Friday News Roundup — March 12, 2021
Rising to the China Challenge; Taming Inflation Fears; Russia Breaks Their Internet; Executive Orders on Gender Equity
Happy Friday from Washington, DC. For many of us, this week represents the first anniversary of the week that the COVID-19 outbreak went from something happening someplace else to a very real and scary reality. A year ago, we would not have been able to contemplate to what extent and for how long our lives would be disrupted, and we definitely could not have imagined that more than 500,000 people would die. It has been a bear of a year. With vaccine production and distribution continuing to accelerate, however, it is now possible to imagine what post-COVID world looks like. It may not yet be time to book that flight to Bora Bora, but, god willing, it is almost time to start thinking about it.
This week, CSPC released an update from its Geotech program on the ongoing challenge posed from Beijing and Moscow and how the early actions of the Biden administration — personnel appointments and policy actions — suggest the shape and scope of the administration’s early Geotech approach.
We also hosted a conversation Elliot Higgins, the founder of the open-source investigations collective Bellingcat to talk about his new book We Are Bellingcat: Global Crime, Online Sleuths, and the Bold Future of the News, and how a blog he started in his free time became Vladimir Putin’s bête noire.
Also this week, CSPC Senior Fellow James Kitfield reported on classified U.S. Air Force wargames and what they tell us about the balance of power in the Pacific. Joshua published a review of Gayle Tzemmach Lemmon’s book The Daughters of Kobani about the Kurdish women who helped fight off the Islamic State.
Next week we are hosting the Politico’s Wes Morgan on March 16 at 10:30am ET to discuss his new book The Hardest Place: The American Military Adrift in Afghanistan’s Pech Valley. Click here to register. The next day, on March 17 at 10:30am ET, we are hosting Washington Post columnist Josh Rogin to discuss his new book Chaos Under Heaven: Trump, Xi, and the Battle for the 21st Century. You can sign up for that event here.
In this week’s Roundup, Dan looks at how both the executive and legislative branches are rising to the competition with China. Michael argues that policymakers should ignore the risks of inflation, at least for now. Joshua covers how the Kremlin is dealing with social media in its crackdown on unrest. Our intern Jacky Ruiz offers some suggestions for the new White House Gender Policy Council. This is also Jacky’s last week with us, and we sincerely thank her for all of her work this term. As always, we end with some stories you might have missed.
Washington Pivots to China
While much remains to be written of the history of U.S.-China relations, it is increasingly clear that the 2020–21 period will mark the realization of the shift to competition between these great powers. What started with the Trump administration is now being institutionalized, both by the Biden administration’s early approach to China and the bipartisan consensus on the U.S. response to the competitive gauntlet thrown down by Xi Jinping and the Chinese Communist Party. This week, CSPC released an update from its Geotech program analyzing the current political and economic situation in 2021 and the early personnel and policy actions by the Biden administration. In this report — and analysis of some developments on the Hill — it is clear to see how this realization of the looming competition is being grasped in Washington.
The upcoming event with The Washington Post’s Josh Rogin will cover this in greater detail, but while the Trump administration correctly grasped the China competition, the response was undermined by both a disjointed administration approach and the president’s own approaches to personal, one-on-one deal making with General Secretary Xi (albeit sometimes via Twitter). Still, despite this, the foundation was laid for the measures upon which future Geotech strategies are being built: addressing supply chain security and resilience; fostering innovation leadership and high-tech “ecosystems” driving the cutting edge — especially 5G, AI, and quantum computing; and holding China to account for its human rights violations, intellectual property theft, influence campaigns, and other challenges to our interests and norms.
As the Biden administration has continued this approach, it has done so by trying to better formalize and institutionalize policies related to U.S. competition with China. Competition is not conflict — yet a preparedness for conflict is an important part of ensuring stability. Preparedness for conflict also requires secure and resilient supply chains. In key sectors, many of those supply chains have become over-dependent on China. On February 24th, the Biden administration released an executive order outlining a 100-day review of U.S. supply chains in the key sectors of semiconductors, batteries, rare earth materials, and pharmaceuticals.
While this 100-day review will run into the realities of staffing an administration in its early days, the executive order on supply chains also lays out a longer-term review with broader sectoral reviews of U.S. supply chains and their vulnerabilities — including the future creation of possible “Quadrennial Supply Chain Review.” While much of this may appear to be merely Washington bureaucratic kabuki, it is beginning one of the most significant re-evaluations of U.S. supply chains, globalization, and dependence on China — all challenging the underlying post-Cold War consensus and recognizing that the completion with China will define the 21st century. Executive orders and review processes will be the easy part, as hard decisions may loom on decoupling.
The executive order is one example of the depth of the Biden administration’s approach to China competition, while outreach to allies and a focus on international cooperation has been another key indicator. Not only has there been a greater emphasis on the Quad, but there will also be attention paid to the upcoming travel to Asia by Secretaries Austin and Blinken, and next week’s summit with high-ranking Chinese officials in Alaska.
The action of the administration is also accompanied by action from Congress. The bipartisan consensus recognizing the competition with China grows stronger. Proposed measures in Congress could address concerns underlying the semiconductor shortage — both in terms of the long-lead time needed to expand fabrication capacity, as well as the R&D support for innovation leadership. Combining some of these measures together may be the next step for Senate leadership following the COVID relief package. Congress has also continued to push for cooperation with allies, with a group of leading Senators proposing the Democracy Technology Partnership Act to formalize technology cooperation with like-minded allies and partners.
Both the Biden administration and Congress are moving to position the United States in better shape for this long-term competition with China. In many areas, especially technology competition, concerns about security and resilience will need to be balanced with underlying interdependence and shared interests. What we can hopefully see now is the beginning of Washington acting to best position the United States for this long race ahead.
A Little Inflation is No Cause for Concern
President Biden signed the $1.9 trillion American Rescue Plan yesterday while Dan and I were busy watching the Georgetown Hoyas upset the Villanova Wildcats in the Big East Tournament Quarterfinals. Added to the $900 billion relief bill that passed in December and the packages that passed earlier last year, the federal government has allocated around $5 trillion of stimulus spending in the last 12 months. $5 trillion is a lot of money. It is roughly the gross domestic product (GDP) of Japan. That does not mean it is enough money to buy Japan, just all of the goods and services produced in that country in a year. The last time the global economy faced a massive “black swan”-style shock — the 2008 financial crisis — nobody took such aggressive action. We were told that the government would invariably spend too much on stimulus, causing a vicious cycle of debt and inflation that would hobble the economy for decades to come.
The world’s central banks took extraordinary steps that probably kept the world from coming apart at the seams, but political leaders were much more cautious. Tut-tutting Eurocrats forced austerity measures on Greece that caused living standards to fall by more than 40%. Belt-tightening officials in Whitehall slashed budgets, helping push UK voters to leave the EU, which will hurt their economy over the long term. In the United States, fearful economic policymakers kept the economy in second gear, with serious effects on the labor market. Inflation fears have made capital markets a little jittery in the last few weeks, and prominent economists, including center-left ones like former Treasury Secretary Lawrence Summers, have given voice to these concerns. These risks are misplaced, however, because the fiscal and monetary position of the United States remains strong and they underestimate the negative effects of the economy running too cold.
There are two concerns about the recent rounds of fiscal stimulus that are interrelated. The first is that the federal government has just spent too much money. The Congressional Budget Office (CBO) measures something called “real potential GDP”, an estimate of what the economy would produce if capital and labor were highly utilized and well allocated — the economy at cruising speed. The difference between cruising speed and the actual level of GDP is called the output gap. Because of the effects of the pandemic-recession, actual GDP is below potential. When it is above potential, the CBO projects that prices will rise (inflation) to close the gap.
The spending in the American Rescue Plan exceeds the output gap, so there are concerns that it will cause inflation. The problem is that the CBO’s potential GDP measure is probably too conservative. It shows that the economy was running too hot in 2018 and 2019, but it is very hard to see any inflation in the data. In fact, the CBO has consistently downgraded its potential GDP estimates since the 2008 financial crisis: slow growth has led them to project that growth will stay slow. The experience of 2018–19 is illustrative; it suggests that the CBO has been underestimating what the U.S. economy “should” be producing — cruising at 50mph instead of 55 — and reducing the risk that this spending will cause inflation.
A longer term risk is that, by borrowing all of this additional money, the federal deficit will explode. The most commonly accepted measure of the national debt, called “federal debt held by the public”, is just short of the highest level ever recorded and growing. As debt levels grow, paying the interest on the debt will take up a greater share of the federal budget, which will eventually force the government to raise taxes to provide the same level of services.
But while the stock of federal debt has increased hugely in the last 15 years, the flow of interest payments by the federal government has not. Interest payments as a share of GDP fell considerably from 2000–2010 and remained low since then. As long as the economy grows faster than the interest rate on the debt — as it has for most of the last 50 years — the economic impact of government borrowing will actually shrink. It is true that if interest rates spike, the cost of financing the debt will also go up, but market expectations of future interest rates remain historically low. There are good reasons to expect that low interest rates are here to stay: people today expect to live longer in retirement than they did a generation ago, so they have to save more than their parents did. At the same time, population growth has slowed, so there are fewer people borrowing money to, for example, buy a house. More saving and less borrowing will cause interest rates to fall.
The deeper concern has to do with the late 1970s and stagflation, when the economy was hit by a vicious cycle. Rising inflation caused people to expect that inflation would continue to rise, so they demanded higher wages that caused more inflation (the interest rate markets are a means by which common expectations become reality). Then-Chairman of the Federal Reserve Board of Governors Paul Volker had to cause a lot of economic damage to break this cycle and establish widespread faith that the Fed was a responsible actor that would not let prices get out of control. If we are now in a world where the Fed is willing to accept a little more inflation — which they are — and both political parties have shown a willingness to run up budget deficits — which they might have — these untethered inflation expectations could return.
I am skeptical of that, however. In part, that is because people like Larry Summers command a lot of respect in the center of the American political economic system. If he is telling people to keep an eye out for inflation danger signals, it will motivate moderate Democrats and counterbalance the people who actually think that debt is irrelevant. Because the interest rate markets are wish-fulfillment machines, this could actually have a tangible effect on future inflation expectations.
More tangibly, however, inflation is a tax on assets. If I had been around at the time to buy teenage-Michael’s dream car — a bright red 1969 Corvette Stingray convertible — it would have set me back around $4,500. If I wanted to buy a 2021 Corvette, it would cost me more like $70,000. The value of 45 $100 bills has declined by a lot over the last 52 years. People who own assets, let’s call them “the bourgeoisie”, understandably hate inflation. When the economic crisis caused by the pandemic is over, the bourgeois interest in stable money will come back with a vengeance. As long as people who own their homes and have some money saved for retirement are an important electoral coalition, policymakers in the United States will feel pressure to prevent runaway inflation.
But also, policymakers are right to try running the economy a little too hot for a change. Growth and interest rates that are too low for a long time are very bad. For most of this writeup, I have treated “the economy” as an abstraction, but it is not: it is the experience of the people who save, borrow, and work. In a world of low rates, there is little incentive to save and it becomes harder to build wealth. When borrowing is too cheap, big, established firms can borrow money cheaply and buy up potentially disruptive startups. This misallocates capital, concentrates economic power, and causes growth to slow even more. On the subject of low incentives to save and misallocation of capital, low rates are also probably why some lunatic spent $69 million on this piece of digital art yesterday.
The United States has spent too long hobbling along with low rates and low growth. Two massive, unexpected shocks have caused a lot of grief for a lot of people. An economic plan that would get us back to where we were in 2017, when the CBO says the economy was just about right, would be good, but we should aim for better. There are good reasons to believe that the economy can run hotter without causing an inflationary spiral, and the political forces that promote economic restraint remain. There will still be a time to worry about deficits, debt, and inflation and tap on the economic brakes, but we should probably wait until there are actual signs that we are speeding.
The Kremlin Slows Twitter & Shows Signs of Losing Patience
Joshua C. Huminski
On Wednesday, citing Twitter’s unwillingness to remove certain posts, the Russian government attempted to slow access to the social media giant, but may have ended up slowing the entirety of Russia’s internet infrastructure, and demonstrated a heavier hand toward potential dissent.
Twitter, the sixth largest social media platform in Russia, is widely used by opposition figures such as the imprisoned dissident, Alexei Navalny. His organization leveraged Twitter, as well as TikTok, Facebook, and others, to coordinate and mobilize widespread protests in the days after his arrest on returning from Germany where he was receiving treatment for nerve agent poisoning — a poisoning orchestrated by the Kremlin.
Russia’s communications watchdog, Roskomnadzor, said it was throttling Twitter for failing to remove 3,000 posts that contained objectionable material such as suicide, drugs, and pornography. The government, earlier this month, also said it was suing the social media company for failing to remove the objectionable posts. According to a government statement, “Roskomnadzor has filed over 28,000 preliminary and repeated orders to delete unlawful links and publications”.
In televised remarks, the deputy chief of Roskomnadzor, Vadim Subbotin, said, Twitter, “openly ignored the Russian authorities’ demand to remove the banned content.” A spokesperson for the Kremlin said that the government had “no desire to block anything, but it is quite reasonable to take measures to force these companies to comply with our laws”.
Roskomnadzor intended to slowdown Twitter access “on 100% of mobile devices and 50% of stationary devices.” In fact, its effort to do so may have resulted in a near 24% drop in internet traffic to the Russian state telecoms provider Rostelecom. Many government websites were taken offline or their access slowed dramatically, but it is unclear whether the two are directly connected. The Ministry of Digital Development acknowledged the issues, but said it was a result of hardware issues at Rostelecom. Other experts suggest it was and error on the part of Roskomnadzor that blocked more than they originally intended.
Twitter and the Russian government have been locked in a contentious relationship, despite the platform’s limited reach in the country — just three percent of Russians surveyed used the platform. Two weeks ago, the social media platform removed over 100 accounts reportedly linked to Russia saying the accounts “amplified narratives that were aligned with the Russian government” and were “focused on undermining faith in the NATO alliance and its stability.” The infamous Internet Research Agency used the platform to amplify messages during the 2016 presidential election in an attempt to influence the electorate, but the efficacy of that effort remains in question.
The Kremlin has, more broadly, sought increasing control of the internet, or at least to lay the legal foundation for increased control. A 2012 law allows the government to blacklist or block online content. A subsequent 2014 law requires companies to store Russian user data inside of the country, fining both Twitter and Facebook for failing to do so. A December 2020 law signed by President Vladimir Putin outright allows the government to block sites that censor Russian news outlets. President Putin, for his part, said last week that the internet “must comply not only with laws and formal legal regulations, but also the moral laws of our society, otherwise society will implode.”
The efforts have a similarity to China’s effort to establish the “Great Firewall of China” — a set of firewalls, protocols, and technological obstacles that censors what Chinese citizens can see and do on the internet. Russia’s own efforts are, according to the government intended to ensure that the country has access to the Internet in the event the West decided to sever access to the web. Opposition figures see it as a creeping sign of censorship. Thus far, despite having the legal authorities to do so, the Kremlin has adopted a largely hands-off approach to managing the internet. In 2016 it did block LinkedIn for failing to store user data in Russia, but the professional networking site’s penetration was relatively limited to begin with.
Given the legal framework the Duma has provided for the government, it could assert greater control, but it has thus far refrained from doing so out of fear of the backlash within the country. President Putin is likely to use these legal powers with increasing frequency, albeit masked under the guise of protecting youth or preventing moral corruption, in the run-up to the September parliamentary elections, and in response to any agitation by Navalny or other activist groups.
The fight with Twitter may also signal an early indication, along with the imprisonment of Navalny, that President Putin’s tolerance for dissent — never high to begin with — may be ebbing. Russia has had a surprisingly robust opposition movement, which was largely tolerated by the Kremlin, so long as it stayed within defined, but unarticulated boundaries. To be sure, the Kremlin made the lives of the opposition exceptionally difficult, handicapping and hobbling them wherever possible, and, in some cases, poisoning or killing the most vocal figures. There are of course “opposition parties” in parliament, but these systemic opposition parties are more representative of tolerated dissent and do not represent actual threats to the dominance of President Putin’s United Russia party.
This also fit within the social contract, under which the Kremlin would provide economic growth and improve the lives of Russian citizens in exchange for acquiescence. So long as there was stability, some opposition could be tolerated. However, now with Covid, a slowing economy, and little improvement for average Russians, that social contract is eroding as is the willingness to tolerate uncontrolled opposition. Hitherto, President Putin was able to point to overseas and foreign threats to justify his actions at home, these are no longer holding the same sway they once did. Taken together, President Putin may potentially assert increasing control over the non-systemic forms of opposition and certainly will work to quash any Navalny-related protests or activism.
Biden Has Made a Commitment to Fight for Gender Equality: Here’s How He Can Do That
This Women’s History Month, President Biden has signed an executive order that spotlights his strategy for advancing gender equity. The executive order formally established the White House Gender Policy Council (GPC) and tasked them with producing potential approaches for combatting systemic bias and gender discrimination. This council will be chaired by Jennifer Klein, former advisor to Hilary Clinton, and Julissa Reynosa, chief of staff to Jill Biden.
The council’s initial focus will be on addressing the disproportionate job loss faced by women in the workforce. More than 2 million women have left the workforce since February 2020, with Black and Hispanic women making up more than half. However, the GPC must recognize that the pandemic only exacerbated already existing inequalities. The GPC should push Biden towards using his executive authority to be a leading example of how to empower women in the workforce. The GPC can better the livelihoods of the women directly employed by the Executive Branch by advocating for a $15 minimum wage for all federal employees, increased accountability regarding gender discrimination in the military, and providing resources towards accessible childcare for federal employees.
First, the GPC should begin advocating for raising the minimum wage for federal workers and contractors to $15. This was last done in 2014 by President Obama who raised the minimum wage for federal employees from $7.25 to $10.10. Obama hoped this action would spur Congress to increase the national minimum wage, but this did not happen. While a Biden executive order would not impact as many workers as a congressional bill would, it would benefit women in the executive workforce. This would raise the income of the lowest paid federal workers which research shows has the positive effect of shrinking gender wage gaps. Opponents to the wage increase argue that increased hiring costs would discourage federal entities from employing new workers at a time where the government should be promoting employment growth. The tangible benefits of a wage increase far outweigh the potential risks and the GPC should push Biden to provide this relief now.
Second, the GPC should propose reforms to protect servicemembers from gender-based violence in the military. This past summer, the Fort Hood incident involving the alleged sexual harassment and murder of Spc. Vanessa Guillen sparked a nationwide reckoning with the pervasiveness of sexual assault within the military. Increased scrutiny upon the military’s handling of sexual assault is long overdue. More than half of all Executive Branch employees are part of the Department of Defense. Women currently make up about 16 percent of enlisted troops and 19 percent of the officer corps. The GPC can begin by reforming the Sexual Harassment/Assault Response and Prevention (SHARP) reporting process so victims can report incidents to a neutral agency instead of their superior officers. The GPC should also look towards empowering entities such as Victim Advocates and the Special Victims Counsel so affected service members have the resources needed to see their offenders brought to justice. Military leaders and personnel have expressed concerns over reforms like these that would move prosecutorial discretion outside the chain of command. The GPC must fight for these reforms that will go a long way in changing the culture that allows for these types of assaults to happen.
Third, the GPC should champion policies that make childcare more accessible and affordable for women in the federal workforce. Even before the pandemic, the inaccessibility of childcare deterred women from joining the workforce. There is still a systemic bias that sees children as obstructive to productivity. There needs to be a huge investment into our childcare infrastructure that fosters a culture around supporting working women with families. Federal employees are currently guaranteed up to 2 weeks of paid sick leave and up to 12 weeks of paid family leave. The GPC should push Biden to remove the arbitrary maximum of 12 weeks paid leave in total, so that employees who exhaust their 12 weeks of family leave can still use the 12 weeks of sick leave afterwards. This will benefit working women because it will grant much needed flexibility to their work schedules and increase the retention of entry-level hires. The GPC should also examine what Biden can do to increase funding towards federal childcare centers to hire more caretakers and extend the hours children can be supervised. Notably, proposals similar to these have broad bipartisan support as Congress is recognizing how relief for the childcare industry directly aids in the economic recovery.
The Gender Policy Council has the potential to be a leader in enacting the federal response to a wide array of issues involving women. Reynosa, co-chair of the GPC, has stated, “We know that the full participation of all people including women and girls, across all aspects of our society is essential to the economic well-being, health and security of our nation, of the world.” The adoption of a $15 minimum wage for federal workers, reform in the military, and investing in our childcare are all necessary to ensure that the working woman is given an equal chance to succeed. With these actions, the Biden administration will make substantial steps towards improving the lives of the women in the federal workforce. Hopefully, paving the way for state governments and for Congress to eventually do the same for all women in America.
News You Might Have Missed
Nearly a year after George Floyd’s murder ignited discussions about racial justice across the country, the Tennessee Historical Commission voted to remove a statue of Nathan Bedford Forrest, the Ku Klux Klan’s first Grand Wizard, from the state Capitol. The vote, which was tallied at 25–1, is a positive — and overdue — rejection of Confederate symbolism on state grounds. Forrest, a slave owner, rose to fame as a Confederate cavalry commander before assuming the position of KKK Grand Wizard. The committee vote took place nine months after Tennessee governor Bill Lee called for the statue’s removal. In his statement requesting that the bust be removed, Lee first described Forrest as a “renowned military tactician,” before acknowledging that he “represents pain, suffering and brutal crimes committed against African Americans.” Despite the governor’s seemingly lukewarm call for removal, the Historical Committee’s overwhelmingly positive vote is a good sign. The actual relocation of the statue could be delayed, however, as state Republicans have asked Tennessee Attorney General Herbert Slatery to investigate whether further approval is needed.
As part of the growing U.S. military initiatives to deter China in the Western Pacific, the Department of Defense has put forward additional plans consisting of an estimated $27 billion to acquire “new missile defense systems, place radar and missile defense systems on the ground, launch satellites and build state-of-the-art training ranges across the region” from 2022 to 2027. The military expansion known as the Pacific Defense Initiative (PDI) was included in last year’s National Defense Authorization Act (NDAA) with original proposals to spend $20 billion through FY 2026. As part of the expanded PDI, the United States will seek to acquire forward-deployed, highly survivable, and accurate long-range strike capabilities in increased quantities that are “operationally decentralized and geographically distributed” along the islands closest to the Chinese mainland. Additionally, to mitigate the threat of China’s ballistic and cruise missile fleet, U.S. Indo-Pacific Commander ADM Phillip Davidson has stressed the acquisition of the Aegis Ashore missile defense system in Guam that will be augmented by an over-the-horizon radar system placed in Palau and space-based radars with rapid revisit rates to detect and track surface and air targets. PDI documents submitted to Congress contend that “the greatest danger to the future of the United States continues to be an erosion of conventional deterrence.” The PDI, if approved by Congress through FY 2027, will seek to uphold and enhance U.S. conventional deterrence in the Pacific to constrain China’s rapidly growing military.
The views of authors are their own, and not that of CSPC.