Merkel’s Moment

German Chancellor Angela Merkel took her usual stoic approach to the collapse of coalition talks to form a new government.   Negotiations ended, she said “an einem wirklich, ich würde fast sagen historischen Tag.”  “On really what I would almost call an historical day.”

It is.   Since the founding of the Federal Republic of Germany in 1949, every election has yielded a functioning coalition.

This could be the beginning of the end for Angela Merkel, who is widely seen as a force for stability in both Germany and the EU.   She came to power in 2005, when tension between the US and Europe over the Iraq war was still intense.   She dominated the scene in EU negotiations over the economic crises of 2008-09, as much of the world predicted the demise of the Euro.   The Euro emerged stronger, the EU survived the crisis, and Merkel’s Germany became a beacon of stability.

Now she faces her greatest challenge.  Germany is a parliamentary system, meaning that the government is led by the Chancellor (in some countries called the Prime Minister) who leads both the legislative and executive branches of government.  Voting for parliament is by party, with each party getting seats representing the proportion of votes they receive.   For one party to get a majority, it would have to get about 50% of the vote.  The only time that happened in Germany was in 1959.

The 2013 elections yielded a grand coalition, including the CDU/CSU (Merkel’s party) and SPD.   The SPD refused to continue the grand coalition, and for good reason.  It is the main left of center party, while Merkel leads the main right of center party.  When the two “big tent” parties govern together, it automatically strengthens the smaller parties, which become the only opposition.   The SPD couldn’t really run against CDU government policies in 2017, since the SPD was itself part of the government the last four years.  The result was a catastrophic loss of support and their worst result since before WWII.

The usual coalition partner for the CDU/CSU is the FDP, but together they’d have only 326 seats, well short of the 355 required.   The Left party is too far left to make a coalition with the conservatives possible, while the AfD is a right wing nationalist party with views anathema to Merkel and most conservatives.    That leaves only the Greens as a potential third coalition partner – the so called “Jamaica coalition,” as the colors of the parties (black, yellow and green) match the Jamaican flag.

The reason this is so difficult is the emergence of the AfD, a populist nationalist anti-immigrant anti-EU party with neo-nazi overtones.   They emerged with 12.6% of the vote, the third largest party.   A million of their voters came from the conservative Christian Democrats, but another two million came from people who hadn’t voted in the last election, or had voted for other (presumably right wing) parties.   Merkel does not want a coalition with AfD because that could legitimize them.   An alternative right wing party would be competition for the Christian Democrats – and Merkel and her party have a history of being pro-EU and in favor of helping refugees and others suffering war and hardship.

So what next?   Perhaps the most likely possibility is new elections.  Germans are loathe to go that route, as the stability of the Federal Republic is something prized – they recall how instability in the Weimar Republic helped create chaos and bring Hitler to power.  For that reason pressure is on the SPD to reprise their role as partner in a grand coalition.   But the SPD’s vote share of 20.5% was catastrophically bad, and most believe it would be political suicide to join Merkel in another coalition.

If there are new elections, there is no guarantee the results will be any different.  This time, the Greens and the CDU/CSU were close to an agreement on contentious issues, but the FDP (a centrist pro-business party) choose to drop out of negotiations.   55% of Germans blame the FDP for the failure of the negotiations.

The fear is that this will strengthen the AfD, though many polls show them at the peak of their strength.   If the results of new elections are basically the same, the pressure to make either a grand coalition or a Jamaica coalition work will be immense.   But it’s also possible that new elections could help Merkel.

Merkel’s strength is her ability to stay cool under pressure and handle difficult situations.  A quantum chemist by training – a real scientist – Merkel is also the first East German to become Chancellor since reunification in 1990.   Many Germans fearing chaos might turn to the woman affectionately none as “Mutti” (mom).   She lost some popularity due to her willingness to accept Syrian refugees in 2015, but her ability to stay cool and calm and weather storms makes her still the most admired German politician.

So this may be Merkel’s most important moment.  Can she navigate the German political scene, including the possibility of new elections, and avoid on going political crisis?   The potential collapse of the Euro and the Greek economy in 2009 was a crisis few thought anyone could handle, but she deftly built alliances and pushed for a solution grudgingly accepted by all sides.  If anyone can handle this with grace under pressure, it’s Angela Merkel.

Al Franken Should Resign

I am a fan of Al Franken.   He is not only extremely intelligent, but as a Senator his quick thinking has led to many memorable moments as he burned officials testifying to Senate committees with incisive and well informed questions, exposing bull shit and lies.   Before today if I had to choose who I wanted to be the Democratic standard bearer in 2020, I’d have said Al Franken.

Heck, he’s from St. Louis Park, Minnesota – a suburb of Minneapolis.  I not only was born in Minneapolis and did my Ph.D. at the University of Minnesota, but I belonged to a fitness club in St. Louis Park.   I’m a Twins, Vikings and Timberwolves fan (meh to the Wild, I can’t get into hockey).   I celebrated when Franken won his razor tight initial election for the Senate in 2008.   Calling on him to resign is personally painful to me.

I’ve heard many objections.   Unlike Judge Roy Moore, who paints himself as a holier than thou religious zealot, Franken did not assault under age women.  Moore has scores of accusers, and there is even a story of how he was banned from an Alabama mall in the 80’s due to his creepiness around young girls.   Moreover, Franken has apologized and accepts an ethics investigation.  Moore has lawyered up and doubled down, trying to personally attack and discredit his accusers.

The allegations against Franken pale to those against Donald Trump, who has also been accused by multiple women of improper behavior, and has the infamous “grab them by the pussy” statement caught on video.    President Clinton survived despite accusations of impropriety from multiple women, and a relationship with an intern.   (For the record, I also called for Clinton’s resignation when the Lewinsky scandal broke).

Bible thumper Roy Moore has had multiple credible accusations of assault on under age women, but refuses to admit anything.

So why on earth would I call on Franken to resign?

Here’s a statement I made on Facebook:  I believe Al Franken, who is a brilliant Senator, was trying to be funny as he says. I also believe he should set a positive example for Roy Moore and choose to resign his Senate seat. Even if this isn’t an underage woman, he should recognize that his actions reflect a culture where men thought it OK to steal a grope or a kiss…”no big deal.” He should recognize that such ideas are part of an outdated patriarchal world view and use his resignation to make that point.

Simply, Franken should take the initiative and do the right thing for the right reason.  He should recognize that his fall from grace, along with Moore, Stallone, Weinstein, Spacey, and others, reflects a change in our cultural tolerance of abusive and disrespectful behavior of men towards women.

The idea that “boys will be boys,” and “stealing a kiss” isn’t just fun and harmless.  If there is no consent, a kiss, a caress, or a touch of the breast is assault.   Even if it does no physical harm, it is a violation of another person in a way that is not only demeaning, but reflects a power differential that shows itself in how women are treated across the board.

Using humor to counter something not at all funny!

I believe in forgiveness, and I think that if people admit and apologize rather than lie and obfuscate, we can move on.

Franken resigning, and saying that he’s doing so because he recognizes that his behavior was part of accepted cultural norms that we can no longer tolerate, would be a step in the right direction.  It will also be welcome example of decency in the face of people like Trump and Moore, who want to save their own hide, whatever the cost.

We as a society can choose to stop the patriarchal view of society that continues to see men as dominant and women as subservient.   We’ve come a long way from the suffrage movement and getting women into the work place.   We’re at a cultural tipping point.   We need men, especially men who have engaged in such behavior, to own up to it, apologize, and support cultural change.

An American Divide

You hear talk about how college “isn’t important” if someone wants to go into the work world.  However, before one recommends young adults skip college, look at the above chart.

Those who graduated high school, did not finish high school are worse off (adjusted for inflation) than the same groups in 1973.    Even those who did only “some” college are below their 1973 peers.  In both absolute and relative terms those with college degrees are doing much, much better.

This is not to say that not having a college degree dooms you.   Many electricians, plumbers and other skilled workers do very well.   If you’re really smart, you might start a business and make loads of money.   But those are the exceptions, unskilled workers have a hard time getting a good job, or one with benefits.

This trend is troubling.   While I certainly welcome those who choose college – it is the path most likely to lead to success – a stronger system promoting the development of skilled workers would be a good idea.

My point today, though, is that the relative decline in wages for those without college degrees is related to the overall widening mal-distribution of income and wealth in the country.

As you can see, the bottom 40% only have 0.2% of the wealth in the country, while the top five percent own about 62%.  That discrepancy is immense, and helps explain how it is that the country is divded.

In the past, strong labor movements would be winning the votes of those bottom 60% percent (which together have about 15% of the wealth), and that would pressure the government to do things to equalize incomes.    But with unions weak, and industrial jobs rare, most of the poor and working lower class have menial jobs, often in the service sector.   Those voters are angry, realize they are losing out, and place the blame where it’s easiest to place: on immigrants and the very poor.  This feeds into the cynical manipulation of politics by elites who as I write this are planning a massive “tax cut” that will most benefit the very wealthy.   The game is rigged.

This graph is telling.  Back before WWII the level of wealth held by the top 0.1% was about the same as that held by the bottom 90% – around 20% for each.   After WWII and up until around 1980 the bottom 90% gained more wealth, nearing 40%, but with deregulation of banks and globalization the trend reversed, and we’re back where we were before WWII.    If the top 0.1% have about 22% of the wealth, while the bottom 90% have the same, that means more than half the wealth is between 90% and 99.9%.  Or – the wealthiest 10% of the country have nearly 80% of the wealth (as the previous chart also shows).

A look at income paints a similar picture:

The good news is that all are doing better (though not those without college, as the first chart shows), but the relative distribution has gone to the very wealthy.  This is a problem for two reasons:

1.  It creates bubbles.   The theory is that if you have policies and tax cuts that give money to the very rich, they’ll be the “job creators” and the entire economy will grow.  The reality is that in a globalized economy their money may be invested to stimulate the economy in China, Vietnam or elsewhere.  Moreover, with so much excess wealth they look to make money quickly, yielding bubbles.  When bubbles burst, the entire economy is hurt.
2. It creates political alienation.   The poor realize the American dream is no longer what it used to be.   We’re not the most popular place for immigrants to go, we are not seen as the land of opportunity.   Alienated, they turn to someone who promises to somehow return to the past, to “make America great again” and stick it to the establishment elites.  This leads to either destructive populism or cynical manipulation by elites to make sure the blame is placed on foreigners, liberals or the media.

But it gets worse:  due to our massive debt, we’re in worse shape than people realize.

Take a close look at this.  The only time our total debt (all debt – not just government debt) was anywhere close to this bad was in 1933, at the height of the great depression.  Note that the rapid increase began in the 1980s, when globalization took off in earnest, banks were deregulated, and the nature of economic relations changed.   The banks have won out, so have some elites, but this weakens the country dramatically.   $15 trillion of this debt is held by foreigners.  China alone could cause economic collapse in the US by legally dumping stocks, bonds and currency.   That’s why Presidents are always nicer to China after being elected than during the campaign.

How to turn this around will be the subject of another post.  Important is to recognize the deep structural flaws in our economy, based on massive debt.  These flaws show themselves in an increasingly warped distribution of wealth and income.  This leads to political instability and division – the first symptoms of true national decline.

America in Decline

Not long ago there was speculation that the EU would disintegrate due to a crisis that threatened the very existence of the Euro, the common currency of 19 EU states.   One sign of the instability was bond yields – Greek bonds rose to over 10%, while Ireland, Spain, Italy and Portugal had to pay over 6% to issue bonds.  Germany and the healthier economies had yields below 1%.   The higher the percentage, the more expensive it is for a country to borrow money.

Today the 10 Year Treasury bond for the us is at 2.38%.  Italy’s bond is healthier at 1.80%, Spain even better at 1.47%.   To be sure, Germany is still the best at 0.38%, while France is at 0.74%.  Greece is still over 5.0%, but Ireland has recovered fully and is at 0.62%

That may seem a boring statistic, interesting to only bankers and investment analysts, but it is really telling.  Right now investors feel better betting on the Spanish, Italian and Irish economies than on the US.  This means that despite Brexit and concerns about Euro stability, Europe’s economy looks stronger on the world stage than does that of the US.

Reports of the Euro’s demise were premature; the Euro seems to prove that whatever doesn’t kill it makes it stronger

Why the bearish approach to the American economy?   One reason is debt.   Every industrialized state has historically high debt to GDP ratios; indeed, never has so much of the world had so much debt.   But looking at government debt only shows part of the picture.    Italy as a 130% debt to GDP ratio, while the US is at 106%.   Germany is at 70%, Spain at 99%, and Greece way up at 180%.  Sweden is healthy at only 41%, while Japan is in bad shape at 245%.

The US looks especially unhealthy when total debt- which includes business, consumer, and all debt – is considered.  It is nearly 350% of GDP.   The US has also been on an unsustainable path of consuming far more than we produce, relying on a capital account surplus (foreign investment in the US) to finance that practice.

Right now it appears that the US may be teetering on a debt crisis of its own, as recent years have seen the US stimulate the economy without making structural adjustments to bring the budget back in line.  Moreover, with the Trump administration calling for massive tax cuts without spending cuts, there is concern that the US economy could even be flirting with inflation.  Add to that the fact that US leadership is considered suspect – Trump is seen by most as an incompetent populist way over his head – and the global community has quietly but decisively shifted away from confidence in the US economy, or America as a global leader.

So what does all this mean?

Decline does not mean collapse, the US economy and the country as a whole will remain an important factor in global politics.  But the 21st Century has introduced some new realities.   American military strength is seen as relatively less important.   There appears to be no major military threats, and failures in Iraq and Afghanistan show the US to be somewhat of a paper tiger.  The military is huge, but it has trouble projecting power.

The threats are from terrorism and new tactics like cyberwarfare.  Big armies aren’t effective against those threats; intelligence gathering and special operations are key.  So the world in general sees the huge US military more as a drain on the American economy than a bastion of global stability.

The symptoms will be less US influence on global affairs, fewer allies rallying to American causes, and an economy that continues to weaken for average workers, even as the very wealthy gain.  That is also a symptom of decline – rather than the whole country gaining in prosperity, divisions occur, making things like Trumpian populism viable – something unthinkable not that long ago.

Debt will mean an increase in power and wealth for the big banks and financial institutions, who increasingly do not see themselves as “American” but “global.”  What’s good for Goldman Sachs isn’t necessarily good for America.   Working class anger will increasingly give fodder to populists – including racists and xenophobes, while both parties will tend towards more extreme positions.

Can this be reversed?  Yes.  The US can only revive itself by embracing the demographic trends that promise a “new America.”  Whites will be less than 50% by 2050, increased diversity means a shift in culture and economic activity.  To revive, the “new America” needs to break out of continual high debt and consumerism, embrace the need to save and produce, and break the unholy alliance between big money and big government.

I believe the values that define this country will overcome the current troubles.  Indeed, militarism and the desire to be a global power broke with those values, and help set up the conditions that threaten our future.  First, however, the US must exorcise the demons of nationalist populism, militarism, and consumerism.  This will require an awakening of sorts, as people recognize we’re on a very dangerous path.  Alas, there is no sign of that happening yet.