America’s Changing Republican Party

The Republican Party is undergoing some evolutions at the moment, moving away from many of its traditional stances. This is part of a broader cycle in which American political parties shift and realign every few decades. On issues as diverse as abortion, international involvement, and the balance between business and labor, what it means to “be a Republican” is changing in ways that would have seemed silly just a few years ago.

With the future of the party uncertain, just about every faction and big name is trying to twist the future of the conservative movement in their own preferred directions. Which version will emerge when the dust settle? Only time will tell.

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Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. It is the 17th of July, and it is the last day of the Republican National Convention, which I’ve been watching pretty closely because the Republican Party is in flux. For those of you who’ve been watching me for a while, you know that I’ve been saying for several years now that we’re in the late party structure for what is called the sixth party structure.

Basically, every generation or two, American politics goes into a period of flux where the factions that make up our parties move around. For the last few years, we’ve been in that process. It’s happening for both parties, but the Republicans are further along, so they’ve been the ones I’ve been following most closely. Donald Trump is obviously part of this process and has been accelerating it. Now with the convention, we’re starting to get a pretty good idea of what the next possible iteration of the Republicans will be.

Quick review. Most people associate the Republicans with a degree of social conservatism, international involvement, relatively hawkish positions on foreign affairs, especially military affairs, and a fairly pro-business outlook for businesses of all sizes. Every plank of that is now being challenged and rewritten by Team Trump as American society, demographics, trade, technology, and everything else evolve. It makes sense. Whether or not this new structure that’s evolving is the one that is going to stick remains to be seen, but we now have a pretty good idea of what the Trump Republican Party would be.

Three big changes. The first one is a bit of a surprise: a softer position on some social conservative issues like gay rights and abortion. Basically, the Trump Party is now saying that these are issues that should be decided by the states rather than at the national level. There are a lot of hardcore social conservatives who are pretty unhappy with that. But Donald Trump is betting that his cult of personality-like hold over the Republican Party is going to be sufficient, that no one can outflank him. Considering that he sailed to the nomination without even showing up at any of the primaries, that’s probably a safe bet, at least for this election cycle.

The second one, of course, is something that’s near and dear to my heart: a shift from international involvement to isolationism. The idea is that the problems over there are problems over there, and we should just stick to our own issues, but still arm ourselves to the teeth. We saw a lot of this in Trump’s first term, where he might talk tough on countries like Russia and China, but really on every major issue, whether it’s trade or security, he basically just let them do whatever they wanted. If it couldn’t be negotiated and stuck to in a single afternoon of talks, he really wasn’t interested. We saw that with Ukraine, and we’ve also seen it with trade policy with China, where we got this phase one trade deal, but then Trump couldn’t bother to enforce it. So the Chinese basically just walked all over the United States as regards trade. Things like that are definitely being codified into the Republican Party’s new platform.

The third change has to do with business versus labor. For the past several decades, really going back to the 1930s, the Republican Party has always sided with the business community over labor. But one of the highlight speakers of the convention this time was none other than a representative of the Teamsters Union, which is probably the most militant and throwback of America’s unions. He talked about the Chamber of Commerce basically being a welfare club for businesses. This was something that was on the stage of the Republican National Convention. For a while there, I was wondering if I was watching the right convention. These are issues that are usually trumpeted not just by the Democrats, but by the really leftist groups of Democrats, like, say, the Squad. Now it’s becoming core to the Republican Party platform.

In essence, we are entering a golden age for organized labor in the United States. The United States is in the process of doubling the size of its industrial plant. Most of those jobs are blue-collar, and so they’re very amenable to being organized into labor unions. The Teamsters, of course, are all for that. What the Trump Republican Party seems to be doing is basically ditching the entire business community and going whole hog towards organized labor. Among the new things in the Republican Party’s platform is the challenge to things like right-to-work laws in places like the American South and Texas that prevent or at least dissuade unions from forming in the first place. It’s now the official Republican Party platform that that’s a bad idea.

Now, will this new trifecta stick? It’s way too soon to tell. The old Reaganite and Lincoln Republicans are not dead yet. There were some hilarious moments on stage from my point of view. Ron DeSantis, who ran for president and is, of course, governor of Florida, was just angry, and it was pretty obvious. But I would say that the highlight for awkwardness goes to Nikki Haley, who came in second in the primaries against Donald Trump. She still lost, of course. She came on stage to endorse Trump, and not only was she booed when she showed up, but her endorsement speech was really awkward. It was kind of like a woman being asked to toast her ex-husband who had an affair with the secretary and was now marrying her. It was that level of awkwardness.

Anyway, Nikki Haley has already joined a think tank to reimagine what the next version of conservatism looks like in the United States now that the old Republican Party is truly dead. Mike Pence has formed a think tank to do the same thing. Now, I’m not suggesting that one of these three visions—Pence, Haley, or Trump—is the one that’s ultimately going to stick. I’m just highlighting that right now for this election cycle, we have a very different Republican platform and a very different Republican Party. Everything is still in flux. This is not the final form. We won’t get that probably until the next presidential cycle. And there’s a lot of folks who have irons in the fire to try to figure out what that is going to be.

America’s Cold War Missiles Return to Germany, Thanks to Russia

Picture of a Tomahawk cruise missile mid-flight

Well, it looks like the Germans are going to be celebrating Christmas in July. That’s due to the US and Germany’s decision made at the NATO conference to redeploy American mid-range weaponry to Germany. And yes, this hasn’t happened since the Cold War for…historic reasons.

Russia is the country to blame here. They’ve been violating arms treaties for the past 15 years, so the US got fed up and bailed on the INF treaty five years ago; this triggered the redeployment process. There are a whole boatload of reasons that this is happening, but defense against the Russians tops the list.

While the Russians may have opened this can of worms, the fallout isn’t going to be confined to them. Since the treaty that barred the US from taking actions globally is now kaput, the Chinese will be feeling some of the heat too. You can expect to see some intermediate-range American weapons in close proximity to China and throughout East Asia, which should help limit China’s global economic influence.

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Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

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Transcript

Hey everybody, Peter Zeihan here coming to you from the Lake of the Ozarks. It is Thursday, July 12th, and today we’re going to be talking about security in Europe. Specifically, the United States at the NATO conference has announced, with the Germans, that American mid-range weaponry is returning to Germany in a position that hasn’t been seen since the Cold War.

A combination of hypersonics, mid-range missiles, including the Tomahawk cruise missile system, is being deployed. The reason this is happening is because we had a series of Cold War and post-Cold War arms treaties between the United States, NATO, and the Soviet Union, like the Conventional Forces in Europe Treaty, or more specifically for this conversation, the Intermediate Nuclear Forces Treaty (INF). The Russians started bit by bit either violating or withdrawing from those treaties as far as 15 years ago and even started developing weapons systems that are expressly barred by the treaty and then deploying them.

Under the Trump administration, five years ago, the United States formally withdrew from the Intermediate Nuclear Forces Treaty and has been moving bit by bit to redeploy these weapon systems ever since. The INF specifically bars weapons systems with a range of 500 to 5,500 km, roughly 300 miles to 3,000 miles, which basically covers the entirety of the hot zone now between NATO and Russia, including all of Ukraine.

The idea of these treaties, which dates back to Reagan and Gorbachev, was that if you take the weapons that are actually useful off the field, then you won’t have a tactical engagement or a tactical escalation. That just leaves the big strategic missiles, like the intercontinental ballistic missiles that are based in the United States. The desire to not use those is quite strong, so you take away the usable day-to-day missiles, and it forces both sides to basically come to the peace table. Well, the Russians have repeatedly moved away from that system, and now they’re going to find themselves facing weapons systems that, while maybe designed 50 years ago, are perfectly serviceable.

The United States is dusting off things like hypersonics that it developed back in the ’70s and ’80s but never deployed. Now they are being deployed. The balance of forces for the Russians across the entire theater is about to go from problematic to catastrophic. Keep in mind that one of the many reasons why the Cold War ended when it did is because NATO and, to a greater extent, the United States, defeated the Russians in an arms race. The Soviet Union simply couldn’t keep up with the economic power of the United States. While Russia today is significantly economically weaker than the Soviet Union ever was, the United States is significantly economically stronger than it was back in the ’70s and ’80s. So there’s really no contest here. The Russians have proven over and over again that while they can’t innovate, they can’t develop new weapons systems that are particularly capable, and they certainly can’t produce them at scale. Meanwhile, the United States, in many cases, is just literally dusting off things that have been in storage for 20-30 years and bringing them back online while also developing new systems.

The strategic picture for the Russians is a direct consequence of some very bad decisions they’ve made. A lot of the Russian position for the last 15 years has really been a bluff, and it worked until 2022 with the Ukraine war, which mobilized pretty much everyone in Europe. The Germans were the country that was most in support of the INF when it was negotiated because they were the ones in the crosshairs, and they were the country that was the most willing to overlook all of the Russian violations of the treaty because they lived in this kind of strategic nirvana that they didn’t want to end. Now, it’s the Germans who are actually arguing that the United States needs to deploy more and more weapon systems, not just to Europe, but to Germany specifically.

Okay, that’s kind of the big first piece. The second piece is the INF provided handcuffs on what the U.S. could do, not just in Europe, but globally. The country that has arguably benefited the most from the Americans refusing to deploy intermediate-range weapon systems isn’t Germany, it’s Russia. It’s China. If you look at a map of East Asia and consider all of the U.S. allies, especially Japan, the Philippines, Taiwan, Indonesia, and Singapore, the distance from those countries to the Asian mainland is in that 500 km to 5,500 km range.

So for the entirety of the post-Cold War period, the United States has been barred from deploying appropriately ranged weapon systems to counter the Chinese rise. Well, not anymore. Over the course of the next 2-3 years, we’re going to see a mass deployment of American weapon systems off the Chinese coast that are perfect for boxing in the Chinese. The Chinese have always argued strategically that this was the goal of the United States all along, which, of course, is horse crap. But keep in mind that unlike the United States, China is a trading power, and not having these weapon systems has allowed the Chinese to, from a strategic and economic point of view, become a global economic player.

If these weapon systems are in place, everything that the Chinese do could literally be shut down within an hour. The capacity of the Chinese to import and export could be ended almost overnight. So while it may have been the Russians who were the ones who were messing around, it’s absolutely going to be the Chinese who are the ones who are going to find out.

Photo by U.S. Navyderivative work: The High Fin Sperm Whale – Tomahawk_Block_IV_cruise_missile.jpg, Public Domain, Link Wikimedia Commons

Can the French Lead the EU into the Future?

The EU was established to promote unity and peace, but times have changed and priorities have shifted. So, what does the future of the European Union look like and how does France fit into the mix?

The EU’s expansion throughout the years has involved integrating some diverse countries, at first for stability and later for economic and political strength. Recent challenges like Brexit, a financial crisis, and the Ukraine War have demanded a shift from an economic focus, to a political and military focus.

France is well suited to lead this transition, thanks to its centralized government and strong military. In order to ensure long-term stability, the French will have to decide what their role is in all of this and where to go from here.

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Assassination Attempt and A Changing World

Butler County Fairgrounds where the Assassination Attempt of Donald Trump occurred

On Saturday, July 13, there was an attempted assassination of Donald Trump. I’m not here to give you the play-by-play that you can get from the news, instead I want to put this incident into context of the broader political and economic shifts.

America is experiencing a political realignment where party coalitions are breaking up and new factions are emerging. Trump, who has sparked some of these shifts, has both benefited from and lost supporters because of this. I’ve talked extensively about the economic shifts happening, but the global order is collapsing and most economies will be in a flux for a while.

With all this change, you can expect increased political and economic volatility, both domestically and internationally. You can parallel the present day shifts to times like the 1930s or Reconstruction in the US. While these changes might ultimately benefit the US, the transitionary period will be no snoozer…as evidenced by the events on July 13.

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Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

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Transcript

Hey everybody, Peter Zeihan coming to you from the Lake of the Ozarks. It is the 14th of July, and last night Donald Trump was lightly injured in an assassination attempt. I’m not going to give you a blow-by-blow of what went down because the details are still very sketchy. It looks like it was a 20-year-old registered Republican who donated money to Democrats, which tells us absolutely nothing.

The Secret Service, of course, will be doing their own investigation in league with local law enforcement and the FBI. We will wait for more details to see where that takes us. But I wanted to put this all into context. There are a lot of things going on in the world right now that suggest we’re going to be in a more politically volatile period.

The first big thing is that America is going through its once-in-every-generation political rearrangement, something that Trump is part of. The Americans have a first-past-the-post, single-member district political system, which means that you vote for a single person who will then represent a very specific geography. You don’t vote for a party. In doing this, American parties tend to be fairly weak, and so they tend to be coalitions of coalitions. You get multiple political factions banding together around a single tent in order to get one more vote than whoever comes in second.

Today, for example, the Republican Party has traditionally been made up of people who are concerned with budget deficits, national security, business regulation, and social conservatives. As technology, demographics, and economic patterns evolve, the factions make less sense. The factions rise and fall within the coalitions, and if things get stressed enough, they end up falling out of the coalition altogether, maybe becoming swing voters or maybe going to the other side. What we’re seeing right now is that in spades for the Republican coalition. The business community, the national security community, and the fiscal community have all been basically ejected from the party, but Donald Trump has been successful in drawing other groups away from the Democratic coalition.

For example, union voters are no longer considered Democrats by their voting patterns, and Hispanics have shifted quite a bit. This is still very much a work in progress. Donald Trump is benefiting from this as much as he is losing from this. But if you think about what’s happened in the last 30 or 40 years, we’ve had the rise of hyper-globalization and now its fall. We’ve had the height of the baby boomers in the workforce and now their retirement. It’s not exactly a shock to think that we are going to manage our political system differently.

So that’s the first big piece: America politically is in movement. Second, the world economically is in movement. The whole point of the post-World War II global consensus was that the Americans would take care of the guns and keep everyone safe. The Americans would open the market and make the global sea safe for everyone’s commerce if, in exchange, you sided with the Americans in the Cold War. That provided the basis for everything from the alliance with Taiwan, Korea, and Japan to NATO. That’s created the world that we know. It’s also created the economic backdrop and the security backdrop that made the rise of China possible, because during the late Cold War, China was one of those allies.

Well, that whole system is breaking down. Two reasons: number one, the Americans can’t pay for it anymore and don’t want to. The Americans have refashioned their navy, so instead of hundreds of ships that can patrol the oceans, they have a few clusters of ships that are really good for fighting wars. So the ability to have that global coverage isn’t there. Americans politically are tired of paying the economic price of keeping the world open for everyone because it’s put everybody else at an advantage versus American workers. That just doesn’t fly in today’s populist era.

The second issue is that when you do economically develop, when you do industrialize, you also urbanize. After seven decades of urbanization, people are having fewer and fewer children around the world. Well, if you have fewer children for seven decades, it’s not that you’re running out of ten-year-olds and twenty-year-olds. You’re running out of fifty-year-olds and increasingly sixty-year-olds. This decade, the 2020s, was always going to be the decade that a lot of countries slipped away from having a workforce that can support the globalized system in the first place. After all, if you don’t have consumption, you don’t have trade.

So this whole system, the American political network, is evolving, and the global economic network is collapsing and reforming. What this all means is there’s a lot of change out there in the way we live, the way we work, who we service with our businesses, and where we get our goods. When things change, people with a vested interest in the system don’t always make it. People get scared, and people get angry. That is when you get violence. We’re going to get it at the state level with a series of military conflicts. The first of those is already happening in Ukraine. We’ll probably get one in China before long. In terms of political change in the United States, that’s when we get our domestic political violence.

It happened in the 1930s with the Great Depression and that political reorientation. It happened with Reconstruction, and it happened with the Civil War. So I don’t want to suggest that this is the beginning of more of the same. I’m saying that the factors that define our world are evolving, and we’re going to change with it. For the United States overall, this is a net gain in many, many ways. But going through the process of getting from where we’ve been and what we’re comfortable with to where we’re going, something that’s unknown, is unfortunately going to generate a lot of stresses along the way. We saw some of that last night.

Photo by Designism, CC0, via Wikimedia Commons

Why Should Europe Worry About the French Elections

After the first round of European Parliament elections, the French far-right (represented by the National Rally) had a great showing. President Macron wasn’t too happy with that outcome, so he called snap elections to give his party a second shot at capturing a majority.

There are a few reasons that Macron knew this might yield more favorable results. There is a known shift in voting patterns between first and second round votes, where voters start more emotional and end more practical. There are lots of voting tactics Macron’s party could use to garner some more votes, like removing multiple candidates to prop up a single one. The most important one here was the timing; the other parties didn’t have enough time to pull together strong candidates, so Macron’s party could use that to their advantage. And Macron was right…mostly.

The National Rally took third in the snap elections, Macron’s party took second, and the Left came in first. The French aren’t out of the woods quite yet though. Since none of the factions had a majority to form a government, we’re going to see some French cooperation, and you can expect how that will go.

The threat of political instability within France could prove to be a big problem for the rest of Europe too. Without France (attempting to be) at the helm, and no other countries fit to step into that role, Europe will need to figure something out ASAP.

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First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

Hey everybody, Peter Zeihan here, coming to you from the Lake of the Ozarks in southern Missouri. We’re going to finish up our election series today by talking about one of the most convoluted of the big elections that just happened last week, and that is France.

The backdrop is that a few weeks ago, we had European Parliament elections. The French hard-right, represented by a group that calls themselves the National Rally, did very, very, very, very well. The president of France, Emmanuel Macron, who’s of a more centrist alliance, saw this as a threat and decided to try his hand at snap elections to force the French people to support a more pragmatic government, i.e., his. In a way, it worked out in two rounds of voting. At first, the National Rally did very, very, very, very well. Then they did very, very, very, very badly. Ultimately, they came in third behind a couple of other alliance groups, one on the left, one in the center, supporting Macron.

There are a couple of reasons for this. The first reason is that there’s a typical pattern in French voting where, in your first vote in the first round, you vote your heart, and in the second vote, you vote your head. So, the idea is you might vote for what you’re passionate about the first time around, but you’re much more practical the second time around. That was definitely in play. A second reason is that there’s a lot of tactical voting where you could have five, six, seven, or eight candidates contesting the same seat in the first round. In the second round, basically everyone who was third, fourth, fifth, sixth, or seventh dropped out in order to concentrate the oppositional votes to make sure that the National Rally would not get the seat. That meant that the National Rally went from being the faraway favorite to coming in a relatively distant third.

But the third, and far more important reason why the National Rally busted, was simply time. From the point Macron called the elections to the point that we had the first round, it was only two weeks, and then only another week before we had the second round, so they really didn’t have a lot of time to prepare. There are 577 parliament districts in France, and going into these elections, the National Rally really wasn’t a true national party in that they had representation and supporters in every single district. So when they had to come up with 577 candidates, one for each district, one who lived in each district, a lot of times they went with just some activists.

And if you guys are politically wired, you know that there are activists in your party who are wackadoo. There were some wild racists and some wildly incompetent people who found themselves on the ticket for the National Rally, which meant not just that they didn’t have a chance, but the candidates on the left and the center were able to parade these people nationwide and show what fools the National Rally were. At least that was their view. Take this together, especially that last piece, and it worked.

But we’re not out of the woods yet. Remember, there are three big factions here. You had the hard right, the National Rally, you had the centrists around Macron, and then you had this left alliance that is actually four different parties made up of radicals, communists, socialists, and Greens. They had the same problem that the National Rally had; they only had a couple of weeks to build this electoral alliance to contest the elections. While they came in first, they have nowhere near enough seats in parliament to run a government. Nobody does. In fact, if you were to take any of these three factions and throw all the minor parties in with them, there’s still not enough.

So to have a majority government, two of these three factions have to be able to work together. Well, no one wants to work with the National Rally, so that eliminates them. For the new leftist alliance, the single largest chunk is the party of a guy named Jean-Luc Mélenchon. The best way to describe this is he has the personal charm of Marjorie Taylor Greene in the United States, the intelligence of Cori Bush, makes up math like Elizabeth Warren, and has the personality of a cold, hairy pile of vomit. He’s a hateful person, he’s a snake, and no one wants to work with him. But his party in that four-group coalition that is the left alliance is the single largest.

We already have party leaders throughout the leftist alliance saying that Mélenchon is a problem and he will never be prime minister, but he now represents the single largest chunk of seats in parliament as part of that alliance. So we’re entering into something that is very unexpected and unfamiliar for France: political instability. The single largest party in the overall parliament, the National Rally, no one wants to work with. The ruling party that works with Macron has been a little bit discredited. The left is an absolute mess, with its titular leader being a complete moron. There is no clear path forward here.

This isn’t Israel, this isn’t Italy; no one here has experience building coalition governments. According to the French constitution, you can’t have another election to fix this at the ballot box within a year. So you take France, which until now has been the Eurozone country with the single strongest political leadership, and you basically remove it from play until such time as the French can find a way to make this work. I doubt that’s going to happen in this calendar year or next calendar year. This is a really bad time for Europe to not have leadership.

If you look around Europe and see what’s left, the French are out to lunch dealing with their own internal stuff. The Germans have a three-party coalition that is already incredibly weak, led by an even weaker chancellor. The next country down is Italy, which is led by someone on the right, Giorgia Meloni. That means if you’re the United States and Russia at this time, all of a sudden Europe has become a little bit of a piece of taffy to be pulled.

At the moment, because of the Ukraine war, that means the ball is very clearly in the United States’ court. But never forget, this is an election year in the United States too. Whether it’s Biden or Trump, it’s going to be difficult for Washington to focus the kind of attention on Europe that it honestly deserves right now.

So we basically took the last big pillar of European—not solidarity, not leadership, not democracy, but coordination—and we’ve knocked it down. This is going to be a big problem, as you’ll see in the next video, because this is only the beginning of what needs to be done within Europe.

Iran’s President-Elect Sparks Change, But How Much?

Next up on our list of important elections around the globe is the Iranian presidential elections. We’ll be looking at Iran’s new President-elect, Masoud Pezeshkian, and what his victory might mean for the country.

Pezeshkian triumphed over a number of slightly nutty, ultra-conservative, fire-breathing candidates sponsored by the clerical regime (which officially oversees the entire country). This presidential election has also highlighted some of the ongoing issues Iran has faced, especially the economic difficulties caused by US sanctions.

Pezeshkian’s platform follows a more moderate approach than his opponents and predecessors, and suggests a possible shift in domestic policies. As of now, these conversations are focused on smaller issues like the strict enforcement of a dress code for women, but when the majority of the Iranian populace rallies behind something like that…it could mean that something bigger is brewing. It’s far too early to make a call like that, but this is something that I’ll be keeping an eye on.

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First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from a rental car in Kansas City. Today, we are going to take a crack at the second piece in our elections series for the week. We had a number of important elections recently. Today, we’re going to cover Iran, where there was a runaway victory for the now president-elect Masoud Pezeshkian. And I apologize for the name. Anyway, he came in with a strong first place. There’s a two-round voting system in Iran, and it’s not really a surprise that he won.

There were any number of candidates in the first round, but five of them were sponsored by the clerical regime of Iran. You know, the slightly nutty, very ultra-conservative, hate-everyone group that runs the country.

Anyway, there were five candidates from that faction, and they were all fire-breathers. So having one moderate ensured that he made it to the second round, where he easily defeated his opponent, who was honestly a complete nutbag. So no surprise there.

But moving away from the tactical political stuff, the situation Iran is in is uncomfortable.

Dial back a little bit. If you remember back to the war in Iraq, the United States was very good at overthrowing the Saddam regime but not very good at making Iraq look like Wisconsin. So Iranian agents were able to step into the void and agitate the Shia population of Iraq. Shia is a denomination within Islam, and the Iranians are predominantly Shia. It’s also the single largest denomination in Iraq.

Saddam’s government was Sunni. So when the United States basically ripped out the apparatus of the old government and wasn’t quick enough in putting something else in its place, Iran was able to partially take over and still remains very influential there today.

During this period, while the United States was going after militants throughout the region, the Shia Iranians were able to step in, displace a lot of groups, cause a lot of trouble, and become very powerful throughout the region. But it wasn’t free. Iran has a financial restriction in that most of its income comes from oil.

So if you can target the oil, you can target Iran. Over the long term—not just days, weeks, or months, but decades—that really cripples them. Over the past 20 years, yes, Iran made a lot of forays, but it generated a lot of expenses.

When Saudi Arabia was roused to combat Iran, Iran was never going to win a game of checkbook diplomacy with a country that exports a fifth as much oil. Then under Obama, the United States put some of the strictest sanctions ever developed against Iran to pressure them into a nuclear deal to curb their nuclear ambitions. Under Donald Trump, who did away with the deal but kept the sanctions in place, these sanctions have now been in place for the better part of the last decade. We are seeing very real impacts on the standard of living in Iran because they haven’t been able to export the volume of oil necessary to sustain a meaningful standard of living within Iran, much less cause trouble throughout the region.

I don’t mean to suggest that Iran’s been curtailed or castrated, but they’re having a hard time doing everything they thought they would be able to do. When you have this sort of economic blindness, you can follow one of two paths. A few years ago, they tried electing a hardliner named Raisi, who everybody hated. He was a mean dude, and even within the clerical establishment, people thought he was too tough. Then he died in a plane crash a few weeks ago.

The new guy, Masoud Pezeshkian, is basically trying the other approach—maybe a little bit of compromise, maybe a more constructive relationship with the West. Now, I don’t want anyone to get too overexcited here. Yes, elections matter in Iran, but only within a certain framework. The most powerful person in Iran is not the president; it is the supreme leader, who remains a bag of snakes and is responsible for all the things you think of when you think of Iran: the clerical theocracy, the oppression of minorities and women, and the general seeding of militant groups throughout the Middle East. None of that has changed.

The new guy is not challenging much of that at all. In foreign policy, he has stated that he still supports Iran having a nuclear program and a hard line in negotiations with the West. He still supports the Houthis in their on-again, off-again conflict with Israel and Hamas against Israel. He still supports militancy throughout the region, but he’s doing it with a much different tone that suggests there might be a little room for compromise here or there. Don’t count your chickens before they hatch, but there’s at least a change in mood.

If there is going to be a meaningful difference, it will happen at home. Pezeshkian has been very clear that he thinks the clerical authorities’ law enforcement arm shouldn’t beat women if they show their hair. From a geopolitical point of view, that’s kind of a nothing burger under normal circumstances. But now you have the majority of the population of Iran siding with the president against the people with the guns. That can go in a lot of interesting directions. Keep in mind that you’ve got 10,000 clerics, 10,000 mullahs, that basically rule Iran. It’s a deep bench. I’m not suggesting we’re going to have a revolution, but if the guy who’s nominally at the top, chosen by the people, wants a different approach to living your life in the country, and the people who have been calling the shots up to this point are on the opposite side of that, well, things can get very interesting.

So I don’t want to overplay this. I’m not suggesting a revolution, but for the first time in 40 years, there seems to be a split within the leadership of Iran on what Iran should be at home. And that’s how change starts.

Okay, that’s it for Iran. Tomorrow we’ll deal with France.

UK Elections: Starting Over

In case you’ve been buried neck deep in US political news, there are some fairly important elections taking place across the globe. For the first country in our little global election coverage, we’ll be looking at the United Kingdom.

The UK has had plenty of ups and downs throughout its history; from emerging as a global financial hub during the industrial revolution, to falling from grace in the post-World War II era, to joining the EU in the 70’s and revitalizing London as a financial center…and then starting the cycle all over again with Brexit. So, what’s the significance of the most recent election?

The Labour party took a nice victory and knocked out 2/3 of the ruling Conservatives from their seats. This will allow the Labour party to steer the direction of the country, but they’ll have their work cut out for them. If we’re going to see the UK regain significance, they’re going to have to undergo a comprehensive economic realignment OR swallow their pride, trade in their tea for coffee, and partner up with North America.

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Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

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Transcript

Hey, everybody. Peter Zeihan here. Coming to you from Mica Gulch in Colorado. It is the 8th of July, and I’m taking a quick break from hiking to update everybody on what’s been going on with all these crazy elections. We talked about the United States last week. you know, lots of hate mail from that one. so it’s only fair to cover three other countries that have had elections, over the last few days. 

And they’re going to be the United Kingdom, Iran and France. And we’re going to do the United Kingdom today because it’s the simplest of the three, if you can believe that, 

In order to understand where we are now, it really helps to start a couple hundred years ago. if you go back before the Industrial Revolution, if you go back before Deepwater navigation, the United Kingdom, or as it was known, England, really didn’t matter all that much. It was a relatively smallish population on a relatively large, 

island off the coast of Europe. And most of the mainland countries, especially France, had a far larger population and were far more significant. But when deep water navigation was developed by the Iberians, eventually that technology migrated to a country that could use it better and that would be an island. 

And that was the UK. And all the income that came from a deep water navigation empire, forced the United Kingdom to, well, induce the United Kingdom to do two things. Number one, all this income had to be processed and so we got things like the London Stock Exchange and the financial heart and the Square Mile and all the things that make London, London today a place where you process capital, put it into places around the world, will be more and more efficient. 

And being the primary global node for the empire meant that it was the primary global node for everyone. Well, that was piece, one piece to all. This capital floating around the United Kingdom, meant that they you had a lot of people who were developing new ideas and eventually that manifested as the Industrial Revolution. 

So that is basically what has always made the United Kingdom special, the ability to leverage deep water navigation and to take it somewhere else, to generate the new technologies of industrialization, to create a global financial hub. That is why London is London. That is why the UK is the UK. That is why we think of the UK as a world power. 

But of course, history doesn’t stand still. Just as deep water navigation was a new suite of technologies and migrated to a place that could use it better, so too did industrialization, and it went to Germany, which generated the German Reich in time. And it went to the United States, which generates the country that we have here and that we know now, in addition, London was hardly the only financial hub. 

Every country that has a mercantile existence or an empire has to have one. It’s just the Brits were first and largest. And if you look across the pond at the United States, you had New York, It started out as, at the mouth of the Hudson, and that was the big economic artery. 

And eventually that was linked to the Great Lakes. But eventually you got the Cumberland Road, which dumped a lot of product out in the Chesapeake, which was really close to New York. And eventually the Great Lakes and the Cumberland Road ended up in, the middle of the continent with the Mississippi River system and all of the cargo that went up and down the Mississippi could also use the barrier island changed to make it all the way back to the Chesapeake. 

And oh, look at and behold, you’re pretty close to New York again. So without having an empire in the classic sense, New York became the financial hub, primary financial 

By some measures, almost only financial for the United States. And so when you get into the post-World War Two environment, things got a little dodgy for the Brits. 

What made them special about industrialization had moved on. What made them special about finance had competition. And in the post-World War Two environment, the Americans made it very clear that if you wanted the American security guarantee, all of your colonies had to be able to go their own way. And so the empire that had made London, London one anyway, and we saw a catastrophic drop in the United Kingdom’s, global reach, their standard of living, their significance and their wealth until the early 1970s, when the United Kingdom successfully joined the European Union. 

Now, say what you will about the rest of the Europeans. Finance was never their forte. They tended to be more socialist, statist economies. And so when you had all this apparatus of financial strength and London looking for something to do, it was very quickly, it was very quickly able to emerge, not as a global financial hub, but as a European financial hub. 

And while they had lost their global empire from a financial point of view, it’s like they got a new one in Europe. And so German, Spanish, French and Italian finance and all the rest came to London. And so from 1970, what year did they get in? 73, 71, early 70s until relatively recently, it was a model that worked really well. 

And because of the sheer bulk of Europe and because of the trading, capacity of Europe, London once again was a strong financial hub until a few years ago, when the Brits voted themselves out of the European Union without a backup plan. For the last few years, under the conservative governments of Theresa may and Boris Johnson, and on and on and on, they’ve had like, what, seven GS anyway? 

The Brits have basically been trying to have their cake and eat it too, after voting. That cake is illegal. it’s basically what it comes down to. They’ve shut themselves off from the European system and induced the Europeans to grab as much of the financial clout that London used to have as possible. The Americans, of course, have taken more than their fair share as well. 

And that just leaves the United Kingdom with what’s generated by the United Kingdom, and then a few stray wasps here and there. They made a go at being the, completely unethical hub, particularly for Russian money. but in the aftermath of the Ukraine war, a lot of that has lost its luster. 

And if you want to do Arabic financing, you’re not going to come to London, you’re going to go to Dubai. So all of the financial flows that made London an industrial and a financial hub are pretty much gone. And the last big chunk is gone because the Brits voted themselves out of the system. So what we have now is not so much a shift from the right to the left. 

If you guys haven’t seen the election results, they’re pretty damning. the conservatives lost roughly two thirds of their seats. The ruling Conservatives and Labor, which has been in opposition for the last 14 years, basically doubled their seat count and will be able to rule without needing a coalition partner. But this isn’t a shift from conservative policies to liberal policies. 

This is simply a reflection of the catastrophic reduction in economic possibilities that Brexit has imposed upon the United Kingdom, and blaming the government, who happens to be in charge. 

Whether that is fair and out, of course, is, dependent upon your personal politics. But for the United Kingdom to matter again, one of two things has to happen. 

Number one, it needs to join another group, or it is far and away going to be the financial hub. That’s not going to be Europe. They’re not going to get back into Europe. Even if they apply right now, unless they agree to a lot of strictures. That was what induced them to leave in the first place. Or second, they have to have a top to bottom root and branch economic reformation to reflects the fact that the London financial hub is no more. 

And what made them special in the industrial era has changed as well. They need a new way to build and they need a new way to process. They need a new way to manufacture and most importantly, they have to have access to a large market to absorb a lot of the output. Considering that the world is globalizing, that’s a really tall offer. 

Considering that the Europeans are no longer in a position where they can absorb British goods, and that’s not even an option. The only option is North America, and that means integrating with North America. North America’s terms. That will guarantee an end to London as a financial hub, because under the terms of any trade deal, New York will absorb all of that, and it will certainly restructure what’s left of British manufacturing to satisfy NAFTA goals. And that means a lot of investment into Mexico from the Brits. And that means changing a lot of the norms that the Brits have gotten used to to match American and Canadian norms. So no matter how this goes from here, what has made the United Kingdom special is gone. And what remains to be seen is whether the new government under labor can really wrap their arms and their minds around the scale of the change to the British condition that has to be implemented here. If Britain is going to be anything other than a failing middle power, which is perhaps what the Brits fear more than anything. 

China After Xi

TECHNOVATION INTERVIEW

Here is a link to my interview with Peter High on Technovation. We covered topics intersecting demography, economics, energy, politics, technology, and security.

I get a lot of “what if…” and “what happens next…” style questions and most of them suck, but today’s question takes us down a fairly interesting rabbit hole – what happens to China if Chairman Xi Jinping dies or steps down?

Remember, I didn’t say that this rabbit hole was going to be a happy one, just that it was interesting. So instead of the headlines reading “China Flourishes Following the Death of Xi Jinping”, I would expect something more along the lines of “China Moves One Step Closer to Collapse”.

Between the gutted political system that Xi would leave in his wake and a faltering economy, China wouldn’t exactly be set up for success. The Chinese would likely have to scrap their current state structure and develop an entirely new system.

The bottom line is that Xi Jinping has caused plenty of problems during his time leading the country, but removing him from the picture isn’t going to magically solve those problems overnight.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Support medshare's ukraine fund
Support medshare's global efforts

Transcript

Hey, everybody. Peter Zeihan here coming to you from Colorado’s lost wilderness. This is a lost canyon. A little bit of a bushwhack, but it’s been a good day. anyway, I’ve started my backpacking season, so we’re going to be taking a lot of entries from the ask Peter Files. I’ll try to do some current event ones, but, you know, I’m not going to be able to upload every day, so, you know, it is what it is. 

Anyway, today’s entry is what happens to China when Xi dies. So, you know, that’s a great question. a couple things to keep in mind. A number one has, imprisoned and executed his way into being a cult of personality. There is no successor. There is no potential successor. There is no up and coming cadre of people with talent. 

He is basically purge the entire system of any within of ambition or competence. And so it is just him and the bureaucracy now is going after things like patents and college dissertations, so that no one who is under age 25 can even get into the system in the first place. So it is just Xi, it is Xi alone, and he will ride the system into the ground. 

It’s so much worse than that sounds because China is not a normal country. So there are different sorts of governing systems. confederal federal and unitary, confederal. Your regions have more power than the center. So think Switzerland or Canada. In a federal system, there’s a shared competence, among the national government, the regional government and the local governments think Germany or maybe the United States. 

And then there are unitary systems where, the national government basically sets all policy and everyone just has to go along with it. that’s Russia, that is France, that is Argentina. technically, 

China’s federal, but because of the purges and because of the control of the Communist Party, it is basically become super unitary, where everything that happens in Beijing is the only thing that matters, because she is purged all of the regional local governments of anyone who has any capacity. 

There’s additional problem here. and that’s just the geography of China itself. it is not an easy place to rule. You have a lot of varied geographies that look to different parts of the world, much less different parts of the country for leadership and economic growth. So, for example, if you’re in the series of cities on the southern coast, roughly from Fujian to Gwangju, you don’t have an interior, you don’t have access to local agricultural product, and you don’t have access to one another. 

What infrastructure exists in this area has been built just in the last 30 years, and I don’t mean to suggest it’s not impressive by any standards it is, but it’s nothing like, say, being in the Midwest or in northern Germany, where the land is flat and infrastructure is easy. And so all these cities have their own individual identities. 

And historically speaking, all of them have gotten the majority of their calories going back 1500 years from somewhere not on the Asian mainland. Then you got the center section from Shanghai up to, 

Chongqing. There we go. Oh, the one province. this is kind of the. This is the area of the Yangtze River. This kind of the Mississippi of China. 

Think of it. It is Detroit and Minneapolis and Saint Louis and New Orleans and Houston all in one. definitely a discrete economic unit with discrete political and cultural identity. And then you’ve got the North, the north China playing around, the yellow River. This is an area that is pretty flat. And the problem is, is it’s just it’s been too big, historically speaking, to be all under one power until the industrial era. 

And so you would generally have warlords trying to take over individual chunks of the territory. And because this is also a flood and drought prone area, the waterworks were necessary to maintain the population. So when a warlord thought he was going to lose or wanted to launch an attack on a neighbor, he’d go after the waterworks anyway. So you get this nationalistic, militaristic north. 

You get kind of a corporatist industrial financial center. And then what has traditionally been a secession of South and keeping these all under the same rubric, under the same governing system is hard. And so you have to basically look at Chinese history from this point of view and that there’s kind of two models. Model number one is each region has as much autonomy as it can stomach. 

And the whole thing spins apart. In the north in particular falls into civil war. There’s a reason why all of China’s dynasties never last very long. It’s hard to hold this all together, or you overcompensate the other direction and hyper concentrate authority in Beijing under the Emperor, or now under the Communist Party general secretary, and hold everything as tight as possible. 

Neither of them last for long, and unfortunately, there’s nothing in between that works really well either. Kind of a confederal system would just lead to friction and eventually conflict among the various sections. Well, at the moment we are clearly having a hyper centralized system. So we have a hyper centralized system in a geography that is difficult to govern. 

But now everything is being all the decisions being made in Beijing, we have a unitary system because the party is eliminated. Everyone who isn’t Xi and Xi himself is not a spring chicken. I mean, he’s not like Biden or Trump old, but the dude can’t be around for much longer and there’s no one in the wings waiting to take over. So when this breaks, you take the most hyper centralized 

Iteration of China we have ever had? And you cut off the head at a time when the country is facing financial overextension and a demographic collapse. So when Xi dies, however, that happens, there will not be another government of China. 

We will be facing state dissolution because the demographic situation is so bad, it’s entirely feasible that we have a collapse in the country’s ability to generate any economic activity. Of note, before such time as something can theoretically rise on the other side of this. So we could we probably are looking at the end of the Han ethnicity as a player in international affairs, because by the time we get to the end of the century, there aren’t going to be a lot of them left. So when Xi goes, that’s it, the party’s over. All right, so you guys from the next canyon. 

Photo by © European Union, 2024, CC BY 4.0, via Wikimedia Commons

Why Genoa Is Graying: Italy’s Demographic Decline

While the Italians may have mastered the arts of pasta, wine and gelato, they should have been spending less time in the kitchen and more in…another room. That’s right, we’re looking at the demographic problems facing Italy, and Genoa will be our example.

The population of Genoa in 1972 was 950,000. Today, it is under 680,000. The scary part is that Genoa isn’t an isolated instance. Italy’s birth rate has been below replacement level for over 75 years, leading to an aging population and a shrinking tax base. The scarier part is that Italy is just one example of a country facing demographic collapse, as places like Germany, Romania, and Spain are all in the same boat.

Unfortunately, there’s really no practical solutions for these countries to remedy this issue. Sustaining their economies and state functions without a younger generation won’t be easy, but at least we’ll see how nations can adapt to these demographic challenges.

Prefer to read the transcript? Click here

Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:

First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.

Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.

And then there’s you.

Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.

Support medshare's ukraine fund
Support medshare's global efforts

Transcript

Hey everybody. Peter Zeihan here. Coming to you from Genoa, Italy. And I’m going to do something a little bit different today. I am going to show you the world through my eyes. Let’s turn this around. We’re over the business district in the central Genoa, and it’s not the buildings in the foreground I want you to see. It’s the ones in the background. 

The ones that are in more residential. You’ll notice that not a lot of them have a lot of lights on it. And over here we’re starting to go a the old town similar situation. And as we move over here you can see the train station kind of Grand Central if you will, and then up on the hill is mostly residential spots. 

But you’ll notice that even though it’s 10:00 at night, which is, you know, when everyone’s getting home from dinner in Italy, most of the buildings are less than one third lit up. Some of them, well, less than a quarter. the issue is that for the entirety of my life, Genoa one has been shrinking in population terms. 

And I turned 50 this year. 1972 was the last year that the city saw it increase in population. And that is pretty typical for Italian cities writ large. Unfortunately, Italy is going through a population crash and it’s well past the point of no return. the birth rate has been below two, births per woman for in excess of three quarters of a century. 

And over the next five years, the population bulge that exists in many countries exists here, too, but they move into mass retirement now, I’ve been traveling through Italy for about ten days now, and I’ve begun to a lot of small towns and, you know, they’re they’re full of old people and not a lot of them. and everyone has the same refrains, like all the young people were picked up to move to the cities. 

But now that I’m in one of the major cities, I can see that’s not the case. It’s just people haven’t been born here for a very long time, and now we’re looking at the dissolution of the tax base that is necessary to maintain a modern, civilized location. the the smart play here would be to turn back time and go back to the 1970s and figure out a way to make it easier for young people to have children. 

but at this point, the only theoretical solution would be to bring in Canadian style levels of immigration and a sudden wave that never ends. simply in order to stabilize the Italian population in its current structure, which is already the oldest demographic and the fastest aging demographic in Europe, would be to bring in somewhere between 1.5 and 2 million people under age 35 every year from now on, which, of course, would end Italy in its current form. 

Some version of this problem exists in huge portions of the world. Europe, of course, is where I’m thinking right now, because this is where I am. The Germans are only a few years, no more than five behind the Italians. And then there are a number of other countries that are a little bit younger but are actually aging faster. 

Whether it’s Romania or Spain. Poland still has a chance for demographic reconstitution, but only if they get on it right now. the Russians are in a position. The Ukrainians are in a worse position. And, East Asia, Taiwan is kind of where Poland is right now, whereas Japan and Italy are very, very similar. and the Koreans are about where the Germans are. 

So we’re seeing this over and over and over throughout the world. accelerated urbanization over the last 50 to 75 years has generated a population structure that is so old and aging so quickly, the reconstitution is no longer possible. And a number of the advanced states Italy, Germany, Korea, Japan, the next decade is going to provide a new model for us, populations in countries that are no longer capable of mass consumption or mass investment or max tax generation. 

At the same time their populations move into mass retirement. something’s going to have to give, whether it will be state coherence or the finances or the economic model. First, everyone’s got to figure that out for themselves. 

The Federal Reserve and Its Inflation Target

For all the hungover Americans out there, I heard the best cure after a long day of drinking is to talk about inflation. Well, maybe it will just make your head hurt more, but you still have the weekend ahead of you to relax…

The Federal Reserve has been juggling lots of different things over the past few years, and attempting to keep our system balanced is no easy feat; however, the Fed’s job is just getting started. With the need for a massive industrial buildout coming down the pipe, raising rates could hinder this expansion and cause a huge swatch of problems. Then the Fed will have to factor in the decline in population growth which is creating a low-demand environment, necessitating an entirely new economic model.

So yeah, the Federal Reserve has their work cut out for them, but don’t worry too much. The Fed’s actions should remain effective and US economic growth should remain strong…if anything (like inflation) does run awry, we might see some “legislative intervention”.

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Transcript

Hey everybody, Peter Zeihan here. Coming to you from the lost wilderness in Colorado. This is Lost Canyon, which I found myself in and turned out to be a little bit more than I bargained for. Anyway, we’re taking questions from the Ask Peter Forum today. One question is about my prediction of facing several years of inflation at 10% or higher and whether the Federal Reserve should revise its policy on interest rates.

For those of you who are not financial aficionados, the prime rate is what the Fed sets. The idea is to keep it low enough to generate economic activity by making credit cheaper, but high enough that demand doesn’t get out of control and generate runaway inflation. If we’re looking at a 10% inflation rate, that’s a bit of a problem because the Federal Reserve targets a 2% inflation rate.

So, big difference. And, a little bit of rain. We’ll continue this in a minute.

During the financial crisis into Covid, we were basically at a 0% prime rate. We’ve been ticking up ever since. The Fed recently met and it’s around, let’s call it 5.5%, 6%, somewhere in there.

Anyway, the question is whether they should go higher.

Yes and no. First and foremost, the Fed is going to be wrestling with things that I can’t even imagine. So I’m not the kind of guy who says the Fed should do this or that. I would just say that the Fed has a lot of tools. As we saw during Covid and the decade before, they can use them in ever more creative ways. However, the key thing to keep in mind is that the reason we’re going to be having these high inflation rates is not necessarily because of growth per se, although that will be part of it, but also because we’re going to be doing a historically unprecedented industrial buildout. We basically need to double the size of the industrial plant and probably increase the amount of processing capacity we have for raw materials by a factor of ten. That’s going to use a lot of electricity, a fair amount of labor, and a huge amount of land. Normally, if the Federal Reserve was looking to get inflation under control, they would raise interest rates to make borrowing more expensive.

But if you do that now, you’re going to choke off that industrial expansion. We’re not engaging in this industrial expansion because we think it’s just a peachy keen idea. This is not normal economic activity. No, no, no. We’re anticipating the collapse of the Chinese and, to a lesser degree, the European industrial systems. So if we still want manufactured goods, we have to build the manufacturing plant.

If you were to raise rates in that environment, you would choke it off, and we would be left with higher costs of living because of a lack of goods rather than because of inflation. So basically, we get the worst of all worlds. There’s another reason why I’m not going to be needling the Federal Reserve to do anything specific.

That’s because the rules, as we understand them, are changing. Going back to the dawn of the first era of globalization that Columbus kicked off in 1500, economic activity on this earth has been based on more interaction, larger populations, more interconnections, greater financial penetration, more markets, and more technology. The core of all of that is more people. Well, that’s not happening anymore.

Countries as diverse as Japan, Korea, China, Taiwan, Thailand, Germany, Spain, Poland, and Russia—they’ve all aged out. It’s not that they’re going to die in the next year, although some of them are getting close, but they will never have larger populations again unless something really weird happens with migration. So if you remove that component—larger and larger populations—that has undergirded economic activity for the last 500 years, we need a new model. Because if it’s not based on population expansion and the market expansion that comes from that, what is it based on? Well, we don’t know. Any guide that we have is literally futile—500 years ago or more. So we’re going to have to figure out something new. We’re going to figure it out as we go.

Now, the advantage that the Federal Reserve has in this is that the United States is the first world country that does not face the same degree of demographic degradation as everyone else. Yes, the American birthrate has recently dropped by quite a bit. Millennials have more kids. But if we keep dropping at our current rate, we’re not going to be in the same situation as China, Germany, Korea, or Italy for another probably 40 to 60 years.

So we will get to see what everyone else does with monetary policy in an environment where there’s no demand to regulate. Because, let’s be honest here, interest rates going up and down—all that is designed to do is to regulate the amount of demand in the economy. And if your populations are declining, there’s no demand left.

So the Federal Reserve has more tools, its tools work better, and it’s a growth story. So regardless of what happens with policy, this is still a pretty positive outcome. The only way that I can see that the Federal Reserve might be forced to do something different is if inflation gets to the point that it becomes a political problem. Then the executive and legislative branches of the US government might work together to pass a law to tell the Federal Reserve what its goals are and how to achieve them.

We’re nowhere near that yet, but I would argue that’s the thing to look for—not this year, not next year, but thereafter. Alright, let’s see if I can get out of this canyon. Take care.