Wednesday, May 20, 2020

Why I Don't Fear Chinese Hegemony

As Chinese economic power continues to grow, more people are talking about the threat of Chinese hegemony. I think the fears are overblown. China has neither the means nor the will to dominate the globe, and China is already facing a lot of the same long-term problems that are now afflicting the United States.
If you follow a doctrinaire conservative website like The Federalist, you’ll notice that Red China is a regularly-appearing villain, taking turns alongside congressional Democrats, climate activists, the transgender movement, Planned Parenthood, teachers unions, Muslims, and the leftist media as the daily object of contempt.

Some of China’s villainies are genuine – i.e. the bad treatment of the Uighur Turks. Some are clickbait – for instance, just yesterday The Federalist ran an article entitled “How A Chinese Space Experiment Almost Caused A Massacre In The United States,” in which the uncontrolled deorbit of an empty rocket, which actually ended up hitting the Ivory Coast, was trumped up into a reckless attack on American lives. Is this sort of thing routine for countries with a space program? Yes. Did the American Skylab station do the same thing in Australia? Again, yes. Has space debris ever actually killed anyone? No. Will any of this get in the way of a good headline? Again, no.

Then there are the China stories which you have to really think about – for instance, is China to blame for the Coronavirus? Well, the authorities there did cover it up for the first month or so, but once they realized what a big deal it was, they were pretty tough on it. This mixture of competence and lackadaisicality is pretty standard for government response to crisis, and I don’t think that western countries like the US or Italy are in a position to complain.

What about China being a currency manipulator and running up a trade surplus with the US that puts American laborers out of work? Again, you have to remember that China is not the only actor here. Nobody is forcing the US to consume more goods than it produces. In fact, it would be impossible for us to even have a trade deficit without the huge amounts of fiat money and government debt that we export in lieu of actual goods or services.

America keeps doing this because our own industrial plant is so badly decayed that we couldn’t maintain a first-world standard or living without cheap imported goods. Do the workers whose role has been taken over by the Fed’s printing press get to share in that standard of living? No, they don’t, but then again, the lower classes have never had much of a say in monetary policy.

What is the Chinese’ role in all this? It is simple: they are lending us the money to buy their own products. It isn’t something that’s going to work out well for China in the long term. We certainly aren't being bested us in any kind of ‘trade war.’

So what is my point here? Well, the overarching theme is that China doesn’t have all that much influence on the United States. Currently, we are Top Nation – and the uncomfortable thing about being Top Nation is that you don’t get to blame anyone else for your problems: conditions in America are what they are because Americans in positions of wealth and power have decided that those conditions are acceptable.

For example, we have a big trade deficit because the financial interests that control the supply of dollars have both the desire and the power to fund that deficit.

Needless to say, they won’t have that power forever. China is already ahead of us in population and (real) domestic product. One of these days, China will be ahead in trade and military power as well. When this happens, the Yuan will probably replace the dollar as the preferred international currency. After all, somebody has to be Top Nation.

But China will start its era of dominance in a weaker position than the United States ever was. Owning all that bad American debt will take a bite out of the Chinese economy. Furthermore, China’s present-day oil reserves are about three-quarters the size of America’s – which on a per capita basis is a mere 17 percent as much oil. While the need for foreign energy is going to be an incentive to develop hegemony (it certainly was for the US) its also going to make it a lot harder for China to have the sort of sustained economic boom that launched America to the top of the global order in the first three decades after World War II.

Then you have to look at the Chinese military. The Chinese have not fought a war since the 1970s, when they had some skirmishes with Vietnam. Nor do they seem to have much interest in changing that. They have chosen not involve themselves in Middle-Eastern conflicts the way that the Americans and the Russians do.

Right now, the main emphasis of China’s foreign policy is on trade. The Belt and Road Initiative has stirred up controversy because a lot of third-world leaders, most importantly Narendra Modi, dislike the idea of having China own infrastructure in their countries. But the Chinese aren’t interested in using military force to impose the Belt and Road on countries that don’t want it – they’re confident that the persuasive effects of commerce will be sufficient on their own. It’s all a soft power thing.

Will this change in years to come? Certainly. China will get bolder as American power wanes. Taiwan will probably fall – the Taiwanese might be able to hold out if they were willing to fight on the beaches like the Japanese at Okinawa, but that is a very doubtful scenario; not much can be said in favour of a country so apathetic about its future that the people only have 1.05 children per family (for comparison, Red China’s fertility rate is 1.68).

I instead expect the following anticlimactic end: the Chinese will blockade Taiwan with their navy and tell the Taiwanese that they can have a normal economy again if they accept the same status as Hong Kong. Thus Taiwan’s story will end, not with a bang, but with a whimper.

Perhaps you think that I am being short-sighted in my insistence that China’s present preference for soft power will change little during its era of dominance. After all, the United States of 1890 wasn’t exactly dreaming of global domination, but we still managed to grow into that role over the next hundred years.

The problem for China is that China doesn’t have a hundred years. Remember that 1.68 fertility rate? Well, China has been at sub-replacement levels since 1992, and that isn’t about to change. The number of men at prime military age is shrinking, and it will keep shrinking. The combination of peak oil and a declining and aging population will knock the wind out of the Chinese economy sometime around mid century.

Who will be the global leader after China? Most likely no one. India will be the most populous country by that time, but notwithstanding all that the Indians have contributed to philosophy, religion, mathematics, and art, their culture has never done engineering or mass-organization as well as the Chinese, which is why India is, and will likely continue to be, an economic backwater.

Russia, for the moment, is militarily and technologically strong, but despite the striking recovery in Russia’s fertility rate after it bottomed out at 1.16 in 1999, the number has since plateaud at 1.76 children per family. Unless the Russians get it above 2 sometime really soon, I don’t expect them to even end the century with their own borders intact.

Who will be trying to take land away from Russia? Hordes of fecund Indians and Pakistanis, fleeing drought and climate change and pouring forth into a warmer and greener Siberia. Will these people be the dominant force in every place they manage to invade? You bet. Will they be a global hegemon in the style of the British and the Americans of old? Not by a long shot.

So that, then, is what I expect: decentralization and, in some places, anarchy. Not a new hegemon waiting to step into America’s role like America stepped into Britain’s.

What, then, should a proactive American do? Stop worrying about China or other foreign powers, and admit that the problems worth caring about are local or personal in scale.

Be realistic about how much money you can expect to make in a declining economy, and modify your lifestyle accordingly. Be choosy about where you send your children to school. Decide ahead of time that if your ex decides to do something screwy and raise one of your children as the wrong gender, you will flee the country rather than submit.

Learn to grow your own food, and learn to use a rifle, because you will need those skills in the days when nationwide order breaks down and both farming and defense become local matters.

Eventually, local politics will revolve around questions like whether or not your town can get its act together and form a militia in time to stop the nearest drug lord from looting your storehouses and burning your crops. And when that happens, local politics will be the only politics that’s left.
  

Wednesday, May 13, 2020

Covid Vaccines and the Myth of Progress

A lot of influential people are saying that the Coronavirus shutdown shouldn’t end until someone develops a vaccine. But despite decades of research, nobody has ever managed to create a vaccine for any member of the coronavirus family. Insisting that the future will be different is magical thinking.
Perhaps you have noticed that the news these days is rather dull. Almost all that anyone does is report on the same things they’ve been reporting on since the end of March: the economic freefall caused by the shutdown, debates over the appropriateness of the shutdown, the antics of the President, the occasional arrest, the attempts by Senate Democrats to spend $4 to $6 trillion on handouts (as if the $1.2 trillion bipartisan bill wasn’t enough), and the insistence, by a large number of talking heads, that it would be totally unacceptable to return to normalcy until someone creates a vaccine for the Coronavirus.

Some experts have predicted that developing a vaccine will require two years – and then advocated keeping the shutdown going that long anyway! It’s hard to find a better example of how out-of-touch the comfortable classes have gotten from the Deplorables – that is to say, from the hundred million or so poor and middle-class Americans for whom a year without work does not mean safety and comfort, but rather poverty, homelessness, lack of health care, domestic violence, and more deaths by suicide and overdose.

 But I digress. The comfortable classes won’t end up getting the multiyear shutdown they want. The Coronavirus panic has lost its hold on the common people; they’re already flocking to restaurants and beaches whenever they get the chance; the flyover states are reopening right now, and the non-flyover states will follow in shot order.

Also, I have no expectation whatsoever of a Covid vaccine.

Why? Well, like I said back in January, the best way to predict the outcome of a viral outbreak is to look at the facts of history and biology, and compare the outbreak to similar events in the past.

The present Coronavirus is not the only coronavirus out there. It’s part of a whole family of coronaviridae which, among other things, includes the viruses which cause SARS and MERS, a pair of diseases much deadlier than Covid-19. (SARS killed about 10 percent of the people who got it; MERS between 20 and 40 percent). On the other extreme, this family also includes the common cold. The coronaviridae have been around for a long time, they mutate rapidly, and no one has ever created a vaccine for any coronavirus.

So why does the media talk as if it’s inevitable that this time, things will be different? And why does anybody feel confident enough about the knowability of the future to state how many ‘years away’ such a breakthrough is?

Here’s my answer: they do it because they believe in the myth of progress.

Chances are, when you hear the word “myth,” you think of a story that people tell that isn’t true. This is not, however, the way that serious thinkers use the word – rather, to a real student of mythology, a myth is a story that people tell to explain how the world works and how it got to be the way it is.

Hence the myth of progress – the idea that history generally moves from worse to better, and that the perpetual adoption of new technologies, new customs, and new ways of doing things is the key to improving the human condition.

The near-universal acceptance of this myth, in contemporary culture, is the reason why saying that someone wants to “turn back the clock” is such a serious insult.

Do I, personally, have a skeptical view of progress? You bet. Read this blog for a while and you’ll start to see some of my reasons for believing that many of the changes that pass for beneficial “progress” in a typical view of American history were, in my own view, grave mistakes.

So why is the myth of progress so popular? Like I said earlier, myths are stories which try to explain why the world we live in is the way it is. And the myth of progress has gained so much clout because, for a long time, it has done a good job of explaining our world.

Just look at the improvements in life expectancy, material well-being, personal safety, personal freedom, literacy, education, and so forth between, say, an Englishman in 1400 and his descendants in 1900. Or look at all the useful things that were invented during that timespan.

The problem with the myth of progress comes when you start seeing improvement as inevitable. Thus stripped of your capacity for independent thought, you start accepting every change that comes along, without considering whether it is good or bad. And you hardly even comprehend the possibility that a much-talked-about change may never come at all.

For obvious reasons, it is easiest to fall into this mental trap if you have little or no sense of historical perspective. Most human cultures have had good reasons not to believe in the myth of progress. Just think about it: a Roman stuck in the progress mindset would be oblivious to the signs of his civilization’s decline and fall. A medieval man, on the other hand, might spend his whole life thinking that the discovery of the Philosopher’s Stone was just a few years away.

And as for us moderns? Well, we generally do believe in the myth of progress. Which is why you get people who claim that there is no need to worry about peak oil because fusion power is only twenty years away. (It’s been twenty years away since the 1960s). And you get people who think that the answer to the problems caused by the sexual revolution is to improve the technologies that fooled people into thinking that casual sex was a good idea in the first place.

And this is the same reason why so many people think that the F-35 must be oh-so-superior to the F-15 and F-16 (and their Russian counterparts) because it was designed four decades later and cost a lot more money. And why most people trust the psychiatric industry when it redefines natural variations in children’s behavior as mental disorders like ADHD and says that they can be chemically suppressed without any nasty effects.

The ironic thing about me saying all this is that I am not opposed to innovation per se. I am an engineer myself, and I think that the world has a need for smart and level-headed thinkers who know how to meet a challenge with the most effective design.

What we don’t need is people who confuse most effective with newest or most expensive. We don’t need people who think that every problem in life has a technological solution, or that nobody ought ever to go back to an older and more sustainable way of doing things, or that any invention we may happen to desire is bound to show up at some knowable time in the near future.

In the movies, this attitude gives us the Star Trek future. But in real life, it is giving us a near-endless economic shutdown in response to a mild viral outbreak, for the simple reason that people are afraid to come out and face a world very much like the world that their ancestors lived in day by day. That is to say, they are afraid to face a world where the future isn’t all that different from the past.
  

Friday, May 8, 2020

V-E Day 2020

Today, 8 May 2020, is the 75th anniversary of the surrender of Germany at the end of World War II. For the first few years after the war, the holiday was a big deal in every country that was involved. It’s still a huge occasion in Russia and almost as big as Britain. (The British, for some reason, no longer put on military parades complete with tanks and rocket launchers.)

In America, we get crickets. To be fair, V-J day, celebrating the Japanese surrender on 1 September, was always a bigger deal in America, where the war started with a Japanese attack. The British, French, and Russians were, for obvious reasons, much more concerned about Germany. But let’s be honest, you don’t hear much about V-J day in modern America, either.

There’s an old saying that goes something like this: “those who do not learn from history are doomed to repeat it.” People like me, who talk a lot about decline, are among those who most frequently invoke that saying.

Nevertheless, I myself do not like it. First of all, history doesn’t really repeat. I mean, it comes close sometimes, but today’s situations never map neatly onto yesterday’s, and as I’ve gotten older I’ve gradually replaced my earlier view of history-as-cyclical with a new view of history-as-chaotic.

But the second, bigger problem with that saying is that it implies that history is a dreary subject and that the past, generally speaking, is bad. You study it to avoid it.

I prefer a different attitude – the attitude that says we should study the past because it is full of good things.

The past is full of people like George Washington, Benjamin Franklin, Thomas Jefferson, Davy Crocket, Sam Houston, Frederick Douglas, Emilio Aguinaldo, and Martin Luther King Jr. – all of whom, driven by a desire to defend the rights and freedom of their people, took risks and made sacrifices to a degree unknown among contemporary American statesmen.

During World War II specifically, we had Winston Churchill, Charles De Gaulle, Franklin Roosevelt, Douglas McArthur, Dwight Eisenhower, Theodore Roosevelt Jr, George Patton, Bernard Montgomery, Georgy Zhukov, and Klaus von Stauffenberg. Yes, we also had  Hitler and Mussolini – and if we only looked at Hitler and Mussolini, we probably wouldn’t come away thinking that ‘the past is full of good things.’

But at the end of the war, thanks to the heroism of the men I named and millions of other men, women and children, Hitler and Mussolini were dead and their empire was a smoking ruin.

So the purpose of celebrating V-E Day is to keep the memory alive of a time when there were Nazis, and also of a time when there were men brave enough to fight to the death to rid the world of Nazis.

That, then, is why I study history. Not as a dreary attempt to avoid repeating the mistakes of the past (which is never a serious risk anyhow - people today don't make the same mistakes as people in the past, they make different ones.) Rather, I study it to draw inspiration from the bravery of those who confronted the challenges of their time. That way, we can say, “They were willing to do hard things then, what hard things am I willing to do now?  

Friday, April 24, 2020

The Evening Years of Empire

The Coronavirus is not going to fulfill the daydreams of anti-imperialist pundits and put an end to the current global order. But it will pack several years worth of ordinary decline into a single year. Then, the normal course of events will resume.
If you’ve looked at the US debt clock anytime in the last month or so, you might have noticed something different about it. Normally, while the debt goes up, the GDP goes up nearly as fast, so that their ratio (the number that really matters) increases by at most two or three percent per year.

I’ve talked before about how this is largely the result of the powers that be inflating the currency to cover up a two-decade-long decline in the size of the real economy. Nevertheless, it gets the job done – the nominal economy grows fast enough to keep the debt from getting out of hand, and the system plods onward.

But now, with the Coronavirus shutdown in full swing, spending is way higher than usual, and GDP is decreasing, so we can expect Washington to close out the year with a debt-to-GDP ratio of about 130 percent (for comparison, it was around 112 percent this January).

Will this crash the global economy? Not by a long shot. (Remember all the people who looked at the trillion-dollar-deficits during Obama’s first term and said that hyperinflation was just around the corner? Well, they were wrong).

What this really means is just that five or six years of ordinary decline have been packed into one year of virus-boosted decline.

To look at another side of America’s rolling crisis, lots of people are predicting that the record-high unemployment rate in America will lead to record numbers of suicides and overdose deaths by the end of the year. But Americans, especially poor whites, already had dreadfully high rates of deaths of despair. That’s what you get in deindustrialized economy where imports are paid for through the exportation of huge amounts of fiat money – there just isn’t a good market for real, honest labor. The Coronavirus is only speeding things up.

At the bottom of all the news that’s coming our way this year is a rather unpleasant fact: declining empires handle crises poorly.

Why is the United States an empire? Because it consumes more resources than it produces. Why do so many people not believe it’s an empire? Because it hasn’t adopted the costly strategy of conquering huge parts of the world and administering their territory directly. The American elite has found it more effective to control the global financial system, hold sole authority to print the global currency, and pull off the occasional coup or invasion in an oil-rich country whose policies don’t favor American interests. (Think Iran in 1953, Iraq in 2003, Libya in 2011, or Syria and Venezuela today).

Remember the Ledeen Doctrine“Every ten years or so, the United States needs to pick up some small crappy little country and throw it against the wall, just to show the world we mean business.”

Well, America’s ability to pick up crappy little countries is melting away these days. The Venezuela coup was indecisive. The Syria war ended with Russia, Turkey, and Hezbollah sitting at the negotiation table. And so forth.

Two days ago, Iran launched its first military satellite. People like Mike Pompeo want to make this look like practice for building a nuclear ICBM; in reality, the satellites themselves will be the last major piece missing from Iran’s defensive armament. The Iranians already have hypersonic cruise missiles, and with the ability to track targets from space, the Americans will have no choice but to clear their navy out of the region whenever tensions flare up.

The ultimate guarantor of American dominance – the global demand for dollars – remains in place for now. But even there, the empire is sawing out its own perch. Trade sanctions (basically, America’s de facto power, as the world’s one sovereign nation, to regulate commerce between all other nations) are easier to enforce when said nations use American money, which is why so many countries are beginning the transition from dollars to Yuan.

It will take a while – two or three decades, mostly likely – before the dollar has been displaced. After that, America will face a steep rise in the cost of imports, and severe inflation as dollars are sent home from every corner of the world. In short, we will have to deal with an economic meltdown like we haven’t seen since the Great Depression.

After another decade or two of turmoil, America or its successor states will clamber their way back to normalcy. Who will benefit from this? The American working man. In a country where imports have to be paid for by an equal value of exports, there is no outsourcing of jobs. The people on top will likely never have it as good as they do now, but the people on the bottom will find that their skills are in much higher demand in a country that isn’t flooded with cheap imports and swarming with foreign laborers.

But it will be a long, rough road between here and there, and we had better get to work preparing for it.
  

Sunday, April 19, 2020

Anetocracy: The Rule of the Comfortable Classes

Support for a yearlong Coronavirus shutdown comes from one source: people who are wealthy enough that they have little to lose by staying in their houses indefinitely. Unfortunately, these people have way too much influence in America these days.
The dominant theme of the last three or four weeks of news in the United State has been the debate over when the country should open back up from the various Coronavirus lockdowns. The debate hasn’t really gotten anywhere, because both sides have something to be upset about. On the one hand, the virus definitely isn’t under control yet. On the other, people are also vaguely aware that staying unemployed indefinitely is probably a bad idea.

As is normal for big news items these days, the Democrats and the media soon found themselves shuffling over to whatever positions looked like suitable high ground from which to cast aspersions on President Trump. (If you had looked at our politics ten years ago, you never would have guessed that “Russian asset” would be the Democrats’ preferred insult, not only for Republicans, but also for each other. But I digress).

So naturally, the media are going to have a heyday with presidential statements like this one:

“Don't forget the doctors,” Trump said. “If it were up to the doctors they may say, ‘Let's keep it shut down, let's shut down the entire world.... And when we shut it down, that'd be wonderful, and let's keep it shut for a couple of years.’”

“A couple of years,” may be an exaggeration, but if you look on the internet you can find plenty of opinion pieces by doctors arguing that the shutdown needs to remain in place until at least the end of 2020. It’s usually presented as a ‘needs to’ thing, without any discussion of costs versus benefits. (Hint: Anytime that one side of a debate acknowledges the existence of trade-offs, and the other side just says, ‘we must do such and such, you’re generally better off listening to the first side).

Back to Trump’s tirade. If you are a (wealthy) Democrat, the meaning is obvious: Donald Trump is an ignorant buffoon with little respect for the expertise of people who have spent decades studying and practicing medicine, and little concern for protecting human life.

But what’s also quite obvious is that Donald Trump didn’t appeal to wealthy Democrats in order to win his election. The new waves of voters that he brought into the Republican party were mostly poor and middle-class workers who were struggling to get by and had come to see that, despite all its social justice cant, the Democratic party didn’t really care about them.

In short, they voted for Trump because they were fed up with the Anetocracy. (If you haven’t heard of that word, it’s because I just invented it. It comes from the Greek ‘anetos,’ meaning ‘comfort.’ I define it as the rule of the comfortable classes).

Who are the comfortable classes? Well, they’re the people who can work from home, or, if they can’t, are at least wealthy enough to go without a paycheck for a few months. They’re the people who don’t have to worry about much beyond what to watch on Netflix and whence to order takeout.

(Note: My entire family is part of the comfortable classes. Thought I am not wealthy, I have wealthy parents. So even though I’m not happy about having to come home from university and give up my job tutoring high school kids in physics, I do not have to worry about what I am going to eat or where I am going to live).

Doctors, obviously, are riding high on the hog and have little to lose from a protracted shutdown. So are nearly all journalists, which explains the bent of the news media (as if their hatred of Donald Trump and his voters wasn’t explanation enough).

What about all the Trump voters who want things to reopen? Do they simply not care about the people who will die if they get their happens?

Well, let’s put things in perspective: the Coronavirus kills about 0.67 percent of the people who get it. (Though you can’t get that figure from dividing number of deaths by number of confirmed cases since most cases are too mild to be reported). If it ran unopposed through the United States and infected 60 percent of the population, we would be looking at about 1.3 million people dying, most but not all of whom would have already been old and sick.

To put that in perspective, in a typical year the US loses 2.8 million people, most of them old and sick.

Obviously, a 45 percent boost to the annual death rate a bad thing. Which is why a shutdown of two or three months, followed by a cautious reopening once the virus is on the decline, is worth attempting – after all, it worked in China.

But try extending that rational to a yearlong economic freeze. ‘Still worth it,’ is the instant verdict of a great many Democrats, like Governor Cuomo, famous for his insistence that he would shut down all of New York to save just one life.

But that perspective only holds within the comfortable classes. Move out to middle America and start mingling with the Deplorables, and things start looking different. For these people, if you can’t go to work, you soon don’t have a job. If you don’t have a job, you soon don’t have health insurance. If you don’t have health insurance, you are more likely to die young – of cancer or any number of preventable causes.

And if you can’t pay rent, you soon don’t have a place to live. Also, for obvious reasons, people who go a long time without finding a job are more likely to die by suicide or overdose.

These aren’t matters that a responsible government can neglect. There is a reason why life expectancy in America has been going down since 2014. And triggering a repeat of the great depression will make life for the working poor even harder than it already is.

There is a segment of American society that will suffer nothing worse than boredom from an extended Coronavirus shutdown, and many of these people are more than willing to pat themselves on the back for doing their part to save the planet. But not everybody is a part of the comfortable classes, and we shouldn’t act as if there  is only one perspective that matters.

In other words, our best option is to reject Anetocracy and listen to the guy who won the White House on a promise to stand up for the forgotten man.
 

Tuesday, March 24, 2020

Coronavirus vs. Debt Economy

Modern America is by far the wealthiest nation on Earth. We can afford to shut down the economy for a few months and keep meeting our physical needs. But we can’t keep paying our debts, and in our system, the average person is required to be deeply in debt.
Yesterday, 601 Italians died of the Coronavirus. The day before, the death toll was 651, and the day before that, it was 793. It appears that Italy has pulled off what China did a month earlier, and reversed the growth of the virus by means of a very strict shutdown, with all shops closed except for grocery stores and pharmacies.

Right now, the United States is in a similar situation to Italy. Our death rate hasn’t peaked yet, but if we keep doing what Italy’s doing, we can expect the same overall result.

But now, Donald Trump is talking about how he wants the shutdown to end after 15 days. Trump can’t end it himself – at least not nationwide, because the “shutdown” is really a patchwork of emergency measures imposed by states, cities, and counties – but if enough people followed his lead and lifted said measures, we could expect the virus to start spreading again just as if a red traffic light had changed back to green.

Everyone knows we can’t keep the shutdown going forever, but when it was first imposed, the idea was to slow down the virus until somebody developed a vaccine or cure, or until it evolved into a less deadly form, or at least until America’s hospitals had the resources to properly treat millions of cases so that the fatality rate would only be one percent instead or two or three percent. A 15-day shutdown, followed by business as usual, is actually pretty useless.

And yet with the need for a $6 trillion (!) bailout looming on the horizon, letting the virus have free reign is looking more and more appealing to the President and his advisers. The alternative – having to come up with a way to recover from the loss of a third of our annual GDP – is something that politicians in both parties would much rather not do.

And yet, it shouldn’t really be a problem if our economic output in 2020 turns out to be only two-thirds of what it was last year. After all, the per-capita GDPs of both Britain and France are a little less than two-thirds of ours, and those nations aren’t living in poverty.

But the problem isn’t that we can’t shut down the economy for a few months and still meet our needs. It’s that we can't shut it down and still pay our debts.

Most Americans are living on the edge of insolvency. They have little savings and lots of debt. If their paychecks don’t come in each fortnight, they will soon have no food and no place to live.

Businesses are the same way. The reason that the government can’t respond to the rent crunch in the obvious way – by suspending the obligation to pay rent until the crisis is past – is that landlords usually have to pay the mortgage every month. Other kinds of businesses also have obligations that aren’t going away.

The easy thing to do, when looking at a situation like this, is to blame ordinary Americans. “If they weren’t so lazy and irresponsible,” you could say, “they wouldn’t be in so much debt.”

But that isn’t really accurate. Americans in the 1950s and 1960s were much thriftier than they are today, but most were still in debt. In fact, since 1933, our country’s monetary system has been set up to make it impossible for the average person to not be in debt.

This is a fact which even many critics of the present regime fail to grasp. It is common, in libertarian circles, to hear that the economy is in trouble because our money is made of paper and backed by nothing. But that isn’t quite true. The economy is in trouble because our money is backed by debt.

To get a grasp of the concept of the debt economy, consider the following scenario:

Suppose that one hundred people are living at peace in a simple, agrarian village. Some of them are farmers, some are shepherds, some grow grapes and olives, some make and mend clothing, and so forth. One day, a one-hundred-and-first man arrives in the village, and introduces the other villagers to the concept of money. They all decide that they like the idea, and would be happy to give up bartering and instead have a single resource that can be traded for anything else. Thus, they agree to make this man their banker, with sole authority to issue money in their village.

The newest villager fashions a wood-block press, brews a pot of ink, skins some sheep to make parchment, and prints 10,000 paper marks. But he doesn’t just give them away; instead, like any good banker, he lends them out on credit. Each villager borrows 100 marks at ten percent interest. They begin using them in commerce with one another, and everyone is pleased with the new invention.

Most of the villagers feel like it would be a good idea to get out of debt. Some, by a combination of hard work, skilful trading, and luck, finish the year with more than 110 marks to their name, and pay off both the principal and the interest. Most don’t, and they only pay the 10 marks of accrued interest.

Now, there is a problem in the village: the amount of money that the villagers owe to the banker is greater than the amount that exists. The whole village can never pay its way out of debt. Some individuals may win back their freedom, but only by selling their goods and services to others who remain indebted. If the majority of the people are lazy, then an individual can get out of debt by working hard. But if the majority works hard, then hard work alone won’t be enough; one will also need superior talent or luck. Most people will never escape.

From time to time, the banker lends more money to the struggling villagers. This allows them to get by without the economy grinding to a halt, but it doesn’t bring them any closer to freedom.

Is the money that these villagers use worthless, because it is made of paper? Not at all. In fact, the villagers always want more money than they have, and many of them, who were once scrupulously honest, have found that they are now willing to lie and steal in order to get the stuff. After all, even the villagers who don’t care about living luxuriously still need increasingly large sums of money just to service their debt.

In the real world, simple, agrarian societies don’t do this kind of thing. They use commodity money: gold, silver, wampum, cocoa beans, or some other physical good that doesn’t have to be borrowed into existence.

That doesn’t mean that some people won’t choose to borrow money anyway. Indeed, many societies with commodity money, such as the United States prior to 1933, have had banks and even central banking. But the ultimate creators of money were gold and silver miners, not banks, and banks had to pay interest on their specie reserves as well as collecting interest on their loans. Participation in the debt economy was optional.

Then, in 1933, the New Deal government made Federal Reserve notes the only kind of money that common citizens could legally own, and participation in the debt economy became mandatory.

In modern America, the Federal Reserve fills the role of the banker in my story. It doesn’t lend to you and me directly (two percent interest rates, after all, are not for the Plebs) but it lends to other banks, and those banks lend to you and me. There is always more debt in the economy than there is money, and most people, just like most businesses, will never pay off their debts.

We Americans don’t really need to consume nearly as many resources as we are used to consuming. Temporary losing the ability to produce most goods and services won’t hurt us. But our economy isn’t based on goods and services, it’s based on debt, and losing the ability to pay our debts is quite a different matter.
 

Tuesday, March 17, 2020

Forgetting Hard Times

Some countries in the world today have experienced major disasters within living memory. Others haven’t. And the nations that have gone the longest since their last disturbance are usually the ones that will handle the next one the most ineptly.
I first mentioned the Wuhan Coronavirus on this blog on the last day of January. After a brief overview of the fatality statistics, I concluded that even in a worst-case scenario where most people in the world get infected, the virus would kill fewer people, in every age-group, than die in a normal year from heart disease, cancer, and all the usual causes of death.

If, on the other hand, the virus did what most new viruses do, and evolved milder symptoms so as to spread more easily, then the epidemic might drop out of the news just like the Swine Flu did. Therefore, I said, there was no chance of a serious disruption to the functioning of our global civilization.

As it turns out, the virus didn’t become less deadly, and the case fatality rate is still around two percent. Nevertheless, I think my original claim still holds: it won’t be the end of civilization as we know it, nor will 2020 mark some major turning point in the books of future historians.

But I have a confession to make. At the time I wrote that post, I hadn’t thought at all about the economic effects of the coronavirus – or, more precisely, the economic effects of the measures to contain the coronavirus. The upshot is that all this social distancing and isolation is going to leave us with a brutal recession, probably on level with what happened in 2008.

Will that crash the global economy? No – after all, people managed to pick themselves up and keep going after 2008. But it’s going to be a rough year or two, especially for the United States.

Why is America so likely to handle this worse than most countries do? Ask an American liberal, and you’ll likely hear that it’s because Donald Trump is such an egotistical ass. But that’s nowhere near the full story. While Trump’s handling of the crisis has been far from ideal, I’m not convinced that Obama or Bush Jr. would have done any better.

The real answer is, I think, more mundane, but also more revealing. America is handling this badly because we’ve had such a long run of peace and prosperity compared to the rest of the world. Basically, we’ve forgotten how to deal with hard times.

This ‘time since hardship’ variable has been at play in American life long before we heard anything at all about the scary new virus that had suddenly appeared in bat-eating Wuhan.

For instance, just ask yourself why America consumes so much more petroleum, per capita, than nearly any other country. To compare: China consumes 3.5 barrels per person per year, Russia 8, Britain and France 9 each, and Germany and Japan 11. For the United States, that number is 22.

Because oil isn’t a renewable resource – and because America’s days of being able to consume a quarter of the world’s oil are numbered – this isn’t going to end well for us. So why do we keep doing it? Since I’m not going to hop on the liberal bandwagon and say that America was founded on oppression and has a unique moral rottenness about it, I have to find an explanation somewhere else.

My explanation is that Americans are behaving the way they are for the simple reason that we have no living memory of hard times. We’re wasteful because peace and prosperity have made us wasteful.

In the first decade or so after the world was remade in 1945, the United States sat squarely on top of it. We had the best farmland, the biggest oil reserves, and the only industrial plant that hadn’t been bombed out during the war. This wealth let us build the interstate, cruise from coast to coast in our gas-guzzling automobiles, build really big houses, and eat lots of meat.

Meanwhile the Europeans and Japanese, having just lived through a decade of scarcity and having experienced war up-close, were much more frugal. Not everybody could afford a car, so they got around by rail, bus, and bicycle. They lived in smaller houses and ate more plants. When energy prices shot up in the 1970s, they responded by building nuclear reactors and bullet trains.

America’s energy policy, on the other hand, consists mainly of coups and invasions in petroleum-rich nations and massive trade deficits to fund the importation of oil, while at home the rail system is in total disrepair, and we live in cities built with the assumption that everybody will have a car. Sooner or later, this policy is going to blow up in our face. But most Americans don’t think about that, because it isn’t in the nature of someone who has only ever known prosperity to think about how fragile that prosperity really is.

Now consider how various countries handled the Wuhan Coronavirus. China, where it all started, is used to hardship. Many people still vividly remember the famines under Mao. The Chinese have little expectation of personal freedom. They’re used to being told when it’s time to give up their rights for the common good.

On the whole, China’s system of government is not worthy of imitation. But it was able to stop the Coronavirus. After the initial policy of coverup was abandoned and the people at the top started taking the crisis seriously, China sprang into high gear. Much of the nation is in lockdown, and huge numbers of people are being quarantined. The result is that the daily death rate declined from its peak of 150 in mid-February to 11 yesterday.

Now compare that to Italy. Italy experienced war and famine in the 1940s, which made the people cautious and frugal, for a while. But the memory of those events has grown dim.

As an example of this, in 2010, Italy’s state-owned television network fired an old chef for talking about his experience cooking and eating cats in his childhood during the war. A country doesn’t treat its elders this way unless the bulk of its people have lost touch with reality – namely, the reality that there are times when you have to choose between living differently than you normally do, or not staying alive at all.

Which is how Italy has managed to take China’s place and become the new center of the pandemic, with 345 deaths just yesterday. Last week, Italy finally woke up to the severity of what was going on, and ordered an end to all public meetings, and the closure of all schools and all shops except for grocery stores and pharmacies. Will these measures be as successful as China’s? Right now, nobody knows.

Then we get to the United States, a country which hasn’t dealt with war or famine on its own soil since 1865.

Even though he had plenty of advance warning about the Coronavirus, President Trump spent most of February talking about how the situation was totally under control and bragging about the stock market. “Because of all we’ve done,” he said less than three weeks ago, “the risk to the American people remains very low… you have 15 people, and the 15 within a couple of days is going to be down to close to zero. That’s a pretty good job we’ve done.”

By now there are over 6,000 known cases and 108 American deaths. The real case count is probably much higher than 6,000 simply because America, in its state of unpreparedness, has tested so few people. It wasn’t until the pandemic was declared on 11 March that Americans started acting like this was serious. I won’t bother listing the resulting cancelations and closures, because they’re already all over the news.

People in Washington are trying to figure out what to do about the economy. (People in Washington are often trying to figure out what to do about the economy – it seldom ends well). President Trump wants to cut the payroll tax, a measure which would be completely useless for the people who need relief most – namely, those who are out of work entirely.

Meanwhile, Mitt Romney is saying that the government should give every American $1,000 immediately. Such a hand-out shouldn’t be necessary – in the old days, people had their families and their churches to help them through times like this, and in any case, if Romney’s plan did go through, most of the people who got the thousand dollars would squander it. But these days, the typical American no longer has the same kind of support structure that he or she used to have.

The plain fact is that we’re about to see a lot of people who work at restaurants, bars, gyms, schools, or similar places, and aren’t high enough on the ladder to get paid leave, who have no way to keep up on rent.

Whether or not the Romney plan ever goes through, the government will still be handing out a lot of free money. That’s what happens when the Federal Reserve cuts interest rates to zero. But can you or I go to the bank and get a zero-interest loan so that we don’t have to worry about paying the bills for the next few months? No, only wealthy corporations get to do that.

America’s exceptionally long run of peace and prosperity has made us inept at handling serious crises. We’ve forgotten how to live in hard times, but as history has shown again and again, hard times do not stay forgotten forever.