JoeQuant’s an ex NY finance guy who moved to Hong Kong. This tweet makes an important point:
So about this “Faustian bargain” nonsense. What would have happened if VW took the 54 billion euro they made and put it back into robots and EV technology. https://t.co/U9BOW9kAZW
— Joequant (@joequant) September 4, 2026
He then goes on as follows:
One reason China is “winning” is that if you are a Western auto company, and you make extra money, you will put it into exec bonuses and shareholder buybacks. If you are a Chinese company, you realize that if you don’t put money back into the company, then the competition will eat you alive. At that point as a shareholder or exec you wonder how much is enough. What if I cut my salary to 2 million USD rather than 10 million USD and put the rest into R&D or worker salaries.
Yes.
The reason VW and other German firms made so much money in China for so long is that they had, brace for it, better cars. More technologically advanced. Better handling.
But, as Joe points out, they didn’t try and keep that lead. They let the Chinese beat them by refusing to properly re-invest their profits.
This is a constant problem in the West: our elites don’t want to compete on price. They don’t want to compete on quality. They want “moats” — they want monopoly profits just for existing.
The problem is that in most industries China doesn’t allow moats. It forces competition. It wants competitive markets. Chinese capitalism is actually what Americans think American capitalism is: red of tooth and claw. In America the Red Queen’s race is “make more money so you can buy more companies and make sure you can’t be bought”, in China it’s “keep ahead of real competition which is trying to have better quality cheaper products.”
I wrote a fairly long article on Germany’s tax and industrial policy earlier this year. The short of it is that they changed the incentives to make it easier for German firms to pay more divdends and do my buybacks, and so that investing outside the country made more sense than investing inside the country.
Then they got exactly what they deserved. Now, since they’re not competitive, they’re starting to switch their automotive industry over to military production.
And no, that won’t end well.
I continue to note that it appears that only communists and socialists seem to understand how to use markets to actually produce widespread prosperity. Capitalists should never be allowed to run markets, because capitalists always want to destroy the markets. The government must always view capitalists as greedy stupid children who must be supervised with heavy application of the rod, because the minute capitalists get rich, they want to end competitive markets. This is logical, in competitive markets no firm is ever secure, no fortune is ever impregnable.
Only oligarchy is safe for oligarchs. Unfortunately oligarchy destroys nations. Why is the US getting its ass kicked? Because it got rid of its industry. It’s that simple. It can’t even produce enough weapons any more, and essentially every industry in effectively an oligopoly–set up to raise prices faster than wages and entirely opposed to actual price and quality competition.
The CPC, not being capitalists, understand that capitalists are stupid, venal scum who must have fist of the state around their throat at all times.
The West used to understand that capitalists needed regulating, especially during the New Deal era. But they never truly understood that capitalists are like powerful nobles. If you don’t keep the boot on their neck, they will destroy you. And so they did and so they have, we’re just playing out the end results of oligarchs taking over the West: all the sound and fury and deaths are just part of an inevitable end-game. The actual damage was done in the 70s thru 90s (people can quibble about the dates) and the rest is just consequences.
If you want free markets, you need people who don’t trust capitalists in charge, and you need to be sure capitalists never capture the government. The second they do, your country is cooked. Depending on how prosperous it was before the oligarchs took over, it may take a few generations, but the end result is not in doubt.
What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.
Adam Eran
This is the consequence of classical economics’ “Law of declining profits.” All the capitalist firm managers know it, and try to create monopolies or oligopolies or do unproductive things that are nevertheless profitable. Anything to make an “unfree” market that protects their profitability.
Perhaps the most typical of the unproductive things done is cost plus military contracts. The bigger the cost, the bigger the profit. So US weapons are very costly, finicky and unreliable, but very profitable. The F-35 is a costly fighter jet that spends 40% of its time in maintenance. The M-16 is a rifle that requires constant cleaning. An AK-47 does better in wartime conditions. This is one reason the Russians are cleaning up in Ukraine (a war that will go on indefinitely, though, because it’s so profitable).
spud
yep, socialism or barbarism, take your pick. FDR chose socialism.
bill clinton gutted our socialism, so that wall street could goose and extend stock market bubbles.
Keen was saying the other day, under free trade, a country no longer invests in its people, infrastructure, in its manufacturing and R&D. instead it just buys things from others, dooming it to grinding poverty.
hudson has stated that the west can’t compete, as long as capitalist parasites absorb most of the money through rent. the rent covers just about everything we use, where we go, and what we eat and breath. there is a capitalist parasite feeding on just about everything.
so the real value of americas economy is that we are much smaller than advertised, and the markets should get reset back to pre 1993 levels.
the coming deflation is going to be horrendous for many many years. will the democrats come clean, nope, hudson said they need to be destroyed.
the turn to fascism which capitalists always do when its apparent that socialism is winning, will be short lived outside the west. inside, it will be chaos and strife.
cc
“You need to be sure capitalists never capture the government. The second they do, your country is cooked.
Thanks Ian. That line is the US in a nutshell. And the US-led West by extension.
This is a constant problem in the West: our elites don’t want to compete on price. They don’t want to compete on quality. They want “moats” — they want monopoly profits just for existing.
We are seeing this right now with Amodei, Altman, and Musk trying to scare the US/West into industry-designed self-regulation to create for themselves a regulatory moat against competition.
Here Lies The Motive: AI Leaders’ Cunning Plan Exposed
https://www.zerohedge.com/ai/ai-leaders-cunning-plan-exposed
That article characterizes the latest Amodei/Altman/Musk play as creating “the perfect moat to preach to investors as their trillion-dollar IPOs loom.”
By the way, the capitalists’ framing in terms of “moats” is often just a euphemism for simply taking out the competition, as in the West’s constant euphemism of “containing” China/Russia/name-your-competitor, as in the Tonya Harding American Way of “competing”, which is to knee-cap your competition.
The United States is an example to humanity of what you end up with when your society is ruled by money and corruption:
– “Citizens United” represents the complete capture of government: legalized/institutionalized corruption of government by the highest bidders
– Peter “Competition is for Losers” Thiel and the PayPal Mafia are representative of the oligarchy, and actively/openly/blatantly seek oligopoly/monopoly
– That mafia culture of seeking hegemony and taking out the competition also dominates US foreign policy (aka the Tonya Harding American Way, “containment”)
Oliver Hua (Hua Bin) contrasts the consequences of the US ruling oligarchy’s mindset to China’s approach:
How China wins wars that the US launches
https://huabinoliver.substack.com/p/how-china-wins-wars-that-the-us-launches
The Thiel-Karp-Hoffman-Sacks-Feinberg-Bankman-Fried-Soros-Adelson-Ellison-Altman-Zuckerberg-Wilcoff-Kushner-Netanyahu-Epstein class rule the US – corrupting, subverting, and short-circuiting proper competition, democracy, regulation, media, and governance in the US.
Latest addendum to that class list is Feinberg, a private-equity billionaire that Trump installed as his No. 2 Pentagon official but the real power behind the distraction puppet Hegseth. Feinberg persuaded Trump boost the Pentagon budget a whopping 50% to $1.5 trillion/year and was the subject of WSJ piece titled “A Private Equity Billionaire Mounts His Biggest Takeover Yet: the Pentagon.”
From Ron Unz’s: The Collapse of American Hegemony and Global Nuclear Risks
https://www.unz.com/runz/the-collapse-of-american-hegemony-and-global-nuclear-risks/
david lamy
I graduated from an elite private college preparatory academy in 1971. (To know me now but not back then might one doubt that stated fact of my life.)
So I graduated a few months before the appearance of the “Powell Memo”. To me, that was peak USA. The distribution of that memo and the enactment of its recommendations has put the vast most of us on the skids downhill.
I grew up in a working class neighborhood. But there was affluence. People were definitely not destitute. Strong unions meant material benefits for their members.
I now live in a working class neighborhood. There is a dearth of affluence. Pecarity is the common state. Most live month to month and on a bad month lose an asset. There is no mystery here — there are no strong unions and no really meaningful work.
The issue that should drive the upcoming midterm elections is the grotesquely skewed distribution of ‘our’ money, but it is not.
david lamy
I really botched the parenthetical sentence. Put simply, people who know me now would never think I was either rich or a product of exclusive education.
Jan Wiklund
Spud, and Lamy:
The reason why US kept their capitalists tight in the ear then but not now is not FDR or Clinton, but that US had combative trade unions with mass memberships in the 30s-40s-50s-60s – but not now.
It is as simple as that. Even lots of us ordinary people have bought the myth that we do best alone.
Ian Welsh
FDR supported unions strongly. In one case there was a war between unions and cops and he didn’t let the feds intervene. (The union had radio vans and coordinated action, it was very professional.) I forget which city it was.
vmsmith
“So I graduated a few months before the appearance of the “Powell Memo”. To me, that was peak USA. The distribution of that memo and the enactment of its recommendations has put the vast most of us on the skids downhill.”
So glad to know there’s a person after my own heart here. So very few people these days know about the Powell Memo, or understand the link between it and enshitification that’s been going on since then.
Feral Finster
Did I not say that “incentives work”?
spud
The National Labor Relations Act of 1935, also known as the Wagner Act, established key provisions that guaranteed employees the right to organize into unions, engage in collective bargaining, and take collective action such as strikes. It also created the National Labor Relations Board (NLRB) to enforce these rights and ensure fair labor practices.
Wikipedia National Archives
FDR’s support for unions, particularly through the National Labor Relations Act of 1935, significantly boosted union membership and collective bargaining rights, leading to a rise in union density from 8.5% to 18.2% within five years. However, this support also triggered a wave of strikes as workers sought to assert their rights and improve conditions during the tumultuous economic climate of the time.
fedsoc.org UC Santa Cruz
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without leadership, unions are doomed.
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Governor Floyd Olson was sympathetic to the union cause during the Minneapolis Truckers Strike of 1934, but he also felt responsible for maintaining law and order, which led to the declaration of martial law during the strike. His administration ultimately facilitated negotiations that resulted in a settlement for the striking workers.
Wikipedia northloop.org
Governor Floyd Olson’s Role in the Minneapolis Truckers Strike
Support for the Union
Sympathy for Workers: Governor Floyd Olson was sympathetic to the union cause during the Minneapolis Truckers Strike of 1934. His administration recognized the struggles of the workers who were fighting for better wages and working conditions.
Balancing Act of Law and Order
Maintaining Peace: Despite his support for the unions, Olson felt a strong responsibility to maintain law and order in Minneapolis. This dual obligation created a complex situation during the strike.
Martial Law Declaration: As violence escalated, particularly during events like “Bloody Friday” on July 20, 1934, Olson declared martial law. This decision was aimed at restoring order amidst the chaos caused by clashes between strikers and police.
Outcome of the Strike
Facilitating Negotiations: Olson’s administration played a crucial role in facilitating negotiations between the striking workers and employers. His involvement helped lead to a settlement that included pay raises and other concessions for the workers.
Summary of Key Events
Date Event Description
May 16, 1934 Strike begins as Teamsters demand union recognition.
July 20, 1934 “Bloody Friday” occurs; police open fire on strikers.
August 1934 Martial law declared; negotiations begin.
Post-Strike Settlement reached, improving conditions for workers.
Governor Olson’s actions during the strike were pivotal in shaping the outcome, balancing his support for labor rights with the need to maintain public order.
mndigital.org Wikipedia
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creatures like Powell are always just below the surface of every country, at anytime. the only way they gain power is through leadership.
carter/reagan/bush I could not get it done. they had little charisma and drive. it took a leader with charisma and drive so powerful, that he took america and the world, back to the robber baron era, his name was bill Clinton.
Ian Welsh
The incentives were put in place by oligarchs when they got in charge.
Nobody denies incentives work: they often produce very bad results, however, and in many cases their use is stupid. Not that most Americans will ever understand that, Pavlov’s dogs were far less conditioned.
bruce wilder
Shocking political insight illustrated by the Powell memo: we all don’t want the same things.
One half of a narrative attaches to the Powell memo and other evidences of purpose and intention on the Right: the other half of a narrative of our political evolution over the last fifty or sixty years would expose the collapse of the (principled?) center and the several flavors of left. How left populism disappeared as professional pundits adopted the easy life of arguing from a left neoliberal perspective in the pages of The New Republic and The Washington Monthly. Stoller’s “Watergate Babies” traded away resistance. Clinton’s corruption and fealty to Third Way politics surrendered the high ground, as spud tells us. Waves of banking and financial markets reform swept thru.
Republicans pioneered symbolic politics with The Moral Majority, but Democrats eventually caught up with BLM and Woke 1.0.
There is now a whole apparatus of political power independent of Party or elections that seems to operate in the shadows, driving decision-making, while intellectual hobbyists stoke their dopamine receptors on Substack.
bruce wilder
I like story of Harry Bridges and the waterfront strike in San Francisco 1934. Australian, a Wobblie in youth and a communist, as I recall. But, his management of the 1934 confrontation was brilliant and included a four-day General Strike in support of his Longshoremen.
Mark Level
All clear and obvious, as usual, these people know they are destroying the future, but it benefits them individually (in the short term, guess they don’t believe in a long term) so Fuck It, let it rip, I’ll get out with my stolen loot so “it’s all good.”
I appreciate the point of how essential The Powell Memo was in forming this system of looting and economic demolition. I was a naive 17-year old in 1976 and I signed up with the local Dems where I lived in Northern Illinois to promote Jimmy Carter, was tricked into wasting my time on a fraud. (Being 17 and having so little experience is my excuse, & I will stick to it.) I think we all know that Thomas Frank documented very well for decades how pretty much all of the Western political class bent the knee to the Powell Memo. Carter led the betrayal, early on he made a speech about how “government really can’t solve certain problems” like economic inequality. Reagan whupped his ass (partly due to a failed incursion into Iran, history rhyming) and further boosted this Narrative.
The white former working class who did have good Unions since FDR’s era walked right into the trap. People who had boats for personal & family leisure thought they were above it all, forgot about protecting the actual sources of that (soon short term) Prosperity, and based on Reagan’s feint, “I’m freeing you FROM the government” supporting illusory Individualism fell for a Lie the Right would repeat for decades. WE’RE the dissidents, here to “FREE” you, we’re cool.
I saw this fairly early on having lived thru this period, my political education had begun. spud covers the likes of Clinton et al, they went from being glibly treasonous to their voters’ interests to openly flaunting doing so by the time Fox became a force in US Media. At least in the 60s some reform was enacted by protests and pushback from failure in Vietnam and murdering American’s youth killing Southeast Asian peasants. But by the 70s, shallow culture and hedonism (disco, I don’t recall whether the bumper sticker that said “Whoever Dies with the Most Stuff Wins” was from the late 70s or early 80s. It shared the Big Lie openly, very flagrant.)
A society whose only value is Money for the Connected, and in which there is NO concept of the Common Good or Win-Win options, and everything is engineered to fleece the sheep and enrich the Elites is doomed. Thanks USA. Even the frigging Romans, a cruel Imperial state, at least had the Concept of the Res Publica, the public good. By the time of Newt Gingrich, the R’s giggled with joy at smashing this very idea, the Dimmies stood by and did nothing.
See William S. Burroughs’ classic A Thanksgiving Prayer of 1986, he saw exactly where things were going. He might’ve been a marginal figure, but that’s exactly what gave him the insight. Pick from any of the short versions here– https://www.youtube.com/results?search_query=william+s.+burroughs+thanksgiving+prayer
Nat Wilson Turner
@Mark Level I love Burroughs’ Thanksgiving Prayer!
Edmund
I think American people and Chinese people are broadly similar so, as noted by others here, I don’t think this has to do with individual greed or stupidity, more with the incentives put in place by different systems.
A more interesting question to me is whether systems with *relatively* free elections and speech eventually lead to the rise of oligarchies via short termism, because each individual prefers money today, whether it’s to pay the rent or to buy a yacht, over beating a rival geopolitical bloc in ten years’ time.
Are there any examples of democracies in which the longer term view has prevailed, or does power always and inevitably get grabbed by someone who finances the buying of votes by selling off the industrial, financial and cultural capital of the country?
Mark Level
Agreed, Nat. It is a classic!! Like Gore Vidal, who he likely knew in passing, Burroughs was born to the Elites, but had nothing but contempt for them.