Arizona and Southwestern New Mexico.

Does anyone believe that the income of the residents in these 558,670 square miles of land would be higher if the territories had remained part of Mexico rather than being ceded to the United States? 

No reasonable person could possibly say yes.

Does anyone believe that Mexico will significantly close the gap in the next few decades?  What would it take?  Will the United States have to coexist with much poorer neighbors south of its border for years to come?  If so, what does that portend for the future of American politics and society? 

Wednesday, July 24, 2019

Trump Could Lose His Trade Dispute With China But Win Reelection

Chinese purchases of U.S. soybeans could influence President Trump’s reelection prospects in 2020.

In 2016, Trump won the Midwestern agricultural states of Iowa, Nebraska, Indiana, Ohio, South Dakota, North Dakota, Missouri, Arkansas, and Kansas.  These 9 states are among the top 11 soybean producing states; the other two are Illinois and Minnesota, both heavily Democrat states.  Without the support of the agricultural Midwest, Trump could be a one-term president.

Since 2000, U.S. agricultural exports to China rose from $3.0 billion to peak at $29.4 billion in 2014, but stayed strong at $23.8 billion in 2017.  Indeed, China is the top market for U.S. agricultural exports (followed by Canada and Mexico).  Then the bottom fell out of China’s imports of U.S. farm products to $9.3 billion in 2018.  Soybeans make up 52% of U.S. agricultural exports to China.  In Trump’s words, “Not Good.”

What happened?  Following Trump’s first wave of tariffs on certain imports from China, China levied retaliatory tariffs on almost all U.S. agricultural and food exports; in particular, 25% tariffs on U.S. soybeans.  Prior to the tariffs, almost half of all soybeans produced in the U.S. was exported to China.  After the tariffs were imposed, U.S. soybean exports to China dropped precipitously.  U.S. producers were not able to replace lost sales to China with increases to other countries.  Prices fell and unsold soybeans piled up.  If producers of soybeans and other agricultural products blame Trump’s tariffs on Chinese goods for their problems, Trump could risk losing their votes in 2020 and perhaps some of the agricultural states he won in 2016.

It’s no accident that China imposed retaliatory tariff on agricultural products, especially soybeans.  China knows that Trump is vulnerable to reduced agricultural exports to China.  Trump tweets that he is waiting for China to fulfill its promise to buy more U.S. farm products, but the Chinese government has not yet rolled back its tariffs and Chinese importers have been slow to act.  As part of a trade deal, China will likely reduce its agricultural tariffs and Chinese importers will likely resume buying soybeans.

If a trade deal is signed, both parties will claim victory for themselves and global trade.  A trade deal that maximizes economic freedom for consumers and producers who rely on imports in the production of goods is a good thing.  Trump is unlikely to get a genuinely enforceable intellectual property rights agreement or an end to Chinese subsidies.  But if Chinese orders for U.S. agricultural products ramp up, Trump will claim both an economic and political victory.

Will a trade deal reduce Chinese exports to America?  Probably not.  Will a deal substantially increase U.S. exports to China?  Probably not.  Trump will have ranted and raved about China “ripping off the United States” with nothing concrete to show for it.  But if the Midwestern industrial and farm states vote for him in 2020, not much harm will have been done, and things will go back to “normal.”

Monday, July 22, 2019

The Pros and Cons of Trump’s Tariffs On Chinese Products

In July-August 2018, President Trump imposed 25% tariffs on $50 billion of Chinese high-tech goods imported into the United States.  He followed in September with 10% tariffs on another $200 billion of Chinese products, which he subsequently raised to 25% on May 10, 2019.  The additional $200 billion of Chinese imports included lamps, air conditioners, vacuums, personal grooming items, handbags, raincoats, knitted hats, baseball gloves, headgear, bicycles, tuna, halibut, salmon, pears, dog leashes, collars, harnesses, diaries, toilet paper, tobacco, hammers, faucets, screwdrivers, and other consumer goods.

If the two sides fail to reach a deal by some unspecified date, President Trump has threatened to impose 25% tariffs on an additional $300 billion of Chinese products.

Here are some numbers to assess the impact of Trump’s current and threated tariffs.  In calendar year 2018, the U.S. imported $540 billion of Chinese goods, exported $120 billion of goods to China, resulting in a merchandise trade gap of $420 billion.  (The corresponding numbers for 2017 are $505 billion [his oft repeated number], $130 billion, and $375 billion.)

President Trump refers only to merchandise trade, not the current account, which includes services and factor payments.  The U.S. runs a positive balance on services with China, thus reducing the overall trade gap.

During September-December 2018, U.S. imports of Chinese goods amounted to $195 billion, a small increase of $9 billion over $186 billion for the comparable September-December of 2017.  Trump’s tariffs of 25% on $250 billion of Chinese goods seems to have had no perceptible impact on the dollar value of Chinese products imported  into the U.S in the last four months of 2018.

The pattern changed in January 2019.  During January-May 2019, U.S imports from China fell $25 billion to $180 billion compared with the same five months of 2018.  Since U.S. GDP in Q1 of 2019 grew 3.1%, it’s hard to blame the decline of $17 billion in January-March 2019 year-over-year on slowing growth.

President Trump talks of billions of dollars collected in tariffs.  If fully collected, a 25% tariff on $250 billion in goods from China will yield $62.5 billion in annual revenue.  If Trump were to impose a 25% tariff on all imported Chinese goods (assume $500 billion in value), annual revenue would total $125 billion.

Some of the $125 billion would be borne by Chinese producers who lower their prices and some by American importers who reduce their prices to maintain a competitive edge.  Some would be borne by workers who lose their jobs and some by consumers in higher prices.  The precise percentages borne in each category are statistical guesswork based on various economic assumptions about elasticities (never mind that here), but Americans will pay some of the tariffs, a transfer from U.S. producers, retailers, workers, and consumers to the U.S. Treasury.  

Let’s put tariffs on Chinese goods in perspective.  July 2019 federal budget estimates for Fiscal Year 2019 (October 1, 2018 through September 30, 2019) are $4.529 trillion in spending, $3.438 trillion in revenue, with a deficit of $1.092 trillion.

Tariffs of $62.5 billion, the current level, amount to 21 days of the federal deficit, 7 days of revenue (non-borrowed), and 5 days of expenditure.

If Trump applies 25% tariffs on all Chinese imports, $125 billion in revenue amounts to 42 days of the deficit, 13 days of revenue, and 10 days of spending.

Billions are big numbers, but tariffs on Chinese imports are a small percentage of federal borrowing, revenue, and spending.  Worse, from these billions must be subtracted slower growth, less business activity, and lost jobs, resulting in less revenue from income, corporate, and social insurance taxes.  Trump’s tariffs could be fully offset or more in lost revenue from other taxes.

So, why impose them?  Maybe Trump’s economic advisors failed in explaining the balance of payments to him, or the impact of tariffs on economic activity, or gave up trying given his obsession with bilateral merchandise trade.

Perhaps President Trump believes that tariffs will force China to agree to more favorable trade practices, maybe necessary for U.S. national security and protection of next generation technology, and preservation of jobs in key political battleground states to enhance his reelection prospects.

Where do I come out on Trump’s trade policy?  The idea of any of the current Democrat candidates taking over the White House is too painful to bear.  If jobs in the battleground states are enhanced by tariffs on Chinese goods, so be it.  Apart from that and national security, there is little, if any, case to be made for U.S. benefits of tariffs on Chinese goods.  Preserving economic freedom, with a few caveats, is a high priority.

Tuesday, June 18, 2019

Why More Than A Million Hong Kong Residents Are Demonstrating Against A Proposed Law That Would Allow Hong Kong Government Officials To Extradite Them To China For Prosecution.

On June 12, 2019, over a million Hong Kong residents took to the streets to protest a proposed law that would permit the Hong Kong Government to extradite residents, tourists, and foreign businessmen to China for prosecution (which could mean confiscation of wealth, torture, forced confessions, imprisonment, or worse), if mainland officials charge them with breaking a mainland law.  Hong Kong Chief Executive Carrie Lam, after meeting with mainland officials across the border in Shenzhen on June 14, 2019, announced the next day an indefinite suspension of moving forward with passage of the law.  Opponents of the extradition measure continued demonstrating on June 16-17, demanding that the Hong Kong Government withdraw, not just suspend, the proposed law  (a Google search on Hong Kong provides hundreds of articles, essays and videos explaining why Hong Kong residents fear extradition to China).

Let’s be clear.  This was not a demonstration in support of democracy as was the Umbrella Revolution of 2014, although Hong Kong people would like to have democracy.  Rather, it was a demonstration in support of Hong Kong’s British colonial heritage--the rule of law, an independent judiciary, civil liberties, and free markets--as against China’s Communist Party directed judicial system.  Some demonstrators even waved the British flag and held portraits of Queen Elizabeth II.

I have written two books on Hong Kong’s history as a British colony, Value For Money:  The Hong Kong Budgetary Process (1976) and Hong Kong: A Study in Economic Freedom (1979), and co-authored two books on Hong Kong’s future, Forecasting Political Events: The Future of Hong Kong (1985) and Red Flag Over Hong Kong (1996).  The latter two predicted what would happen to the economic and political liberties enjoyed by Hong Kong people after the transfer of sovereignty from Britain to China on June 30, 1997.  All four books are available for free download at my website, alvinrabushka.com.  They help explain why Hong Kong people have been engaging in the greatest mass demonstrations in the territory’s history.

Under Deng Xiaoping’s “One Country, Two Systems” formula, Hong Kong people were promised a high degree of autonomy, that they could keep their social, economic, and political systems free from mainland control for 50 years until June 30, 2047.  China’s National People’s Congress enacted a mini-constitution, the Basic Law, for Hong Kong, which on paper guaranteed Deng’s promise.  But Deng is long since gone and Xi Jinping is no Deng Xiaoping.  China has already reneged on some of its promises to Hong Kong people.  But the proposed extradition law is by far the most dangerous encroachment, putting every resident at risk of the midnight knock on the door.  Its passage would mean the end of the most basic liberty of all, the right to life, 28 years before 2047.

We’ll see if the demonstrations can continue long enough to force the withdrawal of the proposed law.  June in Hong Kong is beastly hot and humid and people still have to earn a living.  But as Mao Zedong wrote, “ASingle Spark Can Start A Prairie Fire.”

Tuesday, April 9, 2019

Why Students Attending Elite Universities and Colleges Are Attracted To Socialism

The newest categories of students receiving preferential admission at elite universities and colleges are First Generation (households in which one or both parents did not attend college) and Low Income (households that cannot afford the cost of tuition and fees).  FG students make up as much as 20% of admissions and LI up to 27%.

Elite schools can offer many slots to low-income households because endowment income, annual gifts, and grants and scholarships from states and the federal government offset much of the cost of attendance.

The U.S. Department of Education (IPEDS) collects data from four-year colleges and universities and presents their full cost and after-aid cost in a standard format.

Average cost before aid:  tuition, other costs (books and on-campus room and board)

Average cost after aid

Average cost after aid by Household Income:

            Less Than $30,000
            $30,001 - $48,000
            $48,001 - $75,000
            $75,001- $110,000
            $110,001 or above

The most exclusive schools with the largest endowments and annual gifts are very generous, waving most or all expenses for families with household income below $75,000 and waiving tuition for those with income up to $125,000.

The table that follows shows the average cost before aid and the average after-aid cost for households with income below $30,000, between $30,001-$48,000, and $48,001-$75,000,


Average Cost Before And After Aid For HouseholdsBelow $75,000 in Annual Income ($)
Average Average Cost Average Cost
Cost for HI HI 30,001- HI 48,001-
School Full Cost 30,000 48,000 75,000
Princeton 61,860 1,348 1,771 6,224
Harvard 64,400 -230 632 3,392
MIT 63,250 7,432 4,727 5,247
Columbia 69,084 10,917 6,596 7,648
Chicago 70,100 3,620 2,289 4,672
Yale 66,445 4,978 4,392 6,896
Stanford 64,477 2,548 3,047
Duke 67,005 -1,070 827 7,805
Penn 66,800 7,755 5,323 12,968
Northwestern 68,060 6,416 9,054 11,480
JHU 65,496 14,236 9,384 13,448
Caltech 63,471 874 10,227 10,864
Dartmouth 67,044 15,604 7,316 18,324
Brown 65,380 5,335 5,459 12,181
Vanderbilt 63,532 1,168 6,043 11,146
Cornell 65,494 14,028 10,652 15,413
Rice 58,253 7,206 6,988 9,595
Notre Dame 64,665 8,838 13,451 13,979
UCLA 33,391 8,233 9,559 12,593
Wash.U. 67,751 5,716 6,580 9,528
Williams 66,340 2,780 3,795 8,188
Amherst 66,572 5,311 10,383 11,372
Swarthmore 64,363 6,120 4,422 16,603
Wellesley 63,390 8,204 9,948 12,150
Bowdoin 63,440 5,866 9,246 15,195
Carleton 64,420 16,366 11,408 15,350
Middlebury 63,456 5,141 9,505 11,186
Pomona 64,870 5,832 8,153 7,183
ClareMcKenna 66,325 7,089 9,083 7,182
Davidson 62,894 6,643 8,468 13,225

Students from families with income less than $30,000 can attend Princeton for an annual cost of $1,348 and only $6,224 up to an income of $75,000.  (A minus number means that the school is paying a student to attend.)  And so on in varying degrees for the other 29 elite universities and colleges.   No household with annual income below $75,000 pays over $16,000.  The cost of attending an elite school is lower than most state universities.

Why are students in elite schools attracted to socialism?  Socialism is redistribution of income directed by a government.  (Redistribution can be voluntary through charity.)  Many students attending elite schools are beneficiaries of redistribution.  It’s reasonable for them to believe that if America is rich enough to redistribute income to them to attend elite schools, it should be rich enough to redistribute income to everyone to bring about an equitable distribution of income for all.

In addition, almost every university has a Center for the Study of Inequality.  Faculty in these centers strive to identify the degree of inequality that exists in the U.S. and recommend  government policies to produce a more even distribution of income.

The growth in endowment and investment income, gifts, and federal and state aid that markedly reduces the cost of attending an elite school provides support for redistribution.  No amount of socialist failures around the world will change students’ minds.

How many students understand that gifts for endowment, gifts for annual expenditure, and government grants come from those who succeed in business in a market economy.  The top 10% of income earners pay 71% of federal income taxes and a comparably large share of state income taxes, which finances government grants to students.  Without the income and profits earned in America’s market economy and the disproportionately high share of taxes they pay, there would be much less money to redistribute.

Sadly, the well-to-do serving as university trustees are at the forefront of supporting the programs of redistribution that make elite education available to students from low-income households.  In so doing, they reinforce student demands for more redistribution (more socialism).  This situation will intensify in the coming years.