The horizon is not so far as we can see, but as far as we can imagine

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Week-end Wrap – Political Economy – July 31, 2022

by Tony Wikrent

Strategic Political Economy

Will elites be allowed to “cull the herd”?

Lambert Strether [Naked Capitalism Water Cooler 7-27-2022]

We’re engaged in a massive social experiment to see whether an elite (ruling + governing classes) can “cull the herd” in six-figure quantities, and still retain hegemony (TINA); the Covid pandemic is only the latest and most obvious example. So far, the answer seems to be yes, or even “Hell, yeah!” Viewed in that light, is “the system” “at risk” at all?


Global power shift as USA and west commit “suicide by neoliberalism”

Is this or is this not a recession? It doesn’t matter, there are much bigger changes afoot — Philip Pilkington

Philip Pilkington [Macrocosm, via Mike Norman Economics 7-29-2022]

What is going on? Simply put, the West is getting poorer. We are seeing two things at once. First of all, policymakers have lost the plot and started intervening heavily into the economy with lockdowns and various other policies that destroy the supply-side of the economy. Secondly, we are seeing an enormous geopolitical shift centered around the war in Ukraine. The old model where the rich West runs large trade deficits with the poorer developing countries in exchange for worthless paper is coming to an end. We are exacerbating this transition by engaging in self-destructive sanctions policies that interfere with markets in everything from energy to fertiliser.

In a few words: the West is in decline and our leaders are greatly accelerating and exacerbating this decline. They can cover this up with redundant arguments about what is and isn’t a recession for so long. But at some point either the inflation will get worse — perhaps by gas shortages in Europe this winter — and/or the unmeployment rate will spike. At that point, the underlying dynamics will become too obvious to ignore. For politicians and the general public anyway. Economists will likely find some other redundant nuance to debate and distract.


Russia’s Vostok 2022 has big messages 

M. K. Bhadrakumar [India Punchline, via Mike Norman Economics 7-27-2022]

[Bhadrakumar is a diplomat and former ambassador, retired from the Foreign Service of India.]

Vostok 2018, held exactly four years ago, was the first time such a massive military exercise was held after the dissolution of the Soviet Union. (At the height of the Cold War in 1981 under Leonid Brezhnev, the Soviet Union held its last Vostok exercise). In the event, Vostok 2018 turned into a Russia-China gun show.

The Russian Federation put more than 300,000 troops in the field—alongside tens of thousands of tanks, helicopters, and weapons of every sort—for a huge war game in Russia’s far-eastern reaches, and invited the Chinese People’s Liberation Army to play along, which it did.

And a whole new groove in international affairs began appearing, signifying that the interests of Russia and China have once again begun to align — this time around, in response to US military power under a pugnacious president, Donald Trump.

On the sidelines of the exercise, Presidents Vladimir Putin and Xi Jinping had a breakfast of blinis together in Vladivostok. It was a powerful signal that Russia no longer saw China as an adversary but as a potential military ally. It was widely noted internationally as heralding a major shift in the co-relation of forces in world politics.


21st Century Order 

Patrick Lawrence [Consortium News, via Naked Capitalism 7-27-2022]

Moscow/Teheran meeting: “[P]art of a long-in-the-making project that will connect Russia, Iran, and India by sea, road, rail, and, eventually, a very significant Iran–to–India oil pipeline.”

Open Thread

Use to discuss topics unrelated to recent posts.

Correct Priorities in China’s Response to the Mortgage Boycott

So, China’s construction market has a problem, and vast numbers of Chinese have stopped paying mortgages on stalled out or behind construction projects.

The government’s likely response?

…a typical scenario would involve seizing land from a distressed developer and giving it to a healthier rival, which would in turn provide funding to complete the distressed developer’s stalled projects.

And there is this:

The focus on completing projects is the latest sign that policy makers are prioritizing homeowners over bondholders, who have been burned by a record number of defaults by real estate giants including China Evergrande Group.

This is a correct response. Investors who lend money (which is what bondholders are) are gambling. If whoever they gamble on can’t pay, they should lose their money. That’s how it’s supposed to work, and it’s how it has to work if markets are to do their job. A market assumes that someone making a profit is producing something other people want for less than they’re willing to pay. Investors are supposed to direct capital towards those sorts of producers. If they make bad bets, they should lose their money, and someone else should make the bets.

Lenders and developers exist to do things. Investors finance those enterprises which provide “utility” and make a profit. Developers construct buildings (which have utility) at a profit. If you can’t both provide a service or product with utility and make a profit, you should not survive in a market economy. That’s how it works.

So the bond-holders should lose their money, and the developers who can’t construct buildings at a profit should go out of business and, yes, the consumers should be protected as long as they acted in reasonable good faith. Ordinary people aren’t developers or financiers; unless there was an obvious reason to expect fraud which an ordinary person should have seen, they should be made almost whole. Not entirely, so that they become a little more wary in the future, but the delays already do that.

China’s central government should have acted on this much sooner, but if they go with this response, it’s a good one. Westerners should learn: Investors, traders, and businesses can’t be protected classes in a market economy.


BA.5 Covid Is Incredibly Virulent and MonkeyPox Is in Exponential Growth


Remember that even a mild case of Covid can cause organ damage without you knowing, or can give you Long Covid with symptoms, sometimes extremely severe symptoms and that damage can accumulate each time you get Covid.

Meanwhile, two days ago, from WHO:


Don’t assume that because you aren’t gay or don’t have a lot of partners you won’t get monkeypox; plenty of people who aren’t having anal sex are getting it. Most of the guidance I’ve read says “direct contact,” but…

While experts believe monkeypox spreads primarily in close contact through skin lesions, evidence suggests the virus can also be airborne, at least over short distances. For example, during Nigeria’s monkeypox outbreak in 2017, scientists recorded cases of airborne transmission within a prison and in health care workers who did not have direct contact with patients. However, it is not clear how much airborne transmission contributes to the overall spread of the virus.

What I suspect is that monkeypox can spread through droplets, which is not the same as Covid, which is fully airborne. Droplets is how most scientists originally thought Covid spread, which is why “social distancing” was emphasized so much at the start of the pandemic.

Generally vaccines are not available unless you’re queer and have multiple partners, but check locally. I suspect the directions at the start of Covid should be relatively effective vs. monkeypox: distance, use 70 percent ethanol or dettold, and wear a mask. (Soap alone will not do it – correction.)

This stuff is nasty, takes a month to clear, and can leave permanent disfiguring scars. So keep an eye on it and take it seriously if it’s spreading where you are.


China Jumps Two Chip Generations Ahead: Why Chip Sanctions Backfired

Faster than most expected:

Semiconductor Manufacturing International Corp (SMIC, 中芯) has likely advanced its production technology by two generations, defying US sanctions intended to halt the rise of China’s largest chipmaker.

The Shanghai-based manufacturer is shipping bitcoin-mining semiconductors built using 7 nanometer technology, industry watcher TechInsights wrote in a blog post on Tuesday.

That would be well ahead of SMIC’s established 14 nanometer technology, a measure of fabrication complexity in which narrower transistor widths help produce faster and more efficient chips.

Since late 2020, the US has barred the unlicensed sale to the Chinese firm of equipment that can be used to fabricate semiconductors of 10 nanometers and beyond, infuriating Beijing.

Now, there’s a question if they can scale, but this is still a huge step. This means that they are ahead of Europe and the US, and behind only Taiwan and Korea. This is also sooner than almost all experts predicted: China did what Western technologists thought could not be done so quickly.

This speed, as I have noted in previous articles, is not that surprising; the technological lead always moves to the country which holds the world’s manufacturing floor. When Britain fell behind the US, it took about 30 years for them to lose their tech lead, but lose it they did. The same will happen with the US and Britain, but likely faster for obvious reasons like jets, the internet, and so on.

To put it simply, when you are right there with the factory floor, your innovation cycles are far faster, or in modern-speak, you iterate more quickly. You also have more practical experience with what actually works.

The “ban semi-equipment and semi-sales” to China card was a card, like the freezing of Russian foreign reserves, that you only get to play once at a great power. China is more than happy to subsidize chip manufacturers to learn how to make this tech domestically, and they are also crashing other key techs they’re behind in (like aviation), because it’s clear if the West would put a ban on semis, they’ll do it to anything or everything else.

China’s Job , and Xi has stated this publicly, is to make it so that they can’t be choked out by the US (the “West” is mealy-mouthed; the US makes the decisions, and the EU, Japan, and so on just do what they’re told, with occasional exceptions). Making Russia a locked-in junior ally with the sanctions regime made it so that China couldn’t be choked out on natural resources, and making it clear that crippling sanctions are on the board caused China to scramble to close the deficiency.

Unlike with choking out Japan over oil before WWII (which is why the Japanese felt they had to attack the US), however, the partial sanctions on China were not crippling, because unlike pre-WWII, the US is not the world’s primary industrial power, and it has its own dependencies on Chinese trade.

In realpolitik terms, because this is the case, sanctions should have been all at once, followed by war (I’m not for this, I’m massively against it, not least because of the issue of nukes). Half-assing it just gave China time to decouple its key dependencies and, as noted above, the anti-Russia sanctions were a gift from heaven to China.

The game continues, and if it were not for climate change, all the smart money would be on China as the pre-eminent world power within 20 years, probably sooner. As it is, a lot will depend on variables that humans have chosen not to control and soon will lack the ability to significantly control.


Politics Series: Government

(Previous: Power)

(Introduction and Table of Contents)

Government is the people who make choices about law and policy, plus those who implement the policies and enforce the laws.

The strength of a government can be measured by how easily they are able to implement those policies and enforce those laws, and by how many non-approved actors are running shadow governments. It is normal for apparently non-governmental organizations to implement the will of government.

In our society, large firms actually enforce or fail to enforce most tax law, private companies build most buildings and weapons using government funds, and so on. These organizations are effectively arms of government.

Organizations like gangs, mafias, or corporations which are able to ignore the government and do what they will against both law and policy are indications of government weakness. Depending on the government’s strength, this can include warlords, churches which cannot be taxed, self-defense militias, and feudal lords who no longer follow the King’s laws.

Government which uses proxies to enforce its will, as opposed to its own internal resources is generally weaker than governments that have their own capacity. This can, most recently, be seen in China’s response to Covid, which, when necessary, has included door-to-door food delivery, testing of the entire populations of millions of people, and so on. This is capacity that does not exist in most other countries, and which existed in China prior to Covid, and thus could be used to help China implement its zero-Covid strategy.

Strong government has both this internal capacity along with the ability to convince external actors to do what it wants.

Power and legitimacy of government are similar, but not identical. A government’s legitimacy can be measured by how much force they must use to ensure compliance. A government with low legitimacy, but a lot of power, can still be effective, but voluntary cooperation is superior to coercion — those who are compelled may work hard, but they are rarely creative or helpful.

One may think of the amount of force required as equivalent to the physical concept of friction; legitimacy reduces friction and multiplies power.

We tend to talk of “government” as if it is singular, but outside of isolated human bands in the distant past, it never is. There are always multiple governments. Ideally the ostensible “top” government is the most powerful, but that isn’t always the case. Voltaire quipped that “The Holy Roman Empire was neither Holy nor Roman, nor an Empire,” and for large chunks of its history, the Emperor was the supposed head, but lower-level governments were more powerful.

In our own world, for much of the past 40, years the Somali government was substantially weaker than various warlords, and many have suggested that various Western governments are controlled not by themselves, but by corporations or outside forces. This “capture of government by other forces” is important, and we’ll discuss it later.

Most of the organizations which actually govern many Westerners’ lives are not officially governmental; if we work for them or go to them, corporations and schools decide the activities of our day-to-day lives, and they decide much of what will be produced, how and who will get it, what prices and wages will be, and so on. To be sure, they do so in the context of policies and laws set down by government, but corporations have proven to be more than willing to break laws if the price of doing so is less than the benefit to them.

In many countries, corporations are law in large areas. Mining firm mercenaries and security forces regularly inflict violence on those who oppose them, often even killing them, for example.

In the past, feudal lords were the primary law enforcement in regions that dwarfed the areas where the law (writ) of the king or emperor held sway, and even today, a ship’s captain in international waters is a law unto himself. For much of European history, free cities made almost all their own laws, and under the Tokugawa Shogunate, the haughty Samurai found commercial law distasteful and let merchants form and enforce their own laws for regulation of contracts and finance.

Government is what government does. If the rules and policies are formed by an organization we don’t call a government, it is still acting as a government.

Governments usually act to maintain and increase their legitimacy, based on their current ideology. As we discussed in the chapter on groups and coalitions, however, this doesn’t mean they’re concerned about their legitimacy with everyone. If a group isn’t part of the ruling coalition, and especially if it is not powerful, government may take actions that group considers illegitimate. This increases friction, but has all the advantages we previously discussed.

Neoliberal governments, for example, are not particularly concerned with popular opinion. As the Princeton oligarchy study showed, such opinions are essentially irrelevant, all that matters is what those with some degree of wealth and power think. New Deal and post-war liberal governments, on the other hand, did care about popular opinion and often acted in reaction to it, having a broader base of support and weaker financial elites.

In the Dark Ages and much of the Middle Ages, legitimacy with the peasantry wasn’t very important, but keeping the feudal nobles happy was necessary, as Kings relied on vassals for much of their military might and income, and those vassals in return had vassals beneath them. The King, in such situations was the first among equals, acting to keep the nobility in power, and himself at the top of the heap. Indeed, in such governments, even merchants were often treated with little respect, and kings and nobles regularly defaulted on debt with little to no consequence. Killing those whom they owed money to, as with the French King’s famous destruction of the Templar Knights, was common.

In our own developed societies, school and universities are the primary ideological education hubs. In some countries, like the US, churches are very important, and their importance in the US has been the prerequisite for the rise of the modern right-wing, which vaulted Trump to power and which recently overthrew the federal US right to an abortion.

As we’ve discussed elsewhere, ideologies change, legitimacy changes, and societies, including their governments, change with them.

In the modern context, it’s good to remember FDR’s quote: “That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power.

It’s not a very good definition of fascism, as this would include monarchies, for example. But it’s an excellent definition of when a state is no longer democratic, whether or not there is voting. By this definition, the US is not a democracy, nor is the UK and nor are a number of other nations who identify as democracies.

But this is why there is fight over ideology and legitimacy. If you redefine what is “the right thing,” then you can change how a society operates — who controls it, and who gets the spoils. If democracy only means, “You get to vote” and doesn’t mean, “the mass of people control what the government does,” then you can try and keep the legitimacy of the word “democracy,” while also keeping the loot and power.

Many, if not most, American universities mandate that arts and social science majors take an introductory economics course in order to graduate. In that course, people are taught (not learn, but are taught), that everyone looks out after their own self-interest, that there are no objective standards for what is good (has utility), and that people acting selfishly (in their own self-interest) leads to the most good.

The great economist Keynes famously quipped that “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”

Stated this way, it’s obviously nonsense, but Economics 101 states its axioms (unprovable assertions) as laws, as if they were the equivalent of E=MC Squared.

This is ideological education. Indoctrination. Every society has it. No society I am aware of has existed without it, and I doubt that one ever has or can. Modern capitalism, whose priests are economists, asserts that if you make more money, you get it because you are providing, or did provide, services or goods people want, that what people want always has utility, and that rich people therefore deserve their money and implicitly, deserve even more money than they already have, so that they can produce more utility, which is identified as “good.”

The Divine Right of Kings was fundamentally no different. The Roman cult of the Emperors was similar, and, in the Roman Republic, the gods supported the State as well. All nobles and aristocrats (two different things) have asserted that they are the best people.

So what government is, and who controls it, is always justified by ideology. Ideology isn’t necessarily a dirty word, it’s like sex; it can be lovemaking, it can be just for fun, or it can be rape. It depends on the context.

Change the ideology and the legitimacy and you change what governments can and cannot do. Under feudalism, traditional rights were very important: If your great-great-great grandfather had a right to use the common fields or to 20 percent of the yields of the peasants on the land, so do you. To change those rights is illegitimate.

When absolutist monarchies began to take over Europe, at about the same time capitalism was becoming the dominant economic ideology, is also when we start seeing the enclosure of the commons — lands that peasants had the right to use as a group. It’s when nobles start not being allowed, in many areas, to not have their own troops, or to only have a few. It is when, slowly, nobles start losing the right to be judge, jury, and in some places executioner. The King, through his officials, began taking over those powers.

This change in ideology was driven by changes in technology (firearms and cannons) and by changes in economics. However, these changes were also driven by ideology and legitimacy in ways that are not clear to most people and which are also beyond the scope of this booklet.

It is legitimacy, and ideology, filtered through groups and coalitions, which determine what government can and will do. When governments start doing things that are against the dominant ideology, or physical conditions no longer allow them to keep their ideology, they weaken both themselves and the ideology, and in time, they lose power.

This is what happened in the 1970s, with the oil shocks and stagflation (high inflation and high unemployment at the same time). The promise of the New Deal and post-war liberal orders was increased general prosperity, that all boats would rise together, as John F Kennedy once said. When this was no longer true, and when the government, whether through lack of belief, incompetence, circumstance, or some combination of all three, was unable to meet its ideological promises, it lost legitimacy. The result was the end of the post-war order, symbolized by the election of Ronald Reagan in the US and Margaret Thatcher in the UK.

A government exists, then, to keep the promises of its ideological foundation. Lose the “mandate of heaven” by failing to keep those promises, and you lose power. A government may continue, but that government is based on a different ideology with different requirements for legitimacy.

This isn’t just about individual societies, however, it is about systems of governance which are regional and since the 19th century, global. Government is often imposed from outside a country or society, and it is thus that we will move to foreign affairs in the next chapter.

Next: Foreign Affairs


Week-end Wrap – Political Economy – July 24, 2022

by Tony Wikrent


Global power shift as USA self-destructs

Alfons Mais: “Russia has resources that are almost inexhaustible”

[Handelsblatt, via Naked Capitalism 7-20-2022] Original here.


[Twitter, via Naked Capitalism 7-21-2022]


Twitter, via Naked Capitalism 7-23-2022]


Record-breaking Chinese bridge clears hurdle to faster transport in border province 

South China Morning Post, via Naked Capitalism 7-19-2022]

PHOTO Luzhijiang Bridge in the southwestern province of Yunnan


China has built the world’s longest single-tower suspension bridge

[Interesting Engineering, July 17, 2022]

The 800-meter-long (2,625 feet) bridge is being built to improve the connection between China and Southeast Asia. It will drastically cut the travel time between the cities of Yuxi and Chuxiong from an hour and a half to only two minutes….

The Luzhijiang Bridge is also impressive because of the incredibly steep valley cliffs it rises out of. Drivers sticking to a 100 mph speed limit will come straight out of tunnels onto the 300-meter-tall bridge from either side. The steel cables used for the suspension bridge had to be secured by drilling a 100-meter tunnel for an anchor.

The bridge will also form part of a new 200 km (124 miles) expressway through Yunnan that will improve the passage to countries including Myanmar, Vietnam, and Laos. The expressway is part of the country’s Belt and Road Initiative, which is designed to improve connections with 140 other countries.


China Maritime Report No. 22: Logistics Support for a Cross-Strait Invasion: The View from Beijing (PDF)

[China Maritime Studies Institute, U.S. Naval War College, via Naked Capitalism 7-17-2022]

Open Thread

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