The US Wars with China and the War with Itself

The US is currently at war with China over trade, economic policy, technology, capital and
geopolitics (Dalio, The Changing World Order, 2021, Chapter 13). While the US has no formal
treaty obligation with Taiwan and President Nixon and Secretary of State Henry Kissinger
recognized China’s claim five decades ago, President Biden repeatedly said the US would
intervene militarily to defend the island. Only a global hegemon could make such a threat.
China is destined to once again be a great dynasty, as it has been at least twenty times over the
last 22 centuries. The US was the sole global hegemon by 1945 as all the major empires of the
world were at this stage in decline, setting the stage for a century (the historical norm) of global
dominance. But within two decades, with the ascendance of FDR protégé Lyndon Johnson, a
War in Vietnam and a “Great Society” at home, the US was in decline.

In spite of the creation of OMB in 1970, the flight from the dollar that forced President Nixon to
default on gold convertibility in 1971 and the creation of the CBO in 1974 to stem the debt
crisis, starting in 1975 30 states petitioned for a federal balanced budget amendment. Since
then, US debt has grown 100-fold, current spending is twice revenue, the Federal Reserve is
financing half that deficit and the dollar has fallen 98% relative to gold. Such debt super-cycles
end in national bankruptcy-ending empire the way Hemmingway described: “slowly at first,
then all at once.”

National denial has global consequences. Britain entered into the Great War as a declining
power to thwart Germany, then a rising power. World War II was really an extension of the
Great War, when a German veteran, a lance corporal, came to power on the false narrative that
the Bolsheviks and Jews caused their loss. Britain lost the empire but remained in denial until a
speculator dethroned the pound Sterling in 1992. Similarly, the Soviet Union was in denial (as
was the US CIA) right up to the point of total collapse from within in 1989.

The US is now arguably in the position of Great Britain prior to the Great War as a military
power, but faces internal dissent that is arguably worse than that of the former Soviet Union. It
can follow the British path to weaken the rising power while restoring US hegemony, remain in
denial and continue on its current path toward civil war or revolution, or seek a softer landing
based on a restoration of US founding principles. Faced with these choices politicians generally
find war more politically palatable than the short-term pain of restructuring, even when that
results in complete destruction, asserting “nobody could have seen this coming.”

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Supply, Demand, and Policy

Back in the 1980s one of the political phrases that came into vogue was “supply-side economics.” It was demagogued by the left on two fronts. First, critics insinuated that only the rich got tax cuts; in reality, Kemp-Roth tax reduction was across-the-board. Second, they misrepresented the supply-side concept as “trickle-down economics” – wealth transfer to the rich intended to spur business activity that will “trickle down” to lower income brackets.

One problem with the slur is that it regards tax cuts as a subsidy, basically the same as funding stadiums with tax dollars. In reality, tax cuts are the opposite of wealth transfer. Quoting Rush Limbaugh from memory, “It ain’t yer [the government’s] money.” Another is that it equates supply with the rich. Many businesses are not run by the rich. There are rich people (e.g. Randi Weingarten) who may invest in producers but do not produce anything directly; their direct economic activity is limited to consumption and/or rent-seeking.

The greater problem is that the “trickle-down” canard treats tax policy as the only factor relevant to spurring or hindering supply. Even as a political novice who had yet to hear the name Thomas Sowell I was able to figure out that supply-side economics concerned all such factors, and that demand-side economics revolved around all obstacles to consumption. Taxation is an impediment to both. The other great factor that government must address is its own laws. Regulations prohibit some or all parties from entering certain industries, or (more relevant to this discussion) they impose compliance costs on producers.

Likewise, demand-side economics should also address all barriers to consumption and not just tax rates (or resort to subsidy). If some regulations can depress supply, what other regulations depress demand?

DOGE is an Oxymoron: Unchecked “Democracy” is the Problem

Unlike the private sector, where operational efficiency is necessary to survive, the public sector is and always has been inherently inefficient. But that’s not the main problem. Think of federal public polices justified as being in the “public interest” as a building. On the upper floors are the best of them, the merely inefficient. At the mezzanine level are those suffering from extensive waste, fraud and abuse. On the ground floor are policies and programs rife with self-dealing and crony capitalism. Down in the basement is the “temple of virtue” where taxpayers are sacrificed to multiple ideological isms.

DOGE is peeking inside the locked doors on all four levels. As DOGE exposes “Dirty Deeds, Done Dirt Cheap,” politicians cry foul, as “they were implemented (by us) democratically. To paraphrase Churchill, “democracy is less bad than totalitarianism,” but, he might have added “generally worse than competitive private markets.” At this stage in US democracy, DOGE revelations have lost some of their shock value as commonplace, and politicians emphasize their good intent. DOGE needs to demonstrate that “good intentions” often lead to bad outcomes, and do not justify corruption in any case.

DOGE alone can only win a few skirmishes against Congress and its massive army of rent-seekers feeding off their largess. With public understanding and support, the Trump Administration could bring about more permanent structural changes that provide greater voter control.

Life is a Competition

Americans love sports, from 5 & 6-year-old soccer leagues through high school, college and pro teams, where the competition to succeed is intense. Pro sports is a business, as the recent Luka Donic trade to the Lakers reminds us, with winners and losers. It is incredibly “democratic” as millions of fans choose what players to follow, games to attend or stream at the posted price, and owners respond continuously to fan expectations. The competition is subject to a massive set of complicated rules and limitations enforced by referees and judges whose integrity is subjected to coaches’ challenge, instant replay and fan fury. That reflects the system of checks and balances that a competitive private market incorporates.

Now imagine a pro sports league designed and governed by the most honest and altruistic national politicians. They would deem it unfair to pay some athletes more than others, or to exclude the weak or physically impaired from the competition. Winners would be determined by political deal making in smoke-filled back rooms. Prices would be determined according to “ability to pay” and ticket purchases would be mandatory whether or not attending the games, with revenues first flowing through party coffers. Fans would be told who to root for and losing teams and cities would be declared winners so as not to result in hurt feelings. Voting against this system would result in your team being designated the loser but you would still be required to buy the tickets. That’s a metaphor for our current “altruistic” federal democracy.

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“Evil Amazon”

Josh Treviño regarding the Mexican cartels:

“It is evil Amazon, really. They’re logistic firms with small armies attached that will profit from whatever they can and increasingly take on the characteristics of insurgency.”

I think the Amazon comparison is apt, but Treviño pulls up a bit short because it’s more than just logistics. Amazon has proven to be a master of leveraging existing capabilities in order to exploit new markets. There is of course its e-commerce transformation from an online bookstore to selling just about everything under the sun. Then there was its leveraging the last-mile delivery and now using its expertise in data centers to develop AWS and enter the AI market.

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2024 Election Plus/Delta

Pluses: admittedly much the shorter list, but we did resolve a few things.

  1. Thanks mainly to vote shifts in California and New York, the popular vote outcome was not at variance with the Electoral College vote, and it wasn’t particularly close (over 4-1/2 million votes).
  2. Largely as a result, the losing side, and VP Harris herself, have indicated cooperation with formal certification and transition processes.
  3. Harris is gone. She’ll get a chunk of money for a book and retire to the lecture circuit.
  4. Walz, same, and given the likelihood that he would have been a 21st-century version of Henry Wallace, with Chinese instead of Soviet agents in his inner circle, that might be more important than getting rid of Harris.
  5. Taking a somewhat longer view, Trump is gone too (perhaps not a much longer view; see the final Delta item below).
  6. By extension, there is some chance that ’28 will not have the electorate choosing between a crook and an idiot for President.
  7. Whatever one may think of prediction markets, and there are arguments on both sides regarding their functionality, the biggest prediction market of all, the US stock market, was forecasting a Trump victory all year (not coincidentally, the same thing happened in 2016).
  8. By the way, the media will actually report negative economic news now.
  9. I could have put this in either category, but I’ll leave it here: your Cluebat of the Day is a reminder that Trump is as old as Biden was in ’20, and notwithstanding some of my more apprehensive items below, to expect anything much of him is a waste of time.
  10. Likely continuation of relatively good space-industry policy across Administrations, which should be the only thing that matters several decades from now.

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