Category: Economics Page 13 of 89

Thinking Out Ukraine Sanctions

On March 7, 2022

Question:

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 #1 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:

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.
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.
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 #1. 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.

Ukraine and the Coming Inflation

On March 3, 2022

Brief post. Articles about inflation have been coming out, and they’re right, inflation is going to get a lot worse because of the sanctions on Russia, especially when Russia retaliates. If you can afford to stock up now, do. If you want big ticket items other than, perhaps real-estate, you should buy now. If you have a business which needs certain key goods or processed items, buy what you can now.

Russa isn’t really an industrial power, except for arms, but it provides not just energy but an array of minerals that are key to industrial production. While there will be workarounds to sanctions, you should still expect this to hit costs. Russia is also the largest exporter of wheat in the world, with Ukraine as #2, and you can expect food prices in general to keep rising.

Further, it’s hard to say how attempts at enforcing sanctions with China (who will resist), and perhaps with India and other countries, will cause unpredictable inflation spikes in other products.

As for real-estate, the affect is hard to entirely predict. So far, the British have resisted urging to truly sanction Russian money (because it would collapse London real-estate and hurt the City badly), but we’ll see if that continues. Whatever the case, a lot of Europe may be subject to real-estate price reductions due to sanctions, and this might be true in New York. I lack enough expertise to be sure, you should look into it if it concerns you.

Then there is the issue of Chinese money. China won’t be subject to serious sanctions yet, the West can’t afford it. However, the Chinese themselves may be wary of future sanctions, seeing them coming and that may dry up some of their massive foreign investment. Others might increase their investment and seek second passports, so they can flee when the time comes, but I think that’s less likely to be massive than it would have been pre-Covid. Whatever the advantages of living in the West, they are outweighed by, “won’t control the plague” for most, especially older Chinese who control most of the money.

All of this is complicated by the fact that the real-estate market is changing, structurally. Covid was used by private equity and other institutional investors to snap up real-estate, including single family homes and other types that traditionally have not been institutionally controlled. If there is a drop in demand, they will simply hold as much off the market as necessary to adjust supply and demand and allow them to over-charge. Their real risk is financing, but even as the Fed increases interest rates, it will continue special operations to give the rich and large corporations essentially free loans and money, so I don’t think they’ll actually be paying market rates. (We need an article on how this sort of action vastly increases the odds of collapse, and I’ll try to get to it soon.)

Times are going to get worse, not so much because of the Ukraine invasion, but because of its fallout. By itself, it would have changed as much as the Iraq war did (some important things, yes), but because it is being treated as existential and a cause for massive economic war, even centrists have realized that it is the “End of the End of History” (which, of course, never ended).

Welcome back to history and to interesting times.

The China Trap

On March 2, 2022

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.

The Decline and Fall of Post-war Liberalism and the Rise of Neoliberalism

On February 10, 2022

In the Anglo-US world, post-war liberalism has been on the defensive since the 1970s. This is normally shown through various wage or wealth graphs, but I’m going to show two graphs of a different nature. The first, to the right, is the number of strikes involving more than 1K workers. Fascinating, eh?

The second, below and to your left, is the incarceration rate. It isn’t adjusted for population increases, but even if it was, the picture wouldn’t change significantly.

This is the change caused by the Reagan revolution in the US, which, as is the case with most revolutions, started before its flagship personality.

(Article re-published as it’s important and a lot of current readers won’t have seen it.)

Graph of incarceration in the US over time

From Wikipedia

I was born in 1968. I remember the 70s, albeit from a child’s perspective. They were very different from today. My overwhelming impression is that people were more relaxed and having a lot more fun. They were also far more open. The omnipresent security personnel, the constant ID checks, and so forth, did not exist. Those came in to force, in Canada, in the early 1990s. As a bike courier in Ottawa, I would regularly walk around government offices to deliver packages. A few, like the Department of National Defense and Foreign Affairs, would make us call up or make us deliver to the mail room, but in most cases I’d just go up to the recipient’s office. Virtually all corporate offices were open, gated only by a receptionist. Even the higher security places were freer. I used to walk through Defense headquarters virtually every day, as they connected two bridges with a heated pedestrian walkway. That walkway closed in the Gulf War and has never, so far as I know, re-opened.

I also walked freely through Parliament Hill, un-escorted, with no ID check to get in.

This may seem like a sideline, but it isn’t. The post-war liberal state was fundamentally different from the one we have today. It was open. The bureaucrats and the politicians and even the important private citizens were not nearly as cut off from ordinary people as they are today. As a bike courier, I interrupted senior meetings of Assistant Deputy Ministers with deliveries. I walked right in. (They were very gracious — in every case.)

The post-war liberal state involved multiple sectors, in conflict, but in agreement about that conflict. Strikes were allowed, they were expected, and unions were considered to have their part to play. It was understood that workers had a right to fight for their part of the pie. Capitalism, liberal capitalism, meant collective action because only groups of ordinary workers can win their share of productivity increases.

productivity and wages

Which leads us to our second chart. The moment you lock up everyone who causes trouble (usually for non-violent, non-compliance with drug laws), the moment you crack down on strikes, ordinary people don’t get their share of productivity increases. It’s really just that simple.

This is all of a piece. The closing off of politicians and bureaucrats from public contact, the soaring CEO and executive salaries which allow them to live without seeing anyone who isn’t part of their class or a servitor, the locking up of people who don’t obey laws that make no sense (and drug laws are almost always stupid laws), the crushing of unions, which are a way to give unfettered feedback to politicians and our corporate masters, are all about allowing them to take the lion’s share of the meat of economic gains and leave the scraps for everyone else.

But why did the liberal state fail? Why did this come about? Let’s highlight three reasons: (1) the rise of the disconnected technocrat; (2) the failure to handle the oil crisis, and; (3) the aging of the liberal generations.

The rise of the disconnected technocrat has been discussed often, generally with respect to the Vietnam war. The “best and the brightest” had all the numbers, managed the war, and lost it. They did so because they mistook the numbers for reality and lost control. The numbers they had were managed up, by the people on the ground. They were fake. The kill counts coming out of Vietnam, for example, were completely fake and inflated. Having never worked on the ground, having not “worked their way up from the mail room,” having not served in the military themselves, disconnected technocrats didn’t realize how badly they were being played. They could not call bullshit. This is a version of the same problem which saw the Soviet Politburo lose control over production in the USSR.

The second, specific failure was the inability to manage the oil shocks and the rise of OPEC. As a child in the 1970s, I saw the price of chocolate bars go from 25c to a dollar in a few years. The same thing happened to comic books. The same thing happened to everything. The post-war liberal state was built on cheap oil and the loss of it cascaded through the economy. This is related to the Vietnam war. As with the Iraq war in the 2000s, there was an opportunity cost to war. Attention was on an essentially meaningless war in SE Asia while the important events were occurring in the Middle East. The cost, the financial cost of the war, should have been spent instead on transitioning the economy to a more efficient one — to a “super-analog” world. All the techs were not in place, but enough were there, so that, with temporizing and research starting in the late 1960s, the transition could have been made.

Instead, the attempt was left too late, at which point the liberal state had lost most of its legitimacy. Carter tried, but was a bad politician and not trusted sufficiently. Nor did he truly believe in, or understand, liberalism, which is why Kennedy ran against him in 1980.

But Kennedy didn’t win and neither did Carter. Reagan did. And what Reagan bet was that new oil resources would come online soon enough to bail him out. He was right. They did and the moment faded. Paul Volcker, as Fed Chairman, appointed by Carter, crushed inflation by crushing wages, but once inflation was crushed and he wanted to give workers their share of the new economy, he was purged and “the Maestro,” Alan Greenspan, was put in charge. Under Greenspan, the Fed treated so-called wage push inflation as the most important form of inflation.

Greenspan’s tenure as Fed chairman can be summed up as follows: Crush wage gains that are faster than inflation and make sure the stock market keeps rising no matter what (the Greenspan Put). Any time the market would falter, Greenspan would be there with cheap money. Any time workers looked like they might get their share of productivity gains, Greenspan would crush the economy. This wasn’t just so the rich could get richer, it was to keep commodity inflation under control, as workers would then spend their wages on activities and items which increased oil consumption.

The third reason for the failure of liberalism was the aging of the liberal generation. Last year, I read Chief Justice Robert Jackson’s brief biography of FDR (which you should read). At the end of the book are brief biographies of main New Deal figures other than Roosevelt. Reading them, I was struck by how many were dying in the 1970s. The great lions who created modern liberalism, who created the New Deal, who understood the moving parts were dead or old. They had not created successors who understood their system, who understood how the economy and the politics of the economy worked, or even who understood how to do rationing properly during a changeover to the new economy.

The hard-core of the liberal coalition, the people who were adults in the Great Depression, who felt in their bones that you had to be fair to the poor, because without the grace of God there go you, were old and dying. The suburban part of the GI generation was willing to betray liberalism to keep suburbia; it was their version of the good life, for which everything else must be sacrificed. And sacrificed it was, and has been, because suburbia, as it is currently constituted, cannot survive high oil prices without draining the rest of society dry.

Reagan offered a way out, a way that didn’t involve obvious sacrifice. He attacked a liberal establishment which had not handled high oil prices, which had lost the Vietnam war, and which had alienated its core southern supporters by giving Blacks rights.

And he delivered, after a fashion. The economy did improve, many people did well, and inflation was brought under control (granted, it would have been if Carter had his second term, but people don’t think like that). The people who already had good jobs were generally okay, especially if they were older. If you were in your 40s or 50s when Reagan took charge in 1980, it was a good bet that you’d be dead before the bill really came due. You would win the death bet.

Liberalism failed because it couldn’t handle the war and crisis of the late 60s and 70s. The people who could have helped were dead or too old. They had not properly trained successors; those successors were paying attention to the wrong problem and had become disconnected from the reality on the ground. And the New Deal coalition was fracturing, more interested in hating blacks or keeping the “good” suburban lifestyle than in making sure that a rising tide lifted all boats (a prescriptive, not descriptive, statement).

There are those who say liberalism is dying now. That’s true, sort of, in Europe, ex-Britain. The social-democratic European state is being dismantled. The EU is turning, frankly, tyrannical, and the Euro is being used as a tool to extract value from peripheral nations by the core nations. But in the Anglo-American world, liberalism was already dead, with the few great spars like Glass-Steagall, defined benefit pensions, SS, Medicare, welfare, and so on, under constant assault.

Europe was cushioned from what happened to the US by high density and a different political culture. The oil shocks hit them hard, but as they were without significant suburbia, without sprawl, it hit them tolerably. They were able to maintain the social-democratic state. They are now losing it, not because they must, but because their elites want it. Every part of the social-democratic state is something which could be privatized to make money for your lords and masters, or it can be gotten rid of if no money can be made from it and the money once spent on it can be redirected towards elite priorities.

Liberalism died and is dying because liberals aren’t really liberal, and when they are, they can’t do anything about it.

None of this means that modern conservatism (which is far different from the conservatism of my childhood) is a success if one cares about mass well-being. It isn’t. But it is a success in the sense that it has done what its lords and masters wanted —- it has transferred wealth, income, and power to them. It is self-sustaining, in the sense that it transfers power to those who want it to continue. It builds and strengthens its own coalition.

Any political coalition, any ideology behind a political coalition, must do this: It must build and strengthen support. It must have people who know that, if it continues, they will do well, and that if it doesn’t, they won’t. Liberalism failed to make that case to Southerners, who doubled down on cheap factory jobs and racism, as well as to suburbanite GI Generation types, who wanted to keep the value of their homes and knew they couldn’t if oil prices and inflation weren’t controlled. Their perceived interests no longer aligned with liberalism and so they left the coalition.

We can have a new form of liberalism (or whatever we wish to call it) when we understand why the old form failed and can articulate the conditions for our new form’s success. Maybe more on that another time.

Published April 11, 2015, published back in the ’00s too, but I don’t remember when. Republishing doesn’t send out to lists, so I’m doing it as new piece. The original and comments can also be viewed.

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Democracy Cannot Survive Hegemonic Capitalism

On February 8, 2022

The history of capitalism and democracy shows that we need to choose one or the other. The problem is that capitalism concentrates power in the hands of a few people who aren’t chosen through democratic means. Capitalism requires those people to pursue unlimited profit, because those who don’t lose their power to those who do.

When they have that power, they then buy government, because government is both the main threat to them, and the force which by which, through use of law and means like central banks bailing them out, they can keep themselves obscenely rich — even when markets would otherwise cause them to lose their money and thus their power.

The history from the Great Depression onwards is instructive. Capitalism caused a huge, nearly worldwide, depression. Government did not bail them out, and so they lost their power. FDR came to power, and more or less following Keynes’s prescriptions, he bailed them out. He and the people working with him put in place multiple protections to make sure that capitalism couldn’t cause such a crisis again.

Capitalists hated him for it. He had rescued them, but with the cost of 90 percent top marginal tax rates, huge estate taxes, regulation and aggressive anti-trust laws. Upon his death (little could be done while he was alive, as he was so popular), they immediately started attacking all the protections he had put in place. It took them decades, but they stuck to it, and after all, even in their reduced state, they were still powerful and could afford to pay people to spend their lives working against the New Deal.

The foremost intellectual servant of these men was Milton Friedman, but many, many labored in this cause. They built a political, economic, and intellectual infrastructure and waited for their opportunity. With the oil crises, inflation, and unemployment of the 70s, they had their chance. They made sure that an egalitarian model for dealing with the crisis wouldn’t work, and they got Thatcher and Reagan elected. Then, they dismantled the New Deal and all the protections against another economic catastrophe like the Great Depression.

This allowed them to vastly consolidate wealth, pushing power into the hands of fewer and fewer people. Antitrust law was gutted, unions cut to ribbons, and regulations which protected against them were destroyed, while new ones were put in place to ensure the concentration of wealth and power.

A small example of this was given to me by an accountant, who in the 70s used to do the taxes for Indian bands. When Reagan took over, the regulations were changed so that only large companies were allowed in the business and he was frozen out. This sort of thing happened everywhere, and, indeed, continues to this day.

But, alas, the capitalists weren’t stupid, and they knew that market concentration and removal of protections against bubbles meant that one day there might be another great crisis.

So they bought up economics lock, stock and barrel and paid economists like Bernanke to figure out how to make sure they’d never lose their wealth (and thus power) in a great market collapse again. Bernanke’s academic ouvre was described to me by Stirling Newberry, back around 2005, as “how to make sure another 1929 doesn’t lead to another FDR.”

They got him into the Federal Reserve, and people like him into other central banks, and when the Financial crisis of 2007/8 happened, the Fed bailed out the rich. Without the Federal Reserve, most of them would have lost everything, but the Fed alone effectively printed and gave them 20 trillion dollars, accepted their worthless securities at near face value for loans, and so on.

Meanwhile, largely under Obama, the crimes they had committed (and there was fraud all the way down, I doubt a single senior executive on Wall Street hadn’t engaged in red-letter fraud), were forgiven in exchange for fines that were less than the amount of money they had individual earned.

Power and money consolidated even further, and the “another-FDR moment” was avoided.

Since then, they have seized further and further control and increased their wealth and power even more. Citizen’s United, which allowed unlimited money into elections was probably the red line moment, but really, once the full-faith and money-printing ability of government was behind the rich, ensuring they could never lose power as a class, it was over.

The important thing to understand is that this structural. If capitalism is hegemonic (that is, dictates how most economic decisions are made and how power is parceled out), then this pattern repeats. FDR made the best effort in the history of capitalism to stop it form happening again, and he failed, buying only a few decades of relative egalitarianism and control of democratically-elected government over business rather than business over government.

There can be no peace between democracy and capitalism. They are in direct opposition to each other. Democracy requires egalitarianism to work, and capitalism requires money and power to be concentrated in a few hands.

We can have democracy, or we can have capitalism and we need to stop pretending that democracy can control capitalism sufficiently to stop it from doing vast damage. Indeed, the terrible timing of having capitalists take over democracy in the core industrial nations just as action on climate change and ecological collapse became necessary will cause billions of lives, and wipe out about half of all known species on Earth.

Because democracy also failed, democracy is now on the firing line. As things get worse (and they will get MUCH worse), every political arrangement and ideology which failed to deal with climate and ecology will be discredited.

Either democracy blames capitalism and kills capitalism, finding a new way to organize the economy, or democracy is likely to die with capitalism. And it will deserve to do so.

Work & School Are Fundamentally Awful for Most People

On February 2, 2022

During the first year of the pandemic, there was a great deal of squealing about suicide. Turns out the squealers, as usual, were exactly wrong.

I have a friendly acquaintance who quit his job to teach the Alexander Technique online. He had a good paying consultant gig. First, for a month, he basically collapsed. Nine months later, he looks like a different person.

I just came across an older video of mine while I was still at work: I look tired and stressed, my face is showing some kind of burden

contrast this to the podcast I did with @tasshinfogleman yesterday…

this is absolutely wild to be able to see looking back

cc @visakanv pic.twitter.com/NMjTdlPet1

— Michael Ashcroft (@m_ashcroft) October 20, 2021

Daily life in our societies is essentially slavery. We spend most of the day doing what we are told, when we are told — things we would never do if we didn’t need the money, because without it we would wind up on the street.

For children, it is little different: School is training for work. Sit down, speak only when given permission, do what your’re told, the way you’re told to do it. Don’t even use the bathroom without permission.

Once the school or work day is over, we have a few hours, mostly, to do things like eat, wash, commute, and take care of family members — with perhaps a few hours of entertainment, usually something passive.

If we’re lucky, we get two days off a week, one of which most people spend on chores.

Our entire lives are oriented around doing what our masters tell us, when they tell us, in the way they want, and, if we refuse (unless we were born rich or are very lucky), we suffer.

So it’s no surprise that when we got a good period off from work or school, suicide rates dropped EVEN during a pandemic.

There was a plague, but people were still less likely to kill themselves than during ordinary work periods.

Wage slavery and school are just a description of everyday life for most people and almost any break from it, even due to a plague, is a relief.

I particularly find ridiculous all the adults who seem to have forgotten how happy most children were when school ended and summer break happened. School was and is, for most people, a lot less pleasant than “no school.” Not because of the subject matter learning (what little there is), but because the real teaching at school isn’t centered on subject matter, it’s centered on “how to be a good little slave so you’ll slave well for the bosses in the future.”

The Psychological Difficulty of Radicalization

On January 25, 2022

“Radical” is a slur word in most of our discourse. “A radical” is someone who thinks society needs truly fundamental changes. If you are a democrat in a monarchy or a one-party state, you’re a radical. If you believe in equal rights in a state with rights based on rank, you’re a radical. If you believe in fascism in a democratic state, you are also a radical, and if you want to go back to women not having the vote and blacks only being able to vote in theory, you’re a radical, though we tend to call that style of radical a reactionary or sometimes a Republican.

Another kind of radical, perhaps the most common in our society, though still rare, is the type that believes that capitalism has to go away; that fundamental economic relationships shouldn’t be determined through markets controlled by capitalists. (You can be for markets, and against capitalism, weirdly, though it’s rare.)

It’s clear our societies have failed. We pretend they haven’t because the final collapse hasn’t happened, but that’s like saying that the Titanic hadn’t sunk after it hit the iceberg. Technically true, but believing it will get you hurt, bad. Might be good if other people believe it, though, while you sprint for the lifeboats.

The argument for this is tedious, and I’ve made it many times so I won’t bother here.

In the face of a failed society, trust in leaders is insane. Crazed. They’ve obviously run society off a cliff, and they either are okay with that or are incompetent, or both. (And the smart ones are selling you the line that everything is okay while they sprint for the lifeboats: a.k.a., New Zealand.)

For over ten years now I’ve been telling Americans to get out. Oh, it’s not that the US is the only developed nation heading for failed state status — for all intents and purposes there are no exceptions, not even Sainted New Zealand, but the US is one of the leaders in the failed-state race (Britain’s another), and I have a lot of American readers. If you’re going to have everything go sideways into a propeller, better later than sooner.

But most Americans won’t or can’t get out, and Musk and Bezo’s dreams of escape to space aren’t going to happen for humanity en-masse, not in time.

We’re all in a big ship, and it’s going down. Some areas are already underwater, others will be soon, and the entire thing is going to sink.

And we have no lifeboats. We could, perhaps, have built some, if we’d started 30 to 40 years ago with massive investments, but we didn’t, and if our leaders were that able, they’d have been able to save the ship, since that’s when they had to act.

But this article isn’t about how “we are fucked,” it’s about how “too many of us refuse to admit it and that it means we need radical change.”

And one of the big reasons for this is the need for “Daddy.” One of the big hurdles preventing radicalization is that becoming radicalized means you realize you can’t trust your leaders at all. That they have fucked up, betrayed you, or both. That they are bad, evil people who not only aren’t acting in your best interest, but are your enemies.

I’ve been pounding this issue for a couple years, and some regular readers are probably sick of it. I am.

But it matters. If you don’t accept, psychologically and intellectually, who your enemies are, you can’t protect yourself from them. If you don’t accept, psychologically and intellectually, that your leaders are your enemies, you can’t properly take action on your own, with friends, family, and other groups — because at some level, you’re still thinking that government or corporations will come through and take care of things.

All your life, government and corporations have taken care of you. They’ve often been abusive parents, but they have made sure there’s food available to buy, streets to walk and drive on, laws, jobs, etc, etc. They run almost everything and you’re dependent on them for almost everything just like you were dependent on your parents and teachers when you were a child.

Bad parents still feed and house you. They’re monsters, but monsters who kept you alive. Children love their abusive parents even as they fear and hate them, and the same screwed up psychology pertains to business and government leaders, and those they lead.

An entire life’s conditioning works against radicalization in anyone for whom the system has even slightly worked.

But the fact of the matter is that if we want to handle climate change, environmental collapse, or any of our other problems (“handle” doesn’t mean “stop,” but many problems are essentially trivial, and could be fixed any time our leadership wants to, like health care or spam calls), that means we need radical change. We need to change our system completely, and we need to get rid of our entire current leadership class, all of whom have proved their incompetence and ill will.

That’s radical. That’s a leap.

And that’s hard.

But acknowledging that there will be no real help from above until radical change happens is necessary, for the world, and if we can’t change them before they defenestrate themselves after trying to shove us all out the window first, to protect and care for yourselves in the face of a malign government and corporate class.

Corporate and government daddies and mommies aren’t going to save you. They’re the ones hurting you. They’re the ones making your life hell and destroying your world.

Accept that at your core.