It’s not surprising to see @martinwolf_ fail to abandon the net balance fallacy. But his own graphs contradict his arguments.

First, China accounts for a minor fraction of global imbalances, esp compared to Europe. 1/ This remarkable fact—ignored by @michaelxpettis and @M_C_Klein despite the general argument in their own book—is also clear from NIIP. Clearly, China is NOT the counterparty amassing US assets on a net basis. 2/

Why does the US run large trade deficits?

A simple framework that allows us to understand US trade imbalances in a single graph. Let me explain. 1/🧵 The dollar was the reserve currency in the postwar period. We did not run a persistent trade deficit then. Why? Because our sectoral savings were balanced: businesses were net borrowers and hhs net savers, with the latter financing the former, gov net savings and net savings inflows (~ -NX) were trivial until 1970. 2/

I’ve proposed a simple recipe of policy-induced catastrophe: policy innovations premised on pictures of the world that are incongruent with reality. But reading Byman and Pollack (2001), I now realize that I’ve missed an obvious an imp factor orthogonal to misperception. 1/

https://twitter.com/policytensor/status/1916290599176605998

People hold on to their pictures of the world. The most introspective revise their pictures in light of incoming data. But this is a difficult and noisy process for even the best of us. 2/

At the heart of the global financial system are euro/dollar fx and bond markets that are tied together by carry trades. Deviations from covered rate parity contain information on how constrained dealer balance sheets. Forward implied rates contain a macro signal. They are anchored by (in this case, well-informed) investor expectations about the future monetary, and by implication, macroeconomic divergence bw Europe and America. Recent moves suggest a very sharp reversal in said cross-pond growth expectations: Europe, investors are saying, will grow much faster relative to America than previously believed. How sharp was this reversal? The only episode with a sharper reversal going back all the way to 1999 was the Covid shock, when this moved in the opposite direction, perhaps bc Europe took a much bigger hit early on in the pandemic.

Here's the issue. De-industrialization cannot explain the crisis of the US working class. Since 1992, industrial employment has fallen 26% in high income countries and 19% in the US; but adult mortality has fallen by 27% in high income countries, compared to only 5% in the US. 1/ Levels. US had much lower mortality than high income countries in 1992, nor it has much higher—even though industrial employment declined much more. 2/

Here’s Miran’s argument in his own words. I demonstrate that (1) is simply false. (2) is, of course, correct, but that does not imply (3), as Miran claims. 1/🧵

https://twitter.com/policytensor/status/1911239941578727885

(1) is shown to be wrong by inspection. The dollar has not been secularly overvalued. Far from it. 2/

Interesting angles on the Janus face of US exceptionalism by Martin Wolf, Ruchir Sharma—both in light of Draghi.

Even at PPP, the US is vastly richer. 1/ American firms are bestride the globe as colossi never before seen in the history of capitalism. Even Eli Lilly (#10 in the US) is bigger than any European firm. 2/

If you know @stephenWalt’s ‘balance of threat’ theory, states balance an especially threatening power, not the most powerful state, out of fear. The unrestrained violence and escalations of post-10/7 Israel are basically forcing Iran into a war it does not want. 1/

https://twitter.com/scholars_stage/status/1841647182316769682

The fear in Tehran is that after the Israelis gut Hezbollah, they’ll come after Iran. War could be averted through reassurance. But … 2/

I've been reading all the major newspapers on the Middle East crisis. There's a general sense that the Israeli response to yesterday's missile barrage will determine whether this escalates to regional war. That's a misunderstanding of the situation. 1/ We're beyond tit-for-tat symbolic strikes. Yes, Israel has to respond. And the scale of that response will determine the Iranian response, and thus, to a degree, the prospects of escalation to higher levels of conflict intensity. 2/

A short 🧵 on this extremely egregious title and the relatively less egregious. 1/ For professionals, a two-war capability is identical to a two-power standard: it means that you have a military capability put up a fight with your two strongest adversaries (or, more strictly, the two strongest powers in the system besides ego). 2/

Is our military even preparing for the right war? A short 🧵. A seaborne invasion of Taiwan is the pacing scenario for the Pentagon. The question being how can the US militarily resist a Chinese seaborne invasion of the island. 2/

The data reported by shows some astonishing patters.

The US is far and away the economy with the most value chain links with others. 1/ nature.com/articles/s4146…
Shockingly, most of the links are neither with China nor Canada/Mexico. Rather, the largest number of value chains links for the US are with Britain! Canada is #2 and China #9. 2/

Workforce size and skill are industry-specific. If you let them atrophy, they decline and vanish. This is of great policy concern. Here we look at industrial workforce sizes by power. 1/🧵 Using numbers reported by Damodaran, we find our first surprise. China accounts for only 12.8% of global defense workforce. The US accounts for almost half, and Europe for more than one-third! (He does not provide information on Russia.) 2/

Russia is a gas station with a pump and some old nukes, right? Certainly we're vastly richer and better off than Russians right? Right? If that is roughly correct, then tell me why:

(1) Six times as many Americans die of nutritional deficiencies per capita than Russians*? 1/🧵 (2) Five times as many Americans as Russians are overdosing on opioids? 3/

The problem is not that our military spend is not commensurate with our commitments. It is that we’re making poor decisions and these poor decisions are hurtling us towards a scenario where we suffer simultaneous strategic defeat in Europe, the MidEast and possibly even Asia. 1/

https://twitter.com/jamescrabtree/status/1750262799345778972

The entire Paul Kennedy framing is a
red herring. It does not matter how much we spend if what we do with those resources does not deliver any political goals whatsoever. This is where we are in Europe and the MidEast. 2/

The rank order of mfg value added per working age adult is more relevant to the balance of power than per capita income. 1/🧵

https://twitter.com/policytensor/status/1671145072291610625

Todd raises the question of why Russia has been able to match the combined defense-industrial output of the West in the Ukraine war. He points out that Russia's GDP is 3.3% of the core geopolitical West. So, how come we can't outproduce the Russians? 2/

Interesting analogy bw the “in-between zones” in Braudel and Buzan: world economies are separated by “dead zones” of little activity; regional security complexes by “boundaries of indifference.” Are they the same? 1/ No. The two not congruent bc power decays faster over distance than economic influence. World economies are monsters of history—“the largest plane on which the law of one price prevails,” whereas RSCs are of middling size. 2/

Four of every nine Americans with only a high school diploma are not even looking for a job. And no, this is not confounded by gender composition. This is not the only signal of working-class despair—it is, in fact, impossible to not see this signal in ANY variable that contains any signal of well-being. So don’t give me bullshit about Case and Deaton, @mattyglesias. Their work is merely the tip of the iceberg. A vast body of evidence for working class despair exists independent of ‘deaths of despair.’

https://twitter.com/policytensor/status/1711956336089378852

“In 2019, only 54 percent of high school graduates were married, compared to 60 percent of those holding an associate degree, 64 percent of those holding a college diploma, and 71 percent of those with a master’s degree.”

From my forthcoming piece on US China policy.

This is wrong—@ElbridgeColby, @OrenCNN, #RuyT. 1/

The US has $118bn worth of FDI in China. Chinese investment spending is $7.6 trillion per annum. https://t.co/zCnmBOyTLLtwitter.com/i/web/status/1…
@ElbridgeColby @OrenCNN US pension funds do not have much exposure to China. Chinese equities and bonds are a small portion of institutional allocation to liquid assets and private assets. 2/ https://t.co/TGYMpNcqqmtwitter.com/i/web/status/1…

I find both sides of this debate—and I have great respect for Reed and Singh—to be lost in theory without a leash to the empirical reality of social class. Specifically, both miss the class antagonism bw the working class and the underclass. 1/

https://twitter.com/left_hegelian/status/1659569698449571840

This is not merely systematics. The antipathy that the working class has, and the sympathy that the professional class has, for the underclass is a source of persistent friction—beyond antiracism. 2/

.@70sBachchan the S Koreans aren’t worried so much about N Korea—which they can handle on their own—they’re worried about China—which they cannot, now and forever. 1/ If Korea is involved in a Taiwan contingency, the conflict would immediately extend to the peninsula. So they’d rather skip it. This is ultimately fine from the US pov since ultimately Korean arms are needed to hold the peninsula—which is *more* exposed than Taiwan! 2/