Ian Welsh

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

China Leads A Successful Middle East Summit

Something which has slipped past most people’s radar is that China recently acted as the intermediary for peace talks between Iran and Saudi Arabia. The two countries have been at each other’s throats for decades, funding and running operations and proxies against each other. Elijah Manjier has a decent summary (part is behind a subscriber wall) from a pro-Iranian point of view.

It’s also interesting that in this conference no English was used!

Now it’s obvious why the US couldn’t be involved: it hates Iran and doesn’t intend to change that any time soon. But that China was reached out to indicates that it has good relationships with Iran and Saudi Arabia and that it’s considered powerful and prestigious enough to be involved a region far from its core.

On the Saudi side this shows the continued movement away from being a US ally. It suggests continued movement towards China, and that the petro-dollar really is under significant threat.

For Iran, it suggests that the days of the US being able to coordinate sanctions over it are likely numbered. If the Sauds break out of the US bloc, one can expect the Gulf States to follow if Iran is also in the Chinese bloc: these are the regional and cultural great powers. As Chinese/Russian payments expand and with petrochemicals priced in Yuan or Rubles, and with the most important Middle Eastern powers friendly to China, the US is reduced to its core allies. These are important countries, no doubt—Europe, Japan, South Korean, Taiwan and so on, but it is a minority of the world and is filled with countries terrified of US sanctions, looking for a way out under the potential hammerlock.

I don’t want to over-state how important this mediation by China was, but it was important and it’s one of those milestone moments. It wasn’t the US or Europe who the Sauds and Iranians went to, and just as importantly, they didn’t feel they needed US approval. Saudi Arabia using China, whom the US has declared an enemy, to move towards peace with a country the US has been hostile to for about 45 years is an earthquake.

Whether the peace will really happen is more dubious, but if movement, even hesitant 2 steps forward, one step backwards movement continues, it will be worthwhile. I am most interested to see if this will mean some sort of peace can be worked out in Yemen, or if it means the Iranians will abandon the Houthis, which would be sad.


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.

Remembering Who The Nazis Killed First

Niemoller:

First they came for the socialists, and I did not speak out—because I was not a socialist.

Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist.

Then they came for the Jews, and I did not speak out—because I was not a Jew.

Then they came for me—and there was no one left to speak for me.

So, the list isn’t exhaustive, there’s no mention of gays and Gypsies/Roma, for example. No one ever seems to talk about the Roma but as a percentage of their population they got it worse than the Jews did.

But forget that. It seems all we talk about is the tragedy of the Jews, but notice they weren’t killed first. First it was the socialists, then it was trade unionists.

This is because the Nazis first killed those who were an actual threat, then went on to kill those they hated (and who money they could steal without upsetting the majority of the population.)

Liberals always make deals with fascists or reactionaries who take over their countries. They generally do quite well out of them, corporate officers saw their incomes soar under Hitler. The argument between liberal and fascist is an argument over brothers about who should rule their father’s house: fascists treat capitalists and business well, they just need to know their place.

The left can’t make deals, because they are in fundamental opposition. This is true of fascists, who kill left-wingers, but it is also true of making deals with liberals. As Corbyn and Lula recently proved, even the mildest of leftists can’t cut a deal with liberals, because liberals don’t see the left as legitimate.

It should be pointed out that this was true of FDR, as well. The rich and the right never forgave him, always hated him, and spent generations undoing what he had done. Every time you see an attack on so-called entitlements,  understand that is part of the right’s long war to destroy FDR’s legacy.

I would put FDR on the left, though some wouldn’t and I understand why. FDR saved capitalism from the capitalists, who had no idea how to fix it and wouldn’t listen to those who did, like Keynes. If your left-wing beliefs mean the absolute destruction of capitalism, and quite possibly they should, then FDR was an enemy, though I see him a different way.

FDR created a system under which capitalism could work and could raise all boats. It did that until the 70s and then failed. FDR was the “can this system work?” attempt.

The answer, for a number of reasons, many of which I’ve written about other places (see “The Decline and Fall of Post War Liberalism and the Rise of Neoliberalism” to start) is NO, capitalism can’t actually work to raise all boats over the long term. What looks like capitalism raising all boats isn’t, it’s industrialization. Under FDR’s policies and those that continued to the late 60s or so, though diluted, inequality fell and fell and fell. Those policies had issues, but as we’ll discuss in my series on the great ideologies, the solution was to fix those problems, as with the 60s civil liberties movement, not to get rid of the system wholesale.

But we did because capitalism, even carefully controlled, always allows a few people to control too much money and thus power and those people always want more and are able to work to get more since they can hire and sponsor large numbers of people to work to destroy any egalitarian system. This is what the rich did with, among other things, their sponsorship of business schools and economics departments. Though forgotten by most today, few men did more to destroy equality and an economy which distributed wealth and income more than the economist Milton Friedman.

The rich—remember. They remember 90% tax rates. They remember estate taxes which broke up their wealth. They remember the period in which they had to give up their estates and their servants. They remember. And they hate.

And so even a mild left winger like Corbyn or Sanders, who’s want 60s economic policies with a side of social justice and think that maybe you shouldn’t run Apartheid states are seen as a mortal threat and that’s because, well, they are. Ninety percent top marginal rates, estate taxes and re-nationalization plus re-regulation of industry and breaking up the huge conglomerates would be absolutely disastrous for those who run our economy and control our politicians.

Remember that when Corbyn looked like he might win the UK Prime Ministership, there were actual threats of a military coup.

Understanding this relationship is important for anyone on the left, even those who are on the very moderate FDR fringe. Liberals will never accept you in power and will do everything they can to stop you. Notice the assassinations of the 60s: two Kennedy brothers, MLK and Malcom X. The liberals won’t mass murder, but if they must they will kill leaders and they will mass deport as they did after World War I. The fascists, well, they’ll just liquidate as much of the left as they can find and anyone who thinks this can’t happen in their country is whistling past their grave.

Finally, let’s point out that markets and capitalism are not the same thing. Markets are useful and have existed for thousands of years.  One solution set for destroying capitalism involves finding a way to get the good out of markets without the evil, turning them into servants, rather than the mechanism by which we choose our masters.

Another is to find a way to make economic decisions and distribute goods which doesn’t require markets. That one attempt to do so failed does not mean it is impossible, simply that we have not yet done it at scale in a way which works.


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.

Consequences Of Silicon Valley Bank’s Failure

The best explanation for why SVB failed I’ve read is here.

The bottom line is that as interest rates rose after they’d been low for a long time bonds, including Treasuries, lost value putting strain on balance sheets, and if a bank didn’t handle it right by making the correct bets, they could get slaughtered. Even so SVB might well have survived in a pre-internet banking era and/or if it didn’t have so few depositors, with so many of them depositing so much.

As at the end of 2022, it had 37,466 deposit customers, each holding in excess of $250,000 per account. Great for referrals when business is booming, such concentration can magnify a feedback loop when conditions reverse.

The $250,000 threshold is in fact highly relevant. It represents the limit for deposit insurance. In aggregate those customers with balances greater than this account for $157 billion of Silicon Valley Bank’s deposit base, holding an average of $4.2 million on account each. The bank does have another 106,420 customers whose accounts are fully insured but they only control $4.8 billion of deposits. Compared with more consumer-oriented banks, Silicon Valley’s deposit base skews very heavily towards uninsured deposits. Out of its total $173 billion deposits at end 2022, $152 billion are uninsured.

The Fed appears to have effectively said that from now on all customers in bank failures will be made whole. They’re going to do it for SVB, and once they’ve done it they have to do it for everyone. I suspect a lot of this is because of who SVB’s customers are: Silicon Valley tech firms, including startups. Letting them be wiped out would be a massive blow and rich people are always made whole.

However, it’s a terrible precedent. If there is no risk, if “heads we win, tails the Fed picks up all the pieces” is the case, then why not gamble all to hell? The 2008 bailout was terrible in exactly this fashion, but this is worse. Banks will compete on terms and gamble even more on securities and since customers know they’ll be made whole no matter what, why not go to the bank which offers the most, even if that most is based on vast risk taking?

Back in 2009/10 I wrote repeatedly that the Dodd-Frank financial services bill would be inadequate. It’s ironic really: the banks and brokerages hate the bill, and Dodd, as a result, gave up a very lucrative retirement, but it’s not good enough (or bad enough, if you’re a bank.) Glass-Steagall should have been reinstated with some updates for the modern era, and banks should be have been broken up en-masse. The US now has 4 mega banks and the concentration keeps increasing.

But zero interest rates and quantitative easing were also insane. Tons of free money+shitty bonds with no returns make an odd combination, but like any drug high, coming off it was going to be horrific. As I pointed out years ago, QE did cause inflation, it’s just that it showed up at the high end, since almost all the money was going to already rich people. But the money wasn’t based on actual increases in America’s real economy and that was bound to have consequences.

Most of the money corporations got was spent on stock buy-backs, since that’s a guaranteed return. It was not spent on expanding business.

So here we are. One of the most important banks in America, because it specialized in supporting a key sector and startups has gone under. Concentration has increased. Other banks are suffering from the same basic issues: a bond collapse caused by increased interest rates, making all those Treasuries and so on they hold, supposedly the “gold standard” a bleeding hole.

If the Fed drops interests rates without significant changes to fiscal and operational policy (Congress and Presidency, respectively) then inflation will go even higher. If they don’t drop them, banks continue to bleed. If they raise them…

There’s no such thing as free money. If you increase the money supply faster than the real economy is increasing, and you do that for too long, there will always be ugly consequences. Yes, the pandemic was the trigger, but there’s always going to be another crisis: history does not stop.


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.

Week-end Wrap – Political Economy – March 12, 2023

Week-end Wrap – Political Economy – March 12, 2023

by Tony Wikrent

Strategic Political Economy

“Marianne Williamson: ‘Anything Is Possible’” (interview) 

[The Nation, via Naked Capitalism Water Cooler 3-10-2023]

Your background is different from the typical presidential candidate. You’ve run for office before, but you’ve gained notoriety as someone who helps people explore their experiences, often from a spiritual perspective. Do you see that as a challenge or an advantage?

[WILLIAMSON]: It is key to my strength here and I’ll tell you why: I have dealt in my 40-year career with helping people both endure crises, and transform them. That is exactly what this country needs now: someone who can help us both endure and transform the trauma of these times. The chaos is external, but the trauma created by the chaos is internal. Secondly, because of my experience with all kinds of personality types and all kinds of people, I have a deep understanding of what a sociopath is. A sociopath is someone who simply doesn’t care.… It is because of that that I recognize as deeply as I do that an economic system—namely hyper-capitalism, namely neoliberalism—has at its root a deep spiritual darkness. It does not care. It is a sociopathic economic system that prioritizes short-term profit maximization for these huge corporate entities. It is a destructive force. And the political establishment, at its best right now, only tries to stave off its worst aspects. That’s what corporatist Democrats do. They recognize the disease to some extent, and they try to help people survive it. But they refuse to challenge the underlying corporate forces that make the return of all that pain and all that trauma inevitable.

 

The permanent recession that never arrives

[Axios, via The Big Picture 3-7-2023]

According to public opinion, the U.S. is seemingly in a semi-permanent recession, and the Fed has failed to improve matters….

  • In reality, the economy is hot, unemployment is at record lows, and there’s no sign of a downturn any time soon.

[TW: Not sure if it’s stupidity or cupidity, but it remains astonishing how many journalists, academicians, politicians, and other elites continue to cling to national income accounting that clearly no longer captures what is actually happening in the economy. There can’t be a stronger signal that our economic statistical tools are misleading at best, useless at worst, than collapsing life expectancy.

Furthermore, if you reject the doctrine of mainstream classical neoliberal economics that there is no place for normative judgement and policy preferences in economics, you can easily see that world industrial productions needs to be vastly increased if we are to meet the challenges of climate change and environmental destruction. The rub, of course, is that this increase in industrial production must not occur under the reigning doctrine of “economic efficiency” as measured by lowest “price,” but by full and unhesitating investment in complete environmental protection and remediation, including, for example, designing for disassembly and recycling. [See Jon Larson’s Elegant Technology: Economic Prosperity from and Environmental Blueprint.]

From this perspective, we need at least an order of magnitude increase in electric vehicle sales and manufacturing, while ceasing entirely manufacture of internal combustion engine vehicles.

Graph: New vehicle sales, by type ]

Open Thread

Use to discuss topics unrelated to recent posts.

Britain’s Bare Produce Shelves

The Daily Mail had an article on this, and it’s worth reading.

A dig down in this reveals two main factors (the Daily Mail was pro-Brexit and discounts that factor).

First, increases in energy prices.

Tony Montalbano, a director of Green Acre Salads in Roydon, Essex, typically produces a million kilograms of baby cucumbers a year, but his glasshouses were empty last month.

He delayed growing his crops to avoid rocketing winter fuel bills of up to £500,000 a month. He expects his production to be cut by up to half this year.

‘It’s sad and frustrating but I can’t afford to grow,’ he said. ‘I must make a profit. If I don’t, there’s no point in me going on. Lots of growers are closing their doors and selling up.’

Jack Ward, chief executive of the British Growers Association, added: ‘Up and down the country, we’ve got empty glasshouses. People who would grow two or three crops of cucumbers a year may cut that to just one, because they want to avoid using more expensive energy.’

Eggs are also being rationed as farmers cannot afford the costs of keeping laying hens warm in energy-guzzling sheds.

Second, crop failures due to poor weather (aka. climate change) in Spain and Morocco have had a big effect, as Britain imports a lot from them.

Now, the thing about energy prices is that they have been raised far more than fuel prices have. The UK system has producers of energy, suppliers (the people who run electricity lines and ship fuel to retail customers) and the retail customers of energy.

Let’s take oil:

Unveiling its latest results, Shell said the price of the barrels of oil it sells rose from $62.53 a year ago to $101.42. Gas prices rose from $4.31 to $13.85 per thousand standard cubic feet over the same period.

So, their costs increased about 62%, and they about tripled the prices they charge.

In electricity, there is a price cap. The companies are not allowed to earn more than thirty-five pounds more than they sell the electricity to households. That cap, however, only applies to households, it doesn’t apply to business. So on the business side, they’ve been massively raising prices.

Thus the empty green (glass) houses, which grow far more than just cucumbers. Likewise vertical farms have been hit hard. If you want produce during the non-harvest season you have to buy from other countries or you have to grow in controlled environments. Add in climate fluctuations from climate change and high energy prices making it impossible to make a profit growing produce and you have shortages.

Price increases from Russia, in other words, are only an excuse to raise prices, not the reason for most of the price increase.

The solutions have been discussed even by the mainstream press: either re-nationalize the energy sector or put in a windfall profit tax so they don’t get to keep excess profits. And it’s worth noting that many energy companies did go under due to increased costs when they were regulated to be unable to pass them on. Some companies made way more than their increased costs, while others went under.

In the post-war liberal era private utilities were highly regulated, but a cornerstone of proper regulation was that they would always make a decent profit: enough for proper maintenance, which had to be done (remember all the fires in California because the privately owned utility won’t maintain power lines and poles), and to expand capacity as necessary. Utility stocks were “widow and orphan stocks” because they would make the same every year. Genuine price increases were passed on, but profits could not either rise or fall.

So, if you want to keep them private the best way isn’t so much a windfall tax, which is a response to a crisis, but proper regulation. Or you can just make them public again.

Energy prices in France have risen far less than in Britain for the simple reason that France owns its own generators and grid.

The other obvious factor is that if you have a cap on households for political reasons (they vote) you need a cap on the costs to farmers and to industry. But if you’re going to put all these caps in place, it’s better to just move to proper regulation, and a flat cap makes little sense, it should always be in percentage terms. When prices went up 60%, someone has to pay that. That either means end-users, or it means the government subsidizes. Those subsidies could be broad, if the increase is expected to not last long, or they could be targeted at specific industries and people with low income.

While generally means targeted subsidies are a bad idea, there are specific cases where they make sense, and this is one of them.

Anyway, Britain doesn’t have bare produce shelves “because of Russia” it has bare produce shelves because energy companies gouged the customers they could gouge using Russia as an excuse and because the government refused to step in and ensure prices which allow the “free” market to work properly, because there is no free market and never has been, and it always requires intervention to keep it working.


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.

The Basis Of All Law

All laws are ultimately backed up by “if you don’t we will send violent men after you” and we should never, ever, pretend otherwise.

Mao’s “all power comes from the barrel of a gun”, or pre-gunpowder, guys with swords or clubs, is, however, only one-third true.

What matters isn’t the violent men, it is controlling the violent men. If all power came from violence, then it would be guilds of violent men who run society directly, but as powerful as police and armies are, in most places it isn’t military men or cops who who make the laws and are in the executive positions and when they are it is usually in a second or third tier country.

Ideology, whether religious or secular, is used to control violent men. It’s about legitimacy: about who has the right to give orders and what violence is legitimate. All power comes from controlling violent men, but that doesn’t mean that the violent men are necessarily in charge, especially after the first generation. Mao was a military guy: his successors after the Long March generation aged out of power were not.

George Washington was a general, most of his successors were not and when they were, as with Grant and Eisenhower, it was generally right after an important war.

Of course there are periods of history where almost every ruler was a military man, but even in such cases, control over the violent men was what mattered. The Roman Praetorian Guard choosing emperors makes this clear.

But moving back to the first sentence: law is enforced by violent men. The idea that there is some “social contract” is nonsense. You do what you’re told because their are consequences if you don’t. Those sanctions may start with fines or losing your job, but if you decide to do things the law says you can’t, well, the violent men show up. The whole history of cops going into homeless encampments, taking all the homeless people’s possessions and destroying them makes this rather clear.

At its heart law is violent. That’s why when you make a law, you should always be thinking “is this important enough that someone should be beaten up, killed or imprisoned for it? Is it important enough to use violence to enforce?”

There is a trade-off here. There’s a fair bit of evidence that many (not all) pre-historical societies were very violent. The early kings reduce internal violence by centralizing violence. “Everyone and everything belongs to me and only I and people I give permission to get to be violent.”

Whether it reduced violence overall, however, is less clear, because societies on the edge of these “civilized” states suffered a lot of violence from the civilized folk. There’s a perception that barbarians were the violent ones, threatening civilization, but when you look into the behavior of Rome or China towards the tribes on their borders, it’s abominable. As with many such things the question of “who started it” is impossible to answer, but that “civilized” nations were very often hyper-violent to their neighbours isn’t in doubt, and when they weren’t, they were constantly meddling.

The Mongols, when they invaded China, had a lot of reasons to hate the Chinese based on how China had constantly meddled in their affairs, including militarily. The Romans slaughtered “barbarians” in vast numbers. And so on.

Violence is, sadly, part of the human condition, and so far our solution sets for managing it at scale have been bad: either externalizing it, effectively enslaving most of the population as a byproduct, or both.

Finding a better way: a way that doesn’t produce war or tyranny, is one of our tasks.


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.

Week-end Wrap – Political Economy – March 5, 2023

Week-end Wrap – Political Economy – March 5, 2023

by Tony Wikrent

[TW: Sorry this week’s wrap is light. I was in the hospital overnight for a medical procedure and my energy has been sapped. I’m tired and sore, but otherwise fine.]

 

Living on a Deadline in the Nuclear Age. Some Personal News From Daniel Ellsberg 

[Antiwar.com, via Naked Capitalism 3-31-2023]

 

War

Transcript: CIA director William Burns on “Face the Nation,” Feb. 26, 2023 

[CBS, via Naked Capitalism 2-27-2023]

 

The Reckoning That Wasn’t: Why America Remains Trapped by False Dreams of Hegemony

Andrew J. Bacevich, February 28, 2023 [Foreign Affairs, March/April 2023, via Naked Capitalism 3-31-2023]

 

House panel lays out ‘existential struggle’ with China in primetime debut 

[The Hill, via Naked Capitalism 3-1-2023]

 

US Dollar Primacy in an Age of Economic Warfare 

Michael St-Pierre and Michael Kao [Kaoboy Musings, via Naked Capitalism 2-27-2023]

Part one of four. Parts two, three, and four.

 

Restoring balance to the economy

President of Mexico nationalizes lithium

[Green Car Congress, via Naked Capitalism 2-26-2023]

 

The pandemic

“Estimated Airborne Decay of SARS-CoV-2 (virus that causes COVID-19)”

[Department of Homeland Security, via Naked Capitalism Water Cooler 3-3-2023]

“Use the sliders to select the UV index, temperature and relative humidity of interest. Information on how long SARS-CoV-2 would be expected to remain stable in aerosols (airborne) will be displayed in the table below. Users can find the environmental conditions for a specific location by accessing general weather resources online.”

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