Ian Welsh

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

Category: Trade Page 7 of 13

The New Age Of Vertical Integration

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On August 9, 2021

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When I was very young, conglomerates which controlled the entire chain of production were still somewhat popular. Companies didn’t like outsourcing or offshoring; if a widget went into their product, they wanted to own the factory, or eat least effectively control the supplier. Toyota had lots of suppliers, sure, but they were close the factories and they were under Toyota’s thumb: subsidiaries in all but name.

But business fashion changes, and the mantra of the day became “concentrate only on core business, get an expert to do everything else.” It often did reduce costs, but at the price of losing control. It didn’t work for everyone, General Electric under the over-praised but actually incompetent Jack Welch gutted itself. Following GE’s lead, other companies like the Big 3 auto producers started thinking they were financial companies and in the business of making money, not products.

Didn’t work out well for those who followed the fad whose business model didn’t actually support it.

But it did work well for many, at least in terms of increasing CEO and executive stock compensation. Growth actually slowed in the economy overall, but the economy in neoliberalism exists for companies, not companies for the economy, let alone society.

This era is now ending. Climate change is here, and infrastructure in foolish countries like America is failing repeatedly. China and the US are gearing up for a Cold War, Covid revealed that world shipping is fragile and not always cheap, and that no one can actually understand modern supply chains.

Supply officers panicked and started stockpiling goods, putting further pressure on supply chains and driving up prices for both shipping and materials, BUT if we didn’t have an era where trade and shipping and even production will become more and more subject to shocks, it would just be a passing fad.

But smart CEOS will now be reeling in their supply chains: rationalizing them so they know exactly where all the parts are made; the parts are made close to where they are assembled (if not in the same plant complex) and insulating them from problems with  3rd party shippers. The smart ones will pursue both vertical integration AND will have some geographic distribution (but not too much) so that geographical problems (wildfires, marine inundations, hurricanes, food riots) don’t shut them down entirely.

Those who don’t stand to lose their business entirely if a shock takes out a key part of their supply chain they don’t control or understand, or which supplies generally and is not bound to them.

We’ve been thru a very stupid era, and it’s not over yet, but it’s ending. Central banks can print money, but they can’t print machines parts, oil or food, and the limits of their power to deal with actual, real, non-financial shocks to the system are about to become evident.

Indeed, central banks, by funneling money to rich people and corporations which would have otherwise gone bankrupt have done almost everything within their power to make the system more fragile and worse run.l

When the food riots hit your country, remember to pay a visit to the central bank officers, past and present, to see how they are doing and to express your appreciation for their service. Perhaps you could also see the welfare of neoliberal politicians.

(Accurate job feedback has been removed from our elites, and they need it badly. When you have the chance, remember to help them out by providing it.)

Midas was a fool, but electronic bits are even more worthless than gold when the real world comes knocking.

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The Canadian Economy Under US Hegemony and Neoliberalism

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On July 19, 2021

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Canada’s economy is substantially resource based: minerals, wood, agriculture, and, before the collapse, fish. (The Maritimes were originally colonized largely to harvest trees for masts, which Britain had run out of at home.)

Resource economies are boom and bust economies; resource prices are cyclical, and sometimes resources get replaced. Brazil had a huge rubber plantation industry at one point, before chemists figured out how to make synthetic rubber.

Resource economies tend towards corruption because the profits are so high during good times, and they tend to not develop industry for the same reason, but also because the currency rate tends to be too high to  allow exports of manufactured goods during boom periods — so any industry gets destroyed during the boom.

For about a hundred years, Canada had a simple solution to these problems. We had a manufacturing sector, and during boom resource times, when the Canadian dollar’s strength made manufactured goods too expensive, we just subsidized the manufacturing and slapped on tariffs.

This was a fair deal, because when resource prices went bust and the dollar went low, manufacturing would boom and the taxes from that would be used to support people who worked in resource extraction.

Combined with some simple industrial policy along the lines of “don’t export raw logs or raw fish,” this created a nicely self-balancing economy, and it did so from about 1880 until the 1980s.

Neoliberalism and idiotic trade deals like NAFTA and the WTO put paid to that. It became very difficult to subsidize industries or to insist that processing be done in Canada; we started shipping raw logs and fish to the US, and we stopped subsidizing manufacturing during resource booms, so Canadian manufacturing got gutted.

This was, well, stupid, and a lot of blame is on Canada, Canadians, and the Canadian system, though, to be fair, most Canadians voted for parties opposed to the Free Trade Agreement (which later became NAFTA), but because of vote splitting in a third-party first past the post system, it went through anyway.

But it’s also because the US is, well, powerful. Canada’s economy is a little smaller than California’s, and Canada is a satrapy. Back in the 50s, Canada had a world-leading aviation industry and created the best fighter jet in the world: the Avro Arrow. The US government put on the pressure, and Avro (the company) was put out of business. The prototypes were sunk in a lake.

The threat was that if Canada didn’t give up its aviation industry, the US would take away auto manufacturing, and that was a much larger industry.

If the US wants Canada to do something, Canada generally does it. There have been exceptions, especially under Pierre Trudeau in the 70s, and in the early 2000s Prime Minister Chretien did refuse to invade Iraq, but they are exceptions.

Anyway, Canada’s economy is now much more fragile than it used to be, because it’s much more integrated into the world economy and much less able to adjust cyclically or insist on keeping a significant manufacturing sector.

This isn’t unique, or anything. It’s the shape of the world economy overall, where countries, especially under neoliberalism, mostly aren’t allowed to have an independent economic policy. Canada was never autarchic; we were always a trading state, but we were able to more or less run our own affairs and insist that resources mined, chopped, or fished here be at least primarily processed here.

Nations which do not make what they need are at the mercy of those who do. The US got around this by maintaining control of making, growing, and digging things without keeping them in the US, until they made the mistake of letting China industrialize.

That has lead to the rise of China/US tensions, and a realization that neoliberalism is a two-edged sword.

More on that later. In the meantime, the reason most of the world’s nations are poor and have to do what the US wants when push comes to shove, is exactly because they were not, and are not, allowed separate industrial and economic policies.

Canada, the near neighbour and satrapy, actually still has a pretty good deal, better, in fact, than is given to American peasants.

But all of that will be changing over the next couple decades.

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Offshoring Critical Industries Is So Harmful It Should Be Treason (Covid Edition)

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On March 25, 2021

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I was impressed how fast the UK and the US were vaccinating their population. How were they doing it, after they had been so incompetent during the rest of the pandemic?

Simple enough. Restrictions on vaccine exports.

Meanwhile:

India delays big exports of AstraZeneca shot, including to COVAX, as infections surge

And then there’s this:

(Spare me the self-serving arguments that breaking the patents wouldn’t have helped because it takes too much time to ramp up production. However long it takes, the sooner  your open up the IP, the faster it happens.)

And we could make it happen faster:

But the global capacity for producing vaccines is about a third of what is needed, says Ellen t’Hoen, an expert in medicines policy and intellectual property law.

….

To make a vaccine you not only need to have the right to produce the actual substance they are composed of (which is protected by patents), you also need to have the knowledge about how to make them because the technology can be complex.

The WHO does not have the authority to sidestep patents – but it is trying to bring countries together to find a way to bolster vaccine supplies.

The discussions include using provisions in international law to get around patents and helping countries to have the technical ability to make them.

Rich countries use IP law to keep poor countries poor, and to kill and impoverish their citizens to make even larger profits.

And, of course, if you’re stupid enough to believe neoliberal bullshit about how your countries will be OK and don’t take steps even though you have manufacturing capacity, (Europe), well, your citizens die. The EU is now restricting imports to the UK. I wonder how many Europeans will die because of not having those 10 million doses?

“I mention specifically the U.K.,” said EU Commission Vice-President Valdis Dombrovskis. Since the end of January, “some 10 million doses have been exported from the EU to the U.K. and zero doses have been exported from U.K. to the EU.”

OK. I have said this for years and years but I’m going to say it again now that it is being illustrated brutally: if you can’t make it yourself, you can’t be sure you’ll have it when you need it, since countries that can make it will tend to prioritize themselves.

You must make and grow everything essential to your country domestically if you can. Any international laws that forbid you from doing so are illegitimate. They may exist; they are not Just. This doesn’t mean completely breaking patent law (though it needs to be much less draconian and a lot less long), it does mean, at the least, writing in mandatory licensing provisions at reasonable prices.

A lot of people are going to die who didn’t need to because neoliberal “free trade” orthodoxy said you didn’t need to be able to both design and make vaccines in your own country: the “market” would supply you.

Eventually.

This isn’t just about behaviour now. It is about behaviour that has been encoded into law and trade practice over decades.

Don’t offshore anything that matters. If your citizens have to pay 5% or 10% more, slap on tariffs.

To not do so, if you think the welfare of your citizens is your duty, is treason.

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You Can’t Buy Anything That Matters When It Matters (Covid Vaccine Edition)

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On December 12, 2020

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… unless you have control over the production facilities.


I think this map is a little inaccurate, but it makes the point. Money matters, yes, but having control over vaccine manufacturers and R&D matters more.

This is true of everything. Oil is not a global market if there are ever shortages decision makers care about. FOOD is not a global market if there’s ever a worldwide shortage, and countries which net import will find that out. (The Irish famine, where Ireland, then an imperial colony, continued to export food even as its people starved, underlines the word control.)

Global markets are OK for things that don’t matter. For anything that does matter you want manufacture, R&D and supply lines concentrated in your own country or that of true close allies. In those cases, you want mutual vulnerability. If country A has it all and is a close ally, that won’t work when they’re desperate, you have to have part of the dependencies.

Even this doesn’t work completely. It was very popular before WWI to state that a big European war couldn’t happen because of how interdependent the economies were.

Yeah.

 

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Industrial policy means that if you can, you make it at home, and if it costs a little extra, too bad, slap on a tariff. If you control natural resources, you NEVER sell them raw if you have any choice. The history of England’s economic development leading to the Industrial revolution starts with a ban on selling English wool to mainland Europe, allowing them to build their own textiles industry. Of course, those textiles were worse than what Flemish weavers would have made, and less efficient to start, with higher prices. The English, correctly, did not care. They had the wool, and there wasn’t a huge surplus of wool. Buy the clothes from us or no one.

Food, water and essential goods: if it is at all possible you want to be self sufficient in all three. In sensible countries a great deal of geopolitics is driven by this when a country can’t do it all internally. China knows, for example, that the US can shut down the Strait of Malacca any time it wants, crushing their oil supply and that is a major reason why they are creating a huge land route all the way across the Asian continent, and getting snuggly with the Russians (who can supply oil by land.)

Chinese economic policy, letting Westerners get super rich by producing goods in China, was also driven by this. The Americans aren’t wrong, the Chinese were super-aggressive about technology transfer. The deal was often that in order to get access, you had to give them the tech. If you wouldn’t, they would try and steal it (Americans stole a ton of British IP back in the day, don’t get all pious, everyone does it.) There was also technology-arm breaking creep. Sure, you gave us a tech a few years ago, but what have you given us recently, and why should we allow you to stay in our market today?

Foolish nations, like Canada and the US, let key industries go overseas, or sell raw materials without processing. Wise countries don’t, unless they’re getting something very worth it in return. Getting a bunch of new rich people who made their money by selling your country out isn’t “worth it” to anyone but the rich people and the politicians they bribed.

Money doesn’t cut it. Per capita Canada bought more Covid vaccines than anyone else, but notice that Canadians won’t be in the first wave to get mass vaccination. This is a “white, 1st world” country, and it can’t buy its way in. (The case is a bit more complicated than that, because the government are incompetent, but we’ll leave it there for now.)

If it isn’t on your territory, where your people with guns and your bureaucrats have power, you don’t control it and when it matters, you can’t buy it.

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Cold War 2.0 Incoming

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On August 11, 2020

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Right, with the ban on Huawei using chips made with American manufacturing equipment (one of the US’s last few places of absolute advantage), the bans on TikTok, Tencent, and WeChat, the attempt to convince other countries to not use Huawei 5G, and the arrest of the Huawei founder’s daughter for doing business with Iran, along with the US seizing a freighter full of medical supplies for Iran, I think we can state that the world is moving towards a second cold war.

The US pivoted to China containment under Obama, not Trump — though Trump has been far more aggressive. The Trans-Pacific Partnership (TPP) was created as a way of marshaling Asia-Pacific countries into an anti-Chinese trade area. While Trump didn’t go ahead with it, he’s pushed hard against China in other ways.

When the US asked Canada to seize the daughter of Huawei’s founder, for example, it destroyed Canada-China relations: Canada was forced to take sides, and the Chinese were furious. The USMC (the NAFTA replacement) included a clause that says signees cannot make new trade deals with non-free states if the others object: This was aimed squarely at China.

Britain had originally intended to use Huawei 5G, but after leaving the EU, reversed course.

It’s important to understand that the anti-China pivot is bipartisan, as are the sanctions against Huawei and others.

The United States has a number of advantages and it’s using all of them aggressively. First, the fact that it is the center of the financial universe, to the point that movement of funds often goes through the US even when the transaction doesn’t involve them, is a major one. The US has made its financial laws extra-territorial, in effect. If a transaction goes through the US at all, even if no one involved in the transaction is American-related, the US claims jurisdiction. (Famously, this was used by the US to launch an investigation in the World Cup, in which the US is a trivial player, because a bribe went through the US on its way somewhere else.)

This often happens unintentionally, and firms that do business with the US at all are thus often unwilling to do business with anyone whom the US has sanctioned.

US naval power and military presence is also important, with their ability to interdict the Strait of Malacca. China imports about 70 percent of their oil, and 80 percent goes thru the Malacca strait and the US can shut it down any time they want. This is true of much else that China imports or exports.

The Belt and Road Initiative is, in part, meant to cut out the US ability to use its navy to hurt China; it creates alternate land routes, including one right across the continent to Europe, and it includes pipelines. The alliance with Russia, fraught as it is, is also about reducing dependence on Malacca.

Indeed, even the ability to protect and control trade to nearby neighbours is in doubt, which is why China built artificial islands in the South China Sea.

Fundamentally, the post-WWII trade, financial, and military order is an American creation, with a European assist.

When the US let China into the WTO, they let the power most likely to overtake them inside, as it were, the house. They did so for the simplest of all reasons: greed. Oh, sure, there was talk of capitalism meaning democracy and all that, but basically, offshoring and outsourcing to China made a lot of money for a lot of corporations and rich people, and that’s why they allowed China in.

The US deliberately sped up the transfer of industry to China as a way of making more money and undercutting wages at home. China knew the deal it was offering; they understood Americans, and they were patient.

So now, China is a larger manufacturing country than the US and, by some measures, has a larger economy.

China is a threat.

China is seen as a threat and this perception is, again, bipartisan.

There is no reason to expect this to change. China is not going to buckle under to the US, like some third-world nation or a vassal like Canada. They now have a de-facto alliance with Russia. China has nuclear weapons, and Russia is not going to allow China to be taken out with a nuclear first strike (without China, they’d have to give the US anything it wants, and they know it.)

The US will keep using its financial and technological power to weaken and isolate China.

So what will happen is an acceleration of the creation of a banking system that routes entirely around the United States and which does not use the US dollar, but instead the Yuan. Countries will be folded into this, as part of the Belt and Road Initiative. Even core US allies may have little choice: South Korea does twice as much business with China as with the US, for example, and Australia is extremely dependent on China.

For many countries, China clearly offers the better deal: they provide far more cheap loans than the US, they provide development, and their goods and services are suitable for both developed and developing nations. Nor do they natter on about “human rights” while they bomb Yemen.

For others, China will be unacceptable.

This leads to a world with two trade areas, not a free trade world. It leads to an end of the dollar as the world reserve currency. It leads to a continued arms race. It may well lead to a breaking of world IP into two sets: one American lead, one China lead. (There’s no particular reason for China to respect US IP if the US refuses to let them use it.)

This is a recipe for Cold War 2.0.

This time, however, understand that the US is facing an “enemy” with more population and more industry than it, not a nation devastated by World War with less population. Likewise, China and Russia combined have more land and more resources, while Europe is not a sure American ally, though Britain, absent EU support, will fall completely into US vassal status.

This is especially true as the US is experiencing late-imperial rot. It is nearly completely unable to handle its internal affairs, and its social cohesion is breaking down to the point where it may soon become a failed state.

Many American supporters of Cold War 2.0 are trying to use China as the external enemy to rally Americans around and, by closing China off from the US, to drive manufacturing back to the US, or at least to its firm allies (like Taiwan).

Bringing manufacturing back is smart, it should never have been sent overseas, but American elites are confused: Their primary enemy isn’t China, their primary enemy is themselves. They are responsible for the US decline and China could not have risen so fast if they were not so corrupt, greedy, and short-sighted.

It’s a very stupid world we’re moving into, but some of what is going to happen has to happen. It’s not good that the US has the ability to sanction anyone it wants to. Those medical supplies seized off that freighter? Covid-19 medicines.

Power which is routinely abused, as the US has abused its financial and military power, is eventually removed. The US is accelerating this progress as fast as it can.

The ban on Huawei using chips manufactured with US tech will hurt, for example. But it’s time limited: China isn’t some backwards third-world country. They will advance their own chip manufacturing and erase the deficit.

By fighting the dragon, the US is making a rival an enemy.

Cold War 2.0 is coming and essentially inevitable, because it is something the leadership of both countries either wants or is willing to accept. The only monkey wrench in this are the effects of climate change and ecological collapse. More on them later.

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On the Causes and Consequences of the Oil Price Crash

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On April 23, 2020

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Image by Yuan2003

So, we had a crash of oil prices, where some futures contracts were actually negative, which means that sellers had to pay people to take oil off their hands.

Obviously, oil use has dropped during the Covid-19 crisis, and before that, prices had already decreased in an attempt by non-US producers to reduce prices low enough to crush US shale production.

Oil is a real thing: It takes up storage. Storage space is running out, and it’s not clear when demand will recover, so oil that is to be delivered now-ish is an expense–you have to pay to store it. Thus, the negative prices.

There was a bounce Wednesday, ostensibly due to Trump saying he had ordered the US Navy to blow up Iranian boats if they continued to hassle other ships. (If they do this in the Gulf, and it goes to shooting, Iran will win the initial confrontation. They have a lot of missiles.)

One could equally say this is a dead-dog bounce.

At any rate, even double digit prices are below most people’s production costs for oil, and they are above the price every major government that relies on oil needs to balance their books. This means Saudi Arabia, the four gulf oil states, Iraq, Iran, Russia, and so on. Ironically, Iran, having been under sanctions already, will be in better shape than most of the others.

It is also, obviously, low enough to make US (and Canadian) shale oil production completely uneconomical: generally that needs at least $60/barrel, and much of it needs more.

So we have countries and companies with bleeding treasuries. The US has the ability to print money, presumably it will do so to keep Shale oil around in Zombie form. Countries which cannot print money and have other countries accept it could be in trouble. This depends mostly on how long this goes on. A couple months, even three or four, uncomfortable, but no big deal.

If this crisis bubbles on for a year and a half of shutdowns, partial relaxations, then more shutdowns, we’re into some very dangerous territory. I’m not sure the House of Saud, for example, can survive that scenario (it couldn’t happen to a nicer country, etc.).

The world has been in a very long economic relationship, in which the most important commodity has been oil, and the producers sold it in dollars, so the US and the swing producers all benefited. Obama and Trump more or less broke the deal with the promotion of shale oil, and China has increasingly been insisting on buying oil in Yuan, but the relationship had stumbled on, even though it meant enabling countries that the US has been treating as enemies, like Russia.

Trump wanted to force Europeans to buy more American oil and less Russian oil: This was a major part of his economic plan, such as it was. Trump likes to find a place where he’s more powerful, and push that as hard as possible, and things like sanctions against Russia, Iran, and Venezuela were–and still are–situations in which he has unilateral power that no one else has been entirely able to get around (though China has somewhat). The EU has proven unwilling to stand up to the US in the case of sanctions.

Right now, there’s no particular reason to think this can’t continue. The US can still print infinite dollars, because foreigners will still accept them–even though the US is no longer the most important manufacturing state. So the US can bail out shale oil. Oil producers, who do not have hegemonic currencies, do not have infinite rope.

This changes only the major producers of things the US needs cease to be willing to trade in US dollars. China and the EU could (but I very much doubt will) cut the US’s throat if they ever chose to act together. Perhaps China could even do it alone. The problem, of course, is that there would be a lot of collateral damage to them. US oil is expensive, but the US can produce it. China and the EU need to import it. If they want to make such a change, they have to secure strong supply guarantee from other nations.

This is theoretically possible, but the problem is simple: Any nation that did this would then fall under (even more) US military threat. Bombs are very good at ending oil exports, and neither the US nor China is willing to go to war over this. Perhaps China could move troops and nukes into vulnerable countries, but that would trigger a new cold war, and the Chinese don’t want that–at least not yet. China is working on their own trade area, to compete with the US-led trade area (which the US is abandoning anyway, as it shits on the WTO it created), but it is not ready yet (the Belt and Road Initiative is China’s name for this trade restructuring).

The current collapse of oil prices is unexpected; while a pandemic has always been possible, knowing when it would happen was not. The pandemic has simply revealed the current production’s costs and dynamics. Saudi Arabia has been moving towards vast danger for ages because of its over-reliance on oil; this simply means the consequences may hit sooner. Oi-consuming nations have been maneuvering to reduce their dependence on imported oil in general, and unreliable oil in particular, but they were not yet ready to make any big moves. Almost everyone has been chafing under the petrodollar and under the current world payment system, which the US has abused with its constant sanctions. Despite this, no one has created a viable alternative and been willing to take the hits necessary to move off the dollar and the US/eu payment system (“EU” is in lower case deliberately).

Most oil producing nations, including the US and Canada, are generally bad actors on the international stage: with crimes ranging from moderately bad to invading oil producing nations regularly and sanctioning other ones constantly, or to being the world’s premier supporters of fundamentalist religion and terrorists.

So don’t cry too much for oil producing nations, nor even for their customers, who have enabled them greatly. But beware that the game is changing: Covid-19 has highlighted existing issues and if it continues long enough it could precipitate changes which have been desired by many, but remained unimplemented because people have been unwilling to bear the costs and risks.

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Should NATO Exist? Will It?

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On September 20, 2019

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One of Trump’s constant cries is that American allies aren’t spending enough on their militaries and that the US is, thus, carrying them.

While there is a temptation to scorn this argument because it was made by Trump, it has a fair bit of truth to it, as Matt Stoller suggested today:

The American military umbrella is a bad deal for America and a good deal for our “allies.” Japan gets protected channels to Middle Eastern oil, for free. Germany gets protection from Russia, for free. They all export to us at terms unfavorable to our own industries/middle class.

The problem with this is that it is, well, true.

And that Europe “needs” America for defense against Russia is absurd:

Let us be clear, the EU’s population is 508 million. When the UK leaves, it will be 447 million.

Russia’s population is 143 million.

The EU minus Britain has a GDP of 18.1 trillion (purchasing power parity), Russia has an economy of 3.5 trillion (ppp). Germany alone has a GDP (ppp) of four trillion.

If Europe “needs” the US, it’s because it can’t be bothered to raise a proper army. That’s all. It is genuinely free-riding.

Chinese and American flags flying together

But then NATO is a large part of why Russia is a “threat”. The expansion of NATO, which Bush Sr. promised Gorbachev would not happen, is a large part of why Russia has armed up.

It’s not clear that NATO should even exist. Its purpose was to resist the Warsaw Pact and the USSR, neither of which exist. Russia has a lot of nukes, and is relatively strong militarily, but it is no USSR and has no grand alliance facing NATO. It is not a threat unless terribly mismanaged. (Which, I suppose, it has been.)

Disband NATO. Let the Europeans take care of their own defense, or lay prostate before the Russians as they choose.

Japan is a trickier proposition. What American military presence there does is simple enough: It prevents Japan from needing its own nuclear weapons. The same is true of American bases in South Korea. Leave and those two countries have to nuclearize or become Chinese satrapies (and Japan will need a much larger navy).

It’s also worth noting that the US didn’t start protecting “Japan’s oil.” The US needed foreign oil too; it is only recently, under Obama, that the US has again reached petrocarbon self-sufficiency and is able to say, “We’re protecting other people’s oil.”

WWII was won by the powers who had access to more oil. Generals and admirals at the time understood the war was, to a large extent, about oil.

America may not need foreign oil now, but it did for decades and that is why it protected maritime oil trade.

In general, however, a US withdrawal from its forward bases will be a good thing. A rebalancing of trade will also be a good thing, though it will hurt as it happens (Trump is not doing it well). Deliberately offshoring and outsourcing the US (and Britain’s) industrial base led, more or less directly, to Trump and other social ills. It created a group of people who have lost for 40 to 50 years. Their parents had better lives. They had better lives. They know it. You cannot lie to them with BS statistics and pretend otherwise.

So they are willing to vote for and support anyone who seems like they will wreck a system which doesn’t serve them. Maybe what happens will be worse, but what’s happening right now is shit.

This is not contradicted by Trump’s support from red-state elites. They are also scared, because they also know their situation is precarious and that power and wealth has flowed away from them. And they rule over Hell. It isn’t always better to reign in Hell.

So the world is changing. It was changing before Trump: The Trans-Pacific Partnership was intended to be a trade bloc AGAINST China.

Note carefully Stoller’s hostility to China. It is constant. The American elite is finally reorienting. They don’t see Russia as a primary threat. They’re moving away from caring about the Middle East as they now have enough oil of their own and see a post-oil future coming. They know the rising great/super power is China.

They want to reorient their alliances against China. The price of keeping NATO will be keeping China OUT. When Germany said they wanted to do more business with China, Stoller was angry and said it was an argument against NATO. No Huawei, no China.

The world is very likely to divide into trade blocs–probably two, maybe three.

China rises. The US moves to protect its position.

Great power politics continue, as they ever have.

There is no end to history, save an end to humans. Only fools ever thought so.

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A Few Words About Argentina

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On August 13, 2019

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Okay, so Argentina elected a neoliberal president. He went to deep austerity, removed capital controls, and sought an IMF bailout.

Now it looks like a socialist may win and markets are freaking out, because he may default on some of the debt and re-institute capital controls.

Argentina’s problems have a long history, but it’s worth remembering this: Before WWII, it was a first world country, with a standard of living about equal to Canada’s.

Argentina partially defaulted in 2001. We should remember that that default was caused by following the conservative policy of pegging the Peso to the dollar, which any moron should have known would eventually backfire.

It is also worth remembering that, when Argentina defaulted in 2001, it wasn’t actually allowed to. American courts wouldn’t let Argentina pay the creditors who allowed their debt to be reduced unless they also paid those debtors who didn’t take the deal.

We live in a stupid, perverse world where people don’t understand that there has to be a balance between debtors and creditors. Creditors are making a bet, and if they lend to the wrong entity, and that entity eventually can’t pay back the debt, they should have to eat their losses. Don’t lend to people who can’t pay you back. Everyone knew that Argentina was going to have debt problems, every time, but they took the chance because they wanted high returns.

But the central financial system, the NY and London courts, and the IMF act as debt collectors for people who want the upside of high payments from distressed borrowers without the downside of possibly losing the money.

Worse, they act as enforcers for bad actors, who won’t cut deals, and expect to litigate.

Debtors may lose some money, but leg-breaking countries for rich debtors kills and impoverishes poor people.

Now, none of this is to say Argentina hasn’t made mistakes. Flipping back and forth between neoliberals and socialists is stupid. Pick one, and suck it up. Electing Macri was stupid, but then being outraged when he does what a neoliberal technocrat would do (i.e., austerity and sucking up to the IMF) is equally stupid.

Pick a governing philosophy and elect governments that adhere to that philosophy until the leading parties all follow it (like when Labour became neoliberal under Blair, cementing Thatcher’s victory).

Right now, Argentina is getting the worst of both worlds.

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