Matching Trump’s folly makes us a bigger fool

Tribalism explains the lunacy behind Trump’s supporters like Sen. Susan Collins of Maine: “I think he has learned from the (impeachment) case.” It didn’t take 48 hours for Trump to dismiss the comment: “I did nothing wrong. It was a perfect call.”

The good news for America is that these supporters are in the minority, albeit a slim one. And that some pillars of the conservative movement have demonstrated that they aren’t spineless.

The bad news is that it amplifies the imprudence of America in spades. If not reversed, it can erode the very foundation of its strength, that is, its economy – $21.429 trillion. 

It drives its military might. It spent $693 billion on defense in 2019, compared to China’s $175.4 billion, and Russia’s $61.4 billion (2018.)

The wealth of America is why Americans call the U.S. president, the leader of the free world. It also explains why people are riding on Trump’s coattails. “He who has the gold rules,” is how an American friend tells the American golden rule.

In the case of the Philippines, we always talk about the need to attract foreign direct investment, because we are the least able amongst our neighbors. On the other hand, the U.S. has no problem attracting investment – that is, financing the large U.S. current account deficit.

Why?

(1) “To benefit from the highly developed, liquid, and efficient U.S. financial markets, and the strong corporate governance and institutions in the United States – although both perceived strengths of the United States have shown some vulnerabilities during the recent financial market turmoil.

(2) “To diversify risk, especially if returns in U.S. financial markets have little correlation with performances in their own country’s domestic financial markets.

(3) “Investors outside the United States may put their money in the country because of their strong linkages with the United States, through trade flows or such measures of ‘closeness’ as distance, inexpensive communications, or sharing a common language.

“The most significant factor is the financial development of the U.S.

“Specifically, countries with less developed financial markets invest a larger share of their portfolios in the United States, and the magnitude of this effect decreases with income per capita.

“For example, with a well-developed bond market as the cross-country average – about the level of development in South Korea – then China’s predicted holdings of U.S. bonds would be about $200 billion below their current level.

“Countries with fewer controls on capital flows and more substantial trade flows with the United States also invest more in U.S. equity and debt markets.

“And, return differentials are essential in predicting U.S. equity (but not bond) investments because foreigners invest more in U.S. equities if they have had relatively lower returns in their equity markets.

“Finally, despite strong theoretical support, it appears that diversification motives have little impact on patterns of foreign investment in the United States.

“The bottom line: As countries around the world continue to develop and strengthen their financial markets, this will gradually reduce this critical driver of capital flows into the United States.

“These adjustments would likely occur slowly, though, because the development of financial markets, especially in low-income countries, is a long process.

“More worrisome, because the liquid and efficient financial markets of the United States are a significant impetus behind U.S. capital inflows, anything that undermines the perceived advantages of U.S. equity and bond markets could present a severe risk to the sustainability of U.S. capital inflows.

“For example, the U.S. sub-prime crisis and continued turmoil in U.S. financial markets already may have undermined this perceived ‘gold standard’ of financial markets, and the risk of a sudden increase in poorly thought-out regulation may aggravate these concerns.

“If countries with less developed financial markets begin to question the relative advantages of U.S. financial markets, this could lead to a more rapid adjustment in U.S. capital inflows, global imbalances, and asset prices.” [https://www.nber.org/digest/aug08/w13908.html]

In other words, Uncle Sam hasn’t fully recovered his bearings from the sub-prime crisis. It is no longer an inclusive economy because the financial services sector, instead of paying the price for their role in the crisis, came out of it laughing their way to the bank.

Of course, technology is another factor. It has redrawn the profile of the U.S. economy after China became the manufacturing hub of the world. That took away middle-class jobs, especially in middle America.

It was a long time coming beginning with the “manufacturing and quality” challenge from Japan, Inc., during the 80s, when the U.S. had to rapidly develop a technology-service driven economy to keep its economy growing. Think software and personal computers.

Simultaneously, it restructured and re-engineered corporate America to make it more agile and competitive, including the acceleration of its drive to globalize and capture market shares overseas. [Recall how the Asian Tigers exploited this, followed by China, by begging for Western money and technology. While we Pinoys celebrated Marcos and the New Society, proud of our parochialism and insularity. Sadly, that was when the AEC was evolving to leverage economies of scale at the regional level. Yet, after Marcos, we chose to shut the door even more courtesy of the post-Marcos Constitution and trumpeted our sovereignty. But we never learn. It is like ignorance in leadership. To pull rank is the absence of leadership. To invoke “sovereignty” is senseless when it nourishes tyranny. Recall the fixed mindset versus the growth mindset and the imperative to forward-think.]

Note that Wall Street manages the pension funds of Americans with half of the people invested and thus putting pressure on the market to perform. [This is explaining why Americans vote with their pocketbook. For example, the stock market’s performance in 2019, if it continues through November will be good news for Trump.]

In other words, Wall Street has a social contract with the average Joe and why it assumes it is the center of the universe. Even the sub-prime crisis shared a similar social dimension given politicians egged Wall Street to support a housing campaign for low-income Americans. 

Sadly, money is the source of evil; too much money nurtures greed as in predatory lending.

Still, the erosion of its manufacturing base explains why Americans that weren’t equipped skill-wise for the new economy suffered despite the benefits to them of low inflation and lower prices, especially of consumer goods sourced globally. 

For example, Walmart, the largest U.S. retailer, became a big importer of Chinese-made products to complement its “everyday low pricing” mantra, the foundation of its past success.

Of course, no one remembers the 80s anymore. [Because the universe never stops. Man is the “true” measure of himself. In other words, man’s need is ever-changing because his challenge never ceases. For example, he will respond once again. Think technology.]

Enter, Trump. He promised to fix the problems of middle America, as in America first: Make America Great Again (MAGA.)

But New Yorkers knew him – as a fraud – and so they could only shake their heads to witness how middle America bought into Trump’s rhetoric. In other words, Trump is not the answer.

And an emboldened Trump behaves no different from a despot. Unsurprisingly, he’s in bed with them.

The long preamble before the posting got to this point is by design. Because the Philippines is not the U.S., and Duterte isn’t the leader of the free world. If Trump’s idiocy can undermine the foundation of a superpower like the U.S., even more, it will ruin a developing country like the Philippines.

Former Federal Bank leaderships have warned about Trump politicizing the FED no different from how he flaunts the rule of law. 

“More than 1,100 ex-DOJ employees call for Attorney General Barr’s resignation. The Justice Department faces allegations of succumbing to pressure from President Donald Trump.” [USA Today, 16th Feb 2020]

Trump brought the White House the egregious practice from his business enterprise with a little help from his legal team. Think Michael Cohen: “Michael Cohen, President Trump’s former lawyer who pleaded guilty to tax, bank, and campaign finance crimes, reported to prison.” [The Washington Post, 6th May 2019]

Unsurprisingly, the court ruled against the misconduct of his charity foundation and had to shut down. Likewise, he had to cough out a significant sum to settle the case against the Trump University for bilking poor people wanting to learn how to earn a living by getting into the property industry. 

One gets the drift when one finds out that Trump has thousands of court cases. Unsurprisingly, he never released his tax returns, forgetting that the U.S. presidency is not royalty nor an autocracy.

And that practice is mirrored by the Trump administration: “According to an ongoing tally from the Institute for Policy Integrity, under the Trump administration, agencies have lost more than 90 percent of their cases.”

Yet, the administration keeps pushing the envelope, all the way to the Supreme Court. “Agencies must ‘offer genuine justifications for important decisions, reasons that can be scrutinized by courts and the interested public,’ Chief Justice John Roberts wrote in his majority opinion, in one case. ‘The explanation provided here was more of a distraction.’” [‘We Knew They Had Cooked the Books,’ Robinson Meyer, The Atlantic, 12th Feb 2020]

Matching Trump’s folly makes us a bigger fool. In other words, Duterte’s rhetoric may impress Juan de la Cruz, but it will only keep investors away. Despite our robust GDP growth over several years, our FDI pot remains the smallest in the region except for Myanmar and Cambodia. 

Which brings us to the constant theme of the blog, our instincts: We are parochial and insular. We value hierarchy and paternalism and rely on political patronage and oligarchy that ours is a culture of impunity.

Whether it is poverty or trade or foreign relations, these instincts are at the core of why we are like a fish out of water. And this fixed mindset explains why we are the regional laggard. In other words, we can’t develop a growth mindset and learn to forward-think with a fixed mindset.

“The economic cost of transportation in Metro Manila has risen to P3.5 billion pesos a day, and the situation can get worse to P5.4 billion a day by 2035 without the needed interventions” per JICA.

On the other hand, we will spend P101.8 billion in 2020 for the 4Ps (or conditional cash transfer) to address poverty. If we take the P3.5 billion a day or the economic cost of transportation and translate that to five working days a week over 52 weeks, that equates to P910 billion. In other words, we waste nine times more on the economic cost of transportation. 

Indeed, “talk” is cheap when it comes to poverty because we take comfort in what is “obvious and logical,” given our fixed mindset.

Yet, if we only turn Philippine poverty on its head, we will recognize that it is the effect of underdevelopment. For example, one can do a similar back of the envelope and add up OFW remittances, the output of the BPO industry, and tax reform within the framework of our service-consumption economy. We will still lag an industrial-investment economy.

It explains why Vietnam is poised not only to overtake us but Singapore as well.

Where do these all bring us? They reinforce our hierarchical and paternalistic bias – and why we are more at home and want to be friends with autocratic nations where tyranny resides – that we can’t sit across the table with pluralistic countries where transparency reigns. It explains why we keep taking the wrong turn at the fork. 

Consider: For all the chaos of the impeachment saga, Washington’s institutions had held up. The official policy towards Ukraine and Russia remained officially unchanged. Ukraine was still America’s ally. Russia was still an adversary. In much of institutional Washington, the president was strangely the outsider. Another $400 million in aid to Ukraine for 2021 was budgeted and came with strong bipartisan backing from Congress. [The Washington Post, 14th Feb 2020]

In other words, did Sen. Collins learn from the Trump impeachment?

Then recall Trump’s idiocy, undermining the rule of law, and in bed with despots. We Filipinos can match such folly and be the bigger fool.

Gising bayan!

“Why independence, if the slaves of today will be the tyrants of tomorrow? Moreover, that they will be such is not to be doubted, for he who submits to tyranny loves it.” [We are ruled by Rizal’s ‘tyrants of tomorrow,’ Editorial, The Manila Times, 29th Dec 2015]

“Now I know why Paul dared to speak of ‘the curse of the law’ (Galatians 3:13). Law reigns and discernment is unnecessary, which means there is little growth or change in such people. When you do not grow, you remain an infant.” [Faith and Science, Open to Change, Richard Rohr’s Daily Meditation, 23rd Oct 2017]

“As a major component for the education and reorientation of our people, mainstream media – their reporters, writers, photographers, columnists, and editors – have an obligation to this country . . .” [Era of documented irrelevance: Mainstream media, critics and protesters, Homobono A. Adaza, The Manila Times, 25th Nov 2015]

“National prosperity is created, not inherited. It does not grow out of a country’s natural endowments, its labor pool, its interest rates, or its currency’s value, as classical economics insists. [A] nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.” [The Competitive Advantage of Nations, Michael E. Porter, Harvard Business Review, March–April 1990]

"You have to have a dream, whether big or small. Then plan, focus, work hard, and be very determined to achieve your goals." [Henry Sy Sr., Chairman Emeritus and Founder, S.M. Group (1924 - 2019)]

“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” [William Pollard, 1911-1989, physicist-priest, Manhattan Project]

“Development [is informed by a people’s] worldview, cognitive capacity, values, moral development, self-identity, spirituality, and leadership . . .” [Frederic Laloux, Reinventing organizations, Nelson Parker, 2014]