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

Month: February 2025

It’s The End of the American Era. Period.

The Course of Empire by Thomas Cole

The Course of Empire by Thomas Cole

Commenting on all the stupid (like Musk’s antics) is tiring sometimes.

I was trying to figure out what to write today. There are about a dozen possible posts, all of which amount to “Trump or Musk are flinging poo at the wall.”

So let’s forget all the stupid little details no one will care about in even ten years and cut to the chase.

America is in irreversible decline. If you think otherwise, you are living in a fantasy world. China will even take the lead in Pharma away from the US, probably no later than 2030. The US military can’t even keep the shipping lanes open and Carrier groups no longer have a full support group.

Trump is not going to make America Great Again. Even when Trump and Musk do the right thing, they do it the wrong way. There’s a lot of administrative bloat at universities and hospitals, and reducing that is a priority. But simply cutting the administrative grants overnight leaves no time for adjustment and will smash institutions to flinders. This might not matter if it was 1995 or even 2005 and the uS was still in the lead, but right now the US can’t afford the time to do things the stupid way.

Trump is breaking the Constitution. He doesn’t have the right to decide not to distribute money entailed by Congress unless Congress gave him the right. He doesn’t have the right to ignore judges who tell him not to do illegal and unconstitutional things. If Trump’s changes go thru, there will only be one real branch of government, the Presidency.

During The Decline America is Dangerous. America’s era of preeminence is cooked, there’s no question, but decline takes some time. The US is still insanely powerful and that makes it dangerous to anyone weaker than it within reasonable reach. This means, of course, that there’s almost no one in the world who shouldn’t, for purely pragmatic reasons, want the US to go down faster. The sooner it falls, the safer everyone else will be. Well, unless you’re Taiwan, but that’s foreordained already, it’s just a question of when.

America is Canada’s Enemy. No other nation is threatening Canada’s very existence, after all. America has never, ever, protected Canada from anything but itself and the only real threat to Canada has always been America. Trudeau said Trump is serious about annexing Canada, and Trump has confirmed it.

America is Europe’s Enemy. It has been at least since Biden’s presidency, where the deliberate policy was to cut off cheap energy and encourage European (aka. German) industry to relocate to America.

America is all its “allies” Enemy. America wants to cannibalize its allies industry and bring it to America. It doesn’t care what happens to its friends, with the exception of Israel, because of Israel’s massive influence in America, much of it certainly based on blackmail. Every American ally now needs to cut ties and either make a group alliance without the US, or make its obeisance to Beijing and try and cut the most favorable deal it can. Early movers will get better deals.

Europe Needs To Grow Up and Kick Out America. Europe’s weaker than it’s been in generations, and far weaker than it was in 2005 when I first suggested this path, but it’s still got enough industry, science and engineers to reindustrialize and build its own army. Cut a deal with Russia and China, kick the Americans out and stop whining about how you can’t defend yourselves without America. That’s a choice: you still have the ability to create your own arms industry and you have plenty of unemployed youngsters you could put in said military.

China is the next leading Great Power and it could be the next superpower if it wants it. I’d argue it already is the leading great power much of the world. Certainly it’s more important in most of Asia and Africa than America is. It will take the lead in, essentially, every scientific area. It is already the most dominant manufacturing power and that will only decline when it realizes that it, like the US after WWII needs to send more of its industry overseas or there won’t be anyone worth selling to. or any allies worth having.

This is the Era Endgame. This is what I’ve been writing about and towards for over two decades. This is it, this is America in irreversible decline, losing its constitutional government and descending into a non-military from of Caesarism. Maybe Americans will avoid the fate of rule by Imperial Presidents, it’s at least theoretically possible. For everyone but Americans and maybe Mexico and Canada the best outcome would be America breaking up. But no one outside of America should be doing anything but preparing for America’s fall, protecting themselves from America, and positioning themselves for the new era where China is dominant.

Week-end Wrap – Political Economy – February 09, 2025

By Tony Wikrent

 

Strategic Political Economy

Franklin D. Roosevelt, State of the Union Message to Congress, January 11, 1944​​​​​​​

[TW: In this speech, FDR proposed an economic bill of rights]

…a noisy minority maintains an uproar of demands for special favors for special groups. There are pests who swarm through the lobbies of the Congress and the cocktail bars of Washington, representing these special groups as opposed to the basic interests of the Nation as a whole. They have come to look upon the war primarily as a chance to make profits for themselves at the expense of their neighbors- profits in money or in terms of political or social preferment….

One of the great American industrialists of our day—a man who has rendered yeoman service to his country in this crisis-recently emphasized the grave dangers of “rightist reaction” in this Nation. All clear-thinking businessmen share his concern. Indeed, if such reaction should develop—if history were to repeat itself and we were to return to the so-called “normalcy” of the 1920’s—then it is certain that even though we shall have conquered our enemies on the battlefields abroad, we shall have yielded to the spirit of Fascism here at home….

 

The Business Community Is Extraordinarily Stupid. Is a dictatorship good for business?

Hamilton Nolan, February 05, 2025 [How Things Work]

…People often criticize business as greedy. Yes. It is greedy, as water is wet. Understanding corporations as anything other than soulless robots seeking profit is a mistake. This is why it is wise to tightly regulate them and unwise to allow them to do whatever they want. In a related sense, people often say, “Hey, wouldn’t it be in the self-interest of business to pay more taxes and subject themselves to more regulations and and generally push for more progressive values because it would help to create the stable and happy society outlined above, which is good for business in the long run?” Well, sure, but this question misunderstands the fact that the political actions of the business lobby assume that they will always be pushing against some force that is pushing back, and that the progressive forces they are pushing against will be enough to protect the basic structure of democratic society, even as businesses try to undermine it just enough to put money in their own pockets. Businesses want to pick up pennies in front of the steamroller, but they don’t want the steamroller to run them over.

Well fuckers, you have miscalculated. You rats.

The business lobby’s many years of selfish conduct and support for deleterious public policies have produced so much inequality and undermined our democratic institutions so successfully that we are now watching a strongman seize control of our government. Smooth move, you fucks. You grasping roaches. Your efforts have gotten us here. All the Koch Brother/ Federalist Society types who invested so much money in capturing the courts for the right wing have gotten us here. All the nice Chamber of Commerce types who supported the Republican Party even as it radicalized further and further because they wanted those tax cuts have gotten us here….

 

Shock Doctrine USA

Thomas Neuburger, February 07, 2025 [God’s Spies]

What we’re seeing is not a new autocracy, but the old coup, the one called “neoliberalism,” the one we’ve been watching since Reagan: the complete dismantlement of government-by-the-people till only the rich have rights. It’s not the removal of the big FDR state, but its slow, then faster replacement by an equally muscular state responsive to wealth….

….Carl Biejer highlights this point in a recent paid-only piece, “The shock doctrine comes to America.”

Beijer’s point: This isn’t a new autocracy he’s creating, but the same old tried-and-true shocking. The war’s not being waged by Trump, but by “capital” writ large….

“This is what neoliberals have done over and over again to dismantle the state in other countries.…

“The neoliberals are taking an axe to the government rather than a scalpel, and this means that the left could very well see all kinds of programs related to US empire and the security state undergo some significant defunding. But we should not have any illusions about what is driving this: neoliberal austerity”

 

The Logic of Destruction, and how to resist it

Timothy Snyder, Feb 02, 2025

What is a country? The way its people govern themselves. America exists because its people elect those who make and execute laws. The assumption of a democracy is that individuals have dignity and rights that they realize and protect by acting together.

The people who now dominate the executive branch of the government deny all of this, and are acting, quite deliberately, to destroy the nation. For them, only a few people, the very wealthy with a certain worldview, have rights, and the first among these is to dominate.

For them, there is no such thing as an America, or Americans, or democracy, or citizens, and they act accordingly. Now that the oligarchs and their clients are inside the federal government, they are moving, illegally and unconstitutionally, to take over its institutions.

The parts of the government that work to implement laws have been maligned for decades. Americans have been told that the people who provide them with services are conspirators within a “deep state.” We have been instructed that the billionaires are the heroes.

 

Constitutional crisis

Elon Musk Wants to Get Operational Control of the Treasury’s Payment System. This Could Not Possibly Be More Dangerous

Nathan Tankus, February 4, 2025 [Notes on the Crisis]

I try to keep emotion out of this newsletter. I have always tried to write Notes on the Crises in a calm, detached tone so that the information I highlight shines through. However, I must be honest with readers: I’m absolutely terrified…. There is nothing more important on the entire planet than getting Elon Musk and DOGE out of the Bureau of the Fiscal Service and allowing career civil service employees to run the Treasury’s internal payments system without capricious and self-serving interference from billionaires and their allies….

Musk and his cronies are clearly aiming to redesign the payments system to serve their agenda. The most chilling sentence is this one from the Wall Street Journal:

“It couldn’t be determined what DOGE representatives intended to do with their access to the payment system. Musk and his team think the payment system should be overseen by political appointees selected by President Trump, the people said.”

This is not the attitude of people who are trying to simply technocratically make the payment system more “efficient.” They have a very clear and specific agenda, which involves unilaterally cutting spending, particularly spending they perceive to be going to their ideological foes. Is “Wokeness,” the “Green New Deal,” “Marxism,” and “Gender Ideology” going to be the new definition of an “improper payment”? ….

The data the Treasury collects could not possibly be more sensitive. We are talking about hundreds of millions of Social Security numbers, as well as a raft of other specific identifying information….

This system collects between “10,000 – 99,999” social security numbers along with identifying “business” information, including sensitive financial records and “business” bank accounts. Does anyone think that if Musk could get his hands on this information, whether directly or indirectly, he would not use it to go after, say, nonprofits he dislikes? At 3:14am Sunday, Musk pledged to shut down “illegal payments” to Global Refuge, a faith-based organization that exists to provide “safety and support to refugees, asylum seekers, and immigrants from across the world.” Musk messing with ASAP is no hypothetical at all….

In some ways, as enormously alarming at this all is, it’s somehow not the biggest concern that I have been thinking about. For the past 36 hours (writing these words at Midnight on Saturday) my mind has returned over and over to the idea that they have been asking for “source code information” to the Treasury’s internal payments system….

COBOL is the lingua franca of mission critical legacy IT in use since the 1960s and too many systems have been too important to abandon it. “Modernization” has instead been built around making COBOL function somewhere besides a mainframe. The “modernization” of the Treasury’s IT payments infrastructure seems to have constituted a combination of rooting out Assembly code and a basically completed transition of “mainframe” COBOL to an “internally-developed RM COBOL” running on Linux servers. RM COBOL is an update on mainframe COBOL “designed for optimum performance and wide portability across a broad diversity of computers and operating systems.” Most notably, the Treasury’s transition to RM COBOL seems to have involved harmonizing more than 30 different COBOL systems which had evolved separately. It was 30 “dialects” they managed to get to speak one standardized language.

Does Elon Musk understand any of this? Does he have any grasp of the scale and complexity he is trying to reach into and exercise “influence”? Currently the most urgent and profound danger is not what he intends to make this sprawling apparatus do. The most immediate danger is what might break in the process of trying to get this apparatus to do what he wants.

At every step of modernizing this system they have run systems concurrently to make sure the “new” functions as well as the old. Redundant systems are only phased out over long time periods after they have enough data on system functioning to feel confident in the “modernized” infrastructure. This is expensive, time consuming and absolutely necessary to make sure this system functions 100% of the time. Elon Musk, however, has never shown respect or understanding of the concept of a mission critical IT system. All he sees is “inefficiency” because he doesn’t understand that there are some things in this world that need to function no matter what and you spend the additional money to make sure it runs, including when it’s being updated….

Why Claiming Gaza’ Death Toll Was In The Ten Thousands Mattered

For most of the Gaza “war” official civilian casualty numbers were in the mid tens of thousands. They rose quickly at first, then they rose slowly, which was odd, because as time went by there were fewer and fewer hospitals, less food, less clean water, less medicine and less of Gaza that wasn’t rubble. There was every reason to expect the death toll to accelerate.

It now seems like the death toll is around four hundred thousand, perhaps higher, out of an initial population of 2.2 to 2.3 million.

The official numbers were offered by Hamas and they were obviously wrong, on the face of it. I don’t entirely know why, but there are some likely possibilities:

  • The longer the war went on the less capacity there was to count the dead;
  • Lots of dead were buried under rubble or otherwise hard to count;
  • The Ministry wanted to give the most conservative number, only what they could actually prove, rather than what they knew was actually the case. Similar to how most climate change forecasts are wrong to the downside. They figured this would protect them from charges over inflating the numbers or being alarmist.
  • Hamas wanted lower numbers because, after all, it looks bad when they can’t protect Palestinians, essentially, at all.
  • Israel went along with it because while they knew damn well that they were committing genocide, the lower the number the easier their propaganda job was, since for some odd reason a lot of non-Israelis think genocide is bad, even if you do it to “subhumans.”

It’s the last two which are most important. There’s a big difference between the official death toll of 46,600 and a death toll of between 300,000 and half a million. Tens of thousands could indicate depraved indifference to Palestinian civilian deaths rather than deliberate genocide, if you were inclined to believe that already. Hundreds of thousands makes it much, much harder to deny.

This is why I railed against those who uncritically repeated the official death number, even if they were anti-genocide. It’s why the Lancet publishing higher estimates mattered. It’s why I wrote that I figured the actual death toll was closer to half a million.

It’s also a good idea, generally, to not believe obvious bullshit.

Gaza was a genocide and the scale of the genocide matters. Trump now wants to ethnically cleanse those who remain, and who knows, he might let the Israelis restart the genocide if the ethnic cleansing plans fail.

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My Call Of Half A Million Gaza Deaths Appears Close + Trump’s Gaza Policy

Trump has repeatedly said that he wants to move Palestinians out of Gaza and that there are about 1.7 to 1.8 million people to move. The pre-war population of Gaza was 2.3 million. About 100,000 Gazans managed to flee to the Sinai in Egypt (presumably a combination of bribes and sympathetic border guards who disagree with Sisi’s “let them die” policy.

So we’re looking at 400,000 to 500,000 deaths if Trumps figures are accurate. Yes, I know, Trump: but he’s been briefed and why use those numbers?

I wrote:

That is to say that the indirect death multiplier is almost certainly higher than average in Gaza. So let’s assume just slightly higher than average: an eight times multiplier.

Now do the math 8*60,000=480,000.

A reasonable estimate of the death toll in Gaza is thus 480,000 people. Almost half a million and about seventeen percent of the pre-war population.

The idea that the death toll was around 50K was always ludicrous, given the constant bombing, lack of food, destruction of hospitals, deliberate murder of doctors and nurses, disease and lack of water.

I would assume the death rate was accelerating and if the genocide had gone on would have continued to accelerate: starvation, disease and lack of water tend to work that way.

Meanwhile, having stopped most of the bombing, Trump wants the US to take over Gaza and rebuild it as a resort, as best I can tell. His son in law, Jared Kushner, in February of 2024 said:

“Gaza’s waterfront property could be valuable… It’s a little bit of an unfortunate situation there, but I think from #Israel‘s perspective, I would do my best to move the people out and then clean it up.”

This requires either Jordan or Egypt to take the Palestinians, and neither of them want them, since they’re destabilizing and will also strain budgets. America can offer money, but America’s promises have become increasingly… erratic of late. Egypt, of course, already receives a ton of money from America in exchange for peace with Israel, but Palestinians being pushed into Egypt would violate the treaty which started those payments.

Bear in mind that Hamas is an offshoot of the Islamic Brotherhood, Sisi’s mortal enemies whom he couped in order to become “President.”

And the Palestinians may not all go voluntarily, so military force will be needed, presumably American boots on the ground.

This plan is very obviously ethnic cleansing, which is evil. It is, however, the lesser evil compared to Biden’s “keep them locked up and bomb and starve them all to death”, which would have presumably continued if Harris had one. Hard to say how this will play out, Trump might well let Israel go back to full on genocide, but so far it appears that Trump was the “lesser evil” at least as far as Gaza is concerned.

Egypt needs to be talking to the Chinese about aid, stat and figure out what they can offer the Chinese. Though a chance to poke a finger in Trump’s eye is likely appealing to Xi right about now. Trump has no respect for treaty obligations and will definitely threaten Egypt’s funding to force an acquiescence.

Meanwhile Turkey, Egypt and Iran all need to get off their asses and get nukes.

 

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Is Trump Running A Coup?

Commenter GrimJim makes the case, using my own writing:

Ian, I am beginning to think that someone working for Trump and Musk must have read your works.

That, or they read the same books you have used as the groundworks for your own beliefs.

Particularly, on how to run a revolution:

https://www.ianwelsh.net/7-rules-for-running-a-real-left-wing-government/

and

https://www.ianwelsh.net/revolution-basics-1-who-cares-what-you-think/

And I am sure there are more. I know you’ve posted about how you have to run a purge first thing.

They are essentially following your playbook.

Media Law: They already own it and are locking it down harder. The Masters of Media are going to kneel to Trump or be punished.

Banking Sector: Already own it and are reformatting it further, and Musk has now gained access to everything that the Feds knew and manage, completely outside of legal channels.

Administrative Class: Purging the government and quickly gaining power over the industrial administration that was not already onboard.

Distribution and Utilities: Same, even showing off that he can screw with state-level works by pouring the water saved for California’s farm on fallow fields.

Reduce Your Vulnerability to the World Trade System: Again, making them kneel or alienating them so much that they will no longer be part of the system.

Be Satisfied with What You Can Grow and Make: That’s what the tariffs are all about. Stupid way to go about it, but that’s what they’ve got. Maybe they figure they will provide required subsidies to important (oligarch-owned) interests once everything is under their control, and masses of Poors have died off in the coming financial cataclysm.

Obey the Laws of Purges: In progress, the worst is yet to come.

“Why should I care what you think?” They don’t. They’re showing that in no uncertain terms and have even stated so in black and white to the courts. We will know that this process is complete if/when SCOTUS somehow decides against them, “The Supreme Court has made their decision; now let them enforce it!”

They are following the formula to a T.

The Republic is almost finished; I think we can stick a fork in it very soon.

I’m less sure, though parts of this are definitely true. Let’s deal with the quibbles: Trump isn’t doing tariff wars for the reason a left wing government under the WTO-Neoliberal-Sanctions regime would. They know that sanctions and trade can be used to destroy their economy. America isn’t in that position. Tariffs and tariff threats are about something else. In some cases, making countries bow, in other cases Trump appears to believe tariffs are free money, and there’s probably also an attempt to re-shore industry. Biden was already Cannibalizing European industry through high energy prices forcing energy sensitive industries to relocate to the US after the NordStream sabotage. Tariffs, for countries with trade surpluses with the US, are intended to have the same effect.

I think a lot of this comes down to something we’ve talked about before. “You go for the King, you’d better not miss.” I warned, repeatedly, that prosecution of Trump was an all-or-nothing matter. You either take him out, completely, or you’re fucked, because you’ve destroyed an elite norm against going after ex-Presidents seriously. (Note that Trump said he’d prosecute Hilary Clinton, but never did.)

Trump’s first actions have included a purge of law enforcement and prosecutors who went after him, the people who tried to help him steal the 2000 election, and his January 6th shock troopers.

What the hell did Democrats expect? That they could prosecute Trump and his people and that if he got back into power he’d shrug it off? How fucking stupid are these people?

If you prosecuted Trump, you had to make it stick and throw him in prison and take every red cent he had. You don’t go after an ex-President who still has a power base without making sure you finish him off.

The bloody fools.

In some respects Trump is just self-protecting. He has to take control of the Justice system so that when he leaves office he’s safe, at least, from any sort of Federal prosecution and with his loyalists in charge of the Justice system, attempts to end-run using the State system can be countered by simple threats. “If you do, we’ll go after your people, and we’re a lot more powerful.)

Trump is taking control of government: the treasury system and all expenditures, and the legal enforcement system. No one will be prosecuted who he doesn’t want prosecuted. No one will get money whom he doesn’t want to get money. Anyone he does want prosecuted will be and anyone who wants to have money, will have money.

Is it a coup? That depends on intention. Does he intend to step down in 2028 and allow free and fair elections? Or does he intend to make sure that elections are only a fig-leaf and he, or more likely given his age, his chosen successor is essentially appointed?

Trump could just intend to punish his immediate enemies and make sure the government does exactly what he wants, or he could intend to turn this into a permanent Republican state, with at least his successor chosen by him.

If he really wants to be safe, well, he needs to appoint his successor.

GrimJim is right about the court system. There are two plays: one is the Supremes wave thru his stuff, but the really dangerous moment would be if he was ruled against and he said “The Supreme Court has made their decision, now let them enforce it!”

Since he’s taking control of the federal enforcement arms, the idea is that no one will obey the courts if Trump disagrees. Their loyalty will be to him.

State governors may try to resist, but Trump can crush them if he so desires.

I admit I never saw Trump as this dangerous, mostly because he’s fundamentally incompetent. But he’s been mishandled by Democrats and the (not so) permanent state. Tulsi Gabbard looks likely to be confirmed, and her job is to do to the intelligence apparatus what is being done to the FBI and DOJ: make it Trump safe. If anyone takes out Trump, it will be the intelligence apparatus. He threatens them, just as JFK did, and they may act. That said, JFK threatened from the left, and intelligence services do love to serve a right wing tyrant. Trump may restrict their foreign games somewhat, but he will give them domestic power they have always wanted.

So, America gets out of this only if Trump either doesn’t really intend a coup and is just being a petty tyrant who wants to go back to the spoils system for government, or if his and Musk’s incompetence brings them down.

We’ll talk more about this as time goes by.

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End Of Empire: Effects & Theory Of Trump’s Tariffs

Let’s deal with the big, almost certain effects first.

This is the beginning of the end of  the American alliance system, empire and world economic system.

Trump is planning on putting tariffs on Europe, too. He put higher tariffs on Canada, supposedly one of America’s closest allies, than on China. Hitting the majority of America’s vassals/allies all at more or less the same time, with them retaliating with their own tariffs means an end to the American created world economic system. It will also lead to the end of NATO and, in time, other alliances. Europe’s mainland isn’t practically subject to threat of invasion from the US the way that Canada and Mexico are, they don’t have to put up with this, but threats to Greenland make it clear that the US is more likely to invade an actual EU member than Russia is.

Hard to have an alliance with a nation you’re in a trade war with who is threatening to invade one of your countries and who, by all accounts, is serious about it.

And while the tariffs are all justified on “national security” which is “letter” legal, everyone knows that’s bullshit. Trump is violating the purpose of the WTO, USMCA/NAFTA and other trade treaties the US has signed.

There’s no way the world trade order survives this and no way the American empire does either, since it’s based on an alliance system and bases around the world, many of which are in countries Trump is declaring his trade war on. Even countries who escape tariffs for now can’t feel secure. Ironically it’s the tariffs on Canada which will do the US the most international harm: everyone knows that Canada has been a completely supine vassal giving to the US everything it wants. Canadian exports, minus oil and gas, are less than its imports from the US, so there’s no legitimate re-balancing argument, even. Foreign leaders have read reports making this clear.

Alright, enough about the top-line effects. Let’s look into the theory of tariffs Trump appears to believe.

Trump has nominated Stephen Miran American to be chairman of the Council of Economic Advisers. Stephen is a senior strategist for Hudson Bay Capital management, and he wrote a 40 page brief, primarily on tariffs, called “A User’s Guide to Restructuring the Global Trading System.

The most important part of his thesis is the following argument about the effect of tariffs.

1) The currency of the exporter will depreciate to make up the difference in cost.

2) Consumer prices will not go up, therefore;

3) the exporting country is damaged, the importing tariffing country is not.

4) But the tariffing country does get revenue! Free lunch, in other words.

5) Importer profit margins take any hits hits not covered by the exporter’s currency depreciation, not prices, or at least they did last time.

This argument is given empirical backing by looking at what happened when Trump imposed tariffs during his first term: the Yuan depreciated and consumer prices didn’t rise.

Let’s run thru this.

  • China tends to control the price of its currency. If the Yuan depreciated, it’s because the Chinese government chose to depreciate it. They may not choose to do so this time.
  • America has no option but to buy from China. From machine goods to basic electronics to parts for America’s defense industry, there are no domestic or European alternatives for much of it.
  • China doesn’t, therefore, have to depreciate its currency. It might sell less goods, but it will still sell tons. It’s a political decision.
  • If the exchange rate does drop, or balance, which is not a sure thing, even with non-controlled currencies, then US exports to that country become more expensive, and the exports to that country drop. In the case of Canada, which imports more goods from the US than vice-versa, what is likely to happen is import substitution: Canadian importers will probably switch to China.
  • In fact, this will be a general issue. Any country the US puts tariffs on will replace a lot of imported US goods with Chinese goods.
  • Not all importers can eat the losses. The reason Trump put only 10% tariffs on oil and gas is that American refiners have thin profit margins. Any increase in crude prices from tariffs will be passed on to consumers. (Aside: this is clearly the Achilles heel and Canada should put an exit-tariff on crude to hurt the US as much as possible.)
  • Importers also don’t have to eat the price increases. In the pre-Covid world, there was a lot less consumer inflation. But when Covid happened, prices increased faster than costs because Covid supply shocks were a good excuse to raise prices. Some importers may eat the increased costs, others may pass them on, and even raise prices more than the tariffs. If they have pricing power, if people must buy from them, then why not? Fear of Trump might cause some to eat the difference, but there are a lot of obscure, little importers. Apple passing on costs or gouging will be noticed so they’ll probably eat it. Others won’t.
  • The money the government receives comes from Americans, really, not foreigners. They pay the tariffs. There are elites who are going to be hurt by Trump’s tariffs.

What Miran doesn’t talk much about is the idea of import substitution. The real reason to do tariffs is to protect and nurture internal producers. This is important to Trump, he’s talked about it often.

With respect to Mexico, the idea is to get factories in Mexico to move to the US. They exist in Mexico primarily because Mexico used to have tariff free access to America, and has lower costs than America. There will be some effect here. The calculus will mostly be about uncertainty, though, not costs. In most cases producing in Mexico is probably still cheaper, even after a 25% tariff, than producing in America. But given how erratic Trump is, and that he’s indicated there may be more and higher tariffs, it may make sense to move factories to the US. The US won’t tariff itself.

But this is more complicated than it looks, because the US doesn’t make most of the parts any factory will need, so those have to be imported, and tariffed, or a supply network needs to be built in the US.

That’s what the US wants. If you want sell to us, you have to make it here, not just assemble it.

This is fair enough, actually, but it’s based on an assumption of continued dollar privilege.

Take a look at this chart:

The US is able to run these long term, consistent trade deficits because of dollar privilege. It can print dollars and everyone will take them.

But if the US world economic system is breaking up, if NATO is likely to die, and if the US is tariffing its allies, will dollar privilege survive? After all, you don’t really need dollars to buy from the US, because the vast majority of what you buy from the US you could buy from China instead, and Chinese prices are cheaper. If America doesn’t want you to export to them, well, what good are the dollars?

This is why Trump has been making horrific threats to BRICS about replacing the dollar. BRICS has reassured them it doesn’t intend to do that, but it’s not clear they aren’t lying and in any case, what BRICS has mostly been doing is changing from using the US dollar in trade to just using bilateral currencies. More and more, BRICS members trade with each other in their own currencies, without using the US dollar.

This chart, again from the Visual Capitalist, is worth staring at a bit:

As the chart notes, the US dollar is still , but that chart isn’t comforting. Remember that China, not the US, is the trade partner of the most nations in the world. And note that while the US is China’s export destination, exports to the US accounted for 2.9% of Chinese GDP, down from 3.5% in 2018. Eighteen percent of China’s exports went to the US in 2023.

The point, here, is that if you can’t sell to America because of tariffs, and if the US doesn’t have much you want to buy because China is cheaper, why do you need the US dollar?

If the US dollar loses privilege, if people won’t accept it because it can be used in trade with any country, then America has a problem: it can’t just print dollars any more and if it can’t print dollars any more, Americans can’t keep massively over-consuming.

This means a massive demand drop from Americans: they will have to consume much less. You might think that means an opportunity for American firms to step into the breach, but this will happen with very little demand from in the American market (and with the trade war, no one else is going to be buying from the US as their first, second or third choice.)

The American cost structure is high and American “capitalists” prefer to play financial games to make things. The American competency crisis is real, and not caused by DEI. The market has high barriers to entry, incumbents addicted to oligopoly profits and no basic machine industry and almost no basic electronic parts manufacturing.

The transition period will be ugly. Beyond ugly. Quite likely “economic collapse” level ugly.

There was a way to use tariffs and industrial strategy, but starting a trade war with half the world all at almost the same time was not the way to do it. You pick sectors (start with machine tools and basic electronic and machine parts), tariff that, put in subsidies and restructure the market for those goods. Once that’s going, you move back up the chain.

That’s how you use tariffs and industrial policy to reindustrialize.

Trump’s tariff plans are based on assumptions that are not going to hold in the real world, during a global trade war. Tariffs are important and often good and I support their use, but like everything else, they must be used intelligently.

Enough for today, we’ll talk about the effects (almost entirely positive) of Trump’s tariffs on everyone else in the world next. Trump is doing what no one else could: destroying the American empire and the neoliberal world order. I’m very thankful and as long as we can avoid war Trump’s actions are positive in the middle to long term for far more people than they’re bad for. Just, well, not Americans in the short to middle term or anyone who gets invaded.

More soon.

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Week-end Wrap – Political Economy – February 02, 2025

By Tony Wikrent

 

Strategic Political Economy

We Found the $2 Trillion

David Dayen, January 27, 2025 [The American Prospect]

GRAPH — The Road to $2 Trillion

Elon Musk wants to cut government spending. But the waste in the system goes to elites like him. Here’s a better way to bring down deficits….

This article should come with a warning label: We should not cancel the equivalent of 7 percent in annual GDP all at once, which would trigger a deep recession. But identifying the real sources of inefficiency in our government—the trillions funneled to elites—can preserve resources for programs to help those in need….

Ramaswamy has called for a 75 percent personnel reduction across federal agencies. This would hardly save anything. According to the Congressional Budget Office, there are about 2.3 million federal employees with total compensation in 2023 of $271 billion; that’s 4 percent of the U.S. budget. Federal employees were roughly 4.3 percent of all workers in 1960 and 1.4 percent today. As a result, we’ve seen an explosion in contractors undertaking tasks that government workers used to perform. Nearly three times as much money is spent on contractors than federal workers.

Slashing the federal workforce, almost two-thirds of which is at the Departments of Defense, Veterans Affairs, and Homeland Security, would likely lead to more expensive contractors, and also increase the $247 billion in improper payments the government makes every year….

Physicians for a National Health Program (PNHP), which advocates for a single-payer system, noticed even greater savings potential in the MedPAC report. Traditional Medicare sets a “benchmark” for spending on the average beneficiary. Several studies have shown that MA plans spend between 11 and 14 percent less, because they cherry-pick healthier patients, even after accounting for upcoding to make them look sicker. Increasing denials of care allows MA plans to rake in even more profit.

In all, PNHP found that MA plans charge the government at rates $140 billion per year higher than traditional Medicare….

The government also spends massive amounts of money on prescription drugs. In 2022, U.S. drug prices were 178 percent higher than in 33 other industrialized nations, according to a report funded by the Department of Health and Human Services. Some of these drugs are sold at 20 to 30 times the cost of production and distribution; pharmaceutical profit margins are significantly higher than private-sector counterparts…. Using federal statutes to seize certain drug patents and distribute them to generic manufacturers that charge less would also save billions. But more structurally, we could overhaul the monopoly patent system that gives drug companies exclusive rights to charge whatever they want for a set period….

Of course, moving to a single-payer system wholesale could yield over half a trillion dollars in savings from administrative expenses alone, per the People’s Policy Project. But even if the nation isn’t ready for single-payer, limiting private-sector profit-taking and boosting public provision comes to roughly $490 billion per year….

In 2021, the Congressional Budget Office offered a range of options to take the Pentagon budget down by $1 trillion over a decade. Gledhill estimated significant savings from service contracts, which make up close to half of all Pentagon obligations. Many are redundant or could be done more cheaply in-house. Other possibilities include unwinding ineffective contract orders and bringing in other firms to drive down costs through a competitive bidding process….

Putting a number on Pentagon savings is difficult, but using CBO’s conservative figures would net $100 billion per year. Some people I talked to think that could double. Let’s split the difference and say $150 billion a year.

The kind of procurement reform in service contracts and equipment orders needed at DOD could be replicated across the government, insourcing operations and ensuring that taxpayers aren’t routinely ripped off. The Project on Government Oversight has found that federal employees are almost uniformly less expensive than contractors. The Organization for Economic Co-Operation and Development estimates that one-fifth of government procurement globally is siphoned away through bid-rigging. In the U.S., that translates to $150 billion a year. As much as $521 billion a year is lost due to fraud, according to the Government Accountability Office. As Matt Stoller has written, management consultants with a tendency to do nothing but add bloat cost the government $70 billion in 2023.

GRAPH — The Road to $2 Trillion

…. the tax gap, the distance between tax liability in a given year and actual taxes paid. In 2022, the last year studied, the IRS put this number at an astonishing $606 billion per year. This gap is concentrated among the top 1 percent, who evade $163 billion per year, according to a 2021 Treasury Department report….

…A one-percentage-point increase in the corporate tax rate equals about $13.5 billion per year in revenue. Setting a 25 percent tax rate through stock returns would lead to almost no difference between the nominal and the effective tax rate. For the past couple of years, the effective corporate tax rate has been around 20 percent. Add five points and you’re up to $65 billion per year….

…There are several other major tax expenditures; the Tax Policy Center lists the top 13 as costing between $1.12 trillion and $1.38 trillion per year, depending on the estimate. It’s a dizzying amount of money, funneled mostly from working people to elites….

 

Trump and Elon Musk Just Pulled Off Another Purge—and It’s a Scary One

Greg Sargent, January 31, 2025 [The New Republic]

…Why is Musk’s DOGE trying to access payment systems inside the Treasury Department? It’s not clear what relevance this would have to his ostensible role, which is to search for savings and inefficiencies in government, not to directly influence whether previously authorized government obligations are honored.

Another question: Did Trump directly authorize Musk to do this, or did he not? Either answer is bad. If Trump did, he may be authorizing an unelected billionaire to exert unprecedented control over the internal workings of government payment systems. If he did not, then Musk may be going rogue to an even greater extent than we thought….

Former officials I spoke with were at a loss to explain why Musk would want such access. They noted that while we don’t yet know Musk’s motive, the move could potentially give DOGE the power to turn off all kinds of government payments in a targeted way. They said we now must establish if Musk is seeking to carry out what Trump tried via his federal funding freeze: Turn off government payments previously authorized by Congress. The White House rescinded the freeze after a national outcry, but Trump’s spokesperson vowed the hunt for spending to halt will continue. The former officials are asking: Is this Treasury power grab a way to execute that?

“Anybody who would have access to these systems is in a position to turn off funding selectively,” said Michael Linden, a former OMB official who is now director of Families Over Billionaires, a group fighting Trump’s tax cuts for the rich. “The only reason Musk wants to get himself in there must be because he wants to turn some things off.”

 

Senior U.S. official to exit after rift with Musk allies over payment system 

[Washington Post, via Naked Capitalism Water Cooler 01-31-2025]

“David A. Lebryk, who served in nonpolitical roles at Treasury for several decades, announced his retirement Friday in an email to colleagues obtained by The Washington Post. President Donald Trump named Lebryk as acting secretary upon taking office last week. Lebryk had a dispute with Musk’s surrogates over access to the payment system the U.S. government uses to disburse trillions of dollars every year, the people said. The exact nature of the disagreement was not immediately clear, they said.” That’s too bad. Why? “Typically only a small number of career officials control Treasury’s payment systems. Run by the Bureau of the Fiscal Service, the sensitive systems control the flow of more than $6 trillion annually to households, businesses and more nationwide. Tens, if not hundreds, of millions of people across the country rely on the systems, which are responsible for distributing Social Security and Medicare benefits, salaries for federal personnel, payments to government contractors and grant recipients and tax refunds, among tens of thousands of other functions…. ‘This is a mechanical job — they pay Social Security benefits, they pay vendors, whatever. It’s not one where there’s a role for nonmechanical things, at least from the career standpoint. Your whole job is to pay the bills as they’re due,’ [Mark Mazur, who served in senior treasury roles during the Obama and Biden administrations] said. ‘It’s never been used in a way to execute a partisan agenda. … You have to really put bad intentions in place for that to be the case.’”

 

Trump: We’re Forging A New Political Majority That’s Shattering The New Deal Coalition

[RealClearPolitics, via Naked Capitalism Water Cooler 01-28-2025]

President Donald Trump speaks at the House Republican Issues Conference at the Trump National Doral Miami Resort: “Together, we’re forging a new political majority that’s shattering and replacing Franklin Roosevelt’s New Deal coalition, which dominated American politics for over 100 years…. If we do our job over the next 21 months, not only will House Republicans be reelected and expand our majority in 2026, we will cement a national governing coalition that will preserve American freedom for generations to come. There has never been anything like what’s happened in politics in the last few years.”

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