The WaPo is reporting that Vietnam is moving toward a pro-China position, out of desperation:

Vietnam’s fierce rivalry with China often exceeds any lingering resentment against the United States, which is now seen as a crucial counterweight to Beijing’s ambitions.

Yet the suspending of the Repsol drilling project has provided wary Vietnamese with a reason to believe their government is capitulating behind the scenes. Neither the Spanish company nor the Vietnamese government has offered an explanation for suspending offshore activities.

“There are so many rumors swirling around Repsol, as there always are when it comes to China and Vietnam. But there doesn’t appear to be any reason to do what they did other than pressure from Beijing,” said a prominent member of the international business community who frequently interacts with officials representing the three countries involved, who spoke on the condition of anonymity because he is not authorized to publicly speak about political matters.

If Vietnam did privately back down, he said, it has not been left with much choice since President Trump took office. “The U.S. really left Vietnam at the altar when it canceled TPP. What are they supposed to do?” he asked, referring to the Trans-Pacific Partnership, the trade deal that included Vietnam and explicitly excluded China. Trump had slammed the deal as a job-killer during the presidential campaign, and he withdrew from the pact just days after taking office.

At least we have a reliable ally in South Korea.  But for how much longer?  Here’s the Guardian:

Donald Trump has asked aides to prepare for US withdrawal from a free trade agreement with South Korea, it was reported on Saturday – a potentially stunning development at a time of tense confrontation with North Korea.

. . .

The decision is not final yet, and several leading members of the Trump administration are seeking to dissuade the president, according to the Washington Post, but the report added “the internal preparations for terminating the deal are far along and the formal withdrawal process could begin as soon as this coming week.”

Withdrawal from the 2007 trade deal (known as Korus) with one of Washington’s closest allies in Asia would be only the latest of a series of zig-zagging interventions by Trump amid the looming nuclear missile crisis that have caused bewilderment and alarm in the region.

.  .  .  withdrawal would be in line with campaign promises to tear up trade deals Trump has presented as disadvantageous to US workers. He has already ruled out joining the Trans-Pacific Partnership (TPP) . . .  as well as the Transatlantic Trade and Investment Partnership with Europe, and he is threatening to pull out of the North American Free Trade Agreement (Nafta).

Ian Bremmer, the president of the Eurasia Group, a political risk research and consulting firm, said that if Trump went ahead and withdrew from the agreement, “it would be a significant loss of US influence in Asia – nearly on par with withdrawal from the TPP”. . . .

“China would be the big winner, with [South] Korean president Moon [Jae-in] harder pressed to maintain present levels of security cooperation with the United States. If China is your key economic partner, there’s a lot less reason to listen to Washington.”

Putin’s gamble backfired.  Once it became clear that the Russians tried to influence the election, Congress turned against the Kremlin. The sanctions will stay in place.   China’s turned out to be the big winner from Trump’s stupidity.  Steve Bannon also looks like a fool, as the Trump/Bannon policy regime is delivering exactly the sort of Chinese hegemony that Bannon warned us about.

PS.  Perhaps Trump will put tariffs on Chinese steel, thereby assuring that Chinese manufacturers have a cost advantage over American companies that rely on our high priced steel.  Or maybe he’ll start a war with N. Korea.  The possibilities are endless when you are dealing with a mentally unstable president.

Of all the crazy ideas to come out of the left, the hysteria over cultural appropriation seems the most “Onion-like”, i.e. most like a parody in the Onion newspaper.  It’s not like rent controls or the minimum wage, where I see their point but respectfully disagree.  It just seems crazy.  Maybe that’s because I am of a generation that grew up celebrating cultural appropriation as the hippest of all lifestyles.  I can’t imagine my life without the music of Dylan, the Stones and Led Zep, all of whom culturally appropriated black music on a massive scale.  Ditto for the global film industry, which involves wholesale cultural appropriation.

When I make that argument to people on the left they roll their eyes and say, “that’s not what we are talking about, the problem is racial insults like the Washington Redskins.” Is that all it is?  I don’t read enough of this nonsense to know.  Tyler Cowen recently linked to (and mostly disagreed with) a post by Maisha Johnson, which supposedly represents a good source for understanding what the fuss is all about.  And that post repeats all the crazy, left wing, anti-capitalist, white people are “privileged” nonsense that one associates with caricatures of the loony left.  It has the complaints about white rock music, white people doing yoga, white people eating burritos, etc., etc.

But in the end even she doesn’t seem to believe what she writes.  In anticipation of the likely “you can’t be serious” response of her readers, she says:

I’m not saying you automatically can’t enjoy Mexican food if you’re not Mexican, or do a yoga-inspired practice if you’re not Indian, or use any other culturally specific practice in the US.

What!?!?!?  She just spent hundreds of words telling us not to do those things.  So which is it:

1. The whole movement is a lie; no one believes it.

2.  She’s serious, but wants to provide an “out” for liberal elitists who have cosmopolitan taste.  So she sprinkles her essay with a few comments here and there on the need to be aware of other cultures, sensitive to their predicament.  In other words, it’s racism when a construction worker buys a burrito for lunch, but not when an English professor dines at a Cambodian restaurant.  After all, the English professor is “aware” of the sad history of how Cambodia has been exploited by the West.

I can’t imagine agreeing with any argument against cultural appropriation, which goes against almost everything I believe in.  Freedom, cosmopolitanism, creativity, individualism, etc.  (British white rock stars didn’t just steal black music; they used it to create something entirely new and exciting, just as black American musicians borrowed from Western culture to create jazz.) But I could at least respect their view, it if were applied evenhandedly—if all types of cultural appropriation were considered inappropriate.  Instead then give a pass wherever a group is thought to suffer from some sort of “power imbalance”.  In other words, it seems like nothing more than the latest iteration of Marxism.

The New York Times has a new editorial in support of cultural appropriation:

It doesn’t help that at the very moment that white supremacists in this country are reviving Nazi-era ideas about the purity of blood, the left is treating culture as something just as immutable. Two can play at this dangerous game. Indeed, the left’s insistence on cultural partition makes nobody happier than Richard Spencer and his fellow travelers on the alt-right, who are expert at mimicking the left’s identity politics to give voice to their twisted ideas of national and racial segregation. Americans should think very carefully before engaging with a politics that bears an eerie similarity to the beliefs of the people that marched on Charlottesville, Va.

The comparison with fascism is an interesting one, but an even better comparison would be China’s Cultural Revolution.  After all, fascism is not particularly anti-elite, whereas both the Chinese Maoists and the American campus Marxists are.  One side of my wife’s family was scorned for their “landlord privilege”, which is the Chinese equivalent of white privilege.  The Maoists were obsessed with tearing down statues.

The campus left may not be fascist, but every time they think up a crazy new idea they push hundreds of thousands more Americans into the arms of the Trumps and Bannons of the world.  I want nothing to do with either group.

PS.  If you look at the right angle, and squint hard enough, you can almost see the business community’s fetish for over-the-top intellectual property rights protections.  I wish Chinese would culturally appropriate much more Hollywood culture, and thumb their nose at the US copyright office.

PPS.  I’m still waiting for an intelligent definition of “currency manipulation”.

Pat Horan directed me to this FT piece on India’s recent demonetization of “large denomination bills” (worth about $8 and $16 each.)

When Narendra Modi, India’s prime minister, announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals — popularly believed to hoard large amounts of illicit cash — would be stuck with “worthless pieces of paper”.

At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy — as the wealthy abandoned or destroyed it, rather than admit to their hoardings — reducing central bank liabilities and creating a government windfall.

But the Reserve Bank of India’s annual report on Wednesday suggested that most holders of the old currency managed to dispose of it, estimating that banned notes worth Rs15.28tn ($239bn) were returned to the bank. That amounts to 99 per cent of the Rs15.44tn of the old high-value notes that were in circulation when Mr Modi made his announcement, according to the finance ministry.

The bank’s estimate follows media reports that complex money-laundering networks sprang up in the wake of the demonetisation to help wealthy Indians deposit huge volumes of previously undeclared currency without exposing themselves to tax authorities. Such people allegedly sold the old notes, at a discount, to brokers who then dispatched low-income Indians to deposit or exchange them at banks.

Some of my market monetarist colleagues suggest that tight money policies create a “shortage” of the medium of exchange, and that this can cause a recession.  I argue that the real problem with tight money is that it raises the value of money, by reducing equilibrium NGDP.  Each dollar nows buys a larger share of NGDP. Because nominal wages are sticky, falling NGDP leads to more unemployment.  In my view, tight money does not create a true “shortage”, as anyone who wants more cash can always go to the ATM and get some.  On the other hand, people who want a rent controlled apartment in NYC often cannot get one— as rent control creates a true shortage.  Ditto for people who need a kidney transplant.  Those shortages are caused by price controls.

The Indian policy of denationalization of large bills really did create a money shortage.  On that point I don’t think there is any dispute.  And since the vast majority of transactions in India (98% by volume, 63% by value) involve cash, then this really was a policy than might be expected to sharply reduce transactions, and hence NGDP.   Instead, the slowdown was quite mild, and in my view ought to be regarded as more of a real (supply-side) shock.

It appears the cash experiment did lead to a slowdown in GDP, but much milder than what one might have expected from such a dramatic monetary contraction. For people like me, who focus on the role of money as a medium of account, this is no big surprise.  The silver coin shortage of 1964 also failed to significantly slow the US economy.  That’s because these shortages were widely viewed as temporary, and what matters is not the current stance of monetary policy, but rather the expected path of policy over the next few years.  As long as one-year forward NGDP expectations are not greatly affected, the current condition of the economy should hold up pretty well, even if there is a severe shortage of transactions media. The damage to India that did occur ought to be regarded as more of a real (supply-side) shock, sort of like a breakdown of cash registers.

On the other hand, economists who focus on the role of money as a medium of exchange also tend to think that it’s the future path of policy that is crucial, so I’m not sure whether the Indian experiment actually tested any specific model, although I’d be interested in what other people think.

PS.  Here’s a post I did last year, at the beginning of the Indian experiment.

PPS.  This experiment did confirm a point I often make—that data on cash in circulation are highly accurate.  The ratio of global cash to global GDP (and also American cash to American GDP) is very high, which suggests that cash is primarily used as a store of value.

PPPS.  India’s GDP grew at 5.7% over the past 12 months.  That’s modestly lower than in recent years, but experts also attributed the weak second quarter to de-stocking by manufacturers in anticipation of the new GST, which took effect July 1st.

Here is the Treasury’s list of the three criteria it uses to identify “currency manipulators”:

Pursuant to Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, this section seeks to identify any major trading partner of the United States that has: (1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one-sided intervention in the foreign exchange market. Section 701 requires data on each major trading partner’s bilateral trade balance with the United States, its current account balance as a percentage of GDP, the three-year change in the current account balance as a percentage of GDP, foreign exchange reserves as a percentage of short-term debt, and foreign exchange reserves as a percentage of GDP. Data for the most recent four-quarter period (January to December 2016, unless otherwise noted) are provided in Table 1 (on p. 13) and Table 2 (below).

This is obviously beyond stupid.  (Since when do bilateral trade deficits mean anything?)  But at least the Treasury doesn’t try to read minds, and interpret the intentions of other countries.

Matthew McOsker sent me an article from the Economist, which nicely illustrates the confusion surrounding the concept of currency manipulation:

Awkwardly for America, two of its friends in Asia have recently scored more highly than China: South Korea and, most clearly, Taiwan. But the highest score of all goes to Switzerland, by dint of its whopping current-account surplus and its hefty foreign-currency purchases. This illustrates one of the method’s flaws: in terms of the goods and services that it can actually buy, the Swiss franc is in fact among the world’s most overvalued currencies.

This is why it’s so important to have a clear definition of currency manipulation.  The Economist clearly thinks the concept is related to undervalued currencies, and most people probably agree.  But whether a currency is “undervalued” is completely unrelated to whether some of the other criteria are met, such as large purchases of foreign exchange and/or a current account surplus.  If you really believe that large purchases of foreign exchange and a big current account surplus constitute currency manipulation, then you should have the courage of your convictions and label Switzerland as one of the world’s worst villains.  After all, it is among the world’s leaders in both categories.

And this leads to another irony.  I frequently point out that the more conservative the central bank, the bigger the balance sheet as a share of GDP. Thus in the future we may end up seeing more and more countries like Switzerland, with huge purchases of foreign assets in a futile attempt to prevent their currency from appreciating.

To avoid being labeled a currency manipulator, they may instead choose to buy domestic assets (as in Japan).  This will also boost domestic saving, depreciate the currency and increase the current account.  But since they won’t be buying “foreign exchange”, they just might fool the US Treasury.  (It’s not hard, when the Treasury is hamstrung by the silly mandate given to it by Congress.)

Here’s another irony.  Some people seem to think that fixed exchange rate regimes are evidence of currency manipulation.  But in the 1990s the EU had a fixed exchange rate system with the express purpose of preventing currency manipulation.  In fact, fixed exchange rate regimes determine the path of the nominal exchange rate.  But if currency manipulation happens at all (I doubt it), then it surely relates to real exchange rates. Thus if currency manipulation happens, it is equally likely to occur with a fixed or floating exchange rate regime.  Indeed you don’t even need your own currency to “manipulate” your real exchange rate.  Germany depreciated its real exchange rate in the 2000s.  If Wisconsin wanted to depreciate its real exchange rate it could do so.

But why would they want to?

Commenter Matthew McOsker made this attempt:

I think the definition is simple where one country consciously manages the value of their domestic country against a foreign country.

What does it mean to “manage” the value of a currency. If you mean “enact government policies that impact the exchange rate”, then all countries are guilty.  If you mean enact government policies with the intention of affecting the exchange rate, then does it matter if that’s the sole purpose, or just one of many channels?  Didn’t Bernanke mention exchange rates as one channel by which QE could affect the US economy?  Some people argue that Japan’s recent adoption of negative IOR was (among other things) aimed at depreciating the yen.  But they had no specific exchange rate peg, and the yen continues to move up and down each day.  It probably wasn’t aimed at boosting the current account balance, but rather boosting prices and GDP. Is that currency manipulation?

People are going to need to be much more specific if they intend to convince me that there is a coherent definition out there.