Tag Archives: United States

Rex Tillerson and the Unraveling of the State Department

With an isolated leader, a demoralized diplomatic corps and a president dismantling international relations one tweet at a time, American foreign policy is adrift in the world.
By Jason Zengerle – Tillerson was originally recommended to the Trump team by the former Defense Secretary Robert Gates and the former Secretary of State Condoleezza Rice, both mandarins of the Republican foreign-policy establishment who had consulted for Exxon Mobil, on the grounds that his vast knowledge of foreign governments and their leaders made him a perfect fit for the job. “The expectation was that Tillerson would be a grown-up and provide ballast,” says a 30-year veteran of the Foreign Service, “that he was someone who believed in America being the glue that created global stability and would be interested in upholding the world order as we have it.”

In a few short months, Tillerson had rid the State Department of much of its last several decades of diplomatic experience, though it was not really clear to what end.

The new secretary of state, it soon became evident, had an easier time firing people than hiring them — a consequence of the election that delivered him to Foggy Bottom.

In the past few months, the pace of nominations for the State Department has picked up. But even so, few of the nominees have qualifications that match those of their predecessors. more> https://goo.gl/qE5XZS

Updates from Chicago Booth

Should we stop the ‘revolving door’?
The movement of people between industry and government is a political talking point, but how big a deal is it? Research is starting to quantify the extent of the problem.
By Brian Wallheimer – When US President Donald Trump took office, addressing the “revolving door”—the movement of people between industry and government—ranked high on his agenda. In his second week, with members of his staff steps away, he signed new ethics rules while saying, “Most of the people standing behind me will not be able to go to work or do anything adverse to our wonderful country. Five-year ban. It’s a two-year ban now and it’s got full of loopholes.”

But the revolving door proved too irresistible not too push. The Trump administration hired former industry lobbyists for prominent jobs, and several cabinet positions came straight from corporate America. Even before Trump had a chance to sign the ethics order, which critics complained had its own loopholes, his former campaign managers had set up a lobbying shop.

Behind the revolving door is the idea of regulatory capture. Forty-six years ago, the late George Stigler described how a regulatory body tasked with protecting the public interest would ultimately be “captured” to serve the interests of the regulated industry.

Chicago Booth’s Sam Peltzman expanded on this theory, arguing that regulations come about through a balancing act involving politicians and interest groups, which can be companies or other affected parties. more> https://goo.gl/e2yyWn

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Why Cities Shouldn’t Bend Over Backwards for Corporations

By Rick Paulas – In early 2010, the city of Topeka, Kansas, was in trouble. The city’s unemployment rate had risen to unprecedented levels. Some in the mayor’s office thought that a lack of affordable broadband Internet access wasn’t helping. Mayor Bill Bunten tried to remedy the situation by changing the city’s name to Google.

“There was a feeding frenzy, so Google was in the position to say, ‘If we don’t get what we want, we’ll go elsewhere,'” says Tony Grubesic, a professor of policy analytics at Arizona State University who has studied Google Fiber’s effects on Kansas City. “Google was in the driver’s seat.”

Corporations pitting cities against one another to get the best deals won’t stop anytime soon. Cities are currently courting Amazon in hopes of becoming the site of the company’s second headquarters.

Tucson sent a 21-foot cactus to Amazon chief executive officer Jeff Bezos; Birmingham built huge Amazon boxes downtown; Stonecrest, Georgia, voted to give the corporation 345 acres that it’s dubbed “the city of Amazon“; and New Jersey is trying to push through a $5 billion tax break. more> https://goo.gl/Yxj2sA

When Wall Street Owns Main Street — Literally

BOOK REVIEW

Makers & Takers: How Wall Street Destroyed Main Street, Author: Rana Foroohar.

By Rana Foroohar – Made up primarily of San Bernardino and Riverside counties, the Inland Empire was at the heart of the subprime mortgage crisis and has yet to fully recover.

In the early 2000s, predatory lenders flocked to the area, offering dicey deals to the largely minority and lower-middle-class white populations who, unable to afford housing on the coast, still craved the American Dream of homeownership. It ended, as it did in so many neighborhoods and cities across America, in tears and massive foreclosures, turning entire cities into ghost towns of derelict properties.

Private equity funds like Blackstone are giant financial institutions that operate largely outside the scrutiny of governmental regulation, since they are officially designated “nonbanks” or “shadow banks”—never mind that many of them are bigger than the better-known institutions that are subject to regulation.

Most people rightly associate private equity with offshore bank accounts (remember Mitt Romney and Bain Capital?), big corporate buyouts in which formerly healthy firms are loaded up with debt and stripped of their assets, mass layoffs, and an utter lack of transparency in their financial dealings.

But these days, the big news about private equity is that it is at the heart of the country’s housing rebound.

Private equity investors have become the single largest group of buyers in the residential housing market, purchasing $20 billion worth of steeply discounted properties between 2012 and 2014 alone and reaping huge rewards as housing prices have slowly risen from their troughs. more> https://goo.gl/P6fcNA

The flaws a Nobel Prize-winning economist wants you to know about yourself

BOOK REVIEW

Nudge: Improving Decisions about Health, Wealth and Happiness, Authors: Richard Thaler and Cass Sunstein.

By Eshe Nelson – Sorry to say it, but you’re not perfect. We like to believe that we are smart, rational creatures, always acting in our best interests. In fact, dominant economic theory these days often makes that assumption.

What was left of this illusion was further dismantled by the The Royal Swedish Academy of Sciences, who awarded the Nobel prize in economics to Richard Thaler, an American economist at the University of Chicago, for his pioneering work in behavioral economics, which examines humanity’s flaws—namely, why we don’t make rational economic decisions.

People can make bad economic choices based on something Thaler dubbed the “endowment effect,” which is the theory that people value things more highly when they own them. In other words, you’d ask for more money for selling something that you own than what you would be willing to pay to buy the same thing.

People experience the negative feeling of loss more strongly than they feel the positive sense of a gain of the same size. This is also impact by anchoring: If you are selling an item, your reference point is most likely to be the price you paid for something. Even if the value of that item is now demonstrably worth less, you are anchored to the purchase price, in part because you want to avoid that sense of loss.

This can lead to pain in financial markets, in particular. more> https://goo.gl/eR1B2B

The next financial crisis is probably around the corner—we just don’t know from where

By John Detrixhe – The German bank’s study of developed markets uses this criteria to define a financial crisis: on a year-over-year basis, a 15% drop in stock markets, 10% decline in foreign-exchange, 10% fall in bonds, 10% increase in inflation, or a sovereign default.

Deutsche Bank argues that crises have been increasingly frequent since the breakdown of the Bretton Woods system, which, after World War II, fixed exchange-rates and essentially linked them to the price of gold. That coordination ended in the 1970s when the US broke the dollar’s peg to the yellow metal. The link to a finite commodity helped limit the amount of debt that could be created.

As strategists at the Frankfurt-based lender see it, the resulting fiat money system has encouraged rising budget deficits, higher debts, global imbalances, and more unstable markets. At the same time, banking regulations have been loosened. In the US, the industry may soon have fewer restrictions and less oversight, a mere 10 years since the last worldwide crisis. more> https://goo.gl/vDnQ2w

The Chinese dream, the British dream, and the American dream, compared

By Zheping Huang – The world’s major powers might all have dreams, be they British or Chinese, South African or American. But these national dreams contain very different promises to each country’s citizens.

In her speech, May described the British dream as the vision that “life should be better for the next generation.” She said her grandmother, a former domestic servant who ended up having three professors and a prime minister among her grandchildren, was proof that the dream could be real.

But she admitted the dream was out of reach for many people today and promised to fix that. In this incarnation, the British dream isn’t so different than the American dream. One sign the British dream needs fixing? The large numbers of the ruling elite who come from this university and do this degree.

Every supreme leader of the Chinese Communist Party has his favorite political slogan. And so it is with the Chinese Dream for Xi jinping, who proposed the term shortly after he stepped into power in late 2012. Xi initially described the Chinese Dream as the vision of “the great rejuvenation of the Chinese nation.”

The term “American Dream” was coined by financier-turned-historian James Truslow Adams in his 1931 book The Epic of America. Adams defines it as the vision that everyone in America can climb the ladder if he works hard.

Today, the American dream is somewhat frayed. Only 23% of Americans believe that it is common for someone to start poor, work hard and get rich. more> https://goo.gl/BAooXf

Fanning the Flames of Chaos

President Trump’s cycle is clear: announce a goal, then back off to let others do the work.
By Kenneth T. Walsh – Trump isn’t a detail man. Throughout his careers in business and politics and during his presidency, he has floated above the landscape of specifics and set general directions. He attempts to sell his ideas to the country as a showman with a proclivity for hyperbole that borders on deception and sometimes crosses into falsehood. His goal, above all, is to score a personal victory and crush his opponents.

Now Trump’s it’s-all-about-me approach is being tested as never before as he copes with a new wave of crises, political battles and tragedies.

Trump’s pattern is clear. He dramatically announces a goal, dominating the news and becoming the center of attention, then backs off and leaves working out the details to others. He declares any success as his own achievement and portrays any failure or setback as someone else’s fault. In short, Trump fans the flames and then lets others fight the fire. He may be creating more chaos than he bargained for and fostering an out-of-control atmosphere which makes most Americans very nervous. more> https://goo.gl/y9XmRA

Insanely Concentrated Wealth Is Strangling Our Prosperity

Today’s mountains of wealth throttle the very engine of wealth creation itself.

By Steve Roth – In 1976 the richest people had $35 million each (in 2014 dollars). In 2014 they had $420 million each — a twelvefold increase. You can be sure it’s gotten even more extreme since then.

These people could spend $20 million every year and they’d still just keep getting richer, forever, even if they did absolutely nothing except choose some index funds, watch their balances grow, and shop for a new yacht for their eight-year-old.

If you’re thinking that they “deserve” all that wealth, and all that income just for owning stuff, because they’re “makers,” think again: between 50% and 70% of U.S. household wealth is “earned” the old-fashioned way (cue John Houseman voice): it’s inherited.

American households’ total wealth is about $95 trillion. That’s more than three-quarters of a million dollars for every American household. But roughly 50% of households have zero or negative wealth. more> https://goo.gl/7xjgHf

Beyond “Amazon Idol” toward a real regional growth strategy

By Mark Muro and Amy Liu – Amazon’s request for proposals (RFP) for a second headquarters complex continues to rivet city lovers, economic development leaders, and the site selection crowd (and its critics). Like a reality TV show, millions are pulling for their favorite cities. And why not: winning the title could be life-changing for some lucky metro.

Yet there’s a problem here: while the fall’s “Amazon Idol” competition is garnering high ratings, the fact remains that it is a major distraction from the glaring need for the country to systematically think about a much larger development problem—the nation’s gaping regional prosperity divides.

At present, America possesses no strategy—let alone serious policies—for addressing the uneven allocation of growth across the nation’s 50 states and hundreds of metropolitan areas. more> https://goo.gl/FaHpZR