What Happened Today: March 20, 2023
Trump's indictment woes; Switzerland bets big on Credit Suisse; White-collar workers take advantage of AI
The Big Story
Former president Donald Trump called on his supporters over the weekend to protest in anticipation of his rumored forthcoming indictment from a Manhattan grand jury, on charges related to his alleged role in paying hush money to adult film star Stormy Daniels. “Protest, take our nation back,” Trump wrote on Saturday. The situation has injected fresh volatility into the 2024 presidential primaries, as several media outlets reported an imminent indictment and New York law enforcement prepared security arrangements around the Manhattan Criminal Court courthouse for what would be the first-ever arraignment of a former president.
Trump and his allies have accused Manhattan District Attorney Alvin Bragg of carrying out a political vendetta by continuing to pursue charges after both state and federal prosecutors put the hush-money case on ice. On Sunday, House Speaker Kevin McCarthy wrote on social media that Trump’s arrest would be an “outrageous abuse of power” by the DA’s office.
Former vice president and expected 2024 primary challenger, Mike Pence, said that the investigation “reeks” of “political prosecution,” while Florida Gov. Ron DeSantis said on Monday that Bragg was “pursuing a political agenda and weaponizing the office.” Ostensibly Trump’s strongest rival for the GOP nomination, DeSantis did not say how he would respond if Trump, a Florida resident, should refuse to surrender to authorities in the state. “I don’t know what goes into paying hush money to a porn star to secure silence over some type of alleged affair. I can’t speak to that,” DeSantis said.
Read More: https://www.cnbc.com/2023/03/20/desantis-rips-manhattan-da-bragg-over-possible-trump-charges.html
In The Back Pages: The Hollow Return of American Manufacturing
→ Making his first visit to Russia since its invasion of Ukraine, Chinese leader Xi Jinping reaffirmed his bond with President Vladimir Putin on Monday, saying the two nations were “good neighbors and reliable partners” before attending a private state dinner scheduled at the Kremlin. Though Beijing has spent the past several weeks burnishing Xi as a peace negotiator in the conflict, Western leaders have largely dismissed Xi’s role. Soon after the International Criminal Court issued an arrest warrant for Putin on charges of war crimes, China’s Foreign Ministry chided the court for its “double standards.”
→ French President Emmanuel Macron’s controversial pension-reform bill will become law after his government survived a no-confidence vote in Parliament on Monday. Facing the potential of becoming only the second French president to have his cabinet neutralized by opposition in Parliament since 1958, Macron now must manage widespread unrest as demonstrators nationwide continue to protest the increase to the retirement age. Already, strikes at the largest oil refinery have led to chaos at gas stations while air traffic workers and city garbage crews have disrupted flights and left more than 9,300 metric tons of trash piled on the streets of Paris.
→ Quote of the Day:
The government’s going to have to say to voters why they are putting citizens’ money, taxpayer money at risk to bail out a bank that was predominantly servicing the ultra wealthy, doing some pretty extraordinary things with its investment bank and paying people crazy amounts of money relative to what the man in the street gets paid.
That’s a former CEO of a major bank speaking anonymously to Reuters after UBS closed its $3.2 billion shotgun acquisition of distressed Credit Suisse thanks largely to the $280 billion worth of Swiss francs pledged by Swiss authorities to back the deal and help stabilize global financial markets. Roughly equivalent to a third of Switzerland’s entire economic output, the state’s financial support of the 167-year-old bank will be used in part to maintain the bonus payments to the executives who drove the bank into collapse.
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→ The forced marriage of UBS and Credit Suisse—the largest merger between global banks since the 2008 financial crisis—helped steady nerves in the U.S. market, with stocks rebounding on Monday. However, First Republic Bank continued its slide into the abyss, despite the rescue attempt last week by almost a dozen of the nation’s largest banks. On Sunday, S&P Global downgraded First Republic, saying the injection of deposits to shore up confidence was not enough to fix the “substantial” liquidity challenges the bank still faces. The ongoing volatility in the banking sector has coincided with a surge in value for Bitcoin, which has rallied by more than a third in the past two weeks.
→ Vinyl heads looking to bulk up their collections of rare 12th-century classical music will cheer the announcement by Universal Music Group that it’s acquired British label Hyperion. Though Hyperion includes 21st-century works in its catalog, the label earned a reputation for publishing throwback LPs when it dropped A Feather on the Breath of God, a collection of recordings of compositions by Hildegard von Bingen, a polymath mystic born in 1098 in Germany. A best-selling album when it was released in 1985, A Feather will likely introduce a new audience to the life of Hildegard, a Benedictine abbess and patron saint of musicians who became one of only four women to be named a doctor of the Roman Catholic Church.
→ Despite an ongoing partisan deadlock to fill a two-year vacancy on the Federal Communications Commission, the FCC nonetheless gave its unanimous 4-0 support on a new rule that would make robotexts illegal. The first-ever FCC regulation to deal with proliferating scam campaigns during which marketers flood cell-phone users en masse, the ruling comes after annual complaints to the FCC about robotexts skyrocketed from 3,300 in 2015 to 18,900 in 2022.
→ Record droughts across the Horn of Africa were responsible for the death of some 43,000 people over the past year and half, with roughly half of those victims under the age of 5. That’s according to a new report on Monday from the World Health Organization, just as humanitarian organizations warn that the ongoing lack of access to food and water could be particularly acute in Somalia, where as many as 34,000 could die by this summer. The sixth consecutive failed rainy season, soaring food prices, and continued fighting between Somali armed forces and various terrorist groups have displaced millions of people just as many major aid organizations have pivoted vast resources to Ukraine.
→ Number of the day: 70%
That’s how many white-collar workers are using ChatGPT for mundane office tasks without telling their bosses what they’re up to. According to a new Fishbowl survey, the AI tool has already been used by some 43% of workers, with the chat tool particularly popular among bankers and consultants who’ve tapped the ghost in the machine for writing out bits of code and email copy. Some Wall Street firms, though, aren’t sold on AI, with Bank of America and Goldman Sachs already banning any use of the AI software by employees.
TODAY IN TABLET:
Orthodox High School Musical by Hannah Rubin
For observant students in all-girls schools, exuberant theatrical productions are part of a long-standing, if often overlooked, tradition
Nazir 55 and 56 by Take One
In today’s Talmud pages, who were the mysterious Marcuses?
SCROLL TIP LINE: Have a lead on a story or something going on in your workplace, school, congregation, or social scene that you want to tell us about? Send your tips, comments, questions, and suggestions to firstname.lastname@example.org.
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The Hollow Return of American Manufacturing
American factories might come back but the middle class won’t follow
By Hirsh Chitkara
Since President Biden took office, a growing list of multinational corporations have pledged tens of billions of dollars to build manufacturing facilities in the United States. In the semiconductor sector, TSMC, Intel, Texas Instruments, and Micron collectively committed over $152 billion to bring critical chipmaking capabilities stateside. Electric vehicle battery manufacturers including LG Energy and Hyundai allocated $53 billion to build American plants. And while the manufacturing resurgence (such as it is) has been concentrated in high-tech sectors, there are notable exceptions including a $2.7-billion steel mill under construction in West Virginia.
To bring factories back, Washington had to counteract the trade deals that drove them away in the first place. In short, that required subsidies — lots of them. Last summer, Congress passed two of the largest corporate subsidy packages in American history. The $280-billion CHIPS and Science Act lured chipmakers to manufacture stateside with $52 billion in direct subsidies and $24 billion in tax credits. One week later, Biden signed the Inflation Reduction Act (IRA) into law, setting aside over $270 billion in corporate incentives for activities such as EV production and energy storage.
The new industrial strategy is commendable — if only on the surface. Since Bill Clinton ushered in NAFTA in the early 1990s, Americans have been fed the false promise of globalization. The resultant policies enriched the financial sector while decimating the industrial base and squeezing the middle class. Washington has now decided to roll back globalization, but it isn’t for the benefit of the middle class. Instead, the same financialized system that offshored the industrial base nearly three decades ago wants to onshore part of it today — not out of concern for broader national welfare, but to keep China from rewriting the rules of global trade.
For obvious reasons, the political establishment doesn’t want to frame it this way. The Biden administration claims to be rebuilding the American economy from “the middle out,” creating high-wage manufacturing jobs that don’t require a college degree. “Wall Street didn’t build this country,” Biden said in a December speech at TSMC’s $12-billion Arizona factory, “the middle class built the country, and unions built the middle class.”
Conveniently, Biden glosses over explanations of why middle class jobs disappeared in the first place. He tells the story as: America had good manufacturing jobs, “then something happened,” then jobs went overseas, so now we need to retrieve them.
That “something” that happened, of course, was the wave of free trade deals forged by a bipartisan Washington consensus at the behest of Wall Street. The spree began with NAFTA and snowballed in 2001 with China’s entry into the World Trade Organization (Biden supported both deals and pushed for more). By 2004, the number of American manufacturing jobs had plummeted 44% below its 1979 peak. Working conditions deteriorated in the jobs that remained, since management could always offshore production if American workers pushed their luck. The trade agreements hit the industrial Midwest particularly hard, stripping communities of economic opportunity and clearing the way for the ongoing opioid crisis.
Until recently, this arrangement worked to the mutual benefit of China and Wall Street. Chinese exports grew nearly ninefold in the two decades after it joined the WTO. More importantly, China moved up the value chain, shifting exports to more advanced manufacturing and services. Median incomes for Chinese citizens increased several times over, and the CCP succeeded in eradicating extreme poverty thanks to an $800-billion national development program. Meanwhile, U.S. corporations such as Apple, Tesla, and Nike benefited immensely from China both as a manufacturing base and a growing consumer market. Financial moguls such as Blackstone’s Stephen Schwarzman and Bridgewater’s Ray Dalio made big bets on China and became informal intermediaries between Beijing and Washington. By 2021, China became the top destination for foreign direct investment, seizing a title the U.S. held for decades prior.
While the American financial sector remains deeply invested in China, it has been spooked by China’s emboldened defiance of the Western financial order. Having consolidated power in recent months, President Xi Jingping enacted crackdowns on tech billionaires, political rivals, and financiers. The swift CCP takedown of Alibaba founder Jack Ma likely looms large in the minds of American elites, as it demonstrated a dramatic inversion of their long-presumed power dynamic between governments and titans of industry. China also tipped the regulatory scales further in favor of state-owned enterprises, making it more difficult for Western corporations to compete. In January, Xi warned swift action would be taken against “any infiltration of capital into politics that undermines the political ecosystem.”
These proceedings forced American elites to confront an uncomfortable truth: China will always be valuable to them, but they might not always be valuable to China. In other words, history has not ended; China will not dutifully enter the Western fold, sending its profits to the coffers in New York. A 2022 survey of U.S. businesses operating in China found record low optimism in their five-year business outlooks for China, with 69% citing heightened government policy support for Chinese competitors, often in the form of financing or access to contracts, as a key contributor. Foreign direct investment in China, meanwhile, plummeted to an 18-year low in the second half of 2022. Of even greater concern for Wall Street, Xi explicitly stated his desire to break the international order that underpins U.S. corporate profits. At last year’s National Congress, he called on China to play “an active part in the reform and development of the global governance system,” so that it can oppose “protectionism, the erection of ‘fences and barriers,’ decoupling, disruption of industrial and supply chains, unilateral sanctions, and maximum-pressure tactics.” China has already seen success in this effort, as developing nations are increasingly choosing to buy debt from China instead of the IMF.
Wall Street still wants globalization, but on its own terms. A stronger, more independent China threatens the U.S.’s ability to determine the conditions of global trade. Hence, the new industrial policy aims to give the U.S. just enough of an industrial base to contain China without destroying itself. In a potential conflict with China, the U.S. cannot rely on Taiwan to produce 70% of the chips used in advanced U.S. weapons systems, nor can it quickly find a new source for its many crucial imports from Beijing—more than 70% of active ingredients used in the American pharmaceuticals market, for instance, come from China.
Fundamentally, the CHIPS Act and IRA are military programs, not job programs. Before it became clear the CHIPS and Science Act would pass, the Pentagon sent Deputy Defense Secretary Kathleen Kicks and National Intelligence Director Avril Haines to Congress to explain behind closed doors why the bill needed to pass. The swing vote in the IRA, Sen. Joe Machin, said the bill set out to “bring our energy and manufacturing supply chains onshore to protect our national security, reduce our dependence on foreign adversaries, and create jobs right here in the United States.” If the “create jobs” part feels incidental, that’s because it is.
None of this necessarily precludes the new industrial policy from rebuilding the middle class. The wrong motives can still produce the right outcome. But the advanced manufacturing subsidized in Biden’s industrial policy doesn’t require all that much low-skill labor. In speeches, Biden said the CHIPS Act would produce 1 million construction jobs. It wasn’t until The Washington Post challenged this assertion that the White House admitted its mistake. The correct estimate, even when calculated by industry-backed research groups, was closer to 6,200 jobs — not exactly great bang for your 50 billion bucks. Workers without high school degrees can expect to earn around $48,000 from semiconductor manufacturers — only $8,000 above the median across all industries, and certainly not enough to afford the lifestyle of postwar factory workers. Ironically, the bill has probably been most effective as a jobs program for DC lobbyists, who received a tidy $100 million sum that will undoubtedly do wonders for Georgetown’s cupcake economy.
Putting job considerations aside, there’s also the question of how well this plan will even work on its own terms. Chipmakers Intel, IBM, Qualcomm, Texas Instruments, and Broadcom collectively spent 71% of their profits between 2011 and 2020 on stock buybacks totalling $249 billion. The companies made these buybacks in lieu of capital investments. Even after Senate Majority Leader Senator Chuck Schumer and Bernie Sanders co-authored a New York Times op-ed calling for buyback reform, Schumer rallied Democrats around a massive subsidy package that does little to curtail the practice. Exxon Mobil, one of the primary companies tasked with ushering in our subsidy-fueled “green revolution,” recently announced a $50-billion buyback program that will run through 2024. To be clear, the problem isn’t subsidies — it’s subsidies flowing through extractive corporate vessels right back into capital markets, further driving inequality without creating the middle-class opportunities promised.
A broader protectionist industrial policy might raise labor demand such that wages meaningfully increase. The CHIPS Act and IRA have at least shown that, if Washington has the appetite for it, the U.S. can bring factories back. Offshoring production is a policy choice, not a natural consequence of economic development. Still, within our existing financialized economy, the middle class cannot bounce back in earnest. A true fix seems to require magical thinking: Congress would need to address stock buybacks, soaring healthcare costs, the housing crisis, and higher education affordability. To borrow from Mark Fischer: It is easier to imagine the end of the United States than the end of financial capitalism.
Without reforming this system, the U.S. risks losing its technology edge to China. As of 2019, the U.S. led the world in gross R&D expenditures, with nearly 30% of total spending. But China has quickly caught up, rising from 4.9% of global R&D spend in 2000 to 23.9% in 2019. If the U.S. allows the logic of financial capitalism to continue steering its economy, it will become less and less efficient at directing money towards R&D. So far the government has been able to compensate by simply increasing the money supply flowing through corporations, hoping a rising tide will lift all R&D boats. The technique works in the narrow sense of funding innovation, but it also produces market distortions that threaten the entire system — look no further than the collapse of Silicon Valley Bank to see how that plays out.
The U.S. dollar’s status as global reserve currency enables this bad habit, but contradictions within the American system threaten it too. For decades, the U.S. tried to sell the world on free trade and globalization. It largely succeeded. But to fend off China, the U.S. had to start flaunting its own rules — free trade for thee, protectionism for we. This hypocrisy has strained relations with key American allies. Germany and France, for instance, were understandably upset that the U.S. excluded European-made vehicles from a $7,500-per–electric-vehicle tax credit program. The WTO, long a steward of American hegemony, recently accused the U.S. of violating trade rules by maintaining steel and aluminum tariffs on national security grounds. The gravitational pull of U.S. diplomacy has weakened, borne out in EU bureaucrat grumblings and our strained campaign to isolate Russia.
Even facing China’s rise and the mounting incoherence of our international order, Wall Street can’t help but sabotage its own rescue, auctioning off government-supplied life rafts to the highest bidder. When a system is devoid of any real values beyond self-interest, it reforms itself only to survive another day, even if that endangers its ability to survive another decade. As the situation further deteriorates, the U.S. might address some of its more fundamental problems. But meaningful change — the kind that allows a society to flourish — demands the rediscovery of real values. Until that happens, economics can only offer incremental remedies to our fundamental problems.
Hirsh Chitkara is a writer living in New York City.
Greed kills. Everyone’s looking out for themselves, and not the future of the very country they live in, and from which they have reaped their fortunes.
The return of Values you say?
Men truly are not angels, and lacking any kind of a true moral compass are steering this ship right into the rocks.