David Warsh: Trump, North Korea and China

North Korean soldier points to the demilitarized zone between the two Koreas.

From economicprincipals.com

SOMERVILLE, Mass.

One consequence of government by bluster and contempt is that, even when Donald Trump is right, the president is unable to make the case for his policies.  Take those “beautiful letters” he keeps getting from Kim Jong Un, leader of North Korea. The editor of a new book of essays outlines the logic that Trump has failed to present.

North Korea: Peace? Nuclear War?  (Mosavar-Rahmani Center for Business and Government, 2019 ), edited by William Overholt, contains 18 essays by leading Korea specialists, including one by China’s foremost expert on Korean affairs and another by former U.S. Ambassador to Korea Kathleen Stephens, who as U.S. chargé d’affaires in Belfast oversaw Northern Ireland’s Good Friday agreement. (Stephens first learned Korean as a Peace Corps volunteer, before entering the Foreign Service.) A wide range of views are represented, but the authoritative voice in the volume belongs to Overholt. His summary is here. In a separate letter about the book, the veteran Asia hand compressed the argument of his essay.

“A strategy of forced denuclearization by bludgeoning through sanctions has no chance of success. A strategy of achieving denuclearization as a byproduct of achieving peace has some chance of success.’’

North Korea invaded South Korea in 1950, backed by Stalin and Mao Zedong. U.N. forces, led by the United States, defended the south. Soon Chinese troops and Soviet pilots supported the north. The war ended in stalemate in 1953.  North Korea has been ruled ever since by three generations of the Kim family:  Kim Il Sung, until 1994; his son, Kim Jong Il, until 2011; and his grandson, Kim Jong Un, since the death of his father.

The situation has changed over the years, says Overholt: gradually since 1978, when China put aside autarkic revolutionary ideology and began its “great leap outward” into the global market economy; rapidly, after 2011. As a scion of the ruling dynasty, Kim Jong Un was educated, among other places, in Switzerland.  He has absorbed the lessons of an Asian style of development strategy that has lifted almost all of the region to prosperity. He also has a longer time horizon than his father, says Overholt. His father had been 57 when he acceded to power.

Kim has risked his position by imposing very different budget priorities from those of his father and grandfather, including the development of nuclear weapons. He has opened his country socially, at least to the extent that North Korean citizens now know what they are missing. He has employed traditionally brutal methods to protect his power.

The U.S. has replied with sanctions, demanding denuclearizaion before any relief.  Both sides have good reason to mistrust one another, Overholt says. North Korean behavior in the past often has been deceptive, unreliable, and vicious.  The US pursued a policy of “regime change” in Libya after Muammar Gaddafi de-nuked and set an alarming example.

But the situation in China has changed, too, in the space of years since it became a great power. China’s policy is to stabilize the peninsula. Any deal will require Chinese security guarantees for the North Korean regime.  South Korea will have to agree, too. The South Korean population is fully supportive of the peace process; its government is fully engaged.  So are the Chinese and U.S. negotiators, especially after Kim was said to have executed one of the negotiators and four other advisers after the breakdown of his second summit with the American president.

Time is short, Overholt says. “Kim is vulnerable and may be overthrown or killed if there is no early progress toward peace and economic development.  His opponents want a return to the old military priorities and confrontational ways. Kim Jong Un has promised de-escalation, but only in stages and over a considerable period of time. Trump and Kim and their respective advisers are thus in somewhat parallel positions, dealing with a national establishment that looks to the past instead of the future. Overholt:  “Early incremental but decisive progress is the only hope.”

Trump can’t do the job of building support for a China-mediated agreement to begin to lift sanctions, and the press won’t do it for him. The Great Successor: The Divinely Perfect Destiny of Brilliant Comrade Kim Jong Un  (TK, 2019), by Anna Fifield, of The Washington Post, has just appeared.  It looks interesting, in this adaptation from the book on Kim’s four years in Europe, or this New Yorker interview with the author.  But the ridicule of the title delivers her ultimate judgment.  There is much to object to about both Kim Jong-un and Donald Trump.  Failing to seek to act on an urgent problem is not among them.

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Martin Feldstein died June 11, at 79.  A Harvard University professor and long-time president of the National Bureau of Economic Research, he was the most influential policy economist of the Reagan generation. He was remembered by The Wall Street Journal, the Financial Times, The New York Times, The Washington Post, and The Economist.  Economic Principals appreciated Feldstein in 2008, on the occasion of his retirement from the NBER.  Friends who provided encouragement and social support to the engagement of a Long Island Jew and an Irish Catholic from Boston consider Feldstein’s marriage to Kathleen Foley Feldstein, also an economist, to have been spectacularly successful.

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Added this week to EP’s Bookshelf:  Fault Lines: A History of the United States since 1974, by Kevin Kruse and Julian Zelitzer (Norton, 2019)

David Warsh, a Somerville-based veteran columnist and economic historian, is proprietor of economicprincipals.com.

David Warsh: Addition by subtraction in climate debate

SOMERVILLE, Mass.

An op-ed in The Wall Street Journal last week, “Economists’ Statement on Carbon Dividends,’’ appeared under a headline reflecting the latest conventional wisdom on how to frame the issue of coping with atmospheric pollution (don’t call it a “carbon tax”). The bipartisan endorsement called for a revenue-neutral tax on carbon emissions, its proceeds to be returned to citizens in equal quarterly rebates, ensuring a progressive structure, administered by the Social Security Administration as an entitlement.

The proposal was signed by 27 laureates, including Robert Solow, Robert Lucas, Amartya Sen and Thomas Sargent; all four living chairs of the Federal Reserve Board (Paul Volcker, Alan Greenspan, Ben Bernanke, and Janet Yellen), and fifteen former chairmen of the Council of Economic Advisers, including Michael Boskin, Martin Feldstein, N. Gregory Mankiw, Glenn Hubbard, Jason Furman, Austan Goolsbee, Christina Romer, and Laura Tyson. Former Treasury Secretary Lawrence Summers signed on as well.

Too fresh from their recognition last month to join in (or too obvious) were William Nordhaus and Paul Romer, both supporters. The signatories thus joined forces with a blue-ribbon group of multinational corporations and public interest organizations formed last summer as a Climate Leadership Council.

The economists’ list naturally invited a search for the missing.

Conspicuous by their absence among laureates were Joseph Stiglitz and Paul Krugman. Krugman earlier explained that he favored more salable policies. That the plan for carbon taxation was devised by George Shultz, Secretary of State under Ronald Reagan, and James Baker, who succeeded him under George H. W. Bush, may also account for some of their lack of enthusiasm.

A little less obviously missing were laureates James Heckman (absorbed in early childhood investment), and Vernon Smith (energy saving and CO2 sequestration, per the recommendation of the Copenhagen Consensus Center). Oliver Williamson, approaching 90, is less of a force than formerly. Christopher Pissarides and Jean Tirole stayed away from the issue, Tirole because he favors regulation by systems of cap-and-trade.

That leaves Robert Mundell, of Columbia University, recognized in 1999 for his work on exchange rates regimes and currency areas; and Edward Prescott, of Arizona State University and the Federal Reserve Bank of Minneapolis, who shared the economics prize in 2004 for work on business cycles. Both are favorites of the WSJ, having often expressed the view that raising taxes discourages economic growth, but neither has been involved to any great extent in the climate controversy. That leads in turn to WSJcolumnist Holman W. Jenkins, Jr., who has taken on the job of skeptic-in-chief.

Jenkins, 59, is a dependably lively presence on the editorial pages, a frequent skirmisher against views on climate change he considers wooly-headed or worse. Last week he was at it again, under the headline Big Names Bake a Climate Pie in the Sky. He disparaged the view that carbon emissions pose an immediate threat to global well-being; expressed skepticism of the motives of politicians and corporate lobbyists alike; and hinted at the existence of a proposal for tax reform, including a carbon tax, “to replace taxes that depress work, saving,” such that new technologies would develop to do things in less carbon-intensive ways. Presumably that is the subject of a future column.

At the moment, the editorial board of the WSJ is pretty much the only voice among the mainstream press, of skepticism about climate change in general; in opposition to carbon tax proposals in particular. In The Global Tax Revolt last month, the editorialists took note of the rejection of various attempts to impose a local carbon tax – in France, in Canada, in Washington State – and concluded,

[A]fter decades of global conferences, forests of reports, dire television documentaries, celebrity appeals, school-curriculum overhauls and media bludgeoning, voters don’t believe that climate change justifies policies that would raise their cost of living and hurt the economy.

On its weekly show on Fox New, editorial page editor Paul Gigot went further: he acknowledged elliptically that that “some of our friends” think that strong measures are required to address atmospheric pollution, “and even in theory, if you think about it from a free market point of view, a carbon tax would be the most efficient way of trying to actually slow down carbon emissions… but that seems to be something that the public really isn’t buying.” There is, he said, “a disconnect between elites and average voters that don’t trust the elites”

As usual, editorial page columnist Kimberly Strassel went further still. “Yes, intellectually, from a very wonky point of view,” she said, a carbon tax “may be an efficient way of raising revenues. But no one buys that you are actually get rid of other taxes if you institute a carbon tax, so they see it as an additional tax … There also not a belief that money raised from such a tax would actually be put into any kind of renewable energy or investment strategy for a smarter climate; they know it going to get redistributed and be a new pot for the Washington spenders to put into their own priorities…

What would a carbon tax actually cost ordinary consumers? That’s a question for another day – for many other days, starting with the 2020 elections, and in the decade beyond. In the meantime, the populist editorial page of the WSJ stands pretty much alone amongst elite opinion in America against carbon taxation as the major instrument of climate policy. Over the long haul, we’ll see what difference that makes. Reports of the demise of the establishment Republican Party may have been exaggerated.

David Warsh, an economic historian and veteran columnist, is proprietor of Somerville-based economicprincipals.com, where this first ran.