Ian Welsh

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

Category: Economics Page 2 of 85

Out Of Control Anglo Immigration

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On February 7, 2024

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It takes some deep work to make me anti-immigration. I figure people should have the ability to change countries: my mother did and so did all my ancestors, often multiple times.

But Canada’s managed it, and if I lived in Australia or Britain I’d feel the same way.

Let’s start with Canada

Yowsa! Something happened there, didn’t it?

A lot of people died during Covid. A lot of people were disabled due to Covid. That put upward pressure on wages and in a neoliberal economy, we can’t have that.

So Canada’s government decided to let in a flood of immigrants.

Result? Well, lower wages than otherwise, and…

Yeeha! One of Canada’s dirty secrets is that we have more homeless people per capita than California, with a lot worse climate.

And it isn’t just immigration:

Temporary workers, because we sure wouldn’t want to use Canadians or train them.

And hey, let’s pile on the pain with even more international students, who compete for housing too!

This is, obviously, deliberate policy. It’s bad for people who are already here, and immigrants are less thrilled than you might think, leading to record numbers of reverse immigration (immigrants going back home after finding out Canada isn’t the promised land.)

Australia’s the same:

Same student issues:

And yeah, same effect on the housing market, though it’s in a better place than Canada, which has probably the world’s worst housing bubble.

So then, Britain:

And, though it hasn’t had the same effect on housing in the US:

The difference in the US, which probably leaps out, is that it’s just a trend not a spike. it isn’t a clear deliberate policy choice, despite the squeals of Republicans. But it contributes to some of the same problems:

According to a Jan. 25 report from Harvard’s Joint Center for Housing Studies, roughly 653,000 people reported experiencing homelessness in January of 2023, up roughly 12% from the same time a year prior and 48% from 2015. That marks the largest single-year increase in the country’s unhoused population on record, Harvard researchers said…

…That alarming jump in people struggling to keep a roof over their head came amid blistering inflation in 2021 and 2022 and as surging rental prices across the U.S. outpaced worker wage gains.

Now there’s nothing wrong with immigrants, per se and no one who isn’t a native has any leg to stand on when screaming about immigrants to North America, Australia or New Zealand as intrinsically bad.

But when you have a homeless crisis and very tight and expensive rental and housing markets, obviously bringing in lots of new people is going to hurt the people who are already there who aren’t real-estate speculators and so on, and it’s obviously going to hit the poor, the working class and the middle class where it hurts, both on rent, housing prices and wages.

That means you’re going to increase racism, because people who can’t get an affordable place (and I can tell you that in Toronto, say, every low-end place has multiple applicants, and what is low end costs hundreds of dollars more than it did a few years ago) start blaming immigrants instead of hating their own ruling class, which is where the real blame belongs.

If you want racism, increase immigration without increasing housing. And that’s what Canada, the UK and Australia are doing.

And, of course, massive immigration’s primary purpose is to hold down wages, and you can’t expect people to be happy about making less than they would have otherwise. People know, because they see how many people apply for jobs they apply for,  they hear stories from their friends, and when immigrants are from visible groups, they can see it and hear it in the accents.

When all boats are rising, only true bigots mind immigration. But when people are struggling to find good jobs and a place to live, spiking immigration is an evil act.

Politically, its a hard place. In Canada, for example, immigration is up under the Liberal party. The Conservatives talk about cutting it back but look at that UK chart: that’s under a Conservative government. Will Canada be any different?

This is a ruling class issue: they aren’t hurt by a rising housing market and the more potential workers there are, the lower wages they have to pay. Older folks who own houses win, as housing prices go up. Immigration is good for elites and people who made it into asset markets. It’s good for insiders, that is, and bad for anyone out in the cold.

Since the people with power are insulated from the pain their decisions cause, my guess is that these policies will continue until there’s enough pain inflicted on elites to change their calculus.

A few riots where the mansions are might help with that, but Brits, Australians and Canadians aren’t the type.

Yet

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The Anti-China Chip Jeremiad Is The Stupidest Policy Imaginable

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On January 4, 2024

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So, if at first, or second, or third, or tenth you don’t succeed, try try again. The Netherlands, under heavy pressure, has canceled already approved sales of ASML lithography machines to China.

The leadership of ASML had resisted these sanctions because they said it wouldn’t work: what would happen is that China would learn how to make the machines themselves.

What he didn’t say, but it is true, is that ASML would not just lose the Chinese market, they would eventually lose the world market anywhere that didn’t put high tariffs on China or ban Chinese ASML machines, because when China learns how to make their own they will inevitably be cheaper, and the quality will catch up at some point.

Sanctions work on weak nations. They do not work on strong nations, or on nations which have strong friends. Russia sanctions might have worked if China and India and most of the South had gone along, but since China was never going to let Russia be destroyed, and since Russia produces all the fuel and food and most of the minerals it needs, plus still has a fair bit of advanced and heavy industry, especially arms manufacturing, it was never going to happen.

Sanctions against China are insanity. All they do is accelerate local production.

The thing is that before the sanctions most Chinese majors preferred US or South Korean designed chips. They were considered better and more reliable. Executives would not buy Chinese chips, even when they were available.

But when the US first launched its chip sanctions they were clearly trying to take out Huawei, one of China’s largest companies.

Being reliant on western chips went from the safe choice to the insanely risky choice and China, both private and public, spent vast sums and made huge efforts to build their own chip industry (including lithography machines are alternatives.)

There was a small window to turn this around when Biden was elected, but he doubled down on sanctions.

This needs, I think, some unpacking.

I don’t like to reach for arguments are about racism, but there’s a weird assumption in the Western ruling class that the West is just superior to everyone else: that our technological lead was somehow innate and inevitable and eternal.

Given that China had the tech lead over the entire world for a couple thousand years (or may 1,500 before which it was India or Ancient Greece and before that it was always Mesopotamia or Egypt) this seems strange. Europe took the tech lead for complicated reasons, both China screwing up and European events which were historically contingent and mostly not planned.

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A full discussion is beyond the scope of this article (and fills many many books) but “Why Europe and not China” is its own genre.

But nobody with any sense thought it was because Europeans or those of European descent are innately superior to Chinese.

I’m a broken record on this, but where the industrial base goes, the tech lead goes, at least in the industrial era. Pre-industrial it’s a bit more complicated, but it’s not an awful guideline, the exceptions tend to be transient, but they do exist (the ancient Greeks were insanely advanced) and they tend to occur where there are is a group of constantly competing small nations, which is the over-simplified explanation for European pre-industrial revolution technological advancement and also explains the massive leaps China took during warring states periods.

But if you don’t have a forced competition between near equals who know they can’t sit still or a genuine breakthrough (the industrial revolution) or both, then the more normal processes mean that where the industrial base is, so goes the tech.

Now, sanctions against China would make sense IF and only IF, you were going to take advantage of them immediately. In other words, go to war or make really radical changes to try and re-industrialized.

How radical? Well, my estimate is that if the US wants to re-industrialize it needs to drop housing and rental prices by about two-thirds, and forbid all excess profits on any product which isn’t new, say less than ten years old (and a new model is not new. Smarthone producers should have been allowed to gouge on smartphone prices for ten years after the first iPhone, for example.) No food gouging, no pharma-price gouging on medicines decades old, and so on.

The US (and Europe) need a crash, not in living standards, but in price structures. That means the people at the top need to become a lot less rich, very very fast. Social welfare isn’t a problem, actually, letting ordinary people have a backup so they can take risks and start new companies is a good thing, and so is forcing companies to really compete for employees. Tech advancement and economic growth was far better in periods with when the US had more generous welfare systems.

Obviously these policies are extremely radical, and equally obviously, America isn’t going to pursue them, so anti-China sanctions are basically pointless and actually accelerate their tech progress.

China now has the lead in more techs than not. That’s not going to change: it’s going to get worse. When the US sent its industrial base to China that became inevitable because all “end of history” bullshit was, in fact, bullshit. Capitalism doesn’t require representative democracy and neither does fast technological progress. (It doesn’t need capitalism, per se, either, but that’s the only solution we know and it was necessary for China to do capitalism to get the industrial base transfer. Also, again, another book sized topic.)

Anyway, again, anti-China or Russia sanctions increase the speed with which they catch up in tech, not decrease it. The Russia sanctions could have been justified if they let Ukraine win, but obviously they didn’t, and it should have been obvious at the time they wouldn’t because of China’s very good reason for not allowing them to work.

Our leaders, still only good at making themselves richer, worthless for all other purposes. And, in the end, the policies they pursued to make themselves rich will just turn them into the people running shithole countries which don’t much matter.

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How To Use China To Make Your Left Wing Government Succeed

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On November 28, 2023

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Back in 2016 I wrote a piece called “Seven Rules For Running a Real Left Wing Government.” It proved to be one of my most popular pieces, particularly loved by activists. Since then I’ve often been asked for an more and I’ve finally written a partial update and companion piece.

The Sixth Rule was “Reduce Your Vulnerability to the World Trade System.”

This rule is still true, but how it is applied has changed — you can use a relationship with China to, over time, reduce your dependence on the old system which required you to stay poor and dependent..

Back in 2016 China was massively important, but the rules of the system were still all-powerfully American. Those rules are breaking down now and your government can take advantage of that. Though the title of this piece is about China, much applies to bilateral relationships with other countries. China’s the biggest and most advanced and most useful right now, however.

What working with China can do for you.

  1. Movement up the industrialization chain;
  2. Modernization
  3. one time infrastructure
  4. cheap loans
  5. Training and teching-up your scientists, engineers and designers.

All of these benefits are available, but you have to be smart and structure your deals to give you a long term advantage, China won’t do that for you, but they are open to such deals and won’t sandbag you. To use modern bargaining speak win/win deals are available if you seek them. There are limits, of course, but those limits are far higher than they were and are under the old WTO/US system.

How The World & China Have Changed And How You Can Use Those Changes

China is now the largest trade nation in the world and caught up to the West or surpassing it in most, though not yet all, technologies.

Post-Ukraine war it has been structuring many non-dollar deals.

These deals settle outside of the banking system controlled by America and Europe and thus you are not forced into structures which automatically try to keep you from moving up the value chain without being a US satrapy (like South Korea and Japan and most of Europe) or seeking moderate economic independence. (See the original 7 Rules article for how the old system works.)

De-dollarization and a nascent non-Western banking system make it possible to break the stranglehold the old international trade and finance regime put on left wing governments.

To take advantage of this opportunity you need to understand China’s domestic issues:

  1. China has far more construction and development capacity than it needs. It has built most of the buildings, roads, ports, hospitals, schools, power plants and so on it requires. China could get rid of those jobs and cut the industry in half OR it could use it overseas and not throw a pile of people out of work and destroy half an industry. This means, among other things, that China is willing to put up infrastructure for very low prices in order to keep the people employed.
  2. China has a vast need for resources: food, fuel, minerals and so on. If you’ve got it, odds are they need it and they want long term secure deals.
  3. China is moving up the manufacturing value chain and moving into services. In many cases the Chinese government has forced industries to shut down low value manufacturing plants that are still profitable. They want the lower chain industry out of their country, and over time what counts as “lower” moves further up the chain.

What all this means is that China is willing to build your country what it wants for cheap in exchange for deals for your resources and, more importantly, to relocate industry to your country.

You have to take advantage of this in the right ways, or it is just another trap, but it’s still a big opportunity because the US offered this deal to only a few nations and required satrapy status in return. Think South Korea and Japan and Taiwan.

This isn’t to say that China doesn’t have some non-negotiable requirements if you want to be cut in on the good deals, however, they’re just less onerous than the old US and European deals were. Let’s discuss that next.

China’s Non Negotiable Requirements

These are simple. You will not recognize Taiwan and will stay out of the Taiwan/Mainland dispute. You will stay out of anything relating to Tibet and that will most likely include not hosting the Dalai Lama at the senior government level. If you are not in the South China Sea, you’ll stay out of that dispute.

These aren’t particularly onerous, though you may find they stick in the craw slightly. Still, it’s a lot less than what the US and Europe require.

What You’ll Lose By Aligning With China

Simply, good treatment from Europe and the US. That means reliable and fair access to the western financial system, the ability to buy Western military gear and expect to get parts and ammo when you actually need it, and to a lesser extent, access to western goods and services.

The financial aspect is the most important, but will become less and less important. The whole point is bilateral or multilateral deals outside of the Western financial system anyway, and it’s that financial system which has been primarily responsible for keeping the global South down for the last 70 years.

The military aspect is negligible at this point. It’s clear that the West’s military production system is sclerotic and can’t keep up with major demand spikes: we’ve seen that in the Ukraine where they can’t even keep Ukraine supplied with enough dumb artillery shells. You’re better off getting your military supplies from China, Russia and Iran. There isn’t even much of a quality gap and in some areas, like missiles, you’ll receive better.

As for goods and services, increasingly, outside of pharmaceuticals (which they’ll withhold from you in a crisis anyway, as Covid proved), China can supply what you need, including advanced telecom equipment and more of the production stack than the West can these days. You’re giving up very very little and in ten years it will be essentially nothing.

What Types Of Deals To Cut

There are three types of deals you want beyond the basic “we sell you stuff and then buy goods from you.” There’ll always be some of that, but the idea is to make your country more independent and more prosperous and your people better off over time. That will not happen if you just sell resources and then turn around and buy goods.

Bilateral up the chain deals.

This means “we give you resources or low chain goods and you help us move up the chain.” If you’re not already on the chain, that’ll mean starting with textiles, most likely, but you have to start somewhere.

Bilateral Cartel Deals

In these deals you agree that you’ll own a particular industry and the other country won’t compete with you. In exchange there’s an industry you won’t compete with them in and both of you will buy the others products. These deals take a lot of trust: both sides have to believe the other side won’t cut them off in the future. One “semiconductor ban” and the deal is shot, and most likely shot permanently.

China’s capable of taking over most industries if it really wants to, but there’s an opportunity cost to doing so, and they need and want good relations. In many cases these deals will be cut with a side “and if you let us keep or have this industry, and buy from us, we’ll keep selling you grain/oil/nickel/whatever.”

China wants secure deals. Give them that security and be rewarded in exchange.

One Time Infrastructure Deals

As discussed earlier, China’s the infrastructure King. If you needs roads or ports or hospitals or power plants or almost anything, they can build it fast and cheaper than anyone else and the quality is good. Maybe not Japan good, but good enough.

You’ve got to cut these deals, all of them, right, though, or you’ll wind up not receiving what you want, or in the case of infrastructure deals wind up with white elephants you can’t afford to maintain. So—

How To Structure Deals To Ensure You Benefit

The objective here is to gain local knowledge, skills and capacity. This means a few things.

No Branch Plants. You want partnership deals, 49% China, 51% you. The plants or whatever get set up in your country by their engineers and managers, in partnership with your managers and engineers. At first the foreigners take the lead, but over time they are largely phased out, the capacity becomes indigenous.

Move the parts and repairs. You don’t want to just be putting goods together from pieces made elsewhere. You want the parts moved to your country too. Lots of small companies usually support big companies. You want that network. Without that network in your country, you don’t actually have industry. With it you have the culture of industry which is required to start making your own advances, to create new products and types of work. You have the chance to get a dynamic economy which innovates.

Buy Infrastructure you can maintain. If you’re going to constantly need the Chinese to come back and fix your power infrastructure, or roads, or ports or anything else, or to constantly buy parts from them, then you haven’t really bought anything. All deals must include the necessary training for your locals to maintain the infrastructure and that most of what is needed for maintenance is made in your country.

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Be very careful about large asphalt and concrete deals. Concrete and asphalt does not last and needs constant and expensive maintenance cycles. The world which supports that is going to go away as climate change and environmental collapse do their damage. Find ways to increase the lifespan of infrastructure and make it easier to maintain, ideally with as unskilled labor as possible.

If you can’t maintain it, you don’t really own it and it won’t be there when you need it.

Educational Exchange

Let’s be clear here, sending students overseas to learn from more advanced societies isn’t all it’s cracked up to be. A lot of them stay, others become compromised with values which are inappropriate to your society and much of what they learn at university isn’t all that useful in industry, unless they’re in real engineering or science and even then, less than you’d think.

Still, do some of that.  It’s not a hard deal to cut, because it’s flattering to the Chinese and thanks to Chinese culture, you’ll see less of the students stay in China than used to stay in America. They’ll have to learn Mandarin, but that’s good. English will stay the lingua franca for a while, but the gravity is to Mandarin and if you’re following the advice herein, well, China’s your big trade partner.

The other exchange you want is to get your engineers and scientists and managers into partner companies in China so they can get real world experience with how industry and business works. Get them from the lowest levels where they see the factory floor to the highest levels. Have them make contacts, have them work on real products. Again, some are going to stay, but many will come home and you will benefit massively.

Most of the most important information about how products and businesses and societies work is never written down. You need your people to learn it.

So get those exchanges going. And if you need to flatter the Chinese a bit, swallow your pride and do it.

Concluding Remarks

China’s still on the rise. Countries on the rise are much more generous than countries in decline or even mature countries, economically speaking. There’s still tons of possibility and present and future surplus to share. The emphasis is on increasing the size of the pie and not fighting over a static or shrinking pie. On top of this China needs and wants friends and wants desperately to be admired. If someone wants admiration, it’s cheap and there is plenty that can be admired without hypocrisy.

Take advantage of this opportunity but remember, the goal is to increase your own country’s real prosperity by increasing your indigenous production ability and the skill and knowledge base of your own people. It is not to gain fleeting prosperity from selling resources or bottom tier products.

And remember also, this economic age, the age of heedless industry, is coming to an end. Build smart: lots of passive solar, for example. Trains and rapid transit, not expressways. Infrastructure that is easy to maintain. Goods that aren’t frequently replaced.

Learn from China but don’t be just like them, use them to create a non car-centric, non-disposable economy. If you do so, you’ll be one of the nations who prospers in the next age.

China is an opportunity to get on a ladder. Choose the right ladder.

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Why Economists Are Wrong About How Good The Economy Is, And Regular People Are Right

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On October 30, 2023

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Practically every day I read an economist like Paul Krugman or Brad DeLong talking about how the economy is the best ever, but ordinary people just don’t get it, and must be idiots influenced by propaganda.

Someone’s an idiot on this subject, but it’s not ordinary people.

Mish Shedlock had a good article on medical inflation. Here’s two charts from his article. First, costs:

Second, CPI for medical:

You might be noticing a—slight disconnect. The cost of medical care services (which is what you care about as a patient) are dropping, according to the Bureau Of Labor Services (BLS).

Mish has the extended explanation, and you should read his whole post.

Now, back in 2010 I wrote an article on how inflation statistics are bullshit. One example was automobile costs. Here’s the chart from that.

Yeah. right.

The inflation statistics, at the this point, are complete bullshit. Absolutely worthless in entire categories.

When it comes to how good people feel two things matter: how many people have a job, and how much money they’re making. When economists look at wages, they look at “inflation adjusted wages.”

How much your money buys. So, since the inflation numbers are garbage, the inflation adjusted wages are garbage.

A long time ago Stirling Newberry gave me a rule of thumb, which is that people are fooled in generalities but not in specifics. Which is to say, people know what hurts or feels good in their own lives, though may be completely clueless about the generalities. But when you take a survey asking people how the economy is doing, what you’re really asking is “how does it feel for you and people you know.” The answer is “shitty.”

I’ve personally seen, in Toronto, Canada, foodprices increase at least two-thirds. If I buy the shopping basket I bought for $30 in 2020, it now costs me about $50. A lot of things have doubled in price. Rent is way up for most people.

And when I talk to other people, no matter where in the US or Canada they’re from, I hear the same thing. So I’ve never believed the BS talk about the “best economy ever.”

Back in the 90s, there was a rather good book titled, “Economists are bad for your health.” Economists are clueless. North of 99% of them missed the 2000’s housing and financial bubble, for example. The advice they give on how to run economies is almost always not just bad, but terrible, at least for 96% or so of the population.

The most important requirement to understanding the world is accurate perception. Truth, if you will. If you don’t know the truth, you’re going to draw the wrong conclusions. Economists believe BLS stats, so they’re full of it. Add to that the fact that Economics as a discipline is mostly wrong about almost everything macro, and economists are out to lunch in a very dangerous way.

(Note that I predicted the financial crisis, publicly, in advance and spent years before that writing about the bubbles. All the necessary information was available, if you didn’t think nonsense like markets being self-regulating and housing prices always going up. A correspondent once did a search to find out how many people predicted the crash in advance. He found 39. Where were all the economists, who are supposed to understand the, well, economy?)

Anyway, ordinary people are right. Their wages haven’t increased enough to make up for the increases in key prices. You can skip on a lot of things, but not food and shelter, and skipping on medical services is bad too. As for autos, well, most people need them or they can’t get to work or go shopping.

We have late imperial disconnect: the elites live in a world where everything is great, while ordinary people live in the real world, and it sucks.

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One Relatively Bloodless Way To End The Genocide In Gaza

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On October 21, 2023

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I’ve mentioned before the possibility of military defeat, but there’s a better way.

Simply have OPEC do another oil embargo to the West and its enablers until the situation is resolved, with a two-state or one state solution and significant restitution. Yeah, the US and Canada produce a surplus, but it’s not enough of a surplus to support all their allies.

And if all OPEC members don’t agree, it really doesn’t matter. Russia, Saudi Arabia, Iran, Iraq and the Gulf States are enough. Since Russia’s already already under various sanctions…

 

That would, of course, require Saudi Arabia and the Gulf States to do more than cry crocodile tears about the Palestinians, and actually do something, which is unlikely. But it’s worth remembering that it is possible and putting it on the table.

Besides, the lion should show its teeth occasionally anyway.

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The Absolute Disaster Of Losing Dollar Privilege

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On October 2, 2023

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Most of the world’s trade is done in dollars, even for trade that never goes to the US.

Most of the world’s money transfers at some point go thru the western banking system, and quite often an American bank, even if both parties are not in America. This is how the US justified its’ anti-FIFA case: the bribes, though at never point involving any Americans or going to America, at some point went thru a US bank on their way to their target.

Everyone needs (or needed) dollars, and everyone needed the Western banking system. There was no real alternative, and to a large extent there still isn’t.

But that has been changing. Russia (SFPS)  and China (CIPS) built their own interbank messaging and transfer systems to replace the West’s SWIFT. They have started to connect them together. Since the Ukraine war in particular, China and Russia have been encouraging countries to settle trade in local currencies, and oil has been sold in rubles and yuan (previously, with a few rare exceptions it was always in dollars.

This is called dollar privilege. It has disadvantages, but because everyone needs dollars and because a ton of world debt is denominated in dollars and because the interbank transfer system is controlled by the West (SWIFT is actually located in Europe), America has been able to command far more of the world’s resources than it otherwise would have been able to. Of course this is backed up by US and allied military power, and it was possible to create it because after WWII the US was both the greatest military power and the largest industrial power.

Still, while it was definitely abused during the cold war period, and more than once, it was after the collapse of the USSR that America really went wild with sanctions.

But the most important thing about dollar privilege is not the ability to sanction, it’s the ability to settle all debts in dollars, which everyone needs.

What happens when everyone doesn’t need them? What happens when the US actually has to pay, somehow, for what it consumes?

Though losing dollar privilege is second order, downstream from losing industrial and military dominance, and has been moved forward by the abuse (and failure) of the sanctions system, it will still be a massive blow to America. Put simply (and with some exceptions), America will have to live on what it can actually make and grown and what it can trade for with what it makes and grows. Well, and what it can steal with its still strong military.

This will be a massive blow.

It will also be an opportunity of sorts. Dollar privilege let the US command more of the world’s resources than otherwise, but it also made the dollar worth far more than it should have been, and thus increased costs in America. In principle (though hard to do in practice) the US dollar collapse caused by the end of dollar privilege would make American goods and services much cheaper overseas and improve the US terms of trade, allowing more manufacturing in the US.

In principle. In practice, the collapse in ability to command resources is likely to lead to economic collapse, and only a very savvy leadership class will be able to navigate the issue, at least in a timely manner. In the longer run, America is still a continental power and if it doesn’t split up, the country has significant advantages which may allow it to survive and even be moderately prosperous.

But when you see moves by the BRICS to create their own multinational interbanking system, and moves away from the US dollar, understand that what you’re seeing are attempts to end US hegemony; attempts which will have shattering effects on the US economy.

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German Dependence On China

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On September 26, 2023

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So, the German central banks noted that 29% of German companies import essential parts and materials from China.

Multiple industries. Germany, much like the US, but even more so, let China pick up, among other things, much of the tool making industry, especially those related to auto manufacture.

 

Ouch.

When you consider this is an absolute terms and not relative, it’s even worse.

This comes on top of anti-Russia sanctions and the sabotage of the Nord Stream pipelines cutting off Germany’s access to cheap energy.

Germany is a relatively small country without a lot of natural resources. To be wealthy it needs to produce high value goods, and to do that it needs inexpensive inputs for its industries, or it needs to have much higher industrial productivity than everyone else.

Outsourcing so much of the supply chain for its manufacturers was an understandable mistake: it made those inputs cheaper.

But if you’re a small country without a lot of resources, you have to keep your supply chains and trading relationships stable. German leaders at the start of the Ukraine war expressed the most doubts about massive sanctions and they were right.

Germany is, as predicted at the time, in real trouble. Their model had flaws, and was a mean one, impoverishing and de-industrializing other EU nations, so there’s a certain irony to EU consensus Russia policy now screwing them over, but at this point if Germany goes down it’ll take the entire EU’s economy with it.

Germany cannot afford to follow the US into a cold trade war with China.

Moreover, this is a demonstration of something simple: what is good for Western EU countries and what most Eastern EU countries want (anti-Russia policies and NATO expansion) are two different things. Germany needs good relations with cheap resource suppliers and the only practical one was Russia.

It’s all very well to say, as many have, that this is the price of standing up for “freedom”, but if Germany goes down, so does the EU.

Likewise, what is “good” for the US, is not good for most European countries, and especially not good for Germany. (Ironically, Macron is the only major EU leader to be honest about this.)

The EU, if it continues on this course, will be reduced to an even weaker American satrapy than it was is the cold war period, and one with a lot worse living conditions.

China’s moving up the value chain. Sanctions against China, rather than slowing this down are speeding it up. Correct industrial policy would have been to negotiate with China about what industries or segments of industry each country is going to specialize in.

Incorrect policy is to have a cold war against both your cheapest energy supplier and the country that is now the world’s manufacturing floor.

Damn near suicidal policy, in fact.

Europeans need to get thru their heads that the European/American near monopoly on tech and high productivity is broken and that Europe, in particular, is coasting on legacy industry, without a great number of natural advantages. It was a backwater for most of history, and is reverting. The job of European leaders is to keep that reversion from happening for as long as possible and to slow down whatever reversion occurs.

Now, it could be that full commitment to a “US and Europe+Anglo countries” trade block, with full re-shoring would be a viable policy, if aggressively pursued, but that’s not what’s happening, the US is, instead, taking advantage of EU and German weakness to grab up high energy cost industries.

As for Europe’s elites, they should remember that owning overseas resources is dangerous. Britain’s “hidden empire” — its overseas investments, was a huge part of its strength, and essentially liquidated in WWI. Germany’s chemical patents and electrical patents were broken by the Allies in WWI and they didn’t reinstate them after the war was over.

Anything you own in another country doesn’t really belong to you unless you have the troops and willingness to occupy that country and the ability to then administer the country.

Germany in specific, and Europe in general, if they don’t change their policies and their commitment to being American satrapies, are on the path to ruin.

(Oh, and as I said at the time, most of the Eastern European countries should never have been let into either NATO or the EU. They offer little but vulnerability; are economic soaks, and have interests contrary to those of Western European countries. The only way they could have been absorbed effectively was if the EU decided to become a real federal nation with former countries reduced to provinces at most, and in most cases divided into multiple provinces.)

Folks, it’s your donations and subscriptions which make it possible for me to keep writing (since I need to eat and pay rent and the cost of both have skyrocketed) so please (if you aren’t struggling) DONATE or SUBSCRIBE.

 

Money Is Not Wealth

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On September 20, 2023

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Money is something you can (sometimes) exchange for wealth, but it’s not wealth itself.

When I say sometimes I mean that there are things you can’t buy: what those things are change from place to place and time to time. The classic formulation of the preconditions for capitalism includes the ability to buy land, labor and capital. In most places and times you couldn’t actually hire most people to work–they were bound to the land, their clans, or whatever or they could support themselves and sure didn’t want to work for someone else.

Likewise most land was inherited or in the commons and definitely not for sale. You couldn’t buy it.

Wealth is what you control (not own, control) that can be used to make something, grow something or support violent people.

Violent people are what enable you to retain control, and this is as true now as it was in feudal times or ancient Sumeria. Property law and contracts and taxation and so on are all ultimately backed by the fact that if you don’t obey, unpleasant men with guns will show up and do horrible things to you.

In the dark and middle ages, those with a lot of money had sharp limits on how much power they had. The King of France famously destroyed the Knights Templar to get out of his debts to them and to steal their wealth. Henry the Eighth of England dissolved the monasteries and stole all their lands and wealth. Rich merchants regularly had their noble or royal patrons default on their debts and often wound up dead as a result.

Nor could they buy much in the way of land, or hire too many people. Right up to the middle of the 19th century, the standard pattern for a rich merchant was to either marry their heirs into the nobility or buy a patent of nobility, then get some land, and become a noble and give up most of their mercantile enterprises. These were sharp customers, they did this because they felt it was the only way to be secure and truly take care of their descendants.

In the modern world, when new money is created without an increase in actual productive ability (goods, resources, improvements in land, improved real productivity) wealth hasn’t been created. Wealth is only created by increases in money if there is unused productive capacity and that capacity is being held back by lack of money (i.e. it’s available, but not being used by the people who would use it productively) and that money gets to the people who would use it productively AND those people then get control of those resources and use them productively. (That’s a lot of “ands”.

We’ve been pumping a ton of money into the economy ever since 2008. It mostly, in the West, has not been used to increase production, it has been used either in attempts to gain control of already existing productive resources or to loot said productive resources, burning them to the ground, as with much of private equity. A good example is Toys’R’Us, which was entirely profitable till it was bought and larded up with debt by the buyers.

Money isn’t wealth. Sometimes, in some times and societies, it seems like it, but at best it is a proxy for wealth.

Folks, it’s your donations and subscriptions which make it possible for me to keep writing (since I need to eat and pay rent and the cost of both have skyrocketed) so please (if you aren’t struggling) DONATE or SUBSCRIBE.

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