Should-Read: Larry Summers: Time for Business Leaders to Wake Up: “I wonder what the business leaders who have been waxing enthusiastic about our new pro-business administration are thinking right now…

…Confidence and prosperity depend on a perception of government credibility and confidence. Is that present when an administration lies about readily observable facts like crowd sizes and then defends the lie with the Orwellian concept of alternative facts? Does the business community really want NAFTA to be abrogated, Asian trade architecture turned over to the Chinese or a trade war launched with China?… Do the financial cheerleaders for a business-leader dominated administration approve of the emerging combination of weak dollar rhetoric from both the president and Treasury secretary nominee along with strong dollar policy? If, as secretary designate Steven Mnuchin has just written to Congress and the president has asserted, the administration believes the dollar is too strong, why are all its policies calculated to raise the dollar:

1. very expansionary fiscal policy
2. complaints about easy money
3. measures like the border tax adjustment that discourage imports and encourage exports
4. measures to reduce capital outflows as American companies outsource?

This is the least coherent dollar policy since the Carter administration…. [Perhaps] business people are more comfortable with fellow business people than with policy people. Perhaps in forming views they should get modern and look at data. Almost 30 years ago in 1988 Roger Altman and I had a piece in the WSJ showing that in the preceding 35 years the economy and corporate profits had done much better with Democrats in power. At the time I thought the point was a valid counter to Republican rhetoric but not necessarily a strong regularity. But the best test of any statistical finding is looking at data subsequent to its publication. The recent much more thorough study by Alan Blinder and Mark Watson shows that Democrats are much better for business than Republicans.

Little is going right or giving confidence. Increasingly, I think the sugar high may be short lived. For the sake of their shareholders, corporate leaders need to stop cheerleading and start insisting that policies have a modicum of logical coherence and factual support.

Should-Read: Mark Thoma: What if “alternative facts” spread to economic data?: “Donald Trump’s inability to accept news that disagrees with [his] view…

…was on display…. He, and those speaking on his behalf, claimed falsely that “This was the largest audience ever to witness an inauguration, period, both in person and around the globe,” and then doubled down even when presented with solid evidence it wasn’t true.  Americans were told the new administration relies on “alternative facts,” which seems to mean whatever numbers it can come up with to support Mr. Trump’s claims. What worries me, among other things, is how the president will react to bad news about the economy…

Must-Read: What produces manufacturing decline is not “trade deals” but stupid industrial and macroeconomic policies–like those of Reagan, and now Trump:

Paul Krugman: Reagan, Trump, and Manufacturing: “It’s hard to focus on ordinary economic analysis amidst this political apocalypse…

…But getting and spending will still consume most of peoples’ energy and time; furthermore, like it or not the progress of CASE NIGHTMARE ORANGE may depend on how the economy does. So, what is actually likely to happen to trade and manufacturing over the next few years?… We have what looks like an unusually good model in the Reagan years — minus the severe recession and conveniently timed recovery, which somewhat overshadowed the trade story…. A large move toward budget deficits via tax cuts and military buildup, coupled with quite a lot of protectionism… the import quota on Japanese automobiles was one of the biggest protectionist moves of the postwar era…. What happened in the Reagan years was “twin deficits”: the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what’s tradable.) This led to an accelerated decline in the industrial orientation of the U.S. economy…. Trumpism will probably follow a similar course; it will actually shrink manufacturing despite the big noise made about saving a few hundred jobs here and there…

Should Read: Bonnie Kristian: We’re All Public Intellectuals Now: “Public Intellectuals in the Global Arena: Professors or Pundits? http://amzn.to/2kx3M6U…

… The single theme… is a word of caution for those who would guide the public mind…. Global Arena’s call to a certain humility and ethical skepticism in public pronouncement is extended beyond any of its milieus…. There is “no doubt that scholarly engagement with policy poses some moral quandaries,” Desch says, but “this tension can be a creative one,” if intellectuals can engage with prudence….

Taylor’s description of our loss of common “cultural capital”… shapes Global Arena beyond its mild secularist tendencies…. Public intellectuals can no longer communicate to a small, homogenous audience steeped in the same classic texts and cultural imaginary. For the public, they mean it is increasingly difficult to independently identify intellectuals of value—and thus the institutional endorsement a faculty role provides has become a convenient stand-in…. Public Intellectuals in the Global Arena offers a useful and provoking read.

Must-Read: Donald Trump leads America’s heel turn: the American Century as we have known it since 1940 is over:

Ed Luce: President Trump’s Speech Puts the World on Notice: “Combative address will go down as a turning point in America’s postwar role…

In case there were any lingering doubts about the sincerity of Donald Trump’s “America First” campaign, he laid those to rest the moment he swore the oath of office. His brief inaugural address was perhaps the most xenophobic in US history. The 45th president’s one specific foreign policy promise was to eradicate Islamist terrorism “from the face of the earth”. His only other message to the rest of the world was to put it on notice that America would take precedence again after an age in which the US had “defended other nations’ borders” and subsidised their armies. That age was over, he said… a turning point in America’s postwar role — and quite possibly its death knell.

The contrast with Barack Obama’s inaugural address in 2009, in which he promised Iran he would “extend a hand if you are willing to unclench your fist”, was Manichean. Mr Obama spoke to a snow-filled scene of up to 2m people — something that Steven Spielberg said would have been impossible to set up for a movie. Mr Trump spoke to crowds a fraction of that size on a dreary Washington day. That should perhaps be no surprise. He comes into office with the lowest approval ratings of any US president in modern history — twenty or so points below what is typical, and considerably below Mr Obama’s outgoing ratings. Unlike Mr Obama, he will inherit an economy in reasonable shape and no large scale US military wars. But the biggest contrast was in their tones. Mr Obama radiated hope. Mr Trump channelled rage…

Should-Read: David Beckworth: It’s Policy Divergence, Not China, Driving the Dollar: “President Trump is worried about the strong dollar… said… China holds down its currency…

…The real issue is… the diverging of the current and expected paths of monetary policy…. The Fed has been tightening and is expected to continue do so with further rate hikes in 2017. The ECB, on the other hand, is still running its QE program and is keeping it short-term policy rates pegged close to zero…. The surging dollar… is something to worry about…. But… [it] is a very different problem than the one President Trump sees with the strong dollar. 

Should-Read: Ann Marie Marciarille: Email, The Gift That Keeps on Giving: “U.S. District Judge John D. Bates spilled a considerable amount of ink in yesterday’s Memorandum Opinion enjoining the Aetna-Humana health insurance merger…

… Even though antitrust opinions are not known for their brevity, the roughly thirteen pages devoted to discussing whether Aetna’s announced  withdrawal from the complaint counties about three weeks after the date of the filing of the government complaint was  motivated by a desire to  improve its litigation position or as part of ordinary business decision making is pretty detailed…. Yes, it was the  internal documents of Aetna management discussing motivation for withdrawal from the profitable Florida exchange market or, even, in refusing to discuss the Florida decision while laying out the business case analysis behind withdrawal from the exchange markets in other locales that animated Judge Bates’ opinion…. Internal Aetna management correspondence…. My favorite part involved hints at what was sometimes unsaid in emails. When Aetna’s Florida Market President, Christopher Ciano, received word of the decision to exit the Florida exchange market (he was not part of the decision making group), his serial emails lamenting the decision, pointing out that Florida’s exchange market was profitable for Aetna, and stating that he just couldn’t make sense of the decision are powerful because of his apparent ignorance or because of what wasn’t said. Christopher Ciano was, eventually,  directed to stop discussing this matter in emails and to take the conversation to the telephone.

That’s the thing about email correspondents — they often know, on some level, that the messages may be brought to light in some way but they can’t always seem to stop.  I wonder if, because email can be so conversational in tone, they forget that they are creating a written record.

Must-Read: This is a different degree of idiocy than we saw under Bush-Cheney or Cameron-Osborne. It could have been the case that Saddam Hussein had an active nuclear-weapons program. It could have been the case that the confidence benefits from fiscal austerity would have made it a good policy choice after 2010. It was unlikely in both cases. But there were possible worlds in which those things were true.

There is no possible world in which a VAT rebated at the border is an export subsidy:

Martin Wolf: Donald Trump and Xi Jinping’s Battle Over Globalisation: “[The Trumpists] believe, for example, that a value added tax not levied on exports is a subsidy to exports…

…It is not: US goods sold in the EU pay VAT, just as European goods do; and European goods sold in the US pay sales taxes (where levied), just as US goods do. In both cases, no distortion between domestic and imported goods is created. Tariffs are levied only on imported goods. So they do distort relative prices…. These people believe trade policy determines the trade deficit. To a first approximation, this is not so, because the trade (and current account) balances reflect differences between income and spending. Assume imposition of an across-the-board-tariff. Purchases of foreign exchange will fall and the exchange rate will appreciate, until exports fall and imports rise enough to return the deficit to where it started. Protection then just helps some businesses at the expense of others. The Trump proposals seem to aim at resurrection of the economically dead.

True, protection might lower the [trade] deficit by making the US a less attractive destination for foreign investment. But that hardly seems a sane strategy….

Unwise policies might do huge damage. The US president possesses the legal authority to do virtually whatever he wants…. Reneging on past deals is sure to make the US seem an unreliable partner. Its victims, particularly China, are also likely to retaliate…. In a full trade war, US employment might fall by 4.8m private sector jobs. The disruption of supply chains is likely to be especially serious. Beyond this are huge geopolitical consequences….

The rhetoric of “America First” reads like a declaration of economic warfare. The US is immensely powerful. But it cannot even be confident it will get its own way. Instead, it may merely declare itself to be a rogue state. Once the hegemon attacks a system it created, only two outcomes seem at all likely—its collapse or recreation of the system around a new hegemon…. Mr Xi’s vision is the right one. But, without Mr Trump’s support, it may now be unworkable. That would benefit nobody, including the US…

Should-Read: Remember–I was a soft TPP skeptic: I thought the IP protections and dispute resolution provisions were more likely than not to be unwise for the world (although probably profitable for the United States, and very profitable for the U.S. overclass.

Kevin Drum has a “shorter Brad DeLong”:

Kevin Drum: Who’s Afraid of the Trans-Pacific Partnership?: “The responsibility of trade deals for the decline of manufacturing in the US has become practically holy writ over the past year…

…Is this legit? Over at Vox, Brad DeLong says no. Period. However, his post is 8,000 words long, and ominously, over at his own site he says that it does “only a third of what I wanted to do.” Clearly, then, we need a shorter Brad DeLong. Here it is:

Very roughly speaking, DeLong’s argument is this: everyone agrees that Germany is the poster child for an advanced economy with a great manufacturing policy. And yet, their manufacturing employment has steadily declined for the past half century too, just like ours. So if this has happened to Germany, there’s not much of a case for suggesting that the US has done anything especially wrong over the past 50 years. We’ve simply evolved from a (relatively) poor manufacturing nation into a (relatively) rich services and technology nation. This has nothing much to do with trade policy, either. It’s just what rich countries do. What’s more, it’s a decidedly good thing overall, even if it does affect a smallish number of people badly.

Now, you should click the link and read all 8,000 words if you want to understand the details…