December 18, 2024

Wednesday, December 18, 2024. Annette’s News Roundup.

Resistance in the Republican Party.

Trump doesn’t read.

Will he read Mitch McConnell’s lecture on foreign policy? Or continue to follow his own drum?

It’s a long article, but McConnell sets out the traditional Republican position on foreign policy. How many GOP Senators will stick with these positions? Maybe many. Maybe few.

Mitch McConnell: The Price of American Retreat.

Why Washington Must Reject Isolationism and Embrace Primacy.

When he begins his second term as president, Donald Trump will inherit a world far more hostile to U.S. interests than the one he left behind four years ago. China has intensified its efforts to expand its military, political, and economic influence worldwide. Russia is fighting a brutal and unjustified war in Ukraine. Iran remains undeterred in its campaign to destroy Israel, dominate the Middle East, and develop a nuclear weapons capability. And these three U.S. adversaries, along with North Korea, are now working together more closely than ever to undermine the U.S.-led order that has underpinned Western peace and prosperity for nearly a century.

The Biden administration sought to manage these threats through engagement and accommodation. But today’s revanchist powers do not seek deeper integration with the existing international order; they reject its very basis. They draw strength from American weakness, and their appetite for hegemony has only grown with the eating.

Many in Washington acknowledge the threat but use it to justify existing domestic policy priorities that have little to do with the systemic competition underway. They pay lip service to the reality of great-power competition but shirk from investing in the hard power on which such competition is actually based. The costs of these mistaken assumptions have become evident. But the response to four years of weakness must not be four years of isolation.

Even though the competition with China and Russia is a global challenge, Trump will no doubt hear from some that he should prioritize a single theater and downgrade U.S. interests and commitments elsewhere. Most of these voices will argue for focusing on Asia at the expense of interests in Europe or the Middle East. Such thinking is commonplace among both isolationist conservatives who indulge the fantasy of “Fortress America” and progressive liberals who mistake internationalism for an end in itself. The right has retrenched in the face of Russian aggression in Europe, while the left has demonstrated a chronic allergy to deterring Iran and supporting Israel. Neither camp has committed to maintaining the military superiority or sustaining the alliances needed to contest revisionist powers. If the United States continues to retreat, its enemies will be only too happy to fill the void.

Trump would be wise to build his foreign policy on the enduring cornerstone of U.S. leadership: hard power. To reverse the neglect of military strength, his administration must commit to a significant and sustained increase in defense spending, generational investments in the defense industrial base, and urgent reforms to speed the United States’ development of new capabilities and to expand allies’ and partners’ access to them.

As it takes these steps, the administration will face calls from within the Republican Party to give up on American primacy. It must reject them. To pretend that the United States can focus on just one threat at a time, that its credibility is divisible, or that it can afford to shrug off faraway chaos as irrelevant is to ignore its global interests and its adversaries’ global designs. America will not be made great again by those who simply want to manage its decline.

A FALSE CHOICE

China poses the gravest long-term challenge to U.S. interests. But although successive presidents have acknowledged this reality, their actual policies have been inconsistent. Administrations have failed even to agree on the basic objective of competition with China. Is it merely a race to produce more widgets? An opportunity to sell more American soybeans, semiconductors, solar panels, and electric vehicles? Or is it a contest over the future of the international order? The Trump administration must recognize the gravity of this geopolitical struggle and invest accordingly.

In so doing, it must not repeat the mistakes of President Barack Obama’s so-called pivot to Asia. The Obama administration failed to back up its policy with sufficient investments in U.S. military power. Inverting the traditional relationship between strategy and budgets, it prioritized defense cuts for their own sake, abandoning the decades-long “two-war” construct of force planning. The bipartisan Budget Control Act of 2011 compounded this mistake and harmed military readiness.

Partners in Asia came to understand what the pivot meant for them: that they would receive a larger slice of a shrinking pie of American attention and capabilities. Partners in Europe, for their part, were not happy to see Washington ignore the Russian threat. Republicans who consider Ukraine a distraction from the Indo-Pacific should recall what happened the last time a president sought to reprioritize one region by withdrawing from another. In the Middle East, Obama’s premature withdrawal from Iraq left a vacuum for Iran and the Islamic State (also known as ISIS) to fill, and the ensuing chaos there consumed Washington for years. By 2014, as Obama struggled to consummate the pivot to Asia, dithered on the Middle East, and failed to enforce his own “redline” on Syria’s use of chemical weapons, Russian President Vladimir Putin invaded eastern Ukraine and seized Crimea.

Standing up to China will require Trump to reject the myopic advice that he prioritize that challenge by abandoning Ukraine. A Russian victory would not only damage the United States’ interest in European security and increase U.S. military requirements in Europe; it would also compound the threats from China, Iran, and North Korea. Indeed, hesitation in the face of Putin’s aggression has already made these interconnected challenges more acute. The George W. Bush administration’s failure to respond forcefully to Putin’s invasion of Georgia in 2008 was a missed opportunity to nip Russian aggression in the bud. Obama’s “reset” with Russia doubled down on this miscalculation, snuffing out hope for a concerted Western response to Russian aggression. In pursuit of arms control negotiations, he pulled his punches as Putin grew emboldened. This weakness continued in Obama’s tepid response to the 2014 invasion of Ukraine.

Trump deserves credit for reversing the Obama administration’s limitations on assistance to Ukraine and authorizing the transfer of lethal weapons to Kyiv. During the first Trump administration, the United States used force against Russia’s ally Syria to at last enforce the redline against chemical weapons, killed hundreds of Russian mercenaries who threatened U.S. forces in Syria, and increased U.S. energy production to counter Russia’s weaponization of its oil and gas reserves. But Trump sometimes undermined these tough policies through his words and deeds. He courted Putin, he treated allies and alliance commitments erratically and sometimes with hostility, and in 2019 he withheld $400 million in security assistance to Ukraine. These public episodes raised doubts about whether the United States was committed to standing up to Russian aggression, even when it actually did so.

Despite Biden’s tough campaign rhetoric about Russia, his policy of détente with the Kremlin resembled Obama’s reset. Immediately after taking office in 2021, Biden signed a five-year extension to the New START treaty, giving up leverage over Russia that he could have used to negotiate a better agreement and tying the United States’ hands as nuclear threats from China and North Korea grew. In June of that year, he, too, withheld critical security assistance from Ukraine. And in August, he oversaw the disastrous U.S. withdrawal from Afghanistan, which no doubt encouraged Russia to further test the limits of American resolve. The Biden administration’s apparent belief that Putin’s imperial ambitions could be managed with arms control and U.S. restraint was not dissimilar to right-wing isolationists’ misplaced interest in accommodating Russia.

As it became clear that Putin would launch a full-scale invasion of Ukraine, I urged Biden to offer meaningful lethal aid to Ukraine and expand the U.S. military footprint in Europe. But the president demurred. Even after the invasion, the Biden administration’s assistance to Ukraine was beset by hesitation, needless restrictions, and endless deliberation. These delays repeatedly ceded the initiative to Moscow and diluted the effectiveness of U.S. aid, prolonging the conflict and diminishing Kyiv’s negotiating leverage. The weakness of the Biden administration’s policies was drowned out by frenzied attention to some Republicans’ objections to supporting Ukraine. Their misguided opposition delayed passage of the “national security supplemental,” but when the chips were down, Senate Republicans overwhelmingly supported the measure, as did many Republicans in the House. Congress passed the supplemental in April 2024. And not a single Republican legislator who voted for Ukraine lost a primary.

Despite legitimate misgivings about Biden’s approach, a majority of my GOP colleagues appreciated that support for Ukraine is an investment in U.S. national security. They recognized that most of the money was going to the U.S. defense industrial base or military and that this security assistance, a mere fraction of the annual defense budget, was helping Ukraine degrade the military of a common adversary. But more work is required. For now, Putin’s indifference to his own people’s suffering has allowed him to increase his defense industrial base’s capacity to pump arms and soldiers into Ukraine. His ability to do this in perpetuity is questionable; Russian victory is inevitable only if the West abandons Ukraine.

THE ALLIED ADVANTAGE

Trump will hear from neo-isolationists who discount the importance of American allies to American prosperity, ignore the need for the United States’ credibility among fence sitters in critical regions, and misunderstand the basic requirements of the U.S. military to deter or win faraway conflicts. Their arguments elide the fact that the enemy gets a vote, too, and may decide to confront the United States simultaneously on multiple fronts, at which point allies become more valuable than ever.

In Europe, Trump will find encouraging progress. After major surges in their defense budgets, U.S. allies on the continent now spend 18 percent more than they did a year ago, a far greater increase than the United States’. More than two-thirds of NATO members now meet or exceed the alliance’s target of spending at least two percent of GDP on defense. This progress is not without exception. One of the West’s most glaring vulnerabilities to the influence of Russia—and China and Iran—is Hungary’s self-abnegating obeisance to those countries.

But aside from this noisy exception, it is not lost on the United States’ European allies that Trump called on them to take hard power and burden sharing more seriously. NATO allies are also buying American, and since January 2022 have ordered more than $185 billion of modern U.S. weapons systems. But Trump will be right to encourage allies to do more. At the next NATO summit, allies should set a higher defense-spending target of three percent of GDP and commit to increasing their base budgets accordingly.

The most inconvenient truth for those calling on Trump to abandon Europe is that European allies recognize the growing links between China and Russia and increasingly see China as a “systemic rival.” During a visit to the Philippines in 2023, European Commission President Ursula von der Leyen noted that “security in Europe and security in the Indo-Pacific is indivisible.” U.S. allies in Asia understand the same thing. As Hsiao Bi-khim put it in 2023, when she was Taiwan’s representative in Washington, “Ukraine’s survival is Taiwan’s survival.”

The unwillingness of the “Asia first” crowd to welcome European allies’ progress is curious. They ignore a glaring need to work with allies to counter Chinese threats to shared interests, raising the question of whether they are really interested in contesting China after all. Some even seem to have seized on the need to counter China as a rationale for the United States to abdicate leadership everywhere else, suggesting that “Asia first” is merely an excuse for underlying isolationism.

These critics ignore the growing strategic alignment of China and Russia, Russia’s own influence in Asia (including its increasingly capable Pacific fleet), and the inescapable reality that U.S. competition with both powers is global. In the Middle East, for example, Russia has undermined U.S. interests for years through its intervention in Syria and partnership with Iran. Putin’s use of Iranian attack drones in Ukraine should have come as no surprise: the West’s collective failure to stand up to Iran earlier has allowed it to become a more powerful partner to China and Russia. Beyond embracing Iran, the two countries have also sought to deepen their relationship with traditional U.S. partners in the region.

China has for years sought to drive a wedge between the United States and its partners. It is tragic that the “Asia first” crowd would so obviously play into Beijing’s hands, just as previous administrations that had turned their back on allies in the Middle East opened the door to Chinese influence in that critical region.

HOLIDAY FROM HARD POWER

The U.S. government spends nearly $900 billion annually on defense, but considering the total amount of federal spending, the challenges facing the United States, the country’s global military requirements, and the return on investment in hard power, this is not nearly enough. Defense is projected to account for 12.8 percent of federal spending in 2025, less than the share devoted to servicing the national debt. And each year, a larger portion of the defense budget pays for things other than weapons; nearly 45 percent of it now goes toward pay and benefits.

The situation is grave. According to an estimate by the American Enterprise Institute that rightly incorporates the paramilitary functions of China’s space program and coast guard, China spends $711 billion a year on its military. And in March 2024, Chinese officials announced a 7.2 percent increase in defense spending. The Biden administration, by contrast, requested real-dollar cuts to military spending year after year. If defense budgets cannot even keep up with inflation, how can Washington keep up with the “pacing threat” of China?

Moreover, because its immediate military objectives are focused on countering the United States in the Indo-Pacific, China, unlike the United States, mainly needs to allocate resources to its own backyard. The requirements of global power projection necessarily spread U.S. defense expenditures far thinner. Although bipartisan recognition of U.S. interests in Asia is welcome, it is reckless for U.S. politicians to visit Taipei or talk tough about China if they are unwilling to invest in the capabilities necessary to back up U.S. commitments.

The United States needs a military that can handle multiple increasingly coordinated threats at once. Without one, a president will likely hesitate to expend limited resources on one threat at the expense of others, thereby ceding initiative or victory to an adversary. The United States must get back to budgets that are informed by strategy and a force-planning construct that imagines fighting more than one war at once.

Trump must reject the myopic advice that he prioritize China by abandoning Ukraine.

And yet for years, congressional opponents of military spending absurdly insisted that there be parity between increases in defense spending and increases in nondefense discretionary spending, holding military power hostage to pet political projects. Meanwhile, domestic mandatory spending skyrocketed, and massive expenditures that circumvented the annual bipartisan appropriations process, such as the ironically named Inflation Reduction Act, included not a penny for defense.

Isolationists on both ends of the political spectrum unwittingly validate this artifice when they peddle the fiction that military superiority is cost-prohibitive or even provocative, that the United States must accept decline as inevitable, or even that the effects of waning influence won’t be that bad. Calls for “disentanglement,” “leading from behind,” and “hard prioritization”—amplified by historical amnesia—amount to defeatism. The United States’ security and prosperity are rooted in military primacy. Preserving that decisive superiority is costly, but neglecting it comes with far steeper costs.

Past levels of U.S. defense spending put today’s needs into perspective. During World War II, U.S. defense spending hit 37 percent of GDP. During the Korean War, it reached 13.8 percent. At the height of the Vietnam War, in 1968, it stood at 9.1 percent. The defense buildup under President Ronald Reagan, which followed a low of 4.5 percent of GDP during the Carter administration, peaked at only 6 percent. In 2023, the United States spent 3 percent of GDP on defense.

During this American holiday from hard power, China and Russia have invested in asymmetric capabilities to offset the U.S. military edge. Today, their munitions in many categories can outrange U.S. versions, and their production can outpace the United States’. This is to say nothing of their numerical advantage in key platforms, from missiles to surface vessels. Quantity has a quality of its own. What’s more, the wars of the future may well last longer and require far more munitions than policymakers have assumed, as both Israeli and Ukrainian munitions-expenditure rates suggest. U.S. stockpiles are insufficient to meet such a demand. For years, the military services have shortchanged munitions in favor of new weapons systems and platforms. This is not to downplay the need to modernize major weapons systems but to highlight the harmful tradeoffs imposed by inadequate defense budgets.

If the United States finds itself embroiled in conflict in a far-flung theater, it will also have difficulty resupplying its forces. China, for one, intends to contest U.S. logistical supply lines. This reality, combined with the possibility of being challenged in different parts of the world simultaneously, doesn’t just require building larger inventories of platforms and munitions. It also requires ensuring that such capabilities are pre-positioned in multiple theaters. That, in turn, requires securing basing, access, and overflight rights—yet another argument for strengthening U.S. alliances globally.

Thanks to Republican efforts, the national security supplemental included necessary investments to expand the production capacity of key items, such as solid rocket motors, needed for long-range munitions and interceptors. But my efforts with Susan Collins, the vice chair of the Senate Appropriations Committee, to expand this investment beyond the Biden administration’s request faced the same headwinds as our annual campaign to build bipartisan support for greater overall defense spending. In fiscal year 2023, congressional Republicans overcame Democrats’ insistence on parity between defense and nondefense discretionary spending. That was a step in the right direction, but Democrats need to permanently abandon this misguided obsession. The demands of U.S. national security are not political bargaining chips.

Progress on this front begins with real increases in defense spending. In 2018, the Commission on the National Defense Strategy—a bipartisan group of defense experts established by Congress—stressed that preserving the United States’ military edge would require sustained real growth in the defense budget of between three percent and five percent. By 2024, the commission, noting the worsening threats, called that range a “bare minimum” and advocated budgets big enough to “support efforts commensurate with the U.S. national effort seen during the Cold War.”

The Trump administration must heed the commission’s warning. To pay for increased defense budgets, it should take an axe to extravagant nondefense discretionary spending and tackle the unsustainable level of mandatory spending on entitlements that is driving the deficit. It should also reform an overly burdensome economic regulatory environment to counteract these drags with higher growth and revenue.

THE ARSENAL OF DEMOCRACY

At the same time, the United States must tend to its atrophied defense industrial base. The Pentagon, Congress, and industry all deserve blame for its sorry state. The Defense Department and Congress have sent inconsistent demand signals to industry, which has discouraged companies from investing in expanded production capacities and resilient supply chains. To solve the problem, administrations must submit defense-budget requests that are big enough to meet the United States’ true military needs. Congress must pass appropriations bills on time. If it doesn’t, the resulting “continuing resolutions”—temporary measures to keep the federal government funded—delay contracts and prohibit new program starts.

Congress has given the Pentagon the authority to sign multiyear procurement contracts—which limit the uncertainty sometimes caused by the annual appropriations process—for certain critical munitions. This approach and the money to back it up should both be extended to other long-range munitions and missile defense interceptors for which long-term demand is nearly certain. To expand production capacity, the Pentagon can also use the Defense Production Act, a 1950 law that allows the government to prioritize and steer resources toward the production of goods for national defense. Unfortunately, recent administrations have used this authority for purposes that have nothing to do with national security. Biden, for instance, invoked it for the production of solar panels. It is past time to put the “defense” back into the Defense Production Act.

But industry cannot simply wait for the government to invest. I am sympathetic to companies’ frustrations with a slow federal bureaucracy and an inconsistent Congress, but only to a point. It should be obvious to private-sector leaders that the need for air and missile defense interceptors, long-range munitions, and other critical weapons is steadily rising and unlikely to abate anytime soon. The demand is inevitable. Industry should be leaning forward to meet it. Trump should put the Pentagon and the defense industry on notice about the need to act.

Bureaucracy has also stifled innovation even when its military utility is obvious. The Defense Department is to be commended for its Replicator Initiative, a program designed to hasten the adoption of emerging military technologies, but creating an entirely new acquisition process raises the question of why the Pentagon doesn’t just fix its existing one. The department must figure out how to adopt and integrate disruptive technologies as soon as possible, or else the military will find itself on the receiving end of smarter, cheaper, more autonomous unmanned systems fielded by adversaries moving faster than the speed of bureaucracy.

Tariffs have strained relationships with allies and tested the patience of American consumers.

Just the contracting process for weapons—to say nothing of actually building them—moves unbelievably slowly. For weapons systems that cost more than $100 million, it takes an average of more than ten months for American partners to get U.S. weapons under contract. The Biden administration made a halfhearted attempt to reform the foreign military sales process, but making it more efficient needs to be a joint priority for the secretary of defense and secretary of state. The arsenal of democracy will not endure if the United States’ own inefficiencies—or the opposition of vocal minorities in Congress—dissuade vulnerable allies from buying American.

The Trump administration should consider dramatically streamlining the process for commonly used munitions or preemptively building up inventories for export. The military should also consider maintaining larger stockpiles of weapons that can be more easily shared with allies and partners in times of crisis. Once the shooting starts, the time to build production capacity has passed.

To build an allied coalition of cutting-edge forces that can work together seamlessly, the United States must also be willing to share more technology. AUKUS, the United States’ security partnership with Australia and the United Kingdom, can be a model for greater technology sharing with other trustworthy allies and partners. Defense-technology transfer isn’t an act of charity; increasingly, it is a two-way street, with allies such as Australia, Finland, Israel, Japan, Norway, South Korea, and Sweden bringing cutting-edge capabilities to the table. The United States should expand coproduction with its allies and encourage them to produce interoperable capabilities, thereby reducing costs, shoring up inventories, improving supply chain resilience, and enhancing collective capacity to compete with China.

THE ECONOMIC ELEMENT

The United States would be foolish to compete with China by itself. U.S. allies and partners represent a significant share of the global economy. It would be simply unaffordable to replicate all their supply chains domestically.

Obama deserves credit for negotiating the Trans-Pacific Partnership with U.S. allies in Asia, and I do not regret working with him to overcome the objections of protectionist Democrats in Congress. Beyond lowering trade barriers and expanding market access for U.S. companies, the agreement was designed to establish favorable rules of the road for international trade in a critical region of the world. The parties to the proposed agreement represented 40 percent of the global economy. But rather than strengthen and harness the power of Western economies, the first Trump administration and then the Biden administration sometimes actively antagonized them, including with tariffs that have strained relationships with allies and tested the patience of American consumers. This abdication was an invitation for China to expand its economic influence in Asia at the United States’ expense.

There is plenty of evidence that the globalist optimism of the 1990s was unfounded. Welcoming China and Russia into the World Trade Organization has not transformed their governments or economies, at least not in ways beneficial to the free world. Rather, both countries have exploited and undermined this and other international economic institutions. I am not naive about the downsides of international trade, but there is no question that free markets and free trade have been responsible for much of the United States’ prosperity. That’s why the United States and like-minded free-market economies must work together to reform the international trading system to protect U.S. interests from predatory trade practices—not abandon the system entirely. Without U.S. leadership in this area, there is little question that Beijing will be able to rewrite the rules of trade on its own terms.

Although flagging military primacy is the most glaring impediment to national security, the United States cannot neglect the role of foreign aid, either. As the former chair of the Senate appropriations subcommittee responsible for foreign assistance, I take seriously James Mattis’s admonition when he was head of U.S. Central Command that if Congress shortchanged diplomacy and foreign aid, he would “need to buy more ammunition.” Unfortunately, these important tools of American power are increasingly divorced from American strategic interests. It is past time to integrate foreign assistance more deliberately into great-power competition—for example, by working with allies to present credible alternatives to China’s Belt and Road Initiative.

NO TIME TO TURN INWARD

In January 1934, William Borah, a Republican senator from Idaho and an outspoken isolationist, addressed a meeting of the Council on Foreign Relations in New York. Because peace had prevailed for 15 years following the end of World War I, Borah argued, global military spending was excessive. Tensions between European powers, he insisted, could not be solved by outsiders: “It will be a long time, I venture to believe, before there will be any necessity or any justification for the United States engaging in a foreign war.”

Of course, by the end of the 1930s, the Nazi conquest of Europe had driven a dramatic swing in U.S. public opinion away from Borah’s isolationist daydream. By May 1940, as German forces invaded France, 94 percent of Americans supported any and all necessary investments in national defense. By June, more than 70 percent favored the draft.

The United States saw the light during World War II. But must it take another conquest of a close ally before the country turns its belated attention to the requirements of national defense? Isolation is no better a strategy today than it was on the eve of World War II. Today, in fact, in the face of linked threats even more potent than the Axis powers, a failure to uphold U.S. primacy would be even more catastrophically absurd than was the refusal to assume that responsibility 85 years ago. The last time around, the naive abdication of the requirements of national defense made reviving the arsenal of democracy on a short timeline unnecessarily difficult. As Admiral Harold Stark, then the chief of naval operations, observed in 1940, “Dollars cannot buy yesterday.”

The United States urgently needs to reach a bipartisan consensus on the centrality of hard power to U.S. foreign policy. This fact must override both left-wing faith in hollow internationalism and right-wing flirtation with isolation and decline. The time to restore American hard power is now. (Foreign Affairs).

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What a real economist thinks of Trump’s newest stab at thinking about economics -CRYPTO.

Crypto is for Criming by Paul Krugman

It’s not digital gold — it’s digital Benjamins

The tech bros who helped put Trump back in power expect many favors in return; one of the more interesting is their demand that the government intervene to guarantee crypto players the right to a checking account, stopping the “debanking” they claim has hit many of their friends.

The hypocrisy here is thick enough to cut with a knife. If you go back to the 2008 white paper by the pseudonymous Satoshi Nakamoto that gave rise to Bitcoin, its main argument was that we needed to replace checking accounts with blockchain-based payments because you can’t trust banks; crypto promoters also tend to preach libertarianism, touting crypto as a way to escape government tyranny. Now we have crypto boosters demanding that the evil government force the evil banks to let them have conventional checking accounts.

What’s going on here? Elon Musk, Marc Andreesen and others claim that there’s a deep state conspiracy to undermine crypto, because of course they do. But the real reason banks don’t want to be financially connected to crypto is that they believe, with good reason, that to the extent that cryptocurrencies are used for anything besides speculation, much of that activity is criminal — and they don’t want to be accused of acting as accessories.

But let’s back up a bit and talk about fundamentals.

One of the (many) odd things about cryptocurrency is that it has somehow managed to maintain an image as something futuristic when it’s actually ancient in tech years: Bitcoin, the original cryptocurrency, which still accounts for more than half of the total crypto market cap, is 15 years old. Over this entire period, monetary economists and banking veterans have asked, what’s this for? What legitimate use cases are there for cryptocurrency that can’t be served more easily without the blockchain rigamarole?

I’ve been in many meetings where this question has been raised, and have never heard a coherent answer. In fact, crypto has made essentially no inroads on conventional money’s role as a means of payment — which is why crypto guys are so angry about being debanked: you can’t do business without an account at one of those banks Bitcoin was supposed to replace.

Yet Bitcoin has hit $100,000 and cryptocurrency assets have a combined value of $4 trillion. What’s going on?

One answer you sometimes hear, especially from financial executives who want to say something positive about crypto, is that Bitcoin in particular may be turning into the digital equivalent of gold. After all, gold doesn’t really function as money — try buying a car with gold bars — and its industrial and dental uses, while real, don’t remotely justify its value. It’s just an asset that people consider valuable because others consider it valuable, and it has maintained that status even though gold coins went out of use as a means of payment generations ago.

Another answer is that it’s all speculation or gambling (sometimes it’s hard to tell the difference), largely driven by testosterone. A Pew survey found that 42 percent of men 18-29 (versus 17 percent of women) have invested in, traded or used cryptocurrency, even though it’s extremely hard to use in ordinary life — the car dealer who won’t accept gold bars probably won’t accept Bitcoin either. The surge in crypto has gone hand in hand with a surge in meme stocks like GameStop and political bets, not to mention an enormous and worrying surge in sports betting:

But there’s a third possible explanation of crypto’s rise. Maybe asking “what are the legitimate use cases for this stuff” is the wrong question. What about the illegitimate uses, ranging from tax evasion to blackmail to money laundering? Maybe crypto isn’t digital gold, but digital Benjamins — the $100 bills that play a huge role in illegal activity around the world.

The old adage says that crime doesn’t pay, but of course it does in many cases. And it needs a means of payment, preferably one that isn’t too easily tracked by law enforcement. Traditionally, and to a large extent even today, that has mostly meant large-denomination banknotes.

I don’t know how many people know this, but the great bulk of U.S. currency in circulation, at least in terms of value, consists of $100 bills:

Most people can go a whole year without ever seeing a $100 bill — yet there are roughly 60 such bills in circulation for every man, woman and child in America. Who’s holding them? Well, indirect evidence suggests that they’re mostly being held outside the country. And while getting a precise number is almost by definition impossible, there’s no real doubt that many and probably most of the Benjamins out there are being held for illicit purposes. That’s why some prominent economists, notably Ken Rogoff, have called for completely phasing out large-denomination notes.

But while the sheer value of $100 bills in circulation suggests that there are still plenty of tax evaders and drug dealers with safes full of cash, banknotes are an awkward medium for really large-scale criminal activity. True, $1 million in $100 bills only weighs 22 pounds; but a million isn’t that much money nowadays. When Bashar al-Assad sent $250 million to Moscow in the form of $100 and 500-euro notes, the cargo weighed two tons.

Enter crypto. British authorities recently broke up a big money-laundering scheme involving exactly the villains you’d expect:

Presumably not everyone in crypto is participating, even unknowingly, in criminal activity. But the use of crypto for money laundering appears to be rising rapidly. And if I were running a bank, I’d be reluctant to host a bank account belonging to someone who might be involved in unsavory activities.

You might think that this was my right. Aren’t banks private companies, who can choose which customers they want to serve? OK, we have laws against discrimination based on race or gender, but civil rights for crypto bros sounds like a stretch.

Or maybe not. Howard Lutnick, Trump’s choice for Commerce secretary, has close ties to Tether, the company that is at the heart of the scheme the UK just uncovered and is rumored to play a large role in money laundering in general.

We’ll see what happens. But what Musk and Andreesen are demanding could be seen as a call for the U.S. government to intervene to make life easier for criminals. And if you think such a thing would be inconceivable under the second Trump administration, you haven’t been paying attention.

MUSICAL CODA

(Paul Krugman, Nobel Prize winning Economist, Substack).

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Despairing about the Election? Maybe you should reconsider.

Maybe Democrats Didn’t Do So Badly After All

The party’s debate about reinventing itself after the election has gotten more complicated.

Five days after last month’s election, Senator Chris Murphy rendered a damning verdict on his party’s performance. “That was a cataclysm,” the Connecticut Democrat wrote on X. “Electoral map wipeout.” Donald Trump had won both the popular vote and the biggest Electoral College victory—312 to 226—for any Republican since 1988; Democrats had lost their Senate majority and appeared unlikely to retake the House. The Democratic Party had lost touch with far too many American voters, Murphy concluded: “We are beyond small fixes.”

Other prominent Democrats saw a similarly sweeping repudiation of the party’s brand. “It should come as no great surprise that a Democratic Party which has abandoned working class people would find that the working class has abandoned them,” Senator Bernie Sanders wrote in a statement issued less than 24 hours after the polls closed. At the time of those reactions, millions of votes had yet to be counted, and several of the nation’s closest House races remained uncalled. Now a clearer picture of the election has emerged, complicating the debate over whether Democrats need to reinvent themselves—and whether voters really abandoned them at all.

Trump’s popular-vote margin has shrunk to about 1.5 percent—one of the tightest in the past half century—and because some votes went to third-party and independent candidates, he’ll fall just short of winning a majority of the vote nationwide. Compared with incumbent governments elsewhere in the world, Democrats’ losses were modest. And in the House, they gained a seat, leaving the GOP with the second-smallest majority in history. A trio of Republican vacancies expected early next year will make passing Trump’s agenda even more difficult, and Democrats are in a strong position to recapture the chamber in the midterm elections, when the incumbent party typically struggles.

The final results are prompting some in the party to push back against the doom-and-gloom diagnoses of Murphy, Sanders, and others who say the Democratic brand is in tatters and needs an overhaul. “If the Democratic brand was fundamentally broken and needed to be thrown out, this election would have been a complete blowout. And it was not. It was way too close,” Yasmin Radjy, the executive director of Swing Left, a Democratic organizing group, told me. Another Democrat, who requested anonymity in order to speak candidly, put it this way: “We lost an election. We didn’t lose the country.”

In some areas, the election looked like a red wave; compared with four years ago, the presidential vote swung to the right by about 10 points in some of the most populous blue states, such as New York, California, and New Jersey. But down-ballot races offer a solid case for Democratic optimism. The party label appeared to be far less of an albatross for Democratic congressional candidates than it was in strong Republican years such as 2010 and 2014. In the Senate this year, although Republicans flipped four seats, Democratic candidates prevailed in four battleground states that Kamala Harris lost to Trump. And according to the Cook Political Report’s David Wasserman, Democrats could have retaken the House majority with only 7,309 more votes across three congressional districts.

Democrats also held their own in state-legislative races. They made gains in Wisconsin and broke a Republican supermajority in North Carolina, although they lost ground elsewhere. Overall, the party retains significantly more power in state capitols than it did when Trump first took office in 2017. “There could have been a red wave in the states, and there wasn’t,” Heather Williams, the president of the Democratic Legislative Campaign Committee, told me. “I genuinely see this election as defying odds.”

The Democrats I spoke with over the past week were cautious in defending their party’s down-ballot performance, lest they be accused of minimizing Harris’s loss to a convicted felon in a race many of them had characterized as an existential referendum on American democracy. “The stakes were so high that even getting it wrong by a few points is cataclysmic,” Radjy acknowledged, “and the implications for our country, for our democracy, for people’s lives, are really serious.” The party’s House gains were enough to earn Representative Suzan DelBene of Washington State a second term as chair of the Democratic Congressional Campaign Committee. But she was careful not to declare any sort of victory. “We did a lot of things right,” DelBene told me, “but we want to be in the majority, so there’s more that we can do.”

After seeing the full results, Murphy told me that he still considered the election a cataclysm for Democrats. His alarm stems from the party’s deepening losses among working-class voters—long the backbone of the Democratic Party. That trend continued this year, and the party also lost significant ground with nonwhite voters in major cities. Murphy contends that the Democratic coalition has shrunk to the point where the party simply isn’t competitive in enough places to win a majority. The outlook is particularly grim in the Senate, he said, where Democrats no longer hold any seats in a solidly red state, thanks to losses in Montana, West Virginia, and Ohio. “Morally and intellectually, how do you continue as the party of the working class and poor when every single election, fewer of them are voting for you?” Murphy told me. “There becomes a real dishonesty and inauthenticity within our party if we look at this last election as too close to call or good spots and bad spots.”

Murphy believes that Democrats should respond by embracing economic populism and welcoming people who have conservative views on cultural issues such as guns, immigration, and the environment. Some of the party’s successes from last month agree with him.

Representative Pat Ryan won a competitive reelection bid in New York’s Hudson Valley by 14 points, outperforming Harris by double digits. He attributed his victory to both focusing on the affordability crisis in his district and breaking with Democrats on issues such as the border. The Democratic brand has become “toxic,” Ryan told me. “I certainly felt a pretty resounding message from voters that in many places, and with many candidates, we’re just out of touch and in a bubble and not connected to the daily pressure, pain, struggle, challenges that the majority of people are facing.”

Not all Democrats who won tough races did so by criticizing their party. Kristen McDonald Rivet, a Michigan Democrat who outperformed Harris by nine points, said voters in her Trump-supporting district seemed to hate both parties equally. “They are sick of politics,” McDonald Rivet told me. “If this election was supposed to be a message to the Democratic Party, I would have lost,” she said.

The party is still combing through election data in search of clues as to why its candidates performed better down the ballot than at the top of the ticket, and in certain places more than others. The answers will likely determine whether the reboot that Murphy and Ryan are advocating gains momentum. “We should not jump to conclusions,” Radjy said. However devastating last month’s defeat was for Democrats, they did not fall as far from power as many first thought. (Russell Berman, The Atlantic).

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One more thing to smile about. A judge that follows the law.

The verdict may stick, but even if the Supreme Court weighs in on Trump’s side in the end, this verdict makes the soon-to-be White House felon furious.

Judge Denies Trump’s Bid to Throw Out Conviction Over Immunity Ruling

Justice Juan M. Merchan thwarted one of several attempts by Donald J. Trump to clear his record of 34 felonies before returning to the White House.

A judge on Monday rejected Donald J. Trump’s argument that a recent Supreme Court ruling had nullified his criminal case in New York, upholding the former and future president’s felony conviction for falsifying records to cover up a sex scandal.

The judge’s ruling preserves, at least for now, the stain of Mr. Trump’s criminal conviction. And if the decision withstands an appeal, Mr. Trump could become the first felon to serve as president.

The ruling, which addressed the Supreme Court’s decision to grant presidents broad immunity for their official actions, thwarted only the first of several legal maneuvers Mr. Trump has concocted to clear his record of 34 felonies before returning to the White House.

Prosecutors had argued that the Supreme Court’s decision had “no bearing on this prosecution,” noting that Mr. Trump was convicted of orchestrating a scheme involving a personal and political crisis that predated his presidency.

But Mr. Trump’s lawyers seized on a particularly contentious portion of the high court’s ruling, which prohibited prosecutors from introducing evidence involving a president’s official acts even in a case about private misconduct. They argued that testimony from former White House employees had contaminated the verdict.

In the first significant interpretation of that polarizing opinion, the New York judge who oversaw the trial sided with prosecutors, concluding that the testimony centered on Mr. Trump’s unofficial conduct.

“The People’s use of these acts as evidence of the decidedly personal acts of falsifying business records poses no danger of intrusion on the authority and function of the executive branch,” the judge, Juan M. Merchan, wrote in a 41-page decision.

And even if the evidence was “admitted in error, such error was harmless,” he added, noting the “overwhelming evidence of guilt” introduced at trial.

A spokesman for Mr. Trump, Steven Cheung, criticized the ruling, calling it “a direct violation of the Supreme Court’s decision on immunity.”

“This lawless case should have never been brought, and the Constitution demands that it be immediately dismissed,” Mr. Cheung said.

A spokeswoman for the district attorney, Alvin L. Bragg, declined to comment.

Justice Merchan will not have the final say on the immunity issue, and Mr. Trump can now appeal his ruling.

Even if Mr. Trump loses in New York’s appellate courts, he can ultimately take the matter to a friendlier venue: the Supreme Court, which has adopted an expansive view of presidential power and where the 6-to-3 conservative majority includes three justices he appointed during his first term.

And the matter of immunity is hardly Mr. Trump’s only path to unwinding his New York conviction. He has also sought to leverage his electoral victory to throw out the case, citing a 1963 law that enshrined the importance of a smooth transition into the presidency, and a longstanding Justice Department policy that states a sitting president cannot face federal criminal prosecution.

Even though the New York case was brought by state prosecutors and has already resulted in a conviction, Mr. Trump’s lawyers have argued that keeping it alive would impose “unconstitutional impediments to President Trump’s ability to govern.”

The Manhattan district attorney’s office, which prosecuted Mr. Trump, has opposed any effort to overturn the jury’s verdict, saying that would amount to an “extreme remedy.”

Instead, the prosecutors have signaled a willingness to freeze the case for four years while Mr. Trump holds office, a move that would indefinitely postpone his sentencing.

“This type of time-limited accommodation is far more appropriate than the sweeping relief that defendant requests here, which would render the indictment and jury verdict in this case a nullity and eliminate his accountability for the crimes that a jury of his peers found he committed by proof beyond a reasonable doubt,” the prosecutors wrote in a recent court filing.

Justice Merchan, who could rule as soon as this week on Mr. Trump’s election-related dismissal bid, has already paused the sentencing several times. Mr. Trump faces up to four years in prison, but he is unlikely to receive more than a few weeks or months behind bars in New York, according to legal experts.

Mr. Trump cannot be sent to jail while he is president, and the judge can choose to hold off on sentencing him until after his term ends. If Justice Merchan decides instead to address the matter now, he could choose to uphold the conviction but impose no jail time or any other punishment.

If Mr. Trump manages to avoid all punishment whatsoever in his only criminal case to make it to trial, it would complete a stunning turnabout from earlier this year, when he faced four indictments in four different jurisdictions.

The federal special counsel who brought two of those cases, one in Washington, D.C., and the other in Florida, recently shut down both of them, bowing to the Justice Department’s policy against prosecuting sitting presidents federally.

In Georgia, where a local prosecutor accused Mr. Trump of trying to subvert the state’s 2020 election results, Mr. Trump has already managed to delay the case indefinitely.

The Supreme Court’s immunity decision stems from the special counsel’s case in Washington, where Mr. Trump is accused of plotting to overturn his 2020 election loss.

The 6-to-3 ruling, which was decided along partisan lines, held that a former president was “entitled to at least presumptive immunity from prosecution for all his official acts.”

Within hours of the decision’s landing, Mr. Trump’s lawyers sought to link it to the Manhattan case, arguing that it invalidated the conviction.

At first blush, the two seem unrelated.

In May, a jury of 12 New Yorkers found Mr. Trump guilty of all 34 counts of falsifying business records related to covering up a porn star’s account of a sexual encounter with him, which threatened to derail his 2016 presidential campaign.

To bury the story, Michael D. Cohen, Mr. Trump’s former fixer, brokered a $130,000 hush-money deal with the porn star, Stormy Daniels. Mr. Trump eventually repaid Mr. Cohen, who testified that his former boss orchestrated a scheme to falsify records and hide the true purpose of the reimbursement.

Mr. Trump’s lawyers argued that, in light of the Supreme Court’s immunity ruling, prosecutors had improperly relied on evidence that involved “official communications” during his first term in the White House, including tweets he posted as president.

But many of those statements were public, the prosecutors noted, and the Supreme Court specifically exempted public information from the prohibition on using official acts as evidence.

Writing for the majority, Chief Justice John Roberts concluded that a “prosecutor may point to the public record” to illustrate an argument, even if it involves official acts.

In his ruling on Monday, Justice Merchan rejected the defense’s effort to portray the tweets as official acts, concluding that they “do not constitute the type of conduct” the Supreme Court intended to protect.

“To find otherwise would effectively mean that every statement ever uttered (or posted on social media) by a sitting president, whether personal or official, in his or her own interests or that of the country, would be protected by absolute immunity,” Justice Merchan wrote.

Still, Mr. Trump mounted a somewhat stronger argument that the Supreme Court’s ruling now prohibits some of the testimony that was given at trial. His lawyers cited the testimony of two of Mr. Trump’s former White House employees, his communications director Hope Hicks and Madeleine Westerhout, a director of Oval Office operations.

In one crucial portion of her testimony, Ms. Hicks told the jury about a discussion she had with Mr. Trump in the White House after the hush-money deal with Ms. Daniels had come to light. Ms. Hicks said that after The Wall Street Journal broke the story, she spoke with Mr. Trump about “how to respond.”

Yet prosecutors argued that the discussions between Ms. Hicks and Mr. Trump “related solely to unofficial conduct” about the sex scandal. The prosecutors invoked the Supreme Court ruling to help their cause, noting that Justice Roberts had written that a president can speak “in an unofficial capacity,” and that not every act a president takes is official, a holding that Justice Merchan highlighted in his ruling on Monday.

The prosecutors also argued that even if Ms. Hicks’s testimony had somehow crossed a line, they had presented so much other evidence that “any error was harmless” and the guilty verdict should stand. Justice Merchan agreed, citing an array of other evidence that prosecutors introduced at trial, including Mr. Cohen’s testimony and Mr. Trump’s own words in books he wrote.

The judge noted that he was not alone in concluding that Mr. Trump’s actions had been private, not official.

A federal judge who evaluated the case last year when Mr. Trump tried to move it out of state court concluded that the “evidence overwhelmingly suggests that the matter was a purely personal item of the president.”

The federal judge, Alvin K. Hellerstein, noted in his opinion that “hush money paid to an adult film star is not related to a president’s official acts.” (New York Times)

A second thing to smile about.

Harris urges young Americans to ‘stay in the fight’ in post-election speech

US vice-president reminds Democrats that ‘this struggle is not new’ in Maryland after losing presidency to Trump.

Kamala Harris challenged young people to “stay in the fight” during a speech in Maryland on Tuesday, her first major address since conceding the presidential election to Donald Trump last month.

In her remarks, Harris expressed optimism in a future led by many of the young leaders in the room, praising their “passion” and “resolve” in spite of an electoral setback that threatens many of the causes they care deeply about.

“I ask you to remember that this struggle is not new. It goes back nearly 250 years to Lexington and Concord,” Harris told a group of students, recent graduates, volunteers and apprentices at Prince George’s Community College. “Generation after generation, it has been driven by those who love our country, cherish its ideals and refuse to sit passive while our ideals are under assault.

This fight now, it continues with you. You are its heirs,” the vice-president said.

Since the November election, Harris has maintained a relatively low profile. Next month, the vice-president, in her ceremonial role as president of the Senate, will certify Trump’s victory and participate in the transfer of power. What she has planned next is unclear – but her punchy, optimistic speech made clear she had no plans to remain on the sidelines.

Harris’s remarks come as Democrats grapple with their unexpectedly sweeping defeat, with Republicans winning control of the White House and both chambers of Congress. One of the party’s most bitter election day disappointments was the erosion of support among young people, long viewed as a key Democratic constituency and a group that Harris worked to mobilize during her whirlwind 107-day campaign.

According to an analysis of early data by Tufts University’s center for information and research on civic learning and engagement (Circle), youth voter turnout in 2024 fell below the historic levels reached in 2020. Though Harris ultimately won youth voters overall, Trump made major gains among the cohort compared to four years ago. The shift was especially pronounced among white young people and young men.

Since Barack Obama’s 2008 election, successful Democratic presidential nominees have won at least 60% of the youth vote. According to APVoteCast, Harris won 51% of voters under 30, a precipitous decline from 2020, when Joe Biden won 61% of those voters.

Yet Harris’s entry into the presidential race thrilled many young liberals, especially women, motivated by her robust advocacy for reproductive rights. Nodding to a viral meme that flooded social media with coconut tree emojis, Harris said: “I ask you to remember the context in which you exist.” The line rippled across the auditorium as the crowd laughed and cheered. With a wide smile, Harris nodded: “Yeah I did that.”

As vice-president, she toured college campuses and spoke to issues that resonated with students and activists, including climate change and gun violence – which she raised on Tuesday to condemn the school shooting in Madison, Wisconsin, that left three people dead, including the 15-year-old shooter.

“We as a nation must renew our commitment to end the horror of gun violence, both mass shootings and everyday gun violence that touches so many communities in our nation,” she said.

As Harris contemplates her political future, she could emerge as a leader in the anti-Trump resistance, particularly around the protection of reproductive rights and democratic norms, which she championed during her campaign. There is speculation that she could run for governor in California, her home state where she served as the attorney general and a US senator. At 60, she could even make another run for the White House in 2028, though she would likely face several other Democratic aspirants in a primary.

Harris made no mention of her own future on Tuesday, but implied that she too intended to stay civically engaged, drawing inspiration from the tens of thousands of letters she has received in recent weeks.

But she also acknowledged the “disappointment” that has left many people feeling “tired, maybe even resigned”.

“Let me be very clear,” Harris said. “No one can walk away.”

“The true test of our commitment is whether, in the face of an obstacle, do we throw up our hands or do we roll up our sleeves?” the vice-president added, drawing a prolonged “mmhmm” from several attendees that made everyone in the auditorium, Harris included, laugh.

The speaking program on Tuesday underscored Harris’s message, which she first delivered in her concession speech, that young people should continue to believe that anything is possible despite seeing her history-making candidacy extinguished by a man who has stoked racial resentment and anti-immigrant backlash. (The Guardian)

Last of all, a third thing to smile about.

Ketanji Jackson Brown on Broadway.

Watch. Smile. 👇

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