Dear Readers,

This newsletter primarily focuses on issues that directly relate to international economics. But in this highly politicized global environment it is hard to ignore what has become an accepted standard of discourse: demonization of people we disagree with in order to discredit their ideas or actions. This strategy has been employed at least since Ancient Greece, during times of war and internal conflict.

It is a banal fact that political leaders of nations fighting wars habitually demonize the enemy in speeches and propaganda in order to strengthen the will and sense of purpose of their armies and civilian populations. In Thucydides’ History, the political and military leaders who are made to address the necessities of their war, use language which isolates and alienates the enemy and confirms legitimacy…
Yet enmities in this Hellenic war had particular consequences which Thucydides brought to the surface. Hellenic speakers who strive to demonize and conceptually alienate other Hellens are not reinforcing existing conceptual borders but making new ones. In other words, this kind of rhetoric is used to disarm both external and internal enemies. Thucydides and Internal War, Jonathan J. Price, 2004 Cambridge Press

Demonization is a form of propaganda, setting boundaries on dialogue. Labeling, and the misappropriation of language itself prevent rational discussion. Nuance is lost and all choices are binary. It is a tactic employed by both sides of the polarized abortion debate for example. It is one reason why we in the US have failed to reach a rational compromise after decades (as has been achieved however in Europe).

I won’t focus on Ukraine & Russia, on the grounds that this is an actual war and so name-calling is to be expected. However, here are some other examples of demonization, a form of populism that can lead to economic policy failures, sometimes stoking actual conflict.

Carbon-based energy. The mantra is that oil companies are evil, and electrification and renewable energy are the only paths forward. The reality, as Mark Mills has written, is that there is no such thing as a costless, infinitely renewable energy machine. One day those 1000 lb electric car batteries will wear out, and that is a problem. Yet numerous funds have bowed to perceived pressure and will not invest in the hydrocarbon sector. Why is this a problem? The future will be hybrid for decades, and it is critical that we invest in making the energy sources we are using today cleaner, cheaper, and more efficient.
Switzerland is now considering limiting travel by electric vehicles in the event of a possible energy emergency. More perverse consequences could appear this winter in Europe. At their meeting two days ago, Joe Biden and Emmanuel Macron were true copains except on one issue: the so-called Inflation Reduction Act which allocates $400B in support of green energy, disadvantaging oil and Europe, where energy resiliency and redundancy are key to literally keeping the lights on.

As the National Grid warns about upcoming blackouts, the Just Stop Oil Movement stops traffic in the UK.

The demonization of cryptocurrency was recently given a huge boost by the spectacular failure of FTX, which unfolded in an environment of sustained regulatory uncertainty: Gary Gensler is on the menu for the next Congress. A number of older intellectuals have found new life by styling crypto and defi as Ponzi schemes. I won’t get into the details of that argument here, but suffice it to say that innovation in finance should be studied soberly and intensely. My prediction is that the financial system of the future will combine the best features of decentralized and traditional finance to create both efficiencies and opportunities, especially for companies that serve as zippers between the two. Criminals exist in every sector, but criminalizing crypto will only drive it underground, and if you understand the technology you will know that it is too late to eliminate the Internet of money. Nothing lasts forever, not even central banking. The Federal Reserve is only 110 years old.
Speaking of the Fed. Everybody, from traders to devotees of defi, loves to hate the Fed. Although they might have failed to head off inflation, monetary policy alone is not a panacea. Is it surprising that people who model for a living had difficulty adjusting their models to a whole new set of circumstances due to Covid and an improbable war? No. Do I think they acted malevolently or selfishly? No. In fact, Jay Powell seems to be moderating his stance based on current data and global events which are beyond the control of the Fed. It is one of many levers in the global economy.
China. If there is one imperative that unites both Republicans and Democrats in Washington it is that “we have to do something about China”. As the US has slipped on metrics such as educational attainment and defense prowess, policymakers urge us to reshape our national priorities based on competition with an “unstoppable” China. With or without us, China faces a series of urgent challenges: economic, demographic, the environment, and public health, especially over the next few months. Shouldn’t we be forging national priorities based upon our own values? The moment for a Sputnik-type revival is long past and in fact is being led by politicians who came of age in that long-ago era. The US shines brightest when we lead by example.
Foreign Policy. A key tool of American foreign policy since the Vietnam War has been regime change, which is yet another form of demonization. The naive belief that by getting rid of (fill in the blank dictator) a country would become a friendly democracy has surely been discredited after failures in Vietnam, Iran, Iraq, Libya, and North Korea, among many others. What is needed: diplomacy, engagement, and ethical compromise, the really hard work. Not as much fun as calling someone crazy or demonic so you are justified in eliminated them.
Tech companies. How can we fault China’s policies to reign in their tech companies, and seriously contemplate doing similar things to our own? Depending on your politics, companies from Twitter to Apple to Google to Amazon to Microsoft are seen as doing evil, even as we depend upon their products and services on a daily basis. Tighter regulation, taxation, and anti-trust actions are likely to bloom in the new Congress. No doubt there have been errors, but we should be careful of eating our own young as the Chinese government has done, eviscerating its world-class technology companies and their founders, serving the government’s purpose rather than the market’s. Obviously regulators are always trailing innovators, and this is a constant source of tension, but overshooting here is an underappreciated risk to American economic vibrancy.

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All this is saidnin support of thoughtful words and measured reflection, however actions can also be effective in correcting government failures. This weekend brings the very good news that Iran has abolished its morality police, and China is easing Covid restrictions. Although China commentators such as Bill Bishop are urging caution in terms of linking the protests to the easing of lockdowns, perhaps all that really matters is that the protestors think that they worked.

Please watch for our next podcast, with Shannon O’Neil of the Council on Foreign Relations. Ian Bremmer calls her new book on globalization “an important corrective to a broken public policy debate.” An expert in Latin America, she believes that the next chapter of global trade is re-regionalization. It is the kind of iconoclastic thinking that we always try to bring to our subscribers, including the links below to the work of our EconVue experts.

With all best wishes,

Lyric Hughes Hale

Editor-in-Chief

EconVue Experts

A Dollar Reprieve

Karim Pakravan

The dollar has reversed its seemingly inexorable rise, with the weighted average dollar index falling from its 10-year high at the end of September. While it is too early to detect a trend, this development, alongside a softening of interest rates, is a welcome reprieve for emerging markets and low-income countries.

Is Japan’s Inflation Really At a 40-Year High? What, if anything, does it mean for BOJ Policy?

Richard Katz

“October Inflation At A 40-Year High” read the headlines. If this really were representative of overall inflation trends, it would put additional pressure on the Bank of Japan (BOJ) to raise interest rates in order to slow an overheating economy. But it reminds me of the line from the movie Absence of Malice: accurate but not true.

Disentangling the Crypto Crash of 2022

Collin Canright

A reckoning in the digital asset industry that started in June after the collapse of improperly collateralized investment assets gained new urgency in November. Following the professional and possibly legal improprieties that led to bankruptcy and chaos at the FTX cryptocurrency exchange, the industry is regrouping and putting distance between legitimate market participants and the grifters.

C’mon, Democrats, Tout Your Economic Record: It’s a Very Good Story

Robert Shapiro

Drawing on the fact-free politics of Donald Trump, Republicans are selling the meme that Americans are much worse off economically and financially under President Joe Biden and the Democrats.  That is demonstrably untrue.  Yet, the Democrats’ main response has been to mumble an apology for the inflation they didn’t cause and try and change the subject.

EconVue Panel Discussion

Our first live panel on the Japanese Economy with John Greenwood & Richard Katz

This panel discussion on the Japanese economy, from its outlier monetary policy to Prime Minister Fumio Kishida’s “New Capitalism”. Our panelists were John Greenwood and Richard Katz, and EconVue editor Lyric Hughes Hale was moderator.

Links

November 28, 2022 / Frozen Garlic

Reactions to the 2022 elections

Nathan Batto

BLOG POST

An analysis on Taiwan’s elections in 2022. This blog is a must-read hidden gem.

November 18, 2022 / Science Magazine
NEWS

Competition between respiratory viruses may hold off a ‘tripledemic’ this winter

Jon Cohen

Triple threat. Tripledemic. A viral perfect storm. These frightening phrases have dominated recent headlines as some health officials, clinicians, and scientists forecast that SARS-CoV-2, influenza, and respiratory syncytial virus (RSV) could surge at the same time in Northern Hemisphere locales that have relaxed masking, social distancing, and other COVID-19 precautions.

But a growing body of epidemiological and laboratory evidence offers some reassurance: SARS-CoV-2 and other respiratory viruses often “interfere” with each other.

November 2, 2022 / CoinDesk

Divisions in Sam Bankman-Fried’s Crypto Empire Blur on His Trading Titan Alameda’s Balance Sheet

Ian Allison

This is the article that led to the downfall of FTX on November 8th, and ironically the sale of Coindesk itself after its parent company collapsed in the wake of the scandal.

November 4, 2022 / The Atlantic

Who’s Really at the Wheel of Tesla in China?

Michael Schuman

So far, Elon Musk’s electric-vehicle business has been mutually beneficial and his relationship with Beijing cozy. But the CCP may have other plans.

November 2022 / Brookings

A course correction in America’s China policy

Ryan Hass, Patricia Kim, Jeffrey Bader

The U.S.-China relationship is on a downward trajectory. Neither side agrees on the diagnosis of problems or the remedies, and domestic political trends in both countries limit the likelihood of improved relations any time soon. Even so, the relationship remains too consequential to people in both countries and the rest of the world to be guided by a fatalistic acceptance of deepening enmity. And while competition resides at the core of the relationship, it is a mistake to view the relationship solely through the lens of rivalry. Doing so limits tools available to Washington for developing a more durable, productive relationship that serves America’s interests.

November 29, 2022 / US Department of Defense

China Military Power Report

This report illustrates how the Chinese Communist Party has frequently turned to the People's Liberation Army in support of its global ambitions, and provides an assessment of PLA capabilities that underscores why the PRC represents the Defense Department's pacing challenge.

In addition to continuing to monitor the PRC's evolving military strategy, doctrine and force development, the United States – alongside allies and partners – will continue to urge China to be more transparent about its military modernization program. The Department remains focused on the operational concepts, capabilities and resources necessary for meeting this pacing challenge.The lessons of history and economic analysis should both be policy inputs.

econVue +

The War of the Words: December 2022 Spotlight