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

Tag: New Cold War

A Map Showing The Two Main Geopolitical Blocs

Yeah, it is mostly this simple:

This is pretty much the map for UN resolutions aimed at Russia, too.

As I’ve noted before the bottom line is that if you are a developing country, China offers cheaper loans and cheaper and faster development work like ports, airports, hospitals, roads, railways, schools and even cities. If you aren’t close to them, they don’t care about your internal politics, either.

I remember reading an interview with a minister of an African state who said approximately, “every time a western minister visits us we get a lecture, every time a Chinese official visits we get a new hospital.”

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As for sanctions, well, everyone’s scared of them, and everyone in that green zone knows that they could be sanctioned at the drop of the hat and that the sanctions never go away. Even if they don’t approve of some things Russia or China does, they don’t want the precedent of more and more sanctions and they want to belong to a monetary system which won’t lock them out.

Afghanistan is a particularly “amusing” case: when the US pulled out it then sanctioned Afghanistan and froze its foreign reserves. There was an immediate famine effecting millions. Biden is a perverse evil genius: by ending a war he was able to kill FAR more people than if he’d left troops in country.

Then there is Iran, where a treaty was signed under Obama which would remove sanctions. Iran kept its side, but the US pulled out anyway under Trump, and lo! Biden did not reverse him. Even the Europeans disagreed with that one.

China simply offers a better deal now than the West, and there’s a couple centuries or more of resentment towards Europe and America and Japan. Most countries would rather be allied with China.

And that’s why this map is fairly close to what the cold war map will look like. A few “green” countries will cut deals with the West, but most will go with China and Russia. And why wouldn’t they?

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The Delusional Dishonesty of the G7 Russian Oil Price Cap


Members of the G7 have agreed to impose a price cap on Russian oil in a bid to hit Moscow’s ability to finance the war in Ukraine.

Finance ministers said the cap on crude oil and petroleum products would also help reduce global energy prices. The cap will be set at a level based on a range of technical inputs.

“We will continue to stand with Ukraine for as long as it takes,” the G7 said.

Russia said it would stop selling oil to countries that imposed price caps.

Well, so the price cap is effectively a “we won’t buy it because you won’t sell it” policy.

There’s long been a delusion that commodities like oil are global. They operated almost as if they were for a while, but oil is produces in certain places, refined in certain places and shipped in specific pipelines, ships, trucks and trains. It has different qualities and not all refineries can handle all types of crude.

To the extent, however, that oil or natural gas or coal or whatever is subject to boycotts, it becomes less of a global market and that won’t generally decrease prices, rather the reverse, at least in the early phases of a breakdown of a global market. (In the late phase prices will diverge significantly in different countries, with extensive measures or realities in place to prevent arbitrage.)

So (2)…

UK Chancellor Nadhim Zahawi said the G7 were “united against this barbaric aggression”, adding the price cap would “curtail Putin’s capacity to fund his war”.

US Treasury Secretary Janet Yellen said a cap would also help fight inflation, which is on the rise in many of the world’s economies.

The price cap helps achieve “our dual goals of putting downward pressure on global energy prices while denying Putin revenue to fund his brutal war in Ukraine”, she said.

Sanctions have not reduced Russia’s income, they have increased it. This won’t be an exception because most of the world isn’t onside with sanctions, including India, China, virtually all of Africa and most of South America, but by fragmenting the market it will increase prices, especially in specific areas like Europe which need to get their hydrocarbons (remember, this is not a virtual good, it has to be extracted, refined and shipped), through specific infrastructure links.

The “price cap” is thus largely a symbolic measure, which will if anything increase prices somewhat. That’s not to say it’s useless, if the plan is a new long Cold War with Russia (and almost certainly China), getting off supplies from those two countries needs to be done and done in stages.

But it sure isn’t going to decrease prices or empty Putin’s treasury. In fact, in the short to middle term it’s likely to hurt Europe, again, far more than Russia.


How Big Is The Chinese Economy Compared to The West?

I recently came across these charts, of the biggest trade partner of each country, from 1990 and 2020.

To simplify: China is now more dominant in trade than the US at the height of its recent power. (Also of interest is the change in the UK and Japan’s position, though the collapse of Japan is overstated: it’s not , but it’s still a big trade power.

Let’s put the 2020 chart in numbers, bearing in mind that doing it in US dollars will overstate the relative size of the US.

For imports (from Wikipedia):

So, China is the primary trade partner of far more countries than the US. It exports more than the US, and imports less. These numbers understate the situation, though, since they are “goods and services.”

French Economist Jacques Sapir recently did an economic comparison by adjusting GDP numbers (not trade) as follows. First, change them for purchasing power parity (PPP), which is to say you can buy more with the same amount of money in China or Russia than in the US or Germany. Then adjust for the service sector being overvalued, so you’re left with manufacturing and the primary sector (digging things up and refining them) as the primary drivers.

Do this and Russia’s economy is 5% to 6% of the world economy, and much larger than Germany’s. China is about 30%, and the EU + US are about 30%.

Now I don’t entirely endorse this, there are some useful things in “services” like parts of the tech industry (much is worthless though, serving ads better does not increase a country’s actual economic strength. It might sap it.)

But it puts the situation in better perspective than using raw GDP.

Really there are three primary drivers of actual economic power: manufacuturing, resources and technology. Everything else either exists to service those 3 areas, or is nice and maybe even important to social stability (law, entertainment) but not primary.

China is the world’s primary manufacturing power. Russia is a powerhouse for resource exctraction. Russia is a leader in some types of military technology and not far behind in many others, and China is rapidly closing on the West in terms of tech and is even ahead in many areas (5G, for example, or hi speed trains, civilian use of drones, and so on.)

China also has something the US doesn’t have: a belief in technology. Robots and drones are common, technology is viewed as good, not bad and a threat. The Chinese believe in the future in a way that the west hasn’t since the 50s.

On top of all of this China is the world’s largest developer of nations: if you want ports, roads, train stations, hospitals, schools, smart cities or anything else, China will build them for you. They’ll finance them, and some exceptions aside they offer good loan rates because usually they’re more interested in good trade relations and getting your food/oil/minerals than they are about making a profit off building the infrastructure. In addition, Chinese construction companies building overseas infrastructure means those industries don’t have to downsize: they build China, now there isn’t enough work, so they’re off in Africa and South America.

To summarize then: China is:

  1. the number 1 trade partner of more nations than anyone else, and more than the US had in 1990.
  2. the world’s largest manufacturing nation
  3. Technologically near even with the West, and in some places ahead.
  4. The nation that helps the most other nations develop.
  5. When you adjust for PPP and service sector crap, a larger economy than the US. With Russia, a larger economy than the US and the EU combined.

And this is the nation we want to enter into a Cold War with? We shipped them so much of our industry that they now have more than we do, and after doing that we decide it’s time to pick a fight?

One thing is true of post-industrialization great politics: industry, access to resources and tech are what determine power. Since there is no longer a situation where the West has technology that is vastly ahead of everyone else’s, it really comes down to industry + resources.

And with Russia locked in and South America and Africa tending to prefer it, China is ahead or secure in both of those those categories.

If we wanted to keep our supremacy, we had to not ship China our industry and our tech so we could make some of our elites even richer. The Chinese accurately sized up our elite’s weaknesses and exploited them to the hilt. They thought they were “international” elites and it didn’t matter where the manufacturing was done, or who had the technology. The Chinese, however, were a national elite, and they knew it did.

I’m not sure this was exactly a bad thing. The West, in the unipolar moment (and heck, before) vastly misused its power, over and over again. Maybe a two-polar world will be better, if it isn’t, at least all power won’t be centralized in America with a few satrapies getting a voice and maybe that will be better for many countries and billions of people.



Thinking Out Ukraine Sanctions


If you could not buy anything you wanted using Western currency, why would you sell anything to the West?

Western sanctions on Russia are fairly close to: “You can sell us oil, wheat, and gas, but we’ve frozen all your foreign currency reserves we can touch (almost all of them), and we won’t sell you anything that’s useful to you. Anyone who tries to do so using our system is committing a crime, even if not in one of our countries, and we will punish them.”

It’s hard to imagine that Russia is going to keep selling us what they have. Naked Capitalism reprinted a good article by Olga Samofalova (second half, you can skip the first.):

Stopping gas supplies to Europe is even more disastrous in terms of consequences for both sides. Russia will not be able to transfer West Siberian gas, which goes through European pipelines, to other markets. There is no gas pipeline for such a volume to China or other Asian countries. To send gas by sea by tankers, it needs to be liquefied, but Russia does not have so many LNG plants for this, or gas carriers too. This means that Russia will have to stop production. ‘In the western direction, if without Turkey, there is about 150 billion cubic meters of gas from Russia. Where will we put so much gas if we don’t supply it to Europe? Nowhere. We’ll have to stop lifting the gas. This means that the world market will lose these volumes, and immediately there will be a large deficit of gas in the supply-demand balance of the European Union,’ says Yushkov.

‘No matter what anyone says, Europe will have nowhere to take such volumes of gas from. The world is not able to increase production by 150 billion cubic meters. Europeans will try to switch to other energy sources. An attempt to switch to coal will fail, since Russia is also the largest supplier of coal to the EU. The Europeans will try to launch everything that is possible: all the shut-down nuclear power plants [to reopen], the closed coal deposits in Germany and Poland.’

Now, this isn’t quite accurate. One of the main reasons that Iran is finally getting a renewal of the Iran deal is that the West needs oil and gas supplies from Iran back on the market. But even so, there will be a huge effect.

The core thing to understand here is that we in the West don’t know how to handle supply shocks. The last generation that knew how was the Lost, and they’re all dead. No one alive even remembers a properly-handled supply side shock, as we mishandled the OPEC oil shock catastrophically, and even those people are mostly aged out, unless they’re 80 and in Congress.

The Covid supply shocks have pretty much proved it. We could go into all the issues like price gouging, monopoly concentration, supply chain dispersal, just-in-time, consolidated shipping, the hollowing out of the trucking industry, and blah blah, blah, but it doesn’t really matter. Bottom line, we aren’t handling it well. All we really know how to do is raise interest rates and use central bank policy to keep wages below the rate of inflation, thus making the majority of the population even poorer.

So what happens when Russia cuts us off from a whole pile of minerals, hydrocarbons, and food that we need? Russia is the number one wheat exporter. Ukraine is #5. Gas we’ve already discussed. Oil will spike. Energy costs will go through the roof. Most titanium comes from Russia and is used to build planes, and if Boeing and Airbus have cut Russia off even from repair manuals and spare parts, why should they let the West have any?

I’m not 100 percent on this, but if Russia reacts the way I believe it would be rational for them to act, then we will have a supply shock bigger than the OPEC crisis, especially as it is being added to the Covid shock. Our companies will, of course, use the opportunity to increase their profits even more and price gouge (something they mostly didn’t do in the 70s), and we will get massive inflation.

I lived through the 70s. In the late 70s, during a period of about two years, the price of candy bars (you can tell how old I was) went from 25 cents to a dollar.

This is likely to be worse.

The Russians are also just not going to pay back their debts to Western countries in any form they can use. A law has already been passed where companies owing money to countries with sanctions can pay in rubles to the Russian government, who will then handle any negotiations, for example. More such measures will continue. Freezing reserves amounts to theft, and Russia is not going to pay back thieves.

Russia will probably also break all Western IP. With some under-the-table Chinese help, they’ll then set up production.

Meanwhile, China is thrilled — whatever they’re saying. Xi recently told the Central Committee that China could not rely on world markets for food security. But as a locked-in junior partner with a land border, Russia is a safe provider, especially since a lot of markets will be closed to it, and as we mentioned, Russia’s the producer of wheat. Oil and gas supplies can always be interdicted at the Straits of Hormuz by the American navy, but Russian land supplies are not so simple, etc, etc.

Now, let’s talk about the confusion of money for real economic goods. Money does a lot of things, but money cannot buy what a society cannot produce. Conversely, as Keynes pointed out desperately (and was ignored) anything a country can actually make, it can afford. So when you see things about money, or even stock markets, remember, China is the largest industrial state. Russia is the largest wheat exporter and a vast exporter of oil, gas, and minerals. Russia can survive this if they stop their economy from seizing up, because bottom line, they can feed and heat themselves. The food may be a bit boring, but it’s food.

China is hooking up Mastercard and Visa clients who were cut off with UnionPay and their Mir Card. This isn’t something that would happen if the CCP didn’t give the green light, not a chance. Russia’s SWIFT alternative and China’s are going to be hooked together. China’s banking system actually produces more loans than the US at this time, so they’ll keep the Russians afloat.

Many people think the Chinese will screw the Russians since the Russians need them so badly. They may, but I don’t think so. This is Western thinking, the same stupid, short-sighted greed that led us to ship the majority of our industrial base elsewhere, so a few oligarchs and politicians and consultants could get rich.

China needs an ally. They need good will. Give Russia cheap loans and help when they need it, be the country that helped them when almost no one else would or even could, and Russians will remember that for generations. China doesn’t need a resentful ally, they need a willing, happy, and healthy one. They don’t need an ally who they’re strangling with debt, and right now, loading Russia down with usurious debt in the middle of this crisis would make things worse.

Remember, people often fail to pay back debts they hate.

Contrary to Western propaganda, while there have been cases where China has loaned countries too much at too high rates, generally, Chinese development loans have been below market rates. This is because what the Chinese want isn’t a revenue stream, it’s resources. So they’ll build your mines, your factories, and your transportation networks, and throw in some smart cities, hospitals, and schools too, as a form of domestic subsidy. What they’re going abroad for is resources.

So my guess is that China doesn’t screw Russia to the wall, helping cripple them further and making Russia resent them during their moment of need. They aren’t modern Westerners. That doesn’t mean they don’t expect things in return, they sure do, but what Russia needs and wants to sell them, lines up perfectly with their needs, and there’s no need to screw Russia. In fact, I expect Chinese technicians to flood Russia and help with their infrastructure issues, oil industry, and so on. It’s enlightened self-interest and enlightened beneficience. To use econospeak, this is a positive sum game.

China and Russia have issues, sure, but they need each other massively, and each of them almost perfectly fixes the other countries weaknesses and needs. Russia will definitely be the junior member of the Alliance (and Russian tendencies to think in realpolitik geopol terms mean they get this and won’t even even resent it, as long as they feel fairly treated.)

The wildcard here is India. India and Russia have had good relations, indeed, have been friends, since independence. The Indian people themselves have genuinely fond feelings for Russia that they don’t have for the West or the US. But Indians hate the Chinese because of their territorial disputes.

If I were China, I’d just go to Modi and settle the territorial disputes generously. Give them a bunch of land, lay it on thick. I don’t expect them to do this, because it’s an emotive issue, but most of the land the countries dispute is basically worthless. It just doesn’t matter if India has that land. If China were to do this, it could probably move India into its alliance group, or at least keep it neutral.

So, let’s assume that Russia survives sanctions. Western elites don’t think it will, but Western elites are used to sanctioning powers like Iran and Venezuela, not a great power that China needs in its pocket, which has a huge land border with China. It’ll be ugly.

Assume Russia retaliates and there’s a big inflation shock. The West tries to get China to enforce sanctions, China says all sorts of mealy-mouthed stuff, but basically doesn’t do anything. The West then has three options:

  1. Full scale sanctions on China. If they do this, the OPEC crisis will look like a walk in the park. It will be a great depression. China is the world manufacturing center and the West cannot, yet, decouple.
  2. Targeted sanctions, like the chips sanctions that damaged Huawei so badly. These won’t make China change its mind, but it’s what Westerners do, especially Americans, so I assume this is the default.
  3. Try and cut a deal.. “All sanctions off and some stuff you want if you cooperate.” This is probably the best option for the West, but I don’t think China will go for it, because ever since Obama, the US has said that China is actually enemy . They’ll probably figure (I would) that once Russia is taken out, all deals are off and China is next in the crosshairs.

So what happens is probably #2 (targeted sanctions), at first. The West hurriedly moves some production back home (but not much, rentier societies are too high-cost for manufacturing) and a ton to low cost western allies, like Mexico. Once it feels confident, it ratchets up the sanctions, and we are in full cold war. I’d guess four to eight years, but it’s really hard to time these things. You can know something is inevitable, like this cold war, and not be sure when. I’ve been talking about this for years, and now it’s started. The Cold War is on: It’s just only with Russia right now. It will spread to China. If the West gets too emotional and foolish and tries to force China right now, it could happen with a year.

So we move into a new Cold War, in the middle of terrible inflation and possibly even a depression. One can expect most of the South to go with China/Russia. They may have voted against Russia in the UN General Assembly, but their arms appear to have been twisted hard. As soon as its credible to move to the monetary area China and Russia are setting up, they’re going to move their monetary reserves en-masse — unless they’re a Western client state, because the West has now repeatedly stolen other countries reserves.

This means most of Africa. Most of South America will want to, as China is their primary source of development loans, but they may be too scared. Any Asian country which isn’t an American ally will go. India is an unknown.

But at the end, you have China which is world’s most populous country, with the biggest industrial base, and even (in purchasing power parity terms) the highest GDP on the other side, along with Russia, and the Number 2 nuclear power, likely still with a massive military, and a ton of southern resource states, all oriented around China. (Though some, like the oilarchies, will try to remain neutral.)

I don’t see this as a competition in which we are the top-dog. Feels like a 60/40 thing to me, and we’re the 40. For too long, we have thought that money and financial games were the same thing as an economy, and that we could just buy whatever we wanted so it didn’t matter who made it, grew it, or dug it up. That world is ending. It was killed by us, with our sanctions, ironically.

Welcome to interesting and shitty times. Put aside  your belief in our superiority: We’ve been top dogs for about 200 years now, in some places 500 years, so it’s hard. But all periods in which one group is dominant end, and we’re probably living through that end.


The China Trap

I’d really hate to be China’s leadership right now. This is rock/hard place for them. If they don’t keep Russia alive, they will have no ally when it’s their turn, but the US and Europe are likely to put a ton of pressure on them for sanctions & that will start the cold war earlier than they wanted (for them — it’s already started for Russia).

Obama famously pivoted to China, calling it the biggest threat. Trump slapped on sanctions and used a ban on semiconducters to absolutely savage Huawei, the flagship Chinese tech company, whose phones were rivaling Apple and Samsung, and whose 5G technology was the most advanced and ready-to-deploy in the world.

They put immense pressure on Europe to not use Huawei 5g tech and largely succeeded.

When Biden came in, he removed none of Trumps sanctions.

In effect, the US has been declaring China its enemy for about 12 years now, through both Democratic and Republican administrations, and over the last few years, anti-China sentiment in DC has solidified. As far as I can tell, it is truly bipartisan.

China has known that a cold war with the US was inevitable for a couple of years now, though they suspected it before. They had hoped to keep Europe as a neutral customer, but Europe has bowed down to the US whenever push comes to shove, so China, like Russia, appears to regard Europe as an American satrapy — a subject state who will do what the US says.

The US and Europe will now put immense pressure on China to comply with sanctions on Russia and to not help Russia get around them.

My guess is that China will not, substantially, comply. The calculus is simple: Cold war with the US is coming, and if they let Russia get taken out, they lose a powerful ally and will then be surrounded, rather than having most of their Western flank covered by another Great Power.

Russia has repeatedly told the West to go fuck itself with regards to sanctions. They regarded, even before this war, more sanctions as inevitable. All that the war has done, they believe, is move the sanctions forward. China is likely to have the same calculus: sanctions, tariffs, and so on are never removed, only increased over time.

Both China and Russia have their own SWIFT alternatives. They will hook together and be offered to the rest of the world. As non-US allies have seen, with Venezuela, Iran, and now Russia (among others) that the US will even freeze reserves, they will join the Chinese and Russian systems and settle trade in Yuan. They will move reserves out of the US/European system.

This is, however, a huge hit to both China and the US. The US cannot currently decouple from China — it’s impossible. The US actually needs China more than China needs them. Remember, China is the largest industrial power, not the US.

It’s still a terrible trap, though, and the Chinese will, I think, play to mitigate. The US will not slap the worst sanctions on just yet, but will rush to move production to low-cost US allies.

There is an alternative, of course. China could buckle, agree to join the “rules-based order,” and play by American rules. The issues here are threefold.

First: This means China is not allowed to take control of value chains, which provides much of the real profit. Probably 15 percent or so of the value in a value chain comes just from that. They will have to keep paying US intellectual property fees, which amount to another ten to 15 percent in a lot of industries.

Intellectual property, if it’s not obvious, is on the table. Certainly Russia will stop paying these fees, that’s almost certain.

Second: Playing by Western rules means, the Chinese believe, staying stuck in the middle income trap and not making it to high income. This is one of those places which is a genuine trap: Decoupling will be a huge hit, but staying in the system and playing by the rules set up to favor the US and its allies means being in a system which keeps China from becoming a rich nation.

Third: There is an emotional component. As much as many Europeans, especially eastern Europeans, hate and fear Russia, China has a deep resevoir of hate for Europe, and the US for the “century of humiliation,” for Taiwan (to them a rebellious province which they would have retaken years ago if the West didn’t support it), and of course, a lot of hatred for Japan, the West’s primary Asian ally, for its invasion, occupation, and atrocities before and during WWII.

Emotionally, the Chinese are primed to tell the West to go fuck itself. They didn’t see why they should’ve play by rules made even when they were at their weakest. The “rules-based international order” to them is nothing but a set of rules set up by people who don’t want them to be a great, rich nation again. Rhetoric from the US has solidified this impression, and I think more correctly than not.

So the “cut a deal and compromise” really means “accept the current world order and play by rules that China thinks are unfair to them, and are made without their input.”

My guess is that China will do whatever it takes to keep Russia alive and to stop Western sanctions from achieving their declared aim: To collapse the Russian economy and cause regime change. Viewed pragmatically, I think that is the right call if you are the Chinese leadership, because the other two options (acquiescing to Western rules or letting Russia collapse and facing the West w/o Russia) seem worse.

I would guess, and it is just a guess, that this takes about four to eight years, because the US would be insane to decouple now, and China also wants time to prepare. But emotions are running high and a lot of policies have been made without clearly thinking through their consequences lately, so I while I think it’s odds on, I won’t be surprised if emotions rule instead. The decoupling may happen sooner.

Welcome to the new Cold War. Remember, in this one, the world’s biggest industrial power and most populous nation is on the other side. This isn’t 1950 or even 2000. China is the biggest trade partner of more nations than the US, not the other way around.

And China needs what Russia has: wheat, oil, and mineral resources.

Cold War 2.0 isn’t one in which the West are necessarily the favorites to win.


Putin Is Running the Georgian and Kosovo Playbook in Ukraine

As I noted last week, the playbook for Russia in Ukraine is based on what happened with Kosovo.

Putin recognized the breakaway regions, moved troops in, and is now attacking and bombing Ukraine — just as both Serbia and Georgie were attacked. I didn’t expect the general invasion, but I should have, especially since I wrote:

It’s ironic revenge for Kosovo and Serbia. Say there are atrocities/genocide, recognize a break-away, bomb and use troops to enforce your will.

I will be surprised (and wrong) if there is a general occupation of Ukraine, but it is possible because of the NordStream cancellation. What will most likely happen is the Ukrainian military will be defeated in the field, as were the Georgian and Serbian militaries, to make the point that they can’t resist, they have to let Russia do what it wants, and, as Putin himself has said, to demilitarize it. (“We destroyed your military, and you will not build one up or let foreign troops in, or we will do it again.”)

If Putin does occupy Ukraine, it will be because he considers it (like Taiwan) nothing more than a breakaway province, considers Western sanctions inevitable (he said so in his most recent speech), and figures, “Fuck it, might as well take the pain now as later.”

It was wise of NATO nations to remove diplomats, as that means it won’t matter if there’s an “accidental” embassy bombing, which is what happened to the Chinese embassy during the Serbian war.

With the announcement that NordStream will not happen, Russia has very little reason to play by Western rules (we can do it, you can’t), and they won’t.

Welcome to the world I have been predicting for a few years. Russia will be increasingly cut off, China is next on the list (they will not cooperate with US and European sanctions on Russia), and the world will split into two economic areas at cold war, though it won’t be immediate unless things spiral completely out of control.

Europe will be hurt badly by this, as they need far more from China and Russia than they do from the US, as this excellent article by Michael Hudson points out.

Welcome to interesting times.

Update: If NATO responds militarily, there is a good chance the war goes nuclear. And if it does, China will use the opportunity to reconquer Taiwan.

Update 2: What George Kennan, the architect of USSR containment, said back in the 90s.



Divided Societies in Decline Use Scapegoats to Re-Unify

Chinese and American flags flying together.

A while back, Haydar Khan wrote an excellent article on American economic and technological decline, focusing on the diagnosis and differing solutions offered by economist James Galbraith and by Peter Thiel (the founder of Palantir, who made his initial fortune with PayPal and who is famous for his libertarianism, despite running a surveillance company).

The US is riven by divisions, split into two factions, who mutually hate, fear, and distrust each other. It has been in relative economic decline since the 70s, and this decline shows up in productivity statistics and in other ways like corruption and inequality. China is now, by some measures, the larger economy, and still growing faster than the US. While still somewhat behind technologically, in some areas, like 5G wireless, China is ahead.

So how does one fix this decline? We’ll skip Galbraith’s plan and move to Thiel’s.

Khan thinks that Thiel’s solution is more likely to work, because unlike Galbraith, Thiel has found scapegoats: The PC Left, parts of Silicon Valley (Google in particular), and China.

This is a standard policy. When a country is cracking up with internal divisions, it is common to find enemies to focus on. The German Nazis found socialists, Jews, and other “mongrel” races like Gypsies (whom everyone seems to forget), and the nations who had taken what they saw as German land, in particular France, Poland, and Czechoslovakia.

Obviously, any country that is “great” can’t “fail” and if it does, it must be because of “traitors and enemies.”

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The pivot against China began with Obama, ramped up with Trump, and despite some fears among China hawks, seems likely to continue under Biden. The PC left includes all the usual scapegoats, people who violate “purity” ethics: transsexuals, gays, blacks, and so on. The people the US and, indeed, many nations, love to beat down. Its core includes a LOT of Jews. These are groups many people live to hate and hurt.

As for Silicon Valley, it’s a neat trick for Thiel to pretend he doesn’t belong, but also it’s smart: He’s picking a part of Silicon Valley (his enemies) to be taken out, hoping to avoid the backlash himself. Silicon Valley isn’t loved, everyone believes that tech companies took and take away the good jobs, leaving people driving cars for Uber and doing odd jobs for Task Rabbit, and so on. There’s no dignity to these jobs, and definitely no money to speak of.

The political classes have bought in, big time, to the China part of this pivot, and there is a lot of hatred among both Democrats and Republicans of big tech, though more Facebook than Google. The PC left is a harder question; the liberal core of the Democratic party loves PC politics because they treat it as weaponized tokenism. It doesn’t matter how blacks are doing, what matters is that a black man was President. It doesn’t matter how women are doing, what matters is that a woman is going to be vice-President. Liberals want the glass ceiling shattered for minorities and women, not for the majority of minorities to have a good income and good health care, say. Plus, PC politics is easy weaponized against the Left: claim someone is racist, sexist, or anti-semitic (or is 30-years old and dares to date a 20-year old) and by the time it’s shown they aren’t, they’ve already lost.

Still, there’s a deep contempt in the liberal class whenever identity politics are taken truly seriously. Joe Biden may make noises about Black Lives Matter, but his plan is to give the police more money, after all. He doesn’t actually believe in it.

Thiel’s trying to package up all his personal hatreds and enemies into one bundle and get them chosen as the scapegoats. This may or may not work, but that’s what he’s doing. The problem is that, even if he doesn’t get everyone he wants in, the basic strategy is working. The US is moving towards a cold, and perhaps hot war with the rising superpower and the last superpower (China and Russia, respectively). At home, passions are hot and, at some point, some groups are going to be chosen as the “bad Americans.” The traitors. Some part of the elite (a small part) will be thrown to the dogs and so will many of the powerless.

This doesn’t happen in all great powers in decline, to be sure. But it’s a common play, and it has powerful people other than Thiel pushing it. They see US decline and its disunity, and they are looking for a way to turn the decline around or at least distract Americans from the actual authors of the decline (that would be people like Thiel) towards scapegoats.

Given how angry the American people are, this seems like a good odds bet. It’s not a sure thing, but it’s one of the high probability outcomes, especially with regards to China.

If you’re in one of these groups, or if you have ties to China or Russia or countries which will fall into the Chinese bloc, you should be keeping a very careful eye on how this develops. These are people who don’t blink at mass casualties to keep their power and wealth, and they won’t blink if you become a statistic.



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