Archive for the 'China' Category

A few things have happened recently that have the hairs on the back of my neck standing up in economic terms. It feels like it did right before the crash in 2007-8, when we were still in the end stages of the bubble.

One – Japanese and Venezuelan devaluation

Japan (a thoroughly modern economy) and Venezuela (a semi-dictatorship oil economy) both recently devalued their currency. Japan was warned by the G7 (fat lot of good that will do) here about it:

The official said: “The G7 statement signaled concern about excess moves in the yen. The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend.”

Venezuela did more of an “old school” devaluation, where the “official” rate is moved closer to what it really is trading for in the black market, and Bloomberg writes about it here.

Venezuela devalued its currency for the fifth time in nine years, a move that may undermine support for ailing President Hugo Chavez and his allies ahead of possible elections later this year… He ordered his government to weaken the exchange rate by 32 percent to 6.3 bolivars per dollar… A spending spree that almost tripled the fiscal deficit last year helped Chavez, 58, win a third six-year term. The devaluation can help narrow the budget deficit by increasing the amount of bolivars the government receives from oil exports. Yet the move also threatens to accelerate annual inflation that reached 22 percent in January.

I kept that whole paragraph in the block quote because it encapsulates all the elements of fiscal ruin so succinctly – profligate government spending, impact on commodities imported or exported (that move opposite of currencies), and the impact on inflation.

Two – The Chinese and Russians Aren’t Buying Our Debt – We Are

I had thought that the Chinese and other countries were big buyers of our debt which funds our budget deficit. But I was wrong. Per this WSJ article:

China’s holdings of $1.17 trillion in U.S. Treasurys in November 2012—the most recent date for which we have a figure—are virtually unchanged from two years earlier, when they stood at $1.16 trillion. Beijing has purchased a lot of Treasurys over this period but many have been redeemed. Net new investment is essentially zero.

But if the Chinese aren’t buying our debt, who is? The answer – the US government.

The largest buyer of new U.S. Treasurys during the past three years has been not China but the U.S. Federal Reserve. In fiscal year 2011, for example, the Fed bought more than three-fourths of all new Treasury debt.

Here’s a challenge for you – try explaining to a child or someone unfamiliar with economics how it is that we can spend money that we don’t have, issue debt, and buy it back ourselves.
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…on the US election results.

Janet Daley, in The Telegraph: “So Europe got the American president it wanted – the one who would present no threat to its own delusions. The United States is now officially one of us: an Old World country complete with class hatred, ethnic Balkanisation, bourgeois guilt and a paternalist ruling elite. And it is locked into the same death spiral of high public spending and self-defeating wealth redistribution as we are. Welcome to the future, and the beginning of what may turn out to be the terminal decline of the West.”

Melanie Phillips: “The greatest satisfaction today over the re-election of Obama is not being felt in the Democratic Party. It is not being felt among the media…No, the greatest satisfaction is surely being felt in Iran.”

The Dissident Frogman: “Hear this final prophecy America: only one man can kill the Republic, and it isn’t Barack Obama. The one man who will kill your Republic is the one man who will last give up and renounce it. Don’t you dare be that man.”

Read them all.

Also, here’s something interesting: Li Keqiang, China’s next premier, has been advising his associates to read Alexis de Tocqueville’s 1856 book The Old Regime and the French Revolution.

The Newsweek cover for next week is astonishing.

The lead article is by Niall Ferguson and is devastating. The fact that it is the cover story is an even bigger surprise. It’s interesting to speculate on the reasons.

Welcome to Obama’s America: nearly half the population is not represented on a taxable return—almost exactly the same proportion that lives in a household where at least one member receives some type of government benefit. We are becoming the 50–50 nation—half of us paying the taxes, the other half receiving the benefits.

On foreign policy, one of Obama’s few strong points in polls, it is even harsher.

For me the president’s greatest failure has been not to think through the implications of these challenges to American power. Far from developing a coherent strategy, he believed—perhaps encouraged by the premature award of the Nobel Peace Prize—that all he needed to do was to make touchy-feely speeches around the world explaining to foreigners that he was not George W. Bush.

His Cairo speech of June 4, 2009, was an especially clumsy bid to ingratiate himself on what proved to be the eve of a regional revolution. “I’m also proud to carry with me,” he told Egyptians, “a greeting of peace from Muslim communities in my country: Assalamu alaikum … I’ve come here … to seek a new beginning between the United States and Muslims around the world, one based … upon the truth that America and Islam are not exclusive and need not be in competition.”

Read the whole thing, as Instapundit says.

There is a huge story going on in China right now. A very high official in the Politburo, named Bo Xilai has been purged, and his wife has been arrested. The story as reported is not the real one.

Here is John Burns’ opinions of What is going on.

First the official version.

CBS News) BEIJING – We are getting a rare look at the inner workings of China’s Communist power structure thanks to a scandal that erupted there this spring. CBS News correspondent Barry Petersen tells us about the man at the center of it.

His glamorous wife Gu Kailai has been arrested for the murder of Nick Heywood, a British man found dead in a hotel room last November. At the time, Chinese police said he died of alcohol poisoning — although his family said he didn’t drink.

The background story is:

Well, of course what we see here is something that none of us really wanted to see at all, and I’m not talking about the murder. That, of course, we would all regret. What we’re seeing is a new upheaval in the Chinese political leadership, the most important political purge in Bo Xilai, the former Chongquing party chief, candidate for the inner sanctum of power in the politburo. And this is very disturbing to those who had hoped, believed, perhaps, that China, this is a new China, the post-Mao China, which was heading toward a period of political stability, the rule of law, in other words, had really put the Mao era, the Cultural Revolution, the chaos, the great leap forward, and all the rest of it, behind it. What we’re seeing now in this very sordid tale is something much more like what we saw of Chinese leadership in what we, and indeed, I think most Chinese would describe as the bad old days of Mao Tse Tung, a politics that is much more personal, that is much more brutal. Let’s not forget that in the Cultural Revolution in China under Mao, millions, I think the Chinese officially concluded ten million people, died. Now it’s not to suggest that China’s heading for that. The present Chinese leadership who purged Bo are saying, in fact, that it’s to prevent that kind of…return to that kind of politics, that they’ve purged him. But then you have the question of the alleged murder. the story begins in mid to late November when, and at that time, the world knew nothing about it. Neil Heywood, a 41 year old private school educated Englishman of some personal charm, went to Chongqing, the capitol city of Sichuan Province in Southwest China, source of the wonderful hot food that we all like in Chinese restaurants, and on some sort of a business trip. He had for some years, we now know, had a very unusual personal relationship with the family of Bo Xilai, the Communist Party chief in Chongqing, and that relationship seemed to be centered very much on Bo Xilai’s wife, Gu Kailai, a 53 year old rather handsome woman from her photographs, daughter of a retired, probably now dead, revolutionary general under Mao Tse Tung. This was Communist royalty. Long story short, Neil Heywood ends up dead in his hotel room in Chongqing. The Chinese report to his family that he died of over consumption of alcohol. They report that they’ve cremated him without autopsy. The family, the Heywood family, appears to have accepted this, and that includes Mr. Neil Heywood’s Chinese wife and two children living in Beijing. The next stage was that the police chief of Sichuan Province, the closest personal aide, if you will, to Mr. Bo, the party chief, having reported so it is now said, to Bo Xilai, that Heywood didn’t die of over consumption of alcohol. He died of poisoning, and that the poisoner, or at least the one who organized the poisoning, was none other than Bo’s own wife, Gu Kailai.

So what we have is a tremendous turn in the politics of China, and it seems to center, this scandal’s center on the death of this Englishman. And it’s left to people like myself to now go in pursuit of what the real story behind all of this was.

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CommodityOnline:

India’s crude oil imports from Iran is facing a risk of potential disruption as increasing US and EU sanctions make it impossible for Indian ships to obtain insurance.

Greg Scoblete, The Compass Blog (Real Clear World):

I imagine if I were an Indian official, I’d be a bit peeved to learn that acting “responsibly” means privileging the interests of the United States over my own country. Nevertheless, Burns has a point. After all, India may rely on Iran for 12 percent of its oil imports, but look at what the United States has been willing to do for India:
 

Presidents Obama and Bush have met India more than halfway in offering concrete and highly visible commitments on issues India cares about. On his state visit to India in November 2010, for example, President Obama committed the U.S. for the very first time to support India’s candidacy for permanent membership on the U.N. Security Council.

 
I don’t know about you, but if the U.S. was asked to forgo 12 percent of its oil imports in exchange for another country’s endorsement for a seat on a multilateral forum, I’d make the trade. I mean, c’mon, 12 percent? The U.S. gets about that much from the Persian Gulf – and we barely pay that area any attention at all…

Europa:

“The EU-India free trade agreement will be the single biggest trade agreement in the world, benefiting 1.7 billion people,” said president Barroso. “It would mean new opportunities for both Indian and European companies. It would mean a key driver for sustainable growth, job creation and innovation in India and Europe.”
 
The EU is India’s largest trading partner, accounting for about €86bn of trade in goods and services in 2010. Bilateral trade in goods rose by 20% between 2010 and 2011.”

Asia Times Online:

Last year Israel supplied India with $1.6 billion worth of military equipment and is India’s second-largest defense supplier after Russia. Sales are only going to rise. Indian defense procurements from Israel in the period 2002-07 have touched the $5 billion mark.

And this doesn’t even get into the China-EU-US-Israel-Saudi Arabia wheels-within-wheels complications when it comes to arms deals, hoped for arms deals, trade deals, hoped for trade deals, energy politics, and the rest of it….

It’s not 1985, now is it? The past is a different country, a Russian (Soviet)-oriented Cold War country used to thinking in terms of “Kissengerian” alliances and blocs. An intellectual adjustment may be needed. It’s like 3-D chess out there….

Speaking of energy:

“Was Saudi Arabia involved?” (Asia Times Online.) If it makes you feel better, let me point out that Saudi petrodollars continue to fund all sorts of interesting educational activities on the subcontinent, in Africa, and elsewhere, along with Iranian monies. So that’s nice.

Cross-posted from zenpundit.com

Mr. Nyet 

World affairs are much more like spider’s web than the neat little drawers of an apothecary’s cabinet. In the latter,  the contents of each drawer are cleanly isolated and conveniently compartmentalized. What you do with the contents of one drawer today has no bearing on what you do next week with those of another. By contrast, with a spider’s web, when you touch a web at any point, not only do you find it to be sticky in a fragile sort of way, but your touch sends vibrations through every centimeter of the lattice.

Which alerts the spiders.

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About a week ago Instapundit linked this Wikipedia article about the higher-education bubble, noting especially the point that William Bennett predicted the bubble back in 1987. The post reminded me of some interesting and rather prescient comments that Peter Drucker made about education in his 1969 book The Age of Discontinuity. A few excerpts:

Resources and expectations:

Education has become by far the largest community expenditure in the American economy…Teachers of all kinds, now the largest single occupational group in the American labor force, outnumber by a good margin steelworkers, teamsters and salespeople, indeed even farmers…Education has become the key to opportunity and advancement all over the modern world, replacing birth, wealth, and perhaps even talent. Education has become the first value choice of modern man.

This is success such as no schoolmaster through the ages would have dared dream of…Signs abound that all is not well with education. While expenditures have been skyrocketing–and will keep on going up–the taxpayers are getting visibly restless.

Credentials and social mobility:

The most serious impact of the long years of schooling is, however, the “diploma curtain” between those with degrees and those without. It threatens to cut society in two for the first time in American history…By denying opportunity to those without higher education, we are denying access to contribution and performance to a large number of people of superior ability, intelligence, and capacity to achieve…I expect, within ten years or so, to see a proposal before one of our state legislatures or up for referendum to ban, on applications for employment, all questions related to educational status…I, for one, shall vote for this proposal if I can.

Dangers of “elite” universities:

One thing it (modern society) cannot afford in education is the “elite institution” which has a monopoly on social standing, on prestige, and on the command positions in society and economy. Oxford and Cambridge are important reasons for the English brain drain. A main reason for the technology gap is the Grande Ecole such as the Ecole Polytechnique or the Ecole Normale. These elite institutions may do a magnificent job of education, but only their graduates normally get into the command positions. Only their faculties “matter.” This restricts and impoverishes the whole society…The Harvard Law School might like to be a Grande Ecole and to claim for its graduates a preferential position. But American society has never been willing to accept this claim…

It is almost impossible to explain to a European that the strength of American higher education lies in this absence of schools for leaders and schools for followers. It is almost impossible to explain to a European that the engineer with a degree from North Idaho A. and M. is an engineer and not a draftsman. Yet this is the flexibility Europe needs in order to overcome the brain drain and to close the technology gap.

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Barack Obama:

“It makes no sense for China to have better rail systems than us, and Singapore having better airports than us. And we just learned that China now has the fastest supercomputer on Earth — that used to be us.” (Nov 3, 2010)

“America became an economic superpower because we knew how to build things. We built the Golden Gate Bridge, and the Hoover Dam, and the Interstate Highway System. And now, we’re settling for China having the best high-speed rail, and Singapore having better airports? When did that happen? “(Oct 25 2011)

George Savage juxtaposes the latter Obama statement with his decision, only two weeks later, to delay approval for the construction of a Canada-to-Texas oil pipeline, which was estimated to provide about 20,000 jobs, as well as having an obvious beneficial impact on America’s energy security. Indeed, it should be obvious at this point that the main inhibitors to the building of any large project whatsoever are regulatory overreach and complexity and the exploitation of the legal and regulatory environment by precisely the kind of activists that Obama the community organizer has spent much of his life encouraging. Obama’s complaints about us not building things resemble the plea of the defendant who killed both of his parents and then asked for mercy because he was an orphan. (More thoughts on large projects then versus now at my post like swimming in glue.)

But in addition to the above point, the kinds of projects about which Obama waxes enthusiastic (to the degree that any enthusiasm is contained in his rather flat emotional range) reveal much about the “progressive” economic worldview.

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Global transition points like this are so rare, it’s a great time to be alive.

John Robb

Right on. Yes. Yes.

More of this type of thinking, please.

If I could live at any time in history it would be now.

(If you are not a regular reader of Mr. Robb’s Global Guerrillas, get that way.)

(Also check out Mr. Robb’s way cool new Wiki MiiU, which is all about resilience. I eagerly await his book on resilient communities.)

(Here is an xcellent John Robb talk about open source ventures, but full disclosure, a lot of it sailed over my head.)

(And if you have not read his book, Brave New War: The Next Stage of Terrorism and the End of Globalization, go get it.)

Friends, please let me know in the comments, on a scale of 1 to 5, strongly disagree to strongly agree, how you respond to this quote. Put me down as a 5, obviously enough.

Detente’s greatest achievement was the opening of consistent contact between the United States and the USSR in the early 1970s—a gradually intensifying engagement on many levels and in many areas that, as it grew over the years, would slowly but widely open the Soviet Union to information, contacts, and ideas from the West and would facilitate an ongoing East-West dialogue that would influence the thinking of many Soviet officials and citizens.

- From the Shadows: The Ultimate Insider’s Story of Five Presidents and How They Won the Cold War by Robert M. Gates. (I am currently reading this book).

Indeed Washington’s on-again off-again attention to the region, driven by relatively short term developments like the Soviet-Russian invasion of Afghanistan and the war against terror, makes Iranian and Chinese overtures appealing to Pakistan, Sri Lanka, Bangladesh, and Myanmar.

- A Sino-Persian grab for the Indian Ocean? by Jamsheed K. Choksy (Small Wars Journal)

Earlier this month the Chairman of the Joint Chiefs of Staff, Admiral Michael Mullen, twisted his mouth into the shape of a pretzel to explain why it was okay for the U.S. to support Pakistan’s nuclear arsenal but not okay to support North Korea’s arsenal and Iran’s nuclear ambitions. He also saw no problem with the United States as much declaring war on India when he sympathized with Pakistan’s need to use nuclear weapons against India in order to feel safe.
 
Then Americans wonder why Pyongyang and Tehran laugh at Washington’s lectures on nuclear proliferation. The leaders of both regimes have been doing clandestine nuke business with Pakistan for decades. They know Pakistan is the biggest nuclear weapons proliferator on the planet — and so does Mullen, who is the highest ranking military officer in the USA and as such is the principal military advisor to the President of the United States, the National Security Council, and the Secretary of Defense.
 
That’s not the half of the double standard America has practiced with regard to Pakistan. Barely a day goes by that the American news media doesn’t warn of the dangers of a nuclear-armed Iran because of the regime’s end-of-time religious views, which American news analyst John Batchelor has termed “hallucinatory.”
 
It doesn’t get more hallucinatory than the views of Pakistani media mogul, Majeed Nizami, the owner of the Nawa-i-Waqt, The Nation, and Waqt TV channel. During a recent speech at a function given in his honor he declared that Pakistan’s missiles and nuclear bombs were superior to “India’s ghosts,” and that unleashing nuclear war against India was imperative. “Don’t worry if a couple of our cities are also destroyed in the process.”
 
That would be the same Nation newspaper that cites the United States government as being behind every terrorist incident in the world, including the Times Square attack.
 
If you think Nizami is an isolated nut case, you don’t know much about him, or Pakistan. He is the true face of the most powerful factions in Pakistan including its military leaders.
 
But in the view of the U.S. government and news media it’s okay for Pakistan’s military to hold hallucinatory views whereas it’s not okay for Iran’s leaders because, well, because.
 
It’s the same for anti-Semitic views that abound in Pakistan. In the same article that discussed Nizami’s view that nuclear Armageddon was the ticket to peace in South Asia, Pakistani journalist Shakil Chaudhary reported on a June 18 column in Nizami’s Nawa-i-Waqt paper in which Lt. Gen. Abdul Qayyum (ret), former chairman of Pakistan Steel Mills, approvingly quoted Adolph Hitler as saying: “I could have annihilated all the Jews in the world, but I left some of them so that you can know why I was killing them.”

- He ain’t heavy, he’s my genocidal, hallucinatory, two-faced ‘ally’ by blogger Pundita.

Why do you suppose certain factions in DC appear so adamant on retaining Pakistan as a “strategic asset” post 9-11 and post Abbottabad? CBz blogger Joseph Fouche recently posted a nice piece about the tendency for some to see patterns and intrigues when mere muddle may well explain reality. Sadly, I am prone to this….

So what exactly is our muddle? Is what I’ve posted above overstated and alarmist? State and USAID want to keep its various lucrative aid programs? The Pentagon/DOD want to keep its favorite “proxy” Army for future use against any kind of “sino-islamic” alliance – or Russia or Iran? Tons of money (supposedly….take all of this with a grain of salt) sloshing around DC from various foreign entities, such as the Saudis or the Pak Mil/ISI? Plain old strategic “incompetence” typical of a big, energetic and free-wheeling democracy?

What other rationales might be keeping warring DC factions up at night? Placating the Saudis and keeping the oil flowing? Monitoring Pakistani nukes? (Okay, this one for sure). Preventing even more proliferation via Pakistani-Saudi transfers?

The world is three dimensional and complicated with various currents pulling our policy makers in different directions. I’d be delighted to hear creative thinking on any of these topics by one of the Republican presidential candidates. Your thoughts? Opinions? Relevent anecdotes, articles, films, or books?

Help a gal out, people.

Lord Wolseley was the most distinguished British soldier of the Victorian era. My favorite book from last year was his two volume memoir. A third volume, full of further astonishing adventures was unfortunately never written. (I do wonder if there are any surviving notes or drafts, though? HIs papers are apparently housed at Hove, near Brighton. I wonder if you just asked around on the street in Hove if someone would direct you.)

Lord Wolseley gave an interview which led to this article in the Review of Reviews for September, 1890.

As I mentioned previously, his resume beggars belief:

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Welcome to the big leagues, rookie!

Rand Simberg reports that the Russians have suddenly become concerned about the safety of the SpaceX Falcon 9 rocket when used as a supply vessel for the International Space Station … now that that rocket seriously threatens the near-term Russian monopoly in heavy lift transport of people and materiel.

SpaceX’‘s story, for those who aren’t space enthusiasts, is a tale of new technology, dot-com money, and threatened “iron rice bowls” from one end of the high-technology world to the other.

Started in 2002 by Elon Musk with money he acquired after co-founding PayPal, Musk’s vision was to develop a new American liquid-fueled rocket engine and use economies of production and scale to reduce per-pound launch costs to a fraction of current commercial rates. Rather than a game of giant consortia, he thought that a relatively small private company could launch commercial rockets safely and much more cheaply.

In the early years, the Falcon 1 rocket, using a new Merlin engine designed and manufactured by SpaceX, was subject to several flight failures that insiders largely attributed to lack of company access to the vast body of engineering lore used in past rocket launches. Not enough engineers. Not enough expertise. Whether that was true or not, the Falcon 1 (single engine) rocket had its first successful launch-to-orbit in 2008. Six years from blank piece of paper to orbit. Nonetheless, Musk has often been dismissed by other commercial space launch organizations as a dilettante, wasting his own money on a venture that would never amount to much, and would certainly never deliver any service cheaper than the giant aerospace companies of Russia, China, the EU, and the United States.

All that started to change when less than two years after the successful launch of the Falcon 1 rocket, SpaceX’s new Falcon 9 (running 9 Merlin engines in tandem) was able to reach orbit. Suddenly SpaceX had a rocket big enough to deliver serious weight to space, and compete with the biggest commercial and state-sponsored launch services. Musk’s philosophy of rocket modularization (and cost reduction) had been proven out. A mere six months later, the company launched a second Falcon 9 to orbit with a pressurized “Dragon” capsule on top. SpaceX became the first private firm to launch and recover a crew-capable space capsule, with a splash-down off the Pacific coast of the US. To successfully launch a brand-new model of rocket, twice, with complete success, defies the laws of probability in the space launch industry. Maybe Musk really had stumbled onto a new way of designing, manufacturing, and operating rockets.

The idea that a private firm could deliver cargo, let alone crews, to the International Space Station at a fraction of the cost of the Space Shuttle or Russian Soyuz capsules would have been inconceivable a decade ago. And yet here we are in 2011 with an American dot-com multi-millionaire announcing new rockets and successfully delivering them.

Just recently, SpaceX announced plans to develop the “Falcon Heavy” which would run three Falcon 9s (3×9=27 engines) as a single first stage, delivering a proposed 117,000 pounds to Low Earth Orbit … more than the capacity of all other currently available commercial heavy-lift rockets. More, in fact, than has ever been lifted in single launches since the Saturn V carried the Apollo moon missions star-wards. First launch of the Falcon Heavy is scheduled for 2013, from Vandenburg Air Force Base. Characteristically, Musk isn’t shy about his dream for the Falcon Heavy. Hypothetical trips to the Moon, to Mars, to an asteroid, now fill his speeches.

Musk’s earlier claims of “game-changer” technology and corporate process appear to be coming true. If he delivers on his recent promises with anything near the success rate of his earlier claims, almost every space-faring nation or corporation is going to be deeply affected.

Let’s be clear, also. Musk has played the taxpayer-dollar game skillfully as he’s found initial technical success and grown his company’s staff and technical capacity. He’s received several multi-million dollar contracts from NASA for demonstration flights and future cargo delivery to the Space Station. He’s parked his corporate facilities in California (HQ and manufacturing), Texas (engine test-stand), and Florida (Cape Canaveral launch facilities) … covering his political bases by hedging good relations with US senators who already know what kind of money and jobs are created by space industry. The only senator not to dip his beak, as far as I can tell, was from Alabama (Huntsville). So Mr. Musk knows his domestic politics, or has learned its harsh anti-market lessons. And he’s successfully squared the circle of NASA bureaucracy, launching rockets on the one hand, and reassuring various government agencies that he should be allowed to.

But the opening salvo by the Russians is a prelude to a new playing field that Musk will need to master. International politics.

There are a lot of rocket engineers around the world who’ll be out of work if Elon Musk and his company can deliver cargo and people to space for half of what it costs the current aerospace giants. And even the Russians and Chinese, who can subsidize launch costs to the tune of hundreds of millions of dollars, still can’t afford to give away those launches indefinitely. Both nations operate in the market economy to the extent that they can, at the very least, estimate their per-launch losses trying to undercut SpaceX’s prices.

As an amateur who’s thrilled by the appearance of a private space industry in the last ten years, I enthused about SpaceX’s successful December launch to an colleague (ex-military) who specializes in high-tech project management. His response was “now the sabotage begins.”

And he may well be right. Whether Musk has been smart, or just plain lucky, the progress of SpaceX over the last decade has been (to my mind) dramatic. My sense is that it’s a matter of capital investment leveraging a backlog of knowledge (in technology and operational process). As long as he was a unproven minnow at the government trough, he could be ignored. Now however, SpaceX is getting big enough to put a dent in established companies’ profits and executive bonuses. There’s no reason why nations or large corporations could not have duplicated what Musk has done … but they either had no incentive or had organizational and social impediments. An “installed base.”

At the moment, they don’t seem to be trying to beat him with comparable technology. And he doesn’t seem to want to be bought out. So what competitive strategy is left? Political impediments are cheapest. Intellectual property theft is likely but it still takes time to turn that into a competing product. And what if the technology is just a part of the equation. What if workforce optimization and “one rich, risk-taking, boss” are the essential components of SpaceX’s rapid success? Will sabotage of SpaceX rockets be the only route to slowing the company down? Fulfilling, conveniently, Russian “concerns.”

Up until now, Musk has been calculating costs based on his technical requirements for design and manufacture (with a fudge factor for domestic political arbitrage). I rather doubt he’s also factored in the burgeoning security apparatus he’ll need to wrap around SpaceX’s activities to inhibit industrial espionage and/or industrial sabotage. And as he takes on more government contracts (both military and civilian), no doubt the bureaucratic restrictions on payload handling and the extra demands for operational oversight will boost company costs dramatically. Will SpaceX be strangled by a combination of bureaucrats, thieves, and saboteurs?

It’d be disheartening to see SpaceX costs slowly but surely reach equilibrium with pricing in the rest of the industry. But there’s no doubt that, left to itself, the private space industry will make some wealthy men incredibly rich, and some aerospace executives unemployed. How clever people respond to that challenge will be interesting to watch.

Enough SpaceX technology appearing in other countries in bootleg form, and enough “unexplained” failures of those really big (really expensive) SpaceX rockets, will spell a new and grimmer phase of the private space business. More and more “iron rice bowls” are being broken by SpaceX with each passing year. Hope Elon’s brushing up on his Sun Tzu.

I have taken a few weeks off of my protest photos and videos because basically I have a life to live and kids to raise – and for some reason the direct deposit monies from the ChicagoBoyz home office in South Florida haven’t been getting through to my bank account.

We do have a lot of developments here though and I would like to get you up to date with them if you are at all interested, along with a few personal stories.
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NYT, via Phineas at Sister Toldjah:

Mr. Obama has told people that it would be so much easier to be the president of China. As one official put it, “No one is scrutinizing Hu Jintao’s words in Tahrir Square.”

What might possess an American president to tell people that it would be easier to be president of China? Some possibilities…

For one thing, Obama is clearly much more interested in domestic policy than in foreign policy. He views it as his mission to reconstruct American society in ways that are more to his liking, and considers the need to deal with other countries to be an irritating distraction.

Another factor is that people often view other people’s jobs as being easier than their own–see the old children’s story about the farmer and his wife for an example. This is particularly true, it would seem, of people who are constitutionally of a jealous nature, who devote much of their mental energy to the suspicion that someone else has it better. Barack Obama seems to me to be of this ilk: there is no possible position in life he could assume that would overcome his feelings of jealousy and resentment toward others. His comment during the campaign about bitter clingers sounds like pure projection.

What if Obama really did become the leader of China? Would he actually find the job easier than his present one?

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…may not be the most glamorous segments of the world economy. But, in a very real sense, they underlie everything else.

Colombia, in partnership with China, is looking at a potential land-bridge railroad which could serve as an alternative to the Panama Canal. Ships arriving at a coastal terminus would offload their cargoes to the railroad, which would carry them 137 miles overland, and the process would be reversed at the other end.

The benefits of this “dry canal” for Atlantic-to-Pacific connection, and vice-versa, seem a bit questionable given the costs and delays of offloading and onloading containers and other freight–unless, of course, the Panama Canal reaches an extreme state of congestion and/or the canal fees are substantially increased. It appears, however, that one major motivating factor behind the project has to do with COAL. Columbia has substantial quantities of high-quality and easily-worked coal near the Caribbean end of the proposed route.

“Progressives” and establishment liberals have praised China’s progress in “green technology,” suggesting that the future energy supply for that country will come from solar, wind, and helpful leprechauns turning cranks while being supervised by wise unicorns. But if China’s leadership is serious about investing in a project like the Colombian land-bridge, then it’s pretty clear that they see a long-term future for coal as an energy source–clean or otherwise.

And I doubt it has escaped their attention that achieving/maintaining low electricity prices establishes a powerful competitive advantage in a whole range of manufacturing industries.

(link via Commonsense & Wonder)

In an earlier post, I mentioned the excellent old book The “Ever Victorious Army”: A History of the Chinese Campaign under Lt.-Col. C.G. Gordon, C.B., R.E., and of the Suppression of the Tai-Ping Rebellion by Andrew Wilson (1868). The author, Wilson, at key points in the book, reaches an almost poetic intensity in his prose.

The tragic story of the Tai-ping Rebellion is little known in the USA. Yet the wholesale devastation it inflicted on China, killing over 20 million people during 14 years of internal warfare and anarchy, makes it the largest military event of the 19th Century.

The founder and ruler of the Tai-ping movement, Hung Sew-tsuen, was exposed to foreign missionaries who showed him a Chinese translation of the Bible. After failing to pass the examination to enter the Mandarinate, he went into a trance, had a vision, and believed himself to be the younger brother of Jesus. Conditions in China were disorderly, and he believed himself to be Heaven’s instrument to rectify the wrongs and bring peace and justice and prosperity back to China. He convinced others of his status and mission. He raised an army and overran many provinces and cities. But instead of restoring harmony in the Flowery Land, he and his rampaging subordinates (called wangs, or kings) brought only death, famine, destruction and chaos. In the closing years of the rebellion Hung Sew-tsuen was besieged in Nanjing by the Imperialist forces of the Manchu Emperor.

As dangers gathered round him, Hung Sew-tsuen, the Heavenly Monarch, became more cruel in his edicts, and ordered any of his people who might be found communicating with the enemy to be flayed alive or pounded to death; but even he could no longer conceal from himself the fact that the days of his reign and of his life had drawn to a close. It would be interesting to know what were the last thoughts of this extraordinary man when he found himself in these circumstances. Did he still believe that he was a favourite of heaven, and authorised representative of Deity on earth, or had he in his last hours some glimpse of the true nature of the terrible and cruel destiny which he had had to fulfil? Surely as his thoughts reverted to the simple Hakka village of his youth, he must have known that his path over the once peaceful and happy Flowery Land could be traced by flames and rapine and bloodshed, involving a sum of human wretchedness such as had never before lain to the account of the most ferocious scourge of mankind. Where there had been busy cities, he had left ruinous heaps; where fruitful fields, a desolate wilderness; “wild beasts, descending from their fastnesses in the mountains, roamed at large over the land, and made their dens in the ruins of deserted towns; the cry of the pheasant usurped the place of the hum of busy populations; no hands were left to till the soil, and noxious weeds covered the ground once tilled with patient industry.” Even, as has been remarked, the very physical features of the country, owing to neglect of the embankment of great rivers, had been largely changed by his destructive career. And, after all this ruin and misery, what had the Tai-ping movement come to at last but the restoration of Imperial rule in China, while a cloud of fear and wrath hung over the doomed city in which the king and priest and prophet of the Great Peace anticipated death in the midst of his trembling women and the remnant of his ferocious soldiery.

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Through an English friend in the Chinese service, Ward obtained an introduction to Wu, the Taotoi of Shanghai, and to a millionaire merchant and mandarin named Tah Kee. The plan he proposed was as simple as it was daring. He offered to recruit a foreign legion, with which he would defend Shanghai, and at the same time attack such of the Taiping strongholds as were within striking distance, stipulating that for every city captured he was to receive seventy-five thousand dollars in gold, that his men were to have the first day’s looting, and that each place taken should immediately be garrisoned by imperial troops, leaving his own force free for further operations. Wu on behalf of the government, and Tah Kee as the representative of the Shanghai merchants, promptly agreed to this proposal, and signed the contract. They had, indeed, everything to gain and nothing to lose. It was also arranged that Tah Kee should at the outset furnish the arms, ammunition, clothing, and commissary supplies necessary to equip the legion. These preliminaries once settled, Ward wasted no time in recruiting his force, for every day was bringing the Taipings nearer. A number of brave and experienced officers, for the most part soldiers of fortune like himself, hastened to offer him their services, General Edward Forester, an American, being appointed second in command. The rank and file of the legion was recruited from the scum and offscourings of the East, Malay pirates, Burmese dacoits, Tartar brigands, and desperadoes, adventurers, and fugitives from justice from every corner of the farther East being attracted by the high rate of pay, which in view of the hazardous nature of the service, was fixed at one hundred dollars a month for enlisted men, and proportionately more for officers. The non-commissioned officers, who were counted upon to stiffen the ranks of the Orientals, were for the most part veterans of continental armies, and could be relied upon to fight as long as stock and barrel held together. The officers carried swords and Colt’s revolvers, the latter proving terribly effective in the hand-to-hand fighting which Ward made the rule; while the men were armed with Sharp’s repeating carbines and the vicious Malay kris. Everything considered, I doubt if a more formidable aggregation of ruffians ever took the field. Ward placed his men under a discipline which made that of the German army appear like a kindergarten; taught them the tactics he had learned under Garibaldi, Walker, and Juarez; and finally, when they were as keen as razors and as tough as rawhide, he entered them in battle on a most astonished foe.

From Gentlemen Rovers by E. Alexander Powell (1913), chapter entitled “Cities Taken by Contract” about Frederick Townsend Ward and the Ever Victorious Army during the Taiping Rebellion. After Ward’s death, the Ever Victorious Army was led on to victory by Charles “Chinese” Gordon. (The title of Powell’s book is based on the poem The Lost Legion by Rudyard Kipling.) See also The “Ever Victorious Army”: A History of the Chinese Campaign under Lt.-Col. C.G. Gordon, C.B., R.E., and of the Suppression of the Tai-Ping Rebellion by Andrew Wilson (1868).

UPDATE: Reading the Wilson book, I found this excellent paragraph, about the death of the Emperor, who had suffered both the Taiping rebellion as well as foreign invasion, culminating in the destruction of the Summer Palace, and unremitting disaster throughout his reign:

About this time some events occurred at Peking which had a not unimportant bearing on the future of China and of Tai-pingdom. On the 21st August the Emperor Hien-fung died at the Jehol, his hunting-seat in Tartary, in the 26th year of his age and the 11th of his reign. Unequal to the difficulties of a transition period, he had, like many other rulers similarly placed, sought consolation in sensual indulgences, and had allowed himself to be led by unworthy favourites. At last, as the decree announcing his death stated, “his malady attacked him with increasing violence, bringing him to the last extremity, and on the 17th day of the moon he sped upwards upon the dragon to be a guest on high. We tore the earth and cried to heaven, yet reached we not to him with our hands or voices.” When the mortal shell of this frail and unfortunate monarch was laid in its ” cedar palace,” his spirit ascending on the dragon would have many strange things to tell to the older Emperors of his line. He would have to speak of trouble, rebellion, and change through all the years of his reign, over all the vast plains of the Celestial Empire, from the guttural voiced tribes of Mongolia and the blue-capped Mohammedans of Shensi, down to the innumerable pirates of Kwangtung; he might complain that, east and west, north and south, his people had been disobedient and rebellious; the administration of his empire had been set at defiance, and his sacred decrees had been imperfectly carried out by weak and corrupt viceroys, much more intent upon their own aggrandisement than upon the welfare of the people. Year after year great bands of marauding rebels had moved across the once happy Flowery Land, marking their progress in the darkness of night by the glare of burning villages, or shadowing it in the day by the rolling smoke of consuming towns. A maniac usurper had not only sought to ascend the dragon throne, but had nearly done so, and had claimed divine honours; while invading armies of the outside barbarian had humiliated the empire, had visited the once inviolate city of Peking, and had burned the palace of the Son of Heaven.

Woe unto poor China, and her unhappy Emperor. A vivid and tragic depiction of the destruction of the Summer Palace, mentioned here, can be found in How We got into Pekin: A Narrative of the North China Campaign of 1860 by The Rev. R.J.L. M’Ghee (1862), which is a very worthy book.

Consider the Gap to be closed…

Core: I got my job because I have a remarkable talent for reading a teleprompter.

Gap: That’s interesting. I got my job because I have a remarkable talent for killing Tibetans.

Surprises can always happen…

(or at least “less”)

…to rare earths

There has been much concern, and rightly so, about the increasing dependence of the U.S. and other economies on the elements known as rare earths, for which the primary current supplier is China. These concerns have been further increased by the rather high-handed manner in which the Chinese government has conducted itself in this matter. As a result, stocks of companies with access to rare-earth mineral deposits outside of China have been doing pretty well.

A couple of weeks ago, General Electric posted about their efforts to reduce the need for rhenium in jet engines. Although it is not technically a rare earth, rhenium is indeed rare–world production about 50 tons per year–and expensive. GE’s rhenium-reduction project has three elements: recycling metal grindings from the manufacturing process, developing alloys that require less or no rhenium, and reclaiming rhenium from used engine parts.

When reading the GE post, it struck me that just about every company that is highly dependent on rare earths probably has similar projects underway. Comes now Toyota, with an announcement that it’s making good progress in developing an electric motor (for hybrids) which has no need of neodymium, a mainly-Chinese-source element that is a key component in today’s hybrid motors. (Toyota’s new motor is based on the induction-motor principle–scarcely a new technology, but one that has required considerable reengineering to meet the weight and efficiency needs of the hybrid application.)

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The thirst for a magic bullet is profoundly American. In war, the magic bullet manifests itself in the antiseptic wonder weapons that promise to transform conflict into a harmless, contact-free sporting event. In politics, the magic bullet manifests itself as something like a 2,000+ page health care reform law. In finance, it manifests itself as the AAA rated senior tranche in a collateralized debt obligation (CDO).

In diplomacy, the manifestation of magic bulletry is the “grand bargain”. Every diplomat’s secret desire is making the agreement to end all agreements and conducting the negotiation to end all negotiations. As a magic bullet, the grand bargain would kill all diplomatic disputes for all time, Unfortunately, over every aspiring 1648 or 1815 hangs the long shadow of 1919. Versailles was intended to be the magic bullet to end all magic bullets. Instead, it became the magic bullet that wasn’t. Inasmuch as it possessed magic, it was the magic to ricochet off its intended target and right back at its originators.

In today’s West, dominated by those high on the heady drug of global meliorism, the mere act of talking has somehow become an end unto itself. Whether it’s a “peace process”, “six-party talks”, “quartet”, “agreed framework”, “security council resolution”, or some other high-falutin’ hogwash, Western diplomacy resembles is more the decrepit liturgy of a dying baroque cult than the hard-nosed power brokering beloved by naïve realists. Like a general who puts the desperate lunge for a tactically decisive battle above stodgy strategic logic, a diplomat who puts talking, negotiating, and agreements first puts the tactical cart before the strategic horse.

Strategy seeks to convert power into control to achieve purpose. The ideal was outlined by Alexander Hamilton in Federalist 31:

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In the field of accounting traditionally assets were “hard” assets, like land, cash on hand, factories, and other similar items. You could “touch” an asset, and you saved up capital in advance and then “invested” it into projects that would expand your capacity to do business or do it cheaper than your competitor (improvements). This “traditional” view of assets came under attack in the 2nd half of the 20th century, as accountants pointed out that brands had value (the classic example – the “Golden Arches” at McDonald’s). As the economy moved more towards services, the public accounting firms also noted that people did not have value in this model; the famous line was “all my assets go out the door each night”.

The traditional view of government was that they 1) built things like roads, bridges, schools, and jails 2) provided critical services like police, fire and military protection. In this manner citizens could see with their own eyes the value of the taxes that they were paying to the government; with it came roads, schools, and essential services.

Analogous to what occurred with accounting practitioners, those lobbying for higher taxes, which mainly go to transfer payments to favored constituencies, re-defined what an “investment” means. An investment used to be something tangible, like a highway extension or a new school; but now it is an investment in people, meaning that you as a citizen are in effect paying for a transfer payment to someone else.

It is astounding to see the degree to which the “traditional” view of government investment has been crowded out by the new view of investment being a transfer payment to someone else. In the City of Chicago we see the rotting, rusting hulk of the “L” tracks over our head every day, with holes in the streets and bridges and the only things that are new are the buildings erected with private funds that comprise our skyline.

Meanwhile in China they are building ENTIRE CITIES the size and scale of Chicago FROM SCRATCH. Now that is the traditional view of investment; power plants, roads, bridges, and all manner of hard assets to boot. It is amazing to think of what they are constructing there vs. the pathetic state of our infrastructure in the United States. And yet our government spends much more, but we direct it into transfer payments to other citizens or for retired government employees, rather than those “old school” ideas of traditional investments.

This rhetorical sleight of hand has gotten out of control; we need to re-label transfer payments as transfer payments and investments to be those things that actually serve the population for the future. This is not to say that all money spent on education and health care isn’t an investment; it IS when those individuals gain significant and useful skills that they can utilize for the economy. But overall, the building of even a highway or power plant is now beyond the pale even with government spending far higher than the historical norm; transfer payments have been re-defined as investment. Just look at those rusting “L” tracks to prove it.

Cross posted at LITGM

Via Instapundit comes a question in response to Amy Chua’s interesting article on the superiority of Chinese mothers:

Then again, as I said above, one wonders why Asians, if they’ve got things so figured out, need to emigrate to the land of the substandard “Westerner” in order to live prosperously and free.

I think Chua provides the answer herself:

Here are some things my daughters, Sophia and Louisa, were never allowed to do:
 
• attend a sleepover

• have a playdate

• be in a school play

• complain about not being in a school play

• watch TV or play computer games

• choose their own extracurricular activities

• get any grade less than an A

• not be the No. 1 student in every subject except gym and drama
 
Other studies indicate that compared to Western parents, Chinese parents spend approximately 10 times as long every day drilling academic activities with their children. By contrast, Western kids are more likely to participate in sports teams.[emp added]

Noticeably excluded from her children’s activities is any kind of team activities. The secret of American’s collective success as a people is our ability to self-organize ourselves on both the small and large scale into highly effective teams The relative inability to self-organize into teams is why China and some other cultures have lagged behind in the modern world. Americans have long relied on activities like sports, theater, marching band etc to teach that one critical American cultural skill. By excluding such activities from her children’s life, Chua is depriving them of one of the most crucial skills an American must have.

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Victor Davis Hanson (at around 14:00):

What Thomas Friedman would need to do is get on a bicycle and go across rural China, and then compare that with biking across Nebraska, and see which society is more resilient and stable.

—-

Ann Althouse:

Well, you will pull the plug on grandma, but only after grandma has signed the document the doctor explained to her long before she got into the situation she’s in now, back when it seemed like autonomy and control.

“Using unwanted procedures in terminal illness is a form of assault,” [said Dr. Donald M. Berwick, administrator of the Centers for Medicare and Medicaid Service].

The question is what do patients want and how what they want will be determined. It seems to me that the effort is to get people to commit in advance to death-hastening choices, by getting everyone to sign these documents. Now, all the new regulation seems to do is to authorize Medicare reimbursements for the time health care professionals spend counseling patients about the value and importance of signing the document. It’s hard to see what’s wrong with that. If treatments are covered but advice about forgoing treatment is not covered, then there’s an incentive to do expensive things.

In a recent study of 3,700 people near the end of life, Dr. Maria J. Silveira of the University of Michigan found that many had “treatable, life-threatening conditions” but lacked decision-making capacity in their final days. With the new Medicare coverage, doctors can learn a patient’s wishes before a crisis occurs.

Treatable? You have a condition that can be treated, but you can’t think well enough anymore to decide whether you’d prefer to die? If you’ve signed the document, the answer is you’d rather let the condition kill you, because you allowed the doctors to “learn [your] wishes before” this “crisis” occurred. You didn’t know what the crisis would be or how you would feel when it happened, but you had “wishes” then and these will be taken as your “wishes” now.

(Many of the comments are also worth reading, particularly the one by Bender at 10:21 AM on 12/26/10 and the one by Ann Althouse at 2:21 PM on 12/26/10.)

—-

Oleg Atbashian:

* Why do those who object to tampering with the environment approve of tampering with the economy? Isn’t the economy also a fragile ecosystem where a sudden change can trigger a devastating chain reaction?
* Isn’t the latest economic crisis such a chain reaction?
* Aren’t most of today’s social ills the result of tampering with social ecosystems?
* Why is bioengineering bad, but social engineering good?

Wolff, Diane, Tibet Unconquered: An Epic Struggle for Freedom, Palgrave McMillan, New York, 2009, 248pp. Foreword by Robert Thurman.

The publisher kindly provided a copy of this book for review.

A year ago, my Holiday 2009 Book Roundup on chicagoboyz here recommended Christopher Beckwith’s Empires of the Silk Road as an outstanding overview of Central Asian culture from prehistory to the present day. Complementing that title is Diane Wolff’s new and approachable overview of Tibet’s relationship with China.

It’s hard to imagine an extended American family that doesn’t have at least one member who’s been fascinated by Tibetan Buddhism in some way. The Dalai Lama remains as one of the few religious leaders given wide respect in the Western world. His recent emphasis on the preservation of Tibet’s environment (which forms the headwaters of five major Asian river systems) gives him even more popularity with Greens. As Wolff notes, Buddhism has been the default “cool” religion in Hollywood for many years apart from the recent and occasional forays into Jewish Kabbalah by the Malibu crowd. In turn, Tibetan Buddhism also appeals to adolescents looking for a way to peeve their parents … without getting kicked out of the house.

A book that tries to give a general reader a solid historical understanding of Chinese-Tibetan relations is welcome. It’s a tangled and tragic piece of history, one fraught with opportunities missed on both sides and historical trends that have largely worked against Tibetan culture. We have a vivid “virtual Tibet” (in Orville Schell’s phrasing) but will we still have a Tibetan culture in 2050? Wolff offers a heart-felt and practical solution to the current style of Han occupation of Tibet. She’s also realistic enough to understand that the current generation of Chinese leaders may not be suited to making the adjustments and compromises necessary to pull a Tibetan thorn from the Chinese paw. A Fifth Generation of Chinese Communist Party leaders may be needed.

Wolff’s book is written for the non-specialist. It requires close reading (because she often approaches subjects thematically with a certain amount of bouncing back and forth between time periods) but Tibet Unconquered is pitched for mortal readers, without a forest of footnotes.

An intelligent high school student can easily make their way through this book, with profit. So if you’ve suddenly found your kids flying Tibetan prayer flags in your backyard, Diane Wolff’s book definitely belongs on your 2010 holiday book buying list. You can bask in some of that reflected “cool” yourself. It’s a very affordable, useful introduction to a fascinating subject. It works fine as a springboard to the specialist literature for motivated readers. Those interested in China’s capacity to adapt to a world demanding more transparency, more honesty and more credible self-reflection could hardly find a better ongoing touchstone than Tibet. Educating yourself about how things got the way they did in Tibet (and China) is therefore well worth the time. The Han Chinese have plenty of challenges facing them. Tibet is where the world proclaims they are most “uncivilized.” That’s a slur the Han cannot, cannot bear after a millennium ruled largely by northern barbarians and more recent humiliations by industrial nations. So the Roof of the World is where the Han must come to a successful solution without losing face. For them, let alone the poor Tibetans, the stakes couldn’t be higher. It’s a situation worth watching.

Even better for those of you racing into the e-book world, Amazon offers an even more affordable Tibet Unconquered. Consider this title as a gift or for a thought-provoking bit of holiday reading.

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While I’ve been purposefully avoiding any news shows or blogs this weekend, the situation in North Korea forces me to post this potential solution to the problem. Let’s start with some premises.

1. NK is a buffer state for China. It exists at China’s will.
2. NK is a clear and present danger to its own people and to the world.
3. China, belligerent and “ascendant” as she may be, is linked to our currency and to our consumption of her cheap goods.

While I could add details and subheadings to the above, I think the premises are sound. If not please correct me.

With that in mind, why shouldn’t America, in the person of its CEO, simply offer China the ultimatum below.

Dear Hu,

President Obama (or his successor)

Why shouldn’t we use trade as weapon in this situation? Aside from hurting Walmart’s stock price for a few quarters and losing a few transportation jobs in the interim, why can’t we do this? Discuss.