Cherish Dēmokratía and count the blessings of a good year

Tourists take pictures in front of the Athens Academy adorned with sculptures depicting ancient Greek philosophers , Plato (L) and Socrates (R) on June 10, 2016.
Louisa Gouliamaki | AFP | Getty Images
Tourists take pictures in front of the Athens Academy adorned with sculptures depicting ancient Greek philosophers , Plato (L) and Socrates (R) on June 10, 2016.

Investors can safely ignore unedifying public discourse as various constituencies seek to settle scores over the recent election outcome. That is a transitory phenomenon. And that is the price we have to pay for the privilege of living in a democratic society.

Athenians adopted dēmokratía in the conduct of their public affairs 500 years BCE. Socrates called it "a charming form of government, full of variety and disorder …"

But his disciple, Plato, was less admiring of democracy's "variety;" he preferred Kallipolis, an aristocratic order governed by "philosopher kings" (the wise men). Having probably read Plato's Republic, James Madison also worried, in his Federalist Papers, about the "tyranny of the majority."

The debate continues despite Winston Churchill's attempt to settle the issue once for all. In a speech at the House of Commons on November 11, 1947 Sir Winston intoned: "… democracy is the worst form of Government except all those other forms that have been tried from time to time."

So, we shall keep on arguing, as we always have. And, as things settle down a bit, we might be able to do that with less vehemence, greater respect for institutions and a greater sense of unity.

Demos rising up in Europe

Our debates are also resonating in Europe, where the elites stand accused of ignoring the "demos" (common people) in their allegedly incompetent exercise of "kratos" (power).

The much maligned Geert Wilders -- voted the Dutch "Politician of the Year 2016" -- has been warning for most of this decade that "Holland was full … overflowing" with immigrants, and that the country's culture, civilization, identity and socio-political order were being threatened.

For all that, the ruling parties, and the media, brushed him aside as a hateful right-wing xenophobe. But the demos thought otherwise. His Freedom Party is now expected to win the parliamentary elections next March. Mr. Wilders, the likely new prime minister, vows to stop unbridled immigration and to join forces with like-minded incoming leaders in France, Italy and Germany to shake up the EU's policies.

France is next in line with presidential elections in April and May 2017. The agenda presented by the far-right Front National (FN) on immigration, the EU, the euro and the economic management is now widely shared across the entire political spectrum. The FN leader Marine Le Pen is just starting her campaign under a revolutionary headline "Au Nom du Peuple" ("In the Name of the People").

In Italy, a soaring 5-Star Movement – a grassroots political formation started in 2009 -- is given as a clear winner in snap elections generally expected in the second quarter of this year.

Germany – a country where all the EU trouble started with misguided austerity policies and an open-door invitation to all comers – is facing a highly probable demise of the governing center-right parties in next September's elections. As things now stand, a looming coalition of the Left Party, the Greens and the Socialist Party could easily unseat the Christian Democrats (CDU) and their Bavarian sister party the Christian Socialists (CSU).

Spain's minority center-right government is at the mercy of coalescing left-wing forces. A new round of elections is possible anytime.

These five countries account for 83 percent of the euro area and represent most of the markets for about $300 billion of U.S. exports. Their forthcoming elections are likely to bring (a) reinforced border controls, (b) tighter immigration policies, (c) some repatriation of sovereign rights ceded to the EU Commission and (d) a stronger support of economic growth and employment creation.

Don't do it alone

America should have no quarrel with any of that. These countries' emphasis on faster growth is very much in tune with similar policy intent of the new administration.

Still, before implementing any large-scale fiscal stimulus, Washington should activate bilateral, G20 and IMF consultations with countries currently running large and systematic trade surpluses with the United States.

The surplus countries should be required to generate growth through stronger domestic demand – rather than net exports -- and to keep their markets open. It would be a big mistake if Washington underestimated the leakages of fiscal and other stimuli through rising imports (i.e., increasing trade deficits), and the damage that would cause to jobs and incomes in American import-competing industries.

"Buy American" and "Hire American" should not be substitutes for America's defense of (a) fair trade, (b) international trade adjustment rules and (c) a sustainably balanced world economy.

These policy principles should also include consequences for currency manipulators and export-driven "beggar-thy-neighbor" traders. Here are three important cases to think about.

Newswires reported last Monday (December 26) the announcement of Japan's Cabinet Secretary Yoshihide Suga that the yen's exchange rate was a top government priority to rev up the economy via export sales.

He mentioned that Japan's Ministry of Finance, Financial Services Agency and Bank of Japan had a working group to manage the exchange rate issue. And the message was not lost on Japanese businesses; survey results are showing that they are gearing up their export machine for an American-led stimulus to the world economy.

Germany – running the world's largest trade surplus of $300 billion – is also worried about its export-driven economic growth. Ingo Kramer, President of the German Employers' Association, is quoted as having said on December 27 that "… increase in protectionism would be devastating for Germany which relies on exports for about half of its economic output."

I hope Washington's stimulus strategists are hearing all this. The Japanese exchange-rate statement is particularly worrying. Europeans have repeatedly warned that the Bank of Japan was aiming to boost exports with a weak currency. But Washington kept looking the other way – toward Beijing.

China, to my knowledge, has never made a Japanese-style RMB policy statement. China's exports in the first eleven months of 2016 are down 7.5 percent from the year earlier, and China's sales to the U.S. declined 3.5 percent in the year to October. The 2016 will also be the second consecutive year when net exports have taken 2 percentage points out of the growth of China's domestic demand.

More important, Beijing has made a structural move away from exports as a key growth driver. The largest part of growth is now coming from consumer spending and investments. Private consumption, for example, contributed 71 percent of GDP growth in the first three quarters of this year – a clear progress from 66.4 percent in 2015.

Do Mr. Trump's advisers still consider China a currency manipulator? They may wish to think again. It would perhaps be more useful to take a harder look at U.S. companies producing Chinese exports to the U.S.

Investment thoughts

Building on the Fed's stimulus to the economy, the new administration could deliver on expectations of stronger growth with supportive fiscal, structural and trade policies.

The trade war talk is nonsense. But an urgent trade consultation with countries running large and systematic trade surpluses with the U.S. is long overdue.

The forthcoming political changes in Europe will respond to people's demand for greater security, better public services and a stronger employment creation. The ECB will continue to work toward a faster economic recovery in the euro area.

In Asia, China is unloading huge public sector projects to underpin demand and output. Japan would do well to patch up its vitally important relations with Beijing; that would do more for its economy than all the money printing presses and the cheap yen policies.

Greater attention to jobs and incomes in the U.S., Europe and China – more than one-half of the world economy – will support stronger economic growth and equity market values on a global scale.

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