China

The Sun in Spain, continued

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A couple of weeks ago, I posted about the economic problems with Spain’s alternative-energy programs, and the apparent unwillingness of the Obama administration and its congressional allies to learn from that experience. Comes now a leaked Spanish government report on alternative energy progress and problems. From the PJ Media summary:

Unsurprisingly for a governmental take on a flagship program, the report takes pains to minimize the extent of the economic harm. Yet despite the soft-pedaling, the document reveals exactly why electricity rates “necessarily skyrocketed” in Spain, as did the public debt needed to underwrite the disaster. This internal assessment preceded the Zapatero administration’s recent acknowledgement that the “green economy” stunt must be abandoned, lest the experiment risk Spain becoming Greece.

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When Nixon Saved China

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There is nothing new in this story that back in ’69 Nixon threatened to nuke the Soviets if they nuked the Chinese. I first read about this back in the early ’80s. It was the war prevented by an exchange of ping pong players.

The entire three-sided conflict is a fascinating example of how complex and multilayered the generic “Great Game” gets. It also serves as a demonstration of why the simplistic models that many people, especially those on the left, use to justify foreign policy stances are really just silly.

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Strategic Success

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We have won our war with Saddam Hussein’s government in Iraq. That’s who we declared it against and we won it.

We have won the peace after that war insofar as Iraq’s post-Saddam political arrangements are broadly democratic and not exclusively sectarian based. The authoritarians of the region do not like this and it is a good sign.

The objections to Iraq at this point seem to be that we have not had an outbreak of unicorns and free beer in the region and different countries who are badly ruled have not immediately seen the error of their ways. By that standard, the US did not win WW II because Stalin and Mao did not turn into just rulers and were also not overthrown.

We have budgeted for a certain size foreign policy mouth, that is a certain capacity to take on major problems and solve them. We have fully engaged said mouth and are chewing in our usual mix of brilliance and incompetence. It is our enemies’ strategy to induce us to over-extend ourselves and thus fail on all fronts. We should not go a bridge too far.

It is in our best interest regarding Iran that it be a full member of the civilized community of nations, that it fully exploit its energy resources and its geographic position to transit central asian energy resources to world markets. This is orthogonal to the issue of Iran being a nuclear power. Russia’s interest is to have Iran a pariah, forcing central asian energy flows to go through it. The PRC’s interest is also for Iran not to have central asian energy transit flows. Our major beef with Iran is that its internal stability currently depends on it being a pariah. Too much global connectivity leads to regime change and the mullahs know it. They will threaten and do any sort of thing to maintain tensions sufficient for them to continue to rule. Add nuclear weapons to this mix and you have a danger to the US because, for historical reasons, we are convenient scapegoat number one.

So let us not adopt the intellectual framework of our enemies. Our strategic task as americans and allies is to conceive of how to limit our reach to go no further than our grasp. So far we haven’t made this mistake. That’s what victory looks like for a military hegemon.

Mini-Book Review — Midler — Poorly Made in China

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Midler, Paul, Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game, John Wiley 2009, 241 pp.

Paul Midler began his academic career in Chinese history and literature and then went to Wharton for an MBA and further graduate work in East Asian business. Fluent in Chinese, over the past ten years he spent his time in southern China working as a consultant to American importers and was witness to the economic boom that’s amazed the world.

This book, however, is about all the other things he witnessed … the methodical transfer of technology and profit to Chinese manufacturers and the methodical transfer of risk, liability, and innovation/marketing/design costs to American companies. “Poorly Made” is a master class in how ill-equipped American companies are to operate in “low circle of trust” cultures … even when those American companies are managed by savvy mercantile clans and even organized crime!

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Munger on China

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Charlie Munger
Charlie Munger

From Charlie Munger in a speech at UC Santa Barbara:

Another example of not thinking through the consequences of the consequences is the standard reaction in economics to Ricardo’s law of comparative advantage giving benefit on both sides of trade. Ricardo came up with a wonderful, non-obvious explanation that was so powerful that people were charmed with it, and they still are, because it’s a very useful idea. Everybody in economics understands that comparative advantage is a big deal, when one considers first order advantages in trade from the Ricardo effect. But suppose you’ve got a very talented ethnic group, like the Chinese, and they’re very poor and backward, and you’re an advanced nation, and you create free trade with China, and it goes on for a long time.
 
Now let’s follow and second and third order consequences: You are more prosperous than you would have been if you hadn’t traded with China in terms of average well-being in the United States, right? Ricardo proved it. But which nation is going to be growing faster in economic terms? It’s obviously China. They’re absorbing all the modern technology of the world through this great facilitator in free trade, and, like the Asian Tigers have proved, they will get ahead fast. Look at Hong Kong. Look at Taiwan. Look at early Japan. So, you start in a place where you’ve got a weak nation of backward peasants, a billion and a quarter of them, and in the end they’re going to be a much bigger, stronger nation than you are, maybe even having more and better atomic bombs. Well, Ricardo did not prove that that’s a wonderful outcome for the former leading nation. He didn’t try to determine second order and higher order effects.
 
If you try and talk like this to an economics professor, and I’ve done this three times, they shrink in horror and offense because they don’t like this kind of talk. It really gums up this nice discipline of theirs, which is so much simpler when you ignore second and third order consequences. The best answer I ever got on that subject in three tries was from George Schultz. He said, “Charlie, the way I figure it is if we stop trading with China, the other advanced nations will do it anyway, and we wouldn’t stop the ascent of China compared to us, and we’d lose the Ricardo-diagnosed advantages of trade.” Which is obviously correct. And I said, “Well George, you’ve just invented a new form of the tragedy of the commons. You’re locked in this system and you can’t fix it. You’re going to go to a tragic hell in a handbasket, if going to hell involves being once the great leader of the world and finally going to the shallows in terms of leadership.” And he said, “Charlie, I do not want to think about this.” I think he’s wise. He’s even older than I am, and maybe I should learn from him.

Originally posted on the Committee of Public Safety.