Too Big to Fail

or at least too big to understand. Although he is undoubtedly better informed than I, I disagree with Edward Luttwak’s claim that Xi Jinping has bankrupted China and China’s economy is on the very of collapse. He does provide some interesting examples:

How do wonderful infrastructures destroy wealth? One example is sufficient. In 2018, on a drive along the North Korea border, I encountered a vast and beautiful white six-lane highway suspension bridge across the Yalu river. It was built to connect the Chinese city of Dandong with North Korea, to service the trade boom Xi expected with the promised opening of the North’s economy. Naturally, it would require a customs house, duly built as a very impressive high-rise, warehouses and more than 10 blocks of commercial offices. Yet when I visited, the bridge ended in a North Korean potato field, traffic was exactly zero, the customs house was empty and so were the office blocks and warehouses, some paid for by private border merchants who were bankrupt when I met them in Dandong (they openly cursed Xi for going along with the US-sponsored Security Council Embargo).

Savings that could have enriched many Chinese citizens, including the 180 million officially counted as “very poor” and the further 300 million or so still trapped in poverty, were instead wasted on the Yalu bridge complex, with uncountably greater waste on infrastructure all across China.

I am quite confident that China is virtually littered with bridges to nowhere, highways that remain unused, and apartments that will collapse before they are occupied. Those are completely foreseeable consequences of the web of incentives that the central government has imposed on or provided to local governments and private companies in China.

Still, as Adam Smith observed 300 years ago, there is a great deal of ruin in a country and, as the world’s most populous (or second more populous) country, China has more than most.

My own suspicion is that contrary to what many experts are saying, China will survive its slowing economy. What will actually happen may be even worse than collapse. I think that China, like the Soviet Union before it, “grew its economy”, to use Bill Clinton’s infelicitous phrase by transferring relatively none productive labor resources from agriculture to manufacturing. The Chinese authorities were more skilled than the Soviet; China has managed the feat without reducing agricultural production. Still, that’s a strategy that can only go so far and in China it has now run its course.

The Chinese authorities have put a number of short-sighted policies in place whose full impact will be seen in due course. Not just the “One Child Policy”. An over-reliance on factory jobs for which the preferred workers are woman of childbearing age will have long-lasting effects as well. China also appears to be following a pattern seen in many developing countries in which most people with college educations are employed by the government. When the government does not need as many people with college educations as are being produced what will they do?

Don’t be too smug. Here we’re even crueler—we arrange things so many young people with college educations will never earn enough to escape their debts and lower entry-level wages by exporting jobs while importing a labor force.

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The Nonsense Parties

Ruy Teixeira lists some propositions he deems commonsensical ones with the polling data to support them:

  • Equality of opportunity is a fundamental American principle; equality of outcome is not. (73 percent agree/13 percent disagree)
  • America is not perfect but it is good to be patriotic and proud of the country. (81 percent agree/14 percent disagree)
  • Discrimination and racism are bad but they are not the cause of all disparities in American society. (70 percent agree/24 percent disagree)
  • No one is completely without bias but calling all white people racists who benefit from white privilege and American society a white supremacist society is not right or fair. (77 percent agree/15 percent disagree)
  • America benefits from the presence of immigrants and no immigrant, even if illegal, should be mistreated. But border security is still important, as is an enforceable system that fairly decides who can enter the country. (78 percent agree/14 percent disagree)
  • Police misconduct and brutality against people of any race is wrong and we need to reform police conduct and recruitment. More and better policing is needed for public safety and that cannot be provided by “defunding the police.” (79 percent agree/15 percent disagree)
  • There are underlying differences between men and women but discrimination on the basis of gender is wrong. (82 percent agree/12 percent disagree)
  • There are basically two genders, but people who want to live as a gender different from their biological sex should have that right and not be discriminated against. However, there are issues around child consent to transitioning and participation in women’s sports that are complicated and far from settled. (73 percent agree/17 percent disagree)
  • Racial achievement gaps are bad and we should seek to close them. However, they are not due just to racism and standards of high achievement should be maintained for people of all races. (74 percent agree/16 percent disagree)
  • Language policing has gone too far; by and large, people should be able to express their views without fear of sanction by employer, school, institution or government. Good faith should be assumed, not bad faith. (76 percent agree/14 percetn disagree)

along with an eleventh for which he does not have polling data:

  • Climate change is a serious problem but it won’t be solved overnight. As we move toward a clean energy economy with an “all of the above” strategy, energy must continue to be cheap, reliable and abundant. That means fossil fuels, especially natural gas, will continue to be an important part of the mix.

I agree with all of those and I would venture to say that a majority of people in both political parties do. Maybe I’m kidding myself but the polling data certainly suggests I’m not.

He then asks two questions. How comfortable would most Democratic Party politicians be in endorsing the full range of those positions? How about Joe Biden?

I would say they would be extremely uncomfortable and I believe I know why. The views they dare to articulate are not the views of the people they notionally serve but the views of people who contribute to political campaigns or work in campaign organizations and those people are much more radical than most Americans. There is little likelihood of that changing. At least not peacefully.

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What Has Been Lost and Gained

On Friday my wife and I shared a dinner that was unusual at least for us. Other than the fresh (at least fresh-ish) sockeye salmon that I had received from my “small fisherman to table” subscription service I’ve mentioned before, we had lettuce, tomatoes, and potatoes, all grown in our own garden. Simply prepared, all were incredibly delicious.

The more distant we get from the land, the more we lose sight of what food actually tastes like. What we buy in our markets are either highly processed or fruit and vegetable varietals selected because they ship, store, and display well rather than because they’re tasty.

It hasn’t always been that way and doesn’t have to be that way. Until about 80 years ago every city in the United States was ringed by mile after mile of “truck gardens”. You can frequently see the remains of old truck gardens in nurseries and garden centers with greenhouses. At least there was some chance of getting fresh-grown fruits and vegetables. Now the produce we buy has all too frequently been shipped for days or even weeks from thousands of miles away.

We’re able to get produce out of season but don’t kid yourself. It doesn’t taste as good as locally grown and freshly picked produce. A simple example is corn on the cob. Good as it may be the fresh corn you buy in the store isn’t nearly as good as fresh corn you’ve picked yourself, cooked, and eaten nearly immediately. The natural sugars in the corn have continued to turn into starch while it was shipped, stored, and displayed.

Bananas in places that actually grow bananas taste much better than the hard, bland things we get here.

Specialization has resulted in greater economic development than would otherwise have been possible but we’ve lost in that process as well.

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What I Think About the War in Ukraine

In this post unless I specify otherwise “Russian” refers to ethnic Russians, “Ukrainian” refers to ethnic Ukrainians, etc.

Having devoted a considerable amount of time studying the language, history, and culture of Russia, I would suggest that Russians are illiberal and predisposed to autocracy. I think that Ukrainians are basically Polonized Russians. There are some differences but they are differences in detail.

I think we should support the Ukrainians in their conflict against the Russians (who were wrong to invade Ukraine) and use whatever influence that gives us with the Ukrainians to encourage them to settle for something less than the pre-2014 borders. The territory of Ukraine is not and never has been a nation-state in the sense of a country consisting of a single ethnicity. It has always been multi-ethnic and multi-cultural.

Immediately following the Maidan Revolution of 2014 the new government signalled its objective of turning Ukraine into a nation-state. Although I think we should support the Ukrainians in their fight against the Russians I think we should be cautious about supporting the Ukrainians’ goals since they are not ours.

8% of the population of Crimea was Ukrainian. 90% were Russians or Tatars. The population of Donetsk Oblast was split roughly evenly between Russians and Ukrainians. The population of Luhansk Oblast was about 40% Russians and 50% Ukrainians. I say “was” because we have next to no idea what their population demographics are now. IMO what makes the most sense is for Crimea to federate with Russia while Donetsk and Luhansk be granted substantial autonomy.

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The Post’s Plan for Rare Earths and Other Materials


Having finally come to their senses the editors of the Washington Post articulate their plan for wresting control of the production and processing of rare earths and other materials used in battery production from China:

The U.S. transition to cleaner energy technology is underway, supported by new incentives in the Inflation Reduction Act. Benefits to the planet could be significant. Yet so could the geopolitical risks to the United States. Moving from fossil fuels to wind and solar power means shifting from reliance on resources the United States produces to reliance on imported ones. And for many of the materials — lithium, nickel, copper, cobalt — the United States’ long-term adversary China is a key producer, processor or both.

The most useful aspect of the piece is the graphic at the top of this post which illustrates the top three producers and processors of a number of key materials. It provides a succinct statement of the problem.

The editors conveniently neglect to mention that until recently the United States was the biggest processor if not the biggest producer of most of those materials. U. S. companies have largely gotten out of those businesses due to a combination of regulations, Chinese investment, and Chinese dumping.

The editors’ plan consists largely of recognizing that this race is a marathon rather than a sprint and something they call “friend-shoring”. So, for example, Canada could produce a lot more cobalt than it does at present, and would be a good source.

This is the best advice in the editorial:

Environmentalists should remember: The question is not whether mining will occur but where. If not under regulated conditions in this country, it could well be in places such as the Democratic Republic of Congo, the world’s leading cobalt source. Though companies there have cleaned up their act recently, working conditions remain poor and a significant minority of the substance still comes from artisanal mines, often dug by children.

A shorter version would be that for the last 30 years they’ve been wrong and I’ve been right. We should have taken whatever steps were necessary to maintain our production and processing. Now we need to play catch-up which will be more expensive than maintaining our production and processing would have been.

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What I Think of the Democrats

I’ve already explained what I think about the Republican Party. Now it’s the Democrats’ turn. Consider this news story from yesterday at ABC 7 Chicago:

CHICAGO (WLS) — The jury in Tim Mapes’ perjury case found the former Michael Madigan confidant guilty on two counts at the Dirksen Federal Building Thursday afternoon.

Mapes was charged with one count of making false declarations before a grand jury and one count of attempted obstruction of justice.

The 68 year old was found guilty on both counts after roughly five hours of deliberating.

Mr. Madigan himself is under indictment on charges of corruption. I don’t know whether he will be convicted or not but at least to me his guilt is pretty obvious. Mike Madigan was chairman of the Illinois Democratic Party most of the last 40 years. That party leaders were blithely unaware of Mr. Madigan’s actions is beyond comprehension.

Many Democrats these days have what I can only describe as an obsession with Donald Trump. He’s all they want to write or talk about. IMO those who voted for him did so in the hope that he would “drain the swamp”. That there is a swamp to drain is obvious to anyone who will allow him- or herself to see it but thinking he could drain it was mistaken. He can only make it swampier.

Simplifying everything I think that we have an anti-government party, the Republicans, who have a severe case of cognitive dissonance and a pro-government party, the Democrats. As I see it the only hope we have is for a decent, honest Democratic Party that is true to the ideals it has claimed for the last 80 years. In my own small way I’m trying to nudge them in that direction. I can’t do that by complaining about Republicans.

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What I Think of the Republicans

To understand why I post as I do, it might be helpful to understand the situation in Illinois. In Illinois Democrats hold veto-proof majorities in both houses of the legislature and a Democrat is governor. The Illinois Republican Party continues to exist but it is, as has been said, supine. If every Republican were to vanish magically from the state of Illinois it would make no difference whatever in Illinois’s situation.

In Chicago no Republican has even bothered running for mayor for a decade or more. When people vote for the Democratic candidates it’s because those are the candidates running.

I have no idea what Republicans are thinking at the national level. The only thing they can seem to agree on is they want lower taxes. Consider the following (rather complicated) chart:

As that chart illustrates even were we to eliminate all spending other than healthcare spending, Social Security, interest on the debt, and defense, we would still be running a deficit.

Republicans have defended entitlement spending and defense spending and yet still want to cut taxes. There’s a mismatch there that I simply don’t understand.

I think establishment Republicans like establishment Democrats are hopelessly corrupt. They are so corrupt they don’t even realize it’s corruption any more.

Why should I perseverate in kvetching about Republicans? They have no impact on my life.

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The First Republican Debate

I did not listen to the first Republican candidates’ debate. I don’t plan to listen to any of them although I might if someone other than Trump begins to seem more likely to emerge as the Republican candidate for president.

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Shrinkage


When I first encountered the peculiarities of retail accounting, I was introduced to the term “shrinkage”, the euphemism for theft, damage, etc. of merchandise.

The editors of the Wall Street Journal are noticing shrinkage, too:

The shares of Dick’s Sporting Goods, Foot Locker and other retailers are selling off this week as companies report lower earnings amid softer consumer spending. But retail executives are also pointing to another trend shrinking profits: Theft.

Second-quarter earnings were dented by “higher inventory shrink, organized retail crime and theft in general, an increasingly serious issue impacting many retailers,” Dick’s CEO Lauren Hobart said on an earnings call Tuesday. Dick’s CFO added that “the number of incidents and the organized retail crime impact came in significantly higher than we anticipated.”

Foot Locker executives likewise noted on Wednesday that inventory “shrink” has been increasing. Target CEO Brian Cornell last week said that “shrink” remained “well above the sustainable level where we expect to operate over time,” and that the company was facing “an unacceptable amount of retail theft and organized retail crime.” Home Depot execs last week also flagged “pressure from shrink” on earnings. As did Walmart execs. “Shrink has increased a bit this year. It increased last year,” its CFO noted, adding that “shrink” was “uneven” across the country. “There needs to be action taken to help protect people from crime, including theft,” said CEO Doug McMillon.

I found “sustainable level where we expect to operate over time” an interesting choice of words. It suggests that if the present level of organized retail theft continues, it will accelerate the transition to online that has been proceeding for the last 25 years, accelerate it even. That will only be good for online retailers and will especially hurt cities and the people who live in them, particularly people in the poorer neighborhoods.

What I expect to emerge from this are calls for the enforcement of sales taxes on all online retailers, whether they have a local nexus or not.

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Who Didn’t Want Him Dead?

I realize that just about everybody assumes that Putin had Prigozhin killed. He might have but what strikes me is the long list of people who wanted him dead. Did anyone not want him dead?

I think that for reasonability deniability if no other reason that it’s more likely that Sergei Shoigu of the Russian Ministry of Defense had Prigozhin’s aircraft shot down. IMO he was more of a threat to Shoigu than he was to Putin.

Update

I continue to hear all sorts of theories about the downing of the aircraft. The most convincing argument that I have heard against Putin having been behind it is that if Putin had wanted him dead he would have been killed earlier and in a less messy fashion. The wildest idea I have heard is that NOONE was on the plane; it was controlled remotely and destroyed to throw Western intelligence into a frenzy. If that was the objective, mission accomplished.

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