The Supreme Court

Yesterday’s 6 to 3 decision by the Supreme Court supporting Title VII LGBT protections surprised liberals, who assumed conservatives would vote as an ideological block against it. (In fact, it is the liberal block that has voted as an ideological block over the past few years; the five conservatives are much more likely to be independent and occasionally join the liberals). But it shouldn’t have surprised anyone. The conservatives tend to be textualists (ruling on what the law actually says instead of what they think might possibly have been in the mind of the legislators when they wrote the law), and the law’s text was unambiguous, as Justice Gorsuch made brilliantly clear in the first five lines of his opinion. And in fact the three dissents (Alito joined by Thomas, and Kavanaugh in a separate dissent) didn’t question the outcome, just the propriety of unelected judges making the ruling instead of elected representatives (though I don’t find their argument persuasive, since the text was so clear). Kavanaugh in fact went out of his way in his dissent to celebrate the substance of the ruling.

The next step will be interesting. It is always interesting when the Court has to deal with rights in conflict. The next step is to decide how this ruling applies to people who have religious objections to its consequences. On the one hand we are a country founded on the principle of religious freedom. On the other hand, if the Court gives too much weight to this than anyone can avoid any federal law by claiming a religious objection to it. Does the court want to allow sharia law to apply for Muslims (stoning adulterers, killing apostates, as commanded in the Qua’ran)?  Does the court want to allow multiple wives, as commanded by some Mormon sects? If I am a Quaker and opposed to war can I legally refuse to pay the portion of my taxes that supports the military? It is a very, very difficult issue, and it will be fascinating to see how the Court handles it.

When this issue has come up before, as in the Colorado Masterpiece Cake case, the Court has ruled on very narrow grounds to support the religious objection. And I see why - asking an artist to make a creation that offends his religious beliefs seems like a serious intrusion of government power.  Could the government also force a religious artist to make a scatological depiction of Jesus on the same basis? Well, the Court sidestepped the essential issue by making a very narrow ruling. Now they may be forced to face the whole issue. It will be interesting, and however they rule will no doubt outrage one side or the other of the culture wars.

J.K.Rowling's response

For those who might not know, J.K.Rowling, author of the Harry Potter series, has been subject to some extreme abuse online lately over daring to ask perfectly reasonable questions about gender identity. She has today released a long but very good response, which can be read here. I strongly recommend it.

The issue for me is larger than her particular views, however. It is the growing tendency in this nation to adopt the attitude that if someone holds a different view on a subject - social, political, economic, or what have you - they are ipso facto at least dumb, if not woefully ignorant or outright evil. They may indeed be wrong (and then again, perhaps it is just as likely that it is we who are wrong), but they have arrived at their opinion on the basis of their history and experience and training, and if we had the same history, experience and training we would no doubt believe exactly as they do.

The disappearance of tolerance for other views in our society worries me a great deal. Of course social media is partly to blame for this. People will say in the relative anonymity of social media things they would be ashamed to say in person. But I blame the elites for this as well. The growing movement in academia to refuse to listen to alternative views, and to demonize those who disagree with one is providing a very bad model for the younger generation. It is one of the early signs of fascism, and it ought to worry all of us.

Demographics

My general objective is to try to understand the major shifts occurring in the world, the “deep currents” that will shape the future for perhaps the next century or so. This is exceedingly hard, not only because of the distracting “noise” of all the relatively minor near-term effects that consume the media (COVID, the 2020 election, Brexit, Middle East wars, etc), but because there are so many moving parts in the major effects (demographics, climate change, technological advances, cultural shifts, etc), and they all interact in such complex ways with one another.  

Most recently I have been focusing on demographics, and in particular the likely consequences of nations depopulating themselves, as so many are doing. (Good sources for demographic data are here, or Peter Zeihan’s nice demographic charts here.)

It occurs to me that the major political “isms” of the 19^th and 20^th century – capitalism, socialism, fascism, communism – all assume, either explicitly or tacitly, a growing pie. The fundamental argument among them is simply how best to divide the growing pie.  But what if the pie is no longer growing, and in fact is shrinking? None of these potential political systems is prepared for that.

In our Western world, much is based on the assumption of nonstop growth. Both government and business debt is justified fundamentally on the assumption that rising revenues (taxes from a growing tax base or profits from expanded markets) will pay off the debt eventually. Social safety nets are based on the assumption of ever more workers contributing to the pool. Indeed, businesses in our capitalist system seem to feel that they are failing if they are not growing their volume and/or market share, and certainly their investors judge them on that basis.

In the short term, as several economists have pointed out, the U.S. is in relatively good shape. Because we have so many ‘Baby Boomers” in the highly-productive 50-65 year age bracket who are spending less and saving more for retirement, and because there is so much capital flight into the country at the moment, capital is cheap (ie – interest rates are low). But this is about to change in the next few years, as all those people move into retirement and begin drawing down their savings rather than increasing them.

So, for example, the federal government is currently paying about 2.5% on federal debt, so that interest on the debt consumes just under 9% of the federal budget (just under $600 billion in 2019, or about what we spend on the military). But if the interest rate tripled, as might well happen in a few years when capital gets harder to raise, this will have a profound impact on the federal budget. And there won’t be a growing tax base from a growing cohort of workers to provide more government revenues to pay the interest. All because of demographics.

Or consider the social safety net. Look at Social Security. When it was started in 1945 there were 42 workers contributing into the fund for every retiree it was supporting. The assumption (reasonable at the time) was that even as the pool of retirees grew, the pool of workers contributing would grow at least as fast, if not faster. But in fact now there are about 2.5 workers contributing for each retiree being supported, and soon there will be only about 2 workers supporting each retiree, and the system will be in big trouble*.  Demographics again.

Or consider technology. As our work force decreases we will have to do what the Japanese are doing to cope with their falling work force – automate. Great idea, especially since robots don’t need bathroom and coffee breaks, days off or sick days, or benefits. And they don’t join unions! BUT they also don’t pay taxes (yet), so heavy automation decreases the tax base (85% of U.S. federal revenues come from taxes on workers), and governments will have to figure out other ways to get revenue. Demographic effect again.

These are just a very few of the more obvious potential demographics effects just in the U.S. There are no doubt thousands more worldwide, some quite unexpected. And thus far almost no one outside of a few academic experts are paying much attention yet.

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* Actually, it is already in big trouble. In theory the Social Security Trust Fund currently has just under $3 trillion in reserves. The problem is that there isn’t really $3 trillion in dollars or investments there, just $3 trillion in Treasury Bonds, which in effect are just paper IOUs from the federal government. When Social Security needs this money and cashes in the Treasury Bonds, the federal government will have to go out and borrow the same amount from someone else to pay off the Social Security Funds bonds. So really the whole “Trust Fund Reserve” idea is just an accounting trick and political fiction. Social Security is already out of money.)

US Foreign Policy questions

Thinking more about Peter Zeihan’s books - The Accidental Superpower (2014), The Absent Superpower (2017), and Disunited Nations (2020) - I find persuasive his narrative, that the global order founded at the Bretton Woods conference in 1944 no longer serves US interests since the fall of the Soviet Union in 1991, and hence the US voting public is no longer willing to pay the price (outsourced jobs and industries, casualties in overseas wars, massive foreign aid, etc) to support that order. I find it more persuasive than the major alternatives on offer, most of which argue in essence for replacing the Soviet menace with a hypothetical Chinese and/or Russian menace and continuing much the same policies we have followed for the past 75 years, reflecting the inertia and groupthink of the Washington foreign policy establishment.

I find his narrative persuasive for three reasons: (1) he backs up his arguments with extensive historical, geographical, economic, military and demographic data, (2) most of the other major geopolitical strategists I follow seem to more or less agree with him, and (3) world events thus far seem to be confirming his predictions.  

Given that narrative, the next obvious question is this: just what foreign policy should the U.S. follow in this new world environment, in which the world has reverted to more traditional Hobbsian power politics driven by national interests?  It is notable that none of the Democratic presidential contenders for the 2020 election had much if anything to say about foreign policy. They are all tightly focused on domestic issues. If one looks at Joe Biden’s foreign policy positions on his website, they are fairly thin – a little focus on China, some boilerplate on global warming and not much else. Presumably if he wins he will bring back much of the Obama-era neoliberal consensus on globalization and internationalist interventionism (ie – the US as the world’s policeman). Zeihan may be right that President Trump, for all his many faults, will be the most internationalist president we will see for the next decade or so, as the nation turns inward and even somewhat isolationist.

Thinking about the problem, I can think immediately of four key objectives:

1.  Maintain naval control of the Atlantic and Pacific Ocean. These two oceans are (a) the moats that protect the U.S. from foreign invasion, and (b) the key trade routes to some of our major trading partners (Britain, Germany, Japan, South Korea, Australia). This implies continuing to invest in maintaining and upgrading our naval forces to adapt to the growing threat of long-range precision weapons. It also implies investing in control of space, since long-range precision weapons need accurate targeting information to be effective, and that is best acquired from space. The current administration is moving forward on both of these initiatives, though bureaucratic inertia and Congressional fickleness are slowing the effort. It is unclear whether a Biden administration would continue to fund these initiatives adequately.

2. Require Europe to take up more of the costs of its own defense. Since the end of World War II the US has provided a significant proportion of the defense of Europe against the Soviet Union, and born a significant portion of the costs and risks. But Europe actually has as large a GDP as the US, so it ought to be paying for its own defense, especially now that the Soviet threat is gone (the Russian threat is much smaller). The current administration has pressed that issue more forcefully than previous administrations, with some results. Again, it is unclear what a Biden administration might do.

3. Re-establish key domestic industries that have been destroyed by overseas outsourcing under globalization. The CORVID-19 pandemic has made it painfully obvious that overseas supply chains are highly vulnerable to disruption. For example, the US currently depends on overseas supply chains for 95% of its antibiotics, 77% of its steel, 40% of its aluminum, 95% of rare earths, and 80% of its integrated circuits. Rebuilding such industries domestically both reduces our vulnerability and addresses the political problems posed by putting so many US workers out of jobs through outsourcing. The current administration has talked a great deal about this, and even made a few minor symbolic steps toward encouraging such retrenchment. Whether a Biden administration would do anything effective to foster the return of production to the US is unclear.

4. Abandon the neoliberal international interventionist model, in which the U.S attempts to impose American ideals at the point of a gun on any international problem that the U.S. media happens to focus on. Follow instead the highly successful British (and Roman) model of empire. Maintain balances of power in key regions of the world, so that no coalition of forces arises powerful enough to pose an existential threat to the U.S. Avoid putting U.S. troops on the ground unless absolutely necessary, and then only for limited, clearly-defined objectives (see the Colin Powell doctrine). Rely instead on supporting allies to maintain the balance of power in their own neighborhoods.  In particular, avoid getting financially destroyed by getting over-extended, which has been the downfall of many empires. The Obama administration began this in the Middle East and the current administration has continued it (support Turkey, Israel and Saudi Arabia to counterbalance Iran), and the current administration has begun the same thing in Southeast Asia (the Quads initiative – Japan, Australia and India to counterbalance China). One presumes even a neoliberal resurgence under Biden would continue these efforts.

No doubt there are a few other key objectives we ought to be thinking about, and the reader can ponder that question.

Recommended: Prof Antony Davis

I have come across some excellent YouTube presentations by Professor Antony Davis, Professor of Economics at Duquesne University, and the Milton Friedman Distinguished Fellow at the Foundation for Economic Education.

Let me recommend, for example, his 20-minute presentation on the 10 Myths of Government Debt. It certainly disproved some things that I believed. For example, could we help the problem by raising taxes on the rich? Sounds reasonable. I certainly believed so, and lots of politicians make this argument. But the data actually show, from 1950 to the present, that federal revenue as a percentage of GDP has stayed almost flat at about 17% whether the top tax bracket was 91%, as it was in the 1950s, or 30%, as it was in the 1990s. So that belief is simply not supported by the data (not that many would change their mind just because the data didn’t support their belief).

Or try, for example, his 19-minutes presentation 5 Inequality Myths, or his presentation Why Government Fails.

Again, as in my previous post, I am amazed at how much we all think we know that simply isn’t so. It reminds me again of Mark Twain’s comment: It ain't so much the things that people don't know that makes trouble in this world, as it is the things that people know that ain't so

Re-reading Peter Zeihans new book

I’m re-reading Peter Zeihan’s new book Disunited Nations: The Scramble for Power in an Ungoverned World. It takes several readings to really absorb all the data, and the implications of that data, in this book. For those of you who may not have read it yet, I strongly recommend it. His writing style is easy to read, even fun, but his arguments are backed with masses of relevant data. If you would prefer to watch him rather than read him, his hour-long presentations, some available on YouTube, are a good introduction, though there is much, much more supporting data in his books. Try his online presentation here, for example, or a more recent interview here.

What I am particularly aware of during this re-reading is how sharply Zeihan differs from the “common wisdom” expressed in the media and by most of the ubiquitous talking heads and political actors in both parties. The so-called experts obsess over China’s rise - Zeihan argues, with masses of supporting geographic, historical, military, geopolitical, demographic and economic data that far from being a threat, China is on the verge of total collapse, perhaps in a decade, perhaps next year (he admits timing is the hardest part about predictions). The so-called experts obsess over Iran; Zeihan argues, persuasively and with data, that we ought to be more worried about Saudi Arabia. The so-called experts worry about America’s decline; Zeihan argues, again persuasively and with masses of data, that America has another century at least of pre-eminence, not because of any brilliance in our politicians (indeed, despite the best efforts of our political system to screw it up), but simply because of the luck of our geography.

So whom to believe? Since Zeihan bases his arguments on verifiable facts, like demographics and geography and history and existing trade routes, while others seem to have just emotional opinions, I find Zeihan’s arguments more persuasive. And I notice that the other serious geopolitical writers I follow (Robert Kaplan, John Mearsheimer, Stephan Walt, Richard Hass, George Friedman, Stephan Kotkin, Ian Brenner, etc) seem to all more or less agree with him, though there are minor differences in emphasis.

It reinforces Nassim Taleb’s argument that listening/reading the daily news doesn’t make one smarter; it actually makes one dumber because of all the unsupported opinions expressed authoritatively by people who really don’t understand what is going on.

An interesting question

It is clear that the economy is going to take a severe and long-term hit from the CORVID-19 shutdown, despite the apparent recovery of the stock market. A significant number of businesses are likely to fail, and of those that remain, many will not be able to rehire as many workers, which means a lot of people will be either unemployed, or at least earning a lot less than they used to, which will depress spending and hence further depress the economy. The Congressional Budget Office has a report out today (you can read it here) that predicts that nominal GDP won’t recover until around 2030, and that real (inflation-adjusted) GDP may never recover. That prediction assumes there is no additional effective policy action by Congress to address this risk.

The core of the problem is that average household income will be lower, so there will be less demand. One solution to that problem is for the federal government to pump more money into the economy through grants/loans to businesses and/or local governments, and/or various direct payments to households like the $1200/person that Congress doled out last month. Of course the federal government doesn’t have more money – it was already borrowing almost a trillion dollars a year even before the pandemic. In essence the government would need to “create” that money, either by borrowing even more, or perhaps just by “printing” more money (the current euphemism for that is “quantitative easing”).

Two factors help us in the short term. First, dollar-denominated assets at the moment look like a lot safer place to put wealth than anything else in the world (however bad our economy, the economy of most other places looks worse), so there has been a lot of capital flight worldwide to the dollar, which is why so far the government has been able to borrow so much at such favorable interest rates (current interest rates in new US debt runs about 2.5%). But the federal government does something that your local bank won’t let you do – when a bond comes due they simply “roll it over” by selling a new bond to pay off the old one. That works as long as U.S. bonds are perceived to be safe investments.  If that perception ever changes, we could have a lot of sudden flight out of Treasury Bonds, or at least we would have to offer a far higher interest rate to sell our bonds, which would cause a major problem for us.

And on top of this, the more extreme progressive wing of the Democratic party is full of wildly expensive ideas that would push the demand for federal funds and federal borrowing much, much higher, and that wing might force Joe Biden to adopt some of their ideas in order to get support from that wing of the party and win the election.

Second, for the moment at least the U.S. dollar is the world’s reserve currency, which means we can get away with some things that other nations can’t do so easily with their currency, like simply expand the money supply by “printing” more (sorry, I mean “quantitative easing”). But there are limits to how much of that we can get away with, and I don’t think anyone knows what those limits are.   

So the interesting question is this: what will be the long-term effects of such increased borrowing and/or quantitative easing? In particular, what risks does it entail, and are they as serious as the risks entailed in a depressed economy?  Not an easy question to answer, but it seems to me the essential question to ask at this point.

Relevent quotations from Terry Pratchett

There are writers who seem, somehow, to get right to the pith of things. The late Terry Pratchett was one of those. If you have never read any of Terry Pratchett’s Discworld novels, you have a treat coming. Discworld is a place where magic replaces science, giving Pratchett a wonderful scope to comment on science, academia, government, life and the world in general with his wry sense of British humor.

Looking at the general ineptitude of governments around the world (not just in the US), I am reminded of a quote from Pratchett’s novel “The Night Watch”:

“One of the hardest lessons in young Sam's life had been finding out that the people in charge weren't in charge. It had been finding out that governments were not, on the whole, staffed by people who had a grip, and that plans were what people made instead of thinking.”

And watching the riots going on now,

“People on the side of The People always ended up disappointed, in any case.  They found that The People tended not to be grateful or appreciative or forward-thinking or obedient.  The People tended to be small-minded and conservative and not very clever and were even distrustful of cleverness.  And so the children of the revolution were faced with the age-old problem: it wasn’t that you had the wrong kind of government, which was obvious, but that you had the wrong kind of people.

As soon as you saw people as things to be measured, they didn't measure up. What would run through the streets soon enough wouldn't be a revolution or a riot. It'd be people who were frightened and panicking. It was what happened when the machinery of city life faltered, the wheels stopped turning and all the little rules broke down. And when that happened, humans were worse than sheep. Sheep just ran; they didn't try to bite the sheep next to them”