The Professors' Congress: The International Situation

(This post is much too long. That's because Left Voice has interesting stuff to say.)

Washington as Statesman at the Constitutional Convention. Junius Brutus Stearns (1856). Virginia Museum of Fine Arts, 50.2.1. https://www.vmfa.museum/piction/6027262-8052859/

My friends over at Left Voice held their first Congress in New York City from July 14th - 16th. 

More than 50 comrades gathered in Manhattan. The largest group came from New York, where Left Voice was founded about eight years ago. A second nucleus was from Detroit .... Further members joined from Philadelphia, Los Angeles, El Paso, and other parts of the United States. Guests from our sister groups in the Trotskyist Fraction tuned in from Mexico City, Caracas, Buenos Aires, São Paulo, Barcelona, Paris, Berlin, Munich, and other cities around the world.

The discussion centered around six documents, of which I so far have read only one: Notes on the International Situation (abbreviated here as Notes). This post is a review of that document--and I'll suggest mine is the only commentary on the piece from anybody outside their small grouplet.

Left Voice (LV) is the publication of a group of NYC college professors, grad students and hangers-on, who are now attempting to form a full-fledged, Leninist Party, building on the early heritage of the original Trotskyist movement in the United States, the Socialist Workers Party (SWP). As the above quoted paragraph makes clear, this core is a very small group of people and they have a very long way to go before they take state power.

Part of that effort means joining the Trotskyist Fourth International (FI), founded by Trotsky himself back in 1938. As with all other Trotskyist grouplets in this country, Left Voice isn't happy with the leadership of the FI, so our professor friends have initiated the Fourth International-Trotskyist Fraction (FT) in an effort to get them back on the straight and narrow. As I commented elsewhere, "the professors are all busy trying to out-Trotsky each other, which is why one needs a Trotskyist Faction inside a Trotskyist International."

Professorial fingerprints are found all over Notes, many of them good. The document is well written, analytical, mostly factual (as far as I can tell), typo-free, and--above all--long. It's 34 pages in pdf format. Trotskyist grouplets in the US collectively produce manifestos on this scale approximately once a month or so. I most recently reviewed Socialist Action's Political Report (authored by Jeff Mackler) last March. Notes is a better version of roughly the same thing, and if you're interested in Trotskyist esoterica it's worth reading.

I'm not going to go through it line by line--that'd take way too much time. Instead, let me address specific issues:

1. Economics
2. "Imperialism" and Ukraine
3. Hegemony
4. China

Economics

Notes, as is true of all Trotskyist manifestos, makes passing mention of economics, throwing words and concepts around like they actually mean something. These include the declining rate of profit, the crisis of accumulation (which looks like it's not happening), and most importantly, the class struggle.

Looking at the overall situation today, where there has been a volatile panorama of geopolitical crises, renewed instability in the economy, and a developing dynamic toward class struggle. As a result of the war in Ukraine, capitalist equilibrium is under “significant impairment.” ... This implies that as revolutionaries, we have to prepare ourselves for new forms of class struggle, more radical than what we have seen in recent times.

It seems they agree with their comrades in the SWP, whose most recent political report was entitled The Low Point of Labor Resistance is Behind Us, which I reviewed last February. Both grouplets maintain that because of this crisis and that crisis and the other crisis, the class struggle is intensifying and revolution is a-brewing. I've been around politics for over half a century, i.e., long enough to know that's not likely. 

As an example, they point to the Yellow Vest movement in France--which has violently resisted President Macron's (very reasonable) pension reforms--as something wholly new and significant. They forget that the French have a long history of throwing rocks and bottles at each other, as memorialized by Charles de Gaulle's famous quote: "how can anyone govern a nation that has two hundred and forty-six different kinds of cheese?"

In a word, their mention of Marxist verities are merely pro forma and have no measurable relation to actual world events.

"Imperialism" and Ukraine

"Imperialism" is in scare quotes because I don't believe it exists in any way that Marxists think it does. Notes, at least, tries to explain what "imperialism" means by quoting sacred scripture, namely from Lenin's booklet, Imperialism: The Highest Stage of Capitalism, 

in which the dominance of monopolies and finance capital is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed.

This word salad, dating from 1916, does NOT describe today's United States or any part of the world economy. The US has no large monopolies, nobody controls the stock or bond markets, there are no international trusts, and the world has not been divided amongst capitalist powers.

Notes uses the word "imperialism" like religious texts refer to the Holy Ghost. If you already believe in it, you'll see it everywhere, but for the non-believer it's unconvincing. Our professor friends have definitely got religion: the word fragment imperial- occurs 87 times in the document!

That notwithstanding, the professors seem to forget their own definition in the rest of the text. It is important to them that they define the "imperialist" quality of the one-time workers' states, Russia and China.

About Russia they write (italics in original):

Thus, Russia emerges with contradictory characteristics as a capitalist state that’s far from sharing imperialist characteristics economically but has some trace of imperialist characteristics at the level of its military. Despite not being a great power, it is a regional power with limited international influence, such as its role in the Syrian conflict.

It's a pity they can't quantify this for us. Is Russia 16% imperialist? Or is that to much to be a "trace"? They invoke Russia's military here as making it more "imperialist," but nowhere in Lenin's book is military size a factor. After all, I think Lenin would class Switzerland as imperialist, despite it not even having a navy.

Notes' description of Chinese imperialism is even weirder.

In the case of China, the growing confrontation is linked to the country’s imperialist ambitions — continuing the CCP policy that restored capitalism in China. Capitalist restoration in China was carried out under the auspices of international financial capital, particularly that of the United States (we expand on this process in the second part of this document). However, due to the specific importance that China’s economy has acquired after the process of capitalist restoration, the Chinese bourgeoisie increasingly needs to project Chinese capitalism in imperialist terms. As the FT, we’ve been developing our characterization of China and its imperialist traits which have strengthened in recent years. Though China is not yet imperialist and U.S. imperialism still maintains an important level of hegemony over the world order, the possibility of any kind of “succession” of U.S. hegemony will not be peaceful or evolutionary — as the proxy war in Ukraine and growing tensions in Taiwan show. 

So China is not yet imperialist (presumably that's 0%), but its imperialist traits have strengthened (presumably some number greater than zero--may I suggest 43%?) I am glad that our professor friends are closely monitoring China's descent into "imperialism," but I do wonder by what Leninist standards they are reevaluating the situation.

Of course this is all nonsense, but it's consequential nonsense. For Notes' take on Ukraine depends very much on how "imperialist" Russia is. Notes defines a term known as Campism, which is an error engaged by some Trotskyist grouplets. While some grouplets openly support Ukraine in a war of liberation (e.g., our friends in the SWP), others see the Ukraine war as a proxy fight between two imperialist powers, ie, between the US and Russia. Campists believe one should side with Russia, either because Russia isn't imperialist at all and the war results from NATO aggression. Or because Russia is only slightly imperialist and thus represents a lesser evil. The most important thing is to defeat US imperialism. Jeff Mackler at Socialist Action is a good example of that latter form of campism.

So Notes refuses to support Ukraine (they deny it's a war of liberation), but on the other hand they won't kowtow to Russian "imperialism", of whatever trace quantity. Thus they have come up with their own unique slogan (italics in original):

Not NATO, not Putin, and not the Zelenskyy regime

This is very unclear, expressed as it is as three negatives. It becomes marginally clearer if one rephrases it in positive terms. I come up with

For the Tooth Fairy, For free unicorns, and for a Trotskyist regime

OK--maybe that doesn't clarify very much. But that's the best you're gonna get out our professor friends' endless analysis of "imperialism".

Hegemony

After "imperialism," hegemony must be professors' second favorite word. The word fragment hegemon- occurs 36 times. They make three claims:

1. That US global hegemony is still intact...
2. but the US is in long-term secular decline, while...
3. China is the leading contender to rival/displace the US as a global hegemon.

Unlike "imperialism", these statements are arguably true, and Notes makes as strong a case as can be made. I don't disagree much with the facts they present, but I think they're leaving out much important context.

There is no question that the US is still the world's leading hegemon. Our defense budget is larger than the rest of the world put together, and four times bigger than China's. We have by a big margin the strongest navy in the world. Don't let China's large-scale construction of new ships fool you--our navy is vastly superior. The US is the only power that can patrol global sea lanes, including the Straits of Malacca, Hormuz, and Gibralter, along with the Panama and Suez canals. Flows of energy from the Middle East to either Europe or China and Japan depend crucially on the US navy for protection. By withdrawing its navy, the US could deprive Japan and (especially) China of necessary oil and food imports.

The US remains the world's economic hegemon as well. The US dollar is still the world's reserve currency--well, actually that's not true. It's never been true. The world's reserve currency has been the so-called Eurodollar since at least the early 1960s. Notes misstates the situation here:

The 1944 Bretton-Woods agreement established the dollar as the dominant currency of the world, and the Marshall Plan laid the groundwork for economic penetration in Europe in the name of post-war economic reconstruction. These gave the U.S. significant economic and political hegemony in the capitalist world order.

In fact, Bretton-Woods collapsed within a few years of being signed, and Nixon finally admitted as much when he took the US off the gold standard in 1971. The Eurodollar system grew out of the resulting chaos. It was not planned or designed by anybody--it just gradually evolved beginning in the late 1940s, and by 1960 or so it was well entrenched. My post on the Eurodollar explains it as clearly as I know how (the topic is extremely complicated!).

The Eurodollar system has worked spectacularly well for at least 60 years (much better than Bretton-Woods ever could have), but it is beginning to fray around the edges. And that brings us to America's supposed decline.

Of course the US had to decline in relative terms. This report dates from 2016 and is so a bit dated, but it states that in 1960 US GDP was 40% of the world's economy, while in 2016 it was only 22%. This was certainly not because our country was getting poorer (it wasn't), but because the rest of the world was getting richer faster.

Without going into details (see the above linked post), the Eurodollar system works because the US has run large and consistent trade deficits every year since 1974. Those deficits are what finance global trade. Because of the growth of the global economy, relative to global GDP our trade deficit has been shrinking. This means there is a shortage of Eurodollars (one reason why domestic interest rates are rising) and some countries (e.g., Sri Lanka) no longer have a sufficient quantity to import essential supplies. Other countries are setting up bilateral agreements to trade in their own currencies, e.g., between China and Russia, so they don't have to use the Eurodollar. These agreements may solve a short term problem, but at bottom they are not much more than barter exchange and are not durable.

No other world currency (or currency union) is running a large enough trade deficit to finance global trade. Hence, despite the shortage of Eurodollars, there is nothing on the horizon to replace it. This is terrible news for global trade and puts a severe crimp on the globalization phenomenon. But it's great for American consumers as foreigners desperately compete to sell goods into the American market so as to accumulate Eurodollars.

It gets worse because political sentiment (headed by Trump) is increasingly against permanent trade deficits, since the cost of supporting the Eurodollar is the decimation of our own, domestic manufacturing capability. Hence the latter day imposition of tariff barriers and industrial policies.

So while I acknowledge that Notes is right about America's decline, the context is missing. America may be declining by some accounting measures, but we're waaay better off than any other country in the world. We'll be the last man left standing.

China

If "imperialism" and "hegemon" are our professor friends' favorite words, then there is another important term completely missing from their document: demographics. China, Japan, S. Korea, Russia, much of Europe, and even the Middle East and Latin America are in some stage of demographic decline.

Before we get to China, here's another paragraph about Russia and Ukraine. Russian demography augers the end of Russian civilization--it's child-bearing age population has declined beyond the point of no return. Thus the Ukraine war is the last war Russia will ever fight. After this it will never again have the manpower or the industrial base to field another army. Dead Russian soldiers and destroyed Russian tanks will never be replaced. The strategic goal of the United States is to destroy the Russian military once and for all. To that end, the longer the Ukraine war goes on, the more Russia suffers irrecoverable losses, and it will eventually be taken off the global stage as even a regional power. Thus the US strategy is for the war to go on for a very long time, or, as it is often phrased, to fight to the death of the last Ukrainian.

Like Russia, China, too, is in demographic collapse. Even the Chinese government (sort of) admits this. The United Nations--using Chinese government statistics--reports that as of April, 2023, India surpassed China as the most populous country on earth.

But as is true in so many cases, Chinese statistics are misleading. It is increasingly clear that China has been exaggerating its demographics for some time now. Peter Zeihan, an expert on Chinese demography, says that China lost the population crown to India about ten years ago--not this year. By his measures, China's real population is smaller than the official figures by about 100 million people. Worse, all those missing people are under 45 years old. See the Mr. Zeihan's charts here.

By contrast, Notes ignores demographics altogether. They write (as part of a longer discussion)

China, with its pursuit of new markets for its own bourgeoisie, follows the same economic and political tactics in the Global South that imperialists have done previously. It has also established itself as a major trading ally for advanced economies like Germany , and through brokering new alliances and treaties, it is firmly trying to prove itself as a contender to lead the capitalist world order. Especially as the tendencies toward a new bloc around China increase, they threaten further and greater confrontations, militarism, and conflict.

This is wrong on so many levels. First, the Belt & Road project is collapsing into stinking mountain of defaulted loans and unfinished projects. Second, China is no longer the world's cheapest manufacturer--that crown has been ceded to North America, ie, the US-Mexico combination. Third, China is in dire financial straits, desperately short of Eurodollars, and increasingly unable to fund its purchases of necessary raw materials. While China was Germany's key customer (Germany supplied the machine tools for China's manufacturing plant), the demise of China as an industrial powerhouse has put Germany into a severe recession.

And finally, not only is China's total population declining, but its working-age population is declining even faster. There is no way that China can grow its economy with a shrinking population. Mr. Zeihan predicts that the current Chinese government will collapse within this decade, and that the country's survival as a unified state is in jeopardy. Perhaps he exaggerates--but even if he's mistaken about the timeline, the notion that China will ever compete with the USA for "hegemony" is simply wrong.

That doesn't mean they couldn't try to invade Taiwan (though I doubt they will. They'd lose).

Conclusion

I have spent a long time reading Notes and composing what I hope is a considered critique. I wonder why I do this? Left Voice, like all Trotskyist grouplets, is far too small to have any influence on American or global politics. The authors of Notes are too committed to Marxist theory and are too ideologically blinkered in their perspective in order to see straight. Put another way, they don't seem to read anything beyond what they themselves have written.

That said, I do hope the authors--whom I've teasingly mocked as "professors"--will read what I write. First, I've spent a lot of time on it and it would be a shame if they didn't. Second, I think this will be the only commentary on their work that comes from outside their grouplet--and they should be flattered. And finally, I do think the ideas--both those in Notes and in my response--are worth discussing and considering.

Nothing here will change anybody's mind. Still, I don't believe I've wasted my time.

Further Reading:

• The China Beat
• Keith Leslie's International Report
• Our President is a Pacifist

The June 21st Militant

The June 21st issue (pdf) of The Militant gets two things wrong and one thing right--which together makes for an interesting read. (The Militant is published by the Socialist Workers Party--SWP.)

A front page article by Terry Evans entitled Working people worldwide look to fight effects of rising prices leads with this howler.

Food prices and the cost of other necessities for working people are soaring worldwide, highlighting the urgent need for workers to join together to fight for jobs, higher wages and automatic cost-of-living adjustments on our wages and retirement pay. Millions face hunger, especially in the semicolonial world, because under capitalism food is produced and marketed solely to generate the highest profits for the employing class, not to meet the needs of humanity.

The last sentence is completely wrong--of course food is grown to meet the needs of humanity. Otherwise there would be no market for the stuff and the capitalists wouldn't make any money. Capitalists (aka farmers) want to sell as much food as they can to the largest number of people. There is no way that farmers are purposely causing world hunger.

But Mr. Evans is correct that world food prices are rising. That's because there is a global shortage of food, forcing the market price higher. I surmise that shortage is because of China, which is not self-sufficient in food and has had a bad crop year (flooding, swine flu). If you believe Peter Zeihan, China no longer has the workforce necessary to engage in the labor-intensive gardening that maximizes yield per acre, but instead has been forced to mechanize, reducing yields.

The financial fixes Mr. Evans lists will not increase the amount of food available. It will just distort the market and render food distribution inefficient.

He also writes,

In 2020 some 155 million people faced what the U.N. World Food Program euphemistically calls “food insecurity,” a rise of 20 million over the previous year.

This is astonishingly good news! Of a global population of nearly eight billion, fewer than 2% are food insecure. A generation or two ago that number would have been closer to 50%. So much for the notion that capitalism increases poverty. The suggestion that Mr. Evans and his ilk are gonna devise a more efficient method of food distribution is gonzo.

The photo accompanying Mr. Evans' article (below) shows some relatively well-fed Yemenis protesting high food prices. Note that Yemen is in the middle of a brutal civil war--a problem that has nothing to do with global food production or distribution.

(Source)

In a campaign statement by Joanne Kuniansky headlined Fight for workers control of production!, she claims (emphasis mine),

Under capitalist rule, production is organized with no concern for workers’ lives or limbs, on the job or for others living nearby, nor for the soil, air and water being fouled by pollution.

As written, this is just wrong. Of course capitalists have some concern for the welfare of their workers, for otherwise they would all quit or go on strike. More--capitalists are human beings, too, and share the moral and fairness impulses we all have. If she'd phrased it less strongly--too little concern or insufficient concern--then the case is arguable. But in today's environment, with labor shortages looming, especially for skilled labor, it behooves the capitalist to be extra solicitous of his employees' well-being.

Life is full of trade-offs. Any mining or manufacturing activity will incur some risks--both to workers and to the environment. Unlike what Ms. Kuniansky claims, it is impossible to eliminate that risk--only to reduce it at a higher cost. The cost the capitalist is willing to pay depends much more on the consumer than on the capitalist--for if the costs of safety are too high, then high prices make the market too small to justify the enterprise. So workers are more in conflict with consumers than with their bosses--which is why workers' control of production won't solve anything.

One has to note that labor and environmental protections in socialist societies (e.g., former Soviet Union, North Korea, Cuba, Venezuela) are awful. It's much better to be a worker in the United States.

An article by Mary Martin, entitled The working-class road forward in tackling crime and cop violence, tries to split the difference between Trotskyist boilerplate and reality. The boilerplate quotes SWP Minneapolis mayoral candidate Doug Nelson:

“Crime is defined by the capitalist rulers to maintain their power and privileges,” Nelson said. “Their laws and the way they’re enforced are designed to keep workers in line and to brand substantial layers of us as criminals, particularly those who are Black or from other oppressed nationalities. To the bosses and landlords in power, all workers are viewed as potentially dangerous. ..."

And this is at least partly true. No doubt the police exist to defend the status quo, which certainly includes capitalist property relations. But it's a stretch to suggest that laws are arbitrary artifacts designed for capitalist convenience--crimes such as murder, theft, and rape have been forbidden since the Ten Commandments, and are fundamental for any society, not just a capitalist one. The last quoted sentence is surely an exaggeration--capitalists are more likely to feel threatened by other capitalists or politicians rather than workers. It is standard Trotsky-talk to claim that cops are always and only agents of the bourgeoisie, and that's precisely what this paragraph claims. 

But the rest of Mr. Nelson's statement belies that narrow view. He says,

“What is of great concern to workers, however, is anti-social violence within working-class communities,” he said. “In addition to the immediate consequences for those affected, it breeds fear and demoralization; it saps workers’ confidence and tears at social solidarity. This in turn feeds into more anti-social behavior and spreads the infection of capitalist dog-eat-dog morality. The rulers’ cops and courts are aimed against us, but it is far better to live under their rule of law than without it, where warlords, gangs and vigilantes fill the gap.

“One of the obvious factors in the recent rise in violent crime has been the systematic withdrawal of police in certain working-class neighborhoods, particularly those with the highest crime rates,” Nelson said. “The effect was no surprise to anyone, least of all the government officials who organized it as part of the rulers’ political responses to the broad popular demonstrations that exploded across the country following the death of Floyd, as well as the unpopular and anti-social rioting and looting. They decided to sacrifice some beat cops responsible for Floyd’s death, and to have the police pull back from many of our communities. ..."

This is reality speaking: the only real alternative to a police force (what the Constitution refers to as a "well-formed militia") is a Hobbesian world of all against all. That's what life is like in today's Yemen, where there really are food shortages. So The Militant, true to its masthead, understands that working people need protection from criminals--as much or even more than folks in wealthier communities. Those who will withdraw the cops from poor neighborhoods are acting as agents for street gangs and the lumpen proletariat.

The progressive wing of the Democratic Party represents all lumpens--both the lumpen proletariat and the closely aligned lumpen intelligentsia. On the other hand, a newspaper that claims to speak in the interests of working people has to realize that Black citizens (95% of whom are honest, upstanding, hardworking people) deserve to have their 911 calls answered.

So I'm down with The Militant on this one. I only wish that they'd drop all the silly Trotsky-talk.

Further Reading:

• Has the SWP Moved Right? Or the Republicans Left?
• Socialist Action Believes American Children Should Freeze to Death
• The Revenge of the Lumpen Proletariat

Book Review: Disunited Nations

I have a love/hate relationship with Peter Zeihan's new book, Disunited Nations: The Scramble for Power in a Disunited World.

Let's start with the bad news first.

Apart from editorial asides by the author, the book has no footnotes. The bibliography only includes five titles. There is no reference to historical models of geopolitics. Facts are offered without citations. Now I'm not a great fan of scholarship--academic monographs are not just boring, but useless. Reading through a forest of footnotes is tedious.

But without any context I have no way to know how trustworthy Mr. Zeihan's sources are. Is he just cherry-picking factoids to fit his story? Is he really such a genius that he can develop a whole geopolitical theory de novo out of thin air?

Is the man a serious thinker?--or merely a huckster trolling for consulting dollars? Yes, and yes.

I loved this book!

For clarity and concision it is unmatched. He tells a simple (too simple by half) story of the globe's future for the next generation. Story is the operative word--the book reads like a well-plotted novel. That makes me suspicious (is life really that straightforward?), but it's very readable. I think he's wrong in big ways, as I'll explain below. But the basic story seems true enough.

It goes like this:

After WWII, the Soviet Union, despite its intrinsic weaknesses, represented an existential threat to the United States. Our ingenious counter was to mobilize the world to our side. This was not done by brute force, nor by appeal to humanitarian principles. For the most part we bribed other countries to be our allies. The bribe consisted of three parts:

1. The US will guarantee your current borders. You do not need to defend yourself against your neighbors.
2. The US will guarantee your trade routes. Our navy will patrol the world and keep the seas free of pirates and military foes. Not merely was transit through the Panama and Suez canals open to all, but also through the Malacca, Hormuz, and even the Bosporus Straits.
3. The US market was open to your produce nearly without restriction. Whether German cars, Japanese electronics, Bengali textiles, or Chinese toys--anybody could sell anything in the USA tariff-free.

It worked like a charm. Apart from the US and the Soviet Union, military spending decreased around the globe. The NATO allies, for example, couldn't rouse themselves to even spend 2% of their GDP on defense. Piracy and privateering on the high seas, along with toll-collecting at choke points disappeared. Countries as diverse as Germany, South Korea and China got rich selling into US market.

The world got rich, including the United States. Mr. Zeihan refers to this era--from 1945 to nearly the present day--as the post-war Order. But now the Order is breaking down, again for three reasons.

1. The Soviet Union is no more. The empire collapsed in 1991, and the successor state, Russia, is itself in terminal, demographic decline (so claims Zeihan).
2. Fracking changes everything. North America is now energy independent, and indeed, we're a net energy exporter. The result is we have little cause to police the Middle East anymore, and certainly not the Persian Gulf or the Straits of Hormuz.
3. While in 1950 the US produced about 50% of global gdp, today the number is only 25%. That's certainly not because the US is poorer, but rather because the Order hugely increased wealth globally. Thus we can no longer serve as a market of last resort, nor can we cover the world's defense costs.

As said, it's too simple by half. While the Soviets inspired NATO, it seems unlikely that they were the only reason for the Order. Surely American business understood the virtue of global markets, even in 1945. There were strong economic reasons for the Order. Accordingly, the collapse of the Soviets did not presage the imminent demise of the Order--it's hung on for nigh 30 years--again for its economic benefits.

Mr. Zeihan's tale leaves out some important trends. New technology spread around the world--the rise in global wealth is as much due to that as the American policeman. The Order’s decline may be due to a sharp drop in global productivity beginning in the mid '70s as much as anything else. Indeed, Mr. Zeihan’s story depends too heavily on geography and demographics--important topics to be sure, but not necessarily more important than technology, history, culture, or even genetics.

Still, I think he's mostly right, and the Order's inevitable demise may lead to the consequences he foretells. I think he's right about China. I think he's wrong about Germany.

China has five existential problems, and while it might survive one or two of them, solving all five of them simultaneously is impossible. The Chinese economy will crash, and Zeihan predicts the country will not survive as a unitary state. The five issues are:

1. While Americans do farming, the Chinese do gardening. This is because they had a surplus of agricultural labor, and gardening is more productive per acre than farming. By shipping labor off to the cities, China was forced into mechanized farming, which hasn't worked too well. Despite the huge capital investment, agricultural productivity has not grown proportionately. Mr. Zeihan predicts famine in China's near future.
2. China has over-invested in housing. Housing is the primary investment tool for middle-class Chinese, including many second- and vacation- homes, similar to what the stock market is in the US. By building too many houses, there will inevitably be a crash in prices, wiping out the wealth of much of the population.
3. Chinese demography is terrible. Unlike the US (with our large Millennial Generation), Chinese baby boomers were limited to one child each. Thus China is older than the United States, and it's labor force is actually shrinking. It's very difficult to grow an economy when your labor force is shrinking and the bulk of your population is retiring.
4. China has insufficient natural resources. It produces very little of its own energy, importing most from the Persian Gulf (to which, absent the US Navy, access is not guaranteed). It can't produce enough food to feed itself, and also must import the fertilizers and other inputs for its agriculture. Given the shortage of labor, the reversion to labor-intensive gardening looks unlikely. 
5. China is too big to be an export power. Economic success depends on a sharp increase in domestic consumption. But consumers are in the ages 30-50 demographic, i.e., the generation that doesn't exist in sufficient numbers in China. And they're not having any children, either. The result is Chinese consumption is purchased only by government debt, i.e., the government buying all kinds of products that citizens can no longer consume. Every financial institution in the country is insolvent. It will end badly.

Moral: Don't invest money in China!

Now for Germany: Mr. Zeihan takes the Marxist saw too literally: history repeats itself, first as tragedy, and then as farce. The "Germans" invaded Russia first in 1914, and then again in 1940. Contrary to Marx, Mr. Zeihan thinks they'll do it a third time. I believe he's ignoring history.

There were three "German" empires (Reich). The First Reich was under Charlemagne, founded in the Eighth Century, and that really was a German empire (without scare quotes). The capital was in Aachen, in the Rhineland. The Second Reich was founded by Bismarck in 1871, with it's capital in Berlin. But it wasn't really a German Empire, but rather a Prussian one.

The Prussians are originally a Baltic people--Old Prussian, spoken until the 18th Century, is related to Lithuanian. Ancestral Prussians lived in what became known as East Prussia, today parts of Lithuania and northeast Poland. They were first conquered by one of Charlemagne's heirs, and took to German language and culture with some enthusiasm. But they are not ethnic Germans--neither then nor now. They're Prussian. Mr. Zeihan seems to think they're just another species of "German."

Bismarck was very aware of this--his goal was a Prussian empire, not a German one. Indeed, he wanted the Kaiser to be dubbed the Emperor of the Germans rather than the German Emperor (it is only by accident that he didn't get his wish). He treated Germany proper (the Rhineland, Baden-Wurttemburg, Bavaria and Austria, along with Alsace and Lorraine--i.e., Catholic or Roman Germany) as colonies to be exploited. (This was especially true in Alsace and Lorraine.)

And even though Hitler was an ethnic German, the Third Reich was also a Prussian empire, not a German one. It's the Prussians who had an issue with Russia. The Drang nach Osten was never a German emotion, but solely a Prussian one.

In the meantime, Prussia has been completely destroyed. They've been ethnically cleansed from their native homeland. Today they live mostly in the former East Germany--a geography that has long been a Prussian satrapy. Berlin is the capital of Prussia, not Germany.

The Germans, properly understood, have no cause to pick a fight with Russia. And I doubt the Prussians have the resources to even think about it. More likely is Germany will re-divide into two states along the former iron curtain: proper Germany to the West, and a rump Prussia in the East.

I don't think Mr. Zeihan's story about Germany makes much sense, for this and other reasons. But his book is a lot of fun and well worth reading.

Further Reading:

• Book Review: Capitalism Alone
• Comrade Keith L. Writes About China
• Book Review: The Absent Superpower

Book Review: The Absent Superpower

So I'm on a Peter Zeihan tear this month--this is the third post in a row about that author. But now is the end of it, for as much as I agree with his premises and some of his conclusions, his recent (2016) book goes off the rails.

The first section, entitled Shale New World, is worth the read no matter what you think of Mr. Zeihan's opinions. It is a concise and clear description of the US and global shale industry, including relevant facts about technology, geology, chemistry and finance, all very clearly explained. In particular, my Trotskyist friends would do well to read this--not that it will change their minds, but at least they could argue their environmental extremist positions knowledgeably.

American frackers have worked hard to ameliorate the environmental problems of their trade, also making it cheaper in the process. For example, there has been much talk about the amount of water used in fracking. That was never as big problem as it was cracked up to be--the US industry uses less water American golf courses. Still, especially in arid areas, water had to be trucked to the site, and the resulting waste water was no longer usable by humans or agriculture.

What frackers have since discovered is that accompanying shale oil is also a layer of water far below the shallow ground water that makes up important aquifers. This deep groundwater is brackish, meaning it can't be used as fresh water, which is an advantage to frackers since they need to add salt to frack-water anyway. Further, organic material--algae, etc.--is a problem and aquifer water needs to be filtered to remove that. The deep groundwater contains little or no life, which saves money. Finally, they drill through the layer on their way to the oil, so water can be extracted on site, eliminating trucking costs.

While shale producers recycle as much wastewater as possible, eventually there is a disposal problem, which remains the largest environmental issue associated with fracking. Accordingly frackers have worked hard to make their solutions as non-toxic as possible. Today they restrict themselves to using non-toxic, consumer products as additives. Apparently there are YouTube videos showing frack executives drinking frack water!

The result is that the American frack industry is profitable at $35/barrel, competitive even with Saudi Arabia.

A second important point is that fracking is overwhelmingly an American industry, and Mr. Zeihan explains why that will remain true even two or three decades into the future, despite the fact that there are massive shale reserves elsewhere on the planet.

And that leads to the remainder of the book, which reads very much like a war thriller. It's as compelling as fiction largely because it mostly is fiction--at least in my opinion.

I accept Mr. Zeihan's two premises: 1) North America is already energy independent, and does not depend on global trade for oil; and 2) the United States no longer has any compelling reason to remain engaged in world affairs outside the Western Hemisphere, and therefore will no longer police global sea lanes or enforce international borders. 

The result will be the Great Disorder as the rest of the world fails on short notice to establish their own order. Mr. Zeihan predicts three wars, all occurring roughly simultaneously. The Twilight War, centered around the Baltic Sea, will pit Russia against Scandinavia, Poland, England, and probably Germany. Related to the Twilight War will be Russia's effort to secure its southeastern flank against Turkey by occupying land to the banks of the Danube in Romania.

The second war is the (Next) Gulf War which will pit Iran against Saudi Arabia, precipitated by the withdrawal of American forces from the Persian Gulf. This will lead, in extremis, to the complete de-civilization of the entire Middle East, including the destruction of the electricity network from Oman to Lebanon. It will result in 60 million deaths and/or refugees.

And finally is the Tanker War, caused by the closure of the Persian Gulf, along with most Russian oil exports. The Tanker War will be a struggle between China, Japan, Korea, and Taiwan to secure whatever little oil is left on the open market, and to protect their ships from the depredations of enemies, pirates, and third-party countries such as India that will engage in privateering.

Of course all of this could happen--anything could happen--but it's not likely. When I mentioned these scenarios to a friend of mine, he immediately asked Don't any of the countries have any diplomats? It's a good question--Mr. Zeihan's scenario assumes they don't and they all go for absolutely the worst possible outcome.

Let's take the Twilight War as an example--so named because Russia is in terminal demographic decline and has only a few more years to wage war of any sort. It will spend this opportunity attempting to recover the defensible boundaries of the former Soviet Union. Of course they will probably lose, and either way their demography will still decline, so this really doesn't make too much sense.

It's easy to come up with a diplomatic solution to the Twilight War. Germany, far from fighting Russia, has every reason to ally itself. In return for a guaranteed supply of oil and access to the Russian market, Germany will guarantee Russian borders. Indeed, Germany can guarantee all the borders in the Baltic region. As Mr. Zeihan points out, the Russians could invade the Baltic countries on a Sunday afternoon. There's no reason for them to do it preemptively when there is no military threat on the Western frontier. By treaty both Poland and the Baltics could be demilitarized.

Further, the Germans will float a flotilla down the Danube to Romania, and set up camp on the Black Sea. Of course they'll be keeping an eye on Russia, but their primary mission will be to defend against the real rising power in Eurasia--Turkey. On this front, too, the Germans and Russians are allies. Germany has been very quiet about objections to the Russian reconquest of Crimea, and is not all that upset by the Russian invasion of Ukraine precisely because the Turks are a bigger threat.

If the French navy can secure the Eastern Mediterranean, Russia can fortify the northern shores of the Black Sea, and Germany can defend Romania, Bulgaria, and mainland Greece against Turkey, then Europe is as secure as possible against either military or refugee invasions from the Middle East. The Russians can get back to doing what they most urgently need to do--make babies.

Turkey can relieve Iranian pressure on Saudi Arabia simply by attacking, or threatening to attack, Azerbaijan. With this tool the Turks can turn Saudi Arabia into a vassal state, reminiscent of the Ottoman Empire. By building a pipeline from Ghawar (Saudi's oil-producing region) to the Mediterranean, Turkey will have both the Iranians and Arabs by the short hairs.

There is no shortage of oil in the world--the only issue is transport disruption due to war. Get rid of the other wars, then the tanker war becomes unnecessary. Peace will prevail. And we'll all live happily ever after.

Or maybe not. It may not end as cheerily as I suggest. But Mr. Zeihan's predictions I think are almost certainly wrong.

Further Reading:

• Book Review: The Accidental Superpower
• New World Disorder
• North Korea

Book Review: The Accidental Superpower

The Accidental Superpower, by Peter Zeihan, has a long subtitle: "The Next Generation of American Preeminence and the Coming Global Disorder." The thesis is summarized in a talk Mr. Zeihan recently posted here, and which I reviewed in my previous post, here. Both the book and the talk are a perfect trifecta of things that interest me: geography, politics and economics. Accordingly, my enthusiastic account of the video might be described as "breathless."

I found the book equally fascinating, and I pretty much inhaled it as others might a good novel. Mr. Zeihan is a talented writer and makes an excellent case. But now I will force myself to take a more critical eye and look for weaknesses. There are a few.

Briefly, Mr. Zeihan's thesis is that two things have changed: 1) the Soviet Union is no more, and even Russia itself is in the process of disintegrating; 2) The shale revolution means that the United States is largely energy independent, and therefore no longer relies crucially on foreign trade as it once did.

The result is that the global free trade regime, institutionalized under the Bretton Woods framework, is breaking down. From the US perspective, Bretton Woods provided lots of allies as a bulwark against the Soviets, and also guaranteed American energy supplies, including from the Persian Gulf. In return, the US policed global sea lanes, ensuring safe travel from the Skagerrat and Malaccan Straits, all the way to the Straits of Hormuz and everything in between.

The result is the Soviet Union was defeated, and everybody got rich--from Western Europe to Japan, Korea, and even China, Israel, Chile, and more.

But now, because of shale oil, America has little incentive to patrol the global trade routes. Accordingly we will no longer guarantee shipping through the Persian Gulf or the Indian Ocean, or over much of the rest of the world as well. Absent energy needs, the USA depends less on trade than any other country on earth, and can simply rely on itself. Or so Mr. Zeihan maintains.

The US can get away with this new isolationism because it is blessed in two ways: geography and demographics.

Geographically, America has more navigable, internal waterways than the rest of the world combined, not even counting the intracoastal waterway from Chesapeake to the Rio Grande. Since transport by water--even today-- is more than a factor of ten cheaper than by truck, and still a factor of three cheaper than rail, the US has a huge advantage. Further, our water network overlaps the largest bit of agricultural land in the world. Put bluntly, a homesteader in Iowa had, via the Mississippi, cheap access to global markets, even from Day One in the early 19th Century. By comparison, today's small farmer in Mexico's Chiapas state still has no cheap access to any market, not even Mexico City.

The Iowan will get rich. The Chiapas peasant will remain poor no matter how much some stupid Commandante rails against the injustice.

Second, while birth rates have declined in most of the world, the US still has relatively bright demographic prospects (though perhaps not as bright as Mr. Zeihan imagines). By contrast, countries like Canada, Japan, Greece, and especially China and Russia, are facing a crisis.

Using these two factors as a guide, Mr. Zeihan offers predictions for the next 15 years, beginning in 2015. The book was written in 2014--a very long time ago. Back then oil cost $100/bbl, the Canadian dollar fetched US$1.05, and the word "trump" doesn't even appear in the index. Further, he never mentions robotics (a subject in the more recent video), which certainly changes the situation considerably.

Still, for all that, his predictions hold up reasonably well:

• Russia is at the point of demographic collapse and will cease to be a viable nation within the next decade.
• The Chinese economy will collapse, and China as a unitary state will disintegrate. He points out that China throughout its history has only briefly existed as a single state.
• Japan, no longer able to source oil from the Persian Gulf, will need to conquer neighboring, oil-bearing territories to meet its needs. He predicts that Manchuria and Sakhalin Island will fall to the Japanese.
• The fastest growing economy over the next fifteen years will be Mexico (though the spread of robotics might change this).

So I think all of this makes sense, and I am now making sure that my retirement funds don't include any investments in China--that part of his argument is completely convincing. Still, there are some flaws, and it is now my duty to point them out.

1) Geography and demographics are certainly important, but hardly determining. That America has a near-perfect geography is as much historical accident as anything. Andrew Jackson could have lost the Battle of New Orleans, or worse yet, not fought it at all. A president not named Lincoln might have agreed to Southern succession on the condition of peace. A talented Canadian negotiator could have settled on the 42nd parallel rather than the 49th. Any of these would have changed American history dramatically, negating our geographical advantage.

History is contingent. Or put another way, history is just one damn thing after the other. Geography is the stage on which it all takes place, but it really doesn't tell us very much about the ultimate outcome. None of Mr. Zeihan's predictions will come true if the US descends into civil war, or if California really secedes from the union, geography notwithstanding.

Demography isn't all that it's cracked up to be, either. For example, Greece and Japan both have similar geographies (mountainous, seafaring nations), and similar demographics (old). Yet the prognoses are very different: Greece is predicted to be a failed state, while Japan will muddle through mostly as is. Culture matters a lot. Mr. Zeihan gives it too short shrift.

2)  I don't think Mr. Zeihan understands very much about economics. Some of this is just semantic--he refers to geographically-rich countries such as the US as "capital-rich." I think "resource-rich" would be more precise. Capital is investment in plant and equipment, which can be bought and sold and where depreciation is a problem. None of that applies to the Mississippi River, at least not in any meaningful sense.

Despite having no navigable waterways, Japan is a capital-rich country because of its beautiful cities, high-tech factories, elaborate rail system, and skilled labor force.

3) Mr. Zeihan claims that because of the retirement of the baby-boomers, total capital will decline. This is partly because we're not saving anymore (I stopped saving last month), and also because we're living off our accumulated wealth.

And this is true as far as it goes, but Mr. Zeihan leaves out the other half of the picture. Beyond withdrawing our savings, we are also withdrawing our labor. Capital is often usefully expressed as capital density: capital per worker. If total capital declines and the total number of workers declines, there is no obvious change in the capital density. So I think Mr. Zeihan exaggerates the scale of this problem.

The more important problem is the decline in the labor force. If Mr. Zeihan had phrased his argument from that point of view I think he'd make a stronger case.

4) Despite the crystal clarity in most of the book, there are a few sections that just didn't make any sense. For example, he claims that the Mexican drug war will lower the cost of labor--and for the life of me I don't understand his argument. It doubt it's true. First, a drug business, and much more a war, requires labor and therefore competes with other industries, raising wages. And second, civil discord makes labor less flexible and less productive, increasing the total cost. Again, I don't believe he thinks like an economist.

5) Mr. Zeihan apparently has never heard of comparative advantage. While the geopolitics he describes will undoubtedly change the comparisons by which the advantage is calculated, the principle will still hold.

Mr. Zeihan lumps all 1.2 billion Chinese together as "low-cost labor." But surely among that mass of humanity there exists particular skills and infrastructure that are comparatively advantageous--be it porcelain or shoelaces or rice or whatever. The US will still trade with China.

So I am skeptical that there will be the collapse in world trade that he predicts. Yes, the Americans will withdraw from the Persian Gulf and the Indian Ocean. And maybe even from the Mediterranean. But likely not from other important trade routes.

So he's left out culture and economic complexity. That let's him tell a simple, engaging, largely convincing story. It's fun to read. I think it's mostly true. But it is far from inevitably true. And indeed, there are enough differences between the book (2014) and the video (2017) to indicate that it won't be true.

Further Reading:

• Book Review: Everybody Lies: Big Data, New Data...
• Abandoning the Working Class!
• Book Review: The Frackers

New World Disorder

My Trotskyist friends celebrate the supposed decline of American empire. They see this as the beginning of the end; the start of the breakdown that will climax in World Revolution. US imperialism is playing a losing game of whack-a-mole trying to smash rebellions in remote corners of the world: Syria, Afghanistan, Venezuela, Iran, etc. The Socialist Workers Party takes this furthest, going so far as to claim the US lost the Cold War in 1991.

So last night I listened to an amazing talk by Peter Zeihan, entitled The New President & World Challenges (h/t Arnold Kling). It's a bit over an hour long, but Mr. Zeihan is an entertaining speaker, and his ideas are very provocative. Highly recommended! Indeed, I'm sufficiently inspired to write about it now, despite the fact that I've just ordered his book and should probably wait until after I've read it. [I've since posted reviews of Mr. Zeihan's books here and here.-ed]

Mr. Zeihan does say that we're at an inflection point in world history, symbolized not by the end of the Cold War, but rather by the end of Bretton Woods (BW). BW was an agreement between the United States and the Free World that the US would control the world financial system, while in return we would 1) guarantee global security, specifically the flow of trade routes and oil supplies, and 2) allow free entry into the US marketplace. To keep its end of the bargain, the US built by far the strongest military in the world.

That agreement worked spectacularly well. After Nixon visited China, that country also became part of the "free world", and the system brought 400,000,000 people out of poverty. Japan and South Korea took maximum advantage of BW, to spectacular effect. And of course the Marshall Plan (which depended crucially on open US markets) was a smash hit. Organizations such as NATO prevented global war for 70 years, and the European Union was founded on the assumption that global peace was durable.

So what went wrong? Nothing, really, but something very dramatic went right. Fracking. Within a period of about 10 years the US went from being dependent on oil imports to being a net oil and gas exporter. Today we buy next to nothing from the Persian Gulf. Our need for the Venezuelan resource has dwindled to nearly zero, and even Mexico can't sell oil to it's northern neighbor.

For years this was euphemistically proclaimed as North American energy independence, as if we were dependent on Canada. And perhaps at one point we were, but no longer today. The much maligned Keystone Pipeline would have found a ready market as recently as 2008, but today it becomes irrelevant. American shale gas and oil are more than sufficient to supply the entire economy.

Further, they are now competitive on price with everybody but the Persian Gulf states, and on present trends US frackers will be the world's low-cost producers by 2022 or so.

Good news! Right?

For the United States, yes, but not for the rest of the world. The US now has no economic interest in the Persian Gulf, and therefore no incentive to maintain security there. Mr. Zeihan points out that historically the US maintained an aircraft carrier group in the Persian Gulf at all times. Today our ships are there only half the time. He predicts that soon enough there will be no American naval presence in the Persian Gulf at all.

Of course protecting the Persian Gulf means defending the sea lanes approaching the Gulf, especially from northeast Asia, which countries depend crucially on that energy source. But America's enthusiasm for defending their trade routes has also diminished. Japan and China are in a panic--they do not have the ability to protect those trade routes themselves, much less preserve peace in the Middle East.

A knock-off effect is the US no longer needs bases in Western Europe, which were used as a forward base for the Middle East. Indeed, Mr. Zeihan claims that the US now has fewer troops posted abroad than any time in postwar history. And our footprint is about to shrink further.

Of course Europe also depends on Persian Gulf oil, and will be equally unable to secure it for itself. The result is that Germany becomes dependent on Russia (and vice versa). The geopolitical calculus that led to the Hitler-Stalin pact reasserts itself. NATO is dead. So is the EU.

So doesn't the US care about the fate of its allies? A whole lot less than you might think, and that leads to the second disastrous piece of good news: artificial intelligence (AI).

AI reduces the need for large amounts of low-cost labor. All those women slaving away in the textile mills of China, Vietnam, Bangladesh, etc. are about to be rendered redundant. That manufacture will now be done by machine, with only a small fraction of the employees. Labor costs will not be the determining factor, but instead electricity (cheaper in the US than anyplace else), proximity to markets, and availability of natural resources will clinch the deal.

In a word, manufacturing moves back to the United States. Big time. That's already occurring. Instead of the infernal mills, it will be local, flexible, small-scale, cheap, and very close to the customer. It's all very good news...for the United States.

China, meanwhile, goes bankrupt. Mr. Zeihan points out that China has existed as a unified state only for brief periods in its history. He predicts disintegration, or perhaps only civil war possibly leading to disintegration. China will resume its historical role of not being part of the world economy. Poverty for Everybody Now--my Trotskyist friends should be happy.

Donald Trump has likely never seen Mr. Zeihan's video nor read his book. He's not an intellectual sort. But he clearly has an intuitive sense of the immense bargaining power the United States now has over its so-called "allies." 

President Xi, Angela Merkel, Theresa May, Shinzo Abe, and Justin Trudeau all paid Mr. Trump a visit. (You really need to watch the video to see the humor in that situation.) Trump somehow understands that these people have absolutely no bargaining power whatsoever! Mr. Xi (according to Zeihan) basically conceded everything that Trump asked for in the vain hope that the US will continue to trade with China as it always has.

Theresa May offered a free trade deal with the US, pretty much entirely on American terms and in violation of EU law (Brexit hasn't happened yet).

Angela Merkel had nothing to offer the US, and thus came away with nothing. Germany is no longer a US ally in any meaningful sense of the word.

Justin Trudeau wants to maintain NAFTA, but Trump understands that Trudeau has no choice but to accept American terms of trade no matter what. NAFTA will turn into an American diktat.

All of these world leaders need the US way more than the US needs them. They came to Washington not to negotiate or bargain, but rather in abject supplication.

Welcome to the New World Order. And be very grateful that you live in the United States of America.

Further Reading:

• Venezuela
• Book Review: Rise & Fall of American Growth
• Capitalism Just Won't Sit Still