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Economics For Individuals: Does Twitter Have “Unimaginable Power”? Of Course Not. Only Its Users Do.

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Politicians are clueless about most things in the real world, and especially about economics. When they talk about the unimaginable power of Big Tech, they reveal their ignorance of economic principles, especially consumer sovereignty. The user is the boss, and they can overthrow any power by changing their allegiance.

Nick Saban added yet another national championship to his resume on Monday night. College football coaches, assistants, and agents everywhere celebrated. Why’s that? The answer is simple: Saban’s brilliance as a head coach raises the price of hiring every coach and assistant not Saban. Other schools, seeing what Saban has achieved, spend fortunes in a frequently fruitless search for the next Saban. Paraphrasing Warren Brookes, in every walk of life we’re blessed by the genius of the very few.

The Saban Effect reveals itself in the business world all the time. In a year when the shares of “Big Tech” companies soared, so did IPOs for much smaller ones. So did VC investments in even smaller tech firms. The three situations are related. Rising valuations for the Big Five or Six or Seven technology companies redound to the smaller ones. That’s because investors are relentlessly searching for the next “Big Techs.” What lifts the very few generates intense interest among investors in their eventual replacements. Stress replacements. Please read on.

The idea of replacements for today’s tech eminences brings us to the great Gerard Baker of the Wall Street Journal. His weekly opinion pieces are can’t miss, and this week’s was no exception. Writing about what happened at the Capitol last week, Baker made the essential point that in an effort to justify the doings after the “Save America” rally, “President Trump’s supporters have been working overtime on the moral-equivalence shift.” While he doesn’t need me to say it, Baker nailed it. Republicans, or Trump supporters don’t lift themselves by comparing what they do with the despicable actions of the other side. Better is it to always operate on a higher level. Republicans don’t break things, and don’t wreck the property of others. Period.

At the same time there was disagreement with one point Baker made. Explaining the undeniable uniqueness of Donald Trump, and why opportunists in the GOP won’t replace him, Baker observed that Trump “succeeded in large part because he spoke to the frustrations of so many Americans who have been disdained and discarded by a global elite that enjoys unimaginable power and privilege – and wields it for its own gain.” On this point Baker missed.

It seems his underlying argument was that pockets of elites, think Silicon Valley in particular, have enormous economic power that redounds to Silicon Valley. No.

Indeed, it’s worth asking where Donald Trump would be today had Twitter, Facebook, and other elite tech creations not been around in 2016. Their common use by the everyman is what helped make Trump a Republican presidential primary force, and an eventual White House occupant. These companies are big, and carry enormous valuations, precisely because their use is extensive among those with the smallest of small net worths. The elites of Big Tech didn’t and don’t disdain or discard the proverbial Trump supporter as much their size and market cap signal a powerful understanding of those who pulled the lever for the New Yorker. It’s arguable their understanding is better than Trump’s.

After that, the “unimaginable power” of top technology companies is surely not something the individuals at the top of those companies are aware of. For elites like Jeff Bezos, Mark Zuckerberg, Sundar Pichai, and Tim Cook, they know better than anyone that power in the commercial space is a highly ephemeral concept. And if they’re not aware of this truth, their investors are. Think about it.

When the 21st century began, Amazon was regularly referred to as Amazon.org, owing to its seeming inability to make online sales profitable. Zuckerberg was in high school when 2000 dawned, but the simple truth is that as late as 2006 then social media giant MySpace had more daily visitors than Google did. Facebook was still a site used by well-to-do college kids. Apple was near bankrupt in 2000, but more important is that ahead of the iPhone’s launch in 2007, it was dismissed by the seemingly unbeatable Blackberry (remember it?) as much less than imposing.

How things change. Today’s Big Tech elites are aware of this. That’s why they spend tens of billions each year in pursuit of new ways to meet the needs of existing and future customers. They’re not spending fortunes on a rather opaque tomorrow because they think their present power is secure. Quite the opposite. They know commercial history, and they know that a few wrong moves or missed opportunities will render them the AOLs and Yahoos of the 2020s. Remember them? Oh yes, they were the gold standard of a burgeoning internet when the 21stcentury began. Once again, how things change.

So while the suspension of Trump’s Twitter account, Facebook’s ejection of the 45th president, and Amazon’s role in the disappearance of Parler may have conservatives marveling at the power of tech firms bent on insulting them, rest assured that all three of the aforementioned moves have Twitter, Facebook and Amazon unnerved. It’s hard enough to stay on top, only to potentially offend a large block of U.S. users. If Amazon won’t host Parler, someone will, or will host another would-be vanquisher of Twitter. Somewhere out there the company that will knock Facebook off of its perch similarly exists. Amazon too. Bank on it.

Why is the above assertion a certainty? The answer is in the enormous valuations investors have placed on Big Tech. They signal dominance, but also an eventual end to same. Sectors pregnant with trillion dollar companies are quite a bit more pregnant with IPOs and VC rounds that will fund the replacement of today’s giants.

Translated, if you have a problem with “Big Tech” and elites more broadly, then you should cheer their success. Indeed, high achievement begets the very investment that will result in those on top being replaced at the top. Nick Saban knows this, and so do the businesses that conservatives are oddly calling for government to neuter. Such a view is backwards. Power that is “unimaginable” is by its very name ephemeral.

John Tamny is editor of RealClearMarkets.

The SBA Claims To Have Saved More Jobs Than Ever Existed.

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Last month, I wrote a piece condemning the Trump administration for refusing to disclose the beneficiaries of bailouts authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The following day, the Trump administration reversed course and promised to reveal Paycheck Protection Program (PPP) loan recipients.

On July 2, Trump proclaimed that PPP is “saving and supporting the jobs of tens of millions of American workers” and the program “has been a tremendous success, levels that nobody has ever seen before.” Treasury Secretary Steven Mnuchin boasted last month that PPP is “supporting an estimated 50 million jobs.”

We don’t need to worry because benevolent, damn-near-omniscient saviors will rescue the economy from the shutdown ravages that frightened and demagogic politicians have inflicted, right?

But the Trump team’s data is farcically inaccurate. Last month, the Small Business Administration, which administers the PPP, told the Associated Press that it was “too consumed by the urgent effort of helping small businesses through the economic downturn to provide” data on where the loans went. But the SBA has now specified how many jobs were retained for each PPP loan. While Congress slumbers, the Washington Post speedily crunched the numbers.

PPP loans – a.k.a. “Magic Beans” – are so effective that they saved more jobs than the total number of employees in at least 15 industries. Landscape architecture firms “retained 114,000 jobs — more than three times the number of people who worked in that sector in 2019,” the Post reported. The SBA also claimed that the PPP loans “preserved tens of thousands more jobs than are known to exist in other industry sectors,” including specialty food stores, cattle ranching, performing arts companies, corn and wheat farming, and fishing.

The SBA reported that a Washington state sprinkler system installer “retained more than 500 jobs” thanks to PPP but the firm has only 20 employees. A Georgia company that sells air guns and shipping bags was credited with saving 500+ jobs but has less than ten people on its payroll. Similarly, a Texas church was credited with retaining 500+ jobs – a true miracle, considering the church has only 12 employees.

Trump administration officials ignored plenty of warning signs of its “dumpster fire” bailout data. Wells Fargo issued almost 4,000 PPP loans and “every single applicant listed nothing in the jobs field, according to the SBA data,” the Post reported. Whatever.

According to a garbled email that an unnamed Treasury Department official sent the Post, the Trump administration concocted the 50+ million claim on PPP jobs based largely on the fact that “the average small business employee compensation for a 2.5-month period for 51 million employees totals approximately $520 billion.” Since the PPP has doled out more than $500 billion…. Voila!

There was never any reason to expect PPP to be anything except a train wreck. For decades, the Small Business Administration has consistently produced more boondoggles and scandals than any other (previously) half-pint federal agency. Thirty-five years ago, the Post described the SBA as a “petty cash drawer for members of Congress, who pop it open whenever they need a few dollars for the folks back home.” Congress made sure the COVID bailout package was written so that members of Congress could personally make out like bandits from the federal cash geyser.

Is the Trump administration relying on an Afghan model for responding to the pandemic? During the Obama administration, the Agency for International Development ludicrously evaluated its foreign aid programs in Afghanistan based on their “burn rate” – whether they were spending money as quickly as possible, almost regardless of the results. AID’s “burn rate” fixation produced endless absurdities, including collapsing school buildings, impassable roads, failed electrification projects, and phantom health clinics. Not surprisingly, vast Afghan corruption is the clearest legacy of AID’s “don’t ask, don’t tell” handouts. It would be naive to expect happier results from the SBA’s “spending so fast we can’t explain what we are doing” panacea.

Since the start of the pandemic, politicians have entitled themselves to inflict unlimited economic damage as long as they also shovel out almost unlimited handouts. PPP helps politicians shirk responsibility for the economic wreckage from sweeping shutdown orders with little or no connection to protecting public health. Political and bureaucratic dictates have helped bankrupt thousands of businesses since March. But since politicians are showering other businesses with handouts, it balances out, right? This is “macroeconomics justice” that ignores due process and fair treatment of individual Americans.

There is no reason to assume that Trump’s policies are better than his PPP data. Since the onset of the pandemic, both political parties and officials at all levels of government have often performed dismally. The biggest mistake Americans could make would be to permit politicians to absolve themselves now by giving away more of other people’s money.

 

This article by James Bovard first appeared at aier.org

The Economy Would Be Better Stimulated By Wholesale Deregulation Than By Profligate Government Spending.

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In recent days, the House of Representatives and President Trump have offered starkly different strategies for how to cure our ailing economy. The House’s remedy costs trillions of dollars, on top of trillions already spent. The president’s relief, by contrast, wouldn’t involve a cent in new spending.

On May 15th, the Democrat-controlled House passed the Health and Economic Recovery Omnibus Emergency Solutions Act. This is the third major stimulus passed by the “people’s body” in response to the COVID-19 crisis. The “HEROES” Act contains $3 trillion in new spending, in addition to the $3.6 trillion previously provided by Congress to defibrillate moribund markets. So, that’s one strategy to get the economy going — spend evermore gobs of public money.

Less than a week later, on May 20th, President Trump showed another way. In an executive order titled, “Regulatory Relief to Support Economic Recovery,” Trump directed regulatory enforcers to temporarily lay off, so long as regulated parties are acting in good faith. The idea is to give the economy some breathing space from overbearing government and thereby facilitate a faster recovery from the COVID shutdown.

Instead of spending, the president’s order would stimulate the economy through deregulation.

Trump, to his credit, was pushing this bright idea before his first day in the Oval Office. On the campaign trail, he had promised repeatedly to spur economic growth by removing two rules for every new regulation that takes effect.

The president, moreover, has remained committed to deregulation throughout his first term. While implementation of Trump’s “2-for-1” order has been uneven, the current administration has notched notable successes in regulating the regulators.

For example, the Justice Department convinced the Supreme Court to abandon a doctrine of obsequious judicial “deference” that had been crucial to the growth of the administrative state. And the Office of Management and Budget is overseeing institutional reforms to reduce inequities in rule-writing and regulatory enforcement.

The problem is that one presidential administration can achieve only so much. Legislation is the ultimate source of all regulatory authority. It follows that Congress possesses far greater deregulatory power than the president.

More broadly, there is little permanence to actions undertaken by the Trump administration. As a rule of thumb, anything a president does can be undone by a subsequent president.

The upshot is that the most meaningful deregulatory stimulus must come from Congress. Unfortunately, the concept is largely unknown on Capitol Hill. In both the House and Senate, lawmakers from both parties reflexively reach for the nation’s credit card as a panacea for all ills that beset the American economy.

Any merits of the $3.6 trillion in COVID-19 stimulus passed by Congress — so far — aside, no one can seriously claim these massive bills were anything but knee-jerk reactions. All these measures were written behind closed doors by party leaders, without any hearings or deliberation.

The HEROES Act amounted to more of the same. Congress has not even started oversight of the $3.6 trillion in existing stimulus, yet the House of Representatives just passed $3 trillion in new outlays. All told, the House’s spending in response to the COVID-19 crisis adds up to almost 30 percent of the U.S. GDP last year — and that’s independent of “normal” appropriations to keep the government running and entitlements flowing.

At the very least, Congress should pause before it takes up another big bucks bill so that lawmakers may assess how the previous money has been spent. There are daily media reports of misappropriated stimulus spending; Congress should get a handle on money that’s already out the door before it spends trillions more.

Better yet, Congress should take a cue from President Trump and consider employing deregulation as an engine of economic recovery. In fact, American markets do not need to be “stimulated” by mountains of public money. If government simply relaxed its grip on the economy, then the drivers of wealth creation — entrepreneurship, innovation, and investment —would flourish on their own accord.

Trump understands this and acts accordingly. Congress should give it a try.

William Yeatman is a research fellow at the Cato Institute.

Donald Trump Versus The Deep State Versus The Rest Of Us.

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One of the best side effects of the Trump presidency has been the hostility of the so-called “deep state” or “intelligence community” directed at the president.

This, in turn, has led many Americans to realize that America’s powerful, un-elected secret police agencies serve an agenda all their own, and that they choose sides in political controversies. Consequently, polls show one’s views of the CIA and the FBI depend largely on one’s ideological bent. Polls from Fox News and NBC news in recent years show that as various government bureaucracies have ratcheted up their hostility to Trump, more Democrats and Hillary Clinton voters have said they trust the CIA and the FBI.

Why the president and this deep state should be at odds has never been obvious to casual observers. Last month, however, in an article titled “Trump’s War on the ‘Deep State’ Turns Against Him,” the New York Times at last explained that there is indeed very real enmity between Trump and agencies such as the CIA and the FBI. The Times contends that Trump “went to war with the professional staff” of the intelligence agencies and the State Department.

The Times notes Trump has condemned “deep state bureaucrats,” and claims Trump’s “hostility toward government was strong from the start. He blamed the leak of the so-called Steele dossier of unverified allegations against him on intelligence agencies and never trusted their conclusion that Russia intervened in the 2016 election on his behalf.”

Trump was right to be defensive, of course. But that controversy over Russia was never really about what the Russians were up to. The focus was always largely about how much Trump colluded with the Russians to win the 2016 election.

Ultimately, the evidence was so non-existent, that after a nearly-three-year investigation, Robert Mueller was unable to establish evidence of collusion between Trump and the Russians. As Glenn Greenwald has noted: “not a single American  — whether with the Trump campaign or otherwise — was charged or indicted on the core question of whether there was any conspiracy or coordination with Russia over the election.”

But this lack of evidence did not stop John Brennan, for example, from claiming for months that he had special secret knowledge of the matter, and that Trump — or at least many around him — were going to be indicted for colluding with the Russians.

Although Brennan is a “former” CIA director, he nonetheless clearly remains well ensconced within the world of his fellow spooks. He is, as ABC News correspondent Terry Moran put it, “cloaked with CIA authority.” Brennan even insisted that he ought to retain his security clearance, presumably forever, even though he is accountable to no one. Such is the mindset of the deep state bureaucrat. They live in a world where they deserve special privileges just for being government employees.

Moreover, Brennan has been joined in his attacks on the president by other former high-ranking members of the deep state, including former FBI chief James Comey and former Director of National Intelligence James Clapper.

Those currently employed by the deep state have joined the anti-Trump campaign as well. Much of the current campaign against Trump is likely being fed by by CIA agents, and according to Sen. Rand Paul on Wednesday, CIA analyst Eric Ciaramella is supplying much of the prosecution’s information. Alexander Vindman, an Army officer and bureaucrat with the National Security Council, has testified to Congress in order to fuel impeachment efforts against the president as well.

Fêting Deep-State Bureaucrats as Heroes

None of this is to say the Trump administration lacks any taint of corruption. Like all presidents, it is likely the Trump administration expects favors for favors. The only thing different about Trump is he is not skilled at keeping the everyday corruption of the White House a secret.

But what is especially problematic for him is the fact that so many of his critics coming out of the bureaucratic woodwork are from intelligence agencies and from the military.

Unfortunately, in the United States there is a well-established bias in favor of employees from national security agencies. Even the very language used by the media speaks to this favoritism. In the Times piece, for example, the authors speak of one of Trump’s critics, one “William B. Taylor Jr., a military officer and diplomat who has served his country for 50 years.” Note the implied selflessness of Taylor’s work. An equally accurate description of Taylor would be “he was employed by government agencies for fifty years” or “the taxpayers paid his bills for fifty years.” Instead, we’re told he “served his country.” The propaganda value of the media’s pro-military bias is not lost on the officers themselves, and it’s no surprise Vindman, a Lt. Colonel, testified to Congress in his military uniform.

Other examples can be found every time Trump fires a lifelong bureaucrat from the upper echelons of the various “national security” agencies. For example, last summer, when Trump fired director of national intelligence Dan Coats, the Atlantic portrayed Coats as a principled idealist who “spoke truth to power.” Coats was fired, the author tells us, because of his devotion to the truth, even if it undermined Trump’s agenda. The best proof of Coats’s honest determination, we’re told, was the fact he “won praise from former intelligence officials.”

In real life, of course, Coats is a lifelong politician and bureaucrat who prior to his dismissal had collected a government paycheck for four decades. As a politician he lobbied for gun control and supported the disastrous 2003 Iraq War. He trashed the constitutional right of habeas corpus. Like James Comey, Coats defended and sought to hide the government’s use of torture. The idea that his post-Congressional career was marked by dogged devotion to the truth ought to strike one as rather fanciful.

A Slipping Facade

But even the New York Times is no longer pretending that the deep state doesn’t exist, and that it doesn’t have its own political agenda. In fact, as noted by Robert Merry at the American Conservative, the Times article even “portray[s] the current impeachment drama as the likely denouement of a struggle between the outsider Trump and the insider administrative forces of government.”  This is especially significant since it is also increasingly clear that, “American foreign policy has become the almost exclusive domain of unelected bureaucrats impervious to the views of elected officials — even presidents — who may harbor outlooks different from their own.” Merry concludes the past three years of investigations of the president, conducted by government bureaucrats, is “the story of entrenched government bureaucrats and a president who sought to curb their power. Or, put another way, the story of a president who sought to rein in the deep state … that sought to destroy his presidency.”

Some of these deep-state agents even admit their willingness to subvert the official chain of command to suit their own purposes. Vindman, for example, told the impeachment committee he actively sought to subvert Trump administration relations with the Ukrainian government largely to preserve Vindman’s own vision for American policy. In the mind of this mid-level bureaucrat, American foreign policy is set not by elected officials in Washington DC, but by the bureaucrats themselves.

Why Take the Administration’s Side?

Back in 2017, the battle lines between Trump and the deep state were already being drawn, and at the time I wrote:

This isn’t to say that Trump is the “good guy” here. As with the US military establishment overall, the deep state is by no means monolithic. Like any group of self-serving institutions, there are competing factions. Trump clearly has allies within some areas of the deep state, as can be reflected in Trump’s attempts to massively expand military spending at the expense of the taxpayer.

But the fact he’s considered an outsider in Washington by so many should suggest there are reasons to support him over the entrenched bureaucracy.

Indeed, as Greenwald pointed out in a 2017 interview, it’s not a coincidence that former and current members of the deep state clearly preferred Clinton to Trump during the campaign. The deep state bureaucrats prefer an insider like Clinton who who can be trusted to not upset the national security status quo in any way.

Although Trump is no true friend of peace or human rights, he commits his sins largely out in the open. As such, his presidency is relatively transparent, and Greenwald prefers that to the hidden (and extensive) crimes of the deep state.

After all, deep-state agencies face virtually no scrutiny of — and even less real opposition to — their many misdeeds. These, of course, are so numerous as to be impossible to list. But just for starters we might refer to a 2017 article by Sharyl Attkisson in The Hill titled “10 times the intel community violated the trust of US citizens, lawmakers and allies.” It’s a laundry list of illegal, immoral, and blatantly unconstitutional acts which well illustrate the near total impunity with which these agencies operate. Abuse of spying powers is so rampant within the FBI, for example, that even the lopsidedly pro-spying FISA court was forced to conclude the FBI routinely overstepped the bounds of legal surveillance. And, of course, without the heroic whistleblowing of Edward Snowden, the NSA would still be falsely insisting that it doesn’t routinely spy on virtually all Americans, whenever and however it likes.

In response to these facts, one might still insist “but presidents lie a lot and break laws too!” That’s true, but the difference between presidents and deep-state bureaucrats is well illustrated by the current impeachment controversy. It’s the president who’s facing indictments, public attacks, and the prospect of removal. On the other hand, the deep-state bureaucrats who oversee many counts of corruption, illegal spying and leaking, remain safely hidden from public view. Those who routinely lie, deceive, and abuse their power often go on doing so for decades. As the years pass, they become ever more entrenched in the federal bureaucracy, invisible to the public, and — as we are now seeing — often answerable to no one.

Presidents come and go, and they often face fierce opposition from the other party or from the media. The deep state, meanwhile, is said to be full of national heroes who “serve their country” and “speak truth to power.”

It should be easy to see, in the battle between the president and the deep state, which side is the most dangerous.

Ryan McMaken is a senior editor at the Mises Institute. S

The Southern Border Is Not Ellis Island: Why It’s Harder For Today’s Immigrants To Climb The Economic Ladder.

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President Trump’s obloquy—calling a number of countries “shitholes” and asking why we are expected to accept their immigrants—is offensive for all the reasons you’ve probably heard: it’s insulting, racially divisive, callous, and so on. The United States has welcomed immigrants from various “shithole” countries for much of its history. Those schleppers worked, sweated, and saved, started businesses, paid taxes, and asked God to bless America.

If only that was all there was to it. As is so often case in this president’s administration, noxious wording is distracting from a serious public-policy debate. The truth is that an “hourglass,” low-mobility, big-government economy presents a new set of questions about immigration policy. Today’s immigrants face a different economic reality from their predecessors.

During the mass migration that took place in the period between 1850 and 1930, more than 12 million immigrants arrived in the United States. Many were uneducated and unskilled people from countries that were largely shitholes. Immigrants from nineteenth-century Ireland, Italy, Poland, Russia, Austro-Hungarian, Greece, even the now-flush Scandinavian countries, were escaping poor, stagnant places where the future promised more of the same.

Poverty and lack of skills didn’t stop newcomers from finding work because there was plenty of it—on the piers of New York and Philadelphia, the meatpacking plants of the Midwest, and in the factories that were spreading to cities all over the country. In 1914, over 70 percent of the factory workers at Ford Motor Company were foreign-born. Immigrants and their children were over half of all of American manufacturing workers in 1920. New technologies and a swelling population also meant more jobs for construction and transportation workers. The pre–World War II industrial economy, sociologists Roger Waldinger and Joel Perlman have written, offered a “range of blue collar opportunities” for immigrants and their children.

Today’s unskilled immigrants are not so lucky. Automation and offshoring to Third World countries have seriously eroded the number of blue-collar jobs. Manufacturing positions plummeted from 19.4 million in 1979 to 11.5 million in 2010, even as immigrants were adding millions to the population of job seekers. In 1970, blue-collar jobs were 31.2 percent of total nonfarm employment. By 2016, their share had fallen to 13.6 percent of total employment. Today’s immigrants are more likely to be hotel workers, agricultural hands, bussers, janitors, and hospital orderlies. They may be earning more than they could have in their home countries, but their wages—assuming they work full-time—are enough only to keep them a notch or two above the poverty line in the United States. Adding to their troubles is frequently a lack of benefits, unreliable hours, and little chance for moving up the income ladder.

Which takes us to the other crucial shift in immigrant America. In the Ellis Island era, the country took in “the tired and poor,” but it did not—it could not, in those hard-knock times—offer them more than a chance to manage on their own. Private charitable organizations, mostly religious, sometimes kept greenhorns from starving or living on the streets, but there was no Department of Health and Human Services, no state and city welfare offices, no food stamps, Medicaid, housing subsidies, no Department of Education with Title I funds to augment local school budgets, no ESL classes or special education for immigrant children. According to a 2016 National Academies report, immigrant-headed families with children are 15 percentage points more likely to rely on food assistance, and 12 points more likely to rely on Medicaid, than native-born families with children.

Immigration absolutists respond to concerns like these by pointing out that the United States needs low-skilled workers to fill positions “Americans won’t do;” someone has to pick the grapes and empty the bedpans. They also might say twenty-first-century Americans will not and should not accept the sort of deprivation pre-safety net immigrants had to endure. True enough. But Americans are also dreamers. Immigration was part of the nation’s identity not because Americans loved living next to foreigners—few human beings do—or because immigration is a foundational principle of the nation, but because the rapidly growing American economy had a need for unskilled workers, and offered them an opportunity for advancement.

And there’s the rub. Postindustrial economies create a far more challenging path to upward mobility than the manufacturing economy. Unlike during the later industrial era, when even high school dropouts could get decent employment, education is now the most likely route to middle-class comfort and relative stability. Though as a group the number of foreign-born kids graduating college has grown faster than native-born, the children of low-skilled immigrants, particularly Latinos, are struggling. Instead of climbing the income ladder, they are slipping down. Between the second and third generation, Hispanic high school dropout rates go up and college attendance declines. Canada, Australia, and several other countries have introduced a points system giving preference to skilled immigrants precisely to avoid this scenario.

The U.S. may want to welcome low-skilled workers to do the jobs “Americans won’t do” and to help them in the early years of assimilation. But the prospect of a multi-generational proletariat class, hovering near the poverty line and dependent on government help, is probably not what most Americans had in mind.

Kay S. Hymowitz is a City Journal contributing editor, and the William E. Simon Fellow at the Manhattan Institute.

 

Trump Is Right: The Health Of The Economy Lies In Production, Not Consumption.

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In a recent podcast conversation with Dr. Per Bylund, who teaches graduate economics and entrepreneurship at Oklahoma State, we discussed the differences between GDP and GO as measures of the health of the economy.

GDP (Gross Domestic Product) is the measurement the government prefers. It emphasizes consumption as the measure of scale and growth. Politicians love it, because, if their GDP metric demonstrates some slowing down, they can prescribe Keynesian “stimulus” measures to boost it – usually more government transfers –  that they claim will turn into consumer income to be spent on more consumption.

GO (Gross Output) is the alternative measure that focuses not on consumption but production. It measures the value created at every step in the supply chain, when entrepreneurial businesses sell inputs to other businesses, and so on down the chain until final goods and services are supplied to consumers.

By the GDP measure, 75% of the scale of the economy is accounted for by consumption. By the GO measure, 75% is accounted for by production.

An economy with rising GO is a healthy economy. Companies are thriving and growing, selling more inputs to other companies, jobs are expanding, investment is being made in capital goods which increases productivity, innovation is being pursued in healthy rivalrous competition between firms.

An economy with rising GDP may or may not be healthy, because it’s impossible to see how the B2B companies are performing, whether or not they are growing and adding to employment rolls. Consumption may come from incomes, or savings, or credit, or from destruction of capital.

When economists and journalists look at the Trump trade war with China, they look through Keynesian, GDP-colored glasses. They see the cost of tariffs added to the prices at which China-made goods sell to consumers in the USA. Americans will pay more! They’ll be able to buy and consume less! It’s a tax on American consumers and on consumption!

When viewed through a GO-colored lens, it is possible to see Trump’s true intent. His end-goal is not to tax consumption. It is to shift the world’s supply chains so that they don’t run through China any more, but through the heartland of the USA. Under this scenario, more American firms would be selling inputs to more American firms, and so on until the final output is consumed. The US economy would be much healthier, as measured by GO. Perhaps our neighbors Canada and Mexico would be more involved too, via a new USMCA Treaty, so that the health of the entire North American economy would be improved.

Trump talks “GO-talk” when he makes speeches about the jobs that have been lost to globalist trade policies, and when he talks about bringing manufacturing back to the USA. The globalists did great harm to the US economy by assuming that production could be shifted to low-cost labor countries while the American consumer took care of global consumption. It was a hollowing out of American gross output.

Production is the health of the economy. People produce so that they can then exchange with others. It’s an economic law: Say’s Law or The Law Of Markets.  We produce in order to sell, with the intention to then use the proceeds to buy what we really want. We produce to satisfy other people’s wants, and can then satisfy our own by purchasing what others produce. We can each specialize in producing something we are comparatively good at instead of producing only what we want to consume.

If we let that production take place overseas, we lose the opportunity to sell what we produce, and the subsequent opportunity to buy what we want. The interdependence of producers within a supply chain, and of producers and consumers in the domestic economy, erodes and softens and weakens. The social fabric can weaken and even tear if those who consume prefer to buy from overseas and do not reward domestic producers with their purchases.

This does not mean that we shouldn’t trade with anyone. There’s an international distribution of comparative advantage (another law of economics!) that can provide a guide to those goods that are actually better produced overseas, freeing up domestic production to focus on its most advantaged uses. But the law of comparative advantage is rendered inoperative, or at least badly flawed, when a country with which America is trading alters the exchange with distorting subsidies to more greatly favor their domestic producers. That’ not a natural advantage; it’s a government-created advantage.

When the globalists enthusiastically divert production into these artificially low-cost overseas manufacturers, they are often indiscriminately diverting capital and skills and labor that can be better utilized serving American-based production. We should be applying our own technology and our own efficiency-enhancing expertise to our domestic supply chains, aiming at higher quality, speedier and better innovation, and agile recombination of capital and resources.

Trump may not articulate this very well, and he may leave himself and his trade negotiators open to the accusations of waging a trade war that’s bad for consumption. He is not a theoretician, and can often leave himself open to theoretical second-guessing.

But a simple examination of the language of the theoreticians is enough to reveal that they don’t have much of an argument for the realities of the present day. For example, they like to talk about trade “headwinds” caused by the Trump tariff, revealing that their thinking is stuck in the days of sailing ships and the clipper trade. And they use these “headwinds” to justify interventions like Fed rate cuts, which simply parrots the kinds of policies that China is implementing.

Taking the long view, Trump’s ends are meritorious: make the economic adjustments that will result in more US production and a healthier economy based on a GO metric. We can’t know if the tactics he is pursuing will get us there, but he seems to be able to adjust on the fly and we should cheer him for his goal.

 

Hunter Hastings hosts the podcast Economics For Entrepreneurs.

The Federal Reserve Is Just Another Political Body With Lousy Economic Theories – For Big Government And Against Working Americans.

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Last week’s disappointing jobs number, as well as major downward revisions to the March and April job numbers, have led to a reassessment of economic conditions facing the United States. Historically, May and June’s employment numbers tend to show strong job growth even in weaker economies as college and high school graduates join the workforce and summer jobs begin to open and fill.

While the current economic expansion rivals the longest ever (roughly ten years), many believe that the trade war is beginning to take a toll on the U.S. economy; already, businesses are making changes to their operations to deal with the impact of tariffs, some of which will be difficult to reverse.

The bright side of this is that it has become impossible, even for staunch supporters of the Federal Reserve system, to assert their political neutrality. Consider the following chain of events:

  • In November 2018, the Fed signaled that it was primed to raise the Fed Funds rate in December 2018, and additionally stood ready to raise rates three more times in 2019. It also suggested that the so-called “neutral” rate — the rate at which the economy would neither contract or expand, was at roughly 3%;
  • In December 2018, the Fed did, in fact, raise the target rate for its benchmark funds rate, from 2.25% to 2.50%;
  • On February 4th, 2019 Fed Chairman Jerome Powell and Vice Chair Clarida met with the President and the Secretary of the Treasury at the White House for an informal (one presumes that means untranscribed) dinner;
  • On March 20th, 2019 the Fed Chairman announced that rate increases for the rest of 2019 would cease — a “major shift” in its stance from several months before;
  • Between April 3rd and May 5th, 2019, the U.S. and Chinese trade officials engaged in trade negotiations: first in Washington D.C., then in Beijing;
  • Between May 10th and June 1st, 2019, both the U.S. and China broadened the list of tariffed items, raised certain tariffs, and in a new level of escalation began targeting specific firms.

On June 4th — three days before the May employment numbers were released — the Fed indicated that it was considering a rate cut, even as rates had not yet reached levels deemed neutral. Thus, in a space of 167 days, the Federal Reserve not only ended their four-year rate normalization campaign but also indicated their openness to return to an easing bias.

I have previously chronicled the myriad times in which the Fed has succumbed to political pressure; nearly every President with the exception of Obama (and one must believe that if negative rates were part of the Fed armamentarium he’d have, too) has leaned on the Fed to lower rates at one time or another. With the exception of 2016, historically the Fed has been reticent to change rate targets in the lead-up to a national election — a pattern wholly inconsistent with randomness.

This is not the promulgation of a conspiracy theory. Rather, it confirms what a growing collection of pundits, even some who long resisted the view, have come to accept: that the Fed is a political body: not impervious from, but rather receptive to, government appeals.

In fact, the Fed is hyper-political: where run-of-the-mill politicians adhere to one particular party or ideological stance, the Fed shifts to respond to political pressure from both sides of the proverbial aisle, in this case willingly discarding centuries of vindicated economic theory to do so. Far from its mandate of orchestrating monetary policy with the goals of maintaining the purchasing power of the dollar and supporting full employment they are now visibly, wholly indisputably tailoring monetary policy to facilitate and support short-term political initiatives.

WIth tariffs raising prices, strains are already being seen in the US economy. American farmers are the most recent recipients of taxpayer-financed aid; if it weren’t for the havoc being wreaked by the US-initiated trade war, a closer look at the $12B aid package would be hilarious. Budget deficits (the current Administration’s is the highest on record) are financed by borrowing. And what nation finances a large portion of the US deficit? China. Add in that if the Fed lowers the Fed Funds rate, interest rates more broadly will fall; when bond yields fall, prices rise. Thus the tariffs will not only impoverish Americans both in terms of higher prices and receding overseas markets but will also (a) waste taxpayer dollars in unnecessary domestic bailouts while (b) and enriching overseas holders of Treasury bonds. Again, primarily: China.

Perhaps the current Administration believes that recent developments reveal a deeply vulnerable Chinese economy, which will bring them to the negotiating table faster; whether or not that is the bet being made, it looks much less like the application of the President’s self-professed negotiating skills than simple — and far from vindicated, as strategies go — opportunism.

But by supporting the President’s tariff war with a sudden, colossal shift to easy money policies the Fed is not only embracing its hyper-politicization, but partnering in the implementation of long-debunked economic theories and — in tremendous disservice to the American people, let alone it statutory requirements — insulating it from the realization (as previous generations have, usually painfully) that trade wars are neither “good” nor “easy to win”. But if there is a bright spot, it’s that the Fed has definitively exposed itself as a political body, less interested in economic growth and viability than in serving the interests of power.

Should We Remove Trump’s Citizenship Question From The Census? Yes, Along With All The Others.

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The Census Bureau has long known more about my family history than my family does. For instance, it was through old census forms that I discovered my grandmother changed her name from “Paula” to “Pauline” at some time after 1930. This was news even to her children. The 1930 census form also reported her place of birth — Mexico — and her native language — Spanish. Her occupation is listed as “cashier.”

But the nosiness doesn’t stop there. Completed forms from both 1920 and 1930 show the census taker apparently prodded the family for information on all household members’ names, their citizenship status, year of immigration, and ability to read and write. In 1930, the census taker would have been instructed to ask if the householder rented the family home, the householder’s salary, and “marital condition.”

Looking at these forms, those who bring a skeptical mind to government forms and government programs might wonder why the government needs to know all this information. Many have said so publicly. This is why some politicians, pressured by voters, suggested people refuse certain census questions. At the time of the 2000 census, both Senate Majority leader Trent Lott and presidential candidate George W. Bush advised Americans not to answer questions “they believed invaded their privacy.” That may have been good advice, especially since the Census Bureau recently admitted it failed to protect the personal data collected on 100 million Americans.

Trump’s Citizenship Question

On most days, though, the consensus among politicians, lobbyists, and activists is that it’s very important to know this information. But what exactly must be known depends on one’s political agenda.

For example, the US Supreme Court today heard oral arguments as to whether or not the 2020 census will include a question about each resident’s citizenship status.

NPR reports that the court is “split along ideological lines on whether a citizenship question can be included on forms for the upcoming 2020 census.”

The basic narrative as to the ideological split is this: the Trump administration has requested a new census question to help identify how many non-citizens there are in the United States. And where they are. (The questions on citizenship were abandoned after 1950).

In contrast, the ideological left vehemently opposes the inclusion of a citizenship question for two main reasons:

First, it is claimed that a citizenship question would cause many immigrants to not fill out their census forms at all. Thus, the census would become more inaccurate, and be less reliable as a source of statistical information.

Second, a more inaccurate count would impact public policy because the census data is used to distribute welfare-state funds. As the ACLU puts it:

The federal government will use 2020 Census data to decide how to allocate $900 billion in funding for social service, health, and education programs. This money goes to everything from Medicaid to school-lunch programs to veterans’ assistance.

If the citizenship question results in a sizable undercount, states with large immigrant populations could lose funding for programs they need.

One follows from the other. They want a census count they can call “accurate” and then use it to push certain government programs.

A Rising Tide of Census Questions

The US census — which is one of only a handful of federal programs written into the US constitution — has always relied on the justification that it was needed for Congressional apportionment and redistricting. But to do this, the census need only collect information on where people live, and how many of them there are. The very earliest census forms don’t collect much information beyond the total number of people, whether they are male or female, how old they are, and whether or not they are slaves.

Yet, by the 1870 census, the government was asking questions about birthplace and citizenship. Questions about occupation, literacy, and disability began even before then. In 1860, it was apparently essential for the federal government to know if a person was “deaf and dumb, blind insane, idiotic, pauper, or convict.”

The fact that citizenship questions began is 1870 is significant. Prior to the 1870s, it was widely believed that the regulation of immigration was not a responsibility of the federal governments. Some state governments — especially New York and Massachusetts — enacted immigration restrictions in the mid-nineteenth century. But both Congress and the Supreme court balked at the idea of imposing federal limits on migrants.

This changed with sweeping new federal immigration laws passed in 1882.

At roughly the same time, federal policymakers started instructing the census takers to keep track of matters related to birthplace, immigration, and citizenship.

As the role of government expanded even further, more questions were added. These included questions on employment, housing, ethnic group, and more.

In the 1920s, Herbert Hoover, who support expanding the statistical-date role of the census bureau, became head of the U.S. Commerce Department. According to a history of the census by Robert Jenkins,

[Hoover] encouraged the systematization of business and economic statistics and their orientation toward use by business. Among other activities, Hoover directed the Census Bureau to compile the various series of business data and publish them as the monthly Survey of Current Business.

Not all of this information relies on the decennial census. But the regular census remained the cornerstone of federal data collection.

The role of census data expanded even more with the New Deal. Jenkins continues:

The [New Deal] legislation established new programs in many fields, including industry, agriculture, welfare, securities and exchange, banking and home mortgages. Corresponding to this expansion of government there developed a need fo rstatistical information to aid in the administraiton of the recovery program.

In other words, policymakers needed more and more statistical information to justify new federal programs, and to claim that resources were being distributed equitably and rationally.

Murray Rothbard said as much in the Quarterly Journal of Economics in 1960. He noted the price system provided market information to firms in a marketplace. But government organizations don’t use market prices, and thus:

Government intervention … whether piecemeal or fully socialist, could do literally nothing without extensive ingathering of masses of statistics. Statistics are the bureaucrat’s only form of economic knowledge, replacing the intuitive, “qualitative” knowledge of the entrepreneur, guided only by the quantitative profit-and-loss test. Accordingly, the drive for government intervention, and the drive for more statistics, have gone hand-in-hand.

It is thus not surprising that opponents of the “citizenship question” oppose only the question on citizenship while also insisting that the census continue to collect myriads of other information.

This is unfortunate. After all, if the left is concerned about both the integrity of the total resident count — and the possibility of using citizenship information for anti-immigrant purposes — the solution is simple: abolish most of the census questions in favor of getting as accurate a count as possible of the total number of residents. Given that the constitutional mandate makes no mention of counting only citizens, this would make perfect sense.

The left, of course, finds this solution unacceptable because the census exists for so much more than getting an accurate count of residents. Nowadays, it’s there to help plan and justify the welfare state. It’s there to argue for more free-lunch dollars in City X or County Y. It’s there so ideologues can claim ethnic group A is “underrepresented” in Congressional district B. (But, if Trump-style ideologues get their way, they can use census data to argue welfare dollars ought to go to cities where the poor are citizens rather than fresh immigrants.)

Are The Data Any Good?

All of this, however, assumes the data are reliable. That’s not necessarily a great assumption.

Once a census taker gets beyond the simple questions of how many people live in a household, things get iffy. As we go down the road of asking people about their ethnicity, income, and living standards, we have good reason to believe people fudge their responses. Or they get confused. Many people, to this day, are unaware that “Hispanic” — as far as the census is concerned — is not a racial designation.

Even the relatively simple census forms of old were prone to errors. For example, on the 1920 census form, my grandmother is listed as a “son” named “Paul.” No male family member named Paul ever existed in that family. Who knows what other errors were recorded in other households?

Census takers themselves might also be biased as well as incompetent. For example, in both the 1920 and 1930 census, for example, my grandmother is listed as a resident alien. Yet, her children tell me she always claimed to have been born in the United States. Was she actually born in Mexico? Did she change her story after 1930? Or did the census takers in those days just mark down every Mexican-looking person with an accent as “born in Mexico.” We may never know.

And yet, aggregates of this sort of data are used to justify and plan a nearly endless array of government programs, plans, and schemes. It’s all done at our expense, and exists to favor certain interest groups. Yes, the citizenship question should be eliminated — along with nearly every other question as well.

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute.

Trump’s War On Socialism Is A Call For Individualism, Which Neither Democrats Nor Republicans Will Deliver.

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President Trump recently declared that “America will never be a socialist country”. In a supportive statement, US National Economic Council Director Larry Kudlow urged us to put socialism on trial and convict it. Their urgency is triggered by the aggressive push for “Democratic Socialism” by left-wing politicians like Bernie Sanders and Alexandria Ocasia-Cortez and the Green New Dealers.

And President Trump may be swimming against the tide. In a Harris Pollpublished at Axios on March 10th, 2019, 49.6% 0f Millenials and Gen Z said they’d prefer living in a socialist country. Axios also reported that 61% of 18-24 year old Americans have a positivereaction to the word “socialism”, beating out capitalism at 58%.

What is it that they really want? And what is it that Trump and Kudlow want?

The historical definition of socialism has focused on the elimination of entrepreneurship from the economic processes of production. The State owns the factories and the banks and the hospitals. This was the socialism of the old Soviet Union, and it’s closely mirrored in Cuba and Venezuela and partially in China today. This kind of socialism represses economic freedom at the level of individual consumers, because the signals they would normally send back to producers about what they prefer and what they don’t want are not received. Consumers get what is produced and are not free to choose. Their motivation is quickly strangled and their creative energy dies. With no entrepreneurs to respond to their preferences, they give up, and take what they are given. Their social and economic objectives can not be realized because there is no response mechanism.

Democratic socialism is meant to be different. Social democracy is meant to achieve the objectives of the people through democratic mechanisms. Instead of “socializing” the means of production, the democratic socialists shift their institutional aggression to the fiscal sphere, promising to “even out” social and economic opportunities. The difference between real socialism and democratic socialism is not one of category or class but simply one of degree. The aggression against the citizen in democratic socialism is profound and far-reaching, with regard to the number of social spheres and processes affected, and the millions of people who suffer systematic expropriation through taxes of a very large share of the fruits of their individual entrepreneurial activity, and are forced by law and regulation to act in a way that they would not normally or voluntarily agree to.

Even though the democratic socialists express ostensibly noble goals – impossible, in reality, to achieve – they approach them via coercion and repression of individual choice and individual creativity. There is a “mirage” effect of democratic socialism. When individuals are blocked from the creativity of their own initiatives, they become dependent and lose awareness of what they could otherwise create or experience in a dynamic entrepreneurial economy. They identify government agencies with the existence of goods and services that are crucial to their lives. It becomes difficult for dependent individuals to return to the entrepreneurial habits of their prior lives.

But let us not fool ourselves that the people who will save us from socialism are members of the Republican party. The right-leaning political party in the US is no champion of unfettered entrepreneurial capitalism. Their proposed levels of spending and taxation may (at times) be less than those of the Democrats, but they are still too high. Their regulation, even though Trump is trying to pare it back here and there, is still intrusive and restrictive. Their fiscal and regulatory policies continue to ensnare hundreds of millions of producers and to confiscate the fruits of production.

The opposite of Democratic Socialism is not Republican Party policy, it is entrepreneurialism based on individual choice and individual action. The normal conduct of society is the continuous adaptation of individuals to each other’s needs. If one sees a need exhibited by another – they need to hire, they need a particular good or service, they need to assemble a team for a project – they offer to help. If the price is right, an exchange is made. If it’s not, a further adjustment is made. These adjustments and exchanges take place between billions of individuals every day, and a society that works for all – because it represents the sum total of everyone’s mutual adjustments – emerges. This is society. This is the social process.

Socialism is, in fact, anti-social. It does not permit the social process to work. It imposes rules and regulations and taxes and assaults on private property to forcibly impose its “noble” goals. It becomes totalitarian, because this systematic aggression eventually spreads to every nook and cranny. It impedes the process of innovation and the production of goods and services that people prefer, slowing down economic development. It shackles creativity and individuality.

If Trump is right that America will never be a socialist country, he must recognize that we are an individualist country. American exceptionalism means that we are the one remaining capitalist country where government can get out of the way of its productive citizens, and celebrate the advances that they bring for their countrymen simply by working hard. Innovators and economic achievers are trying to earn a living and making individual choices every day, with their own interests in mind and no collective goal. Betterment for everyone is the result. Trump seems to be pretty individualistic. Perhaps he can move us in that direction.

Trump’s Laudable Strategy Of Values-Based Alliances With Self-Reliant, Self-Determining Nations.

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Self-reliance is a behavioral attribute of great power. Self-reliant individuals are entrepreneurs who know and understand themselves well, are objective in calculating how to serve others best in the economic marketplace in order to thrive, and they assemble the right bundle of resources, including education and skills, to support their individual mission. They know how to collaborate and are thoughtful in joining or assembling teams and common interest groups in the pursuit of shared success, based on shared values. They are entrepreneurs in the broadest sense of the term, imagining a future that can be better for themselves and their collaborators, partners and customers, and working together to bring that future about. When it’s time to change the team or the terms of collaboration, because conditions in the market have changed, self-reliant people are agile in making adjustments.

What if there were a foreign policy strategy like this for the USA? President Trump is designing one.
Yoram Hazony and Ofir Haivry, writing in The Wall Street Journal, describe the new, smarter strategy. First, any entrepreneur starts with an understanding of the problem that is crying out for a solution:

On paper, America has defense alliances with dozens of countries. But these are the ghosts of a rivalry with the Soviet Union that ended three decades ago, or the result of often reckless policies adopted after 9/11.

Asking the entrepreneur’s question – why? – the authors identify the problem in the shape of costs that are not shared, indicative of values that are not shared.

Today a $22 trillion national debt and the voting public’s indifference to the dreams of world-wide liberal empire have depleted Washington’s ability to wage pricey foreign wars. At a time of escalating troubles at home, America’s estimated 800 overseas bases in 80 countries are coming to look like a bizarre misallocation of resources.

……the U.S. can no longer afford to assume responsibility for defending entire regions if the people living in them aren’t willing and able to build up their own credible military deterrent.

……so-called allies include Turkey and Pakistan, which share neither America’s values nor its interests, and cooperate with the U.S. only when it serves their purposes. Other “allies” refuse to develop a significant capacity for self-defense, and are thus more accurately regarded as American dependencies or protectorates.

The USA’s so-called allies also include the European countries in NATO who refuse to spend adequate amounts on their own defense, and, operating under the US defense umbrella, divert spending to the welfare and dependency programs that have resulted in decivilization and cultural decadence. Worse, their decadent ideas float over the Atlantic to pollute America shores.

These ideas are then exported to the U.S. and the rest of the democratic world via international bodies, universities, nongovernmental organizations, multinational corporations and other channels. Having subsidized the creation of a dependent socialist paradise in Europe, the U.S. now has to watch as the EU’s influence washes over America and other nations.

How would the entrepreneurial approach to a foreign policy of collaborative self-reliance evolve? The authors build it brick-by-brick.

The first brick in the wall is to separate the Eastern European nations with a genuine self-interest in deterring Russia from those Western Europeans who, without borders with Russia, have no real skin in the game.

The members of the Visegrád Group—the Czech Republic, Hungary, Poland and Slovakia—have a combined population of 64 million and a 2017 GDP of $2 trillion (about 50% of Russia’s, according to CIA estimates). The principal strategic question is therefore whether these countries are willing to do what is necessary to maintain their own national independence. If they are—at a cost that could well exceed the 2% figure devised by NATO planners—then they could eventually shed their dependent status and come to the table as allies of the kind the U.S. could actually use: strong frontline partners in deterring Russian expansion.

The second brick comes from an examination of shared national interests in repelling the economic and military aggression of the Chinese Empire.

Perhaps the most important candidate for such a strategic alliance is India. Long a dormant power afflicted by poverty, socialism and an ideology of “nonalignment,” India has become one of the world’s largest and fastest-expanding economies. In contrast to the political oppression of the Chinese communist model, India has succeeded in retaining much of its religious conservatism while becoming an open and diverse country—by far the world’s most populous democracy—with a solid parliamentary system at both the federal and state levels.

India’s values, interests and growing wealth could establish an Indo-American alliance as the central pillar of a new alignment of democratic nation states in Asia, including a strengthened Japan and Australia.

A third brick might come from the United Kingdom, if they can extricate themselves from their EU nightmare.

With a population of more than 65 million and a GDP of $3 trillion (75% of Russia’s), the U.K. may yet become a principal partner in a leaner but more effective security architecture for the democratic world.

Adding a few more bricks, like Israel, Japan and Australia, the authors assemble their collaborative alliance of self-reliant nations.

An alliance including the U.S., the U.K. and the frontline Eastern European nations, as well as India, Israel, Japan and Australia, among others, would be strong enough to exert sustained pressure on China, Russia and hostile Islamist groups.

President Trump is often accused of creating a needless rift with America’s European allies. Establishment neo-conservatives portray him as an incompetent bull in their carefully curated china shop. But by assembling an alliance of self-reliant democratic nations, the President could reduce America’s security burden, close a lot of our overseas military bases, and make military intervention the exception rather than the rule.

At the same time, it would free American resources for the long struggle to deny China technological superiority, as well as for unforeseen emergencies that are certain to arise.

Self-reliance works not only for people, but also for nations.

Mr. Hazony is the author of “The Virtue of Nationalism.” Mr. Haivry is vice president of the Herzl Institute in Jerusalem. The referenced article appeared in the April 6, 2019, print edition of WSJ.

Follow Hunter Hastings at hunterhastings.com

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