REPOST: Jets, Drones & Refineries: Europe Remembers Geopolitics

Based on our discussion yesterday, we’re looking back at this post from April of last year to see how things have evolved.

It looks like the Europeans may have figured out that Russia’s war plans don’t end in Ukraine, so more and more countries are beginning to send aid to the Ukrainians. The Americans, however, are still working through flawed economics and political considerations.

The Norwegian government has decided to send some F-16s to Ukraine, joining Denmark, the Netherlands, and others in providing military support. The most important shift we’re seeing in aid sent to Ukraine is that it is intended to be used on Russian infrastructure and military units…within the Russian border.

The Biden administration’s caution regarding Ukrainian targeting is based on flawed economic analysis and pointless political considerations. This has led us to a strange intersection of this war, where Europe is done limiting Ukraine’s actions in fighting, but the more commonly aggressive American stance is still lagging behind.

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TranscripT

Hey, everybody. Peter Zeihan here, coming to you from a very windy Colorado. It is the 16th of April, and the news today is that the Norwegian government has announced that they are joining the coalition of growing countries that is setting F-16 jets to Ukraine, specifically the foreign minister, a guy by the name of Aspen Barth, I’d, probably has said specifically he hopes and encourages the Ukrainians to use the jets that at the moment are being provided by a coalition of Norway, Denmark and the Netherlands, to stark to target infrastructure and military units actually in Russia proper.

In fact, his phrase was the deeper the better lot going on here to impact. So number one, to this point, the NATO countries have tried to limit the direct attacks by the Ukrainians with their equipment or with equipment that is donated, in order to prevent an escalation. But a few people’s minds have been tripped in recent days because the Ukrainians are now using one and two tonne bombs to completely obliterate civilian infrastructure and are going after aid workers, including, things like E-m-s services.

And this is really tripped the minds of a lot of people in northern Europe in particular, that this war is now gotten way too serious to have any sort of guardrails on what the Ukrainians can target. The French. Well, they have not weighed in on this topic specifically. They’re now openly discussing when, not whether when French troops are going to be deployed to Ukraine to assist the Ukrainians in a rearguard action.

And we have a number of other countries, especially in the Baltics and in Central Europe, that are also wanting to amp up the European commitment to the war. In part, this is just the recognition that if Ukraine falls, they’re all next, and in part is that the United States has abdicated a degree of leadership, both because of targeting restrictions and because there’s a faction within the House of Representatives that is preventing aid from flowing to Ukraine.

So the Europeans are stepping up. In fact, they’ve been stepping up now for nine months. They provided more military and financial aid to the Ukrainians each and every month for nine months now. And this is just kind of the next logical step in that process, which puts the United States in this weird position of being the large country that is arguing the most vociferously for a dialing back of targeting, by Ukraine, of Russian assets in Russia.

If you guys remember, back about three weeks ago, there was a report from the Financial Times that the Biden administration had alerted the Ukrainians that they did not want the Ukrainians to target, for example, oil refineries in Russia because of the impact that could have on global energy prices. And I refrained from commenting at that time because it wasn’t clear to me from how far up the chain it has come.

That warning. But in the last week we have heard national Security adviser Jake Sullivan and the vice president, Kamala Harris, both specifically on and on record, warn the Ukrainians that the United States did not want them targeting this sort of infrastructure because of the impact it would have on policy, and on inflation. Now that we know it’s coming from the White House itself, I feel kind of released to comment.

And I don’t really have a very positive comment here. There’s two things going on. Number one, it’s based on some really, really faulty logic and some bad economic analysis. So step one is the concern in the United States that higher energy prices are going to restrict the ability of the Europeans to rally to the cause and support Ukraine.

Nothing could be further from the truth. Most of the Europeans realize that if Ukraine falls they’re next and most of the countries with an activist foreign policy are already firmly on the side of an expanded targeting regime. The biggest holdout would be Germany, where we have an unstable and unconfident leader and coalition that wants to lead from the back, not the front, which I can understand, but most of the Europeans have realized that if we’re actually getting ready for an actual war between Europe and Russia, that’s not going to be free.

And higher energy costs are just kind of baked into that pie. So almost all of the Europeans have basically cut almost all Russian energy out of their fuel mixes already in anticipation for that fight. So argument number one, gone. number two, the idea that this is going to cause the war to expand in a way that will damage Ukraine more.

Well, one of the first things that the Russians did back in 2022, in the war, was target all Ukrainian oil processing facilities. They don’t have much left. So, yes, there’s more things that the Russians can do, but this is basically turned into a semi genocidal war. So it’s really hard to restrain the Ukrainians and doing things that are going to hurt the Russian bottom line that allows them to fund the war.

So that kind of falls apart. specifically, the Ukrainians have proven with home grown weaponry they don’t even need Western weapons for this. They can do precision attacks on Russian refineries, going after some of the really sensitive bits. Now, refineries are huge facilities with a lot of internal distance and a lot of standoff distance. So if you have an explosion in one section, it doesn’t make the whole thing go up like it might in Hollywood.

As a result, there are very specific places that you have to hit, and that requires a degree of precision and accuracy that most countries can’t demonstrate. But the Ukrainians have a specifically go after something called a distillation tower, which is where you basically take heated crude and you put into a giant fractionated column, if you remember high school chemistry, and if you can poke a hole in that, it’s hot and it’s pressurized.

So you get something that spurts out and based where on the verticality you hit. The products that hit are either flammable or explosive. So we’re including a nice little graphic here to show you what that looks like. the Ukrainians have shown that they can hit this in a dozen different facilities, and the Russians have proven that it’s difficult for them to get this stuff back online, because most of the equipment, especially for his distillation tower, is not produced in Russia.

And a lot of it’s not even produced in China. It’s mostly Western tech. So as of April 2nd, which was the last day we had an attack on energy infrastructure in Russia, about 15% of Russian refining capacity had been taken offline. In the two weeks since then, they’ve gotten about a third of that back on using parts they were able to cobble together.

But it gives you an idea that this is a real drain, because we’re talking about 600,000 barrels a day of refined product that just isn’t being made right now. That affects domestic stability in Russia, that affects the capacity of the Russians to operate in the front. And yes, it does impact global energy prices, but that leads me to the third thing that I have a problem with the Biden administration here, and that the impact on the United States is pretty limited.

the United States is not simply the world’s largest producer of crude oil. It’s also the world’s largest producer of refined product to the degree that it is also the world’s largest exporter of refined product. So not only will the United States feel the least pinch in terms of energy inflation from anything in Russia going offline, we also have the issue that the US president, without having to go through Congress, can put restrictions of whatever form he wants on United States export of product.

Doesn’t require a lot of regulatory creativity to come up with a plan that would allow to a limiting of the impact to prices, for energy products in the United States. And I got to say, it is weird to see the United States playing the role of dove when it comes to NATO issues with Ukraine. Usually the U.S. is the hawk.

Now, I don’t think this is going to last. the Biden administration’s logic and analysis on this is just flat out wrong. geopolitically, there’s already a coalition of European countries that wants to take the fight across the border into Russia proper, because they know that now, that’s really the only way that the Ukrainians can win this war.

Second, economically, you take let’s say you take half of Russia’s refined product exports offline. Will that have an impact? Yeah, but it will be relatively moderate because most countries have been moving away from that already. And the Russian product is going to over halfway around the world before it makes it to an end client. So it’s already been stretched.

Removing it will have an impact. But we’ve had two years to adapt, so it’s going to be moderate, though not to mention in the United States, as the world’s largest refined product exporter, we’re already in a glut here, and it doesn’t take much bureaucratic minutia in order to keep some of that glut from going abroad. So mitigating any price impact here for political reasons.

And third, the political context is wrong to the Biden administration is thinking about inflation and how that can be a voter issue, and it is a voter issue. But if you keep the gasoline and the refined product bottle up in the United States, the only people are going to be pissed off are the refiners. And I don’t think any of those people are going to ever vote for the Biden administration in the first place.

There is no need to restrict Ukrainians room to maneuver in order to fight this war. in order to get everything that the Biden administration says that it wants to be.

Ukraine Hammers Russian Oil Infrastructure

photo of oil barrels

The Ukrainians have ramped up strikes on Russian energy infrastructure, sending ripples through Russia’s refining capacity and triggering fuel shortages. But what changes enabled this to occur?

Three big things have shifted, giving Ukraine political cover and better tools to disrupt Russian oil flows. These include opposition from the US diminishing, Europe cutting off Russian oil and gas (besides Hungary and Slovakia), and longer-range weapons to strike deeper into Russia.

This is allowing Kyiv to strike Russia’s most critical oil hubs; think the pipeline nexus Samara, or pumping stations that will force Novorossiysk to collapse, or even northern hubs serving the Baltic. Since oil remains the largest revenue source for the Russians, sustained attacks on this infrastructure threatens Moscow’s ability to fight this war.

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Transcript

Hey all Peter Zeihan here coming from Colorado on a foggy day. Today we’re gonna talk about what’s going on in Russia, specifically. Ukraine has severely ramped up its attacks on Russian energy infrastructure. This is something that the Ukrainians have been doing in bits and pieces for about a year and a half now, but it’s now taken on a whole new level, and we have somewhere between 15 and 20% of Russia’s oil processing capacity offline. 

And it’s generating localized gasoline shortages throughout the Russian system, including in the capital, and certainly in the provinces that are closer to the actual front in the Ukraine war. So what has changed? Three things. First of all, Biden’s gone. Biden had this idea that attacks on energy infrastructure in, the Russian space would raise energy prices globally to a point that would be politically unpalatable for Americans. 

Now, I was always on the other side of that equation, as a rule, gasoline markets, not to be confused with oil markets, trade differently. And so a disruption in one hemisphere does not automatically trigger a broad scale energy price increase in the other. But regardless, Biden has now gone. That argument is no longer being made in Washington. 

And from Ukraine’s point of view, the gloves are off a little bit. Number two Europe, the Europeans are no longer taking any piped oil or natural gas from the Russians at all, aside from a small volumes that come into places like Hungary, which are basically operating as Russian parties. Which means that from Ukraine’s point of view, there’s no longer diplomatic or economic complication in Europe. 

The deals to transit oil and natural gas across Ukrainian space expired at the beginning of the year. Everyone who was smart and saw the writing on the wall, moved away from the Russian sources completely again, Hungary being the standout exception. And now going after the infrastructure in any way, shape or form basically has the unofficial blessing of the European Union. 

So the Hungarians and to the lesser degree the Slovaks, are screaming bloody murder. But Ukraine isn’t giving transit fees. They’re not taking any Russian energy. No one else in the EU is taking any of it either. So it’s okay to go after the infrastructure. We’ve actually seen a couple pumping stations get hit already. Third, the Ukrainians are much better at this. 

They’ve been developing bit by bit heavier payloads and longer range weaponry that can strike further and further and harder and harder at Russian targets. And so now reliably, it’s to a range of about 1200 kilometers. The Ukrainians can be striking, and that’s about 700 miles. And that puts a lot in range of these potential weapons, including the entire Moscow region. 

But Moscow is not the most important zone here when you’re talking about oil. There are a few pipeline hubs in the Russian system where several pipeline networks from different zones come together for focusing and refining, and then go on to export points. And in my opinion, the single most important of them is the city of Samara in southwestern Russia. 

It’s basically roughly north of the Caspian Sea, maybe northwest a little bit. Anyway, something around 3 million barrels a day flows through there at any given time. Pipelines, of course, can be redirected to a degree. But we now have the Ukrainians targeting refineries in the Samara area. And when they do that, the crude can’t be refined. It needs to be kept in the pipeline and sent on, and the pipelines flow on can only take so much traffic. 

So it’s put a real crimp in what the Russians can produce. And we’re already starting to see some reports, a few reports of shut in production because the pipelines can’t handle the flows to the volumes that are necessary because the refineries are offline. If and when the Ukrainians decide to go after the pumping stations on the pipelines themselves, then this whole part of the network breaks, and that will probably be the end of meaningful exports from Russian crude to the Black Sea port of Novorossiysk. 

And as the Ukrainians continue to get better and better weapons, some of the distribution systems of the hubs in northern Russia will probably start getting hit as well. And that could really impinge upon the Baltic Pipeline system, which is where the Russians export crude from the Baltic Sea, from, near Saint Petersburg. The specific port escapes me at the moment. 

Anyway, so with the politics changed and the economic dependencies shifted, and the Ukrainians all of a sudden a lot better at what they were doing, we should expect a lot more Russian crude going offline. So regardless of what happens with the Trump administration and sanctions and its effort to peel, say, the Indians and or the Chinese away from the Russians, if the crude can’t flow, the crude can’t flow, and the Russian economic situation with then become a lot more difficult because oil sales remain what they have always been for Moscow, their single biggest source of income, going all the way back to Soviet times.

While I Was Gone, Part 4: US Security

Shield of the Federal Bureau of Investigation

To wrap up this short series on things that went down while I was away, we’ll be looking at some alarming developments in US security.

The FBI raided former National Security Adviser John Bolton’s home and office, under accusations of mishandling classified documents; that’s a bit rich coming from the current administration, but I digress. The bigger issue is that using federal law enforcement as a political weapon mirrors authoritarian states like Russia and China. This relates to the other big news, where Trump has ordered the US military to form specialized units for patrolling American cities; this is just all-around bad policy.

If there was a time for Congress to assert itself as the adults in the room, it would be now.

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Transcript

Hey all. Peter Zeihan here coming to you from the Lake of the Ozarks. This is the last in our series of. What the hell were you thinking while I was gone? Was I backpacking for two weeks? And the world kind of fell apart. This time we’re going to talk about security in the United States borders. There are two big things that went down when I was gone, both of which concern me greatly. 

The first involves a gentleman by the name of John Bolton. John Bolton was a national security adviser, which is kind of America’s top foreign policy coordinator during the first Trump administration. But after seeing how the sausage was made inside, he left the administration and basically became a critic and has now been one of the more reliable voices for saying when Donald Trump is doing something that perhaps isn’t the brightest. 

Well, while I was gone, the FBI was ordered to raid his business and raid his personal residence. And he has now been accused of improperly handling classified materials. The hypocrisy of this is pretty rich. Anyone who is, like, independently minded will be able to tell in a second that the Trump administration is the least information secure administration we’ve ever had. 

We’ve already had a number of cabinet ministers, up to including the vice president, included in signal checks, which is a Russian penetrated not particularly secure platform in which they shared operational data. We’ve had situations most recently in the, the Alaska summit where informations and the personal information of security and diplomatic personnel, including their contact information, was just left on a printer. 

And we’re seeing a general disregard for all the counselor generals, assuming they haven’t been fired already, which are the people who are supposed to maintain information security within the administration. So this administration is leaking classified information massively. We even have our DNI who’s in charge of the intelligence system. Outing covert covert agents around the world on Twitter. 

And so to accuse Bolton of doing something inappropriate with documents is is really rich, especially since he has been in government service in this sort of role for over 20 years and has never even had a hint of that concern brought up, ever. I mean, there’s a lot of reasons to not like John Bolton. Mostly political or personal. 

He’s not a particularly nice gentleman, but no one has ever accused him of not being competent. So that’s number one. Using the FBI as a hit squad for political opponents, is something the United States has never done. This is right out of modern China or 2000s. Russia, or maybe a Latin American democracy. This is not a great thing. 

The second thing which actually concerns me even more is what’s being done with the military. The US military is designed to do military operations overseas. They’re designed to kill people and detect threats. But Trump has given the order for the military to form specialized units designed to specifically patrol and pacify American urban centers. Now, the US military is not good at law enforcement, and it has never been trained to be good at law enforcement. 

Third thing is to get in a tank or getting a jet and go overseas and do things there. When you put them into a law enforcement role, like we saw, say, in the Iraq occupation, things go to hell really quickly. Their equipment’s not right for the training is not right for it. It’s a mismatch. And so a lot of people died that probably didn’t need to. 

You take those same people and you put them on American soil and tell them to do law enforcement. And we’re in a very different situation. The only governments in modern history that use their military for urban pacification are those countries where occupying their own people is a national security issue. This is Iran. This is, to a degree, Russia. 

This is to a degree, North Korea. This is not something we want to see. Not only would it be violent, not only will there be a lot of political degradation because of it, not only will this erode the US military’s capacity to function. It is by far the most expensive way that you could possibly do it, because you’re taking people that you’d like to say trained to work on an Abrams tank. 

It’s people that you probably cost at least a quarter of $1 million just to do their training and then beaten them. Beat cops? No. So we have this cascading list of economic and social and political and health and national security military issues that just in the last two weeks have taken an absolute nosedive. 

I’m not a call to action guy, but we’re nearing the point pretty quickly where if Congress cannot find a backbone to re inject some sanity into American policy, we’re going to be having some severe degradations in our economic, social, and military models that are literally going to take us decades to unfuck. This is getting very real.

While I Was Gone, Part 3: Economic Status

Person using Forex trading on a laptop and phone

Today, we’ll be turning our attention towards the economic moves that the Trump admin made while I was away.

Intel was partially nationalized (10% government stake); this move supports semiconductor security but could also turn the company into a defense contractor rather than an innovator driven by profit. The Block Island wind farm project was completely halted…despite being nearly completed; this undermines US energy reliability, trust in government contracts, and the need for rapid energy expansion. And of course, Trump had to throw in an out-of-pocket personal attack with a Fed board member (Lisa Cook) over mortgage discrepancies, which is just another step towards making the Fed a political tool.

All these economic actions nudge the US further away from free-market capitalism, and closer to something where the government dominates industry, contracts, and monetary policy. However, experimenting with new economic models is inevitable, it would just be nice to let some other countries be the guinea pigs.

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Transcript

Hey all Peter Zeihan here. Coming to you from a rainy lake of the Ozarks. We’re continuing our series on. What the hell were you guys thinking while I was gone backpacking? Today we’re going to talk about some economic issues in the United States. We’ve got three things that you guys decided were good idea to do. A certain green. Got three ideas that you guys decided were good ones while I was gone. 

The first one was that Donald Trump partially nationalize Intel. Intel is, of course, America’s premier semiconductor manufacturing firm, taking a 10% stake for the government. This does not give the United States a seat on the board, but it does obligate the United States to pay for a lot of R&D. And if your goal is to near-shore semiconductor fabrication, there’s some serious logic here. 

And if your goal is to deepen the government’s involvement in design and control the technology, there’s some logic there as well. But it does come at a pretty significant cost. When you start to nationalize companies, they treat the government as one of their stakeholders, and they start to optimize their operations to do whatever the government wants that might achieve a national security goal, perhaps, but it comes at the cost of the company basically letting everything else fly, and reducing the profit motive to actually make the company better. 

They become more of a defense contractor. So pros and cons, Second big item is that the Trump administration issued a cease order for the Block Island windfarm off the coast of Rhode Island, and it’s really hard to spin this as a positive. The money had already been allotted. Things have been paid for. Remember, you have to pay for green tech projects pretty much upfront. And so the financing was all in place. 

The project was already 80% completed and was about to start wiring power next year. And now it’s just completely stopped. So number one, this is an investment issue. Number two, this is a foreign investment issue because the Danish companies were involved. And number three, it’s a power issue for the eastern seaboard. But most importantly, the federal government has now decided to kill the project specifically because Donald Trump doesn’t like wind turbines. 

He doesn’t like the way that they look now. Wind turbines in the right spots are among the most efficient ways of generating power. This isn’t like solar, where the it’s dark half the year. Wind, especially offshore wind, is a very strong, reliable source of energy. But Donald Trump doesn’t like the look of them. So from the point of view of contract law, the federal government has now established itself as a relatively unreliable partner in the power sector. 

And no matter what your interpretation of America’s near term future, whether you’re like me and you see, we need to double size of the industrial space with your tech guy and you want to massively expand AI. Whether all you want to do is replace the old infrastructure with new infrastructure. The United States needs to expand its power grid by at least 50% over the next several years, and all of a sudden, the federal government is no longer a positive contributing partner to that. 

And everyone who is involved in government contracting in the power sector is now going to be wondering if there’s any reliability at all. That’s really bad. If you’re trying to do something quickly, because the federal government will always be the single largest economic entity in the United States. And now it’s got people wondering if they can be trusted of all, because there’s no scientific reason, there’s no economic reason, there’s no financial reason. 

There’s no national security reason for this contract to be canceled. It’s just been canceled because Trump doesn’t like the look of windmills. That is very, very Latin American. The third issue is that Donald Trump has tried to fire or has fired a woman by the name of Lisa Cook, who is a member of the Federal Reserve Board. Now, the US Federal Reserve is basically the central bank of the United States. 

They say interest rates and manage monetary policies in order to manage the American economy. And under existing law, you cannot fire a board member unless there’s cause. The cause that Donald Trump cited was that Lisa Cook now stands accused of falsifying some data, on free home purchases she’s made over the last 10 to 15 years. I believe. 

In total, the three mortgages in question have a total finance value of about $1 million. Have all since been paid off. And he’s saying that she lied about it being her primary residence in order to get a slightly better interest rates. And we’re talking here about less than a half a percent. This is kind of rich because no charges have been brought. 

It’s simply an accusation. No data has been presented. But Donald Trump has been convicted in a court of law of over a half $1 billion of real estate fraud. So you know, there’s a little bit of a ocracy here. Whether or not if she were charged and found guilty, is qualifies her as a being fired for cause is a really open question. It’s really questionable whether the Supreme Court would rule that way. And this is a court that will absolutely go all the way it up. But the core issue here is Donald Trump has found a way to remake the Federal Reserve in his own image. 

One of the problems that Trump is facing is a lot of the tariff policies that are in place at the moment are highly inflationary and are driving economic activity out of the United States by making the United States a less reliable partner in things like manufacturing supply chains in addition, things like steel and aluminum, copper tariffs to make it much more difficult to construct anything, whether it’s in the power grid or your house. 

And so we are set up for higher inflationary, lower growth environment moving forward. So Trump’s idea is if we can reduce capital costs significantly, then we will have more economic activity. And faster growth that people will get credit for. The Federal Reserve would never go for that because that would be wildly inflationary. Think about what happened under the Biden administration when we had a series of federal spending projects, none of which Donald Trump has really trimmed down. 

That dumped a lot of money into the economy post Covid and generated faster economic growth, but faster inflation because we saw demand go up and up and up and up without an underlying increase in supply. What Trump is doing is constructing supply and now trying to goosed demand with interest rate policies, achieving something that’s at least as bad, for political reasons, demand scarcity or a directed demand, something like that. It’s a lot like, like wartime mobilization, where the government takes a larger role in the system controlling the production, but it’s not driven by a crisis, is driven by a change in macroeconomic fundamentals, and it’s is focused on demand as it is on supply. 

And if that sounds not particularly capitalistic, that’s because it’s not even remotely capitalistic. But as we’ve seen from the Donald Trump administration so far, that is really not a major concern. Nationalizing companies, he sees as a plus, taking over direct control, personal control of the monetary authority he sees as a plus. And the sacrosanct nature of contracts is not something he seems even remotely bothered by. 

These are characteristics that have a lot more in common with, like the Latin American flavor of socialism or even modern day China. And one thing that they do not generate is efficiency, or private ownership or private decision making. But kind of that’s the point. 

So none of these steps are good. They all basically make the federal government part of the problem, in a way that five years ago we would have said something that the liberals prefer to do, but now Donald Trump is there. The reason that this bothers me so much, but the reason why I’m trying to maintain an open mind is that the models that we use to manage our economy and by our, I mean humans are changing and need to change. 

For the last century, we’ve basically had four overarching economic models. We’ve had free market capitalism, which is something the United States tends to champion. Not anymore. We’ve had a European social model that is more based on social placidity and equality, but doesn’t generate as fast of economic growth and as much economic dynamism. Europe, of course, is known for that. 

You get command communism, where you have a central authority that makes most of the economic decisions. That’s Maoist China, that is the Soviet Union. And then you have something called fascist corporatism, where there’s a fusion of corporate interests and government interests. And that’s classically Nazi Germany, but also like 1970s and 1980s Korea, maybe a little bit of, Japan and certainly China today. 

All four of these models are based on the relationship between supply and demand and capital and labor. And with the world going not just through a globalization phase, but a massive population phase, we are losing access to labor and capital in the volumes and in the ratios that we’re used to, because when people retire, they take their money with them and they are no longer working. 

So we’re seeing a change in the fundamentals that define our four economic models. And we need to try something new. What that something will be is very much in play. But what the Trump administration seems to be pushing us towards, whether it’s consciously or not, is something that’s kind of like a constrained, managed demand model where the government is the single largest player in determining who gets what, and because of problems with supply and consumption. 

They’re actively ratcheting down demand because there won’t be enough stuff to go around. But Trump is also constraining artificially the supply of product within the American market. So whether this, constrained demand model is something that is going to be a thing in the future, I don’t know, it’ll probably need to be a lot more cohered than what we’re seeing out of Washington right now. 

But it is something we shouldn’t reject out of hand because we know the old models aren’t going to work. The primary concern that I have at the moment is that the United States has the healthiest democracy of any major country in the world, which means we don’t need to make the adjustments first. We can wait to see what everybody else does first and then sort of pick and choose. 

The idea that we are needs to be the ones at the vanguard of this next phase of economic theory, I think, is a bit of a stretch. And if we are going to do it, I would like to see it be a system that is a lot more coherent and a lot more geared to American strengths and weaknesses than what we’ve seen out of the administration these last couple of weeks. 

Soooo…. 

While I Was Gone, Part 2: US Health

Doctor with a stethoscope

RFK Jr. was busy while I was away. He downgraded several vaccines to only at-risk groups and tied licensing and insurance access to compliance. He fired the CDC director, prompting an exodus of credentialed medical staff. And he triggered a clash between Health and Human Services, the CDC, and the broader medical community.

When vaccines (aka one of the greatest contributors to modern health) get undermined, it sets off some alarm bells. This has surpassed health and politics, and it’s now a national security concern. mRNA vaccines enabled rapid COVID response, but they could also revolutionize biodefense.

Should this technology remained sidelined, the US will be unnecessarily vulnerable to biothreats. And I don’t see RFK Jr. being ousted from Trump’s political base anytime soon, so get ready for a fun ride…

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Transcript

Hey all, Peter Zeihan here. Coming from the Lake of the Ozarks, we’re continuing our. What the hell did you guys do over the last two weeks while I was gone? And today we had to talk about the intersection of health policy and national defense. While I was gone, RFK junior, who is the secretary of Health and Human Services, has basically downgraded most vaccines, specifically with the Covid vaccine, saying that they are no longer recommended for use for most Americans. 

Really, just for people who are at risk. And any doctors who decide to buck HHS recommendations, will no longer have state certification for things like insurance. Basically saying that I have made up some new rules. I have fired all of the doctors. And if you don’t follow my rules, then you can’t get insurance. 

Topping it off. He fired the director of the center for Disease Control. A woman by the name of, Miranda’s. And when she was let go, basically all the senior staff that have medical credentials left with her, which has left RFK to basically staff the world’s premier disease prevention and to deal with people who have basically no medical experience and are basically driven by conspiracy theories. 

So we are now setting up for a direct clash between HHS and the CDC and the medical community writ large. The health implications of this are, to say, dire by making doctors choose between being politically correct and actually providing medical care, and by denigrating vaccines which have been the single largest cause of the increase in the American health system for the last century. 

And basically pushing that down to the bottom is going to have some catastrophic outcomes moving forward. This is no longer purely an issue of health or politics. This has now graduated into the area of national security. And let me just give you one reason why we should all be very, very worried. Let’s look at MRNA vaccines. That’s the relatively new technology, less than a decade old, that was the backbone of what happened with Covid, which saved at least a million American lives, probably significantly more than just in the first year. 

MRNA vaccines are what you might call a digital vaccine. So with a traditional vaccine, you’re growing the virus in something like an egg yolk medium, and then you grow enough of it and kill the virus to make a weakened or a dead virus vaccine that you inject in order to trigger an immune response. 

That’s not how it works with mRNA. You identify a specific part of the virus that you think is going to be vulnerable, and then you digitally manufacture a molecule that interferes with that specific site. So the amount of organic material in an MRI vaccine is minimal, but also because it’s basically designed and manufactured, you can produce it very, very quickly. 

You can design your molecule in a matter of days. You can bring it in for a large scale production in a matter of weeks, rather than having to just inject egg after egg after egg after egg, and it will eventually produce enough of whatever it is for 300 million people. Because of that, any bio weapons defense system that the United States might have has always been next to impossible. 

Because once you identify what the enemy pathogen is going to be, you then have to go through this months long process of producing enough vaccine to combat it. With mRNA, you can do that in a month. So we’re now in a situation where all of our bio weapons defense systems have basically stopped because we have a freak show running the HHS and now that the CDC has basically been purged of doctors at the top levels, we no longer even have a voice in the federal government that is looking out for the health of American people at the moment. 

Robert Kennedy Jr continues to be wildly popular with the MAGA base, so I see no reason that Donald Trump is going to fire him. But it also means that the federal health authorities in the United States have basically become nonfunctional and now are contributing to America’s health care problems, rather than trying to mitigate them. Remember that earlier in this administration, all cooperation with international medical communities was basically severed. 

So the United States is now basically sitting in a box and digging itself into a hole and not even looking out for future threats, much less setting up the infrastructure to deal with them. Not good.

While I Was Gone, Part 1: Trade Policy Updates

Photo of trade containers stacked

A US federal appeals court has ruled that most of Trump’s tariffs are illegal since the president needs congressional authority to declare trade emergencies or impose tariffs.

So, it’s off to the Supreme Court to decide if Trump’s entire trade policy will get scratched. And if you’re thinking, “Did Trump’s trade team ever get staffed?” The answer is still a resounding “yeah right!”

This deep uncertainty is wreaking havoc on businesses that operate across borders; many of which are now shifting production out of the US. These policies are inadvertently accelerating American deindustrialization and whatever the Supreme Court decides, it’s going to be rough on the United States for at least the remainder of the year.

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Transcript

Hey all, Peter Zeihan here. Come to you from the Lake of the Ozarks. I just got back from backpacking in Yosemite for a couple of weeks and holy crap, you guys have lost your mind. So I’m doing a series of videos this week, basically on, what’s happened while I was gone and what it means. This has a very, frog and a boiling pot sort of situation. 

The water has been heating up, and I don’t know how many people ever actually notice what’s been going on, but a lot of things are breaking pretty quickly. So let’s start with trade. Just before I got back, an appeals court and the U.S. federal level ruled that most of the tariffs that Donald Trump has been executing over the last few months are illegal under current law. 

Specifically, the Trump doesn’t have the ability to declare a trade deficit as a emergency. He can’t use fentanyl as a justification for a trade war. And he can’t just establish tariffs however he wants, wherever, once and for as long as he wants. Which, you know, honestly, it’s not a particularly strict reading of the law. According to the Constitution, Congress has the authority to set tariffs, and Congress has in bits and pieces over the last several decades, given some of that power to the president, but never to the degree of expansiveness that Donald Trump has asserted. 

This is a second court ruling on this issue against Trump. It will now go to the Supreme Court, probably before the end of the year. And it throws everything about the Trump tariff policy, which is the core of Trump’s economic and foreign policy into doubt. Part of the problem that Trump is going to experience here is that once you get past the tariffs, there really isn’t anything else under the hood. 

The federal government is still not staffed out. The US Trade Representative Office, which is supposed to negotiate and trade deals, still hasn’t been stopped out. The Commerce Department still hasn’t been staffed out. It’s so bad that the Treasury Secretary has been involved in some of these trade talks, and none of the trade talks, none of them, none of the deals we’ve seen so far deal with any of the traditional irritants in economic relations between the United States and the rest of the world, or just about a tariff number. 

So if this number goes away, Trump is not simply starting from scratch. He has yet to build the team that is necessary to start a new policy. And we basically need to go all the way back to January 20th and start over. So big defeat for the president. As for corporate America and the American experience. 

Everything is in flux. We still don’t have a meaningful deal with Canada, Mexico or China, three of our four largest trading partners. And the deals we have with places like South Korea, Japan and the United Kingdom are wishy washy at best. And we’re almost designed to allow the other countries to avoid the tariffs in many ways. So these are sloppy deals that are very light on details that have yet to really be determined. 

And now we’re looking at probably having to start the entire thing over, which means if you are in the business of working in the United States, you still have no clarity. And the closest clarity you might get is on the other side of the Supreme Court ruling, which is at the moment unscheduled. So what we’re seeing is the beginnings of a deindustrialization of the American complex, because companies are now moving their facilities and their production capacity outside of the United States, knowing that they’ll have to pay tariffs when they bring stuff back in. 

But there’s no advantage to participating in a multi-state supply chain. Normally, with manufacturing, especially more advanced manufacturing. Different countries, different companies produce different pieces of whatever the final product is. And those pieces fly back and forth or ship back and forth across international boundaries as value add is added at every step with the United States with this tariff policy. 

You get taxed every time something comes in, even if it’s not a finished product. And so the solution is just to avoid the United States completely, make it entirely an international system, ship the final product to the United States consumer and pay the tariff once. So in its current form, we’re seeing a significant breakdown of American manufacturing. And that will continue until we have some clarity on what trade policy will produce. 

If the Supreme Court decides to reinstate the tariffs that will accelerate the industrialization of America. It’s the Supreme Court decides to ban the tariffs. Then we have to start over and we have all the uncertainty all over again from the beginning. So no matter how you look at this, this is not a great situation for the United States for at least the remainder of this calendar year.

Should the UAE Invest in a Tech Sector?

Photo of interior of computer chip

The UAE is pouring money into building a tech sector, focusing on semiconductor fabrication plants and data centers.

While semiconductor fabs are central to chipmaking, they require immense technical expertise, specialized labor, and integration across thousands of precise steps; meaning this is a nothing sandwich.

Data centers are more achievable, but that doesn’t mean they’re a good idea either. The UAE would need to subsidize access to scarce high-end chips, figure out the high cooling costs (because desert climate, duh), and even then, the geographic limitations will prevent them from becoming a global hub.

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Transcript

Hey, all Peter Zeihan here. Coming to you from Colorado. Today we are taking a question from the Patreon page and specifically about tech and some of the things that are going on in the Persian Gulf, specifically, a number of the Persian Gulf Arab states, most notably the United Arab Emirates, are splashing around a lot of cash and trying to build a tech industry. 

There are two forms of taking. The first is they’re trying to get kind of like what happened in Arizona, a high end semiconductor fabrication facility. And second, they’re getting a data center. Two very different pieces of technology that have very different requirements. So let’s start with the semiconductor fab facility. 

Semiconductor fabs like the kind that we now have outside of Phoenix, the one that’s being built outside of Columbus, Ohio. 

The ones that are in Taiwan, are incredibly sophisticated. And what people tend to forget is that these are not just like assembly locations. They bring some of the most advanced machining in one place. They bring some of the most advanced materials into one place. They bring some of the most sophisticated designs in one place. And basically, you’ve got something in excess of 10,000 pieces that come together on the floor of the fab. 

It’s not simply an issue of making a semiconductor. You have a high end machine that’s called a extreme ultraviolet machine that does etching, and you have to dope. Well, let me let me back up. Just show you the whole thing. The whole process. Step one. You buy some really, really expensive sand silicon dioxide. That’s just pure, pure, purified. 

Usually only comes from the United States. You melt it down and know that you put in a seed crystal. And over the course of several days, sometimes weeks, you grow it into a crystal that weighs more than a car. You then slice it laterally into wafers, and then you take those wafers into your semiconductor fab facility, because these are all done in different places. 

And then you hit it with lasers that come out of the EV system. You dope it, you bake it again, you dope it, you bake it again, you do that, you know, ten times, 20 times, 90 times, and eventually you get a bunch of semiconductors on your disk. You then break those into pieces and test them and eventually incorporate them into actual hardware, like, say, a motherboard or a flash drive. 

And then goes into the intermediate products trade. So fabs are essential. Absolutely. But they are one step in an entire process that has thousands of steps. They just happen to be where a lot of these steps come together. They are not the high value added part of the process. That’s going to be almost everything else. Does that mean that they’re not important? 

No. Does it mean you can do it with unskilled labor? No. 

the United Arab Emirates have skilled labor? No. So if the UAE were to pay the $2,025 billion it takes to build a top rated facility, then they would have to do exactly the same thing that the Chinese have had to do import the labor to make it run the most exacting work that is done in a high end fab facility is the quality checks at every step. 

And that is something that if the chips are above, say, 20 to 30 nanometers, the Chinese can’t do it at all. And the idea that the UAE could do it is absolutely laughable. So if they did built this, no one would want to probably work in the unless the pay was absolutely immense and you would have basically a white elephant project generating very error prone, high cost items. 

That’s probably going to happen. What is less unlikely would be, say, a data farmer or data center. This doesn’t require nearly. The maintenance work is not nearly as, worker intensive. Basically, you get a bunch of GPUs. You build into something called a module with a bunch of Dram and Nand chips. Now, Dram, our memory chips and Nand are long term memory chips. Flash memory, short term needs power. Nand is, long term memory, not as quick, doesn’t need the power, and the GPU is all the processing. So you basically build a module and then you put a bunch of them in a server, and you put a bunch of server blades in a rack, and you put hundreds of racks in a room with really good cooling, and then you just let it run. 

Data cables coming in, data cables going out. Traffic comes and goes, you can house AI algorithms on it. You can. How’s your AOL account on it? Whatever you want. Two problems. Number one, all of the hardware is really, really expensive. And demand for the high end chips is very, very high. So most server farms do not have the sub seven nanometer chips that are, for example, necessary for most AI applications. 

Second problem latency. As a rule, you want your data center to be as close to your demand as possible. So the United States of various quality sets of about 10,000 data centers. And we try to put them either right outside of a population center or somewhere roughly in the middle of the country for trans coast traffic. So the idea that the UAE, with a couple first world cities is going to need a couple of data centers makes perfect sense. 

The idea that it’s going to be a global information hub, no, because there are no countries near it that generate the volume and quality of data that would want to go all the way to Dubai and Abu Dhabi before then moving on. So if the Emiratis decide to go down this path. This won’t be nearly as much of a white elephant project as, say, building a fab facility, but they would have to subsidize it in order to get the high end chips. 

And it appears that’s exactly what they’re doing. There is one of what’s supposed to be one of the world’s most advanced data centers, under construction in the United Arab Emirates right now, if everything goes to plan really does with these things, if everything goes to plan, it’ll become operational before the end of 2026. But it will be in a very expensive place to operate because the single largest expense for data centers is cooling its electricity. 

And I don’t know if you knew this, but the UAE is in a near equatorial desert. So the operational costs will be massive. And while labor is not a huge component of a data center when it comes to costs, they still don’t have the labor force to do even that. So if they do this, they seem to be doing it. 

It will be very expensive and it’ll just kind of be a feather in their cap. It won’t be actually something that a lot of people want to use.

The Automation of War Drags On

A silhouetted soldier in a black background

As we look out onto the battlefields of the wars of tomorrow, will we see humanoid robots and AI-driven autonomous weapons instead of soldiers?

Unfortunately, humanity can’t hang up the fatigues and boots quite yet. While AI can process and distill vast amounts of data, it can’t truly “think” or react independently without huge amounts of power and the most advanced sensors. Even if chips and sensors advanced quickly, there remains mobility, stability, and power supply problems.

And allow me to kick this dead horse once more…the semiconductor supply chain is fragile and will fracture along with deglobalization. If everything went perfectly in developing the hardened, next-gen chips required for military applications, we still wouldn’t see those emerge until the 2030s. And that’s one big ass IF.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado today. We are taking an entry from the Patreon Ask Peter a question page specifically. Yes, demographics are in decline. Yes, that is going to change a whole lot of things. But when it comes to military issues, won’t artificial intelligence and automation and above all, humanoid robots and androids be able to take the place of humans in the not too distant future, like, whoa, whoa, hold your horses. 

Okay, so let’s assume for the moment that the supply chain for high end semiconductors does not break down. And that is a very poor bet. Just put that to the side. We are nowhere close. There’s two issues here. One is something that AI is reasonably good at and that is processing take huge amounts of data and processing and distilling it down. 

That’s basically what ChatGPT has been doing for a while, and is getting incrementally better at. That is not the same as thinking. Thinking requires significantly more processing power than you can put, not in just one chip, but into a whole server blade of chips or a whole server stack of chips. You basically need an ongoing connection to a server farm, with all that processing and computing power, in order to do something that a proxy emits thought. 

So taking data and distilling it or processing it sure. Thinking and reacting to your real life environment, that’s a whole different issue. And it is shaped by the data that you can feed in, which is not an AI issue or a chip issue. It’s a sensor issue. And our sensors are not nearly as good as anything else in the processing department. 

That’s problem one. Problem two is much more direct. Let’s assume that your sensors are perfect. Let’s assume that we do have AI chips that are an order of magnitude more advanced that we have, right now. Let’s assume that maybe you can have a data link back to a data farm without any sort of jamming. And by the way, good luck with that movement, people. 

Movement. You have to be able to have a device, an android, a robotic tank, whatever it happens to be that can loiter, that can operate at range without a whole lot of decision making that is done by humans. And the problem there is power and acuity. 

Right now, lithium is the best battery system we have, and it can maintain a charge for a few hours of action for, say, an electric vehicle, which is nothing compared to what you are going to need when you talking about tracked vehicles or articulated joints. 

The second issue is stability. Not only do you have to have good sensors to be able to perceive the environment, you have to be able to manipulate that environment. I’m sure a lot of you have seen that viral footage from about a year ago of a humanoid robot basically doing a back flip up and landing on the table behind him. 

I was like, ooh, we’re about to be replaced. You know how many attempts that took? 11,000. 400. You know how many more attempts it took before I could do it again? Another 13,000. These things can’t learn. They can take actions. There are rules for them. Pack mule might not sound sexy. Kind of a big deal on things like desert warfare. 

Autonomous weapons systems, though, are simply not anywhere close. And then I have to go back to that thing that I said we were going to ignore. And that’s whether or not the chips are going to get better. The highest end chips we have right now are rapidly approaching one nanometer, but they require 30,000 pieces and 100,000 manufacturing supply chain steps and 9000 companies. 

And over half of these things are single point failures. It doesn’t take a significant shift in the international environment to make a few of them fall out of the constellation, and when that happens, no more chips will be made. Not to mention that the chips, as they are existing right now, are designed for measures that we already have. 

Things we already need, things we already use, which means that they’re not shuck tested, they can’t handle vibration, they can’t handle temperature variation. They certainly can’t handle things like dust. We would have to first design a fundamentally new chip that is far more advanced than anything we have already that incorporates this sort of hardening into it. We haven’t even started that design process and assuming that everyone got it all right on their first try, you would see your first volume run of those chips come online probably around 2033. 

So no, not something I worry about.

Avoiding the Middle-Income Trap

Stacks of money coins and a green arrow pointing up. Increasing income and wealth.

There’s a point in many nations’ timelines where the per capita income stalls. This is known as the middle-income trap. And the way to avoid it is moving beyond basic manufacturing…

Success depends upon three factors: openness to foreign capital, broad-based investment, and the rule of law. Of course, you also need solid demographics to make this all sustainable. Countries like China will remain stuck because they have pursued the exact opposite of what is required. However, even countries that find the right mix (Germany, Ireland, South Korea, etc.) will eventually fail if the demographics aren’t right.

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Transcript

Hey all. Peter Zeihan here coming to you from Colorado. Today we are taking a question from the Patreon crowd. Specifically, how do countries avoid the middle income trap and become advanced rich countries? For those of you who don’t follow economic development like I do, the middle income trap is this concept that you can build the infrastructure, you can get into manufacturing, you can make a lot of stuff for export, but you’re never able to cross a threshold of roughly 10 to $12,000 income per person. 

The issue is eventually you hit a value add point that you can’t push past. You can only take manufacturing so far because the technology will eventually provide more of the value add than the people. And so you’re kind of stuck in a situation where people are working in the factories. They can’t do anything more advanced because I’m not educated enough and the machines do more and more, which bleeds off some of the income and sends it to the people who own them. 

So if you want to get past that, you’re talking about graduating to a fundamentally different economic tier, and it’s a different sort of cultural and industrial structure than what you have as a mid tier manufacturing country. So for that you need four things, really three things on one to make it stick. First you need to be open, very open, almost painfully open to foreign capital. 

The cost of building the physical infrastructure in the industrial plant is a big part of this. And if you can allow the money to come in, do its thing and then take some of the money out once profits start happening, that generates a degree of openness in your system that will enable more and more people on the outside to assist with your development process. 

But it’s more than just building the plant because the plant is what comes first. The plant is what the foreigners are first interested in. But as your income levels rise, that capital can be used for other things like credit cards and mortgages, and you start building a consumption driven society. And when you get a more broad base like that, then you can see the numbers start to go up as people have off of the manufacturing industries and start opening up their own firms and doing their own value added work. 

So that’s one capital number two, investment, which can come from foreign money, doesn’t have to, but not just investment in infrastructure and manufacturing plant, but in more advanced things like education that gets outside of the technical fields, infrastructure that is beyond road and rail and industrial facilities, basically making the money available to invest in different sorts of economic activities that are related to more than just making widgets. 

Again, that broad based unlocks the creativity of the people, especially if you’re investing in creative education so that people can kind of take it from there. 

one of the big secrets of getting past the middle income trap, is that you have to let go, because the more that the state is organizing, yes, the faster you can move, the more national enterprises you can, conquer. 

But that’s not where real high end growth comes from in the long term. It comes from having millions of people who are making decisions every single day about what is best for them, and then they put their back into a way that they just don’t do on an assembly line. Let’s see, what was the number three, rule of law? 

If you’re going to move into a system where the state is not the sole decision maker, if you’re going to allow capital, have a degree of rights, you’re going to allow people to have a say in what they do in their own lives. You need a system that gives them a leg to stand on. You need a legal structure of rule of law where people know what the system is. They know what their rights are, and they can prosecute to protect them and defend them. 

if you stay with a kind of single tier manufacturing system, you’re never going to get that, because people always are going to be facing the risk of challenging the system just to do anything. So these are these three things. 

These are the big ones. And this is part of the reason why China just can’t advance past where it is right now. Foreign capital has always been a little stingy with it wants to keep everything under control. It’s definitely not rule of law. It’s law by rules and the educational system they’ve built excels at the technical side of things. 

It’s stuff you can memorize, but giving people the freedom to go after what they want is a political threat. And so China’s stock roughly at that 9 to 12,000 range, and they’re never to get past it. And, one of the big reasons that we know they’re never going to get past it is number four. And that is have babies. 

I mean, this doesn’t sound like much of an industrial policy at work with me here. When you have people in their 20s, in their 30s who are willing to work 60, 80 hours a week, yes, you get a lot of productivity from that and you get wealth generation from that, but you can only do that once because if by the time they get 40, if they haven’t had kids yet, they can’t work 80 hour weeks anymore, at least not with the same degree of regularity, their productivity starts to peak and then eventually fall off. 

And there’s no replacement generation. So it’s all well and good if you can push past $12,000 a person. But if there’s no one coming up from behind, then does it really matter? Part of the problem, the world with some of the countries that have beaten the middle income trap. 

And I’m thinking here about Germany or Ireland or Korea, is it. Yes. They’ve made these jumps. Yes. They’ve respected rule of law. Yes. They’ve been open to capital. Yes. They’ve expanded their educational systems, but they forgot that it doesn’t end with the current generation. And now some of these places are facing the sharpest contractions in birth rates and national prerogatives, in human history. 

Now, here in the United States, we’ve done this process over several generations. And the drop in our birth rate is something that really didn’t even start in any meaningful way until the 1970s. But we now we have drop below replacement levels, and we are also ejecting millions. But the plan for the current administration is to reject millions of people from the workforce who have higher birth rates. 

So the United States is in this weird little situation where we’ve done everything more or less right to this point, and now we’re looking around the world and figuring out what didn’t work and applying that in force. And if that keeps up for any number of years, that is something that we are going to regret for generations to come.

Automation of US Agriculture

A tractor working in crops

It’s not a stretch to say that US agriculture is one of the most automated industries out there. However, there are some higher-value ag sectors that will face significant labor challenges that automation might not be able to help with.

We’re talking about things like livestock, fruits, and vegetables, where mobility and delicate handling is required. Current machines can’t quite tick all those boxes, so doing a significant portion of the related tasks by hand is still the best option. We saw during COVID that incremental improvements could be made, but human labor is still vital (oftentimes immigrant workers).

Sectors heavily reliant on human labor and resistant to automation will see prices climb, especially as immigrant labor faces increasing barriers.

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Transcript

Hey all. Peter Ryan here coming in from Colorado today. We are taking a question from the Patreon page. And it’s specifically it’s about automation, specifically the automation of agriculture. And the question is with the way the technology is evolving, can it solve some of our personnel and worker problems because we’re facing a shortage in pretty much every sector of the economy right now, with agriculture arguably one of the 2 or 3 subsectors that is most affected. 

And answer is kind of, first back story. I would argue that today agriculture is already the most automated industry, in the United States. If you think back to as recently as the year 1900, well over 90% of the American population was involved in agriculture in some way. But then we started to industrialize and urbanize and people moved from the farm into the cities. 

And today it’s only about 1% of the American population that lives on the farm and the ranch. That means that we’ve had to expand our agricultural output against the backdrop of ever shrinking labor forces. And so when you think about what happens in a modern Ro crop, farm these days, whether that’s corn or soy or whatever, it’s already mostly automated. 

I mean, the very concept of mechanical planters and especially combines for putting the the seed down and then harvesting the end result, that’s largely automated. And what we’ve seen in the last decade, roughly, is even those things don’t need to be driven anymore. If you step into a modern combine, you’re going to feel like you’re on a the deck of a Star Destroyer and Star Wars. 

You’ve got readouts everywhere. It’s GPS run and the farmers there for when things go wrong. I don’t mean to suggest that they’re just taking a nap behind the wheel, but a lot of the work is already programed in. Once you harvest it, you get it into your, truck. You then deliver it to an elevator where it’s loaded automatically. 

Hasn’t been done by shovel for a very long time, and eventually ends up on a truck going somewhere or in a railcar where it goes into, say, a flour mill where the wheat is turned into flour automatically. They don’t even bother turning the lights on. You then go into something like a a bread factory, a bakery. Most of that is automated too. 

So there are there are tight spots in agriculture, but there aren’t very many of them. Those happen primarily when you’re talking about higher value added products, specifically meats and fruits and vegetables. So with meats, you have individual critters that are running around. They need to be managed, whether by horseback or on the back of an ATV. That is something we haven’t figured out to automate. 

And if you remember back to your early civilization lessons, the reason why man’s best friend is dog is is dogs are pretty good at managing herds, and we have yet to come up with a something that’s better than a canine. When you’re talking about processing, you’re also dealing with something where eyes and fingers are what we need. When you take a carcass and you process, you’re doing one at a time and each carcass is a little bit different. 

So we have found out that there are certain types of automation that we can include to look for occlusions or gross and things like that that you don’t want in your ground beef. And we have figured out how to move the carcasses through the facility, but you still need people hacking things apart. We made a bit of an advance during Covid when for health reasons, we couldn’t have people on the line, but it really probably only shaved a 5 to 15% off of the manpower necessary to make it all function. 

It’s difficult for me to see the technology in its current form having a significant breakthrough in the next 20 years. I love to be surprised, but I don’t see it. Then you’re talking about fruits and vegetables here. It’s an issue of a combination of identification and delicacy. Things like apples bruise pretty easily. Things like arugula have to be cut, or asparagus had to be cut at the right rate. 

And the visual recognition is getting better. And if we’re going to have improvements in visual recognition, then, you know, maybe we’re talking about something, but there’s three steps to it. You have to identify what needs to be cut and wear. Number two, you have to have a physical arm that can go out and grass and sever it. And then three, you have to be able to relocate that recently harvested whatever it is into the rest of the processing system. 

Here’s the problem. When you do this on a line for manufacturing, you have a moving conveyor. Often times that moves the product through in its intermediate form and then your automated system is doing the same thing to every item. And you have humans and machines to a degree, working in parallel with the humans, either maintaining the machines or going back and forth on the line doing the things that require a brain and fingers. 

The machines, even with AI, are pretty dumb. They might be able to do an individual step better than human, but they can really only do that individual step through tens of thousands of individual steps. You can have machines doing a lot of that, but the product has to be brought to them. These facilities are not mobile. These machines are not mobile. 

When you’re doing with agriculture, I’m sorry, but the apple tree is not going to rotate so that the fruit is facing the direction it needs to. You have to bring the machine to what you’re harvesting, and that requires a degree of locomotion and energy intensity and programing that we just don’t have yet. So incremental gains. Sure. I would say probably apple harvesting is coming along the fastest in this regard. 

It’s a relatively high capital industry, and as a rule, the apples are a different color from the tree when they’re ready to be harvested. That provides a lot more visual cue. And when you have them laying down, they separate from the leaf bundles a little bit. But if you want to do this for spinach, sorry, you need Guatemalans for that. 

And one of the things we’re going to be seen over the remainder of this year is a separation in terms of pricing between the parts of agriculture where maybe a degree of automation can help and those where it really can’t. And unfortunately, the sectors within the United States that are most reliant on the irregular immigration, that has become a political hot potato in this country are the ones that are actually least capable of being automated. 

So if you’re in an area that imports its fruits and vegetables from elsewhere in the country, you’re going to notice that at the grocery store. That’s unavoidable at this point.