Ian Welsh

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

Category: Development Economics Page 1 of 5

Trade Is Not The Primary Driver of Currency Rates

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On November 27, 2025

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The misunderstandings packed into this little bit of writing are stupendous:

Over the past few years, China has been in deflation, while the US has been in inflation. Yet despite this stark divergence, the CNH has still depreciated more than 10% against the US dollar. This combination — falling relative prices in China and a weaker currency — has made Chinese goods and services extraordinarily cheap in global terms. A vivid example: a night at the Four Seasons Beijing costs roughly $250, compared with more than $1,160 in New York

First, a 10% drop does not make a hotel room cost one quarter as much in Beijing as in New York. That’s ridiculous on the face. Almost everything costs less in China than in America. America has an economy optimized to drive prices high to extract maximum profit. China has economy with actual competitive markets: if you raise prices someone else will come in underneath you. Almost all of America is operating in or as if it is in an oligopoly. There is little actual price competition because even when there are competitors they figure that competing on price is stupid: it hurts both of them. Why not both raise prices to usurious heights? Win/Win.

This doesn’t happen in China because it has competitive markets and it has competitive markets in large part because China will throw executives in prison or execute them if they engage in this sort of price collusion, whereas in the US, though ostensibly illegal based on the laws on the book, such collusion has been made legal by decades of court decisions and prosecutorial decisions. (Prosecutors mostly don’t, and when they do courts almost always refuse to convict.)

China also has lots and lots of firms and genuine low barriers to entry. If you try to collude, someone from outside your industry will enter and undercut you, and often this will be someone with deep enough pockets that you can’t win a price war with them.

Second, currency values outside of hyperinflation are driven primarily by demand for currency. That isn’t primarily about trade, it’s about investors and financial carry trade. China unquestionably has a more dynamic and larger economy than any Western nation, but it isn’t financialized: Chinese companies don’t produce the sort of returns that American companies have over the last 50 years. This is deliberate policy: if they did, then China’s economy would suck for ordinary people, like Western economies suck for ordinary people because prices would be much higher. (See that Hilton room, though it cascades thru the entire economy, with rent and food at the low end much cheaper in China too.)

It is also pretty hard to invest in China as a foreigner, while the US is set up for foreign investors. Even if you want “China exposure” it’s hard to get.

So the Yuan isn’t in massive demand, because there aren’t bullshit over-sized returns like the AI bubble. The central bank doesn’t run its policies based on “the stock market must always go up.” America has spent 50 years burning down its real economy to produce outsize “profits” due to asset pumping. China keeps asset prices under control, and when a bubble does occur, as it did in real-estate, they deliberately deflate it, bearing the cost.

None of this is particularly unique, by the way. It’s basically the way the US economy was mostly run from the 30s thru the mid 70s or so. The policy details, the ways things are done are different, but American policies were meant to encourage real economic growth and if you look at a stock market graph you’ll see it traded sideways. No 50 year bull market. Asset bubbles were discouraged. You can’t have a good economy with high real-estate prices, just can’t be done and the stock market is a secondary market, not a primary one. Emphasizing it is sheerest insanity.

There is very little that China has done which is genuinely unique, despite jingoistic assertions otherwise. The playbook they have run is the same one almost every successful industrializing nation after Britain used, and very similar to the Japanese model. What is different are two things. First, the scale, when 1.4 billion people industrialize and modernize, it shakes the world. Second, a genuine desire to help the poor, which is extremely rare during industrialization, though not unheard of. (The Gilded Age did not care about the poor. Britain’s industrialization period was driven by hurting the poor as much, or more, than they could bear. They were far better off as peasants than in factories.)

Anyway, countries can be real rich (lots of genuine productive capacity with low prices and dynamic markets) or they can be fake-rich, with financialized markets that squeeze the last penny out of consumers and immiserate workers, leading to non-competitive markets and oligarchy. China is rich. America is fake-rich.

 

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Development Politics in Central and South America

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On October 29, 2025

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~by Sean Paul Kelley

Most of you probably know I lived in Nicaragua for a time—about six months—overseeing renovations to my father’s house, where he lives even now.

Me? I’m no fan of the country, nor its politics, nor do I romanticize the pervasive, grinding subsistence poverty in the countryside and sad, soul destroying poverty in the cities. About two dozen rapacious families guarantee Nicaragua’s place as second poorest nation in this hemisphere.

Nicaragua is not without its charms. I have a deep respect for the people of one of three nations in this hemisphere who, one, told the United States to fuck off and two, have largely succeed in keeping the US at arms length. The Spanish spoken in Nicaragua is, in two words, incomprehensibly unique. They distinguish between beans and rice and rice and beans. Seriously they make up two distinct dishes, although I can’t tell the difference. They eat some crazy vegetables—they have ten different varieties of squash, which I detest. But, they know how to cook meat in ways as diverse as barbecue, stew, seared and broiled. Chicken, pork, beef (no lamb or goats) and of course gallino de palo (tree-chickens AKA iguanas) make up the usual tasty fare.

Nicaragua’s best aspect is its untapped collection of perfectly sized waves, best on the Central American Pacific Coast by my estimation; waves for beginners and pros alike. There is only one monster, which I’ll get to in a moment. Sadly (or not) the changes in the political situation between 2015-2025 have scared off most surfers and they’ve migrated to Costa Rica, which has some sweet waves and parts of Guatemala that remain damned near empty. But, I digress.

One late morning, completely disgusted after persistently being thrashed by the waves breaking on the beach at Popoyo—the barrels collapsed so rapidly I was unable to get all but three drops (and no, I was not surfing the A-frame point break Popoyo is famous for, as a beginner I had no death wish I’ve seen too many boards munched on that wave) so I gave up, hopped in the car and began the two hour drive back to Granada.

After 30 minutes drive on a dirt road I turned north on Nicaragua’s stretch of the Pan-American Highway. No fan of Latin music (the radio was off) my mind wandered along the amazing scenery. Volcanoes rose. Small villages disappeared in a sneeze. The olive shades of Lake of Nicaragua were seemingly endless. Isla Ometepe, an island of twin volcanoes, shot up and passed by just as quickly. A few small attempts at agriculture grew to my left and right. All disappeared in blur or blink.

But time passes strange in a foreign land and stranger still on the road. I pulled over next to an anemic sugar cane field, cut a small stalk, sliced it into three pieces and returned to the car. As I shaved the outer layer off and bit into the heart of the cane, two thoughts, as if in quantum superposition, occupied my mind.

“Damn, this is sweet!” Mundane, indeed, but the other was the “a-ha” moment my brain had been silently working out for the last hour.

“Holy shit,” I mouthed silently, “Nicaragua is full of a whole lot of nothing.” Sure, up north in the mountains they grow some mid-grade coffee. Tobacco growth is accelerating also. Why in the current anti-tobacco global climate I don’t know? But it is. Cassava is a major crop, it’s like a potato but tastes like a brown paper bag on a good day. True hunger makes much palatable, I suppose. Plantains and bananas are grown of course. And there are a handful of other root-like plants and squash-like plants that grow there also. The country imports most of its rice, but grows a lot of beans/legumes.

Later I shared this realization with my father who was as surprised as I was by the realization. He agreed. Of course, Dad and I think alike in many ways—father and son, best friends, traveled in 50 plus nations together—so we quickly developed a shorthand for my “whole lot of nothing” observation, calling it ‘low hanging fruit’ syndrome, LHF for short.

LHF came to signify the lack of economic development and general lack of entrepreneurial spirit in Central America. Now, not every nation on the planet is going to be entrepreneurial. Laos is an excellent example—and please this is not a criticism of Laos and Laotians. When I was there they just seemed to have other priorities, like Buddhism. But Nicaraguan’s? The Pinoleros—the preferred demonym of the Nicaraguans and it has not one whit of the pejorative to it—are natural, gifted hustlers, practically pure bred entrepreneurs who are imbued with a naturally prepossessing work ethic and quite a bit of chutzpah. In short: they know when to engage, when to toss out a bit of bullshit. They can sell with the best Wall Street sharks—I’d know—and they know how to make and keep money.

“Why then,” you ask, “is Nicaragua, the largest nation in Central America, making no economic progress and going backwards instead?”

Great question!

There are two reasons for Nicaragua’s penury. First, 90% of Nicaraguans live west of the Pacific slope or in the interior highlands. This population occupies only 38% of Nicaragua’s landmass. The remaining 10% of Nicaraguans live on a narrow strip of the Caribbean Coast or the Corn Islands. Almost two thirds of the country—62%— is uninhabited. Not that I am advocating the rapine of all the pristine tropical forest of the Caribbean lowlands, but far to little of it is being developed and far too many people occupy a very crowded Pacific slope. What is the cause of this underdevelopment? The Pacific slope is littered with LHF and to travel through the Caribbean Lowlands to the coast takes two days on very, very bad roads. Until there is significant infrastructure development that opens the lowlands to development Nicaragua will remain mired in LHF poverty.

Hurdles aside, development politics in Central and South Americ are undergoing a seismic shift. That’s good news for the Pinoleros, money is pouring in. It’s bad news for the USA because the cash is coming from China. As is China’s policy, the money comes with no strings attached, unlike American money with its persistent moral litany of “Do this, don’t do that!”

“Do as we say, not as we do!”

This is not what the Nicaraguans hear from China. The only real demand the Chinese make is on the bigger infrastructure projects. Chinese builders design it, and Chinese build it, hiring few, if any local workers—usually because they don’t have the skills. The Chinese also pay for it, mostly, and don’t lecture. The US can’t compete—not after 150 years of terrible behavior in Latin America. The conclusion, the only conclusion, one can come to in Nicaragua and many other Latin American nations is that the USA is losing influence and power to China. Big time. And fast.

We have a sustained current account deficit with Nicaragua of $1.9 billion. That means we consistently import more from them than we export. China is the reverse. Much of that is due to FDI (foreign direct investment). This investment doesn’t benefit China solely. At present China is building a huge new airport that’s primary goal is to displace the Avianca Hub in San Salvador as the go to airport in Central America. China funded it to the tune of $499 million. It will possess two 4,000 meter runways, long enough and large enough to accommodate Airbus A380 and other wide body jets. The airport is intended to act as a non-stop hub to Europe, Asia and all of South America. Ground has been broken and the expected operational date is sometime in 2028.

The Chinese are also going to help build out the road network to the Caribbean Coast. This will create many new opportunities. Ortega, for all his faults, brought about some serious land reform at the beginning of his rule, so the Caribbean lowlands are now open to just about anyone who has the gumption to settle them.

The decline in American power is as palpable now as it was during the COVID epidemic. The moment COVID was politicized I could literally sense our decline, it was so obvious. Now, under Trump II, the decline is accelerating. Even in our own backyard.

The jury is still out on whether it is rapidly relative decline or real decline. I think it is the latter, only time will tell. Just not enough time for my taste.

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Four Randon Econonic, Political, Geopolitical and Scientific Musings

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On September 15, 2025

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First economic: The US dollar is down 5% over the last six months against a basket of currencies. And over the past year, it’s lost 9.6%. The biggest winner against a dollar has been the euro which has gone up 13% however, which truly is a win for Europe because it makes their natural gas imports from the US less expensive. But their natural gas imports are still a poison chalice. Expect the dollar to continue its slide, perhaps precipitously at some point in the New Year.

There were large moves out of US equities in the spring confirming the adage “sell in May and go away.” What September will look like is anyone’s guess, especially as Israel is more than likely to start the second phase of its war against Iran? Or October—that worst of months for Wall Street? What happens if Iran closes the Straits of Hormuz and oil goes above 100 dollars a barrel? That would be great for oil producers, but it would be terrible for markets across the globe, even China, possibly leading to a worldwide recession, especially with Chinese growth being somewhere between 4% and 5% at present.

Regardless of what happens in September or October—both always being bad month’s economically for the US economy, America’s bond market and the value of the dollar will continue its downward trajectory because America’s lenders are now demanding gold for loans instead of treasuries. This smells to me like the beginning of the end of dollar hegemony.

It makes me wonder what kind of “store of value” the BRICS will adopt to support their currency? Will it be a basket of their currencies? Will it be backed by gold and petroleum? That would be truly hard-core, because it would mean we were in for a long era of tight money. Our entire lives, actually, the entire history has been based on easy money. And as you know money creation is only possible when using a fiat currency.

There are many ways to imagine what they’ll do. Maybe blockchain? Who really knows? But there are other commodities that do have a store value, silver among them, maybe even rare earths and others they could use. It certainly is an interesting time to live.

Second domestic political: Niall Ferguson in his interview by Charlie Rose posted a week ago on the Internet was asked about Trump‘s challenges of outright ignoring the constitution with the following question: are we the Roman Republic, is this or are we witnessing the collapse of the constitutional order like the Roman republic. Rose asks if Trump is Augustus. He clearly is not. I would say that Trump is more like Marius and the Kennedys were more like the brothers Gracchi. In fact, I made this argument on a graduate school paper that I got a very good grade on, but in which my professor seriously disagreed with my analogies. Regardless I would say that we are at the beginning of the end of our constitutional order, and that we are looking down the barrel of Caesarism. It’s on the way. Maybe two years, maybe four years but it’s coming. Will it be a general? Will it be a politician? Those are questions we simply can’t answer. But as Ian Welsh has consistently predicted America is heading for a collapse, be it constitutional or economic or both it’s gonna happen and there isn’t anything anyone of us can do about it. Besides, Ferguson, while whip-smart, is kind of a tool.

Third is about some weaknessess the SCO currently must contend with if they are to become the anti-NATO military block. Here they are in no particular order of importance: One, the nations that make up the SCO are too diverse and often times their interests do not align with everyone in the SCO. For example, China and India have serious border issues. Pakistan and India have serious issues in Kashmir. Those are just two examples of several potential conflicts between members of a block, supposedly to oppose NATO. The issues between Pakistan and India make the intra-NATO issues between Greece and Turkey look like a family arguement on Thanksgiving.

Second, as the former director general of Russian international affairs Council said in a recent interview, “ the mandate of the SCO is too general.” The SCO can focus on security, development, or terrorism. Not all three.

Third, China is by far the most powerful member of the SCO and that creates a dangerous asymmetry in the organization. Much like the United States dominated NATO for so long and skewed it’s purpose after the Cold War for its own unfathomable means.

Fourth: This essay on the relative merits of “Superradiance,”.  Is well worth the three minutes it will take to read, plus it is comprehensible to the layman. The essay describes Superradiance as “a collective quantum optical effect in which a group of emitters, such as atoms or molecules, emit light in a highly coherent and amplified manner.  In the context of mammalian neural systems, superradiance occurs when a group of neurons collectively emit photons, resulting in a stronger and more coherent signal compared to individual neuron emissions. This coordinated emission of photons across vast networks of microtubules within neurons could potentially achieve the long-range coherence necessary for the emergence of consciousness.”

The essay stands as a correction of sorts to Sir Roger Penrose’s “Orchestrated objective reduction (Orch OR)” theory of human consciousness, which Wikipedia describes thusly: Orch Or “is a controversial theory postulating that consciousness originates at the quantum level inside neurons (rather than being a product of neural connections).” In short, says Penrose, “Consciousness does not collapse the wave function; instead it is the collapse of the wave function that produces consciousness.”

One thing we do know is that consciouness is decidely not computational and most likely occurs in the quantum realm.

As you can tell, I dig this kind of stuff.

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Canada’s Future & The New Carney Government

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On April 29, 2025

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Mark Carney

Carney has won a minority government. He will have to govern with the support of the NDP. The NDP was slaughtered in this election, and there were a few ridings where people strategically voting for the Liberals actually led to the Conservatives winning. Iit’s worth pointing out that the Conservatives increased their seat count, which is why Poilievre is sticking around as leader, despite losing the election and his own seat. (A loyal MP will stand down and let him run in a by-election in a safe riding.)

The NDP lost their official party status in this election and their vote percentage was cut in about half by strategic voting. They need to bargain hard with Carney in exchange for support and be willing to walk away. The most important thing, for them and Canada, is to change the voting system. Proportional would be ideal, but it’s unlikely the Liberals would go for it. They would probably go for ranked ballots, assuming, probably correctly, that they’ll be the most common second choice.

But it would also benefit the NDP and make it less likely for radical conservatives of the current variety to get into power.

If I were the NDP, I’d go to the wall for this. There’s likely to be more polarized elections in the future, because the Conservatives remain a Trumpist style party and a lot of natural NDP voters will keep going Liberal to try and block them. If they want to get back up to near 20% of the vote, this is necessary.

Now as to Canada’s future: it’s going to depend on whether Carney can actually deliver. If he can make Canadians better off and win another election, Poilievre is toast and Trump style conservatism will be discredited in Canada. If he doesn’t deliver: if effective wages don’t rise and if rent and housing prices don’t go down, then Poilievre or his successor’s Conservative party WILL win the next election, just based on disgruntled voters.

Carney’s talked a fair bit of sense: doubling building housing, pivoting to new trade partners and creating vertically integrated industries within Canada. If he can pull it off, he’ll go down as one of Canada’s greatest Prime Ministers. But, at the end of the day, Carney is a neoliberal, and his impulse to always cut taxes on the rich and so on is going to hold him back.

He also needs a full term to pull it off. A lot of pain is coming down the pike and the next couple years will be ugly.

And that means he needs to keep the NDP happy. If they stop supporting him before he turns things around (assuming he can) he’s toast, and the Conservatives are in. So the NDP may as well force him to do some other things: pharmacare and universal dental, probably.

It’s going to be an interesting few years for everyone. Carney was right when he said:

America wants our land, our resources, our water, our country. But these are not idle threats. President Trump is trying to break us so that America can own us. That will never, that will never ever happen...

…

Our old relationship with the United States, a relationship based on steadily increasing integration, is over. The system of open global trade anchored by the United States, a system that Canada has relied on since the Second World War, a system that well not perfect has helped deliver prosperity for a country for decades, is over. 

But it’s also our new reality.

We are over the shock of the American betrayal, but we should never forget the lessons. We have to look out for ourselves and above all we have to take care of each other.

The old system is over. Carney’s problem is that he doesn’t see that for a ton of Canadians the old system hasn’t been delivering for a long time.

Every country in the world will have to adapt to the new economic landscape. Some will succeed, others like Britain, will fail. It remains to be seen if Canada is one which adapts well. What is certain is that if Poilievre gets in, he will usher in a new era even worse than the old neoliberal one. He will be prostrate before the US, will slash the civil service, healthcare and so on and will turbocharge the oligarchy.

So Carney’s it. He wouldn’t have been my first choice, but if he doesn’t pull it off, no one will.

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When Labour Opposes Rapid Technological Change

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On November 1, 2024

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So, I recently saw this:

our obsession with jobs might trap us – everything could look like healthcare, still using fax machines when email and text exists.

“sorry I know this is possible via AI but we have our manual spreadsheet guy, following regulation 1284”

Leaving aside the word “AI”, because it’s not clear how expansive the use case for current AI really is, there’s a point here and it’s an important one.

He’s exactly right about our obsession with jobs, but I’d state it a different way:

It’s our obsession with distributing resources through money gained by jobs. A pre-requisite of speedy technological adaptation is people knowing they won’t be hurt by it.

Recently we had the longshoreman’s strike. The issue that caused the strike is machines replacing workers. Longshoreman jobs are some of the few blue collar labor jobs that pay well. If the longshoremen lose them, most will never get a job again that pays as well.

But the issue isn’t the job. It’s the money. And the money is just a proxy for resources: housing, food, heat, cold, transport, medical, entertainment and so on. No money and your life is shit, and probably short. Not much money means misery in most cases.

Labor; which is to say the proletariat, people who have to sell their labor to survive, embrace technological change when it benefits them, when it doesn’t hurt them, or when they have no choice.

During the industrial revolution people were forced off the land thru enclosure. They worked in factories 12 hours a day, for 6 1/2 days a week because they had no choice.

After WWII in America, people flooded off the farms into the cities and suburbs because jobs that provided a better standard of living for less work were abundant.

(This blog is for understanding the present, making educated guesses at the future, and telling truths, usually unpleasant ones. There aren’t a lot of places like this left on the Web. Every year I fundraise to keep it going. If you’d like to help, and can afford to, please Subscribe or Donate.)

This lesson goes far beyond workers. No one wants change that hurts them. One of the main factors stalling industrialization in most countries was that most land couldn’t be bought: it was controlled by nobles or the Crown and they didn’t sell land if they could help it. The land was the basis of their wealth and power. Until they either perceived otherwise or they lacked the power to keep their land, they wouldn’t sell. (The game Victoria III, while not a very good game, is great for modeling this. Play Japan or Dai Viet and you will FEEL this: sheer hate of reactionary landowners holding you back.)

There was also the issue of money: for most of the Dark Ages and Middle Ages you couldn’t borrow large amounts of money, in part because the Church was against lending at interest and the Church was powerful. (There were other reasons, Economists include them in their hand waving of “primitive accumulation of capital” which is why sociologists, anthropologists and historians have written most of the important literature in the area.)

If you want change, whether technological or social, you either have to get people to be OK with it (for it, or not mind) or you need to remove their power to resist.

It is that simple.

 

Austerity, Demand and Reindustrialization

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On October 24, 2024

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This blog is for understanding the present, making educated guesses at the future, and telling truths, usually unpleasant ones. There aren’t a lot of places like this left on the Web. Every year I fundraise to keep it going. If you’d like to help, and can afford to, please Subscribe or Donate.

So, it’s clear from the response to my last post that some readers aren’t familiar with the effects of austerity on balance of payments and vice-versa. Balance of payments is, oversimplified, how much money is going in and out of a country.

When money goes into a domestic economy, if it is used to buy something that is imported, that effects balance of payments negatively.

If you’re selling more than you buy, which can mean services as well as good, then that helps balance of payments. It also includes financial games: so if people are sending money to the London financial center, well, that improves BoP. London’s the world’s second largest financial center, after New York.

Now here’s the thing. Britain doesn’t grow enough food to feed its population. It doesn’t have a lot of industry left. North Sea oil is depleting, to the point that Britain became a net importer of oil in 2013. (Take a look at that chart.)

When the government spends money it isn’t magically siloed from causing import demand. The government cut back on heating subsidies, for example, and limited child support payments to two children. Without that money, oil and other demand is not as high as it would be otherwise.

Indeed, nothing is really siloed. If the government spends, almost always some of that money is going to go overseas and spike imports.

Britain controls its own printing press. It can print as many pounds as it wants, but it can’t make people in other countries take the money. The more they print, the less the pound will be worth, and the more inflation there will be because the dropping pound will increase prices of imported goods.

The pound is not the world trading currency any more. It hasn’t been since WWII. It can’t print pounds the way the US can print dollars and expect everyone to just take them.

Austerity is, in many ways, cruel and stupid, but if Britain (or Canada, or Australia, or even Europe) is to print money without it causing serious economic issues and to actually reindustrialize, it has to be done intelligently, along with serious industrial and domestic economic policy. (Currently tons is printed, but siloed to the rich, which keeps general demand from exploding but destroys markets’ ability to function properly.)

Now the thing is that Britain is a high cost of living economy: food and housing are expensive. Very expensive. Workers need to be paid well to survive, and that makes Britain un-competitive against lower cost (or higher productivity) countries.

If you wanted to make Britain competitive again, you’d have to crash housing and rent, to start. You can imagine how politically fraught that is: people who have high net worth due to real estate aren’t going to like it.

Then there’s the issue of the City, the financial center. Financial center profits are HIGH. That’s a problem, because people would rather put money into finance than into industry or farming or whatever since returns are better. Finance cannibalizes the rest of the economy. So you have to weaken the city and silo it, and probably tax it a lot. That’s hard to do, because the City has a lot of power, and there’s a real issue because it does, actually, bring a lot of money in to Britain, it’s just that money doesn’t get spread around.

When you industrialize, or re-industrialize, you have to make sure that money in the domestic market buys domestic goods, doesn’t buy a lot of foreign goods, and is used primarily on industrialization: capital goods, primarily. It’s unpleasant, it means a lot of goods (imported goods) aren’t available or are very expensive. Your new industry, ideally, either serves the domestic market, or is good for export, or both.

Austerity doesn’t exist just because governments are run by stupid psychopaths (though that’s part of it), it exists because of very real constraints caused by a need to send more money out of the country than is coming in to the country. In the seventies the UK was in so much trouble it had to actually go to the IMF for help, and join the EU so Europe would help it bail out.

Now, again, there are ways around this, but they require taking on powerful interests and hurting a big chunk of the population, especially in the short to medium term (about twenty years or so.) It means, as much as possible, making do with what you can produce yourself, and when you can’t, going cheap. No foreign fresh fruit imports, except the cheapest (hope you like bananas.) Cheap phones and appliances. Etc…

It also means ending all sorts of stupid financial games: no more Private Equity. No stock buybacks. No huge stock option grants. You want money reinvested. Currency controls so money doesn’t flood out. Possibly a dual currency.

All of this is painful. But if you don’t do it, decline inevitably continues and eventually you’re back to being a third world country.

Austerity is a pressure bandage on a wound that still won’t stop bleeding. It slows down the decline, but it doesn’t heal the wound.

Update: Just for kicks, here’s Germany’s BOP:

And China:

The “China Cycle” Is Mostly A Thing Of the Past

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On September 9, 2024

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So, this was true once:

The Chinese learned a lot from Western Joint Ventures, and I remember talking to a consultant back in the early 2000’s about tech transfer. He said it was very clear: you got into the Chinese market and/or used their lower cost production and what they got in exchange was tech transfer. This isn’t some evil conspiracy, back in the 80s when the US fell behind on cars they basically forced Japanese car companies to set up factories in the US, and yeah, there was transfer of knowledge to American companies.

Now, for the West, what Western companies and the West in general got in return for their tech was not worth the cost: it was stupid and short-sighted, but companies were lining up to do it and economists and business gurus and politicians in the West were for it: the only thing that mattered was making more short to mid-term profits and all sorts of nonsense about it not mattering where goods were produced was espoused by very important intellectuals and officials. There was no attention to the long term cost in terms of loss of technological lead and moving the industrial base to China. I know: I was one of the voices warning, publicly, to stop taking short term profits by selling China our future.

But at this point it’s no longer accurate. Chinese car companies are more advanced than Tesla: they have better batteries, better HUDS, better auto-pilots and they also have faster product cycles.

Again, in most fields the Chinese are now more advanced than the West: the remains are important but in a minority—things like lithography and aerospace, but they’ll catch up in both in time and for Aerospace I’d already buy a jet-liner from China before Boeing, and Boeing’s problems have nothing to do with China. Airbus is still clearly better, but it won’t be in twenty years, and possibly not even in ten.

The West was 100% complicit in the “China Cycle”, but that cycle is almost entirely over and China is now just straight up more advanced and out-competing us.

The West made this choice. We could have maintained our tech lead for another fifty years or so if we wanted to and followed the necessary policies. We didn’t, and to expect China to not use the same methods every other major country used to industrialize is insane. Every accusation made in the “China Cycle” is something the US did to Britain back in the 19th century.

Perhaps China could have industrialized without it being disastrous for the West, but not under any sort of laissez-faire or neoliberal international trade regime.

If you’re young, learn Mandarin. Maybe even if you’re not young.

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China’s Rise Is Normal

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On June 17, 2024

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China used trade protection and cheap wages & grabbed industry from the leading industrial power exactly the same as the US did with Britain.

 

The tech/science lead follows the manufacturing floor, with some delay, this was, again, the same with Britain & the USA.

The dynamics of industrialization are well understood at this point. The first books to read are “Bad Samaritans” and “Wealth and Democracy”.

Unlike Japan or South Korea, China has a larger population than America (same as America vs. Britain) and is has a large land mass and plenty of resources. In fact, it has slightly more land area than America.

Initial industrialization in England is an interesting story and still hotly debated. Later industrialization waves are mostly all the same. (The USSR is an exception, as are city states.)

Big leaps, as opposed to adaptations of existing models almost always come from states in hot competition, and among them the peripheral states usually win (Britain, for example, is peripheral to Europe.) The biggest tech surges in Chinese history came during warring states periods.

I’m very impressed by China’s rise and the West’s sheer incompetence in enabling it, but it’s not a huge leap the way the industrial revolution was. It’s just an extension of a previously existing model.

Japan’s rise was more impressive than China’s, as the first non-European nation to pull it off. But as an island nation with limited population, they were sharply limited. They made 2 runs at the US, one a war, one industrial, and neither let them become the foremost power.

The West was very good at keeping everyone but client states from industrializing. Even Japan needed British aid (the first time), then America’s (the second time.) But the West got stupid under neoliberal “end of history” ideology & let China run the playbook, thinking it wouldn’t challenge the West. Oops.

Americans probably should have learned from the Western experience with Japan. The British enabled Japan’s rise only to have Japan attack British possessions. Without American aid, that loss would have been permanent. But China is a continental power w/a massive population. The stupid was epic.

A radical change in economic model hasn’t happened yet, and seems unlikely to before ecological and economic collapse puts an end to the viability of the current model. Looking at Chinese cities with the 7 lane highways is instructive. It’s just a better version of the same old

A complete change of the permission system will be necessary for radical economic change. No one in power, whether in the West or China, wants that or can even imagine it.

Who knows, radical economic change might happen in China when collapse really starts biting. After all, they have the manufacturing base. But usually it happens at a periphery or in a tight area with multiple competing states.

This stuff is fairly well understood. However it’s not economists who put the pieces together, it’s sociologist and historians and even some anthropologists. Economists have done more damage to the West than astrologers did to Chinese dynasties. MBA factories get an honorary mention. (They mostly weaponized economic theories, as when they noticed economic theory saying that high profits come from not competing.)

One of the most instructive trends right now is watching so many people screaming about population collapse, when what the world actually needs is a lower population. (We could have avoided that necessity, but the window is closed. Sometimes you have to act at the right time.)

All people who yell about lower birth rates can imagine is economic growth through population expansion. Anyone who thinks that way can’t create a new economic model, they’re stuck in the old one. (Elon Musk is a good example.)

People who can’t even understand population overshoot are incapable of the thinking required to deal with the world’s actual problems.

We’ll talk about permission systems at a later date. As noted, they’re key.

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