Author: admin

Executives of Chinese companies which produce chips — vital in every device that stores data from computers to mobile phones to barcode scanners — are increasingly worried their industry is next on the Trump sanctions hit list, also after widespread reports that Beijing plans to in desperation ramp up its lagging domestic semiconductor development over the next decade as continued outside access to the most advanced chips looks increasingly in doubt.

Some are speaking out, attempting to make crystal clear to Washington that they are not puppets of either the Chinese state or PLA military. The country’s largest and leading homegrown chipmaker, Semiconductor Manufacturing International Corp. (SMIC), is vehemently denying its technology is for military use after Reuters on Friday said Trump is mulling adding the publicly traded company to a US blacklist.

The Shanghai-based company expressed that it is “in complete shock” over contents of the report, which said earlier this past week that “the Pentagon made a proposal to place SMIC on the entity list to the End User Committee, a panel led by the Commerce Department that also includes the State and Energy Departments and makes decisions about entity listings.”

A follow-up official Semiconductor Manufacturing International statement said Saturday:

“The company manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses. We have no relationship with the Chinese military.”

The statement added, “Any assumptions of the company’s ties with the Chinese military are untrue statements and false accusations.”

At moment there’s an inter-agency review underway in Washington over whether to add the company to the list, which would immediately require American suppliers to obtain a specially approved license in order to ship materials to the company. If it goes on the list, SMIC would go the way of Huawei in facing huge hurdles and intense scrutiny any time it does business with Western companies. 

Meanwhile some are counter-threatening various nuclear option scenarios, a rapid downward spiral:

US/China tit-4-tat horror.
“The suggestion from econ prof Li Daokui that China curb exports of medicines as a means of countering US economic curbs on Chinese access to semiconductor products is plainly wrong, dangerous…”https://t.co/2jIKw0CoJv

— Laurie Garrett (@Laurie_Garrett) September 1, 2020

Consider the dire warnings issued at the World Semiconductor Conference held in Nanjing at the end of August of the fragile early state of China’s domestic capabilities. 

Bloomberg relates of one of the more revealing conference moments:

“The entire chip industry is too fragile to defend itself. We are at least 20 years behind comparing to Silicon Valley from scale and quality of talent to size of the ecosystem,” said Wang Xuguang, chief executive officer of AINSTEC, a Suzhou-based company that develops 3D visual chips. “If we can prosper (with the U.S.), that’s the best, but if the situation doesn’t allow this to happen, we need to think what we have on our hands.”

Crucially, China remains the world’s largest importer of chips, and will spend some $300 billion to import semiconductors this year.

The country still faces a huge technology gap in this area which Chinese developers have struggled to close over and ahead of more advanced industry rivals in the US, Japan, and Europe.

Authored by Pepe Escobar via The Asia Times,

With rising integration among China, Iran and Pakistan, India is integrated only with its own inconsistencies…  

There was a time when New Delhi was proudly selling the notion of establishing its own New Silk Road – from the Gulf of Oman to the intersection of Central and South Asia – to compete with China’s Belt and Road Initiative (BRI).

Now it looks like the Indians have stabbed themselves in the back.

In 2016, Tehran and New Delhi signed a deal to build a 628-km rail line from strategic Chabahar port to Zahedan, very close to the Afghan border, with a crucial extension to Zaranj, in Afghanistan, and beyond.

The negotiations involved Iranian Railways and Indian Railway Constructions Ltd. But in the end nothing happened – because of Indian foot-dragging. So Tehran has decided to build the railway anyway, with its own funds – $400 million – and completion scheduled for March 2022.

The railway was supposed to be the key transportation corridor linked to substantial Indian investments in Chabahar, its port of entry from the Gulf of Oman for an alternative New Silk Road to Afghanistan and Central Asia.

Upgrading rail/road infrastructure from Afghanistan to its neighbors Tajikistan and Uzbekistan would be the next step. The whole operation was inscribed in a trilateral India-Iran-Afghanistan deal – signed in 2016 in Tehran by Indian Prime Minister Narendra Modi, Iranian President Hassan Rouhani and then Afghan President Ashraf Ghani.

The unofficial New Delhi excuse revolves around fears that the project would be slammed with US sanctions. New Delhi actually did get a Trump administration sanctions waiver for Chabahar and the rail line to Zahedan. The problem was to convince an array of investment partners, all of them terrified of being sanctioned.

In fact, the whole saga has more to do with Modi’s wishful thinking of expecting to get preferential treatment under the Trump administration’s Indo-Pacific strategy, which relies on a de facto Quad (US, India, Australia, Japan) containment of China. That was the rationale behind New Delhi deciding to cut off all its oil imports from Iran.

So far all practical purposes, India threw Iran under the bus. No wonder Tehran decided to move on its own, especially now with the $400 billion, 25-year “Comprehensive Plan for Cooperation between Iran and China”, a deal that seals a strategic partnership between China and Iran.

In this case, China may end up exercising control over two strategic “pearls” in the Arabian Sea/Gulf of Oman only 80 km away from each other: Gwadar, in Pakistan, a key node of the $61 billion China-Pakistan Economic Corridor (CPEC), and Chabahar.

Tehran, so far, has denied that Chabahar port will be offered on a lease to Beijing. But what is a real possibility, apart from Chinese investments in an oil refinery near Chabahar, and even, in the long run, in the port itself, is an operational link between Gwadar and Chabahar. That will be complemented by the Chinese operating the port of Bandar-e-Jask in the Gulf of Oman, 350 km to the west of Chabahar and very close to the hyper-strategic Strait of Hormuz.

How corridors attract

Not even a Hindu deity on hangover could possibly imagine a more counter-productive “strategy” for Indian interests in case New Delhi backs off from its cooperation with Tehran.

Let’s look at the essentials. What Tehran and Beijing will be working on is a de facto massive expansion of CPEC, with Gwadar linked to Chabahar and further onwards to Central Asia and the Caspian via Iranian railways, as well as connected to Turkey and the Eastern Mediterranean (via Iraq and Syria), all the way to the EU.

This game-changing progress will be at the heart of the whole Eurasian integration process – uniting China, Pakistan, Iran, Turkey and of course Russia, which is linked to Iran via the International North-South Transport Corridor (INSTC).

For the moment, for all its hefty reverberations in multiple areas – upgrade of energy infrastructure, refurbishing of ports and refineries, construction of a connectivity corridor, investments in manufacturing, and a steady supply of Iranian oil and gas, a matter of national security for China – there’s no question that the Iran-China deal is being effectively downplayed by both sides.

The reasons are self-evident: not to raise the Trump administration’s ire to even more incandescent levels, considering both actors are considered “existential threats”. Still, Mahmoud Vezi, chief of staff for President Rouhani, guarantees the final Iran-China deal with be signed by March 2021.

CPEC, meanwhile, is on a roll. What Chabahar was supposed to do for India is already in effect at Gwadar – as transit trade to Afghanistan started only a few days ago, with bulk cargo arriving from the UAE. Gwadar is already establishing itself as a key transit hub to Afghanistan – way ahead of Chabahar.

For Kabul, the strategic factor is essential. Afghanistan essentially depends on overland routes from Pakistan – some can be extremely unreliable – as well as Karachi and Port Qasim. Especially for southern Afghanistan, the overland link from Gwadar, through Balochistan, is much shorter and safer.

For Beijing, the strategic factor is even more essential. For China, Chabahar would not be a priority, because access to Afghanistan is easier, for instance, via Tajikistan.

But Gwadar is a completely different story. It’s being configured, slowly but surely, as the key Maritime Silk Road hub connecting China with the Arabian Sea, the Middle East and Africa, with Islamabad collecting hefty transit funds. Win-win in a nutshell – but always taking into consideration that protests and challenges from Balochistan simply won’t disappear, and require very careful management by Beijing-Islamabad.

Chabahar-Zahedan was not the only recent setback for India. India’s External Affairs Ministry has recently admitted that Iran will develop the massive Farzad-B gas field in the Persian Gulf “on its own” and India might join “appropriately at a later stage”. The same “at a later stage” spin was applied by New Delhi for Chabahar-Zahedan.

The exploration and production rights for Farzad B were already granted years ago for India’s state company ONGC Videsh Limited (OVL). But then, again, nothing happened – due to the proverbial specter of sanctions.

Sanctions, by the way, had been in effect already under Obama. Yet at the time, India and Iran at least traded goods for oil. Farzad B was scheduled to be back on track after the signing of the JCPOA in 2015. But then Trump’s sanctions iced it again.

It doesn’t take a PhD in political science to ascertain who may eventually take over Farzad B: China, especially after the signing of the 25-year partnership next year.

India, against its own energy and geostrategic interests, has in fact been reduced to the status of hostage of the Trump administration. The real target of applying Divide and Rule to India-Iran is to prevent them from trading in their own currencies, bypassing the US dollar, especially when it comes to energy.

The Big Picture though is always about New Silk Road progress across Eurasia. With increasing evidence of closer and closer integration between China, Iran and Pakistan, what’s clear is that India remains integrated only with its own inconsistencies.

With the media poised to pounce on negative Covid headlines at any chance they are given, it is more important now than ever to make sure that those headlines are accurate.

Inaccurate headlines can cause an uproar, as we found out last week when it was falsely reported that an astonishing 30% to 35% of Big Ten college athletes that were positive for Covid also had myocarditis – inflammation of the heart muscle. It was an astonishing figure that may left the world thinking: if 30% to 35% of college athletes were getting it, surely everyone else was, too. 

The reports generated sprawling headlines in national media over the next few days, like this one in USA Today:

And this one from the Pittsburgh Post-Gazette:

“When we looked at our COVID-positive athletes, whether they were symptomatic or not, 30 to roughly 35 percent of their heart muscles are inflamed … and we really just don’t know what to do with it right now. It’s still very early in the infection. Some of that has led to the Pac-12 and the Big Ten’s decision to sort of put a hiatus on what’s happening,” Penn State Doctor Wayne Sebastianelli said on Monday.

Reports like the one in USA Today read: “…cardiac scans of Big Ten athletes who contracted COVID-19 showed ’30 to roughly 35 percent of their heart muscles’ indicated symptoms of myocarditis.” 

The figured sounded enormous to us; in fact, we almost did a write up on the headline earlier this week but decided to hold off to see if more information would become available.

And, lo and behold, more information did become available. Turns out the earlier headlines simply weren’t true.

In what can only be described as a barrage of corrections from places like The Washington Post and CNN published less than 48 hours from the original report, it was revealed that the doctor was “unintentionally citing outdated numbers”. 

A spokesman for the school’s health department clarified: “During his discussion with board members, (Sebastianelli) recalled initial preliminary data that had been verbally shared by a colleague on a forthcoming study, which unbeknownst to him at the time had been published at a lower rate.”

The continued: “Additionally, some have inferred his comments may have related directly to Penn State student athletes. At this time, there have been no cases of myocarditis in COVID-19 positive student-athletes at Penn State.”

Regardless, the Big 10 conference has already announced that it would be postponing fall sports as a result of the coronavirus. A conference spokesperson said:

“As time progressed and after hours of discussion with our Big Ten Task Force for Emerging Infectious Diseases and the Big Ten Sports Medicine Committee, it became abundantly clear that there was too much uncertainty regarding potential medical risks to allow our student-athletes to compete this fall.”

Authored by Ryan McMaken via The Mises Institute,

Since at least as early as the mid-1990s, the term “militia” has been increasingly used by journalists and scholars on the left in connection with alleged “right-wing extremists.”

Over time, the term “militia” has been used to describe nearly any group of nonleftist armed men, and has been generally used in close connection with terms like “extremism,” “violence,” and “vigilante.” We have been reminded of this in recent years during riots in places like Ferguson, Missouri (in 2014), and Kenosha, Wisconsin (in 2020). In both cases, armed volunteers attempted to assist private sector business owners with protecting their property from looters and rioters. And in both cases, the volunteers were described with terms such as: “violent,” “militia,” “extreme,” and “white vigilante.”

Historically in the United States, however, the term “militia” had entirely different connotations. Throughout much of the nineteenth century, militias were considered to be common institutions central to civic and community life. They were a common fixture of local festivals and celebrations, and they functioned in some ways as fraternal orders function today.

Although some critics of the militia idea have attempted to claim militias existed primarily to suppress slave rebellions, the fact is militias were common and widespread in Northern states where they had no role whatsoever in maintaining the institution of slavery. In fact, militias often served an important role in providing opportunities and community cohesion for new immigrants.

The Local Militias of the Nineteenth Century

What’s more, many militias were independent of a centralized state militia system and functioned largely as private entities. They elected their own officers, were self-funded, and trained on their own schedules. Although they were ostensibly commanded by the state governors, this system of functionally private militias became an established part of daily life for many Americans. These were local volunteer militias with names like the “Richardson Light Guard,” the “Detroit Light Guard,” or the “Asmonean Guard.” They were essentially private clubs composed of gun owners who were expected to assist in keeping law and order within the cities and towns of the United States.

They were separate from the so-called common militias, which developed in the eighteenth and early nineteenth centuries, and which in many cases were staffed with conscripts, were funded with tax dollars, and were commanded by an established state bureaucracy.

But by the Jacksonian period, new volunteer militias began to arise. As noted by Jeffrey Rogers Hummel, the United States by the 1830s had seen “a remarkable growth in the privately organized volunteer militia. The number of volunteer units had been expanding steadily since the American Revolution, but after the war of 1812, it exploded. Three hundred sprang up in California alone between 1849 and 1856.”

These groups were, in the words of historian Marcus Cunliffe, “volunteer companies existing independently of the statewide system of militia, and they held themselves aloof from the common mass. They provided their own uniforms.”

They also elected their own officers, did their own fundraising, staffed their own governing boards, and sought out for themselves a secure position within the communities where members lived. In earlier decades, especially the 1830s and 1840s, these groups tended to be “elite” in the sense that they attracted upper middle– and upper-class members of the community. This was in many cases because of the cost of funding these volunteer militias.

As a member of the Detroit Light Guard remembered, “at that time the company got nothing from the State. They had to pay for all they got, uniforms and all.”

But by the 1850s, firearms and uniforms were becoming more affordable to the middle and working classes. This brought in many new members from outside the local elite circles of established families. Moreover, some militias were able to solicit funding from wealthy members of the community who acted as patrons. The case of the Richardson Light Guard (RLG) is instructive:

The RLG came into being in South Reading, Massachusetts, in 1851, in response to a perceived shortage of militiamen in the years following the Mexican War. At the time, all that was necessary for the militia to be regarded as legally sanctions was for the group to “petition the governor” for what amounted to a nod of approval. This was granted. But at that point, the group still lacked funding. Although members paid dues, historian Barry Stentiford notes that “Dues were not enough [to] cover the expenses of the fledgling company, and committee members had to use their own money to carry out its business.”6

Members came up with a plan to offer “honorary memberships” to wealthy members of the community. The largest donor in this scheme was a man named Richardson, after whom the militia was soon named. Funding from prominent community members also added legitimacy to the group and ensured it would continue to be regarded as a community-sanctioned group of armed men.

Although the RLG enjoyed legal sanction, it was essentially a private organization, and Stentiford notes, “At its inception, the RLG belonged to its members, and to prominent residents of the town of South Reading. The town of South Reading, the Commonwealth of Massachusetts, and the federal government occupied a diminishing hierarchy of influence.”

In other words, while everyone admitted local, state, and federal officials enjoyed some form of control of the militia, this authority was tentative at best.

Massachusetts wasn’t the only place were militias were privately funded and privately controlled. When Iowa became a US territory in 1838, for example, an “official” territorial militia was formed. On the other hand:

The formation of local militia groups was more relaxed in comparison to the State militia service. To form a local militia group one would simply ask for local men to sign up, name the group, possibly elect officials or form by-laws, and then write to the Iowa Territory legislature to introduce themselves and request weapons….If you received a positive letter back and weapons, you were a militia group in the Territory of Iowa.

Indeed, this sort of local—and even private ownership—was an increasingly common method of organizing militias by midcentury. Hummel concludes that “Because many volunteer units were privately organized, recruited, and equipped, the militia became a partially privatized system as well.”

Because of their local nature, many militias reflected local character as well—and access was hardly limited to national ethnic majorities. By the 1850s, immigrants had come to dominate many volunteer militias, with Irish, Scottish, and German militias becoming especially common. The Scottish militiamen wore kilts as part of their parade uniforms. The Italians created a “Guardia Nazionale Italiana.” Robert Ernst notes that the “significance of the immigrant military companies is evident in the fact that in 1853, more than 4,000 of the 6,000 uniformed militia in New York City were of foreign birth.”

Nor were militia groups limited to Christians. Jack D. Foner recounts in the American Jewish Archives Journal:

Jews in New York City formed military companies of their own. Troop K, Empire Hussars, was composed entirely of Jews, as was the Young Men’s Lafayette Association. A third unit, the Asmonean Guard, consisted of both Jewish and Christian employees of The Asmonean, one of the earliest Anglo-Jewish weekly newspapers. “Our employees,” commented the newspaper, “have been seized with this military mania, as they have enrolled themselves into an independent corps.”

As militias became more middle class, their names changed as well. Militias began to refer to themselves with names that might be used for sports teams today, including terms like “Invincibles,” “Avengers,” and “Snake Hunters.”

Dress uniforms were often extravagant and modeled on Napoleon’s troops earlier in the century. These groups were even known to impress foreigners. As one Englishman remarked: “They marched in sections, with a splendid band at their head and…it would be impossible to find a more military-looking, well-drilled body of men.”

These volunteer militias were attractive to potential members, because these groups served many social functions as well. As noted by historian Briton Cooper Busch, “in peacetime, all [volunteer militias] helped their communities celebrate festivals, holidays, and funerals with marches, balls, and banquets, helping out in emergencies, and often building an esprit de corps which established a basis for effective wartime service and even elite reputations.”

In many cases, membership in a local militia provided opportunities for social advancement, and “it was not uncommon for individual families to have long associations with these institutions.” For newcomers to any community, whether or not of foreign origin, “the militia company provided a means for newer residents to embed themselves into the fabric of the community.”

The volunteer militias played a similar role to that of the volunteer fire brigades of this period, which in many communities came to be dominated by immigrant groups and served as a way to and advance the social and economic lives of newcomers.

Militias Replaced by Full-Time Government Police and Centralized “National Guard”

Needless to say, this model of American militias is long gone from the imagination of nearly all Americans. Modern-day journalists and scholars have been hard at work attempting to connect militias, past and present, either to slavery or to fringe groups and vigilantism.

Moreover, many Americans now regard the idea of privately controlled bands of armed men with trepidation and fear.

As the size and scope of taxpayer-funded bureaucratic agencies grew throughout the nineteenth century, private volunteer militias were deemed increasingly unnecessary and undesirable. The late nineteenth century was a period during which states and the federal government went to great lengths to end the old system of locally controlled militias, and this was topped off by the Militia Act of 1903 which largely ended state autonomy in controlling state military resources as well. By 1945, the National Guard was well on its way to becoming little more than an auxiliary to the federal government’s military establishment, although some remnants of the old decentralized system remained.

When it comes to urban environments, these militia were in many respects replaced by today’s state and local police forces, which unlike the volunteer militias are on the job full-time and enjoy immunity and privileges far beyond what any militia member of old might have ever dreamed of having. Rather than private self-funded militias called out only occasionally to quell riots and uprisings, we have immense, taxpayer-paid police forces with military equipment, SWAT teams, and riot gear to carry out no-knock raids (often getting the address wrong).

The old militia system was by no means flawless, but this switch to a more centralized bureaucratic system is not without costs of its own, both in terms of dollars and the potential for abuse.

Moreover, as has become increasingly apparent in recent years, National Guard troops and local police forces are clearly inadequate to provide safety and security for private homes and businesses. Half of the nation’s violent crimes remain “unsolved” as police focus on petty drug offenses rather than homicides. Meanwhile—as happened in both Ferguson and Kenosha—National Guard troops focus their protection on government buildings while private businesses burn.

The dominant shapers of public opinion would have us believe that volunteer groups of armed men must be regarded with horror. Yet it is increasingly clear that the institutions that have replaced the militias of the past still leave much to be desired.

In the past, our reports raising questions about the accuracy of COVID-19 tests have been met with accusations of ‘fearmongering’ and spreading ‘misinformation’. 

But not today.

That’s because new research from the University of Oxford’s Center for Evidence-Based Medicine and the University of the West of England has found that the swab-based technique used for most COVID-19 testing is at risk of returning “false positives” since copies of the virus’s RNA detected by the tests might simply be dead, inactive material from a weeks-old infection. Although patients infected with COVID-19 are typically only infectious for a week or less, tests can be triggered by virus genetic material left over from a weeks-old infection.

The team’s research involved analyzing 25 studies on the widely used polymerase chain reaction test. PCR tests use material collected with a swab – the most common type of test around the world, and especially in the US – then utilize a “genetic photocopying” technique that allows scientists to magnify the small sample of genetic material collected, which they can then analyze for signs of viral RNA.

What the researchers here have effectively found is that these PCR tests just aren’t sensitive enough to distinguish if the viral material is active and infectious, or dead and inert.

For those who desire a more comprehensive understanding of how these tests work, the chart below can be helpful.

Professor Carl Heneghan, one of the authors of the study, said there was a risk that a surge in testing across the UK was increasing the risk of this sample contamination occurring and it may explain why the number of Covid-19 cases is rising but the number of deaths is static.

“Evidence is mounting that a good proportion of ‘new’ mild cases and people re-testing positives after quarantine or discharge from hospital are not infectious, but are simply clearing harmless virus particles which their immune system has efficiently dealt with,” he told the Spectator.

Professor Heneghan added that international scrutiny might be required to avoid “the dangers of isolating non-infectious people or whole communities.”

Authored by Tim Kirby via The Strategic Culture Foundation,

If there is one expression that has defined the political arguments of 2020 it is Black Lives Matter and its many derivatives like All Lives Matter, Blue Lives Matter and so on. But why is this the case? There is something in these statements that is very powerful, political and deeply ideological. Something about this reasoning is very effective. So, let’s take a look at its internal mechanics.

When people scream Black Lives Matter what do they really mean and why this particular wording has dominated recent political discourse?

Image: Just what exactly would lives “mattering” look like?

A Utopian Statement and the Dangers of Utopian Thinking

The first question we should ask is at what point someone’s life begins to matter to us. What does this “mattering” amount to? For something to matter to someone it has to be of enough importance to dedicate time/action/resources to it. If someone owns a dog (a non-human thus neutral entity to discuss) then providing it with food, time for interaction, and some degree of medical care would show that this dog’s life matters to its owner. If someone just leaves their animal on a chain outside in winter, throwing it the occasional rotting loaf of bread, then it would seem to not matter very much. Then again perhaps compared to being abandoned in the woods life on the chain might not be so bad for it.

But if we look beyond the individual dog owner, then all the millions of dogs in far off lands that live very well or conversely are eaten for meat do not matter because there is no means by which one could possibly somehow be supportive of all canines around the globe.

The dog owner could delude himself into thinking that by sharing videos about the evils of that dog meat festival he is somehow caring for all of man’s best friends planetwide. Perhaps hitting “share” is more than doing nothing, but anything seems massive when compared to absolute zero. The dog owner can provide care for his dog which is within the scope of his direct influence, he simply cannot exert concerned action across the entire Earth’s dog population.

One could argue that the above example doesn’t apply because governments can have influence over the lives of their subjects universally. The State can and does have vastly more power, wealth, resources and the ability to change lives than any one individual. So can a massive entity like the U.S. government with its millions of employed minds in theory make every dog’s life matter?

Apparently not, because all the efforts made by the government to solve problems x, y, and z, although they may improve the situation, never truly solve them. There has never been a moment in human existence where the U.S. government was able to care for every member of a certain group to the extent that a pet owner looks after their furry friend. Governments try to solve problems with law, bureaucracy and some occasional carrots and sticks. These are Technocratic Approaches which on their surface show some level of concern for a specific issue. But has any law ever proven beyond a reasonable doubt that XXX Lives Matter?

It is impossible for all lives of any large group to matter, it is not the way our minds or government works. As the quantity of faces grows in any group their names start to fade and they blur into a statistical mass. This is where the whole “One man’s death is a tragedy…” logic comes from.

This means that the belief in XXX Lives Matter is a Utopian belief. It is impossible for all lives of a certain group to matter due to the massiveness of the scope and debatable nature of the definition of “matters” as stated above. Thus, to believe in this line of thinking means the believer is confident that either…

• Utopian Heaven-on-Earth style goals are achievable via protesting/activism/government.

• The impossibility of this demand is a means of delegitimizing the regime in power.

Firstly, Utopian thinking sounds like another word for good-hearted optimism or hopefulness for the future, but it has a dark side. When one is sure that paradise can be achieved on Earth, then any barriers in the way of progress towards perfection can and must be crushed. You have to crack a few eggs to make a Utopian omelette. The French Revolutionaries, were sure that if they just got rid of the nobility everything would work out, The Russian Revolutionaries were sure that if they deleted the Kulaks from history then a Communist Utopia would start, and we all Know what Nazi Germany’s “Final Solution” entailed. When we believe in an impossibly idyllic state of existence we can often fall prey to Extremism as a means to achieve it.

Regarding the second point, if we look at the demands of Color Revolutionaries they are always vague. They usually revolve around freedom or ending repression or something else that is abstract and hard to measure. Somehow in the country that Washington does not like X situation is happening and must be resolved, the current regime is the cause of X or cannot stop it and must be removed so this X issue can be settled. The key to this equation is making X impossible like giving everyone freedom or convincing a group of millions that their lives will matter, all you need to do is get in a new leader by hook or by crook.

Image: Street violence may determine whose lives actually matter.

Conflicting Statements vie for Dominance

If we shift away from Utopian thought to the perspective of straight bigotry then the picture looks very different. When one wears a T-shirt that says XXX Lives Matter, regardless of what is going on in the individual’s subconscious, what they are demanding is in effect preference for their favoured group. If a group is actually in danger or is repressed does not matter, the individual activist believes that this group’s plight deserves preferential attention in the media and government. This means that any of these sorts of statements could be an assertion of dominance. If XXX Lives Matter then YYY and ZZZ Lives are of less importance and do not need to be discussed or pandered to in Washington.

Furthermore, when one screams that certain lives matter they are trying to assert a dominant narrative. When someone says Black Lives Matter this ranges from a firm belief that Blacks in America are not living the American Dream on equal footing to a full-blown Cultural Marxist view that Blacks are inherently the victims of some sort of colonial racial hierarchy. When someone in their MAGA hat yells out that Blue Lives Matter they are basically saying that they are a Statist and the State is good. This person despite their “Don’t Tread on Me” and “Taxation is Theft” bumper stickers believes deep down that the authorities that rule over them are not only good but generally benevolent and that you should just submit to power like they do. These two examples are derived from very different narratives about what has and is happening in America.

It Cannot Be Denied

XXX Lives Matter also functions as an “if-then” statement. If Black Lives Matter then you must pursue some Radical Leftist agenda, hate Trump and knock over statues. If Blue Lives Matter then you must always stand for the national anthem, vote Trump and side with the police even when a Black man in handcuffs winds up bleeding out from bullet holes in the gutter.

Essentially, the conclusions that one should draw from these statements has already been worked out and is not up for discussion. Any form of rejection or questioning of the “then” part of this if-then statement means that you are against XXX group. It is the classic “if you don’t agree with me you’re a bad person” style reasoning which continues to win ideological battles deep into our 21st century.

As a lad of America’s Rust Belt I would argue that the death of decent paying medium-skilled jobs especially those at factories are a core issue for race relations in my hometown. It was a lot easier to get along when Blacks and Whites went to factory jobs together, got the same salaries, had face-to-face interactions and felt stability in their lives. If Black Lives Matter why does employment rarely come up as an issue and if it does it is only in terms of “Affirmative Action” which only furthers racial stress?

That is because reasoned debate is not part of XXX Lives Mattering. Any attempt to sway away from the preconceived mainstream conclusion of this given social problem is pure heresy. My desire to see Blacks and Whites have the value of their lives improved through labor is probably racist. XXX Lives Matter cannot be denied or debated.

And the Ideological Weapon of the Year Award goes to…

Each type of XXX Lives Matter comes with it a deep seeded historical narrative and ideological worldview that is very often in conflict with one or more of its competitors and in many ways the street and political conflicts of America in 2020 will very much determine whose lives will actually matter in the upcoming decades. Whoever will scream the loudest will matter the most.

Primetime ratings for Major League Baseball  are in freefall, as the season began with players kneeling for the National Anthem and standing for Black Lives Matter.

The league joins the ‘highly political NBA,’ which has turned off a large portion of its audience and seen ratings suffer as a result.

People are tired of watching the highly political @NBA. Basketball ratings are WAY down, and they won’t be coming back. I hope football and baseball are watching and learning because the same thing will be happening to them. Stand tall for our Country and our Flag!!!

— Donald J. Trump (@realDonaldTrump) September 1, 2020

According to Breitbart: 

Sunday, baseball’s flagship primetime night, has been particularly bad. As Sports Media Watch reports, last Weekend’s edition of Sunday Night Baseball was down 30 percent over last year.

The site reported that the “Braves-Phillies earned a 0.8 and 1.20 million on ESPN’s Sunday Night Baseball (including ESPN2 Statcast coverage) — down 30% in ratings and 33% in viewership from week five of last season (5/5/19: Cardinals-Cubs: 1.1, 1.81M), but up a tick and 2% respectively from last year’s comparable date (9/1/19 Mets-Phillies: 0.7, 1.19M).

 Saturday wasn’t much better – with Sports Media Watch reporting that “FOX averaged a 0.9 rating and 1.36 million viewers for regional Major League Baseball last Saturday afternoon (Braves-Phillies or Indians-Cardinals), marking its smallest MLB audience in two years.”

Meanwhile, a study cited by Breitbart reveals that most fans think the NBA’s politicization, along with its fealty to China, has made them stop watching.

Get woke, go broke.

Authored by Addison Wiggin via The Daily Reckoning,

Demography is destiny, they say.

The early classical economists — Smith, Ricardo, Malthus, Mill, Marshall, and others — were keenly interested in the role that the young and the aged played in building wealth.

Living at a time when birth rates were high and populations were expanding, they wanted to determine how demographic growth changed wages, savings, and output; which classes benefited; and whether a larger population was a long-term blessing.

Two centuries on, Peter Peterson, in his book Gray Dawn, warns that we might pose a different question: What happens to the wealth of nations when the populations get old and begin to shrink?

In this chapter, we look at the effects of demographic shift… not because it is the only trend in place, but because it is one easily missed.

The Twin Pressures of Population Growth and Diminishing Available Resources

In his book Revolution and Rebellion in the Early Modern World, the historian Jack Andrew Goldstone argues that the great revolutions of Europe — the English and French revolutions — had one thing in common with the great rebellions of Asia that destroyed the Ottoman Empire and dynasties in Japan and China.

All these crises occurred when inflexible political, economic, and social institutions were faced with the twin pressures of population growth and diminishing available resources.

Across Europe in the early 1700s, populations began to increase as mortality rates from disease (such as plague) and famine declined, and birth rates remained high. A large excess of births over deaths during much of the early modern period produced a baby boom.

According to demographer Michael Anderson, the population in Europe doubled in the 100 years between 1750 and 1850. The “age of democratic revolution” in the late 1700s, including the French Revolution, coincided with an expansion in the proportion of young people.

Demographics and the French Revolution

A large, unruly, and youthful rural population was a leading cause of social stress in France prior to and during the Revolution. The population of France grew by 8 to 10 million people in the eighteenth century.

By contrast, in the previous century, the population had only increased by a million. Around 1772, Abbé Terray began the first serious survey of demographics in France. Terray pegged the population at 26 million.

By 1789, the eve of the French Revolution, Louis XVI is thought to have had nearly 30 million subjects in his realm — more than 20% of the entire population of non-Russian Europe.

These numbers, suggests a study published by George Mason University, had to have some effect. Arguably, they changed France both politically and economically. And, we might add, cost Louis his kingdom… and his neck.

Russia

Likewise, the Russian population doubled between the 1850s and the beginning of World War I. From 1855 until 1913, the population of the Russian Empire increased from about 73 million to about 168 million.

The stress of feeding and providing shelter for that many people was too great for the existing order. The principal problem in the countryside was shortage of land. Rapid population growth meant that the size of allotments decreased from an average size of just over five hectares in 1861 to less than three in 1900.

In the West, industry absorbed the swelling population, but Russia could only put about one third of its new population on the assembly line. There was a growing feeling that, unless something was done, the countryside would soon explode. The peasants had a simple solution to their problems — confiscate all private lands owned by the landlords.

In a paper presented at the European Population Conference 2001, the Russian historian Lev Protasov suggested that prior to the Russian Revolution, demographic factors played an important role in stirring up the masses.

Curiously, a striking number of the radicals who helped foment the revolution were born in 1880. “The 1880s’ generation,” says Protasov, “made up almost 60% radicals and dominated the left factions: 62% of socialist revolutionaries, 58% of the Bolsheviks, 63% of the ‘national’ socialists and 47% of the Mensheviks. To be sure the powerful showing of young radicals in the early 20th century has been noted by historians.”

In rural areas, peasants spit out children like watermelon seeds, leaving villages overwhelmed and “overheated.” Infant and child mortality rates fell thanks to better health care, nutrition, and sanitation.

“The Russian political cataclysms of 1905 and 1917 were ‘prepared’ not only by economic or political causes,” concludes Protasov, “but by nature acting out its own laws. The demographic bursts in the last decades of the 19th century, not only sharpened modernization problems, but speeded up the marginalization of society and gave abundant ‘human material’ to the first lines of the future revolution makers.”

Youth and Revolution

In his Clash of Civilizations, Samuel Huntington considers demographics to have been a major factor in political revolutions going back to the Protestant Reformation.

“The Protestant Reformation,” writes Huntington, “is an example of one of the outstanding youth movements in history.”

Citing Jack Goldstone, Huntington continues, “a notable expansion of the proportion of youth in Western countries coincides with the Age of Democratic Revolution in the last decades of the 18th century. In the 19th century successful industrialization and emigration reduced the political impact of young populations in European societies. The proportion of youth rose again in the 1920s, however, providing recruits to fascist and other extreme movements. Four decades later the post-World War II baby boom generation made its mark in the demonstrations of the 1960s.”

Population explosions have caused trouble. But now populations are falling. The effect could be equally devastating:

As all developed nations rely on taxes paid by young workers to support aging retirees, a declining and aging population will arrive just when the Western societies need more young people most.

Whereas young people generally exhibit a rebellious and revolutionary influence on society, what happens when people grow old? The exact opposite.

Turning Japanese

Fearfulness and loss of desire commonly accompany aging. Older people tend not to want as many things in life as young people. They lose their desire to impress friends, relatives, and partners.

Instead of buying items they don’t need, they tend to become fearful that they will not be able to obtain what they do need. There is nothing peculiar about this; it is just nature’s way of recognizing diminishing opportunities.

A man in his forties can start over. But in his late sixties, he no longer has the energy or the desire to do so. He therefore starts saving everything — tinfoil, money, rags — for fear he will not be able to get them when he needs them.

This is how an elderly individual tends to behave. But what does an aging society look like? We need only look across the ocean — to Japan.

They have been fighting a deflationary environment since the early 1990s, with no end in sight.

The rest of the developed world could also be turning Japanese — fighting a deflationary environment with no end in sight.

Amazon.com has suddenly changed the way its contracted drivers for Whole Foods receive delivery jobs from the company, after Bloomberg reported on Tuesday that rogue operators had found a way to game the system by placing smartphones in trees in order to appear closer to pickup locations, according to Bloomberg.

Bloomberg on Tuesday revealed that drivers were putting smartphones in trees outside Whole Foods and Amazon delivery stations in the Chicago area to get a jump on rivals. Drivers in Las Vegas and the Washington, D.C., area also reported spotting mysterious phones outside Whole Foods locations. -Bloomberg

Now, several drivers in cities around the US have reported receiving more routes despite being several miles from Amazon-owned Whole Foods, for example. The drivers say that over the last several weeks, routes have been scarce – however one Chicago-area Whole Foods says that the cell phones have since disappeared from the trees.

A Tennessee driver who lives next to Whole Foods and receives routes every morning says he’s no longer receiving them.

Amazon declined to tell Bloomberg what they’d done, but the company pledged in an August email to investigate the situation, according to a person familiar with the company’s route assignment platform – who added that changing a few lines of code would be all that’s required to foil the scheme.

As Bloomberg reported, the rogue drivers had found a way to game Amazon Flex, an Uber-like app used to win orders and deliver them in their own vehicles. The extreme measures reflect stiffening competition for work in a pandemic-ravaged economy. Flex drivers earn as little as $15 per delivery, plus potentially a tip from the customer.

Someone placed several devices in a tree located close to the station where deliveries originate. Drivers in on the plot synced their own phones with the ones in the tree and waited nearby for an order pickup. The reason for the odd placement, according to experts and people with direct knowledge of Amazon’s operations, was to take advantage of the handsets’ proximity to the station, combined with software that constantly monitors Amazon’s dispatch network, to get a jump on competing drivers. The phenomenon prompted other drivers to complain to Amazon that its delivery dispatch system was being gamed. –Bloomberg

The Whole Foods drivers aren’t hourly, rather, they are gig workers who are paid by the job, so gaining an advantage through the smartphone app was a first step towards making more money than their competitors.

One person familiar with the system said that Amazon could solve the problem by creating a dead cellphone zone immediately around whole foods, so that drivers within a few miles of the store are offered routes, while those lingering in the parking lot don’t. The obvious flaw, however, is that customers wouldn’t take too kindly to dropped calls while shopping – and that giving work to those positioned further away increases delivery times for drivers who are not gaming the system, but legitimately near the location.

In June, the company discouraged ‘flex’ drivers from hanging out in Whole Foods parking lots to wait for routes.

By Michael Every of Rabobank

The Next Normal: What it “-ism” and what it “-ism’t”

“Normality is the Great Neurosis of civilization.” – Tom Robbins, author

Summary:

• We are now moving from the “New Normal” into the realm of “The Next Normal”: can we define what our new architecture will look like?
• To do so, we look beyond economics to the historical “-isms” of political-economy
• We believe we live under capitalism: do we, as fiscal and monetary Rubicons are crossed?
• Or are we already heading for central-bankism, a post-capitalism with echoes of feudalism?
• Marxism claims it is still alive: but it looks much more central-bank capitalism
• There are unhappy parallels between aspects of our emergent political-economy and fascism
• US-China tensions are about mercantilism, but still matter for that
• We need a new political-economy in the “Next Normal”, but none provide a solution for our global trilemma, which suggests some forms of schism are inevitable
• Indeed, expect more populism, underlining why we need a political-economy ‘guide rail’
• Volatility looms as populist political-economy will naturally demand internal and external “reallocation”

The “Next Normal”

In late 2019 we published a report titled “A Decade of… What Exactly?” which underlined how disappointing the economic  erformance in the post-global financial crisis “New Normal’ era had been on almost all fronts.

It showed how the experience had been one of: lower GDP growth, lower inflation, lower wage growth, and lower productivity alongside higher inequality, higher debt, higher asset prices, high and rising political populism, and high and rising geopolitical tensions, particularly between the US and China. All of these were issues we had been flagging for years.

We concluded that the outlook for the decade of the 2020s was deeply worrying.

We had likewise already recognised earlier in the year that the socio-economic impact of Covid-19 is likely to be severe and broad-ranging enough. Indeed, so much so that the concept of “The New Normal” is already behind us; we are now moving into the realm of “The Next Normal”.

This report will look at what this is likely to mean structurally – can we define what our new architecture will look like?

In order to look at overarching structures one needs overarching definitions: and in order to deal with such definitions one needs to deal with political-economy.

This is understandably not something the market wants to pay attention to – for reasons we will explain. Markets and economists would much rather be talking about monthly ISM surveys than the world of “-isms”.

Of course, such key US data are important – but they are cyclical at a time when it is crucial to understand the structural trend.
Not doing so means we don’t understand the foundations we are building on, or how solid –or not– they are. It is, at best, to ignore the long-run for the short-run and, at worst, to mistake signal for noise.

Indeed, we will try to show that “-isms” have major implications for markets; especially given most current markets have been driven to record highs by very ‘wet’ central-bank liquidity. We may like to think that development itself isn’t an “-ism”, but it very much is!

“Markets weed out inefficient practices, but only when no one has sufficient power to manipulate them.” – Ha-Joon Chang, economist

Whatabout “-ism”

So what is political-economy? As a discipline, it originated from moral philosophy, which contemplates what is right and wrong and how people should live their lives. In the 18th century this branched off to ideas related to the administration of states’ wealth. ‘Political-economy’ grew to study production and trade and their relations with laws, customs and government, and with the distribution of national income and wealth (the moral component). It argues politics and economics are fundamentally inseparable and the relationships between states and markets is required to understand how our world works.

The history of economic thought is, without question, that of political-economy. The classical economists –Smith, Malthus, Ricardo, and of course Marx– all saw themselves as writing about political-economy, and Smith moral philosophy, not about “economics”. So did later thinkers like Schumpeter.¹ Economics as a standalone ‘science’ only emerged after the 1930s.
Political-economy is rarely taught as part of economics. The majority of economists’ professional schooling and careers never touch on it: economics is here, politics is there prevails, which is why discussing political-economy is avoided – even though that view is itself political-economy!

However, ready or not (and it is mostly not), willingly or unwillingly (and it is mostly unwilling), and openly or tacitly (and it is increasingly openly), political-economy is set to make a come-back. As one example, consider this recent research paper by two Fed economists, “Market Power, Inequality, and Financial Instability”. Its abstract argues:

“Over the last four decades, the US economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage, and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.”

Consider that firm power relative to that of labour is pure political-economy – and also represents structural economic arguments we have been making for years that explains why we were stuck in a “New Normal”.

Indeed, some in the economics establishment understand that they need to broaden their approach – they just generally only say so after leaving office rather than in it. For example, former Bank of England (BOE) governor Mervyn King gave a speech in 2019 bewailing global “secular stagnation” and the lack of intellectual progress towards solving this problem. King argued:

“…to escape permanently from a low growth trap involves a reallocation of resources from one component of demand to another, from one sector to another, and from one firm to another… The answer goes well beyond monetary and fiscal policies to include exchange rates, supply-side reforms, and measures to correct unsustainable national saving rates.”

Crucially, moving beyond an ‘economic’ modulation of fiscal and monetary policy towards a reallocation of resources is political-economy. Who gains? Who loses? How much? With what moral justification and political support or opposition?

This therefore moves economics back into the uncomfortable world of “-isms”, which needs lots of new thinking. Indeed, King noted:

“Following the Great Depression, there was a period of intellectual and political upheaval. No-one can doubt that we are once more living through a period of political turmoil. But there has been no comparable questioning of the basic ideas underpinning economic policy. That needs to change.”

King is correct. The 1930s saw ‘economics’ branch off from politics. Free-market policies had helped to create the catastrophic conditions of the 1930s and so held little popular appeal; the logical ‘political’ step for those favoring free-markets was to present economics as a ‘neutral’ ‘science’, like physics, with equally complex maths.

Meanwhile, the parallel developments were very much into the realms of political-economy: Keynesianism (and the real thing, not the erroneous, milquetoast version that was “synthesized” back into the mainstream ‘science” of neoclassical economics after WW2); communism on the far left; and fascism on the far right. It might be hard to believe today, but both of the latter were regarded as valid intellectual –and popular– rivals to capitalism at the time.

It is hard to avoid noticing that “socialism”, “Marxism”, “nationalism”, and “fascism” are all appearing with greater frequency in our political discourse again: but are we seeing any real revolutions in our political-economic thinking?

“I’m just opposed to a pure inflation-only mandate in which the only thing a central bank cares about is inflation and not employment.” – Janet Yellen, former Fed Chair

Solipsism

Arguably, no…and yes, and let’s start with the ‘No’. Development economist Branko Milanovic’s recent book “Capitalism, Alone” argues it is now the dominant global ideology having decisively won the battle of ideas. Ebullient stock markets are at record highs, credit spreads and volatility at lows, and capitalism does not look to be under any cyclical, let alone structural threat.

However, we also need to consider the ‘Yes’ side. The Covid crisis has seen a plunge in economic activity. Unemployment, bankruptcy, homelessness, and the collapse of entire economic sectors are still very real threats – and yet have coincided with stocks setting record highs. This was only because the crisis has already triggered some revolutionary responses:

• Interest rates have been slashed to record lows globally and negative rates are being discussed in several markets;
• Quantitative Easing has been massively expanded, in regards to the range of assets that can be bought, and in terms of how many countries have embraced it;
• Yield Curve Control is being openly used in some markets, and contemplated in others;
• Outright debt monetisation is happening;
• Fiscal deficits are approaching those in the peak years of WW2 due to support schemes for most sectors; and
• There seems no likelihood of this being reversed, with the risk they will actually be expanded.

The cumulative impact of these policies is so large as to bring into question the extent to which this is still a capitalist system.  This is not hyperbole.

To explain that, let’s define capitalism – something that we rarely have to do because it is taken as so ubiquitous:

An economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include private property and the recognition of property rights, capital accumulation, wage labour, voluntary exchange, a price system, and competitive markets.

Of course, there are different schools of capitalism, e.g., the laissez-faire Anglo-Saxon, more interventionist Europe and Japan, and the Chinese model. While all retain private ownership of the means of production and profits, they also allow for variation in public ownership and regulation.

Moreover, capitalism can change substantially. From 1933 until the collapse of Bretton Woods in 1971, capitalism was highly regulated to solve the political-economy issue of “reallocation”: in the labour markets (regulation), the goods markets (tariffs), and in the capital markets (capital controls, limits on interest rates, and fixed exchange rates). From the 1970’s onwards, however, there was a global switch to financialised neoliberal capitalism.

First the global financial crisis, then Covid-19 have come crashing down on that paradigm. Is it still capitalism when the government is paying up to 80% of the salaries of the private-sector workforce not to work? When governments are running fiscal deficits of 15-20% of GDP, financed by the central bank? When central banks are buying junk-rated assets and the market is suggesting a shift to buying equities is possible? When central banks have de facto asset price targets? When governments are backstopping bank loans, and using tax incentives and tariffs to try to onshore supply chains? And when there is no indication how these policies can be reversed? (Indeed, how can they be without a disastrous socio-economic crash?)

All of these are valid questions. However, they are not being asked in the appropriate places. Instead, these staggering fiscal, monetary, and fiscal-monetary policy responses are sold as ad hoc, technocratic, and counter-cyclical, to be wound back once we ‘return to normal’. As such, the thorny issue of the political-economy remains ostensibly untouched. We say ostensibly because without doubt everything has actually changed.

The one exception, of course, is that of Modern Monetary Theory (which we covered in detail recently here). For now this political-economy framework remains on the fringes of policy discussions… yet central-bank actions such as debt monetisation are already de facto adopting it. This speaks to the broader issue here: radical steps are being taken by establishment economists, but with no recognition of the need to justify them under the umbrella of political-economy.

This is problematic for many reasons. Among them is that to open the doors to such radicalism without the ‘guide rail’ of an “-ism” also leaves the door open to worrying future scenarios, as with the introduction of a new technology without a legal, regulatory, or moral framework within which it can operate. (Though, conversely, starting with a rigid orthodoxy such as neoliberalism or communism, and shoehorning reality into it has not worked well in the past either.) On which note, we need to look at “-isms” again.

“The difficulty lies not so much in developing new ideas as in escaping from the old ones.” John Maynard Keynes, Economist

Post-Capitalism

Speaking of “-isms”, before capitalism the world had feudalism, defined here as:

“Legal, economic, military and cultural customs structuring society around holding land in exchange for labour. The nobility held lands from the Crown in exchange for military service, vassals were tenants of nobles, and peasants were obliged to live on vassal’s land and give labour and a share of their produce.”

The feudal political-economy was simple. Peasants grew food and handed much of this over to their lord, who did the same to his lord, and so on up to the Crown. On the basis of this crop, monarchs were able to borrow from money-lenders. The chain was production > debt.

Under capitalism, this was reversed. Banks make loans to capitalists, who invest the funds in capital stock, produce goods, and repay the loans with the profits. The chain is debt > production.

This advance, alongside the industrial revolution, explains why growth boomed under capitalism while it had stagnated under feudalism.

However, with financialisation we get more debt (and higher asset prices) and yet less physical production as investment flows into financial assets and not productive capital stock (and so onwards in wages). Political-economy has been pointing this out for over a century: economics still does not understand it.

Under capitalism with a massively active central bank –“central-bankism”– the process is taken to its extreme. We get soaring debt and soaring asset prices that are almost divorced from actual production or investment: look at the divergent trends in stocks and GDP in Q2, for example. That said, markets and the real economy are very different animals², which is part of the broader point that is being made: all the focus is on one when ‘life is elsewhere’.

This has even been referred to as “post-capitalism” – perhaps a fitting title in an era when some of the most valued stocks are no longer ones that offer their own product or content, just other people’s.

What central-bankism arguably shares with its distant ancestor of feudalism is an extractive, asset-based focus, and that those at the very top get very rich while those at the bottom of the pyramid get the opposite outcome. In both absolute terms the political-economy of this system is indeed one of reallocation – upwards.

Yet we are continuously told that central banks are pushing trillions of USD into the financial system, sending asset prices skyrocketing, to help those at the bottom of the socio-economic pyramid!

How is this state of affairs going to be sold to the public going forwards, especially in the absence of any over-arching political economy as justification? It surely can’t be dressed up behind the fig leaf of economic ‘science’ forever.

How can the logic of “We have to push up house and stock prices to keep workers in jobs” compete with “Why not use that money to employ workers and let asset prices do what they will?” After all, if we are to abandon parts of the definition of capitalism in “voluntary exchange, a price system, and competitive markets” in some assets, why in some and not in others?

In short, we can expect vigorous political-economy discussions about “reallocation” to erupt going forwards; and the weaker the “Next Normal” growth proves to be, the more and the faster this will happen.

In the near term, therefore, we have concerns over general deflation alongside asset-price inflation where central-bankism flows. In the medium term, however, a broader inflation would threaten – and with no institutional framework capable of reeling it in.

“Catch a man a fish, and you can sell it to him. Teach a man to fish, and you ruin a wonderful business opportunity.” –  Karl Marx, philosopher

Marxism?

If capitalism has severe looming challenges from within –again– does it also really not have any from without? Milanovic obviously says no, but is that true?

Consider US Secretary of State Pompeo’s constant attacks on “Chinese communism”, for example, and his claims that China is a “threat” to Western economies and their “liberty”. That sounds ideological. Moreover, in August Chairman of the Chinese Communist Party Xi Jinping explicitly stated:

The foundation of China’s political economy can only be a Marxist political-economy, and not be based on other economic theories… The dominant position of public ownership cannot be shaken, and the leading role of the state-owned economy cannot be shaken.

That also sounds ideological: but here we need to dive into “-isms” again to define Marxism:

The political, economic, and social principles and policies advocated by Marx, especially: a theory and practice of socialism including the labour theory of value, dialectical materialism, the class struggle, and dictatorship of the proletariat until the establishment of a classless society.

The classless society end-goal above was defined by Marx as communism, the definition of which is:

A theory or system of social organization in which all property is owned by the community and each person contributes and receives according to their ability and needs.

Does that sound like the contemporary Chinese political economy with its middle class hundreds of millions strong, and its rising stock and housing markets? Indeed, doesn’t the Chinese state allow property rights, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets? (Or at least as much as the “capitalist” West does?)

As such, isn’t Milanovic right that China, for all its differences, still sits closer to capitalism than communism in this binary choice of political-economy? If so, surely Western capitalism is not under any kind of threat from China?

Certainly, China’s economy does not look like communism at all in one key regard: there are no chronic shortages, which plagued the former Soviet bloc. It looks very consumerist and Western – which is why Western firms have been happy doing business there.

However, there is instead massive over-supply in many areas, which a true market system would resolve via bankruptcy and write-offs/write-downs. Again, however, this is no longer an area where the West can preach given the marked shift towards ever-greater “zombification” of the economy under central-bankism, as functionally bankrupt firms continue to survive thanks to low interest rates, bailouts, and profits from financial speculation, not their core business.³

Of course, China also has massive over-investment in gargantuan state megaprojects, which have an increasingly Soviet feel. Indeed, its state sector also plays a large role in the “commanding heights” of the economy, which is linked to the general over-production problem. It seems hard to imagine that this will not emerge as an issue in the West if central-bankism continues: can all the capital really be ploughed into houses or shares, and not into national champions or infrastructure or new technologies that need vast scale?

Again, if it is a purely binary choice then China is still “capitalist” – and central-bankism looks increasingly like Chinese capitalism

However, but that does not mean that there is no underlying cause for US and Western grievances with China’s economic model. In short, tensions stem from yet another “-ism”: mercantilism. A clear definition of this is:

The economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of protectionism.

China is mercantilist in that for it trade is political and always aimed at a surplus as high up the value chain as possible. As we covered extensively in “The Great Game of Global Trade”, a mercantilist approach will always generate a backlash from a free-trade partner eventually, and that’s true even if both countries are nominally capitalist.

Obviously, mercantilism is in opposition to free trade, which, oddly, has sat largely untouched as part of our new central-bankism so far. However, as the discussion turns to political-economy the attractions of mercantilism –as national security, or to “bring jobs home”– will grow. Here lies the potential for real problems.

“Fascism is capitalism plus murder.” – Upton Sinclair, writer

XXXX-ism

Time for another “-ism” then. Consider this political-economy definition:

XXXX-ism was seen as the happy medium between boom-and-bust-prone liberal capitalism, with its alleged class conflict, wasteful competition, and profit-oriented egoism, and revolutionary Marxism, with its violent and socially divisive persecution of the bourgeoisie….

Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, XXXX-ism sought that control indirectly, through domination of nominally private owners. Where socialism nationalized property explicitly, XXXX-ism did so implicitly, by requiring owners to use their property in the “national interest”—that is, as the autocratic authority conceived it.

Where socialism abolished all market relations outright, XXXX-ism left the appearance of market relations while planning all economic activities. Where socialism abolished money and prices, XXXX-ism controlled the monetary system and set all prices and wages politically. In doing all this, XXXX-ism denatured the marketplace.

Can you define the missing term? The answer is fascism. (NB The above description from Seth Richman: there is no precise definition of ‘fascist economy’.) It was developed by Mussolini in the 1920s as a corporatist system to resolve class conflict through collaboration between the classes: a political-economy “reallocation” resolving top vs. bottom by turning it into us vs. them (and Mussolini on top).

Let us be abundantly clear: we are NOT saying China or countries who will embrace a more active central-bankism are fascist. However, it is a matter of historical record that fascist economies used the power of their private sector to achieve state-defined “national goals”.

Very broadly, capitalism is private ownership of the means of production for private goals; communism is state ownership of the means of production for state goals; and fascism is the private ownership of the means of production for “state goals”.

Market mechanisms play a key role in China, but operate with over-arching “state goals”. Under central-bankism, won’t we see the same happen elsewhere?

Can all that liquidity be on a free-market basis? Won’t the government want it to make the country great again, or level it up, or to build infrastructure or national champions, or a green, fusion-powered future, etc.? These are not necessarily bad state goals, just as they aren’t in China.⁴

Of course, fascist economies had other elements to flag:

1) Fascism discouraged entrepreneurship; today all encourage it. However, globally SMEs find life hard, and this seems unlikely to change in the “Next Normal”.

2) Fascist economies were autarchic; today the West and China are trading nations. Yet protectionism is clearly growing again in many places to help achieve state goals, as is talk of reciprocity on trade. Self-reliance was also China’s philosophy from 1949-1979 before opening its doors. Since the start of the trade war Xi Jinping has repeatedly called for self-reliance, and a new catchphrase known as ‘dual circulation theory’ is now being flagged. As the press noted in a recent article:

Xi has frequently mentioned that China needs to prepare for a new global situation where “unprecedented changes are taking place which have not been seen in the past 100 years”…Chinese leaders have called on the public to have a mentality of “fighting a protracted war”…It is in this context that the Chinese leadership has decided to push for an economic pivot by reducing its reliance on global trade and focusing on rebuilding supply chains and boosting the domestic economy for sustainable growth.

3) Fascism’s state goals were expansionism and imperialism; and there are accusations of such activities across several contemporary geopolitical flashpoints. Rapid rearmament in tandem is also hard to ignore – always a state goal par excellence, of course.

In conclusion, there are no contemporary fascist economies, but central-bankism could begin to inadvertently echo some of its features – with the best of intentions. This underlines the importance of having a political-economy ‘guide rail’: we need to set institutional, political, and moral boundaries for how it will operate.

“Schisms do not originate in a love of truth, which is a source of courtesy and gentleness, but rather in an inordinate desire for supremacy.” – Baruch Spinoza, philosopher

Schism

Yet here comes the biggest problem. We need a political-economy to guide us out of the “Next Normal” – but which one? Consider that the troika of problems that need to be addressed simultaneously are:

• To resolve (“reallocation”) the gaps between winners and losers within an economy, while retaining incentives and rewards and overall growth – or to justify why wealth and income gaps exist to the majority of the population;
• To resolve (“reallocation”) the gaps between winning and losing countries, that is to say between net exporters and unwilling net importers, or mercantilists and free-traders – or to be able to sell the position to the majority of the population; and
• To resolve both of the above AND maintain global cooperation on issues like climate change and population migration – or to sell the majority of the population on not worrying about them so much.

How can this be done? Indeed, can this be done? Arguably not. Let’s take the key example of the US, but the same logic applies to all countries.

On the first issue, prior to 2016 the political-economy narrative explained people were poor because they made bad choices and were rich because they worked hard. Politically, this is now a harder and harder sell.

On the second issue, the narrative was that free trade was always a good idea and “inevitable”, regardless of the negative economic outcomes in former manufacturing areas, the matching rise in income and wealth inequality, and the shift in relative power between the US and China. Politically, this is also now a much harder sell.

On the third issue, the US always swung between exceptionalism and isolationism (e.g., it did not join the International Criminal Court) and deeply-committed globalism (e.g., NATO, the UN, the IMF, the World Bank, the WHO, etc.). Politically, the latter is again something that is now a harder sell.

In short, the US choices used to be “free markets”, “free trade”, and a mixture of “globalism” and “exceptionalism”. (See Table 1.)

Under President Trump we still see “free markets”, but a shift to “protectionism” and “isolationism” or “exceptionalism”. And what Joe Biden might do? On global issues, “globalism”; there is his Made in America Green New Deal, but also opposition to the trade war – so “environmental protectionism” or “free trade”?; and on society, the talk is of an unlevel playing-field that need to be addressed – so “regulation”.

Crucially, however, none of the above resolves all of the troublesome troika:

1. Pre-Trump, it was hard to square free markets, free trade, and globalism with growing inequality. This created domestic schisms.

2. For Trump, it is hard to square free markets and protectionism with solving global problems. This creates international schisms and domestic schisms between his supporters and those preferring the status quo ante.

3. For Biden, it would be hard to square narrowing income gaps and a global approach with free trade, which means jobs can flow overseas. This implies either a form of green Trumpism on trade, or again domestic schisms.

In short, economics is not enough and we need political-economy; but political-economy cannot come up with a one-size-fits-all solution to our global problems. There ‘ism’t’ an “-ism” we can all turn to.

As a result, some will cling to the “-ism” that always works best: “utopianism”, be it nostalgia, an ostrich-like focus on ‘economics’ over politics, or dreams of one world government, one world currency, one world central bank, and one world policy to reallocate between all winners and losers.

As a mixture of all three, look no further than the central bank retreat at Jackson Hole. 27 August saw open recognition of a crisis and uncertainty…and yet only a marginal movement in the Fed’s framework of operation, this time to average inflation targeting, which will make no real difference to what even the Fed’s own staff show are deep-rooted structural, political problems.

Oprah-ism

Indeed, for now we must assume central-bankism continues unabated with no justification for that huge financial power.

That means endlessly rising markets – and endlessly rising inequality, and an underlying devolution towards post-capitalism and neo-feudalism, even if this is not visible on the surface.

If the economy does not bounce back of its own accord –and why should it?—then, with the best of intentions, central banks will be dragged deeper and deeper into interventionism with each step they take, or each government step they backstop: central banks will come to matter to Main Street as much as they do to Wall Street – if they don’t already.

That is a lot of power, and unelected and largely unaccountable.

For now, politicians –at least the ones not dreaming of utopia– are content to merely criticize central banks. How long until they realise the far greater power lies in controlling them?

Indeed, how can we have fiscal-monetary policy without the ‘political-’ wanting to join itself to the economy? This realisation will only accelerate the already evident movement towards the other zeitgeist “-ism”: populism.

As we defined back in 2019’s “The Age of Rage”, this is a catch-call term used to describe anyone who does not agree with the ‘economic’ status quo.

Does populism hold the answers? No – but nothing does.

Does it hold some of the answers? Perhaps. More importantly, ask yourself if populism is seen by voters as trying to find some of the answers, rather than just saying “It is what it is” to them.

Over time, however, and perhaps more quickly than some might expect, the “Next Normal” will arguably see the emergence of a political-economy using central-bankism –with the best of intentions– to address domestic inequality and international inequality, and to use the private sector to deliver these state goals.

Echoes of the past – and hopefully only echoes.

Or of Oprah Winfrey: “You get a car! And you get a car! And you get a car!

What’s-it-mean-for-me-ism?

In the best tradition of neoliberal capitalism, what does this mean for me? For financial markets, which have benefited hugely from central-bankism, there needs to be a recognition that gains to date have been due to just one form of political-economy – not the form of the actual economy. The threat ahead is of both political and geopolitical instability as a new status quo emerges, with polarisation before any reconciliation.

In the near term, not a lot will change. People won’t talk about political-economy; interest rates won’t go up; and markets will. Over the medium term, however, capitalism will become post-capitalism;… and then liberalism will become populism, and political-economy will come crashing back in with its own reversal of “reallocation”.

This holds out the risk of a swing from lowflation or deflation with asset-price inflation today to inflation with asset price lowflation or deflation tomorrow.

It will be interesting to watch the shape of government yield curves. The short ends are naturally low and flat, and in some cases negative too: but what will the long ends do as politics changes? Of course, this presumes they are allowed to do something. Perhaps they won’t be.

In which case, watch what the FX markets do in response. Indeed, we have seen several key EM crosses plunge versus the USD in 2020 even at a time when the Dollar itself has been under downwards pressure against developed-market crosses. Moreover, if there is no evolution in the Fed’s thinking evident and there is in other central banks, towards more easing, will USD weakness last?

Meanwhile, in terms of the economy, regulation and barriers may arise again: again, with the best of intentions. (Though some countries may adopt a populist domestic neoliberal capitalism that aggressively deregulates.)

On the trade front, however, the dynamic is much more likely to be in one direction. No political-economy with electoral appeal is likely to be able to sell free trade to net importing countries, or to ones with concerns over national security or reliance on China. This will mean far greater regionalisation and far greater geopolitical tensions during this transition, with pain falling on the shoulders of the present largest net exporters. (Ironically, however, the more countries accept a more managed, distributed global trade, the easier it will be to find a new global modus vivendi.)

Does this sound like the 1930’s economy that created the need for new political-economy in the first place, or the solution to it? That is yet to be written. Unless one is a believer in another “-ism”: fatalism.

* * *

¹“Capitalism does not merely mean that the housewife may influence production by her choice between peas and beans; or that plant managers have some voice in deciding what and how to produce: it means a scheme of values, an attitude toward life, a civilization—the civilization of inequality and of the family fortune.”

Schumpeter: Capitalism, Socialism, and Democracy

^₂ For example, in 2017, the total gross value added of Dutch companies with more than 250 employees was EUR136bn, or 37% out of EUR364bn in total. Total operating income of Dutch listed companies in that year was about EUR55bn, and stripping out Royal Dutch and Unilever it is more like EUR28bn, or just 8% of total gross value added.

³ “Nothing should be more obvious than that the business organism cannot function according to design when its most important “parameters of action”—wages, prices, interest—are transferred to the political sphere and there dealt with according to the requirements of the political game or, which sometimes is more serious still, according to the ideas of some planners.”

Schumpeter: Capitalism, Socialism, and Democracy

⁴ “Only if we understand why and how certain kinds of economic controls tend to paralyze the driving forces of a free society, and which kinds of measures are particularly dangerous in this respect, can we hope that social experimentation will not lead us into situations none of us want.”

Hayek: The Road to Serfdom