Trump’s Magic Budget

CAMBRIDGE – US President Donald Trump’s administration has now released its budget plans for fiscal year 2018. Among the details provided in the document, entitled America First – A Budget Blueprint to Make America Great Again, are projections for the expected path of gross federal debt as a percentage of GDP, which is shown to decline from its current level of about 106% to about 80% in 2027. Debt held by the public is expected to mirror this path, shrinking from 77% to 60% over this period.

Unfortunately, neither projection is credible.

A sustained and marked decline in government debt (relative to GDP) would be welcome news for those of us who equate high indebtedness with the kind of fiscal fragility that reduces the government’s ability to cope with adverse shocks. But, as many critics have pointed out, the economic assumptions underlying the Trump administration’s benign scenario appear improbable. In fact, they are also internally inconsistent.

The Trump budget assumes a steady spell of 3% GDP growth, which appears to be at odds with the prevailing trends of weakening productivity performance, slowing population growth, and a significantly lower level of labor force participation. These factors are all reflected in recurrent downward revisions to potential GDP growth by institutions such as the Federal Reserve and the Congressional Budget Office (CBO).

A new study by the non-partisan Committee for a Responsible Budget presents a very different outlook for US deficits and debt from the one contained in Trump’s budget blueprint. It estimates that under realistic economic assumptions from the CBO, debt in Trump’s budget would remain roughly at current levels, rather than falling precipitously (as deficits would remain above 2% of GDP, rather than disappear by 2027). Furthermore, the study shows that relying on assumptions that are more in sync with the consensus economic outlook implies a deficit of 1.7-4% of GDP by 2027, with debt at 72-83% of GDP.

So far, the chorus of criticism directed at the administration’s budget document has largely focused on its optimistic forecasts for GDP growth. But let’s accept, for the sake of argument, that the United States economy is operating well within its production possibility frontier, owing to various tax and other inefficiencies, and that eliminating or significantly reducing such distortions could significantly boost growth. (A recent IMF study, for example, concludes that countries can raise productivity by improving the design of their tax system, and that eliminating such barriers would, on average, lift countries’ annual real GDP growth rates by roughly one percentage point over 20 years.)

But, even giving the administration the benefit of the doubt and accepting the possibility of sustained 3% GDP growth for the US, another set of critical assumptions drive the rosy deficit and debt projections produced by the Office of Management and Budget (OMB): the expected level and path of interest rates. To state the obvious, lower interest rates imply lower debt servicing costs, which in turn mean lower nondiscretionary outlays, smaller deficits, and lower debt.

On the surface, the projections for short- and long-term (ten-year) interest rates embedded in the 2018 budget are in line with the prevailing Blue Chip forecasts. In effect, for fiscal year 2018, the budget assumes slightly higher short-term rates than the consensus.

In fact, the budget assumes the best of all worlds, not the Blue Chip one in which interest rates remain low but GDP growth ambles along at around 2%. With real (inflation-adjusted) interest rates remaining near record lows, a marked increase in long-term growth, as the administration forecasts, would be historically anomalous.

In the OMB document, the real interest rate on three-month Treasuries is expected to stay below 1% over the decade. Furthermore, in that projection, the term premium disappears almost entirely. At present, ten-year Treasuries offer more than three times the yield on three-month Treasuries. Over the medium term, the budget assumes that ten-year rates will be barely above their three-month counterpart. Historically, flat yield curves have been associated with tight money and high-interest-rate policies.

What kind of policies and environment can deliver significantly faster growth and inflation, without any pressure on interest rates?

A combination of solid growth and sustained low real interest rates was the norm in the US for much of the 1940s-1970s, when (as I have documented elsewhere) financial repression prevailed, owing to heavily regulated capital markets and an accommodative central bank.

In contrast, if history is a guide, a policy mix characterized by financial de-regulation (a Trump favorite) and an independent central bank facing potential full employment and overheating would be a harbinger of higher interest rates. And with higher interest rates comes a heavier debt-service burden (substantially heavier than in the past, given current debt levels), wider deficits, and higher debt.

There seems to be a serious internal inconsistency in the high-growth/low-real-interest-rate scenario presented in Trump’s 2018 budget plan. If not, contrary to the administration’s public statements, financial markets will have to live with a heavy dose of financial repression in the years ahead. Carmen M. Reinhart is Professor of the International Financial System at Harvard University’s Kennedy School of Government.

By Carmen M. Reinhart

The Hunger Bonds

CAMBRIDGE – Investing often creates moral dilemmas over goals: Should we aim to do well or to do good? Is it appropriate to invest in tobacco companies? Or in companies that sell guns to drug gangs?

The recent popularity of so-called impact investment funds, which promise to deliver decent returns while advancing social or environmental goals, is based on this unease. Foundations often find that these investment vehicles help them to do good both with the money that they spend on philanthropy and with the endowment assets that yield the returns on which their philanthropy depends.

Nowadays, it is emerging markets as an asset class that should make people morally queasy. Should decent people put their money in emerging-market bond funds?

The returns of the JP Morgan Emerging Market Bond Index (EMBI+) are heavily influenced by what happens in Venezuela. The reason is simple: while Venezuela represents only about 5% of the index, it accounts for about 20% of its yield, because the yield on Venezuelan debt is about five times larger than that of other countries in the index, a reflection of the huge risk premium that Venezuela faces. Moreover, the price volatility of Venezuelan debt – the highest in the EMBI+ – accounts for a disproportionate share of the index’s daily price movements.

You might invest in the EMBI+ because it promises higher returns, or because you want to make your savings available to a larger segment of humanity. But if you do, you will root for Venezuelan debt, which means wishing for really bad things to happen to Venezuela’s people.

As has been widely reported in the media, Venezuela is experiencing one of the most calamitous economic collapses ever, accompanied by massive doses of political repression and human-rights violations. So investing in the EMBI+ means that you rejoice when Wall Street analysts inform you that the country is literally starving its people in order to avoid restructuring your bonds.

Your happiness is easily explained: Venezuelan imports, after having collapsed by 75% from 2012 to 2016, are down more than 20% in the first quarter of 2017. That’s good news for you as an EMBI+ investor, because it means that more money is left to service your bonds. Meanwhile, Venezuelans are involuntarily losing weight and searching for food in garbage piles. Sure, it’s a humanitarian catastrophe. But, to you, it’s a fabulous investment opportunity.

Now assume that you want to hold Venezuelan debt because you are hoping that President NicolásMaduro will lose power and that a more sensible, democratically minded government, more in line with your moral compass, will emerge. Even in that case, you will still want the gains from Venezuela’s future recovery to be used preferentially to service the old debt issued to finance the corruption and national destruction brought about by Maduro and his predecessor, Hugo Chávez. You will not be rooting for the recovery of livelihoods that Venezuelans deserve after having lived through this nightmare.

You will also be rooting for US judges to seize assets and impound money to pay you. In fact, analysts who are bullish on Venezuelan debt have been lobbying the government and opposition leaders with an implied threat: even considering a restructuring of your bonds, they point out, will allow those managing your assets to cause havoc in Venezuela.

If you are a decent human being, investing in Venezuelan bonds should make you feel “mildly nauseous,” to borrow a phrase recently used by former FBI Director James Comey while testifying to the US Congress. Emerging-market fund managers feel a similar discomfort. They currently spend a disproportionate share of their time “getting the Venezuelan call right,” because their bonuses are based on their over-performance relative to the index – of which Venezuela is the main driver.

The less morally burdened among them bask in the recognition they receive for having been right to predict that Maduro’s government would decide to starve its people rather than restructure the bonds you hold. Analysts and bondholders have also lobbied the government and the opposition not to seek financial support from the International Monetary Fund, for fear that the international community will demand that you accept a significant “haircut” on your investment, as has been required of Greece’s creditors.

That would probably not be “good for the credit.” Analysts and bondholders have also lobbied the opposition-controlled National Assembly to recognize Venezuela’s external debt in exchange for the freedom of political prisoners, implying that the payment of your bonds can be secured through ransom.

So, should you stop investing in emerging-market funds just because 5% of your savings would go toward financing Venezuela? Clearly, this would punish other countries that are innocent bystanders in the Venezuelan mess. There must be a better way.

There is. The solution is to demand that JPMorgan immediately exclude Venezuela from the emerging market bond indexes it calculates, thereby freeing fund managers from the need to compare their performance with hunger bonds. Over time, JPMorgan should introduce a Decent Emerging Markets index, which would save you from moral anguish by ensuring that only countries adhering to minimal standards of respect for their citizens are included. The DEM would allow you to root for higher returns on your savings without wishing for human misery. You could do well, without feeling bad.

Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Director of the Center for International Development at Harvard University and a professor of economics at the Harvard Kennedy School. 

By Ricardo Hausmann

Manchester’s Bright Future

MANCHESTER – I am a proud Mancunian (as the people of Manchester are known), despite the fact I haven’t lived there permanently since I left school for university when I was 18. I was born in St. Mary’s hospital near the city center, was raised in a pleasant suburb in South Manchester, and attended a normal primary and junior school in a nearby, tougher neighborhood, before attending Burnage for secondary school. Thirty-eight years after I attended Burnage, so, apparently, did Salman Abedi, the suspected Manchester Arena bomber.

The atrocity carried out by Abedi, for which the Islamic State has claimed credit,is probably worse than the dreadful bombing by the Irish Republican Armythat destroyed parts of the city center 21 years ago, an event that many believe played a key role in Manchester’srenaissance. At least in that case, the bombers gave a 90-minute warning that helped avoid loss of life. Abedi’sbarbaric act, by contrast, killed at least 22 people, many of them children.

In recent years, I have been heavily involved in the policy aspects of this great city’s economic revival. I chaired an economic advisory group to the Greater Manchester Council, and then served as Chair of the Cities Growth Commission, which advocated for the “Northern Powerhouse,” a program to link the cities of the British north into a cohesive economic unit. Subsequently, I briefly joined David Cameron’s government, to help implement the early stages of the Northern Powerhouse.

I have never attended a concert at the Manchester Arena, but it appears to be a great venue for the city.Just as Manchester Airport has emerged as a transport hub serving the Northern Powerhouse, the arena plays a similar role in terms of live entertainment. As the sad reports about thoseaffected indicate, attendees came from many parts of northern England (and beyond).

In the past couple of years, Manchester has received much praise for its economic revival, including its position at the geographic heart of the Northern Powerhouse, and I am sure this will continue. Employment levels and the regional PMI business surveys indicate that, for most of the past two years, economic momentum has been stronger in North West England than in the country as a whole, including London.Whether this is because of the Northern Powerhouse policy is difficultto infer; whatever the reason, it is hugely welcome and important to sustain.

To my occasional irritation, manypeople still wonder what exactly the Northern Powerhouseis. At its core, it represents the economic geography that lies within Liverpool to the west, Sheffield to the East, and Leeds to the northeast, with Manchester in the middle. The distance from Manchester to the center of any of those other cities is less than 40 miles (64 kilometers), which is shorter than the London Underground’s Central, Piccadilly, or District lines. If the 7-8 million people wholive in those cities – and in the numerous towns, villages,and other areas between them – can be connected via infrastructure, they can act as a single unitin terms of their roles as consumers and producers.

The Northern Powerhouse would thenbe a genuine structural game changer forBritain’s economy.Indeed, along with London, it would be a second dynamic economic zone that registers on a global scale. It is this simple premise that led the previous government to place my ideas at the core of its economic policies, and why the Northern Powerhouse has become so attractive to business here in the United Kingdom and overseas.

It is a thrilling prospect, and, despite being less than three years old, it is showing signs of progress.In fact, given the broader economic benefits of agglomeration, the Northern Powerhouse mantra can be extendedto the whole of the North of England, not least to include Hull and the North East. But it is what I often inelegantly call “Man-Sheff-Leeds-Pool”thatdistinguishes the Northern Powerhouse, and Manchester, which sits at the heart of it, is certainly among the early beneficiaries.

Despite this, I have frequently said to local policy leaders, business people, those from the philanthropic world, and others that unless the areas lying outside the immediate vicinity of central Manchester benefit fromregional dynamism, Greater Manchester’s success will be far from complete. Anyone wholookslittle more than a mile north, south, east,or west of Manchester’s Albert Square – never mind slightly less adjacent parts such as Oldham and Rochdale – can see that much needs to be improved, including education, skills training, and inclusiveness, in order to ensure long-termsuccess.

Whatever the warped motive of the 22-year-old Abedi,who evidentlyblew himself up along with the innocent victims, his reprehensible act willnot tarnish Manchester’s bright, hopeful future. I do notclaimtounderstand the world of terrorism,but I do know that those who live in and around Manchester and other cities need to feel part of their community and share its aspirations. Residents who identify with their community are less likely to harm it – and more likely to contribute actively to itsrenewed vigor.

Now more than ever, Manchester needs the vision that the Northern Powerhouse provides. It is a vision that other cities and regions would do well to emulate.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Honorary Professor of Economics at Manchester University and former Chairman of the British government's Review on Antimicrobial Resistance.

By Jim O’Neill

The Plant-Based Solution to Hunger

BERLIN – The way we eat in the industrialized world is unhealthy, unjust, and unsustainable. Far too much of the meat we consume is produced under questionable ecological, ethical, and social conditions. And now our industrial model for meat production is being exported to the global south – especially India and China – where meat consumption is rising among these countries’ emerging middle classes.

Worldwide, 300 million tons of meat are produced each year, and the United Nations Food and Agriculture Organization estimates that the annual amount will increase to 455 million tons by 2050 if demand continues to grow at the current rate. Such large amounts of meat can be produced only on an industrial scale, and at high social, political, and ecological costs.

Meat production is a tremendously inefficient use of agricultural land, because considerably more plant-based food is needed to feed livestock than we would need to feed ourselves directly through a plant-based diet. For example, producing one kilogram of chicken meat, pork, or beef requires 1.6, three, and eight kilograms of animal feed, respectively. This pits farmers and animal-feed producers against one another in a fierce competition over land.

Meanwhile, the production of soy – the world’s most important animal-feed grain – rose from 130 million tons in 1996 to 270 million tons in 2015, with 80% of output going to meat production, especially in China (70 million tons) and Europe (31 million tons). This expansion of soy agriculture, as a result of the growing demand for meat, is driving up land values. Consequently, in the global south, common land is being privatized, rainforests are being destroyed to make room for agricultural cultivation, and international agribusinesses are expropriating the land that one-third of the world’s people still rely on for their livelihoods.

Animal-feed production, and the intensive cultivation of agricultural land that it requires, is not only destroying ecosystems and reducing biodiversity; it is also fueling climate change. Worldwide, our industrial agriculture system produces an estimated 14% of the world’s greenhouse-gas emissions; including emissions indirectly linked to deforestation, and those associated with fertilizer production, increases that share to 24%. Moreover, the extensive use of fertilizers and pesticides – 99% of the world’s soy is genetically modified, and is routinely treated with pesticides – is also contaminating ground-water sources, destroying biodiversity, and eroding the soil.

We can no longer ignore the external costs of this system. If we are serious about addressing climate change and securing every human being’s right to proper nutrition and food security, we must challenge the presumption that an industrial agricultural model, let alone meat, is necessary to feed the world.

In fact, that presumption has little merit. The UN Environment Programme estimates that, by 2050, an area between the size of Brazil and India will have to be repurposed into cropland if current food-consumption trends continue. But if the 9.6 billion people expected to inhabit the planet by then were to have a plant-based diet, industrial meat production could be abandoned and all of them could be fed without the need for any additional agricultural land.

For many people, the competition for land is a fight for survival. Land access, which is more unevenly distributed than incomes, is a deciding factor in whether someone suffers from malnutrition: 20% of households that experience hunger do not own land, and 50% of people who experience hunger are small-scale farmers.

The industrial agriculture system’s production chains must be replaced with local, decentralized, and sustainable production chains. It is incumbent upon governments to prioritize people’s right to food and nutrition above private economic interests. People should not lose their livelihoods and food security for the benefit of agribusiness profits.

To move toward an ecologically sustainable and socially equitable agricultural model, we can leverage existing political frameworks, such as the European Union’s Common Agricultural Policy. As it stands now, large-scale industrial meat producers are profiting extensively from EU subsidies; but these subsidies could be redirected as investments in decentralized meat and grain production chains that adhere to a more sustainable model.

Doing so requires recognizing that realistic alternatives to industrial agriculture do exist. For example, “agroecology” – a system based on traditional and indigenous knowledge that is passed down through the generations – is easily adaptable to all geographic circumstances. In fact, in 2006 Jules Pretty of the University of Essex found that this mode of production can increase harvest yields by 79%.

But, to implement this shift, governments must ensure that all people have guaranteed access to land and potable water, and they need to create political frameworks to promote ecologically and socially just agricultural models – which, by definition, excludes industrial agriculture.

The challenge of feeding every human being should not be viewed in opposition to – or as somehow ruling out – questions of social justice and the future of the planet. Poverty, malnutrition, and hunger are a result of politics, not scarcity. Barbara Unmüßig is President of the Heinrich Böll Foundation.

By Barbara Unmüßig

The Six-Day War at 50

NEW YORK – The world is about to mark the 50thanniversary of the June 1967 war between Israel and Egypt, Jordan, and Syria – a conflict that continues to stand out in a region with a modern history largelydefined by violence. The war lasted less than a week, but its legacy remains pronounced a half-century later.

The war itself was triggered by an Israeli preemptive strike on the Egyptian air force, in response to Egypt’s decision to expel a United Nations peacekeeping force from Gaza and the Sinai Peninsula and to close the Straits of Tiran to Israeli shipping. Israel struck first, but most observers regardedwhat it did as a legitimate act of self-defense against an imminent threat.

Israel did not intend to fight on more thanonefront, but the war quickly expanded when both Jordan and Syria entered the conflict on Egypt’s side.It was a costly decision for the Arab countries. After just six days of fighting, Israel controlled the Sinai Peninsula and the Gaza strip, the Golan Heights, the West Bank,and all of Jerusalem. The new Israel was more than three times larger than the old one. It was oddly reminiscent of Genesis: six days of intense effort followed by a day of rest, in this casethe signing of a cease-fire.

The one-sided battle and its outcomeput an end to the notion (for some, a dream) that Israel could be eliminated. The 1967 victory made Israel permanent in ways that the wars of 1948 and 1956 did not.The new statefinally acquired a degree of strategic depth.Most Arab leaders came to shifttheir strategic goal from Israel’s disappearance to its return to thepre-1967 war borders.

The Six-DayWar did not, however, lead to peace, even a partial one. That would have to wait until the October 1973 war, which set the stage for what became the Camp David Accords and the Israel-Egypt peace treaty. The Arab side emerged from this subsequent conflict with its honorrestored; Israelis for their part emerged chastened. There is a valuable lesson here: decisive military outcomes do not necessarily lead to decisive political results, much less peace.

The 1967 war did, however, lead to diplomacy, in this case UN Security Council Resolution 242. Approved in November 1967, the resolution called for Israel to withdraw from territories occupied in the recent conflict – but also upheld Israel’s right to live within secure and recognized boundaries. The resolution was a classic case of creative ambiguity. Different people read it to mean different things. That can makea resolution easier to adopt, but more difficult to act on.

It thus comes as little surprise that there is still no peace between Israelis and Palestinians, despite countless diplomatic undertakings by the United States, the European Union and its members, the UN, and the parties themselves.To be fair, Resolution 242 cannot be blamed for this state of affairs. Peace comes only whena conflict becomes ripe for resolution, which happenswhen the leaders of the principal protagonists are both willing and able to embrace compromise. Absent that, no amount of well-intentioned diplomatic effort by outsiders can compensate.

But the 1967 war has had an enormous impact all the same. Palestinians acquired an identity and international prominence that had largely eluded them when most were living under Egyptian or Jordanian rule. What Palestinians could not generate was a consensus among themselves regarding whether to accept Israel and, if so, what to give up in order to have a state of their own.

Israeliscould agree on some things. A majority supported returning the Sinai to Egypt. Various governments were prepared to return the Golan Heights to Syria under terms that were never met. Israel unilaterally withdrew from Gaza and signed a peace treaty with Jordan. There was also broad agreement that Jerusalem should remain unified and in Israeli hands.

But agreement stopped when it came to the West Bank. For some Israelis, this territory was a means to an end, to be exchanged for a secure peace with a responsible Palestinian state. For others, it was an end in itself, to be settled and retained.

This is not to suggest a total absence of diplomatic progress since 1967. Many Israelis and Palestinians have come to recognize the reality of one another’s existence and the need for some sort of partition of the land into two states. But for now the two sides are not prepared to resolve what separates them. Both sides have paid and are paying a price for this standoff.

Beyond the physical and economic toll, Palestinians continue to lack a state of their own and control over their own lives. Israel’s objective of being a permanent Jewish, democratic, secure, and prosperous country is threatened by open-ended occupation and evolving demographic realities.

Meanwhile, the region and the world have mostly moved on, concerned more about Russia or China or North Korea. And even if there were peace between Israelis and Palestinians, it would not bring peace to Syria, Iraq, Yemen, or Libya.Fifty years after six days of war, the absence of peace between Israelis and Palestinians is part of animperfect status quothat many have come to accept and expect.

Richard N.Haass is the president of the Council on Foreign Relations and the author, most recently, ofAworld Worldin Disarray: American Foreign Policy and the Crisis of the Old Order.

By Richard N. Haass

Is Trump Palestine’s New Hope?

RAMALLAH – On his recent visit to Washington, DC, Palestinian leader Mahmoud Abbas surprised many by heaping praise onUS President Donald Trump. Speaking through a translator, Abbas called Trump, who had promised to “get done” a peace agreement between Israel and Palestine,“courageous” and wise, and lauded Trump’s “great negotiating ability.” “Now, Mr. President,” Abbas concluded in English, “with you we have hope.”

The question, of course, is whether that hope is warranted. After all, in his own public statement,Trump made no reference to the two-state solution, and his vague declarations about peace (mentioned 11 times) included notso much as a hint about the need for Israel (also mentioned 11 times) to end its illegal settlement construction.And, in fact, Trumpfell back in his statements on that asymmetrical phrasing he has so often used in the past: Israel and the Palestinians.

The reality is that Trump has long been giving Palestinians reason to worry. During his election campaign, Trump spoke about moving the United States embassy to Jerusalem and condemned the outgoing Obama administration’s decision to abstain from voting on a United Nations Security Council resolution denouncing Israeli settlements (rather than vetoing it). Once elected, Trump appointed as US ambassador to Israel his bankruptcy lawyer,David Friedman, who has a long history of supporting right-wing Israeli causes (even donating to a West Bank settlement).

Yet Abbas was silent about these issues. The mere fact that Trump had invited him to the White House so early in the administration seemed to provide reason for optimism. And Trump had already directed some attention to resolving the Israeli-Palestinian conflict, tasking his son-in-law and trusted (though wholly inexperienced) adviser Jared Kushner with brokering a peace agreement.

Of course, promises to broker peace are nothing new for a US president. But Trump is no ordinary US president. Many Palestinians are encouraged by the fact that he does not seem bound by the usual lobby-influenced ideologies and commitments of US political parties. In their view, a US president who puts “America first” surely will see the absurdity of spending so much political and financial capital on Israel, which provides little strategic benefit to the US, at the cost ofgreater instability in the Middle East.

Trump’s image as a dealmaker reinforces this hopeful narrative. While his promises to strike “the ultimate deal” are not backed by much detail, they remain appealing to Palestinians, who have grown frustrated with a peace process thathas had little impact beyond allowing Israel to expand and consolidate its occupation of Palestinian land.

This is not to say that Palestinians blindly trust the Trump administration to determine their fate.On the contrary,Abbashas worked diligently to strengthen his own position, meeting with Egyptian President Abdel Fattah el-Sisi and Jordanian King Abdullah II five timesbetween Trump’s inauguration and the visit to the White House. When Sisi and Abdullahvisited Trump, each reiterated the position included in the 2002 Arab Peace Initiative: Israel should withdraw fully from the occupied territories, in exchange for normalization of relations with Arab League countries. At the March 29 Arab League summit in Jordan, they and other Arab leaders underscored the need for an independent Palestinian state on the 1967 borders, with East Jerusalem as its capital.

With such efforts, Abbas hoped to underscore the real goals that must be pursued, countering Israeli attempts at diversion. For example, Israeli Prime Minister Binyamin Netanyahu has been calling on the Palestinian Authority to halt social benefits to the families of prisoners who killed Israelis, attempting to portray those allocations as some kind of payoff. Abbas’s praise of Trump at the White House may be another tactic for keeping Trump on track.

It is too early to tell if Abbas’s approach to the Trump administration will succeed. Some might argue that Trump’s decision to make Saudi Arabia, rather than Israel,the destination of his first trip abroad as US president reflects a new view of the region (though he will head to Israel immediately after).

When interviewed by Reuters on his first 100 days in office, Trump said that the US presidencyhad turned out to bea much harder job than he had anticipated. But the negotiations between Israelis and Palestinians need not be. After all, we know what a deal must entail: an independent Palestinian state, secured through land swaps, and a creative solution to the Palestinian refugee issue.

The main obstacle to an agreementhas been insufficient political will on the part of the US to push for the needed compromise. Palestinian leaders hope that Trump, a businessmanobsessed with his legacy,will finally display the needed resolve, using the full clout of the US presidency to secure the“ultimate deal.”

DaoudKuttab, a former professor at Princeton University and the founder and former director of the Institute of Modern Media at Al-Quds University in Ramallah, is a leading activist for media freedom in the Middle East.

By DaoudKuttab

Trump’s Strongman Weakness

NEW YORK – US President Donald Trump has made his affinity for authoritarian leaders abundantly clear. When Trump entertained Abdel Fattah el-Sisi at the White House in April, he praised the Egyptian military ruler for doing “a fantastic job.” And after Turkish President RecepTayyipErdoğan declared a narrow victory in a referendum to approve a significant expansion of the presidency’s powers, Trump called to offer his congratulations.

Trump has also extended an invitation to Philippine President Rodrigo Duterte, who is presiding over a “war on drugs” that has so far resulted in thousands of extrajudicial killings by the police. And he has continued to speak of Chinese President Xi Jinping in glowing terms, ever since the two met in April at Trump’s Mar-a-Lago resort.

Trump has openly praised these and other strongmen, not least Russian President Vladimir Putin. But praise is not the same thing as policymaking; and, until this month, Trump and his advisers had left us guessing as to whether his enthusiasm for authoritarian leaders would actually lead to a change of course for US foreign policy.

We now have our answer. In a recent speech to his department’s employees, Secretary of State Rex Tillerson clarified the administration’s position on human rights. Since the mid-1970s, US law has required all presidential administrations to promote internationally recognized standards of human rights as a matter of US foreign policy. But in addressing this very issue, Tillerson ignored US law and various international treaties that the United States has adopted.

In describing the Trump administration’s “America first” approach, Tillerson indicated that the US will no longer emphasize human rights when it interacts with other countries on security and economic issues. “If we condition too heavily that others must adopt this value that we’ve come to over a long history of our own,” he said, “it really creates obstacles to our ability to advance our national security interests, our economic interests.”

But US policymakers’ options for dealing with a country where systematic abuses take place are not limited to imposing American values on that country’s government. And, frankly, it’s difficult to see how simply telling Sisi, Erdoğan,or Duterte to adopt American values would do much good. But Tillerson does not seem to recognize that those countries, too, have agreed to abide by internationally accepted values, and to respect human rights.

• So, rather than imposing its values, the US can and should call on governments it works with to adhere to the commitments that they made when they ratified the Charter of the United Nations and other international treaties, such as the UN Convention Against Torture.

When Sisi’s forces kill hundreds of peaceful protestors in the streets of Cairo, they are violating values that their own government pledged to respect. The same goes for Erdoğanwhen his government imprisons more journalists than any other government in the world; and for Duterte, when he encourages his police forces and other “vigilantes” to carry out death-squad-style killings.

Another fallacy in Tillerson’s State Department remarks is the suggestion that human-rights promotion conflicts with US national-security and economic interests. What Tillerson misses is that praising the likes of Sisi, Erdoğan, and Duterte without also mentioning their human-rights abuses is not the same thing as adopting a neutral stance. Rather, it signals to all of those suffering under authoritarian governments that the US condones those governments’ repressive practices – a position that could damage US national-security and economic interests over the long term, by undermining America’s global respect and prestige.

Of course, when confronting particularly pressing and dangerous foreign-policy challenges, it may be appropriate to set aside human-rights concerns temporarily. For example, if the Trump administration is serious about persuading North Korea to abandon its efforts to develop nuclear weapons and intercontinental ballistic missiles, then denouncing that regime’s gross abuses is not a strategic priority.

But leaving those abuses unmentioned is a far cry from endorsing or openly condoning Kim Jong-un’s reign of terror. Giving Kim a free pass would never be justified. And yet that is precisely what Trump has been giving other authoritarian leaders. Sadly, as Tillerson has made clear, Trump’s admiration for such leaders will now be an animating force of official policy.

AryehNeier is President Emeritus of the Open Society Foundations.

The Right to Agricultural Technology

STANFORD – In the 1960s, when biologist Paul Ehrlich was predicting mass starvation due to rapid population growth, plant breeder Norman Borlaug was developing the new crops and approaches to agriculture that would become mainstays of the Green Revolution. Those advances, along with other innovations in agricultural technology, are credited with preventing more than a billion deaths from starvation and improving the nutrition of the billions more people alive today. Yet some seem eager to roll back these gains.

Beyond saving lives, the Green Revolution saved the environment from massive despoliation. According to a Stanford University study, since 1961, modern agricultural technology has reduced greenhouse-gas emissions significantly, even as it has led to increases in net crop yields. It has also spared the equivalent of three Amazon rainforests – or double the area of the 48 contiguous US states – from having to be cleared of trees and plowed up for farmland. Genetically engineered crops, for their part, have reduced the use of environmentally damaging pesticides by 581 million kilograms (1.28 billion pounds), or 18.5%, cumulatively since 1996.

Surprisingly, many environmentalists are more likely to condemn these developments than they are to embrace them, promoting instead a return to inefficient, low-yield approaches. Included in the so-called agroecology that they advocate is primitive “peasant agriculture,” which, by lowering the yields and resilience of crops, undermines food security and leads to higher rates of starvation and malnutrition.

Promoting that lunacy, the United Nations Human Rights Council recently published a report by Special Rapporteur on the Right to Food HilalElver that called for a global agroecology regime, including a new global treaty to regulate and reduce the use of pesticides and genetic engineering, which it labeled human-rights violations.

The UNHRC – a body that includes such stalwart defenders of human rights as China, Cuba, Qatar, Saudi Arabia, and Venezuela – usually satisfies itself by bashing Israel. But in 2000, at the Cuban government’s urging, it created the post of special rapporteur on the right to food. Befitting the UNHRC’s absurd composition, the first person to fill the position, the Swiss sociologist Jean Ziegler, was the co-founder and a recipient of the Muammar al-Qaddafi International Human Rights Prize.

For her part, Elver has, according to UN Watch, cited works that claim the September 11, 2001, terrorist attacks were orchestrated by the United States government to justify its war on Muslims. Elver’s position on food reflects the same paranoid mindset. She opposes “industrial food production” and trade liberalization, and frequently collaborates with Greenpeace and other radical environmentalists.

Much of Elver’s new UNHRC report parrots the delusional musings of organic-industry-funded nongovernmental organizations. It blames agricultural innovations like pesticides for “destabilizing the ecosystem” and claims that they are unnecessary to increase crop yields.

This all might be dismissed as simply more misguided UN activism. But it is just one element of a broader and more consequential effort by global NGOs, together with allies in the European Union, to advance an agroecology model, in which critical farm inputs, including pesticides and genetically engineered crop plants, are prohibited. That agenda is now being promoted through a vast network of UN agencies and programs, as well as international treaties and agreements, such as the Convention on Biological Diversity, the Codex Alimentarius Commission, and the International Agency on Research on Cancer.

The potential damage of this effort is difficult to overstate. The UN’s Food and Agriculture Organization (which hasn’t yet completely succumbed to radical activists) estimates that, without pesticides, farmers would lose up to 80% of their harvests to insects, disease, and weeds. (Consider, for example, the impact of the fall armyworm, which, in the last 18 months alone, has devastated maize crops across much of Sub-Saharan Africa.) Developing countries are particularly vulnerable to radical regulatory regimes, because foreign aid is often contingent on compliance with them, though they can also reshape agriculture in the developed world, not least in the EU.

Millions of smallholder farmers in the developing world need crop protection. When they lack access to herbicides, for example, they must weed their plots by hand. This is literally backbreaking labor: to weed a one-hectare plot, farmers – usually women and children – have to walk ten kilometers (6.2 miles) in a stooped position. Over time, this produces painful and permanent spinal injuries. Indeed, that is why the state of California outlawed hand-weeding by agricultural workers in 2004, though an exception was made for organic farms, precisely because they refuse to use herbicides.

Depriving developing countries of more efficient and sustainable approaches to agriculture relegates them to poverty and denies them food security. That is the real human-rights violation.

Henry I. Miller is Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University’s Hoover Institution. He was the founding director of the Office of Biotechnology at the US Food and Drug Administration.

By Henry I. Miller

Why AfricaShould Go Cashless

YAMOUSSOUKRO – India has lately been pursuing an ambitious goal: a cashless economy. Despite early missteps and frustrations, it will turn out to be a change for the better for the country’s 1.31 billion people. Africa should set a similar goal – and take the first step by establishing a monetary union.

Of course, achieving a cashless society is not an end in itself.Rather, it is a means to help advance financial inclusion, security, and prosperity. Today, an estimated 326 million Africans – 80% of the continent’s adult population – use no formal or informal financial services. But stashing bank notes under the mattress is no way to safeguard families’ savings, much less enable households to accumulate enough capital to escape chronic poverty.

Similarly, millions of Africans are scratching out a living in the informal economy, which represents about 41% of GDP in most parts of the continent. This leaves them unprotected, and without pathways to financial stability and wealth creation. Moving toward a cashless society would force citizens, companies, and policymakers to devise mechanisms to bring all Africans into the financial sector, drastically improving the lives of the millions who are now under- and unbanked.And it would bring many livelihoods into the formal economy – a major economic opportunity for African countries.

The goal should be to achieve prosperity through financial inclusion linked to economic activity. What small businesses and micro-enterprises need is fresh capital to create employment and expand the economic pie, and bank accounts connected to economic activity ensure that even those selling goods by the roadside can secure a piece of that pie.

But financial inclusion is not a natural by-product of the shift away from cash. On the contrary, as Harvard economist KennethRogoff argues, successful demonetization requires a comprehensive and implementable plan to increase financial inclusion and use of banks.

Such a plan should focus on building the right ecosystem for economic activity. In Africa, that means not just delivering financial services, but alsoadvancing financial literacy.Newly established bank accounts have few positive effects if they lie dormant. To ensure that financial inclusion actually enables economic transformation, Africans must gain the knowledge and tools to make the most of financial services.

Of course, none of this will be easy – a point made clear by India’s challenging experience implementing its radical demonetization process. Success will require, among other things, a gradual approach. Africa mustnot allowcash scarcity to cripple the informal economy, as it has in India.

But if Africa succeeds in this transition, the benefits will be profound. Demonetization would probably even save countries money. MasterCard estimates that countries worldwide spend as much as 1% of their GDP each year to mint, process, and distributebanknotes. That is money that could be better spent on meeting the United Nations Sustainable Development Goals, further improving the lives of Africa’s poor.

There is reason to believe that Africa can succeed in going cashless. Already, a large share of Africans uses digital payment systems like M-Pesa and EcoCash – precisely the types of innovative platforms that can play a pivotal role in the shift away from cash.

While hyperinflation is far from the ideal catalyst for such a shift, Zimbabwe’sexperienceproves that citizens can and will adapt to challenging circumstances. For example, some stores in the country will give credit to mobile money accounts in lieu of change.

But, to achieve a broader shift to a cashless Africa,progress toward monetary union will be essential for deepening economic integrationacrossthecontinent. That, in turn,wouldfoster a continent-wide digital financial services ecosystem capable of underwritinga massive expansion of intra-African trade –the quickest route to lifting people out of poverty.

Already, 14 countries in West and Central Africa share the CFA franc, which is pegged to the euro. And South Africa shares a monetary policy with Lesotho, Namibia, and Swaziland. We cannot stumble where the road is clear.

Africans are latecomers to the demonetization movement. But we can use this to our advantage,by learning from countries that have already made the transition or are on the way.These include not just India, but also Denmark, Norway, and Sweden. We must view this as a strategic advantage in the much-needed structural transformation of the African economy.

With a smart strategy, underpinned by patience and commitment, Africa can build a cashless economy, with high levels of financial inclusion supporting economic prosperity and security. Before too long, buying a “Kofi broke man” – a roasted plantain with groundnuts– by the roadside in Ghana could be a cashless transaction, one that helps the vendor prosper in the present – and save for the future. Carl Manlan is an economist and Chief Operating Officer of the Ecobank Foundation. He is a 2016 Aspen New Voices Fellow.

By Carl Manlan

How Federalism Can Trump Populism

BERKELEY – America remains deeply divided on many economic and political issues. Just as US President Donald Trump was touting the accomplishments of his first 100 days in office, a federal court, responding to a legal complaint brought by several jurisdictions, temporarily blocked his executive order to strip federal funding from “sanctuary” states and cities.

According to the ruling, Trump’s order violates the Constitution’s separation of powers clause, due-process guarantees, and the Tenth Amendment, which states that, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” In other words, states and cities may cooperate with the federal government by carrying out federal policies; but the Tenth Amendment provides the constitutional basis for them to challenge or resist federal policies that conflict with their own goals (in this case, shielding undocumented immigrants from arrest and possible deportation).

Citizens’ needs vary widely across the country, and federalism helps to ensure that they are addressed. State and municipal governments can implement policies more efficiently when they are free to source local ideas and enter into local partnerships with non-governmental actors.

Local-level pilot programs and policy experiments also accelerate innovation, with authorities able to close ineffective programs quickly and expand those that work. And, because a federalist approach encourages transparency and accountability in how policies are implemented, it also bolsters the public’s trust in government institutions and elected officials. This is why most Americans have maintained their confidence in state and local governments, even as their trust in the federal government has reached all-time lows.

State and municipal officials are often responsible for implementing federal policies – concerning health care, education, employment, law enforcement, and environmental protection – that directly affect people’s lives. And the federal government, for its part, uses a variety of tools to encourage innovation among state and local governments, including waivers, pay-for-performance contracts, and challenge grants. Waivers and state flexibility in Medicaid are at the heart of the fractious political showdown over health care.

During the past decade, many state and local governments have focused their attention on environmental policy. In 2006, 12 states sued the Environmental Protection Agency for its failure to classify greenhouse gases as pollutants, and to regulate them accordingly. In 2007, the Supreme Court issued a 5-4 decision, siding with the states; and in 2009, the EPA concluded that certain greenhouse gases endanger public welfare. That finding provided a basis for the Obama administration’s new auto-emissions standards and Clean Power Plan, which were established to help America meet its commitments under the 2015 Paris climate agreement.

Trump has now signed an executive order to roll back the Clean Power Plan, claiming, ironically, that he wants to weaken federal regulations as a way to return power to the states. Still, many states are already on track to meet the plan’s emissions targets, and have established their own standards for emissions and renewable energy, as well as their own cap-and-trade systems. And many municipal governments have joined the fight against carbon emissions by expanding mass transit and making government buildings more energy efficient.

California is leading the way in these efforts. It has implemented the strictest CO2 emissions standards in the US, and it is a leader in the Under U2 Coalition, a group of 170 national and subnational governments (representing 37% of the global economy) that are committed to achieving the Paris agreement’s emissions targets.

In addition to pursuing their own environmental policies, state and local governments can also resist or undermine federal policies. For starters, they can simply abstain from taking action, as we have seen with some states’ reaction to federal education reforms. Or they can withhold the state-level resources needed to enforce federal laws, as states that have decriminalized marijuana have done, and as sanctuary states and cities are now doing. The immigration showdown will ultimately be adjudicated in the court system; and Trump has already lost his first battles there.

Under federalism – whether cooperative or “uncooperative” – it is often assumed that state and local governments are pursuing the same goals. In fact, there is a deep divide between left-leaning “blue” cities and the right-leaning “red” states where many are located. And there are many ways that state governments can thwart progressive federalism at the municipal level. Cities, for their part, often lack the information and resources necessary for developing and implementing effective policies. A number of organizations have now emerged to strengthen the policy-making capacity of city governments including Michael Bloomberg’s Government Innovation Program, Fuse Corps, Results for America, Social Finance, Third Sector Capital Partners, and USAFacts.

There have been several legal fights recently between city governments and state legislatures over the principle of preemption, which holds that state laws override local laws. According to Preemption Watch, in 2016 alone, at least 36 state governments – most of them Republican-led – preempted cities by introducing laws on a wide range of issues, from minimum wage to environmental protection, gun control, fracking, immigration, and anti-discrimination ordinances. And 42 states have set limits on the taxes and expenditures of their cities.

The political struggle between red states and blue cities will continue to play out in judicial and legislative battles, while giving rise to new citizen-led initiatives. A new movement of grassroots progressive federalism, reflecting the powers conferred on citizens by the Tenth Amendment, has already begun to emerge. It is apparent in huge citizen marches, and in coordinated civil-society initiatives advocating for a national popular vote, congressional redistricting, automatic voter registration, and a higher minimum wage.

Trump did not accomplish much in his first 100 days. But he did unwittingly remind many Americans that the US Constitution delegates substantial political authority to states, cities, and individual citizens. And his administration has only further highlighted the importance of an independent judiciary, where the coming years’ battles among local, state, and federal government entities will be fought.

Laura Tyson, a former chair of the US President's Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley, and a senior adviser at the Rock Creek Group. Lenny Mendonca, Senior Fellow at the Presidio Institute, is a former director of McKinsey & Company.

By Laura Tyson and Lenny Mendonca

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