Author: Ian Welsh Page 64 of 436

Economists spend a lot of time talking about comparative advantage: France has just the right climate and land to make great wine, for example. In the Industrial Revolution England had good quality coal in just the right place. Germany has a lot of good industrial workers and craftsmen.

Most comparative advantage, however, is cost advantage. If it’s cheaper and you can produce it for less, it’s hard to compete against you.

Absolute advantage is different. Absolute advantage is when you are the only one who sells something other people want or need. For most of the 20th century if you wanted commercial airplanes you could only get them from the US or Europe or Canada (until Canada’s aviation industry was mostly destroyed in the 50s under threat from the President of the US.) Cars were available from the West and the USSR, then from Japan and Korea. Most advanced medicines were made only by the West, though India came on strong for a lot of generics towards the end of the century.

Absolute advantage is far superior to comparative advantage: you can charge much more.

This is the second article on the West’s situation via China. If you haven, read the first “You can’t run industrial policy or a war economy under neoliberalism.”

Absolute advantage can be created. The rise of England didn’t start with the Industrial Revolution, it started when England banned exports of wool to the Netherlands. Be clear, English weavers sucked in comparison, but it didn’t matter. England produced most of the wool, and if you wanted woolens, you had no choice but to buy them England, inferior thought they were at the start, or do without.

This sort of policy used to be fairly standard. When I was young Canada would not export raw logs or raw salmon, for example, but by the 80s we had begun to do so. African nations have recently started insisting on doing primary processing in country: refine the ore or hydrocarbons, tin the fish, and so on. It’s not the same as advanced manufacturing, but it captures more of the value. If you have a resource there is more demand than supply for, you can insist. Perhaps tinning or smoking fish in the US or Mexico saved ten cents a can, but so what, before fish farming there was never enough salmon.

The problem with absolute advantage, though, is it makes you lazy. When you’re competing on comparative advantage, you have to drive down costs or increase quality, or ideally both. People don’t have to buy your goods, so they have to be better or cheaper.

Now the problem is that for about two centuries the West has had absolute advantage. For most intents and purposes everything we made had absolute advantage outside the West. We had better weapons, machines, clothes, medicines, transport. Everything.

Japan was the first non-Western nation to catch up, but an island nation without significant resources, it couldn’t compete and was conquered and made into a satrapy. South Korea was given the same treatment, and allowed to industrialize, as was Taiwan.

I was a young adult when Japan roared in the 80s, but Japan was never a serious threat, simply because it didn’t have enough population. It was never going to unseat the US or Europe, only claim its place in the (still) Western system.

China is a different matter. The reason China is eating the West’s lunch is that it has overcome most of our absolute advantage and is now competing with us on comparative advantage: Chinese goods are cheaper and in some cases, like EVs, Chinese goods are better. This often isn’t a small difference: you can buy an EV in China for 14K, and it’s a decent car.

Further, China has a massive domestic market. Oh, incomes are still not as high in the West, but the population makes up for it, and Chinese industries mostly aren’t oligopolies or monopolies. In 2019 there were over 500 EV companies. As of 2023 there were still about a hundred. The competition was fierce. There is nothing like it in the west, where car companies are essentially an oligopoly, and don’t truly compete on either price or quality.

China moved up the technological chain. They actually practice competitive market capitalism much more than we do: their markets are closer to “free” than any western country’s. They have effective subsidies due to the exchange rate and direct government intervention, of course, but that’s not the key issue any more (though it was for a long time), it’s that they are genuinely better at manufacturing than we are, and more responsive to what buyers actually want.

Many nations in the West used to have competitive internal markets, with a myriad of companies competing, but under neoliberalism, and to be fair to a certain extent under Bretton Woods liberalism, they were replaced by oligopolies. The problem with real competition is that you might lose. Fake competition is far safer, and offers far better returns for the ownership and executive classes.

Until, of course, you run into companies which are used to real competition, and they eat your lunch and you scream to the government for tariffs and trade war.

Mind you tariffs aren’t a bad idea, but if they are to work, Western companies must actually become competitive again and they don’t want to do that, it’s too much like work. Nor, as I’ve noted before, is it easy for them to do. Internal rent in the West is very high, and thus so is the cost of living. If they’re involved in a trade war, they have to sell to their own citizens, but the only way they know to reduce prices is to crush wages and if they do that, well, the internal market isn’t what it needs to be. (This is what FDR and Keynes realized, which is why New Deal and post-war capitalism emphasized having wages rising faster than inflation. It created a robust market.)

Offshoring anything another country doesn’t already know how to make is stupid, because when you offshore the locals learn how to make what you offshore and eventually they make it themselves for themselves and compete with you. “Friendshoring” can’t work, it can only crate new competitors with lower costs.

The days of the West’s absolute advantage are over. We threw it away for a few decades of high profits funneled to elites, and now we must learn to compete on comparative advantage again, something we mostly don’t have and aren’t used to being necessary.

It’s the bed we made and we have to lie in.

You get what you support. If you like my writing, please SUBSCRIBE OR DONATE

You Can’t Run Industrial Policy OR A War Economy Under Neoliberalism

By Ian Welsh

On May 13, 2024

31 Comments

Washington spent 7.5 billion dollars on charging stations. The result?

Seven stations.

China has subsidized charging station as well. I can’t find reliable figures, though one source says around 10 billion dollars. How many charging stations does China have? Over seven million, 2.2 million of which are public units. The US has 186,200.

Bottom line Chinese EVs sell for about eleven to twelve thousand dollars, though when sent to the West the companies charge multiples of that and take the profits, so if you want a cheap EV you’ll have to figure out how to buy in China and import it yourself, which most Western countries make very difficult.

What’s amusing is that the US is planning on a 100% tariff on Chinese EVs—but even so, they’d still be cheaper and sell at a profit for Chinese EV makers. (As a practical matter, it’s very hard to get Chinese EVs in America.)

A western journalist specializing in EVs went to China recently and drove their cars. The article is long and worth reading, but the summary is that they’re better cars on top of being far cheaper. And this is an American journalist who went in expecting otherwise.

So, let’s fish and cut bait: as the title said, you can’t run industrial policy or a war economy under neoliberalism. It’s impossible. Russia easily and massively increased its production of weapons and ammunition during the Ukrainian war. The West? Hardly at all.

Washington spends 7.5 billion for 7 charging stations. This isn’t just incompetence, this is corruption. Yes, China and Russia have corruption. Lots of it. It is nothing compared to American and European corruption, not even on the same scale. In China, especially, most corruption is “honest corruption” — you can take a slice, but you have to actually deliver. If X number of homes or charging stations are to be produced, you’ve got to produce them.

This is a feature of neoliberalism. Neoliberalism is about unearned profits. This is seen most clearly in the stock market and in real estate. During the post-war period the stock market traded sideways. The indices basically didn’t go up at all. Under neoliberalism they went up inexorably. What is odd about this is that during the post-war period GDP growth was higher, so stock prices haven’t been rising since 1980 because of better economic performance, but rather because it’s government policy run mostly thru the Federal Reserve.

But this isn’t just true of housing and stock prices, it’s true of almost everything. Profit margins have soared during the neoliberal era. Our companies don’t compete on price or quality, they try to create oligpolies or monopolies so that they can charge more without having to provide significantly more value. The way they took advantage of Covid to raise prices far faster than their costs were rising is instructive.

Simply put, neoliberalism is about unearned money: about capital gains; PE plays where you buy a company with debt, load it with the debt and then dump it; monopolies and oligopolies and getting government to juice asset prices or pay you far more than you deserve for shoddy goods (see mil-industrial complex.)

There are, of course, partial exceptions, but even in those tend to be partial. Apple produced some real new products, but they also seek to receive monopoly prices for them. Almost all of the internet, built as a commons, has been turned into walled gardens and the small producers marginalized even as their product was stolen. AI is little more than an IP theft machine against small producers—writers and artists.

But let’s move back to “can’t run industrial policy.” Neoliberalism was very explicitly against tariffs and for free capital flows. Money flowed to the highest returns, no matter from which country. Capital goods and expertise were exported. China until very recently was a low-cost producer, so the West engaged in labor arbitrage and sent the manufacturing floor there. Take Apple, for example. They designed the iPhones and iPads and so on, but they were almost entirely produced in China, because it was cheaper.

Problems is that the best way for engineers to learn is on the manufacturing floor. So as the West sent most of its manufacturing to China, the Chinese learned. After all, they were the ones actually making the goods.

And now Huawei’s phones are out-competing Apple and Samsung. They’ve created their own OS. Their chips aren’t quite as good yet, but they’re moving fast.

As I’ve said repeatedly, wherever the world’s manufacturing floor is, is where innovation will inevitably move. There is a delay. It was about forty years when America overtook the UK. In the China/US case it seems to have been about twenty years. Which is to say, it’s already happened.

Now it’s important to note that this is no longer just about the manufacturing floor. The West’s costs are genuinely higher than China’s even now that China is no longer a low-cost labor market. This is a feature of neoliberalism: we deliberately produced high housing and rent costs. In America, high health care costs are a deliberate matter of government policy. High living and real-estate costs mean American firms couldn’t compete with Chinese even if they wanted to and still had the capability, not even with subsidies, of which there are far more than people believe.

For about six years, I’ve heard constant complaints from Chinese that it was no longer possible to buy a home. Their housing market, like ours, was being bought up by investors, pricing out young people.

What was the Chinese response? They crashed their housing market and the government has stepped in. (From the Economist. Since it’s behind a paywall, I’m using a tweet with a screenshot):

China is responding to the failures of the private property market by building millions of units of social housing. "Social homes will come to dominate overall housing supply by 2030." pic.twitter.com/Cy4nf39Pw8

— Carlos (@agent_of_change) April 28, 2024

We can’t compete with this. It’s impossible. Not because it’s impossible in theory, but because we don’t believe in doing such things and to pursue such policies we would have to hurt rich people, a lot, and they own Congress and the Presidency and our politicians in other countries.

China has repeatedly shown that if a policy is good for the majority, but hurts the rich, they’ll do it anyway. We’ve repeatedly shown the opposite.

And you can’t run industrial policy or a war economy if you want fake profits based on not actually producing good new goods at cheap prices. It can’t be done. If an entire society is based around “give me money for the least possible effort”, you’re cooked

China’s government, while not without serious flaws, works, and ours doesn’t, and that’s because China has refused to let private interests take over the government.

China is a capitalist country, there is no question about it. But the sort of capitalism they practice is the type we practiced in the 50s and 60s. You can get rich, but you have to actually produce and incomes are expected to rise faster than the cost of goods. Ordinary people’s lives are expected to get better. So much so that one Chinese I know said that many of the problems of China were essentially those of a paperclip optimizer which was intended to reduce poverty.

The West is toast. We can’t compete. It’s that simple. To compete we will have to change significantly, and while putting up tariffs isn’t actually a bad idea, it’s not enough alone. Without changing our fundamental governing and economic policies and ideology so that to get rich and stay rich you have to actually make good cheap new products in a way that improves the majority’s lives, we will never be able to compete.

You get what you support. If you like my writing, please SUBSCRIBE OR DONATE

Open Thread

By Ian Welsh

On May 11, 2024

10 Comments

Use to discuss topics unrelated to recent posts.

What Happens To Israel If They Accomplish Their Genocide

By Ian Welsh

On May 11, 2024

20 Comments

So, all aid except some totally inadequate air-dropped supplies have now been cut off from Gaza and Rafah, the last refuge is being bombed and invaded.

As I pointed out October 8th, the real danger isn’t the bombs and drones and so on—it’s famine and plague and lack of water. The official numbers of dead in Gaza are hardly going up, because State capacity (the numbers come from Gaza’s government) is trashed. The numbers were always massive understatements, because many bodies are buried in the ruins, but now they’re vastly too low.

The best way to kill people, absent nukes, is pretty much always hunger. Deaths are going to SOAR in Gaza and once it really gets rolling, it’s entirely feasible for Israel to kill a million+ people.

This has always clearly been the Israeli goal: wipe the Palestinians in Gaza out.

But what happens to Israel if it happens? They may think it makes them safer, but does it?

A lot of people make horrific predictions of what will happen if Israel ever stops being an ethnostate, but it doesn’t have to be horrific: there were no mass deaths in South Africa after apartheid, for example.

But if Israel completes its genocide and is eventually conquered, well, Israelis are going to be at great risk of retaliation. Even if it’s not official policy, a lot of troops are going to take revenge. And a completed genocide will make Israel a pariah for a couple generations: even Muslim leaders with no morals (most of them) won’t be able to be on good terms with Israel—their people will rise up if they do.

Israel’s being foolish. It’s always been foolish: a modern day crusader state. That didn’t end well last time, and it’s not likely to end will this time, but Israel keeps making themselves completely abominable, even as their patron, the US, goes into steep imperial decline. Ten years from now, the US isn’t going to be able to protect Israel even as much as it did this time.

“Not just evil, but a mistake”, as the saying goes.

You get what you support. If you like my writing, please SUBSCRIBE OR DONATE

What Catholic Confession Is Meant To Do And How It Goes Wrong

By Ian Welsh

On May 9, 2024

13 Comments

It has been observed that Catholics have a tendency towards excessive guilt, in the same way that Hindu practice devolves towards something close to OCD.

Like a lot of religious practices, the eye of someone familiar with actual spiritual cultivation practices can see what they were intended to do. Rosary practice and bajans, for example, are obvious forms of meditations (Hindus haven’t forgotten that, Catholics often do.)

If you’re riven with guilt or shame, you can’t pass beyond certain points in spiritual practice. A mind which doesn’t “let go” and move freely is an absolute barrier to progress, and as the Buddha noted, spirituality is about freedom. Being hounded by negative emotions is not spiritual.

This is one reason (though not the only reason) why almost all paths emphasize moral development at the start of the journey. If you don’t do wrong things, you don’t feel bad about them. It’s easier to avoid problems of guilt and shame than to fix them.

That said, I’ve never met anyone who never did anything which might be considered wrong, and other than psychopaths and certain types of enlightened people, everyone feels shame and guilt occasionally, and often without any or much justification.

If people are to be happy, forget enlightened or spiritually advanced, they need to be able to put guilt and shame aside.

Confession: where you tell your sins to someone, they tell you what to do to expiate your sins, and then they say God has forgiven you, is a pretty bright idea and it works for a lot of people.

But often it goes wrong. People start looking for things to be ashamed and guilty. Emphasis on examining oneself for bad actions, thoughts and feelings leads to excessive feelings of guilt and a treadmill. Instead of getting over it, people wallow in it. I suspect that for many the lows followed by the highs of relief after confession are like a merry-go-round of feeling, and rather addictive and the Church often makes it worse by its emphasis on perfectly understandable feelings and thoughts as bad.

This isn’t a total diss: studies generally find that Evangelicals, Buddhists and Catholics are the happiest faith followers and happier than secular folks. But every religion has modes of failure. (Evangelicals, with their idea of salvation by Faith Alone have a failure mode of being horribly evil people.)

If we aren’t aware of the failure mode of a faith and of its specific practices then we can easily fall into them. Confession is good, if done with a mind to its benefits, but not if it is treated as an idol: it’s done for a reason, and if it is causing harm to someone rather than relieving them, it has failed.

You get what you support. If you like my writing, please SUBSCRIBE OR DONATE

Israel Is Killing A Lot Of Civilians, But Is It Winning The War?

By Ian Welsh

On May 7, 2024

34 Comments

I’m going to quote retired Israeli general Yitzhak Brick at length:

Netanyahu knows that continuing this process will lead to the collapse of the State of Israel militarily, economically, politically and socially. Even if Hamas and Hezbollah continue to fight as they do today, without military surprises, the “state of Israel” will collapse .

Netanyahu knows full well that we have been in a military stalemate for the last twenty years . The chiefs of staff divided the army into six divisions based on their global vision that the major wars were over. They built a small ground army that could barely fight in one sector; in a regional war we would have to fight in six sectors at once.

Netanyahu also knows that this situation has led to dire consequences in the war against Hamas in the Gaza Strip. Hamas returned to areas where the army had entered and left in the Gaza Strip . The army’s intention to continue the war of attrition against Hamas through raids does not bring any benefit, because these attacks are just a drop in the bucket that weakens Hamas.

Netanyahu is well aware that as long as the war of attrition against Hamas continues, Hezbollah will also continue to deplete our forces on the northern border , and this has very dangerous consequences. Netanyahu also understands that entering Rafah will not bring any results, but on the contrary, since it will worsen the problem tenfold. Our entry into Rafah will completely destroy our relations with the countries of the world and with the Arab countries with which we have peace.

This will have very dire consequences, first of all, the isolation of the “State of Israel” in the political and economic spheres and the arms embargo, which has already begun.

Hamas was already well prepared to enter the battle and prepared a strategic ambush for us with traps and explosives in the streets, squares and in the houses themselves. It will be months before reserve soldiers disobey orders to enlist, as has become the case in the paratroopers, where dozens of them refuse to re-enlist.

America can’t beat Yemen, and has offered them everything — an end to sanctions, release of all funds, international recognition and dissolving the internationally recognized government plus a ton of aid. Yemen, a bunch of tribesmen, have laughed in America’s face.

Israel invaded Gaza, pulled out almost entirely and is now going in again. Their casualty claims for Hamas killed are the same as the number of civilian males killed, and are thus laughable. They can’t beat Hamas, who won’t fight them straight up but relies on endless guerilla action and the civilian casualties are a near exact mirror of the Palestinian population in terms of percentages of men, women and children killed.

In other words, they’re just blowing shit up without any emphasis on destroying Hamas.

Meanwhile the northern settlements are depopulated, with Israeli settlers fleeing the constant missile and drone attacks from Hezbollah. Israel impotently suggests they will occupy southern Lebanon, but they don’t have the manpower and their army quality is crap (this is not the 68/73 Israeli army) while Hezbollah has some of the best infantry in the world, full of combat veterans and filled with zeal. Hezbollah, like Iran, attacks almost nothing but military targets, not civilians, and their military has not been weakened by being a brutal and sadistic occupation army. (Occupation armies, used to fighting the weak, always become weak themselves.)

The Israeli deficit has swelled, their incoming and outgoing trade is under attack, and Yemen has said they will start attacking targets in the Mediterranean (though I don’t think these attacks will be very effective, it doesn’t take much to make merchant marines and their insurers scared.)

There is now a worldwide student protest movement, and while they’ve been crushed by violent force, polling shows opinion moving steadily against Israel. Turkey, rather to my surprise, has finally cut off all trade with Israel, and Turkey is a big deal.

The fact is that if Iran, Hezbollah and Yemen all went all out against Israel, I’m quite sure Israel would lose the conventional war unless the US went to full war to help them: it’s Israeli nukes that keep them alive. The Resistance is aware of this, and their strategy is to wear Israel down, to impose costs over and over again, and to make Israel and America look weak.

So we have the incursion into Rafah, where the majority of Palestinian civilians have been herded by Israel. The intent here is to kill as many civilians possible, and it backed by even more efforts to stop all food, water and medicine from entering Gaza. Israel’s strategy, such as it is, is to “drain the swamp.” Kill most of the civilians, and Hamas is finished. Israel’s killed a lot more people than the official stasticis: the Gaza Department of Health is no longer capable of counting even obvious deaths, and massive numbers of corpses haven’t been counted because they’re buried under rubble. There’s so much rubble that I’ve seen it estimated that it will take over twenty years to clear.

So there’s a race: can Israel finish its genocide, or will they be forced to stop due to military and economic exhaustion?

My bet is against Israel, but only at about 2:1 odds.

As for Israel itself, it needs to cease to exist. The atrocities are off the scale: multiple hospitals were invaded, patients, doctors and nurses killed and buried, often after torture. The bombing is completely indiscrimate and makes Putin and Bush Jr. look like humanitarians in comparison. Something like 98% of Israelis think that the amount of force used is either appropriate or too little. The society itself is sick from top to bottom, “good” Israelis, like “good” Germans are vanishing minority, though they do exist.

The end state needs to be a single Palestinian state and there needs to be no “truth and reconciliation” nonsense, but full war crimes trials.

Whatever the case, like the Crusader States, Israel is doomed. It may end soon, it may take a decade or two, but it will fall. America is in decline, Israel’s military is crap and the American century is at its end.

Let it be the last settler ethnostate.

You get what you support. If you like my writing, please SUBSCRIBE OR DONATE

Why Technocratic Elites Aren’t Trusted (Sam Altman Edition)

By Ian Welsh

On May 6, 2024

12 Comments

So, Sam Altman recently said something which seems reasonable, but isn’t:

using technology to create abundance–intelligence, energy, longevity, whatever–will not solve all problems and will not magically make everyone happy. but it is an unequivocally great thing to do, and expands our option space. to me, it feels like a moral imperative...

most surprising takeaway from recent college visits: this is a surprisingly controversial opinion with certain demographics.

(lack of capitalization from original.)

Back in the original Greek writings on rhetoric and argument, one of the three steps was Ethos: this is the rhetorician’s qualifications, including his ethical qualifications. The “why should we listen to you?” part. If you’re talking about courage, are you brave? If charity, are you charitable?

If technology, do you use it for the good of others?

What most people can’t explicate about their objection to Altman’s thesis that using technology to create abundance is a good thing is that they don’t trust Altman. OpenAI was originally a non-profit, meant to create AI in a way which would benefit everyone. Altman turned it into a for profit, and no one except billionaires and sycophants think that companies are out to be beneficial to the majority of people: we work in them, we know it’s bullshit.

And how did Altman create his AIs? By training them on other people’s work, without permission or payment. Further, the AIs compete with the people whose data they trained on: you can ask for a picture in the style of a particular artist, for example, and they compete with artists, writers and other professionals in general.

So, the people whose actual work made AIs (they aren’t really AIs but I use the term for convenience) possible, are the ones harmed by them AND they didn’t give their permission or get paid.

Why they hell would anyone other than a shareholder or a well paid employee “trust” Sam Altman?

Now let’s move on to the Altman’s actual argument (his logos and pathos)

using technology to create abundance–intelligence, energy, longevity, whatever–will not solve all problems and will not magically make everyone happy. but it is an unequivocally great thing to do, and expands our option space. to me, it feels like a moral imperative...

Now, this is a case where the logos is almost entirely true.

But what’s the actual track record of using technology to create abundance?

We’re losing our topsoil. Nutrition in food is less than it used to be. We’ve created climate change, which appears to now be past key tipping points and will kill and impoverish billions. Most of the American population is fat, they weren’t fifty years ago, so it’s not “individual choices.” We have widespread ecological collapse, including the loss of most large mammals and so few insects compared to even fifty years ago that there is no longer “bug splat” on windshields. The oceans are full of plastic, and the coral reefs are dying, while fish stocks collapse.

None of this is to say that technology hasn’t had vast benefits, but we’re using it also to reduce our option space: to damage the carrying capacity of the Earth in ways which will take tens of thousand of years to recover from, as a best case estimate (millions for some of the issues.) The last 40 years, when people like Altman have had the most influence, have seen a vast rise in inequality, and a huge number of homeless. Altman and co. blame left wingers, but who are the billionaires? Who actually has the power?

Altman’s making an argument which is true on its face, but he belong to a class of people whose actions do a great deal of harm. Most people can’t clearly articulate this, but they know he and his class can’t be trusted, so they instinctively disagree with him, but since they can’t quite say why, they sound incoherent.

But they’re right to distrust Altman. Technology could be used to benefit everyone, even in the long term, but Altman isn’t trying to do that: he’s trying to get rich, and if that hurts a lot of people along the way, he’s OK with it.

You get what you support. If you like my writing, please SUBSCRIBE OR DONATE