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

Month: November 2022

The Great Favor the West Is Doing China by Banning Equipment Needed to Make Chips

We really are run by fools.

“If you shut out [China] with export control, [they’ll] strive toward tech sovereignty… [Then] they’ll be able to do it all by themselves and the market [for European suppliers] will be gone.”

The great problem in the neoliberal era is that the usual road for tech and industrial catch-up, protectionist tariffs is mostly closed. (This is how Britain, the US, and almost everyone created their industrial base and caught up in tech.)

Despite what a lot of people seem to think, China isn’t a command economy. It’s a capitalist one, albeit with a large state company sector. Letting markets in is explicitly how Deng created the Chinese economic miracle.

So China buys a lot from other countries. It is a trading state, and that makes it more difficult to catch up in some techs.

Now, if this was done to, say, Bangladesh, or probably even India, those countries would be screwed — they don’t have the industrial and knowledge base. But China has these things; sure, it wasn’t cost-effective to do all the research necessary to learn how to make this equipment when they could just buy it, and after all, they need to buy some things from their customers.

But if they can’t buy it, they can learn how to make it themselves. Sure, it’ll cost them two or three years. It’ll hurt. But they’ll get over it, and then they can make it for themselves.

The knock-on effect is fun, though: Once China can make this equipment, they can sell it to other countries, which means those countries (Brazil, Iran, India, etc.) don’t need to get it from the West, and sanctions become much less effective because there’s another option on the table.

So by sanctioning China, the West will soon lose its ability to sanction not just China but pretty much the rest of the world.

Fun!

This is also true of the sanctions on aircraft equipment, by the way. China, which has a rather advanced space industry, will learn how to make its own civilian aircraft, and then, instead of everyone having to get aircraft from Europe (Airbus) or the US (Boeing, though Boeing is losing the ability make aircraft), they’ll be able to get it from China (and possibly Russia as well).

Now sanctions like these have their place: You do them just before you’re about to declare war. But if we aren’t going to do that (and there are certainly factions in Washington who do want a war with China soon), then it’s just foolishness.

Let’s hope it’s just foolishness.

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Election Discussion Open Thread

I don’t cover US elections real time any more, but for those who want to talk about it, this is the place.

Week-end Wrap – Political Economy – November 6, 2022

by Tony Wikrent

 

The Pandemic

The Worst Pediatric-Care Crisis in Decades 

[The Atlantic, via Naked Capitalism 11-2-2022]

[Twitter, via Naked Capitalism 11-2-2022]

[Twitter, via Naked Capitalism 11-1-2022]

[Twitter, via Naked Capitalism 11-1-2022]

.

How Republicans Claimed COVID as a Winning Campaign Issue 

[New Yorker, via Naked Capitalism 11-1-2022]

The backlash against pandemic restrictions has become a more potent talking point than the public-health crisis itself.

[TW: For me — because I believe we need to revive civic republicanism and especially its principle of civic virtue — the public hostility to adopting individual measures to protect the public health, is very demoralizing. ]

Open Thread

Use to discuss topics unrelated to recent posts.

Growth Through Real Estate Bubbles v.s. Sustainable High Income Growth (China)

All right. Let’s talk some basic development stuff, primarily in the neoliberal era.

Because industrial policy was disallowed with a few marginal exceptions due to the “rule based order” enforced by a variety of trade agreements and organizations, the traditional route of protecting domestic industries and growing behind tariffs became very difficult to do.

Various countries used different dodges. Russia, to get out of the Yeltsin era collapse, went whole hog into resources: advanced nations had to have oil and natural gas and minerals, and bribed key financial regions like London’s city with huge influxes of resource-money.

China did something different. They opened up partially and let foreign companies in, but they used bureaucracy to keep them under control (as had Japan, in part) and offered foreign elites huge labor arbitrage profits. They bribed the West’s elites with personal wealth, in effect. In exchange they insisted on, generally very strictly, in real technology transfer. Meanwhile, they created a protectionist bubble thru monetary policy, keeping the exchange rate in their favor.

But the other thing they did is what Turkey tried. They created a self-reinforcing property bubble. Municipalities and states built tons of new homes, people flooded in from the countryside to get the new factory jobs and the service and government and construction jobs which supported industry. Prices went up, municipal and state budgets went way up and a virtuous cycle was created, for a time.

Turkey did the same thing, but the problem is Turkey didn’t have an expanding industrial base, and that’s why Turkey imploded sooner.

All bubbles, including property bubbles are time limited. The more of a real economy you have, the longer they can run, but eventually inflation in property becomes too high, and most citizens can’t afford the housing. Meanwhile, inflationary increases in living costs make workers too pricey, and the industrial base begins to suffer.

You can start from three positions.

  1. Like the US or UK or much of the EU you can start with an industrial base and cannibalize it, or..
  2. Like Turkey you can start with a poor but big country and cannibalize an increasing part of your population, plus what little industry and agriculture you have (India is similar, but much larger and managed to get some industrialization out of this strategy), or..
  3. Like China you can build your industrial base at the same time.

Whatever you do, this strategy eventually runs into the roadblock of a cost structure which becomes too high to allow actual productive industries.

At that point, you have to tame the housing market and other out of control costs (medical, food, whatever). If  you don’t, you’re pushed back from 3 to 1, or if you did 2, the artificial prosperity begins to collapse. (India’s calories per capita have spent decades decreasing and someone who spent time there in the 80s, I can tell you Indians weren’t overfed to start with.)

So China’s now in a position where rather than bubbles, especially the housing bubble, being synergistic with industry and improvements in technology, they’re starting to strangle growth.

The route out (minus mercantalist imperialism, which is long run a loser too) requires you to stop relying on property bubbles, and start strangling your cost structure. The “free” money from asset bubbles has to go away, and you have to create a consumer society: not one like we have now, but one like we had in the post-war liberal era. Housing costs have to be kept at a level where people can buy or rent homes fairly easily: 30% of wages for rent or so, and at most about 5 years wages to buy a small home or condo.

Since the free profits of bubbles and speculation have to go away, companies have to make real money by providing real services and not just count on “real estate always goes up” or (America) “people have to have health care, so we’ll increase prices thru the roof.”

This is the task that China now has. It’s a hard task, akin to getting of hard drugs like heroin or SSRIs or Xanax. It hurts, because the financial pipes are reliant on what amounts to free or easy money.

During this transition, headline GDP and so on will suffer, there is no way around it minus looting expeditions, especially since simply running the printing press (something we’ll talk about in another article) defeats the point, which is making companies earn their money by providing goods and services for small markups at scale. (The post war liberal era worked on 3-4% markups for most mass goods.)

This is where China is. Where America and most of the West is similar: except it’s after destroying much of the industrial base and real consumer economy that doesn’t rely on massive price gouging on items people must have. There is no way to bring the good jobs back for most of the population in the US or UK or Canada or Australia without crushing the cost structure, strangling property speculation and prices and in the US tackling the medical and drug cartels.

China’s making the attempt. A lot of what they’re doing is clumsy and crude (but then, so was the one child law, but it worked even if it caused future problems.) So far the UK and Canada and the US and most of the West are not even trying, which is why you hear more about friend-shoring (aka to cheap places that are Western allies) rather than re-shoring, which can only be done for the goods that are either very high margin or which elites have realized are too militarily strategic to do in other countries.

This is why, as far as I’m concerned, the smart money is still on China, and if it wasn’t for climate change and ecological collapse, I’d consider it a done deal even if it took a couple more decades and a lot of screaming and shooting.

As it is, we’ll see. But China’s at least trying to do the right thing.

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None of This Had to Be: The Two Paths

There are broadly two views of the situation we humans are in.

The first is that what is happening is just a result of human nature. It is who we are. We are stupid, short-sighted, and profoundly cruel to each other and to other living beings. Our history is one of war, rape, and torture. In Tudor times, we would cut open a person’s belly and burn their intestines while they were still alive. Crowds would gather, and turn the occasion into a celebration.

Environmental destruction is old, too. Mesopotamia was not a desert once, but we made it into one.

There are those who look to the time before agriculture made possible the rise of kings and nobles and see it as better (and there is some truth to that), but there was violence then, too. The kings domesticated us, turned us into sheep, and except when they turn us on each other, there is less violence now. But, then a shepherd doesn’t want his animals to fight each other; they exist to be shorn, and die to feed the shepherd.

Humans are, in this view, too stupid, mean, and short-sighted to be considered more than animals. No smarter than bacteria in a petri dish, who expand until we choke to death on our own waste.

It may be that this view is correct.

There is a second view, however, which says that humans might be able to learn wisdom, foresight, and kindness — that we might be able to make that scale in both space and time. That we might be able to avoid the generational cycles of rise and fall; that we might learn to shape ourselves into a race which isn’t stunningly cruel, stupid, and foolish.

This isn’t a utopian view. It doesn’t pretend that the demons of human nature don’t exist. It says that we may be able to control them; that we may learn not to let predators and parasites run our societies, and that we might understand that what happens to the least of us, and to the least of the animals and plants, matters most, because whatever we do those without power is what we will do, in the end, to ourselves.

In prisons, rapists get raped, and those who do so become rapists. Those who laugh and consider it part of the punishment are rapists by proxy; their approval makes them monsters. When we say “this person deserves it,” we indict ourselves.

The penalty for abuse of power, in this view, is only to be permitted no power. To abuse the abusers is to become abusers, and those who are abused, themselves abuse later.

We live in cycles of abuse and powerlessness, and have given away our responsibilities to the worst among us. No serial killer is as evil as a President, or the CEO of a major bank or oil company. They have not killed nearly as many people, after all, nor hurt as many. But a serial killer’s killing, their cruelty, is that of a sheep against other sheep, and the sheep cry out that only the shepherd is allowed to kill and indulge in cruelty.

We are faced, today, with our the power we have created through technology, science, and our own domestication. We have become instruments of a few people — the cruelest and worst of us. But they rule because we have been made tame, and we have learned to see the world they way they do: that their power is legitimate and that we must acquiesce. They could enforce none of it if we did not acquiesce, and if they did not have their sheepdogs.

In this second view, we took the wrong path a long time ago, and followed it to self-destruction, misery, and powerlessness. We let the first kings and the first warrior castes rise, and we let the scribes become their servants, who turned into our modern scientists and engineers, forever crying out that what is done with their creations is not their fault.

When we take the wrong path, we must first recognize that we have done so, and that where we are is not where we want to be. We must understand how we came to walk that path, why it seemed reasonable.

Then we must change and find new ways of navigating.

In human society, this means a new culture. A new way of interacting with each other and with the animals and plants with whom we share the world.

Because we have gone so far down the path of (forgive the word) “evil,” almost everything will have to change.

Is that possible?

The second view claims that it is — that human nature possesses a range of possibilities, and that range emphasizes choice, and as we have choices, we can choose.

Is the second view true? Is the first? Are we evil because of an invariant human nature we will never be able to shape into something wiser, kinder, and longer-sighted?

The answer is, for now, unknown.

I choose to work for the second view, that what we have now is not the only possible expression of human nature at a global level, and that we can change, that we can be better.

It’s not the easy path because if it’s true, we’re going to have to have to give up almost everything we believe and are; everything we have shaped ourselves into over the millennia. Simply shrugging, living one’s life, and dying is easier.

And, perhaps, it is better. False hope is a sickness, not a blessing.

So I’ll not condemn those who shrug and say, “This is just who we are. Cruel, stupid, and short-sighted. The masses are nothing but sheep, the sheepdogs are the masters’ self-congratulatory tools who make serial killers look like children.”

We’re here now, just past the peak of our civilization (a cursed word, for almost all have been worse than the savages they scorn). This is the time we, you, must decide which of the two views you hold, and if you will work for the second path.

Is there a way to the good, or are we doomed to evil, for evil it is?

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