Ian Welsh

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

Category: Economics Page 41 of 98

The Problem with Banning Huawei 5G Tech

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On January 27, 2019

40 Comments

So, the Huawei saga rolls on. The executive arrested, the daughter of the CEO, will probably wind up released, as it’s been made clear this is a political arrest.  (Trump has said so, and it’s over Iran sanctions. Breaking Iran sanctions is clearly political, and probably even the ethical thing to do in many cases.)

But something else is more important to note. Huawei genuinely has the most advanced net tech in the world. It’s that simple.

America no longer manufacturers telecom equipment – Cisco got out of the business several years ago – and Huawei’s two Scandinavian competitors are too little, too late, and too expensive…

the Shenzhen firm is spending $20 billion a year on R&D, about four times as much as either Ericsson or Nokia, its only important challengers in the telecommunications equipment market.

Huawei’s internal assessment holds that its technological lead in 5G mobile broadband is so wide that the competition has no effective chance of catching up. In late February, Huawei will introduce its Balong phone, with a chipset that can handle downloads ten times faster than the best 4G LTE speeds, while operating with 4G networks as well.

Or:

“China’s largest tech company makes high-quality networking gear that it sells to rural telecommunications operators for 20 percent to 30 percent less than its competitors do, says Joseph Franell, chief executive officer and general manager of Eastern Oregon Telecom in Hermiston…”

This is hopeless. It’s probably true that Huawei stole a lot of technology, especially in the 90s and the 2000’s. One of its victims was Nortel, Canada’s telecom giant, which makes me angry.

So what?

They have the technology. It’s cheaper and more advanced than anyone else’s and, hilariously, the US doesn’t even compete in this type of telecom equipment any more.

If this is a strategic matter, then the US has fallen down completely. If an industry is strategic, a country must make sure it, or a trusted ally, stays in the lead. Not only did the US not do that, but US policies from the 80s onwards effectively off-shored this sort of production and research, as a deliberate policy choice.

Now they cry?

5G is lost. If the US, or the US and its allies, want a shot at 6E they’d better figure out how to do industrial policy. That might, indeed, mean banning Huawei, but only if they’re willing to put up with worse, more expensive internet for a decade or so. (But then US and Canadian internet is already not nearly as good as the best.)

One of the key tenets of neoliberal economic policy is that it doesn’t matter where something is manufactured, or done. Let the cheapest domicile do it, and everyone will benefit.

This is bullshit, and always was. Making and designing new things is where economic strength, the good life and military power all come from.

Nations which forget this wind up in the dustbin. Free trade, as an ideology, is the deathknell of great powers, including Great Britain, and likely to include the US. It does work for smaller powers, and should be the default policy mode for all city states, but great powers are not small powers, let alone city states.

So, if the US wants to ban Huawei, it’d better figure out how it’s going to support Huawei’s competitors enough so that they at least catch up, or even consider making sure the US has its own telecom manufacturers. If it can’t do that, this is a band-aid on a wound.

(Oh, and there’s a reason the US, whose technology is used in most of the older telecom equipment, especially cables, thinks that China might use that to listen in. Mmmmm. What would that be?)

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The Rule of Alienation and Stability

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On December 16, 2018

19 Comments

One of my favourite sights is people complaining that marginalized people don’t understand that their support for Bad Politician-X results in fucking themselves.

“Sure,” runs the line, “their lives suck now. But they’ll suck even worse if this guy gets into power.”

This is often (but not always) true. It is also irrelevant.

The rule is simple: Alienated people are always targets for alternative political movements. Sometimes those movements are good, sometimes bad. But if you don’t want this to happen, your society has to give alienated people genuine expectations of a better future when they play within the system.

When a huge number of people, a plurality, feel that they have little hope for a better future, and a realistic expectation for a worse future, they are willing to roll the dice, even if the odds are bad. After all, they already know that the current world is shitty and the future is worse.

It does not matter if this seems irrational on cost/benefit scales; what matters is the chance, rather than what they see as a certainty.

Now, understand always, that sometimes what is offered IS better. FDR was better. So was Huey Long. Corbyn in Britain will be better than the status quo. (This is why the voting gap for youngsters disappeared for him. Young people vote when they are offered what they need.)

Sometimes it is worse, if not in the short run, then in the long run. Or, if not for you, then for other people in your society (see Hitler and Mussolini for cases of both).

People who love the status quo, who want it to continue, have to make it work for most people. If their policies, no matter how reasonable they seem to the beneficiaries of the current system, whatever it is (Ancien Regime France, for example) plunge a plurality into despair, that plurality will always be ripe for turning on the system.

It really is that simple? Love your system? Okay. Make it work for almost everyone. In excess of 90 percent. Not because you are moral or ethical, most of you probably aren’t, but out of sheer self-interest.

If you don’t, don’t whine when those you left behind decide to take almost any chance to change things.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

Meritocracy? What Meritocracy?

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On December 12, 2018

31 Comments

From Saez, Chetty, et al

So, unless you think that genetic potential is that unequally distributed (and can explain eras where this chart did not apply, as in the post-WWII decades), you can pretty much forget “meritocracy.”

Meritocracy is just a way of saying, “We test for the things the middle and upper classes have the resources to prepare for their children.” And that’s before we get to the extra opportunities having wealthier parents gives one simply from network effects.

Fairness and justice are obviously big issues, but just as bad is that many of these people might contribute in a huge way, and are never given the opportunity.

Stephen Jay Gould once said:

“I am, somehow, less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops.”

These days, McDonalds, Walmarts, and Amazon warehouses…

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Actual Sovereign Nations and the End of the Unipolar Moment

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On November 3, 2018

28 Comments

This chart is a “sovereign nation” chart. Spot the only sovereign nation.

Japan could be a great power, but right now it is still an American subject state. South Korea obviously is, and so is India. Of these four, only China is sovereign. The rest have to do what they are told to by the United States.

This period is ending. The US (primary) and European (secondary) stranglehold on the world payments system WILL come to an end, and the world is most likely to split into two primary trade blocks.

Since things like the US-imposed Iranian sanctions are crimes (along with the strangling of various other countries, as is killing people–with reports of Iranians dying from shortages of insulin as a result of the sanctions), the end of the US unipolarity will be a good thing.

Those who abuse their power should lose it.

That does not mean that China is a nice and cuddly power either, but they have more respect for most other countries’ sovereignty than the US does and want a “great power” influence area, not a “superpower” area (i.e., they do not want to control the world).

The process of this split is ongoing. The recent NAFTA renegotiations were about breaking the near-satrapies to American will. Mexico gave in immediately, Canada crumbled under auto export tariff threats. You can tell this is about the split, because the new trade agreement, the USMCA, had in a clause intended to stop Mexico or Canada from having new trade deals with China.

This is the new world being born. It doesn’t have to be better than the old one, and may not be, but that doesn’t mean the old order doesn’t need to die.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

Trump’s Continued Collision with the Federal Reserve

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On October 22, 2018

10 Comments

Back around Trump’s election, I said that there would be a collision between him and the Federal Reserve. At the time, it was run by Yellen.

The fact is that the people who elected Trump aren’t feeling good. To make them feel good, Trump is going to have get the official unemployment rate lower than it is now, at least under four percent, and hopefully to three percent or lower and hold it there for some time, at least two or three years.

This stuff takes time to ripple through the economy, and it takes time for a tight labor market to push employers to both raise wages and to hire people who they consider marginal.

If the Federal Reserve raises rates if/when Trump’s policies (“fiscal,” in the above) start to work, they will be making sure he can’t deliver to his constituency.

This is a direct collision course.

Now let me say something simple. The Federal Reserve, for over 30 years, has deliberately crushed wages. This was policy. Policy.

So, Trump hired Powell, and Powell is doing what Yellen would have done. Trump, on October 11th, said that he wouldn’t fire Powell, but was only disappointed.

It’s unclear whether or not Trump can fire Powell, however he can fire all other members of the Federal Reserve board for non-performance of duties. The case isn’t as clear as back in, say, 2009, but the economy still isn’t good for large parts of America, a case can certainly be made.

More to the point, Trump should.

Yes, Trump is the source of all evil and anything and everything he does should be opposed, I know, but bear with me: The Federal Reserve should not be insulated from pressure from elected officials.

I know that orthodoxy says it should, but the fact is that, since 1979, the Federal Reserve has raised interest rates whenever it looked like wages were going to rise faster than inflation. The Federal Reserve, in other words, has crushed wages.

This is bad. It is at the heart of why we have the rise of the right, and so many other problems. Vast inequality, in democracies, always leads to political instability, and in democracies the purpose of the economy should be to create a good life for everyone, anyway.

Trump ain’t a good guy, but wages aren’t increasing for ordinary people. That means that whatever the nominal unemployment rate is, the US isn’t actually at full employment. If it was, there would be rising wages. It is that simple. To raise interest rates before there are even significant wage increases is malpractice, even by the usual standards of monetary policy–and the usual standards are already malpractice.

Just because one despises Trump, one should not allow the major part of economic management be run by people who despise ordinary people receiving wage increases, or, indeed, by “independent bodies.” Democracy means elected officials having control over real policy.

So, I hope Trump fires a bunch of Federal reserve members, I hope it goes to the Supreme Court, and I hope that those firings are upheld.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

How Over-priced Is the US Housing Market?

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On October 2, 2018

111 Comments

This is one answer:

The bottom line, then, is that it’s more overbought than it was in 2008.

If the government had not intervened to keep it over-inflated, it would likely have reverted to mean, but trillions of dollars were spent, and many laws were bent and indeed, broken, to keep house prices up.

Indeed, 2008 was used as a buying opportunity: Distressed homes were bought up at cents on the dollar, then rented or sold at inflated prices.

The entire economy is crooked: It is designed to favor the rich no matter who else that hurts.

There are little people who win, but they are fewer and fewer. And virtually no one below the age of 40 is a winner in this unless they are professionally involved, i.e., in on the scam.

Housing should never have been thought of as an investment. Houses should be for living in, and people who own them to flip them should be heavily penalized. Those who own them and leave them empty should have them seized by the government and auctioned. And, yeah, some form of rent control is needed in most places.

Of course foreign buyers must be kept out of the market. Housing is for people who live in the country; foreigners can rent.

As for mortgages, they should be dead boring; for most people fixed rated mortgages of 20 to 30 years fit.

None of this should be objectionable. But there are people making a lot of money out of the misery of other people, and parasites don’t like letting go of their hosts.

Parasitical economies–and most developed countries have one–exist by immiserating people.

This is the real reason for the current push for basic income: The parasite class is scared they may be about to kill the host, and want a government infusion to keep the poor and the (reduced) middle class stumbling on.

I don’t oppose a basic income, but understand that billionaires aren’t supporting it out of the goodness of their hearts. They expect to take every cent the government gives you.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

When Will the US Lose Control of the World Payments System?

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On August 31, 2018

49 Comments

One of the greatest powers of the United States, one which was hardly used before Clinton, is the ability to freeze people out of the payments system. When Argentina had its previous debt crisis, it cut a deal with investors: They took a haircut, and the government agreed to pay them the haircut. Some investors refused.

Later, that deal was effectively destroyed, because Argentina lost in a US court. As a result, they could not pay the investors who had taken the haircut–a US judge was able to cut a sovereign state off from paying its debtors. Argentina could only have access if it paid both those who took the haircut and those who didn’t.

Over the last 20 years, in particular, the US has enforced financial sanctions against a bewildering number of people and states. Right now, it is disallowing Venezuela from buying many foreign goods. (When “socialism” doesn’t collapse fast enough, the US is always on hand to give it a shove.)

During the Iran sanctions period, before the Iran nuclear deal, the US and the EU cut Iran off from the payments system, virtually wholesale. SWIFT, the electronic payments system headquartered in Brussels refused to cooperate, saying that it should not be used as a tool of politics.

But the EU threatened the board and senior SWIFT executives with criminal charges, and SWIFT folded.

Lots of Iranians died and suffered under those sanctions, just like Iraqis did under the sanctions in the 90s.

When the Iran deal was cut, the sanctions were eased.

But Trump, when he tore up the Iran deal, re-imposed sanctions. The EU disagreed, but many EU companies are obeying the American order because America has said that it will sanction both companies and individuals who disobey.

And even if SWIFT doesn’t cooperate as a body, the problem is that most payments at some point touch American banks. The moment they do, America jurisdiction cuts in. (This is how FIFA got hit for corruption by US law enforcement. None of the bribes had anything to do with the US, but payments went thru US banks.)

So Europe is considering creating a payments system which does not ever touch US jurisdiction:

Germany’s foreign minister has called for the creation of a new payments system independent of the US as a means of rescuing the nuclear deal between Iran and the west that Donald Trump withdrew from in May…

…“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system,” he wrote.

This adds Europe to a group which includes Russia and China, along with virtually every nation who has been subject to US sanctions.

The thing is that such sanctions used to be fairly rare. But Clinton weaponized them against Iraq and every President since them has used them as a bludgeon. They are a way, like drones to punish countries and individuals and to ignore sovereign rights.

The MMT types go on and on about being sovereign in one’s currency, but the fact is that you aren’t sovereign if another country can cut you out of the payments system. And right now the only countries in the world that are sovereign in that sense are America, the EU and China. And the EU and China are only somewhat sovereign.

These punishments are extra-territorial, they are an imposition of US law on non US countries and citizens. They are possible only because the US is the world hegemonic power, and sits at the center of the world payments system. Venezuela can sanction, but no one cares unless they have assets actually in Venezuela.

This power has been abused, repeatedly, to interfere in business that is none of America’s business. One can say that it might have been used acceptably when the entire UN security council agreed (I disagree), but when it doesn’t, the US has acted anyway.

And so, now, every great power in the world, with the possible exception of Japan, wants to take that power away from the US.

About time, but it will take time. It isn’t just about virtual links, it is about physical links: it must be done over continental cables and thru satellites which are not American. The way current software acts doesn’t take that in account, and physical infrastructure as well as software needs to be built.

But I hope that Europe is serious, because combined with China and Russia this is something which can be done, and done fairly fast (within a decade, I’d guess.) The only problem is that the EU, too, likes having this power. Are they really willing to give it up? Because the best way to do this would be to create a system which cannot be sanctioned without the agreement of all the powers who create: a system which cannot be sanctioned unilaterally. Everyone involved should have a veto.

Time will tell if Europe and, indeed, other nations, truly want a system that none of them can use to punish others.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

 

Should Canada Concede to Trump in NAFTA Renegotiations?

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On August 28, 2018

33 Comments

So, Trump has been renegotiating NAFTA. Not necessarily a bad thing. He’s cut a deal with Mexico, says he’ll sign it without Canada.

Canada has three main sticking points.

It wants to keep the Chapter 19 dispute resolution system so that the US can’t unilaterally impose dumping and anti-subsidy penalties. This is a big deal, because the US is prone to do this stuff due to domestic pressure from industries, and with no check, it will do them more often. Not that Chapter 19 is that great; when the US loses Chapter 19 rulings it tends to just ignore them and impose duties anyway, as it did in the 2000s on lumber. Still, even a delay is good, and that delay has likely stopped a lot of tariffs over the years.

The second issue is IP.

Other hurdles include intellectual property rights, such as the U.S.-Mexico ten-year data exclusivity for biologic drug makers and extensions of copyright protections to 75 years from 50, all higher thresholds than Canada has previously supported.

Yeah, that’s just fucking awful. No thank you. 50 years is already way too much and who wants even higher drug prices in Canada. (US pharma, yeah.)

Finally there is the Canadian milk production system, which is horribly protective and freezes American milk out of Canada. But, well, our standards are higher for milk production, and as such, no, I don’t want change.

If Trump doesn’t get this, he promised auto tariffs, which will hit Southern Ontario hard.

I’m going to say that Canada shouldn’t give in on these issues. It’s not clear that Trump has the votes in the Senate to pass his bilateral Mexico-US deal, and even if NAFTA is lost, well, whatever. Being subject to American tariffs at the whim of any sitting President is not acceptable, nor are higher drug prices and shitty milk.

Canada gave up our world-leading aviation industry in the 50s, in essence, for the right to be part of the US automobile industry. It was a shitty deal then, because it made us dependent, and we are seeing that dependency now.

We’ll see how this plays out. I don’t know if Freeland and Trudeau have the guts to walk away and there certainly would be a cost. But Trump is not certain to be forever, and anything we give up now we are unlikely to get back in the near future.

There was a possible NAFTA renegotiation which would have been a win for all three countries, dealing with issues such as the right of private investors to sue governments for doing perfectly reasonable things like banning anti-cancer additives in oil, but that’s not the renegotiation Trump has chosen to do.

As such, I hope Trudeau holds the line.

Also, there are ways for Canada to retaliate. They are counter-intuitive, but real. I would start by slapping a huge export-tax on all wood products, and watch the US housing industry fall to its knees and the US economy tremble. That would involve some pain at home, but frankly, we can tax a little higher and subsidize those who lose, it’s not a big deal.

Trump’s the sort of person who only respects hardball. Play it, or crawl on your belly.

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.

 

 

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