Peter L. Berger's Blog, page 112

The Oligarch List That Wasn’t

The long-awaited “oligarch list”—a reporting requirement mandated by the Countering America’s Adversaries Through Sanctions Act (CAATSA), passed and signed into law by President Donald Trump on August 2, 2017—was published a few minutes before midnight last night, a very short time before the official deadline for releasing it was set to expire.

Part of CAATSA’s intent was to deter meddling by Russia in future elections. Section 241 of the law asks that the report list both government officials and “oligarchs” that are “close” to the regime, and to some extent corrupt. The methodology for determining who belongs on the list is vague—left up to Treasury to figure it out—but it’s clear that it was supposed to be rigorous.

The Trump Administration delivered this document. Its preamble states that “senior political figures” were chosen simply because they either worked in the Presidential Administration or the Russian Cabinet. Members of the State Duma and the Federation Council were also said to be included. How was the list compiled? It appears to have been a cut-and-paste job: someone opened up the Russian Government website and used the personnel chart for those serving under the Prime Minister. A similar process appears to have been used for Putin’s Presidential Administration. How are these people linked to Putin? They obviously work for him.

As for the most eagerly anticipated part of the list—the oligarchs—the preamble says “reliable public sources” were consulted, and that everyone on the list is said to have an estimated net worth of $1 billion or more. By mid-day today, Treasury officials had confirmed something I immediately noticed late last night: the list was lifted directly from Forbes’ annual list of the richest Russians—numbers 1 through 96, listed alphabetically.

Several obvious mistakes in the list suggest that not even the minimum due diligence was undertaken in compiling it. For example, Putin’s son-in-law Kirill Shamalov is not worth more than $1 billion any more. According to a recent Bloomberg story, Shamalov first catapulted into the ranks of billionaires when he married Vladimir Putin’s daughter Katerina Tikhonova and received shares in the Sibur oil company in 2014. Now, with rumors of him having finalized his divorce, it appears he has been forced to give up his stake, and is worth no more than $800 million, according to Bloomberg Billionaires Index. The Bloomberg report came out five days ago, which should have been more than enough time for administration officials to amend the list, given that the list is built around the single criteria of crossing the $1 billion threshold.

Similarly, the names of Arkady Rotenberg and Gennady Timchenko, who were already sanctioned by the U.S. government three years ago, also appear on the list. Here, at least, the list’s compilers show some self-awareness: they put an asterisk next to their names, indicating their inclusion is redundant.

So what does this list signal to the Russians on the receiving end?

The 210 listed people represent an impressive number that could indeed scare Russian elites if the Treasury had opted to put sanctions on some of them—even ten people chosen at random from the list would have done the trick. Of course, the preamble to the list plainly asserts that “this is not a sanctions list” and that the report “does not constitute the determination by any agency that any of those individuals or entities meet the criteria for designation under any sanctions program.” The list, they are saying, is just a list of some people who either work in the Russian government or might be worth more than $1 billion.

And thus, instead of using the list as a means of deterring further bad behavior by the Russians, the list itself was as clear a sign as you could send of there being no intention to do anything at all. That is the real policy the White House is implementing towards Russia—appeasement, not deterrence. (This was underlined by the fact that the Trump Administration willingly chose not to expand sanctions on people transacting with defense and intelligence sectors of the Russian government, as mandated by another part of CAATSA.)

The message was received loud and clear by its main addressee, Vladimir Putin. Russia’s President joked that he regretted he himself did not end up on the list, and went on to say that Russia would not take any steps in response for now. The last time Russia refrained from retaliating was in December 2016, after the Obama Administration expelled 35 Russian diplomats. It turned out later that immediately after the expulsion, General Michael Flynn reassured the Russian Ambassador Sergey Kislyak in a phone call that the Trump Administration would review Russian sanctions as soon as it took office.

Along with the unclassified, published list, there is a classified “annex” that was also prepared by Treasury. Secretary Mnuchin, grilled by Senators during a hearing earlier today about the rollout, referred to the annex and insisted that “there will be sanctions that come out of this report.” The preamble vaguely gestures at the fact that the annex “may” include people not on the main list, and that those people “may” be subordinates and have less than $1 billion to their name. How many people remaining on Forbes’ list are in danger? 25? All of them?

We will see if anything comes of Mnuchin’s pronouncement. But even if meaningful additional sanctions come out, the deterrent effect of having a list of potential targets carefully spelled out, hanging like a sword over Putin’s cronies, has been squandered. Whether this is due to incompetence or on purpose, we’ll leave to the reader to judge.

The post The Oligarch List That Wasn’t appeared first on The American Interest.

The Dresden Diaries

On a snowy Sunday morning, two weeks before Christmas, I sat in a bakery in the town of Bernsdorf, population 6,000 and change. Bernsdorf is an hour’s drive northeast of Dresden, capital of the German state of Saxony. It is 28 years since the fall of the Berlin Wall and my host, Roland Ermer—a full bellied jovial fellow, Meisterbäcker and proprietor—is brimming with stories. There is steaming hot coffee, a plate of buttery-sugary Stollen—the famous German Christmas cake was actually first conjured up in Dresden in the 15th century—and a pleasant view of woods covered in white out the window. Herr Ermer comes from a family of bakers. His grandfather Rudolf started things in 1935 in the lower Silesian town of Lubin, today in southwestern Poland. Rudolf Ermer came west in 1947, a result of what is known in German as “Vertreibung aus der Heimat” (“expulsion from the homeland”), as the bakery’s website puts it.

This part of Germany is marinated in history. Sudetenland is 90 minutes south by car; the Czech town Terezin, site of the Nazi concentration camp Theresienstadt, roughly the same.

Last September, Ermer ran as a candidate for the Christian Democratic Union (CDU) in elections for Germany’s federal parliament, the Bundestag. The 53-year-old father of three entered politics because he worries about a treasured world of stability and familiarity slipping away. Ermer is for strictly controlled borders, he tells me, and for a traditional—although not entirely clearly defined—vision of his little corner of Germany. Of Heimat, you might say. “We’ve seen Kreuzberg,” says Ermer, “and we don’t want that here,” a reference to the predominantly Turkish neighborhood in Berlin, home to artists and students, and known for its cozy bars and colorful cafe life.

One thing you have to know about traveling around Saxony is that cosmopolitan Berlin, while only north by 100 miles or so, is a universe away. Another thing: In this part of Germany, it’s not the economy, stupid; it’s social-cultural concerns that drive things here.

There is a story to be told here that has to do with economics, to be sure. An exodus of younger people, and especially women to the west since unification in 1990, has hindered development in this part of Germany. According to the German Institute for Economic Research (DIW), the average wage in the west is still 29 percent higher than in the east. Unemployment in the eastern state of Saxony-Anhalt (not to be confused with Saxony or Lower Saxony in northwestern Germany) is at a nation-high 9.6 percent. Yet, across most of the former communist east the economy grows. Generous social welfare benefits and minimum wage provide decent cushions for most (only four EU countries—Luxembourg, Ireland, Holland and Belgium—have a higher minimum wage than Germany, which introduced a national minimum wage in 2014). Saxony, a stronghold of the right-wing populist AfD (Alternative für Deutschland) and birthplace of Pegida, has actually posted growth rates as high as anywhere in Germany the last couple years (nearly 3 percent). Note in addition that Pegida—Patriotic Europeans against the Islamification of Europe—was started in October 2014, the year before the refugee crisis began, and that AfD seems to flourish where refugees are fewest.

Back to our baker. Roland Ermer’s political campaign fell short, but not because his view of things failed to resonate with voters. Down to 33 percent from 41.5 percent in 2013, last fall’s general elections saw the Christian Democrats’ worst performance since 1949. “Merkel has damaged the CDU brand,” says Ermer, “she’s finished.” He faults Merkel for her embrace of gay marriage in 2017, and crucially, of some one million refugees two years before that. With the influx of Syrians and foreigners from other Muslim majority countries, Ermer is worried about security, and what Germans call, in somewhat old fashioned terms, Zusammengehörigkeitsgefühl, a mouthful meaning “the feeling of belonging together.” Ermer says he wants a Germany where ordinary people feel listened to, and connected to one another.

In the language of British writer David Goodhart, Roland Ermer is a “somewhere.” Goodhart calls “somewheres” those across the West who, even—or perhaps especially—in these times of accelerating globalization and uncertainty tend to feel themselves still very locally rooted. They are generally more traditionally patriotic, socially conservative, and certainly more resistant to social and cultural change than their counterpart “anywheres,” those agile, mobile, entrepreneurial spirits who know foreign languages and often study, live, or do business abroad. I tried the concept of “anywheres” versus “somewheres” on Ermer. He smiled, and nodded approvingly.

But if Roland Ermer is a “somewhere,” Germany’s “somewheres” come in different shades, and with baggage unique to this part of Europe.

Ermer’s town of Bernsdorf is in Bautzen, the name of a voting district, or Wahlkreis, but also of a beautiful hill-top walled city dating back to 1002. Bautzen started under Polish rule. In 1319 it passed to Czech Crown lands, and in 1635 to the Free State of Saxony. Today between 5 and 10 percent of Bautzen’s roughly 40,000 inhabitants are Sorbs, a small Slavic minority known for their tolerance and ability to get along in a region long divided between Roman Catholics and Protestants. Upper Sorb is similar to Czech, and Lower Sorb is much like Polish. Around much of Bautzen a dialect is spoken which combines characteristics of Lower and Upper Sorb. Sorbs are predominantly Protestant, specifically Lutheran, although Sorb Catholics reside to the north of Bautzen city.

This is Germany, and Central Europe, marinated in the past.

I first heard the name Bautzen from East German friends in the 1980s. In those days it was an expression of horror. In communist times Bautzen meant the notorious Gelbes Elend, or “yellow misery,” the dingy mustard-colored building where the Stasi, East Germany’s secret police, kept prisoners of conscience. The institution had a pedigree for cruelty. From 1933 to 1945, the National Socialists (in this case, the Sturmabteilung, or SA) had used the prison for interrogating prisoners in “protective custody” before sending them to the nearby Hohstein concentration camp. From 1945 to 1949, the Soviets, busy setting up the so-called German Democratic Republic (GDR), made use of the facility. During this period, Nazi party functionaries and those deemed guilty of “anti-Soviet propaganda” were stuffed into overcrowded cells, often with little food and water, their confessions extracted by torture. The KGB’s star pupil, the Stasi, took over and in due course incarcerated more than 2,000 political prisoners in Bautzen, among them philosopher Rudolph Bahro and writers Walter Janka, Erich Loest, and Walter Kempowski.

When I visited for the first time last fall—the Bautzen I had always heard about is now a museum and memorial—I was struck and moved by how many seemingly ordinary, unknown souls had been swallowed up by Gelbes Elend. In one cell block, a special women’s wing, there’s the former cell of one Heike Waterkotte, a young, idealistic West Berliner who was smuggling political pamphlets across the border to help East German activist friends in the 1970s. The 20-year-old Waterkotte was arrested in December 1976 after taking the S-Bahn or city train into East Berlin. After eight months’ detention, with daily interrogation, Waterkotte was sentenced to four years and 10 months in Bautzen for staatsfeindliche Hetze (anti-state agitation).

One more striking thing: Gelbes Elend is not in the middle of nowhere, hidden in some remote, secret location. The infamous Stasi prison, which started as a courthouse jail in 1906, is located on a tree-lined street, embedded in an appealing-looking, residential neighborhood.

It was just a few blocks away, in a lively, inviting Italian restaurant in Bautzen’s city center, that I had dinner in December with policeman Karsten Hilse, a member of the AfD, and the man who defeated Roland Ermer last fall (we would continue our conversation in January at the AfD’s local office nearby). Hilse wears jeans, an open collared shirt, and sports coat. He has a warm smile, and even a bit of boyish charm. He’s trim and fit. The congenial Herr Hilse once worked as a model, and won a “Mr. Brandenburg” competition. He’s Ermer’s age of 53 and, like our baker, the father of three.

At least outwardly, he seems unencumbered by anything having to do with the German past. “Our country, our values, our rules” was Hilse’s campaign slogan; rather strict sounding, maybe a little martial.

What’s Hilse fighting for—and against? At one level American conservatives will understand. “German Spring! All Together Without Soros and Co.” is a line on Hilse’s campaign flier from September. That, if you did not know, is shorthand for a rejection of open borders and multiculturalism, of an EU superstate and LGBT concerns.

Hilse views mass immigration, and specifically that which emanates from Muslim majority countries, as the biggest threat to German security and social cohesion.

For Hilse and the AfD there are legitimate concerns.

Crime rates are up in Germany and indeed, it seems, as a result of the recent influx of foreigners; even if violent crime has continued to decline, a trend that began a decade ago. Most new violence, in addition, is perpetrated by newcomers against other newcomers, and not against Germans. No one forgets, though, the mass groping and sexual assaults by Muslim men of women in Cologne and several other German cities two years ago on New Year’s Eve. Nor the Tunisian asylum seeker who in December 2016 drove a hijacked Polish semi through a crowded Christmas market by the famous Gedäcthniskirche in Berlin, killing 12 people and injuring 56 others. Nor the fact that in the Christmas market attack, German authorities initially seemed to cover up the number of incidents and the ghastly nature of many of the attacks.

In a leaked 2016 document, police authorities estimated that as many as 1,200 women had been assaulted by some 2,000 men, often acting in groups in Cologne, Hamburg, Dortmund, Düsseldorf, Stuttgart, and Bielefeld. Some of this may have been what is referred to as taharrush jamai in Arabic, “group sexual harassment.” Under cover of large gatherings, perpetrators encircle one or more women while outer rings of men fend off would-be rescuers. Women’s rights advocates in Egypt have referred to the practice as “the circle of hell.”

Grist for the AfD mill remains a fairly steady diet of media reports of cultural conflict and mayhem, stories not blithely dismissed. In December there was the case of a 15-year-old German girl killed by an Afghan boy, thought to be the same age, in the village of Kandel in southwest Germany near the French border. The girl, who had been going out with the young man, broke up with the boy. 15 days later, two days after Christmas, the boy followed the girl into a local drug store and stabbed her in the heart with a kitchen knife. He was an unaccompanied asylum seeker who had been denied refugee status.

In January a court ruled that a group of Muslim men should be retried, overturning a 2016 acquittal in a case against seven individuals, who said they wanted to keep young Muslims away from alcohol and other debauchery. They were patrolling streets of the western German city of Wuppertal, donning orange vests emblazoned with the words “Sharia Police.” They carried signs with the words “Sharia Controlled Zone” (it is illegal in Germany, a legacy of the Nazi past, to wear uniforms in public that express a shared political opinion). Preacher Sven Lau, a German convert to Islam who led the detail, was sentenced on separate charges in July to five and half years for supporting a foreign terrorist organization.

It is not difficult to see how an increasingly broad spectrum of Germans feel, like our AfD policeman Hilse, as well as our baker with the CDU, that security and social cohesion are increasingly at risk, and that Merkel’s generous policy toward refugees—and indeed Germany has been extraordinarily decent and generous—has not been very generous to Germans themselves.

Nevertheless, this is Germany. History matters, and the character of Germany’s Tea Party-style movement and rebellion ought to be scrutinized with exceptional care.

I had asked Roland Ermer whether AfD could be described as a neo-Nazi party. He laughed, immediately dismissing the notion. When I asked whether he, the disillusioned CDU man, could himself imagine joining the Alternative, Ermer quickly dismissed the idea. “Still too many of the wrong people in the party,” he tells me. For Ermer that’s not Hilse, though, whom the baker talks about with respect.

Hilse comes from Hoyerswerda, 18 miles northwest of Bautzen, where, infamously, over several nights in September 1991 facilities housing guest workers (from Vietnam and Mozambique) and refugees (from Vietnam, Ghana, Iran, and Bangladesh) were repeatedly surrounded by mobs hurling rocks and Molotov cocktails. As a young cop Hilse was part of the local police force fending off neo-Nazis. As an AfD politician today, although himself a strong restrictionist on immigration, Hilse stays clear of lawful, public demonstrations protesting immigration. “The demos attract too many extremists,” he says.

And who’s an extremist?

One Hilse supporter in Bautzen, a retired architect who had spent the better part of the last three decades in western Germany, fumed to me about Merkel admitting hordes. “It’s complete disregard for rule of law,” he insists. Merkel’s own East German background means little in these parts, where for many “AfD” stands for “Angie, fürchte Dich”: “Angela, be afraid!” My architect wants every single refugee deported, and Merkel hauled before a court.

It would be hard to overestimate the hostility toward Merkel in parts of the populace. After the 2016 Christmas market attack in Berlin, one senior AfD official tweeted, “these are Merkel’s dead.” Spray painted on the pavement in front of the drug store in Kandel where the west German teenage girl was stabbed to death were on day one the words, “thank you, Mrs. Merkel.” Large granite security pylons are now called “Merkel Steine,”—”Merkel stones” or fortifications—Hilse’s campaign manager tells me on a walk through Dresden. Says Hilse: “Merkel is destroying our country.”

As a party the AfD wants a “zero immigration” policy, a rapid and radical increase in deportations of those denied asylum, and a reform of the current asylum law so that fewer individuals will be eligible for safe haven in Germany. 

Wahlkreis Bautzen voted 33 percent AfD, including, speculates Hilse, some 80 percent of the police force.

Dresden has been home to Saxon kings over centuries. An architectural jewel of the baroque, the city was once known as “Florence on the Elbe.” It is situated on the Elbe river, today with its half million inhabitants just over an hour by train from the Czech border. Its Gauleiter (regional Nazi party leader) through the end of World War II was businessman Martin Mutschmann, an early devotee to national socialism and an avid and influential fundraiser for Hitler. In February 1945 Dresden was obliterated by American and British bombers. Mutschmann is blamed for having done little to prepare the civilian population for the raids.

During communist times, Dresden and environs were known as “das Tal der Ahnungslosen,” or “valley of the clueless,” as this part of East Germany was out of reach of West German television and radio. “Which is why in those days we read instead so many books,” a Saxon friend boasts to me.

Saxons are cultured. The iconic Frauenkirche, Dresden’s great church with one of the largest domes of its kind in Europe, has been beautifully and faithfully restored. Its reconstruction was completed and the church reconsecrated in 2005. The Semperoper, the state opera house built by architect Friedrich Semper in 1841, is another Saxon treasure. The Staatskapelle, which makes its home at the opera house, is one of the oldest orchestras in the world, dating back to 1548, and has flourished under great conductors and musicians over the centuries such as Heinrich Schütz, Carl Maria von Weber, and Karl Böhm.

While Richard Strauss never lived in Dresden, more than half his operas, 21 to be exact, were premiered at the Semperoper. Richard Wagner resided in Dresden for 20 years, first moving there with his family from Leipzig in 1815, when he was one year old. At that time Dresden was the majestic royal capital of Saxony’s King Friedrich August I.

The building was destroyed in a fire in 1869, but rebuilt and opened again in 1878. Wagner and Semper had been persona non grata for much of this period, both having taken part in the unsuccessful uprising of 1849 (the last of a series of revolutionary events that began in Berlin and Frankfurt in 1948). When the East German communists rebuilt and reopened the Semperoper in 1985, they made sure of three things: that opening festivities would take place on February 13 to coincide with a commemoration of the British and American bombing of the city; that there would be no Wagner or Strauss at the gala, because of the association of the two composers with Hitler and Nazi Germany; and that seats in the opera house would be well wired by the Stasi for surveillance of persons of interest.

It is difficult to shake loose of history and politics in Dresden.

I recall meeting through Erfurt friends in the mid-1980s a couple who had been arrested as part of a demonstration in front of the Semperoper. She had done time in Bautzen, and told of damage to her health (including gums, teeth, and hair) through forced injections. After his death in 1997, there were rumors that famous communist dissident Rudolf Bahro’s cancer, along with the cancer of two other inmates, had been caused by radiation secretly administered by Stasi jailers during Bahro’s incarceration in Bautzen.

I attended in the Semperoper a recent performance of Tannhäuser, under the baton of Christian Thielemann. In the program there was a somewhat bland and vague appeal, with signatories of city luminaries, for tolerance and dialogue in difficult times. It was a few minutes’ walk away, in late 1989 and early 1990, that I can remember marching along side anti-communist friends through a bleak city center in the waning days of a disintegrating German Democratic Republic. This was a few weeks after local communist authorities in nearby Leipzig had decided to reject East Berlin’s insistence on a “Tiananmen” solution to popular unrest.

There’s plenty of history to digest in this little corner of Germany and Europe.

Today, communist poverty and repression seem like distant memories. Norman Foster has restored Dresden’s main train station. Neustadt or New Town is filled with chic, and shabby chic, clubs, pubs, bars, and eateries. And with Pegida back on the other side of the river, although numbers of participants have dwindled as AfD fortunes have risen, demonstrations still take place Monday evenings. Some protestors carry placards, just as many did in communism’s final days, with the words, “Wir sind das Volk“: “We are the People.”

Five years ago, AfD started on rough, but more manageable terrain. Founded in 2013 as a Euroskeptic party, AfD’s initial energies were focused on opposition to German-supported bailouts of Southern European countries. Bernd Lucke, an economist at the University of Hamburg, was a driving force at the outset, until he was forced out of the party leadership in summer 2015 by Frauke Petry, a businesswoman from Dresden and chemist by training. Petry, who holds a doctorate from the west German University of Göttingen, played a key role in changing AfD’s focus to immigration and refugees. Internal strife continued. Petry would find herself outmaneuvered in AfD leadership battles two years later. And while Lucke went on to establish a new party called Liberal-Konservative Reformer, Petry—after resigning dramatically a day after last September’s Bundestag elections—would found Die Blaue Partei (the Blue Party). Lest one think things in German politics are static and settled.

Despite bumpy first steps, AfD aims now to stabilize itself. The party is already represented today in 14 of Germany’s 16 state legislatures. With 12.6 percent of the vote, AfD secured in the fall 92 of the Bundestag’s 709 seats.

What does all this mean?

For those who fear a rising tide of neo-Nazism, it’s hard to see much evidence for this, as the story of baker Ermer and policeman Hilse suggest. One recent poll of Saxony found that 90 percent think democracy is the best form of government, with 70 percent believing that the current system is working well. At the same time, though, clearly all is not well.

Across Europe, growing anti-establishment tendencies help to explain the existence today of 45 parties one might describe as “populist.” Across Germany, much like in the United States, voter ties to traditional parties have begun to loosen. In the United States in the American primaries, 45 percent of primary voters chose Donald Trump and Bernie Sanders, neither of whom had been closely tied to the two mainstream, establishment parties. In Germany the AfD has been scooping up votes not only from non-voters and the CDU, but also from the Social Democrats, the Greens, and even Die Linke. Like the Christian Democrats, Germany’s second largest party, the SPD, had its worse result last September since World War II.

On the new Right in Germany there’s a revolt against overreaching elites, political correctness, and identity politics that is potentially healthy, and democratic in fact. But how does all this play out in a country where elites, ever since the failed Weimar Republic, have been exceptionally distrustful of “the masses”?

Which also brings us back to who leads the German revolt, and to Roland Ermer suggesting that in the AfD there are still too many of “die falschen Leute“—”the wrong people.” Wolfgang Gedeon comes to mind, a medical doctor and former general practitioner turned politician and AfD legislator in in the state parliament of the prosperous western German state Baden Würtemberg. Gedeon calls Holocaust deniers “dissidents,” and speaks positively about the Protocol of the Elders of Zion, the fabricated anti-Semitic text purporting to describe Jewish plans for world domination. Bernd Höcke, another west German, also comes to mind. A former high school teacher from North-Rhine Westphalia, who taught in Hessen and now represents AfD in the eastern German state of Thuringia, Höcke calls it a national scandal that Germans would put a Holocaust memorial in the heart of their capital. The ex-educator, whose grandparents were expellees from East Prussia, now Poland, used to hang maps in his classroom of a previous Germany, Lebensraum included. Apparently Marine Le Pen refuses to meet with Höcke. Frauke Petry, hardly known as a softie—she once suggested refugees crossing the German border be shot—told me over lunch in Leipzig recently that “Höcke is a Nazi, plain and simple.”

There’s an alarming coarseness, vulgarity, and even violence that shows signs of spreading. At Pegida demonstrations, protestors carrying nooses and placards with Merkel’s face make the point. In November, Andreas Hollstein, a member of Merkel’s CDU and mayor of the west German town of Altena, was stabbed in the neck on a Monday evening when he was out for a bite to eat. A man asked whether he was the mayor, shouted criticism about his asylum policies, and lunged at Hollstein with a foot-long blade.

The venerable and conservative Neue Züricher Zeitung has run a number of articles the last couple years, exploring questions about the durability of German democracy. Expect German foreign policy to evolve in the next years. A Berlin friend predicts that American retrenchment, together with Russian revanchism, Brexit, and perhaps still, a Brussels unraveling—or at least a looser, less centralized European Union—will lead to a new and potentially dangerous moment of German “strategic loneliness,” as he puts it.

Perhaps the refugee crisis, seen with a little distance in a few years, will be recognized as a catalyst, an accelerator pedal for a process that began with unification nearly three decades ago. During the Cold War Germany was divided and lacked sovereignty. Unlike France, there was no room for Gaullist independence, no nuclear weapons—an expression of national self-reliance, and at some level comfort with power and purpose. West Germany was the junior partner of the United States. The so-called German Democratic Republic was a vassal state of the Soviet Union. This united Germany is changing.

Merkel, backed in the moment by large parts of Germany’s political class, undoubtedly sought to show leadership, and was driven by genuine humanitarian impulse in 2015. On refugees, though, did Merkel miscalculate? Was she also behaving, as the daughter of an East German pastor, according to her own moral code? Was the German Chancellor, at some level perhaps, yearning to present the world with vivid pictures of the good Germans today? In a lecture given at the Library of Congress in May 1945, Thomas Mann mused that “in the seclusiveness of the German there was always so much longing for companionship; indeed at the bottom of the very loneliness that made him wicked lay always the wish to love, the wish to be loved.”

Merkel will be seen almost surely as the Chancellor of a Germany in transition. Historian Fritz Stern’s 2006 autobiography bore the title The Five Germanys I Have Known, meaning for Stern the Weimar Republic, the Third Reich, the Federal Republic, the German Democratic Republic, and the united Germany of the post-Cold War period. That period, this last Germany Stern had known, is disappearing now.

What comes next?

A decade and half ago Samuel Huntington was arguing that “people are not likely to find in political principles the deep emotional content and meaning provided by kith and kin, blood and belonging, culture and nationality. These attachments have little or no basis in fact but they do satisfy a deep human longing for meaningful community.” That was in the context of America, an immigrant nation barely 250 years old.

This is Germany, stewing in a history deeper and more complicated, and which appears now once again to find itself on a path where it will wrestle with fundamental questions as a nation of purpose and identity.

As for this one corner I have been exploring, Matthias Rößler, a CDU politician and president of the Saxon state parliament, puts the issue to me in this way: “We’re east Germans, not west Germans; we’re Saxons, not Bavarians; we’re east Saxons, not west Saxons, and we have more in common in many ways with Central Europeans than we do with West Europeans.”

There’s folksy charm in Rößler’s words, even if many a syllable will not be pleasing to supranationalist elites in Brussels and Berlin. There are questions where all this leads. The day after I met Rößler last fall, Hungary’s Prime Minister Viktor Orban, the region’s spokesman for “illiberal democracy,” was expected to arrive in Dresden for discussions around issues of common concern.

At a campaign rally last September, AfD candidate Karsten Hilse told an audience, “no matter what journalists and our political opponents claim, we stand simply and beyond reproach for Frieden und Heimat (“peace and homeland”). During his campaign, Roland Ermer would say his favorite means of relaxation was “riding his motorcycle though “our beautiful Heimat.”

Where does Heimat begin? Where does it end? Who belongs?

Saxony is dismissed as a backwater, an eastern German outlier, by much of the establishment in Berlin. I suspect what’s happening here, though, may well be an incubator of sorts, and a harbinger of what’s to come in other parts of Germany. In a sense, AfD is besides the point. Perhaps its leadership will prove incompetent, too radical, or perhaps the party will simply fail to keep up with voter pressure for political change in Berlin. However, the roots that lie at the bottom of all this—of Alternative, Pegida, and more broadly, of questions and yearning for Heimat—will still be there.

In Dresden, a dentist tells me how he had become concerned about loss of German identity. He recounts how he was bothered to discover in one of his young daughter’s school books that all the music is American, Disney, and international fare. “Not a single German Volkslied,” he laments. He also tells me how, living in West Germany for three years, it bothered him that his was the only “German” name on the building’s door bell. Would he then join the party, the AfD, I ask. “No, not that,” he says, “I don’t trust them and where they’re headed.”

In Bautzen, an opera singer married to an American from North Carolina, also a singer—the two met in Hamburg in a performance of Phantom of the Opera—frets that English is corrupting the German language. She tells me how she bought a box of French chocolates that afternoon, only to kick herself later. “What didn’t I wait and buy German chocolates?!” she says. She voted for Hilse, and works as a volunteer in the local AfD office.

Is this xenophobia? Or, are these people who want to return to a more familiar past? Or, are they perhaps individuals who simply feel a need for speed limits on social and cultural change?

The governor of the west German state of Baden-Württemberg, a Green named Winfried Kretschmann, argues in the Neue Züricher Zeitung that to preserve and renew German democracy it’s urgent to build bridges to those who are drifting away, and to segments of society that “tick differently than we do.” This is no simple task. Lines are sometimes blurry; morally ambiguous and outright troubling areas emerge. Ask Anjte Hermenau how this works in practice. She’s a former member of the Bundestag, a Saxon from Leipzig now living in Dresden who works tirelessly to listen and build such bridges. Her efforts have earned her admiration. And condemnation. She’s now an ex-Green, sadly persona non grata with a number of former colleagues who can’t fathom why she would consort with German “deplorables.”

A pastor in Meissen tells me people feel neglected, that they just want to be heard.

After a failed 1953 uprising against communist authorities in East Germany, Bertolt Brecht wrote in “Die Lösung” (“The Solution”):

After the uprising of the 17th June

The Secretary of the Writer’s Union

Had leaflets distributed in the Stalinallee

Stating that the people

Had forfeited the confidence of the government

And could win it back only

By redoubled efforts. Would it not be easier

In that case for the government

To dissolve the people

And elect another?

Saxony is old-new Europe. One gets the impression that things are being worked out here, and that this part of Germany—and of Europe actually—can tell us much more about the near future, as elites in Berlin and Brussels, or Washington or Geneva for that matter, can tell us about the recent past. I’m thinking about core issues of democracy, sovereignty, social cohesion, and identity—all central to our time. Debates about currency, bailouts, and refugees are from one perspective arguments about who gets what. On another level, though, these things become more fundamentally about, Who Are We?

Genuine democratic renewal might well come from all of this. That is, if the more decent expressions of populism can be understood, allowed proper space to vent, and be heard. Only then will we have a fair chance of keeping real extremism at bay, and demagogues on their heels. History should remind us of this, too. The authoritarians are always out there, ready to seize an opportunity.

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Persecution in the Land of the Pure

This past Monday, a student in Pakistan shot his high school principal dead after being reprimanded for skipping school to attend a sit-in organized by one of Pakistan’s Islamist parties. The killer argued that the principal had committed blasphemy by questioning his right to attend the sit-in condemning “blasphemers.”

The sit-in had been organized by Tehreek-e-Labaik-ya-Rasool-Allah (TLYR), or the Movement for the Call of Allah’s Prophet—only the latest addition to Pakistan’s pantheon of extremist groups. The party opposes any change in Pakistan’s stringent blasphemy laws, demands full implementation of sharia law, supports institutionalized discrimination against religious minorities, and describes vigilantes who kill those accused of dishonoring Islam’s prophet as heroes. It was created by clerics supporting the killer of a governor who had spoken up for a poor Christian woman condemned to death for blasphemy, and who had called for reform of the blasphemy laws. And along with the many other extremist groups which share its sympathies, it has morphed into the Frankenstein’s monster of Pakistan, fostering an environment that encourages violence in the name of Islam, exalts those acting against “blasphemers,” and uses the world’s harshest blasphemy laws to mistreat religious minorities, including Christians, Hindus, and Ahmadis.

Earlier this year, the U.S. State Department finally included Pakistan on , after years of ignoring recommendations by the U.S. Commission on International Religious Freedom (USCIRF) that the country be listed among “Countries of Particular Concern” for its mistreatment of religious minorities. The decision is a step forward, albeit not far enough.

American diplomats have chosen in the past to ignore persecution on religious grounds by strategically important countries like Pakistan. But as the increasing U.S. disillusionment with Pakistan indicates, such concessions do not always advance American interests. When Washington overlooks its values to accommodate authoritarian or semi-authoritarian states, it only emboldens them in defying its strategic interests as well.

The American Congress created USCIRF under the International Religious Freedom Act of 1998 to report violations of religious freedom by other countries to the executive and legislative branches of government. Once designated a Country of Particular Concern (CPC) by the State Department, the U.S. government can deprive a country of foreign aid and other benefits of partnership with the United States.

Pakistan has repeatedly been found by USCIRF “to perpetrate and tolerate systematic, ongoing, and egregious religious freedom violations.” As this year’s report aptly notes, “Religiously discriminatory constitutional provisions and legislation, such as the country’s blasphemy and anti-Ahmadiyya laws, continue to result in prosecutions and imprisonments.”

The historic roots of this reality run deep. The word Pakistan literally means “the land of the pure.” In their effort to create a “purer” Islamic state, Pakistan’s leaders have allowed extremists to target different minorities at different times. Soon after the country’s creation in 1947, Hindus and Sikhs were driven out, reducing the population of Pakistan’s non-Muslims to around 3 percent. The two wings of the country, which until 1971 included East Pakistan (now Bangladesh), would have included 23 percent non-Muslims had there been no ethnic cleansing amidst communal riots during India’s brutal partition.

Pakistan declared itself an Islamic Republic when it belatedly adopted its first constitution in 1956. Since then, Christians have been victimized by the country’s blasphemy laws, with many of them ending up in prison on false charges. Rivals in property disputes and even spurned lovers have turned to blasphemy accusations to condemn their enemies. Blasphemy is often punishable by death, and attacks by Islamist vigilantes on judges who acquit those accused of blasphemy makes it virtually impossible for victims to secure bail or acquittal under the flawed laws.

Over the years, the ranks of Pakistan’s endangered minorities have only expanded. In 1974, Pakistan’s parliament amended the constitution to pronounce members of the Ahmadiyya movement—who consider themselves a sect within Islam—to be non-Muslims. That amendment created a religious dilemma for the Ahmadis: their faith required them to insist that they were Muslims, but the law would punish them if they did so. Ahmadis were barred from identifying as Muslims on government documents, while later decrees imposed by Islamist military dictator General Zia-ul-Haq further restricted Ahmadis’ use of Islamic symbols and their public practice of the faith.  

These days, as several Christians and Ahmadis sit in Pakistani prisons facing blasphemy charges, terrorist groups have also attacked Shi‘a Muslims, who represent almost 20 percent of the populace. Jihadi groups created and trained to fight “infidel” communists in Afghanistan and “Hindu” India pose a growing a threat at home, but no one in a position of power has the will or courage to shut them down. And sectarian violence, including attacks on places of worship, continues to claim innocent lives. Just before Christmas last year, an attack on a Methodist Church in Quetta, Balochistan killed eight people. This came a few weeks after the TLYR sit-in, in which three thousand rabid Sufi-professing Sunni Muslim men—including the high schooler who would later kill his principal—took over Islamabad for almost three weeks, paralyzing the government.

Unfortunately, authorities’ response to this mounting radicalism has been conciliation, not confrontation. Instead of enforcing the law against the small number of protestors, the civilian government was forced to accept their demands. With the country’s army chief acting as negotiator, a truce was signed between the government and the extremists’ leader. Witnesses spotted military officers giving money to some of the protestors, raising suspicions that the protests had been engineered to further undermine the authority of the civilians.

Ironically, one of the protestors’ demands was not to allow Pakistani Ahmadi citizens to vote alongside the majority Muslim population. That reflects a tragic pattern in Pakistani history of political mobilization through intolerance for religious minorities.

In short, Pakistan’s dismal record on religious freedom is longstanding and deeply rooted. USCIRF and other advocates have spent years lamenting this state of affairs, and have repeatedly demanded that the U.S. government exert greater pressure on Islamabad over its lack of religious freedom. But the State Department has repeatedly overlooked these findings to avoid jeopardizing Pakistan’s cooperation on strategic matters.

In 2016, Congressman Frank Wolf (R-VA) added the “Special Watch List” option to the International Religious Freedom Act so that the State Department could protest a lack of religious freedom even when it is reluctant to trigger sanctions for a particular country. The Secretary of State seems to have taken advantage of this halfway house designation in his recent attempt to put Pakistan on notice.

The Special Watch List designation for Pakistan could help Pakistan’s religious minorities, who have received little support within their country. Such is the sway of extremist ideology in Pakistan that the cold-blooded murder of Ahmadis, Shi‘a, Christians, Hindus, and Sikhs barely registers within the country, let alone abroad. The State Department’s new designation will hopefully change that reality, by publicly recognizing Pakistan as a violator of the universal norms of religious freedom and raising awareness of the precarious situation of Pakistani citizens persecuted solely for their faith.

Yet the State Department can go beyond naming and shaming Pakistan on the Special Watch List. After the confirmation of former Senator Sam Brownback as the new U.S. Ambassador-at-Large for International Religious Freedom, the United States could include religious discrimination as an important plank in its diplomatic interaction with Pakistan. That might mean further relegating Pakistan to the list of Countries of Particular Concern, and thus triggering sanctions, unless Pakistan reforms its discriminatory and dangerous laws.

As U.S. Senator during the 1990s, Mr. Brownback wrote legislation that helped Pakistan partially overcome American sanctions resulting from pursuing a nuclear weapons program. He could use the goodwill he has with Pakistan’s civil and military leaders to remind them of their duties towards religious minorities under the Universal Declaration of Human Rights. Prioritizing this issue is not simply the right thing to do for Pakistan’s beleaguered minorities. It is also a smart course correction for Washington at a time when the United States is finally reconsidering its strained alliance with Pakistan.

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Goodman’s Greatest Gig at 80

Jazz history is strewn with paradigm-shifting live performances that alter how we view the medium. Duke Ellington and his orchestra removed the roof from a Fargo, North Dakota dance hall in 1940, showing us just how well, and how kinetically, swing music traveled. Charlie Parker performed airshots at the Royal Roost in the late 1940s, disseminating his blazing bebop genius to the masses. John Coltrane and Miles Davis pitched a horn battle in Stockholm in 1960 that both cemented their symbiosis and attested as to why the tenor man had to part from the trumpet man.

But everything might have been different were it not for the gig Benny Goodman and his orchestra—with assorted helpers—gave at Carnegie Hall 80 years ago, on Sunday, January 16.

The white clarinetist, who led one of the most powerful swing bands—and an integrated one at that—was already wildly popular. But jazz musicians simply didn’t play Carnegie Hall, the hallowed space of allegedly more refined artists. Indeed, when Goodman breached the ramparts on that January evening, one jazz musician present for the show claimed that he felt like a whore in church. But this was a period when the fires of swing were first starting to be stoked; the name itself was less than three years old. Louis Armstrong was no longer innovating, bebop was still a few years away, but eight years into and starting to come out of the Depression the country wanted to dance. The swing orchestras, with an economy able (if barely) to support them, were ideal for a big night out on the town. That set the stage for the great Goodman gig—the brainchild of impresario Sol Hurok—and its eventual legacy in vinyl.

The Famous 1938 Carnegie Hall Jazz Concert (Columbia Records SL-160) is probably the greatest jazz gateway albums ever recorded. It is, notably, the first double album, which speaks to that January night’s success. Until that point, jazz was something experienced on the proverbial other side of the track of town, which was always how it was portrayed in film, it seemed. You’d be watching a mystery picture, and the professor who was going to solve the crime, who had an “edge” to him, would sneak out from the case to sit in a dump of a bar where some jazz combo was cooking, and everyone but our investigating professor was black. The suggestion was that here was someone, more or less moral, experiencing something very nearly verboten, like he was sneak-reading porn on a bus, but couldn’t help himself because what he was witnessing was just so irresistibly wonderful.

Which is a shame, because the various jazz movements from the 1920s through the late 1960s represent some of the best anything this society has ever produced, and it was swing-era music that kicked the stakes up a notch. Goodman’s crew provided a huge assist, with the Carnegie Hall gig being akin to a debutante ball, without the classism and pretense, jazz getting its first turn out in the world on a stage that might as well have had lettered bunting over it reading, “You have made it.”

Of course, LPs didn’t exist in 1938, and that aforementioned double album didn’t arrive until 1950. But a set of nine 45-rpm discs were released shortly after the gig, so that those not among the audience of about 3,000 at the rocking, raucous event got a chance to be musically transported as if they had been.

Sometimes the historical significance of a gig can outstrip its musical quality. The Who, for instance, broke themselves out in America after playing Monterey Pop in June 1967, but if you listen to their set, performed on borrowed instruments, you’ll hear just how dreadful they were that night. Not so the Goodman Carnegie Hall recordings. Not only was jazz breaking out, crossing those train track lines, as it were; this was a unit that knew no racial divisions. Jazz has always been a little like basketball: If you can play, no one cares what color you are. But mainstream, successful ensembles, at the time, tended not to have a mix of black and white. I’m not suggesting Goodman was necessarily a Branch Rickey figure, but as a child (the ninth of 12!) of poor Jewish immigrants from Poland, he had a keen sense of what being on the wrong end of prejudice felt like. More important, perhaps his brand was so formidable that he could do as he wished, which meant featuring the likes of Teddy Wilson on piano and Lionel Hampton on vibes during the small group portions of his Carnegie Hall date.

These were black musicians who were all but untouchable during this era on their respective instruments, Hampton especially. The vibes are somewhat like the trombone in that you wouldn’t expect them to have the necessary range to stand forward in importance with more familiar jazz instruments like the trumpet, sax, and drums; but Hampton put the lie to that notion at this gig.

Not all the standouts aside from Goodman were black. The Goodman ensemble represented a kind of proto-rock and roll, and, insofar as it did, it spoke through percussion. So speaking of The Who, Gene Krupa was to jazz drumming what Keith Moon was to the rock version. He was a human maelstrom at his kit, providing an enormous backbeat to the orchestra’s surging rhythms, and fills that were mini-chamber pieces unto themselves.

The sound engineer, as it happened, got lucky. The recording seems to have been a late thought, but somehow the single ceiling microphone managed to capture the ambiance of the night—the acoustics were, after all, Carnegie Hall acoustics—just like the camera could sometimes capture the ambiance of those early jazz shacks in those sweetly off-kilter mystery films. It’s not hard for a live jazz recording to feel “dry”—as if it were taking place on a soundstage, with intermittent bits of polite applause filtering into the mix at the close of each number, hanging around the front edge of the aural spectrum. Not so with the Carnegie Hall reels; you’re seated front and center, awash in crowd noise that blends nicely with the sound we’ve all come to experience. This was a jazz recording that had no problem rolling up its sleeves and mixing with the people, and it turned out all the better for it.

If you’ve ever dismissed jazz as old-fogey music (and I get that swing receives that label maybe more than any other jazz idiom), do yourself a favor and listen to the live 1938 Goodman version of “Sing Sing Sing (With a Swing).” Is it among the most exciting pieces of music ever recorded? If you’re already savvy with swing you’ll probably agree that it is. If not, it may well strike you as the first rock and roll recording ever, something downright thrilling that vies to thrust you out of your seat as though a jackhammer had just been turned on a few inches from your heels.

If it’s possible for a piece of music to be too rhythmically intense, this might be the piece. It’s crescendo upon crescendo upon crescendo, a test of your human capacity for handling more rhythm in one place than you’ve likely ever heard before. Krupa must have been on the verge of passing out with his tsunami-sized waves of massive polyrhythms, and if you don’t think a piano can act like an adrenaline shot to the heart, you’re going to want to listen closely to Jess Stacy’s famed solo.

What a night it must have been to walk back into after a gig like that, the cold evaporating off of your cheeks and back of your neck as soon as it hit them. That jazz shack had become peripatetic, and thanks to Goodman and his virtuosic allies, long, long would it roam.

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Smashing Into a New World: Iconoclasm Through the Ages

Iconoclasm is all the rage. Majority-black Memphis just removed statues of two of the most odious figures in American history: the founders of the Confederacy (Jefferson Davis) and Ku Klux Klan (Nathan Bedford Forrest). A statue of Theodore Roosevelt at New York City’s American Museum of Natural History was accused of exerting “dominance and superiority” over figures of Native American and African attendants and vandalized, though it was allowed to remain after a commission reviewed “symbols of hate.” As the woke extend ever more scrutiny to historical figures, heritage groups (including some white nationalists) claim that statue removal is an assault on their identity.

Elites always erect monuments to signal what their inferiors should venerate, and new regimes always order the demolition of the old. At New York’s Metropolitan Museum of Art, artworks on display illustrate iconoclasm across the millennia—and show that you can’t escape the past forever, even when you physically destroy it.

Click the first thumbnail below to begin a guided tour of iconoclasm, past and present.

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The Apple Tax Giveaway

It almost never snows in Silicon Valley, but last week the flurries were really flying and the snow-job drifts were piling up high at Apple Inc.’s corporate headquarters in Cupertino.

On January 17, Apple issued a press release that reads like a White House infomercial for the Trump/Goldman tax heist that was rammed through Congress three days before Christmas 2017. It contains a flurry of “stylized facts” about all the wonderful things that Apple, armed with the tax cuts, plans to do for the U.S. economy over the next five years. These include a purported $350 billion increase in Apple’s purchases from U.S. suppliers; $30 billion of new U.S. capital investment; 20,000 new U.S. jobs; a second U.S.-based “campus”; and the expansion of something called an “Advanced Manufacturing Fund” from $1 billion to $5 billion. 

True to form, most leading U.S. business media, including the Wall Street Journal and CNBC, took these Apple statements at their word and channeled them enthusiastically to their readers and viewers, like the corporate cheerleaders they usually are. They neglected to mention the following cautionary language at the bottom of the press release, in fine print:

This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include without limitation those about Apple’s plans for future investments and expansion, taxes, Apple’s plans for managing its cash balances, and repatriation of overseas cash. These statements involve risks and uncertainties, and actual results may differ.

Indeed, upon closer inspection, most of the claims in the press release turn out to be “forward looking” in the very worst sense; that is to say, they avoid looking back and around at what has really been happening.

As we’ll see, most of the “new jobs” and spending have nothing to do with the tax cuts; they are linear extensions of Apple’s pre-tax cut behavior, which were already in the pipeline.

Furthermore, the press release intentionally skates past the question of precisely how Apple will be affected by the new tax law. It is especially careful to avoid mentioning  that—as already reflected in its recent stock price surge—Apple is almost certain to be the tax heist’s largest single corporate beneficiary by far.

As such, this latest Apple PR campaign easily outdistances ordinary run-of-the-mill efforts at corporate self-promotion. It represents a willful effort to bury all the gory details about how this massive transfer of public wealth will actually work. Indeed, the very tone of the release implies that Apple’s fellow American taxpayers should basically feel grateful that it is willing to pay any corporate taxes whatsoever—as if Apple were not just a giant capitalist corporation, spending every waking moment figuring out how to maximize profits and minimize taxes; as if it were some medieval lord, sitting in his brand-new circular castle, saddling the peasants with all of the tax burdens and common soldiering that keep the commonwealth safe in exchange for the sheer unadulterated privilege of being lied and sold to.

Anatomy of a Scam

To begin with, as other observers have noted, Apple’s claims regarding its likely future purchases from U.S. suppliers, job creation, and capital spending turn out to be wildly overstated and downright misleading.

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In particular, the levels of U.S. job creation and U.S. capital spending that Apple says it “intends” to deliver over the next five years are entirely consistent with its historical levels of U.S. job creation and spending in the past five years, if actually a little bit lower. For example, Apple’s U.S. retail stores accounted for 42,000 added jobs in the 2007-12 period.  It is likely that U.S. jobs also accounted for a significant share of the 46,900 new jobs Apple added in 2012-17.  Further, both of these earlier Apple job gains occurred during a period when the U.S. economy was struggling to recover from the Great Recession.

Apple doesn’t disclose the geographic details we need to precisely assess its promise to spend $34 billion more in the United States in the next 5 years. But it is quite likely that U.S. facilities accounted for a very high share of its $54 billion of total capital spending in the past five years.  So this is also by no means a bold departure from pre-tax cut trends.

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Furthermore, as we’ll soon see, yet another new tax break in the new law will also help Apple share the cost of all this (already-planned) investment with other U.S. taxpayers.

Of course, this is by no means impugns the importance of Apple’s contribution to U.S. employment and capital spending. It is only to argue that massive corporate tax cuts were evidently not essential for it.

As for Apple’s commitment to spend $350 billion over the next five years on U.S. suppliers—since, once again, it does not disclose any geographic details about its supplier purchases—it is impossible to judge whether this really presages a departure from historical levels.  But we do know that the overwhelming share of Apple’s recent supplier purchases has been from non-U.S. vendors, mainly in China. Is this really likely to change? Without hope, there is only desire.

Apple’s press release does contain one passage that helps us understand its core motivation for suddenly showcasing all these bold “new” plans, most of which, as already indicated, were in the oven. This is its only mention of the generous new tax law’s impact:

Apple, already the largest US taxpayer, anticipates repatriation tax payments of approximately $38 billion as required by recent changes to the tax law. A payment of that size would likely be the largest of its kind ever made.

This simple statement is a brilliant distortion on many levels; again, it almost makes it sound as if Apple will be doing other taxpayers a favor. Nothing could be further from the truth.

To begin with, it pays to read the fine print.  The new tax law does require MNCs like Apple to pay a modest (8 to 15.5 percent, depending on whether the assets involved are illiquid or cash) tax on the heretofore untaxed stash of offshore profits and royalties accumulated since 1986.  As of fall 2017, this is estimated to be worth about $2.6 trillion for all U.S. MNCs. In the case of Apple, by far the largest such offshore stash holder, the figure is $252.3 billion. The $38 billion “repatriation tax payment” noted by Apple’s press release is indeed consistent with a 15.1 percent average tax on this accumulated offshore stash.

However, a careful reading of the new tax bill reveals that Apple and its MNC brethren are not actually required to pay this “repatriation tax” bill on their accumulated offshore stash now, but will have up to eight years to do so—interest free!—despite the glaringly obvious fact that Apple has plenty of ways to make money off the deferred cash in the meantime. Under the law’s terms they can opt for an installment plan that allows them to pay just 8 percent of the total repatriation tax liability each year for the first five years, then 15 percent, 20 percent, and finally 25 percent, in 2026!

I’m sure we all know quite a few hard-working American taxpayers who would like to have eight years to pay their taxes, no interest asked. Perhaps they should have hired a few more tax lobbyists. The upshot is that this is one heck of a deal, especially for Apple, the world’s largest, most profitable corporation. And to a great extent it has Donald Trump to thank for it. Meanwhile, Goldman Sachs CEO Lloyd Craig Blankfein, ordinarily regarded as a Hillary supporter, was singing Donald’s praises for the tax law just this week. Speaking of corporate lobbyists and those who hire and unleash them, Apple should probably thank him, too.

But it gets even better. Once again, according to the fine print of the tax bill, Apple and the other MNCs are not actually required to “repatriate” their offshore stashes to the United States, much less to invest them here. They may do so, but the only legal requirement is that they commit to pay the repatriation tax. Having done that, they are free to do anything their hearts desire. If they decide to “repatriate”—which normally just requires a bookkeeping entry, since most of the cash is in fact invested by way of Wall Street banks—MNCs like Apple might decide to invest them in U.S. capital projects. But they might also freely decide to use them to buy back their own shares, increase dividend payouts, or burn them as a sacrifice to the pagan idols on the beach at Mar-a-Lago.

Or they may even freely decide to invest them in new offshore business operations, or leave the offshore stash precisely where it lies, booked as “offshore” investments in marketable securities. Assuming Apple does that, and simply realizes the same average gross yield on cash and marketable securities that it realized in 2017 —1.9 percent—then, given the installment option, it might actually be able to pay the entire $38 billion “repatriation tax” bill out of the (perhaps untaxed) incremental investment income that will be generated by its cash stash over the next eight years. Moreover, it may actually end up with more offshore wealth than it started with—nearly $258 billion by 2026!

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Now, obviously, Apple might decide that other uses of the offshore cash stash may offer even higher net tax returns. But the key point remains: Given the installment plan opportunity, whatever Apple decides to do with the stash it will not pay anything close to a 15 percent net present value cash tax on its offshore profits stash.

Indeed, after all is said and done, depending on what we assume about Apple’s cost of capital and the future yields on its stash, by 2026 Apple will probably end up paying at most a plus 2 percent to a minus .5 percent rate “repatriation tax rate.” (Of course, the same analysis applies to the dozens of other U.S. MNCs with offshore profit stashes.)

As if all this were not generous enough, the Trump/Goldman tax heist also permits U.S. companies like Apple to enjoy an amazing immediate 100 percent write-off for capital spending undertaken during the next five years. Recall the “$30 billion of capital spending over the next five years” that Apple bragged about in its press release? Once again, most of this appears to have been already in the pipeline, long before anyone assumed this tax law would be force-marched through Congress.

But now Apple’s $30 billion, plus the $4 billion of additional investment in the Manufacturing Fund, will probably qualify for this 100 percent full write-off.

By comparison, Apple’s entire “provision for taxes” in 2017—a bookkeeping entry—totaled $16 billion, while the “cash taxes” it actually paid totaled just $12 billion.

This means that its effective average “cash tax rate” was already only 18 percent of operating income even before the new tax law—just half the former top U.S. nominal corporate tax rate of 35 percent.

Going forward, with the Trump/Goldman’s newly established 21 percent peak nominal rate for domestic U.S. corporate income, Apple’s accountants will undoubtedly be on the prowl for new ways to reduce its cash tax rate below even the new statutory maximum. Here is one of them: Applying the new 21 percent rate, and assuming that Apple does indeed make the $34 billion of U.S. investment over the next five years, this instant write-off could eliminate close to half of its entire U.S. corporate tax liability during that period. Of course, this is on top of the “repatriation tax” loan scam described above.

Looking Forward: The Offshore Advantage Continues

The other key fact about the new tax law that Apple’s January 17 press release neglected to mention is that U.S. law has now adopted a fairly aggressive version of a “territorial” corporate income tax. This means that, subject to certain restrictions, MNCs like Apple will no longer have to pay very much if any income tax on the non-U.S. earnings of their foreign subsidiaries. For U.S. MNCs like Apple, whose domestic U.S. business now accounts for just 35 percent of its worldwide sales and 27 percent of its earnings—down from over half for both measures a decade ago—this may be the greatest single windfall of all. As I recently discussed, it is also by far the greatest concern for developing countries.

Of course many observers would claim that this cat was already out of the bag. As we noted, as least since the late 1970s there has been a kind of “tax race to the bottom,” especially among rich countries. Under the impact of this bout of tax competition, the 70+ percent rates of the 1960s and 1970s and the 48 percent rates of the early 1980s have long since given way to much lower nominal corporate rates all over the planet.

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Furthermore, in the past two decades, at least 27 of the 35 OECD countries have already adopted their own versions of “territorial corporate income taxes,” and the few that have not, like Korea, Mexico, Chile, and Israel, are under intense pressure to do so.

At first, in the 1970s and 1980s, the United States led this trend, but then it fell behind. As of 2017, before the passage of Trump/Goldman, its 35 percent nominal CIT rate was the highest in the OECD. The lag was partly just due to the fact that most U.S. MNCs and their accountants had long since engineered “private” ways around the old system—like Apple’s complex arrangements with Ireland, Bermuda, the Netherlands, and the Isle of Jersey—that were not easy give up, especially for the thousands of “enablers” in the accounting and legal professions whose livelihoods depended on them.

In effect, because of such offshore arrangements, plus numerous domestic deductions and loopholes, very few large U.S. corporations have been paying anything like this 35 percent headline rate—certainly not giant MNCs like Apple.  The average “effective” corporate income tax was already well under 20 percent even before Trump/Goldman, and for many MNCs it was even lower.

Indeed, the root cause of the giant $2.6 trillion offshore cash stash and the repatriation tax scam is the fact that, under the old system, U.S. taxation of profits and royalties booked abroad was deferred entirely until these were remitted back home to their corporate parents. This gave U.S. MNCs an irresistible incentive to find creative ways to book as much income as possible offshore—for example, by booking their software, trademarks, and other intellectual property in low-tax havens and then paying themselves royalties tax free. To do so, they had the help of the world’s “global haven industry,” staffed by the world’s largest accounting firms, law firms, and banks, and located in more than 111 low-tax secrecy jurisdictions around the planet from Ireland to Singapore. Over time, of course, many top-tier MNCs like Apple assembled their own outstanding in-house teams of enablers. In a sense, therefore, they not only financed the rise of the global haven industry; they enlisted in it.

Was there an alternative to the recent tax heist, given the fact that tax competition already had such a head start with such powerful interests behind it? Was a global progressive corporate tax reform, aimed at halting the “race to the bottom,” ever in the cards? One would not know it from anything the Democrats did, or rather did not do—like developing and articulating an alternative tax reform proposal to show the contrast with the GOP proposal. But the short answer is “of course.” The key obstacles have always been political, not technical. But the United States alone has always exerted a huge influence on international corporate tax policy. For the moment, it is a heavyweight on the wrong side of the global tax justice scale.

Looking Backwards: Where the $252 Billion Came From

In Apple’s case, all this offshore chicanery means that a significant portion of its $252 billion of accumulated “offshore profits and royalties” actually derived from domestic U.S. activities like software engineering and branding. Apart from the legal chicanery that permitted these rights to be transferred to, say, Bermuda or Jersey at ridiculously low valuations, their royalties would have been taxed years ago at the higher U.S. rates paid by domestic corporations.

Without more transparency from Apple, it is hard to parse the resulting $252 billion into “legitimate offshore” and “dodgy diversions.” But tax experts have long suspected that a significant share deserves a closer look from IRS auditors—especially the $129 billion that Apple has accumulated in Ireland alone, including $114 billion since 2009. Unfortunately, now that the new tax law is in place, this is unlikely to happen.

Looking forward, then, we may safely assume that on the margin, Apple will not only face a much lower effective domestic U.S. corporate tax rate on its (shrinking share) of domestic earnings. It will also continue to enjoy a very low (10 percent at most) U.S. tax rate on its (relatively high-growth) offshore business. And it will also be aided by the new law’s indirect effects on tax competition, and on the lower effective corporate tax rates that key developing countries like India, South Africa, and Argentina may be compelled to adopt.

In sum, from the standpoint of U.S. national interests, it is not clear that, on balance, the new tax bill really offers Apple and other MNCS any net incentives at all to expand their U.S. operations, invest at home, or even “repatriate” its offshore cash hoard. After all, 10 percent is less than 21 percent, even in Cupertino. 

In the interests of full disclosure, I have been a huge fan of Steve Jobs and Apple Computer since at least the early 1980s, a former senior executive at one of its early allies in the software industry, an avid consumer of its products, and a (very modest) shareholder since the early 2000s. In that capacity, along side far larger investors like Al Gore (230,137 shares), I’m one of Apple’s remaining 22,750 individual shareholders who (as of October 2017) collectively own about 39 percent of the company.

A comparative handful of Apple’s own management team also constitute important shareholders: Arthur Levinson, the company’s chairman and largest individual shareholder, reportedly owns 1.1 million shares; its CEO, Tim Cook, owns at least 901,000. While the number of individual investors has declined by about 21 percent since 2009, many of us old-timers retain a nostalgic attachment to this extraordinary company based not only on its track record, but also on the fact that it has long been just ever so slightly “radical” in the best sense of the world—willing to take risks and challenge establishments. Just remember the famous original ad for the Macintosh during Super Bowl XVIII way back in 1984.

You’d think by now that we would all be delighted with Apple. It is the largest, most successful corporation in history, with a market capitalization fast approaching $1 trillion and more than 600 million customers in 100 countries who use over a billion of its devices every day. In the past year alone its stock price has soared by 60 percent, from $110 around the time of Donald Trump’s election to more than $170 today.

However, for many Apple fans, customers, and at least a few stockholders, it was never just about commercial success. Sadly, it is increasingly clear that in the past decade, Apple has itself become the establishment. To the extent that the soaring stock price simply reflects expected tax cuts and a gigantic wealth transfer, none of us should be celebrating, no matter how “rich” they make us.

Unfortunately, by now the other 61 percent (and rising) of Apple shares outstanding  is owned by a hodgepodge of institutional investors like Black Rock, State Street Corporation, Warren Buffett’s Berkshire Hathaway, and some 2,581 others. By and large, these are cold-blooded entities, citizens of nowhere, that could not care less where a corporation is headquartered, where it invests, how many jobs it creates,  or how many students use its computers, so long as it brings home the bacon. Nor do these institutional investors care where or even whether a corporation pays taxes, so long as it does not damage its reputation by getting caught or by appearing to misbehave. Apple’s January 17 press release seems to have been written on their behalf.

As for products and markets, Apple also appears to have become much more conservative in that domain. The phenomenally successful I-Phone line alone now accounts for 62 of net revenues, up from 16 percent in 2009. Its top market will soon be one-party state-capitalist China (24 percent of sales and rising), not the officially democratic capitalist United States (27 percent and falling) or social-democratic Europe (20 percent). This has made repeating anything like the 1984 anti-Big Brother ad campaign unimaginable, simply because it would be banned in so many high-growth markets.

Of course, the company may just be between product cycles, with great new ones soon to be introduced that will change the very nature of our being. However, under Tim Cook’s more conservative papacy, the company has become more prosaic. Its strategic focus has shifted from big bold ideas to a kind of execution-oriented incrementalism—plus a whole new level of financial chicanery, including the kind of tax games that we’ve just explored.

In any event, the growth of Apple’s top-line revenue and operating cash flow have both slowed dramatically (see chart below). During the Tim Cook era, so far, the company has increasingly behaved like a giant financial rotisserie, returning more and more of its cash to shareholders in the form of dividends and share buybacks. Such behavior is widely considered by finance experts to be a clear sign that a company is running out of good ideas.

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Indeed, ever since Cook assumed the helm in 2012, Apple has even borrowed over $116 billion to make these payments, even while it has more than doubled its cash stash. Of course, during his last years at Apple Steve Jobs also accumulated gobs of cash. He also invested in the business at rates that Cook has matched or slightly exceeded, except for acquisitions.

But under Jobs, Apple was at the very beginning of several product life-cycles, with revolutionary new products like the iPhone and the I pad, revenues and cash flow that were both growing at double-digit rates, and the company still breaking into high-growth global markets like China. So some cash accumulation was inevitable.

Furthermore, Jobs had a visceral contempt for the very notion that an innovative, risk-taking company like Apple would ever act like some bureaucratic GE-type financial conglomerate. He refused to waste time managing quarterly earnings to please Wall Street pundits; to placate investment bankers and institutional investors with gratuitous borrowing, share buy backs, or dividend payouts; or to engage in the kind of rhetorical snow-making and outright tax scams we described earlier. Jobs’s Apple was not in the business of spinning up tax cuts and then handing giant wads of cash back to wealthy shareholders and institutions who for the most part are in the habit of “thinking alike.” He preferred to take big risks and invest in big ideas.

Of course, it is impossible for outsiders to assess what an intensely secretive company like Apple is really up to. Maybe it is working on bold new missions like individualized health care, robotics, 3D imaging, and electric vehicles. We certainly hope so. But this is all very far from the liberating “IT revolution” that so many in the industry once believed in. Maybe they simply failed to predict what the macro-social effects of the new technologies would be. But we somehow have ended up with a much harder-edged, neo-Darwinian version of what the industry is all about.

Worst of all, our most successful IT companies, which once prided themselves on egalitarianism and the relentless free spirit of democratic societies, have ended up contributing directly to unprecedented levels of inequality, partly just by way of their tax agendas. Many of them have promoted “representation without taxation” at home while turning a blind eye (or worse) to dictatorship abroad. This undermines liberal democracy, the ultimate golden goose for all of us—even Apple.

It would be remarkable if all this somehow did not come back to haunt us. Indications abound that Apple Inc. may indeed be experiencing some limits to growth; perhaps this is inevitable given the company’s size and complexity. But it no less sobering to those who believe that entrepreneurship—by corporations and governments alike—should be a progressive force. It often has been, and it can be so again.

This implies that Apple’s offshore stash consists of $237 billion of “cash” assets and $15 billion of less-liquid assets. The 8 percent rate applies to less liquid offshore assets, and the 15.5 percent rate to cash. In Apple’s case, the $38 billion estimated tax liability works out to about 15.1% of its $252.3 billion of offshore cash and marketable securities as of October 2017, which implies that roughly 94 percent of these assets were in liquid assets like tradable securities.

See http://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf.  482-3: A U.S. shareholder may elect to pay the net tax liability resulting from the mandatory inclusion of pre-effective-date undistributed CFC earnings in eight…installments… The timely payment of an installment does not incur interest.  487: “The Senate amendment follows the House provision in allowing a U.S. shareholder to elect to pay the net tax liability resulting from the section 951 inclusion in eight installments. However, if installment payment is elected, rather than requiring eight equal installments, the Senate amendment requires that the payments for each of the first five years equal 8 percent of the net tax liability, the sixth installment equals 15 percent of the net tax liability, increasing to 20 percent for the seventh installment and the remaining balance of 25 percent in the eighth year.” 489:  With respect to this provision, the Conference agreement and the final bill followed the Senate version.

The example in Chart 3 assumes that Apple’s 1.9% per year projected average gross investment yield on its offshore stash is tax free, because it continues to be booked “offshore” with non-US Apple subsidiaries, and because under the terms of the Trump/Goldman tax law, going forward, income generated by such non-U.S. subsidiaries are eligible for a 100 percent “permanent exemption” from U.S. tax.  Under an alternative scenario, in which Apple effectively has to pay the new 21 percent marginal corporate tax rate that applicable to domestic corporate income on such investment yields, it still ends up with a $248 billion cash stash by 2026.

This assumes, based on the work of other analysts (see for example https://www.gurufocus.com/term/wacc/AAPL/WACC/Apple%2Binc) that Apple’s own weighted average cost of capital is about 9.6%, that its gross yield on offshore investments averages 1.9% over the next eight years, that these yields are subjected to U.S. income tax rates that vary from 0% to 21%, and that Apple chooses to take full advantage of the Trump/Goldman eight year installment tax plan.  Under these assumptions, the net present value, in $2017, of the future stream of tax payments on the $252 billion offshore stash varies from +$1.5 billion to minus $5 billion, for an effective NPV tax rate of -.5% to 2%.

 See http://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf, p. 189: “The 50 percent allowance is increased to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft).”  This basic Senate provision on accelerated depreciation for the next five years was adopted in the Conference report.

 In 2017, Apple’s overall  “cash tax rate” – cash actually paid as a share of operating income – was 18.1 percent, compared with the nominal US rate of 35 percent.  The gap was mainly accounted for by its offshore cash stash, but it also took benefitted from favorable tax treatment for R&D and employee share compensation.

 This is done by virtue of a so-called “permanent exemption” from taxation of dividends paid by non-US subsidiaries that are at least 10 percent owned by their US parent companies. The provisions of the new law with respect to offshore income are quite complex, and it appears that offshore earned income by US MNCs might in theory be subject to US income tax rates on the order of perhaps 10 percent.  But this is clearly well below the 21 percent nominal tax rate that will apply to domestic corporate income.

See Apple’s latest 10-K (October 2017), available at http://investor.apple.com/secfiling.cfm?filingID=320193-17-70&CIK=320193.

  In theory, the Trump/Goldman tax law provides for 10 percent surcharges on so-called “GILTY” offshore income, over and above 10 percent ROAs generated by U.S.-owned offshore subsidiaries. It also includes a similar tax on so-called offshore “Base Erosion” profits.  In practice, implementing  these new offshore taxes for all of the foreign subsidiaries of U.S. MNCs will be a reporting nightmare for IRS and a bonanza for accounting firms,  and may take years to be enforced—by which time it is hoped that this atrocious law will have been amended.

As of Apple’s last 10-K, published on October 20, 2017, there were 25,333 Apple shareholders of record, who collectively owned 5.25 billion fully diluted shares of common stock. According to the latest SEC 13F reports on institutional ownership of Apple stock, 2583 institutional shareholders accounted for 60.8% of Apple share ownership, including the top five institutions – Vanguard Fund, Blackrock, State Street, FMR LLC, and Berkshire Hathaway, that owned 22.5 percent. See http://www.nasdaq.com/symbol/aapl/ownership-summary . For our purposes  here orders of magnitude  will suffice, so we have extrapolated the implied ratios forward to January 2018.

Shareholder buybacks have been widely criticized in the finance literature. See, for example William Lazonick, “Profits Without Prosperity,”  HBR,  September 2014, at https://hbr.org/2014/09/profits-without-prosperity. But  a recent Sept 2017 HBR survey piece about shareholder buybacks argued that they have their uses. See Alex Edmans, “The Case for Stock Buybacks.” HBR (September 2017), at https://hbr.org/2017/09/the-case-for-stock-buybacks  Edmans concedes that that shareholder buybacks are often a signal the a company is running out of investment ideas. They may  be a more appropriate use of corporate cash than wasting spending on bad investments, and a more flexible, tax-efficient way to distribute this cash to certain categories of shareholders than dividends. QED.

The post The Apple Tax Giveaway appeared first on The American Interest.

The Apple Tax Scam

It almost never snows in Silicon Valley, but last week the flurries were really flying and the snow-job drifts were piling up high at Apple Inc.’s corporate headquarters in Cupertino.

On January 17, Apple issued a press release that reads like a White House infomercial for the Trump/Goldman tax heist that was rammed through Congress three days before Christmas 2017. It contains a flurry of “stylized facts” about all the wonderful things that Apple, armed with the tax cuts, plans to do for the U.S. economy over the next five years. These include a purported $350 billion increase in Apple’s purchases from U.S. suppliers; $30 billion of new U.S. capital investment; 20,000 new U.S. jobs; a second U.S.-based “campus”; and the expansion of something called an “Advanced Manufacturing Fund” from $1 billion to $5 billion. 

True to form, most leading U.S. business media, including the Wall Street Journal and CNBC, took these Apple statements at their word and channeled them enthusiastically to their readers and viewers, like the corporate cheerleaders they usually are. They neglected to mention the following cautionary language at the bottom of the press release, in fine print:

This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include without limitation those about Apple’s plans for future investments and expansion, taxes, Apple’s plans for managing its cash balances, and repatriation of overseas cash. These statements involve risks and uncertainties, and actual results may differ.

Indeed, upon closer inspection, most of the claims in the press release turn out to be “forward looking” in the very worst sense; that is to say, they avoid looking back and around at what has really been happening.

As we’ll see, most of the “new jobs” and spending have nothing to do with the tax cuts; they are linear extensions of Apple’s pre-tax cut behavior, which were already in the pipeline.

Furthermore, the press release intentionally skates past the question of precisely how Apple will be affected by the new tax law. It is especially careful to avoid mentioning  that—as already reflected in its recent stock price surge—Apple is almost certain to be the tax heist’s largest single corporate beneficiary by far.

As such, this latest Apple PR campaign easily outdistances ordinary run-of-the-mill efforts at corporate self-promotion. It represents a willful effort to bury all the gory details about how this massive transfer of public wealth will actually work. Indeed, the very tone of the release implies that Apple’s fellow American taxpayers should basically feel grateful that it is willing to pay any corporate taxes whatsoever—as if Apple were not just a giant capitalist corporation, spending every waking moment figuring out how to maximize profits and minimize taxes; as if it were some medieval lord, sitting in his brand-new circular castle, saddling the peasants with all of the tax burdens and common soldiering that keep the commonwealth safe in exchange for the sheer unadulterated privilege of being lied and sold to.

Anatomy of a Scam

To begin with, as other observers have noted, Apple’s claims regarding its likely future purchases from U.S. suppliers, job creation, and capital spending turn out to be wildly overstated and downright misleading.

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In particular, the levels of U.S. job creation and U.S. capital spending that Apple says it “intends” to deliver over the next five years are entirely consistent with its historical levels of U.S. job creation and spending in the past five years, if actually a little bit lower. For example, Apple’s U.S. retail stores accounted for 42,000 added jobs in the 2007-12 period.  It is likely that U.S. jobs also accounted for a significant share of the 46,900 new jobs Apple added in 2012-17.  Further, both of these earlier Apple job gains occurred during a period when the U.S. economy was struggling to recover from the Great Recession.

Apple doesn’t disclose the geographic details we need to precisely assess its promise to spend $34 billion more in the United States in the next 5 years. But it is quite likely that U.S. facilities accounted for a very high share of its $54 billion of total capital spending in the past five years.  So this is also by no means a bold departure from pre-tax cut trends.

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Furthermore, as we’ll soon see, yet another new tax break in the new law will also help Apple share the cost of all this (already-planned) investment with other U.S. taxpayers.

Of course, this is by no means impugns the importance of Apple’s contribution to U.S. employment and capital spending. It is only to argue that massive corporate tax cuts were evidently not essential for it.

As for Apple’s commitment to spend $350 billion over the next five years on U.S. suppliers—since, once again, it does not disclose any geographic details about its supplier purchases—it is impossible to judge whether this really presages a departure from historical levels.  But we do know that the overwhelming share of Apple’s recent supplier purchases has been from non-U.S. vendors, mainly in China. Is this really likely to change? Without hope, there is only desire.

Apple’s press release does contain one passage that helps us understand its core motivation for suddenly showcasing all these bold “new” plans, most of which, as already indicated, were in the oven. This is its only mention of the generous new tax law’s impact:

Apple, already the largest US taxpayer, anticipates repatriation tax payments of approximately $38 billion as required by recent changes to the tax law. A payment of that size would likely be the largest of its kind ever made.

This simple statement is a brilliant distortion on many levels; again, it almost makes it sound as if Apple will be doing other taxpayers a favor. Nothing could be further from the truth.

To begin with, it pays to read the fine print.  The new tax law does require MNCs like Apple to pay a modest (8 to 15.5 percent, depending on whether the assets involved are illiquid or cash) tax on the heretofore untaxed stash of offshore profits and royalties accumulated since 1986.  As of fall 2017, this is estimated to be worth about $2.6 trillion for all U.S. MNCs. In the case of Apple, by far the largest such offshore stash holder, the figure is $252.3 billion. The $38 billion “repatriation tax payment” noted by Apple’s press release is indeed consistent with a 15.1 percent average tax on this accumulated offshore stash.

However, a careful reading of the new tax bill reveals that Apple and its MNC brethren are not actually required to pay this “repatriation tax” bill on their accumulated offshore stash now, but will have up to eight years to do so—interest free!—despite the glaringly obvious fact that Apple has plenty of ways to make money off the deferred cash in the meantime. Under the law’s terms they can opt for an installment plan that allows them to pay just 8 percent of the total repatriation tax liability each year for the first five years, then 15 percent, 20 percent, and finally 25 percent, in 2026!

I’m sure we all know quite a few hard-working American taxpayers who would like to have eight years to pay their taxes, no interest asked. Perhaps they should have hired a few more tax lobbyists. The upshot is that this is one heck of a deal, especially for Apple, the world’s largest, most profitable corporation. And to a great extent it has Donald Trump to thank for it. Meanwhile, Goldman Sachs CEO Lloyd Craig Blankfein, ordinarily regarded as a Hillary supporter, was singing Donald’s praises for the tax law just this week. Speaking of corporate lobbyists and those who hire and unleash them, Apple should probably thank him, too.

But it gets even better. Once again, according to the fine print of the tax bill, Apple and the other MNCs are not actually required to “repatriate” their offshore stashes to the United States, much less to invest them here. They may do so, but the only legal requirement is that they commit to pay the repatriation tax. Having done that, they are free to do anything their hearts desire. If they decide to “repatriate”—which normally just requires a bookkeeping entry, since most of the cash is in fact invested by way of Wall Street banks—MNCs like Apple might decide to invest them in U.S. capital projects. But they might also freely decide to use them to buy back their own shares, increase dividend payouts, or burn them as a sacrifice to the pagan idols on the beach at Mar-a-Lago.

Or they may even freely decide to invest them in new offshore business operations, or leave the offshore stash precisely where it lies, booked as “offshore” investments in marketable securities. Assuming Apple does that, and simply realizes the same average gross yield on cash and marketable securities that it realized in 2017 —1.9 percent—then, given the installment option, it might actually be able to pay the entire $38 billion “repatriation tax” bill out of the (perhaps untaxed) incremental investment income that will be generated by its cash stash over the next eight years. Moreover, it may actually end up with more offshore wealth than it started with—nearly $258 billion by 2026!

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Now, obviously, Apple might decide that other uses of the offshore cash stash may offer even higher net tax returns. But the key point remains: Given the installment plan opportunity, whatever Apple decides to do with the stash it will not pay anything close to a 15 percent net present value cash tax on its offshore profits stash.

Indeed, after all is said and done, depending on what we assume about Apple’s cost of capital and the future yields on its stash, by 2026 Apple will probably end up paying at most a plus 2 percent to a minus .5 percent rate “repatriation tax rate.” (Of course, the same analysis applies to the dozens of other U.S. MNCs with offshore profit stashes.)

As if all this were not generous enough, the Trump/Goldman tax heist also permits U.S. companies like Apple to enjoy an amazing immediate 100 percent write-off for capital spending undertaken during the next five years. Recall the “$30 billion of capital spending over the next five years” that Apple bragged about in its press release? Once again, most of this appears to have been already in the pipeline, long before anyone assumed this tax law would be force-marched through Congress.

But now Apple’s $30 billion, plus the $4 billion of additional investment in the Manufacturing Fund, will probably qualify for this 100 percent full write-off.

By comparison, Apple’s entire “provision for taxes” in 2017—a bookkeeping entry—totaled $16 billion, while the “cash taxes” it actually paid totaled just $12 billion.

This means that its effective average “cash tax rate” was already only 18 percent of operating income even before the new tax law—just half the former top U.S. nominal corporate tax rate of 35 percent.

Going forward, with the Trump/Goldman’s newly established 21 percent peak nominal rate for domestic U.S. corporate income, Apple’s accountants will undoubtedly be on the prowl for new ways to reduce its cash tax rate below even the new statutory maximum. Here is one of them: Applying the new 21 percent rate, and assuming that Apple does indeed make the $34 billion of U.S. investment over the next five years, this instant write-off could eliminate close to half of its entire U.S. corporate tax liability during that period. Of course, this is on top of the “repatriation tax” loan scam described above.

Looking Forward: The Offshore Advantage Continues

The other key fact about the new tax law that Apple’s January 17 press release neglected to mention is that U.S. law has now adopted a fairly aggressive version of a “territorial” corporate income tax. This means that, subject to certain restrictions, MNCs like Apple will no longer have to pay very much if any income tax on the non-U.S. earnings of their foreign subsidiaries. For U.S. MNCs like Apple, whose domestic U.S. business now accounts for just 35 percent of its worldwide sales and 27 percent of its earnings—down from over half for both measures a decade ago—this may be the greatest single windfall of all. As I recently discussed, it is also by far the greatest concern for developing countries.

Of course many observers would claim that this cat was already out of the bag. As we noted, as least since the late 1970s there has been a kind of “tax race to the bottom,” especially among rich countries. Under the impact of this bout of tax competition, the 70+ percent rates of the 1960s and 1970s and the 48 percent rates of the early 1980s have long since given way to much lower nominal corporate rates all over the planet.

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Furthermore, in the past two decades, at least 27 of the 35 OECD countries have already adopted their own versions of “territorial corporate income taxes,” and the few that have not, like Korea, Mexico, Chile, and Israel, are under intense pressure to do so.

At first, in the 1970s and 1980s, the United States led this trend, but then it fell behind. As of 2017, before the passage of Trump/Goldman, its 35 percent nominal CIT rate was the highest in the OECD. The lag was partly just due to the fact that most U.S. MNCs and their accountants had long since engineered “private” ways around the old system—like Apple’s complex arrangements with Ireland, Bermuda, the Netherlands, and the Isle of Jersey—that were not easy give up, especially for the thousands of “enablers” in the accounting and legal professions whose livelihoods depended on them.

In effect, because of such offshore arrangements, plus numerous domestic deductions and loopholes, very few large U.S. corporations have been paying anything like this 35 percent headline rate—certainly not giant MNCs like Apple.  The average “effective” corporate income tax was already well under 20 percent even before Trump/Goldman, and for many MNCs it was even lower.

Indeed, the root cause of the giant $2.6 trillion offshore cash stash and the repatriation tax scam is the fact that, under the old system, U.S. taxation of profits and royalties booked abroad was deferred entirely until these were remitted back home to their corporate parents. This gave U.S. MNCs an irresistible incentive to find creative ways to book as much income as possible offshore—for example, by booking their software, trademarks, and other intellectual property in low-tax havens and then paying themselves royalties tax free. To do so, they had the help of the world’s “global haven industry,” staffed by the world’s largest accounting firms, law firms, and banks, and located in more than 111 low-tax secrecy jurisdictions around the planet from Ireland to Singapore. Over time, of course, many top-tier MNCs like Apple assembled their own outstanding in-house teams of enablers. In a sense, therefore, they not only financed the rise of the global haven industry; they enlisted in it.

Was there an alternative to the recent tax heist, given the fact that tax competition already had such a head start with such powerful interests behind it? Was a global progressive corporate tax reform, aimed at halting the “race to the bottom,” ever in the cards? One would not know it from anything the Democrats did, or rather did not do—like developing and articulating an alternative tax reform proposal to show the contrast with the GOP proposal. But the short answer is “of course.” The key obstacles have always been political, not technical. But the United States alone has always exerted a huge influence on international corporate tax policy. For the moment, it is a heavyweight on the wrong side of the global tax justice scale.

Looking Backwards: Where the $252 Billion Came From

In Apple’s case, all this offshore chicanery means that a significant portion of its $252 billion of accumulated “offshore profits and royalties” actually derived from domestic U.S. activities like software engineering and branding. Apart from the legal chicanery that permitted these rights to be transferred to, say, Bermuda or Jersey at ridiculously low valuations, their royalties would have been taxed years ago at the higher U.S. rates paid by domestic corporations.

Without more transparency from Apple, it is hard to parse the resulting $252 billion into “legitimate offshore” and “dodgy diversions.” But tax experts have long suspected that a significant share deserves a closer look from IRS auditors—especially the $129 billion that Apple has accumulated in Ireland alone, including $114 billion since 2009. Unfortunately, now that the new tax law is in place, this is unlikely to happen.

Looking forward, then, we may safely assume that on the margin, Apple will not only face a much lower effective domestic U.S. corporate tax rate on its (shrinking share) of domestic earnings. It will also continue to enjoy a very low (10 percent at most) U.S. tax rate on its (relatively high-growth) offshore business. And it will also be aided by the new law’s indirect effects on tax competition, and on the lower effective corporate tax rates that key developing countries like India, South Africa, and Argentina may be compelled to adopt.

In sum, from the standpoint of U.S. national interests, it is not clear that, on balance, the new tax bill really offers Apple and other MNCS any net incentives at all to expand their U.S. operations, invest at home, or even “repatriate” its offshore cash hoard. After all, 10 percent is less than 21 percent, even in Cupertino. 

In the interests of full disclosure, I have been a huge fan of Steve Jobs and Apple Computer since at least the early 1980s, a former senior executive at one of its early allies in the software industry, an avid consumer of its products, and a (very modest) shareholder since the early 2000s. In that capacity, along side far larger investors like Al Gore (230,137 shares), I’m one of Apple’s remaining 22,750 individual shareholders who (as of October 2017) collectively own about 39 percent of the company.

A comparative handful of Apple’s own management team also constitute important shareholders: Arthur Levinson, the company’s chairman and largest individual shareholder, reportedly owns 1.1 million shares; its CEO, Tim Cook, owns at least 901,000. While the number of individual investors has declined by about 21 percent since 2009, many of us old-timers retain a nostalgic attachment to this extraordinary company based not only on its track record, but also on the fact that it has long been just ever so slightly “radical” in the best sense of the world—willing to take risks and challenge establishments. Just remember the famous original ad for the Macintosh during Super Bowl XVIII way back in 1984.

You’d think by now that we would all be delighted with Apple. It is the largest, most successful corporation in history, with a market capitalization fast approaching $1 trillion and more than 600 million customers in 100 countries who use over a billion of its devices every day. In the past year alone its stock price has soared by 60 percent, from $110 around the time of Donald Trump’s election to more than $170 today.

However, for many Apple fans, customers, and at least a few stockholders, it was never just about commercial success. Sadly, it is increasingly clear that in the past decade, Apple has itself become the establishment. To the extent that the soaring stock price simply reflects expected tax cuts and a gigantic wealth transfer, none of us should be celebrating, no matter how “rich” they make us.

Unfortunately, by now the other 61 percent (and rising) of Apple shares outstanding  is owned by a hodgepodge of institutional investors like Black Rock, State Street Corporation, Warren Buffett’s Berkshire Hathaway, and some 2,581 others. By and large, these are cold-blooded entities, citizens of nowhere, that could not care less where a corporation is headquartered, where it invests, how many jobs it creates,  or how many students use its computers, so long as it brings home the bacon. Nor do these institutional investors care where or even whether a corporation pays taxes, so long as it does not damage its reputation by getting caught or by appearing to misbehave. Apple’s January 17 press release seems to have been written on their behalf.

As for products and markets, Apple also appears to have become much more conservative in that domain. The phenomenally successful I-Phone line alone now accounts for 62 of net revenues, up from 16 percent in 2009. Its top market will soon be one-party state-capitalist China (24 percent of sales and rising), not the officially democratic capitalist United States (27 percent and falling) or social-democratic Europe (20 percent). This has made repeating anything like the 1984 anti-Big Brother ad campaign unimaginable, simply because it would be banned in so many high-growth markets.

Of course, the company may just be between product cycles, with great new ones soon to be introduced that will change the very nature of our being. However, under Tim Cook’s more conservative papacy, the company has become more prosaic. Its strategic focus has shifted from big bold ideas to a kind of execution-oriented incrementalism—plus a whole new level of financial chicanery, including the kind of tax games that we’ve just explored.

In any event, the growth of Apple’s top-line revenue and operating cash flow have both slowed dramatically (see chart below). During the Tim Cook era, so far, the company has increasingly behaved like a giant financial rotisserie, returning more and more of its cash to shareholders in the form of dividends and share buybacks. Such behavior is widely considered by finance experts to be a clear sign that a company is running out of good ideas.

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Indeed, ever since Cook assumed the helm in 2012, Apple has even borrowed over $116 billion to make these payments, even while it has more than doubled its cash stash. Of course, during his last years at Apple Steve Jobs also accumulated gobs of cash. He also invested in the business at rates that Cook has matched or slightly exceeded, except for acquisitions.

But under Jobs, Apple was at the very beginning of several product life-cycles, with revolutionary new products like the iPhone and the I pad, revenues and cash flow that were both growing at double-digit rates, and the company still breaking into high-growth global markets like China. So some cash accumulation was inevitable.

Furthermore, Jobs had a visceral contempt for the very notion that an innovative, risk-taking company like Apple would ever act like some bureaucratic GE-type financial conglomerate. He refused to waste time managing quarterly earnings to please Wall Street pundits; to placate investment bankers and institutional investors with gratuitous borrowing, share buy backs, or dividend payouts; or to engage in the kind of rhetorical snow-making and outright tax scams we described earlier. Jobs’s Apple was not in the business of spinning up tax cuts and then handing giant wads of cash back to wealthy shareholders and institutions who for the most part are in the habit of “thinking alike.” He preferred to take big risks and invest in big ideas.

Of course, it is impossible for outsiders to assess what an intensely secretive company like Apple is really up to. Maybe it is working on bold new missions like individualized health care, robotics, 3D imaging, and electric vehicles. We certainly hope so. But this is all very far from the liberating “IT revolution” that so many in the industry once believed in. Maybe they simply failed to predict what the macro-social effects of the new technologies would be. But we somehow have ended up with a much harder-edged, neo-Darwinian version of what the industry is all about.

Worst of all, our most successful IT companies, which once prided themselves on egalitarianism and the relentless free spirit of democratic societies, have ended up contributing directly to unprecedented levels of inequality, partly just by way of their tax agendas. Many of them have promoted “representation without taxation” at home while turning a blind eye (or worse) to dictatorship abroad. This undermines liberal democracy, the ultimate golden goose for all of us—even Apple.

It would be remarkable if all this somehow did not come back to haunt us. Indications abound that Apple Inc. may indeed be experiencing some limits to growth; perhaps this is inevitable given the company’s size and complexity. But it no less sobering to those who believe that entrepreneurship—by corporations and governments alike—should be a progressive force. It often has been, and it can be so again.

This implies that Apple’s offshore stash consists of $237 billion of “cash” assets and $15 billion of less-liquid assets. The 8 percent rate applies to less liquid offshore assets, and the 15.5 percent rate to cash. In Apple’s case, the $38 billion estimated tax liability works out to about 15.1% of its $252.3 billion of offshore cash and marketable securities as of October 2017, which implies that roughly 94 percent of these assets were in liquid assets like tradable securities.

See http://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf.  482-3: A U.S. shareholder may elect to pay the net tax liability resulting from the mandatory inclusion of pre-effective-date undistributed CFC earnings in eight…installments… The timely payment of an installment does not incur interest.  487: “The Senate amendment follows the House provision in allowing a U.S. shareholder to elect to pay the net tax liability resulting from the section 951 inclusion in eight installments. However, if installment payment is elected, rather than requiring eight equal installments, the Senate amendment requires that the payments for each of the first five years equal 8 percent of the net tax liability, the sixth installment equals 15 percent of the net tax liability, increasing to 20 percent for the seventh installment and the remaining balance of 25 percent in the eighth year.” 489:  With respect to this provision, the Conference agreement and the final bill followed the Senate version.

The example in Chart 3 assumes that Apple’s 1.9% per year projected average gross investment yield on its offshore stash is tax free, because it continues to be booked “offshore” with non-US Apple subsidiaries, and because under the terms of the Trump/Goldman tax law, going forward, income generated by such non-U.S. subsidiaries are eligible for a 100 percent “permanent exemption” from U.S. tax.  Under an alternative scenario, in which Apple effectively has to pay the new 21 percent marginal corporate tax rate that applicable to domestic corporate income on such investment yields, it still ends up with a $248 billion cash stash by 2026.

This assumes, based on the work of other analysts (see for example https://www.gurufocus.com/term/wacc/AAPL/WACC/Apple%2Binc) that Apple’s own weighted average cost of capital is about 9.6%, that its gross yield on offshore investments averages 1.9% over the next eight years, that these yields are subjected to U.S. income tax rates that vary from 0% to 21%, and that Apple chooses to take full advantage of the Trump/Goldman eight year installment tax plan.  Under these assumptions, the net present value, in $2017, of the future stream of tax payments on the $252 billion offshore stash varies from +$1.5 billion to minus $5 billion, for an effective NPV tax rate of -.5% to 2%.

 See http://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf, p. 189: “The 50 percent allowance is increased to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for longer production period property and certain aircraft).”  This basic Senate provision on accelerated depreciation for the next five years was adopted in the Conference report.

 In 2017, Apple’s overall  “cash tax rate” – cash actually paid as a share of operating income – was 18.1 percent, compared with the nominal US rate of 35 percent.  The gap was mainly accounted for by its offshore cash stash, but it also took benefitted from favorable tax treatment for R&D and employee share compensation.

 This is done by virtue of a so-called “permanent exemption” from taxation of dividends paid by non-US subsidiaries that are at least 10 percent owned by their US parent companies. The provisions of the new law with respect to offshore income are quite complex, and it appears that offshore earned income by US MNCs might in theory be subject to US income tax rates on the order of perhaps 10 percent.  But this is clearly well below the 21 percent nominal tax rate that will apply to domestic corporate income.

See Apple’s latest 10-K (October 2017), available at http://investor.apple.com/secfiling.cfm?filingID=320193-17-70&CIK=320193.

  In theory, the Trump/Goldman tax law provides for 10 percent surcharges on so-called “GILTY” offshore income, over and above 10 percent ROAs generated by U.S.-owned offshore subsidiaries. It also includes a similar tax on so-called offshore “Base Erosion” profits.  In practice, implementing  these new offshore taxes for all of the foreign subsidiaries of U.S. MNCs will be a reporting nightmare for IRS and a bonanza for accounting firms,  and may take years to be enforced—by which time it is hoped that this atrocious law will have been amended.

As of Apple’s last 10-K, published on October 20, 2017, there were 25,333 Apple shareholders of record, who collectively owned 5.25 billion fully diluted shares of common stock. According to the latest SEC 13F reports on institutional ownership of Apple stock, 2583 institutional shareholders accounted for 60.8% of Apple share ownership, including the top five institutions – Vanguard Fund, Blackrock, State Street, FMR LLC, and Berkshire Hathaway, that owned 22.5 percent. See http://www.nasdaq.com/symbol/aapl/ownership-summary . For our purposes  here orders of magnitude  will suffice, so we have extrapolated the implied ratios forward to January 2018.

Shareholder buybacks have been widely criticized in the finance literature. See, for example William Lazonick, “Profits Without Prosperity,”  HBR,  September 2014, at https://hbr.org/2014/09/profits-without-prosperity. But  a recent Sept 2017 HBR survey piece about shareholder buybacks argued that they have their uses. See Alex Edmans, “The Case for Stock Buybacks.” HBR (September 2017), at https://hbr.org/2017/09/the-case-for-stock-buybacks  Edmans concedes that that shareholder buybacks are often a signal the a company is running out of investment ideas. They may  be a more appropriate use of corporate cash than wasting spending on bad investments, and a more flexible, tax-efficient way to distribute this cash to certain categories of shareholders than dividends. QED.

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Citizens United = Russian Money in American Campaigns

First, let’s acknowledge that it is not only the Kremlin and its affiliated oligarchs that may be using the cloak of anonymity created by the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission to funnel money to favored Super PACs in the American political system. Yes, the National Rifle Association is in the spotlight these days for its apparent willingness to channel Russian “dark money” into the effort to elect Donald Trump in 2016. But there is no reason the Chinese or Iranian or North Korean governments, or the Islamic State for that matter, could not be doing the same—if they were so inclined and could also find useful idiots or willing cutouts.

To appreciate the ease with which the money can flow, note the difference between Super PACs, so-called social welfare organizations, and “dark money.” These days, every serious politician, multimillionaire, interest group, or ideological inclination has a Super PAC to finance and implement campaign activities that are not “coordinated” with actual candidate campaigns, so they do not count as expenditures by the campaign. More importantly, donors with deep pockets can give unlimited amounts to Super PACs, who can in turn spend a lot more on broadcast advertising over the air and online, and other campaign-like activities, than candidates themselves can typically afford to do. And when they go terribly negative in their advertising, as Super PACs often do, the candidate can (sort of) disavow them. Super PACs are often run by people who last week were staffers or campaign managers to the people whom they are now not coordinating with; they just happen to know what might be useful for the campaign or damaging to the other side (wink, wink). Super PACS are obliged to disclose their contributors.

Now, thanks to the United States Supreme Court, contributors to Super PACS can include one or more of the many politically oriented yet nonprofit “social welfare” organizations that have proliferated throughout our political system, especially during election years, since Citizens United was handed down. These 501(c)4 organizations can also do much more direct politicking on their own—and they do. They do not, however, have to disclose their donors. Thus the money could come from a foreign citizen or corporation. Or a foreign government. Or a foreign criminal syndicate. No disclosure means no disclosure. Thus, “dark money.”

According to the Sunlight Foundation, a nonprofit advocate for transparency in government and politics:

Because super PACs are permitted to accept money from entities that do not have to make the sources of their funding public, such as 501[c]4 groups, it’s possible for them to keep the names of actual donors hidden from the public. We call this “dead-end disclosure.”

It should be a matter of some urgency in Congress that this be addressed, yet there seems to be little interest thus far among either Republicans or Democrats. Even the recent—and otherwise quite impressive—report by the Senate Foreign Relations Committee minority staff on Russia’s aggression against western democracies failed to mention this vulnerability created by the Supreme Court.

The NRA seems at this point to be the organization that has been the most consistent and enthusiastic about collaborating—or is the appropriate word these days “colluding”?—with high-ranking officials in the Kremlin and in Putin’s circle of trusted oligarchs. Allegra Kirkland and Sam Thielman at Talking Points Memo are doing the most assiduous reporting on this, and the McClatchy news service broke the story that the FBI is now investigating the matter. Between dogged, professional journalism and the careful work of Special Counsel Robert Mueller and the FBI, the Russian shenanigans will surely be uncovered in due course. But what are the Chinese already up to—and others who mean to undermine our democracy? Why have we permitted this?

Those who brought the Citizens United case, and presumably even those who decided it on the Supreme Court, likely anticipated it would open the way for U.S. corporations to put their thumbs more heavily on the financial scales of our elections. When President Obama complained about this decision days later, in his 2010 State of the Union address, he noted that it opened the possibility of “foreign entities” insinuating themselves into our politics. Justice Samuel Alito famously disagreed—“not true” he said at the time, prompting a few days of handwringing about inter-branch relations at the highest level. It may turn out that Obama was correct in ways he did not anticipate. New developments, new knowledge, would seem to require reconsideration of this decision, by Congress if not by the Supreme Court.

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The Indo-Pacific Moment

At the annual Raisina Dialogue in New Delhi this month, Admiral Harry Harris, head of the U.S. Pacific Command, made a comment that quickly generated headlines in India and the Western press. Speaking alongside Indian and Japanese counterparts, Harris bluntly referred to China as a disruptive power in the Indo-Pacific, and urged countries in the region to build their capabilities and work together. Implicit in these remarks was an awareness of shifting American priorities in the region, a reassessment of longstanding strategic assumptions—and a recognition of India as a vital partner for achieving American aims.

When the United States looks at Asia today, it no longer sees the peaceful rise of China but an economic and military rival that seeks to undermine the international liberal order that the United States helped establish after the end of the Second World War. Washington now seeks like-minded democratic, free-market societies as partners in upholding this rules-based order.

Indians believe in and have long sought foreign acknowledgement of Indian primacy in the Indian Ocean region. At a time when the Trump Administration is seeking partners, it appears that New Delhi is finally ready to move beyond speeches and vision statements to play a decisive role in the greater Indo-Pacific region.

South Asia was and will remain India’s primary sphere of influence, with over 85 percent of the annual development budget of India’s foreign ministry devoted to the immediate neighborhood. New Delhi has also learned that maintaining a sphere of influence is not simply a function of telling others what to do but being able to expend resources that deny space to competitors.

India’s recent experience in Afghanistan and the deepening Chinese footprint in South Asia, especially through the Belt and Road Initiative (BRI), have made New Delhi more receptive to projects like the Expanded Partnership for Quality Infrastructure Initiative, co-sponsored by Japan and the Asian Development Bank (ADB) as an alternative to China’s One Belt, One Road (OBOR).

Under Prime Minister Narendra Modi, India views Japan not only as an economic partner but as a key strategic ally sharing similar threats and challenges, namely the rise of China. Building on ties with Prime Minister Shinzo Abe that were developed while Modi was chief minister of the western state of Gujarat, India has embraced Japan as the key partner for development of infrastructure both within India and in its neighborhood. In 2014 Japan offered a $35 billion investment in infrastructure projects in India, with a $17 billion bullet train project being announced in 2017. And in December 2017, Japan announced that it will invest in infrastructure projects in Bangladesh, offering favorable financing terms to a friendly neighbor of India’s.

India’s historical and civilizational ties with Southeast Asia date back centuries, with the region hosting a large Indian diaspora. However, it is only since the 1990s that India has pursued its “Look East” policy, aimed at building closer economic ties with the region, and only in the last decade that a security dimension has been added to this relationship.

This “Act East” policy was put on full display on January 26, 2018, when for the first time in seven decades all ten leaders of the ASEAN grouping were the guests of honor at India’s celebrations of its 69th Republic Day. India’s trade with the ASEAN countries currently stands at $76 billion, a figure that will surely climb if the ongoing Regional Comprehensive Economic Partnership (RCEP) trade talks are finalized this year.

Similarly, New Delhi has boosted relations with the Pacific Islands, another region with shared civilizational ties and a large Indian diaspora. Since 2014, there have been annual conferences in India or in the region itself, and New Delhi has offered massive assistance, increasing its annual grant-in-aid to each of the 14 Pacific Island countries to $200,000. India has also set up a fund to help the Pacific Islands adapt to climate change, assisted in capacity building of their coastal surveillance systems, and provided technical training and educational fellowships.

India’s growing economic and security relationships and interest in the Indo-Pacific region are aligned with its deepening partnership with the United States. Two years after signing the U.S.-India Joint Strategic Vision of 2015, India is a member of the Quad (a strategic grouping of the United States, India, Japan and Australia) and there is talk about making the grouping something more than an annual talk shop.

India, the United States, and Japan already participate in the annual Malabar naval exercises, and Australia may soon join them. While the symbolism of annual joint military exercises under Malabar should not be underestimated, as Secretary of State Rex Tillerson has rightly noted, the Quad should in addition include technology sharing, military training and strategic planning, while helping to build military-to-military institutional relationships between India and the United States. This is something Washington shares with its close allies in both Europe and Asia, but which is still being built with India.

Yet the two countries have undeniably made great strides already. From being “estranged” democracies during the Cold War, India and the United States today share, in the words of Secretary Tillerson, a “growing strategic convergence.” From having almost no military relations during the Cold War, India is today a Major Defense Partner of the United States. From $20 billion in bilateral trade in the year 2000, today the two countries’ trade flows stand at $115 billion.

Ever since 1947, Indian leaders have sought recognition for India, based on their belief in its civilizational greatness and the role it is destined to play on the global stage. For most of that time, American leaders have not shared that vision, or even understood what India wanted, given the preoccupations of the Cold War, priorities in other regions of the world, and Washington’s convoluted relationship with Pakistan.

Today, however, the United States views India as a potential regional security provider and seeks to build India’s security capacity through commercial and defense cooperation between the two militaries.

When it looks at the Indo-Pacific, Washington sees India and the United States as the two “bookends of stability,” in Tillerson’s words, two “natural allies” who share a commitment to “upholding the rule of law, freedom of navigation, universal values, and free trade.” The recent National Security Strategy for 2017 also spoke of America seeking to support India’s “leadership role” in the Indo-Pacific region.

What remains to be seen, however, is how Washington and New Delhi prepare the contours of this partnership. The primary question is how the United States should deal with a country that does not fit the category of a traditional American military ally and yet seeks to become a strategic partner, one that does not seek American security guarantees and visualizes itself as a future great power. Further, unlike other American allies, India never joined any formal alliances and so there is no multilayered cross-institutional relationship between the two countries.

The United States and India share a similar vision for the future security architecture of the Indo-Pacific, and they also share similar goals in the region. However, America’s long and complicated relationship with Pakistan and the reluctance of Washington to include India in discussions of the Greater Middle East need to be resolved. The Middle East is an area of critical importance for India as it is home to a large Indian diaspora whose remittances boost the Indian economy, most of India’s energy needs are sourced from the region, and it is also critical for Indian security strategy.

With an American President who really seeks to boost ties with India and stand up to China, this is a rare chance to re-align U.S. and Indian policy in the interests of both countries, an opportunity to be seized—but one that the two countries will need to carefully manage as well.

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The Etiology of Faked News

We live at a time, here in the still-early 21st-century United States, when it is not too much to ask whether a more or less firm sense of reality, and of the facts that presumably make it up and help us distinguish true from false propositions about the world, is perceptibly less than a common possession of the citizenry than it used to be. Political polarization has led willy-nilly to the construction of “alternate universes” amid accusations of fake news, counter-accusations of shameless lying, resulting in a general derangement, discrediting, and deconstruction of the stock of common knowledge presumed by typical adults. This condition had been visibly progressing and metastasizing in divided and deconstructed societies before the election of the current President, or else, most likely, that person never would have won the job. But his behavior in office has boosted the trend into near-earth orbit.

Perhaps things never were much different, save in the abnormal perceptions of a certain cloistered scientistic elite. Many Americans, after all, have believed some strange things about the world, and about politics, for several centuries now.1 So maybe it should not surprise anyone that probably a majority of those who voted recently for Roy Moore for Senator in Alabama believe that George Soros financed the campaign to defeat him, that he specifically paid the women who came forth to falsely accuse Moore of having sexually harassed them, that the election was variously rigged by “them,” and so on. Perhaps that’s just cognitive dissonance doing its usual labor, reconciling expectations to reality in a way that, as usual, spites reality. In this case, however, the dynamic is playing out in a group setting, one prone to generating the mental acuity of a mob. It’s happened before, and it will no doubt happen again.

It’s true, too, that the White House has been the source for some dishearteningly reality-fuzzing remarks before Donald Trump ran for President. Everyone knows, for example, that Karl Rove infamously told the members of the “reality-based community” via David Suskind in 2004, “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality—judiciously, as you will—we’ll act again, creating other new realities, which you can study too. . . .”

The phenomenon has been politically ecumenical. Ben Rhodes boasted about how he deliberately peddled a false frame about Iran to sell the Obama Administration’s nuclear deal:

All these newspapers used to have foreign bureaus. Now they don’t. They call us to explain to them what’s happening in Moscow and Cairo. Most of the outlets are reporting on world events from Washington. The average reporter we talk to is 27 years old, and their only reporting experience consists of being around political campaigns. That’s a sea change. They literally know nothing. . . . We created an echo chamber . . . that validated what we had given them to say. . . . We had test drives to know who was going to be able to carry our message effectively, and how to use outside groups like Ploughshares, the Iran Project and whomever else. So we knew the tactics that worked. . . . We drove [the deal’s opponents] crazy.”2

Still, for all that has gone before, it’s not old business when the President himself directly and repeatedly attacks the media with accusations of “fake news” whenever they report something inconvenient to his quest to realign American politics. It’s certainly not old business when those who work in the White House speak straight-faced about having “alternative facts,” as Kellyanne Conway did a few months ago. We are at least one order of magnitude further into a la-la land of post-factual political discourse when a Republican White House becomes the vortex of parallel possible worlds according to which several universes co-exist, but, unlike in David Lewis’s multiverse metaphysics where they are separated from each other in space and time, we can pick and choose our truths according to the universe we find most appealing at any given moment. Conway left migration issues between the universes somewhat vague, though it is most likely that with rights to exit and enter universes at will, she is somewhat out of step with the President’s anti-immigration line.

We know the partisan reaction to the new would-be normal: Anti-Trumpers claim that the President is a pathological liar, or worse, is afflicted by a psychological derangement so profound that he usually doesn’t even realize he’s lying when he is, or when he accuses others of lying when they’re not. All that may be so, but it doesn’t explain why Trump is so widely believed when he lies—his inner circle of supporters is not composed of a small number of people, after all, and these supporters, apparently, believe everything Donald Trumps tells them, perhaps because he often asks them to “believe me.”

This would be especially curious at a time when the default drive of cynical Americans is to assume that politicians always lie, were it not for their conviction that, despite everything, Trump isn’t really a politician. So what is he then? A secular televangelist, an economics faith healer, a “reality show” star, and, above all, he seems—and may well be—authentic in the sense that, aside from his tax returns, he doesn’t bother to hide who he is or what he thinks. In that he grooves with the meme.

And that, in turn, is why fornicating televangelists and faith healers, especially the self-evidently sincere and authentic ones, who are discovered with earplugs that tell them what ails their supplicants still do not lose the faith of their followers. The people who believe in them are desperate to believe in some thing or someone, and an abstract and absent God is too difficult and remote for the purpose. It is as G.K. Chesterton said long ago: When people stop believing in God, they don’t believe in nothing; they’ll believe in anything. In reality shows “reality” is scripted and can be changed at will, even at the cost of internal inconsistency from episode to episode—or even within an episode. Viewers who acquire their worldview from this genre may not distinguish virtual reality from the real kind so well.

Explaining how that can be is a labor well beyond this essay’s ambition, besides which a good deal of relevant empirical research on the question is available to anyone who seeks it. We merely want to shed light on the underlying basis for how what is happening can possibly be happening. Basically, we want to ask and propose brief answers to just a few seemingly simple questions: (1) Is the concept of a fact in the West historically constant?; (2) To what extent is the current Western concept of a fact shared among cultures worldwide?; and (3) Are some kinds of facts more susceptible to deliberate undermining or disruption than others, and if so what kind and how? We can dispense with the first two questions quickly; the third is trickier.

The answer to the first question is obviously “no.” It took a long time for the idea of a fact as a part of integrated reality that makes propositions about reality true or false to emerge. Many historians of science and ideas have expounded on the process, but it all comes down to giving up the idea of magical efficacy in favor of what came to be understood as an independent objective reality separate from how we or anyone else feels about it. Suffice it to say that this process rested long in the evolution of religious thought, where the notion of human encounters with God shifted from seemingly random immanence, to transcendental design, to a kind of re-immanence in the development of the idea of God within: the soul.

Eventually of course, rigorous forms of religious thinking, having pioneered many uses of human reason, paved the way for the Age of Reason. The emergence of modern science forms the basis for the developing current notions of fact. The scholarly literature in the history of science is vast and disputatious. But even amid the disagreements no one really denies the basic story and timeline.

The transition was not simple or equally manifest in different domains of culture. One way to see this is to consult studies of what a “fact” meant not in early science, but in an English court of law. One scholar has argued that a “fact” or “a matter of fact” evolved from a 17th-century notion meaning something alleged that requires evidence to be proven to a later equilibration of “fact” with “truth”— not exactly the same things.3 If people believe a “fact” true thanks to some evidence, they can be convinced it is not a fact if contrary evidence overweighs the original. Truth, on the other hand, has to do with the intention of testimony: If it is established or believed that a witness speaks the truth, then the witness’s statement is both a fact in itself as the law understands it—but of a slightly different sort from what is really true in the sense that no evidence can change it—and may contain other facts subsumed under a testimonial truth. The legal concept of “reasonable doubt” parries these meanings of “fact” because it uses both empirical evidence and testimony to establish the “facts” relevant to given cases. And it is the appreciation of these multiple meanings, it now become clearer, that underlies the famous but rarely pondered phrase, “the truth, the whole truth, and nothing but the truth.”

Other cultures? An even simpler matter. Obviously, other cultures that did not find their way to their variation on the “Age of Reason” have different ways of understanding what we call reality. The range of possibilities is wide. Some cultures deny objectivity; they are the original pre-post- and non-modernists—if we bother to define modernity carefully as Enlightenment-born—believing only in the reality of subjective experience.

Even when different cultures believe in facts, the credibility or likelihood they give to new candidate facts may vary radically. For example, take the reported story of the Peace Corps volunteer screening a Spider-Man movie to a group of villagers in rural Cameroon: The audience had no problem with the “fact” that the movie’s hero could zoom around in defiance of gravity and the normal contours of time and speed, because spirits and demons did that all the time, but they refused to believe in the facts of the very tall buildings the film showed. Those were inconceivable.

Let us now come to the gist. There are obviously many different kinds of “facts” as we normally use the term. If we set about unsystematically to list them, we have little problem getting started. That two plus two always equals four is a logical fact derived from the framework rules of mathematics. That we live on the planet Earth, that it is a certain day on the calendar or a certain hour on the clock face, are examples of facts by fiat—arbitrary constructions of language we share for purposes of standard communication that are established by convention and reified culturally through the socialization process. Some facts are obsolete facts: the Ptolemaic positing of an Earth-centered solar system, for example. It was a fact whilst it was believed, we can all agree, but is fact no longer. Facts can have different degrees of precision or accuracy, too, from how far the planet Earth is from the sun (not exactly knowable by empirical means) to how many angels can dance on the head of a pin (not knowable for other reasons) or when the end of the world will happen (ditto).

The less accurate the claim about a fact, too, the more probable is it so. There’s a head-scratcher for you.

More important for the purpose at hand, for most practical purposes facts are nearly always relational. In ordinary language facts are series of antinomies, because facts are not independent concepts that “tell” us as passive agents of reception of their existence, but always come with a distinction that excludes something else: fact/fiction; fact/speculation; fact/theory; fact/inference; plain fact/hidden truth; fact/value; fact/representation; fact/ perception; fact/language; fact/description; fact/point of view; and so on.

Each of these concepts of a fact is independent of the others because each is based on a different way of dividing the world, of cutting it at the seams, so to speak. Whether cultures have one or more of these concepts depends on how they divide their world. There is almost always some overlap, but it is variable. Some cultures, as already suggested, do not distinguish fact from fiction or from value. What this means, among other things, is that facts tend to gather their meaning in sets that are dependent on these seams. So it is possible that the same fact can reside in different cultures, but be grouped in different sets such that it will not mean precisely the same thing.

A word to the wise: The social construction of facts does not thereby imply that no physical world exists outside ourselves. It certainly does not mean for any practical purpose, as Walker Percy once playfully ridiculed postmodernists, that the “text” of your order of a pizza for dinner is the same as the pizza. You can try to eat your own words, but they’ll not get you as far toward satiety as a warmed combination of crust, tomato sauce, cheese, and anchovies. But it does mean that we can approach the world armed only with the conceptual tools and categories of our culture and community. As the locus classicus for “fact” in the history and philosophy of science literature—Ludwik Fleck’s Genesis and Development of a Scientific Fact, published in 1935 (Thomas Kuhn himself wrote the introduction to the English translation, published in 1979, tracing the uncanny similarity between his ideas and Fleck’s, who died in 1961)—shows, we can only discuss phenomena in accordance with how our particular culture cuts the world along its seams, with its collective “style” of representation, as Fleck demonstrated by comparing historical medical drawings of the same organs.

Consecutive scientific revolutions since the 17th century have led to a world in which there is greater agreement about reality by very different people who otherwise share few interests, values, or culture and historical traditions than at any time previously in history. These agreements bind together all those who accept the critical cognitive values that underlie the sciences, or at least the potential for an intersubjective shared view of the world.

Think, for example, of how medical doctors and researchers worldwide produce and share professional literature. Fleck demonstrated how styles of thinking affected how medical doctors categorized, described, and even drew diseases and organs; however, as he and later Kuhn agreed, when the dust settles, the scientific community or collective agrees on a paradigm that works at least until enough anomalies accumulate to require a rethink. This is similar in a way to how the Latin language, Roman law, and the classical heritage bound together educated Europeans before the 17th century. Today the binding relies not on premises built into a single shared written language, but on premises expressible in the relation between partly constructed shared facts and its linguistic representations in many languages.

Since the pieces of reality we call “facts” are separated from their pure objective nature by however many degrees of separation our cognitive apparatus ordains, and because the ways we group, understand, and talk about these “facts” are socially/culturally constructed, they are far more fragile—and hence subject to deliberate disruption—than we typically suppose.

Disruption can just happen involuntarily when the facts change, as when during the night an earthquake far upstream changes the course of a river that has “always been there”—that’s a fact; the morning’s fisherman goes out to find that the river isn’t there at all—that’s a fact disrupted. But all experience is vulnerable, at least at some extreme, to deliberate disruption. Others can fool us, take us in, deceive us, “contain” us, pull the wool over our eyes, and so forth.

Not all kinds of facts are equally vulnerable to deliberate disruption in a given culture. You may succeed in persuading me that JFK’s assassination was a Soviet-Cuban plot involving dozens of operatives a lot more easily than you will persuade me that two plus two is something other than four, even if the Party (or Sean Spicer and Kellyanne) says it’s five. And you certainly have a better chance of persuading the roughly three-quarters of American adults who have not graduated from a four-year college that national elections can be “stolen” by conspiring political manipulators than you can convince them not to believe in angels, alien abduction, and that I met Elvis the other day.

This has always been true, but it is not always politically relevant to the same degree. It tends to become politically relevant when the trust ordinary people have bestowed on experts and other elites dissipates and they consequently lose control over processes of belief formation they typically dominated. There can be many reasons for dissipation, but a clear enough elite record of failing to predict the future or to deliver promised results is certainly one of them (“getting China into the WTO and giving it permanent most-favored nation trading status is a great idea for everyone,” “overthrowing Saddam Hussein is a cakewalk that will bring multiple benefits,” and of course one can go on). It’s really very simple for members of any political elite: Screw up often enough, and the people most gored by the screw-ups will stop believing you.

The process of elite decay is relevant politically now in two ways. The first way is that Trump, Putin, and their ilk are attempting to abolish the distinction between fact and language (or representation) within their own political cultures, and the second way is that Putin, at least, is also trying to reach across borders and confuse things in other political cultures.

As to the former, a little like Karl Rove but without the jocularity, these sultans of surreality expect to generate facts merely by saying them. They create by fiat, as if they had the divine power of declaring “Let there be light”—or at least Charles Lutwidge Dodgson’s concept that words can mean anything one says they mean. In other words, they try to intrude upon collective meaning in the same way that linguistic facts become true merely by dint of the act of saying them, as when I say “I am talking now.”

Another variant of the same idea is what some cultural anthropologists have called a “votive act”—a slice out of the intersection of psychology and church ritual—where the stating of an intention to do something works as having actually done it. Something similar can happen in financial markets when panic and exuberance create, at least temporarily, economic reality rather than represent it; Soros has referred to it as the reflexive nature of markets. The best examples before us right now include “the big beautiful Wall” and recognizing Jerusalem as Israel’s capital. Nothing actually happens when such declamations are made, and in these cases for all we know nothing ever will. But votive acts are vestigial forms of word magic, and word magic still works pretty well much of the time in an environment—like national and international politics—in which abstractions dominate direct experience for most people.

An extreme version of linguistic acts that J.L. Austin called illocutionary speech acts used to be popular under communism, when a person could wake up to read in the party newspaper that he had defected to the West. The performative meaning was that either he should defect or he will be arrested for trying to defect. The operative meaning of the message was “better defect, “ so that the very notional description of the fact generated its reality.

Some recent “news” about personnel reshuffling in the Trump Administration seems to belong to this genre although, unlike under Communism, they do not seem to always work, or Jeff Sessions and Rex Tillerson would not still have their jobs. Alas, Conway’s assertion about “alternative facts” looked so absurd coming from the mouth that uttered it that it has not been repeated: Comic relief cannot compete with actual political backstabbing, at least not yet.

It’s another thing altogether when a Putin reaches across his own political culture to anonymously seed “facts” by fiat in someone else’s political culture. Election hacking, in other words. This is certainly politically relevant, both in the United States and in U.S.-Russia and Europe-Russia relations. But everyone knows that. Most people do not realize though that the etymology of the English world disinformation, Latin appearances notwithstanding, is Russian. It entered English from Russian in the early 1950s. The Russian tradecraft is old, but the technology it uses is new and it can augment many fold its traditional effects. Let’s see how.

Philosophers have for centuries distinguished five and only five types of knowledge sources that generate together all knowledge of discrete facts: empirical—from the senses (you see the computer screen); rational—from reason (you know from intuition that two plus two equals four); introspective—from self-knowledge (you have unique access to how you feel, for example if your pinkie toe is tickling you now); from memories (you know or think you know what such-and-such a person said or did to you last week); and testimonial—from what others tell you orally or in writing. To wit: Everything you know about Antarctica or the French Revolution is from testimonial sources, since you have not seen them with your own eyes, were not born with rational knowledge of them, they are not parts of you, and what you remember about them is only from testimonies you read in the past.

There are basically two ways we acquire knowledge from testimonies: We evaluate reliabilities of single testimonies or we trace back the origins of multiple testimonies. We learn to trust what some people tell us and to distrust others, and over time we also learn to distinguish what we want people to tell us from their reliability. For example, I like to believe a broker who promises me 10 percent per annum risk free plus interest, but I also know not to trust such a broker.

What is happening now constitutes a diffuse but identifiable attempt to derange our evaluation of testimonial reliabilities. Historically, we trusted the Washington Post and distrusted the National Enquirer. Today, the powers that be try to reverse that order. The reliable media is repeatedly presented as “fake,” and unreliable sources present themselves as indistinguishable from reliable ones in social media, in many cases by being reposted by people we usually trust and consider reliable and appearing together with, and in the same graphic electronic format, as reliable sources.

With sufficient confusion tossed up between the reliable and unreliable, reliable sources cannot suppress wishful thinking. So people start cataloguing as reality whatever other people say that reflects their emotions and prejudices (for example, so-and-so does not like Hillary, so she must be running a pedophile ring from a pizza shop). Nobody more reliable can counter the wishful thinking because they are not trusted, and those who try just persuade a wishful thinker to trust them even less—around and around and down we go.

Even more insidious is the use of technologically augmented rumor mills to confuse independent with dependent testimony. Independent testimonies can generate knowledge even when unreliable or when the testimonial sources’ reliability cannot be evaluated. For example, suppose you ask me for the phone number of an acquaintance, and I answer that I do not recall the number. You ask me to take a guess and blurt out the first seven-digit number that comes into my head when I hear our acquaintance’s name. I play along but add that you should not trust me on this, since my intuition of the number is highly unreliable. We can agree that you do not know the number.

But suppose now that you conduct the same exchange with somebody else who could not have overheard our conversation, and he repeats the same number. Irrespective of our self-attested unreliability in this matter, the probability that the coherence between our testimonies is coincidental is one in a million. You still need to eliminate the possibility that we played a practical joke on you, or that we repeated unconsciously some phone number that had nothing to do with the acquaintance (1-800-BUY-BEEF). We do this kind of computation numerous times every day, especially when we learn something that is not obvious from strangers, usually without being aware of it.

Spreading rumors is designed to bombard people with the same disinformation from all directions so as to appear independent and therefore believable in the above sense. Before social media, this could only be done by implanting gossips in select groups orally and in person so as to make it difficult for anybody to trace the rumors back to any single source; they would hear the rumors from many people and even perhaps repeat them themselves, so the rumors appear to come at once from everywhere yet from nowhere. In our own time, social media has technically augmented the old technique of rumor-mongering, much like radio and television once augmented the mob effect of participation in rallies where most people cannot be present.

Social media’s rumor-mongering capacities are significantly augmented by technologically facilitated pervasive anonymity. Gossips, shills, bots, and simply crazy people are all protected from the consequences of deliberate disinformation by the simple “fact” that it’s impossible for all practical purposes to hold anyone responsible for what they say if they want to stay anonymous. Since rumors seem to come from everywhere and yet from nowhere specific, the consumer of rumors cannot trace them back to their sources as intelligence analysts, respectable journalists, historians, and reasonable people do regularly to find if sources are independent of each other. It is no coincidence that the reliabilities of these groups of people, intelligence analysts, serious journalists, and rational elites are now particularly under attack. The old sources of reliable testimonial knowledge are still there, but thanks to social media anonymity the ratio seems to be tilting against them even in our very non-totalitarian society.

An old joke tells of a person who learns from the newspaper that the value of a stock they invested in soared, and so they purchase another copy of the paper, just to be sure. Without tracing the chain of electronic information transmission, we are all in the position of the person who buys not one or two, but countless copies of the same Russian supermarket tabloid, only without realizing it. The algorithms of social media, especially Facebook, are not in comparable position to the proverbial person who screams “fire!” in a crowded theater, nor even of a person who hands the screamer a megaphone; rather, they are in the position of a person who sends a phone message that says “fire” to exactly the group of theater goers who are most likely to believe it and panic upon reading it.

In sum, technological changes have greatly augmented the effectiveness of preexisting disinformation capacities and tradecraft to spread politically manipulative false rumors to appear indistinguishable from information transmitted by reliable source or generated by independently delivered testimonies. When consumers of information cannot distinguish conflicting sources of information, when facts cannot be distinguished from disinformation in a global social media hall of distorted mirrors of testimonies that reflect each other, social media technologies, in the hands of well-trained and vast army of trolls, are fast becoming weapons of mass delusion. That is how the “fake news” business works across boundaries as well as within them, and it is working.

Our political and legal systems are still in the process of adjustment to these new technological innovations that are doing for disinformation what Model T cars did for transportation—namely, took it much further and made it affordable for nearly everyone. It’s not obvious how to stop this, but since the main problems are in distinguishing reliable from unreliable sources and independent from dependent testimonial sources, tracing the origins of information is essential. Protocol technology that can trace messages to their original servers and possibly to their institutional origins is available and is already being used by law enforcement agencies. Bayesian algorithms that can compare postings to determine their independence and common origins can be developed if they are not already available. The challenge is to convince and failing that to force social media companies, especially Facebook and Twitter, to post that meta-information alongside information that is reposted—assuming they are not willing to block disinformation altogether as an application of the “crying fire in a crowded theater” criterion.

Human minds are complex. Disinformation appeals to our desire for self-deception, to tell us that the world is as we feel most strongly it should be. Our strongest emotions, especially in stressful times, are fear, anger, hate, and anxiety. These feelings compete with reason, an evolutionarily later and weaker mental force. Why the disinformation then? Why do the Russians even bother? Two reasons come to mind.

First, the imaginative faculties of some of the victims of disinformation are too poor to come up even with the ridiculous recycled narratives that Moscow’s poorly educated disinformation experts come up with. They have strong emotions and weak reason, and so need somebody else to tell a story that translates their emotions into virtual reality. Is it not an amazing coincidence that each and every politician who opposes Putin’s favorites and policies turns out to be a gay Freemason pedophile in cahoots with immigrant Moslem rapists?

Second, in some minds there may be a more delicate mental balance between emotion and critical reason. Left to its own devices, critical reason may sometimes trump emotions and wishful thinking. Mutual deception may then serve to suppress reason. If I lie to you and you lie to me, we may come to believe in something so ridiculous that we would be unable to individually deceive ourselves about it. This is how mass rallies have worked at least since the ancient Greeks and still work today; it’s the aforementioned acumen of a mob. The social media networks and algorithms have added a new advanced technological augmenting aspect to it: “LIKE!” We no longer need to stand in large public spaces to listen to a demagogue and cheer him in order to deceive each other; we can do it from the comfort of our smart phone.

Apart from wishful thinking, defined well enough as the narrative expression of strong emotions, disinformation appeals to what Freud called the pleasure principle against the reality principle. We know it is impossible to lead a debauched life and yet have a strong loving family. We know it is impossible to vulgarly deride and offend most of humanity and still be respected and able to project soft power. We know it is impossible to reduce all taxes and not either increase government deficits or decrease the value of the currency—or both. We know it is impossible to have protectionist trade policies and at the same time develop a competitive innovative economy with long-term economic growth. Yet how pleasurable it would be to avoid the trade-offs that reality forces on us. It would be great to live in a convincing fantasyland, in virtual reality, in a reality TV show, where all the contradictions built into reality are reconciled without tradeoffs.

Reconciling the inherent internal contradictions of the pleasure principle is the work of defense mechanisms, most notably rationalization. Socially, that is where the enablers, excusers, PR experts, and lately the Wall Street Journal come into play. They do not invent or initiate the inner contradictions. But once they’re out there, they attempt to systematize them, make them look coherent with each other and less inconsistent with reality. Historically, this is what intellectuals did for authoritarian regimes, explicitly in Marxist dialectics. Today, the services of intellectuals are not required; party hacks, hangers on, relatives of people in power, opportunists of all stripes, and self-deceivers who convince themselves it is for the higher good of the country fulfill that function instead. The result is the systematic corruption of language, discourse, and reasoning.

One remedy for dealing with Russian disinformatsia tradecraft is fairly obvious: What they do to us (and others), we can do to them (and others) in spades, the idea being to exact a price and then cash it in as a form of deterrence. Some in our government have proposed such ideas, and in readiness against extreme circumstances having such capabilities at the ready may be prudent. We wouldn’t even have to make stuff up; there are enough real facts about Putin’s kleptocratic ways and his easy associations with a who’s who of Chechen thugs that inventing stories about his running a pedophile ring manned by ex-KGB operatives from a pirogi shop in Moscow simply isn’t necessary. But short of extremities, it’s a bad idea. One does not clean a house by adding filth hither and yon, after all; defense without the threat of offense remains possible.

One remedy for the problem here at home, as always, is for the child who is too naive not to live in the immediacy of truth to cry out that the king is naked. In other words, in a useful repurposing of a by now common phrase, if you see something, say something. We all should, as often as we can.

But one other remedy seems both obvious and attainable. We have a President who openly expresses disdain for truth, and like it or not, Presidents embody and empower the aspects of culture they can project. It follows that we therefore need to get this man out of office, as soon as it can be legally achieved; and until that is done, we must never allow the normalization of his demeanor. Let us close by quoting that sage of 20th-century common sense, James Thurber: “A wolf doesn’t look any more like your grandmother than the Metro-Goldwyn lion looks like Calvin Coolidge.” Don’t let anyone convince you otherwise

1A useful if incomplete list may be found in Kurt Andersen, Fantasyland: How America Went Haywire: A 500-Year History (Random House, 2017).

2David Samuels, “How Ben Rhodes Rewrote the Rules of Diplomacy for the Digital Age,” New York Times Magazine, May 5, 2016.

3Barbara Shapiro, “Beyond Reasonable Doubt” and “Probable Cause”: Historical Perspectives on the Anglo-American Law of Evidence (University of California Press, 1991).

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