The Stay at Home bill is coming

After three months of relentless Stay-at-Home/Stay Safe messages, the major Anglo-Saxon economies are beginning to understand that these measures, while thoughtful, are simply unaffordable in today’s economies. Recently the US Treasury Secretary Menuchin admitted that ‘second wave’ or no second wave, there will not be another lockdown; why? Simple, it’s not affordable. Today the UK announced that April’s GDP was down a staggering 20%+! Do you think that they will lockdown again?

Both the UK and the US have long wagered their future on the service economy. While some have been continuing to work from home, this was clearly not enough to prevent a major shock. Keeping hotels, shops, airliners, and offices shut for three months has cost us a staggering amount. The only difference between 2020 and 1929, is that this time, a combined torrent of monetary (as after 2008) and fiscal stimulus (as after FDR’s election) have sedated the patient. But the patient is now waking up and the pain is beginning to be felt. Don’t forget that the Great Depression only ended because of and after WWII.

The unfortunate truth that governments don’t want to admit is that even the wealthiest economies simply can’t afford these lockdowns and have now shot their bullets. The protracted lockdown has most certainly saved lives, but it has come at a huge cost. Consider the damage being inflicted on children staying at home, on wives being abused, on seriously ill patients not getting their essential care. As Yonathan Rosenblum brilliantly said a few weeks ago, the trade-off is not necessarily between lives and money, as the Economist put it at the beginning of the crisis. It is rather between lives and lives.

Governments should prepare for the next wave, or G-D forbid, the next pandemic, in a much more clever and cheaper way. They should protect the older population and the ones most at risk, while investing in multiplying hospital beds. If you consider that it costs $13bln to build and fit another aircraft carrier which will probably never be used, while that money could be used to build nearly one hundred  200-bed hospitals (20,000 beds in total), you can get an idea of where the funding can come from…

Irrelevance: Europe’s Eventual Demise?

If there was a time when a top down concentrated effort was needed from Brussels, the Coronavirus crisis should have been the textbook reason as to why it makes sense to have such a European overstructure.

What could central Europe have done?

Medically: enforce a similar quarantine for all the Schengen countries. Why? So that when one country reaches the peak and infection rates start receding, they will not be forced to close internal borders (intra-Europe) to stop late reacting countries’ citizens from starting the infection all over again.

Economically: create a level playing field in terms of unemployment benefits, tax breaks, rent assistance.  In addition, a synchronised quarantine that can end at roughly the same time, would allow inter block tourism and business travel to start again very quickly.

Instead, what did we get: a wide spectrum of reactions ranging from Laissez Faire to police enforced quarantine, medically. And economically we got Ms Lagarde’s stuttered response that costs markets hundreds of billions of euros.

Maybe it’s time to send all these Brussels bureaucrats home and invest the savings in the member state economies?

Statesmanship is Dead in Washington, DC.

Until not so long ago, it was considered bad practice to in any way criticise a President during a war or even a foreign military operation. Right or wrong it’s my country. No more.

Despite the fact that the repercussions of the bringing to justice arch terrorist Suleimani have so far been much better that one could expect (see about it below), the usual liberals can’t help themselves in trying to find ways to criticise the Administration. The Democrats and the media are excruciating to cross examine administration officials to look for the ‘real’ reason, or lack thereof, behind the decision to take out the Iranian general at large. Where was the evidence that American lives were at imminent risk? Which embassies were being targeted? How credible was the intelligence?

This is the macro equivalent of today’s practice in many western countries to prosecute householders who hit back at thieves and criminals who break into their property: why did the shoot? Was the intruder really dangerous? Wasn’t there another way to stop him?

The same back seat drivers will then spill hypocritical tears after terrorist attacks happen and innocent victims die: imagine if 9/11 could have been avoided by taking out the terrorists before they acted, based on compelling but perhaps not ‘liberal-proof’ evidence.

The world is a dangerous place, there are many bad players and bad states around. Ignoring evil or turning the other cheek is not going to stop tomorrow’s mass murderers, armed with lethal weapons. On the contrary, teaching them a lesson, making them think twice about moving freely, and showing terrorists and rogue countries that there are going to be consequences for foul play, will act as a deterrent. Consider the aftermath of Suleiman’s death:

  • Iran probably had to beg the Americans, via swiss channels, to let them strike at an empty airbase to pretend it was taking vengeance
  • Scores of Iranians died in the funeral processions
  • Iran downs a civilian jet, denies it did it for days and then has to admit responsibility after overwhelming evidence shows it lied through its teeth
  • The real Iranian street is furious and calls for death to its dictators
  • And counting…

Not bad for what an American Senator had the guile to call ‘the act that made America impotent!’

Only Guantanamo?

Over eighteen years after 9/11, western judiciaries are struggling to keep dangerous jihadists behind bars. In some cases, as the recent London Bridge attack showed, automatic parole systems can release dangerous terrorists after only a few years of detention. Johnson is right that these laws, made for ‘common’ criminals need to be changed to reflect the reality of thousands of islamists that only got more radicalised in prison. If you couple this with the well known phenomenon of the Syrian returnees, western nations will have to deal with a very dangerous group of people that in many cases have European passports and that have had a lot of time to coordinate with like minded terrorists both in their cells and on the net.

It is therefore no wonder then, that Guantanamo still has detainees dating from 9/11. Western democracies are facing a conflict of values: will they change the rules to keep their streets safe or will they stick to their liberal views and pay the prices with convicted jihadists being able to continue to terrorise their citizens?

The Twilight of Conservatism?

If you believe the polls, Boris Johnson has a reasonable chance of securing a parliamentary majority that should allow him to govern without a coalition. This is good news for the Conservatives as it is difficult to think of any party that would join a coalition with them, this time round. Donald (Teflon) Trump (the Economist’s nickname…) also has a realistic shot at re-election, despite an unmitigated series of faux-pas, the Mueller investigation, impeachment, etc.

The Blues in Britain and the Reds in America had better treasure this new lease of life, if they indeed get it, since the long term demographics are very tricky on both sides of the pond.  We will examine the UK first given that elections are around the corner….In Britain, were it not for the peculiar characteristics of Corbyn, which in normal circumstances shouldn’t even be allowed to run for local counsellor in east London, Labour has a much better set of demographic trends going for it. It has a strong base of many ethnic groups that will vote Labour no matter who runs (apparently close to 80% of Muslims, a fast growing segment of the population, vote Labour) plus a very strong backing from new and young voters who are looking forward to free higher education, though it is not clear paid by whom.

The message from the demographics is clear…getting a blue candidate to win future elections will keep on getting more difficult.

Styles and electoral systems

Political styles should reflect the electoral systems of each nation. There are two broad kinds of electoral systems, proportional and “winner takes all.”  Most European countries have typically favoured the former, while Anglo-Saxon nations (Great Britain, USA) have favoured the latter.

Example: Trump knows that he will never win certain states, like for example New York and California. They are hugely democratic, and the chances that a candidate like him will win over democrats, like for example Reagan did in the eighties, is nil. But he knows that he must win big in certain other states, in the south and Midwest, that are traditionally red (republican) and that are more prone to like his rhetoric and policies. Look for him to campaign next year on the issues that his constituents like and ignore or even antagonise the voters that will not vote for him in any case. At the end of the day, as recent elections have demonstrated, the presidency is won by a majority of the electoral college, not of the popular vote. This favours partisan politics.

Other countries using the proportional systems have different dynamics: every vote counts and has a direct effect in the number of MPs a party or candidate wins. Overly partisan politics may backfire.

Take for example Israel’s recent elections. PM Netanyahu ran a very aggressive campaign targeting his voter base. His gambit was that there are enough sympathetic voters around in the country to give him and his coalition a winning majority. This time, however his tactics backfired, energised his opponents, and created enough ‘anyone but Netanyahu’ voters to dilute his coalition from exactly 50% to 46%. Even with his impressive accomplishments on the economic and diplomatic fronts of the last decade, Bibi has learned that indeed in Israel, every vote counts!

Winds of War(s)

When you read a vaguely positive editorial/op-ed on Trump in the New York Times you know that he must be doing something right…

Earlier this year, the NYT had to grudgingly admit that Trump’s position on the China trade issue is correct, needed, and if anything late in implementing from the US’s point of view. Everyone knows that China got away very easy by playing the underdog two decades after it became a top industrial power. Someone had to say stop, and Trump was the only US president that lived up to the obligation to do so.

The other issue is Iran. Though the NYT and most of the liberal press still regret Trump’s abrogation of the “Iran cash for nuclear delay plan,” there is a clear indication that his policy of exerting maximum economic pressure whilst taking a prudent military stance, is a very clever strategy. Perhaps if his predecessors had imposed real biting sanctions like Trump is doing now, Iran would have caved in much earlier…perhaps. In any case, as the ayatollahs are now saying, Trump has boxed them in by a war with economic weapons. Starting a real war is now going to be a choice that Iran will have to make and take the responsibility to start. To paraphrase another NYT op-ed, the US has a great hand and is playing it well!

Europe’s new dawn

Last week’s European elections drew one of the largest turnouts in recent memory. Even in the UK the turnout was higher than at the last elections, in this case probably to mark the protest vote. In mainland Europe however, two distinct results are discernible. Firstly, there still seems to be a small plurality in favour of Europe. Mainstream parties have held their own enough to keep a social democrat majority in Brussels. However, the second takeaway is the continued march of the populists in many European countries such as for example, Italy, France, and of course the UK.

Old institutions are hard to break, and it is still far from certain that the European commission, the only European organ that really counts, will change enough to reflect the new trends in the electorate. Key issues to disentangle include: the fiscal compact that the med nations are looking for and that Germany abhors; a common immigration policy with teeth and resources, the rolling back of some of the more ambitious European dreams of full integration, that fly in the face of the significant rise of local nationalisms.

Populism and Democracy

Today is another big day for UK politics. Parliament is set to vote on the Brexit bill. The unknowns are by how many votes will the bill be defeated. As Mervin King said recently, there is a good majority in parliament against any deal, but no majority for any constructive solution. Britain never believed in popular democracy, hence referenda are not in its DNA. Even the Brexit referendum was purely consultative, but once the people are asked it is difficult for the elected representatives to be seem to flout the will of the people…The problem is that now the genie is out of the bottle and parliament is the only institution that can navigate the UK out this impasse, but it is doing it on probation.

It will be interesting to see how this equation with three unknowns will be solved…

Tria snookered…and the EU?

Italy’s twin vice premiers knew that they had a good hand in their latest round of brinksmanship with their own FM and the EU. One will recall that President Mattarella was instrumental in getting Tria to be the Finance minister, whereas the coalition wanted Savona, a euro sceptic. Faced with tremendous pressure, Tria could have resigned rather than agreeing to a budget that will increase the national debt by 2.4%, rather than the 1.9% agreed with the EU. The problem is that if he did, then the replacement would have been either a ‘yes man’ like Conte, or a euro sceptic like Savona. Mattarella was keenly aware of this, and even though, technically Mattarella could have vetoed a candidate he didn’t like, this would have plunged Italy into an institutional crisis without precedent against a coalition that is still in a honeymoon phase with the electorate. Tria, probably on Mattarella’s advice, had to blink.

As far as the EU is concerned, they will huff and puff, but at the end they will also have to swallow the Italian pill, based on two considerations. First that it could have been worse…and second, that forcing Italy to the brink would at this time play to the populists’ advantage, and quite possibly provide them with the excuse to renounce the euro altogether.

It is very unlikely that the EU will travel this uncharted territory whilst in the middle of Brexit. Let’s hope that its highly successful bargaining with Mrs May will not give the eurocrats a feeling that they could do it again with Italy…