Modlin Global Analysis Newsletter Kevin Modlin

Welcome. Thank you for joining us for this edition of the Modlin Global Analysis Podcast. We regularly talk about international affairs as well as economics and politics, and it's always helpful to notice how much these themes often interact with each other. And we'll continue in that discussion throughout this year. And in all these episodes, but it is worth noting, specifically, we're going to go back in history and talk about Watergate and this interaction of international politics and the Watergate scandal that we're many of us are familiar with. I'm glad to be joined. In by Dan Modlin this week, we're going to twist the tables and I'll be asking and Dan questions. And it's particularly interesting because throughout his life he has been fascinated by the Watergate scandal. And as a student, he did extensive research on this question and his revisited—frequent times. So Dan, thank you for joining us on this. And our first question to you is although Watergate was generally considered to be a domestic story doesn't it have some international politics connections to it?
Dan
Yes, thank you, Kevin. It's something a lot of people don't realize that the roots of the whole Watergate scandal really go back to the Pentagon Papers incident in which a Rand analyst named Daniel Ellsberg was accused of leaking documents to the New York Times that became known as the. Pentagon Papers and these were internal documents from the Defense Department. Which had analyzed some of the mistakes made during the Kennedy and Johnson administrations in the war in Vietnam, Richard Nixon's name was not in the Pentagon Papers, but he was very concerned about the leaks. As it turns out, he and Henry Kissinger in that time were involved in some of the diplomacy that. Would later lead to. Opening some of the doors with China and they were very concerned that some of the information from the Pentagon Papers, even some of the documents that hadn't been released yet. Referred to some surveillance flights that the US had carried out over China and they were concerned that that could impede their progress in talking with Chinese leaders. So there was very definitely an international aspect to this. Another interesting side light of this was that Ellsberg, the person who's widely recognized as the person who leaked the Pentagon Papers, had actually had a mentor named Henry Kissinger in his past. Going to Garrett M Graff in his very interesting book, Watergate and New History, Kissinger was concerned that if that former student would continue to leak documents, that would reflect badly on him, and it would also obviously have an impact on some of their diplomacy. But according to graph. Kissinger then encouraged Nixon to take a hard stand on. Leaks and that hard stand was what led directly to some of the corruption and illegal activity that became known as the Watergate scandal.
Kevin
You know, this is fascinating because, well, you've spent a significant amount of time thinking about Watergate. I've been interested in the Cold War era of this same time period. And I've read biographies on Kissinger. And this was a very important mark both in the history of what we would know with Watergate, but also the relationship that Kissinger has throughout the administration. And this feeding of basically paranoia that comes from that and we see. The Nixon and Kissinger bond kind of strengthened through this paranoia, right? So they have a greater trust basically through developing distrust of others. And just as I mentioned earlier, you've had these interesting stories that you've shared with me throughout my life. Of being at the Watergate hearings, and in fact, you were there the day Attorney General John Mitchell. So I know all of us would enjoy hearing some of the macro pieces that you've heard, as well as what was it like being there?
Dan
It was a very interesting experience and to put it kind of in context, I don't know of anything that happens currently that h

Welcome. Thank you for joining us for this edition of the Modlin Global Analysis Podcast. This week we are focusing on inflation, what it means, and both inflation in the international sense, with a number of countries and regions we're going to focus on. As well as in the United States, again, we're going to be talking about this monetary phenomenon, what prices? Changing and what they mean for consumers and how we define that and we're not talking about inflated egos or the inflated value of my baseball cards. We're going to emphasize the consumer aspects and the costs that they experience through this, and this week, I'm glad to be joined again by Dan Modlin, who has a series of interesting questions on inflation.
Dan
Kevin, we hear a great deal of talk about inflation, obviously, and a lot of people when they're in the grocery store certainly feel they're seeing the effects of inflation, but. I wonder if it might be a good idea just to start with an actual definition of inflation.
Kevin
Great question. First off, I feel that sentiment as well. I'm one of those penny pinchers and I go through the grocery and I notice when butter and bread go up $0.10 and think about ways I can compensate for that. But inflation is about the increase in prices. And they're different people that have debates about what causes inflation. And everything, but it's first important to note that this is about the increase in price across the board. For consumers, so if. The price of gasoline, or the price of Wheaties increases dramatically. That is not inflation. That is a phenomena related to the supply and demand dynamics of those goods. This is an across-the-board phenomena where a large basket of goods. Have increased in price overtime and that it is noticing that. It's a distinct phenomena that has to do with the supply and demand for goods and services, but how this intersects with the quantity supplied of money and we know throughout history and we know throughout American history. Inflation is caused by a lot of extra money in the economy, so that individuals need to use more money to buy a similar amount of goods that they could buy a few months earlier.
Dan
Let's talk a little bit about that. We hear obviously the partisan politics a lot discussing this. Your legislation causes inflation and your legislation causes inflation and these kinds of accusations float around a lot. But let's talk about the basic causes of it. What do we see as primary causes of this trend?
Kevin
Yeah, that's a great question. And what's important with that also is, is that there's a rich debate about this. And so it's not just a debate among policy actors. There's a debate amongst the academic classes and what they think about that. One of the things is it relates to the conversation, the points that we just had is people will associate increases in prices and say that that is all inflation when in fact it can be changes in supply and demand. If producers decide to dramatically reduce the supply of oil or reduce the supply of Wheaties. We can expect the price to increase, and that is related to. And to the global market, having the demand for those products, that is a very different question than the global supply of money and specifically the supply of money within the United States and now which is circulating throughout the economy. So our both our policy actors. In the Federal Reserve. We'll try to regulate the supply of money in an effort to control inflation, and we'll have to have a very serious conversation to explain what went off the rails in the last few years. But it is true that certain policies can contribute to inflation. Both the two big effects are how much a country is spending and how much are they taxing. So how much is basically being put out there in the economy and circulating around? What are the trillions of dollars doing that and how much is being taken in through taxes that also regulate that, so that perspective? Is an argument of

Thank you for joining us for this edition of the Modlin Global Analysis Podcast. This week, we're going to be focusing on Vladimir Putin and the bomb. We're going to consider the national discussion and global discussion on the ramifications of Putin’s references to nuclear posture and what are perceived as nuclear threats and the war in Ukraine, and how we as a society grapple with that. But perhaps most importantly, how do we think through what Vladimir Putin as the singular actor may be considering these questions? I'm glad to be joined by Dan Modlin as always and some questions that he has on this important issue.
Dan
And obviously this is an issue that concerns a lot of people, not just in the United States but around the world, obviously one of the changes that some people have remarked on in Putin's approach to the discussion of nuclear weapons or possible use of nuclear weapons is that in the Cold War. Era. Both sides tended to take the position they didn't want to be the first to use a nuclear weapon. How has Putin's approach changed?
Kevin
Yeah, that's a great point. And that goes right into the weeds of this question. Both sides during the Cold War, after they both acquired weapons, realized that they were better off not first using them because of the retaliatory nature of the weapons, especially the threat of retaliation, was so undesirable that both sides decided not to escalate tensions and a lot of times it may have helped quell some fears throughout the Cold War. So in a sense, even though weapons are very damaging and of course, deadly to some people analyzing it, it created a degree of stability because both sides had a sense of what the other side would do and a retaliation part of that aspect was an understanding by both sides that they would not be the ones to start a war. They would not be the ones to escalate it and that helps also contribute to some semblance of stability. Again, it's kind of contrarian to think that stability comes from these terrible, destructive weapons, but many people came to that conclusion when gaming out in various scenarios. Part of that has been a position that both sides, after the end of the Cold War. Reduce their nuclear stockpiles and in fact. Even Putin was part of the range of treaties that reduced weapons, but there is an evolution in discussion on what that doctrine looks like, and there's two components on that. One is the suggestion that they may escalate by their own decisions and that they have a mindset or an argument, especially people in the US think tank community emphasizes this idea that Russia may escalate a situation in order to deescalate. So they may uilized nuclear weapons, tactical or strategic, with the goal of using that as a way to get out of a conflict. This is troubling to a lot of analysts and therefore they emphasize this aspect, but I think what's important in this is also to realize that both of those components emphasize the singular decision making of a president. So a policy that is retaliatory or says that they will not be the first one to use that actually puts less responsibility and decision. By that country, right? That would just mean that they would have to retaliate if they were attacked. So that puts less decision weight on that. But this change in policy puts greater emphasis for us to consider how Vladimir Putin thinks, and I think this is very important as it. As a conversation, as you mentioned, because I hear a lot of people ask questions about this. This is when the war started. This was what a lot of people were concerned about, and I hear people continue to be concerned. Whether it be my students or friends I run into, they ask about this question. So it's important for us to think about what Putin is thinking about. But it's also important for us to pause. And recognize all of the flawed analysis that has preceded this conversation. A lot of people have basically baked in their own assumptions of how Putin thinks. is

Welcome. Thank you for joining us for this edition of the Modlin Global Analysis. I'm glad to be joined by Dan Modlin, and we were talking recently about how it would be helpful to do a post-debt ceiling negotiation wrap-up and explore what has transpired the last few days. As well as the ramifications and the content of those policies, so we will dive in both into the content as well as the politics involved.
Dan
This Kevin has certainly been an interesting last few days and something that has been rather fascinating to watch. Several people who listened to last week's podcast on the debt crisis that we posted pointed out that you seem to be pretty much right on the money on several things that came about. So I think it might be good for us to talk a little bit about some of the things we discussed that we might see happen. That actually did come to pass.
Kevin
So part of this goes to the point that I tried to emphasize is in politics, sometimes listening to language is not a good leading indicator. Of how policies will develop. So it's common for political actors to have disdain or say, even inflammatory things about their rivals, and then other people in the echo chamber reinforce those points, or even, say, wackier things. These are not strong indicators of anything. In the policy-making process, it's better to see what are the must-pass pieces of legislation, and again, from a Washington standpoint, what is must pass is not necessarily the things that individuals or groups think are most important, but what is the state find most important. And for a state money making money, spending bills and related item are the issues that are always going to be top of the list, so whether this be appropriations bills or tax bills or these related items, that is always part of the function of a state and was necessary. And then you start looking at the components of the negotiations and you think what is palatable to all people? Not what is the preference or what is desired by all people, though probably everyone in the room wanted to raise the debt ceiling. All of the other components we're trying to fill a space out for what is palatable. So for example, we're sending money from COVID-19 funds. It's very common for Congress to rescind spending for money from crises or other major events that has not been spent. And there's a lot of reasons for that. One is they're reasserting their authority over the spending, but also because it's open money that hasn't been spent. It's like families, budget for travel that they didn't spend entirely in one area that they decided to use that money and some other space. So Congress has this same mindset, and this was used basically to quote unquote, reduce the deficit through that, so that was seen as a way of leveling down the numbers for this coming fiscal year.
Dan
Let's talk about some of the key provisions that are in the bill that passed. As you look at the bill, what were the major things people in the general public need to know that were in that bill?
Kevin
Right. So there's a lot of the policy components and again this has to do with each side feeling its space to reach a palatable compromise, given what was an impermissible for each side. But what was became permissible for them. So they're our work requirement. Changes for individuals that are seeking food stamps program from 50 to now 54, but there are also some adjustments on that that gave more flexibility. Individuals that are veterans or homeless or have a history of being in the child welfare system. It is also has a cap on spending for this year and a 1% increase from this coming fiscal year into the next. The year as well as a reduction in domestic spending, but a a slight increase in defense spending in line with what the President proposed in his budget. It also changes some permitting rules that are interesting that will allow more energy projects and to go forward, it seems, or at least have a somewhat more streamlined pro

Thank you for joining us for this edition of the Modlin Global Analysis Podcast. I'm glad to be joined with Dan Modlin, who will be asking a series of questions. This week, he and I have been having a rich conversation that we wanted to bring you all in on China and some changes that were noted. Using about China and things that we think that are developing that are important to have a general conversation about, these are factors that particularly have economic ramifications, but I think these are important to consider.
Dan
Kevin, at your recent presentation at Lost River Cave, several people asked questions about the economic outlook for China. And it's kind of a mixed situation right now. Isn't it kind of a challenging situation for Chinese leaders?
Kevin
China does face a series of challenges. One of them was related to, of course, COVID and the policies that they had around closures. But even before COVID, there was a shift in policy outline where they call it a dual circulation economy, where they emphasize exports as much as they do on domestic consumption. When in previous time periods, they emphasized exports primarily. So when they speak of emphasizing 2 things, that is a way of elevating an emphasis on domestic consumption. And of course, that has been a component of their economy, but this is a new emphasis on where their consumers are headed with that, and we know from general economic studies that when countries start to emphasize their domestic consumption over export they will have generally slower economic growth compared to previous time periods. That does not mean that it is a recessionary condition or depression or anything close to that, but it is a slower growth model.
Dan
OK, so China may actually not be growing as we've expected it to in the past.
Kevin
The pandemic, of course, interceded within this framework, so these are the general goals that China had in the pandemic with the closures and everything intervened and caused even probably greater slowdown than they hadn't planned for. But we can't anticipate that over the coming decade that there will be less global output from China. As far as general. Here we are seeing a lot of reshoring of facilities as well as moving to companies and regions outside of China and general Asia.
Dan
On the subject of growth, just recently in May, an American economist named Bob Lucas, a macroeconomist passed away, and I understand a lot of his studies really dealt with growth itself.
Kevin
He was fascinated by economic growth and in a way his passing is a contrast to what we may be seeing going forward in China. Again, we saw China growing at 8 and 9% year over year, for the last few decades, and I think it's important for us to really consider what that outlook may look like. Does that mean it's 3 or 4% growth, which is still again significant. But it is a different way to look at what China's economy will be producing as well as what the security outlook and capabilities look like for China over this coming decade. So Lucas provides a kind of a starting point in trying to understand why states grow, and they're the impetus behind these instruments, and we know that focusing more on consumption does usually produce lower economic growth.
Dan
Lucas dealt with a concept called rational expectations. What does that mean and what does it mean to those of us who don't work in economics?
Kevin
So rational expectations is basically kind of a challenge to the models at the time that he was looking at that were based on Keynesian economics. He asserted that people were simplifying some things or not assuming human beings would think through choices and make the weight of their own choices seen so that they people just skipped over the ramifications and the choices of individuals. Whereas he brought in this micro emphasis here that individuals have a weight in their own decisions. And that has to be accounted for in economic choices, and this is particularly relevant in ou

Thank you for joining us for this edition of the Modlin Global Analysis podcast. I'm glad to be joined by Dan Modlin for a series of questions. We're going to have this week where we normally focus on international affairs, but this week we're going to focus on the debt conversation that we see going on in Washington. So Dan, you had some questions and thoughts on that?
Dan
Yes, Kevin, there's obviously been a lot of partisan bakery from both. Slides about the negotiations that lead to this debt limit question, and I think it might be helpful if we step aside from the partisan discussion of this and just get down to the basics, talk a little bit about how this got started, what were the factors that put us in this situation with this debt limit crisis?
Kevin
That's a great question. First, the federal government approves three types of spending type issue related matters, so one has to do with the total spending that occurs through a fiscal year as you're what we call appropriations bills, then you also have the taxes that are occasionally approved by Congress that go on until an endpoint. And then you have the conversation around a debt limit, and these questions all converge in different time frames, but basically, your debt hits at a moment where your revenues are not meeting up with the spending and particularly in environments as we've seen. In recent years, with increased obligations for spending for entitlement programs that you have this wall and needing to address the debt.
Dan
Now you touched on this a bit, but maybe we could expand a little bit more and help us understand why leaders don't have a better idea of when the debt limit is going to be reached.
Kevin
So a lot of this has to do with the fact that while we have an idea of the total revenue that we will bring in year over year as a federal government and the idea of the total spend. At any given day, any given week, and month, it has variations to it. So we have an idea in the total, but month over month there's variation, and that's not unlike what we may expect with the weather. We don't know when it's going to rain, but we have a general idea of how much rain we will get each year. So because of that, we don't know when the limit will always be hit, but we have a general idea of when it will come about.
Dan
Now, one of the questions I think a lot of people have during these discussions is why it seems that leaders wait until the last minute frequently to resolve fiscal situations in Washington. You have quite a bit of experience working on Capitol Hill yourself. Help us understand that. Why is it that people can't sit down and get these things worked out in advance?
Kevin
Even though the specific date is uncertain, sometimes on when the debt limit may be met. The general timeline and when it's anticipated is understood by all sides and in Congress. They are not ignorant about timelines or when these develop, it has to do with what the expectation of what leverage they can get from certain time frames or when addressing certain. Questions and the general anticipation was that House Republicans were not benefiting from a prolonged standoff on this question that over time they would lose leverage in negotiating with time and the Senate side thought that they had more leverage over time and. So the anticipation was, is that these timelines would feed into that. Now what contributed also to this assessment was the expectation that House Republicans would have difficulty getting a measure approved and through the Chamber and they didn't expect that would happen. So both the expectations on where leverage was, but also the feasibility of a measure being passed or kind of merged together and perhaps conflated in some estimates. So what we're seeing now is now that House Republicans passed their measure and this has brought about a more robust debate among proponents of reducing some spending programs and those that are running more of what's called a clean debt