I Think They Get It Now, Part Drei: Germany

Jump to other parts of this series: Intro, France, UK, Italy, Japan, and Canada.

You may have noticed, but the Germans lost the world wars. Ever wonder why? The obvious answer is they started a two-front war, but the truth is more basic.

Germany sits in the middle of the Northern European Plain (NEP), a stretch of flat, arable, temperate, well-watered, densely-rivered territory that comprises most of the rich parts of Europe. It is a great place to craft a successful ethnicity, polity, economy and state. With one exception: Germany sits in the middle of a plain. Germany doesn’t have much in terms of defensible borders.

As big as Germany is, the Germans will never enjoy a quantitative advantage over their collective competitors so their only option is to be better at, well, everything: infrastructure, education, planning, financing, manufacturing, and so on.

But there are no secrets in Europe. The high productive capacity of European farmland means the whole region was the first in the world to urbanize. Combine a dense population footprint with an agriculturally rich zone like the NEP, and French cities and Dutch cities and Polish cities and Danish cities are so close to German cities that everyone’s noses are perennially in everyone else’s business. Germany cannot hide how good they are. Make anything as big as Germany as efficient as Germany and its mere existence is interpreted by everyone as an existential threat, prompting a pan-European alliance that tears it down.

Germany can deal with this in two ways. Option one is to hope against hope that no one will come for it in the night. Every time that do-nothing strategy has been chosen, Germany eventually suffers cataclysmic defeat and dismemberment. Option two is to attack first, trying to defeat its rivals in sequence before they can overwhelm Germany. Every time that strategy has been chosen, Germany eventually suffers cataclysmic defeat and dismemberment.

Unfortunately for the Germans, they live in a geography that actively discriminates against successful long-lived countries.

But the post-World War II world is different from what came before. In the bad ole days the imperial powers (Germany included) duked it out in a more or less continuous march of often-multisided wars. Trade among the empires was kept deliberately curtailed because trade with today’s friend could quickly devolve into dependency upon tomorrow’s enemy. Germany’s perennial quest for superior quality was harnessed for military purposes, and the Germans kicked some serious ass. From unification in 1871 on, the Germans inflicted triple or more the casualties on their foes than were inflicted upon them. The marrying of such a deliberately fractured international system to the rising industrial technologies to Germany’s penchant for perfection brought us to the inevitable horrors of World War II.

At war’s end the Americans bribed all the expeditionary powers – wartime allies like the United Kingdom and France and wartime foes such as Japan and Germany – to be part of its Bretton Woods alliance. The rivals who had caused the war were now clustered under American strategic leadership. The most successful of those powers were those able to refabricate their systems to fully take advantage of a world of open borders, of a world where the Americans provided free security for all, of a world where all the expeditionary powers were aligned, of a world where trade wasn’t something to fear, but something to embrace.

No one did it better than Germany.

Because Germany was defeated, the Germans had the advantage of a clean slate. The ancien régime wasn’t simply removed, it was executed. The allies imposed a new constitution (the Germans know it as the Basic Law) which established a number of legal roadblocks to keep extremist parties away from decision-making power.

But the real transformation was in German industry. After centuries of treating the German military as its first and most important customer, having the option of investing in, well, Germany, was a bit of a treat. Germany’s penchant for efficiency and organization was no longer directed to service the needs of the SS or the Wehrmacht but instead using the best technologies of the day to rebuild a country from scratch. Energy shortages became a thing of the past. The result was one of the fastest stretches of economic growth in world history. (Note: We are talking about West Germany here. Soviet-dominated East Germany was a hot mess.)

As West Germany-the-country was rebuilt, it was only one small step to West Germany-the-export-machine. Germany’s position in the middle of the Northern European Meat Grinder meant Germans had long been used to deferred gratification. Their savings tended to get funneled not into personal consumption, but instead into state-centric investment plans that typically had at least a heavy dusting of military purpose. But with the Nazi regime gone and the rebuilding largely completed, Germany’s (in)famous efficiencies were no longer applied to tanks or planes or rail lines or smokestacks, but instead to export goods such as automobiles and chemicals. West German exports were highly sought after the world over, largely because they were the highest quality goods humans had ever produced.

When the Cold War came to an end, the Germans advanced from what had been the greatest era of its existence to something even better. The two Germanies reunited. Germany gained access to a dozen new oil suppliers. The former Soviet satellites to Germany’s east and southeast all joined NATO and the EU. Instead of being a front-line state, Germany was now surrounded by allies and partners who were all members of the American-secured global structure. Defense spending plummeted with the savings poured into making Germany an industrial behemoth.

Simultaneously, the rise of the euro fused the European space together under German economic leadership. Even the weakness of some of the euro’s members – most notably Italy – helped Germany. With Germany in the same currency zone as moribund economies, the price of the Euro was weaker than a purely German currency would have been. German exports no longer merely competed on quality, but also cost. A second Golden Age dawned.

It was too good to last. Since 1992 the Americans have been pulling away from maintaining the global order that is so central to German peace, success, wealth and unity.

The first hot point for the Germans in this scared new world involves the Russians. The whole idea of Bretton Woods was to fence in the Russians. If the Americans walk away from Bretton Woods, Russia is not only no longer the bugaboo, it becomes a potential partner in a never-ending multi-sided balance of power game. And nearly anytime anyone has thought of the Russians as a partner, a bit of a scrap has eventually ensued between Moscow and Berlin.

The second point involves Europe. The European Union is able to exist because the United States keeps the European countries safe from both outside powers and one another. Germany is the EU’s economic heart and Germany is an export-oriented economy, which makes every other EU state integrated into German supply chains export-dependent systems as well. Remove American security overwatch and the whole thing comes crashing down (assuming other European issues such as the euro, sovereign debt, bad banks, terminal demographics, refugees, and so on don’t tear the Union down first).

It should come as no surprise that German Chancellor Angela Merkel’s dominant emotional state these days seems to be exasperated resignation, and why the key word from her post-G7 summit communications was “depressing.” There is absolutely no way forward here that works out well for Berlin.

But inaction is not an option, and so Germany once again faces the inevitable clash between strength and fear. The Germans under the Bretton Woods regime were able to have global economic reach without corresponding military reach. Strip away that feature, and the Germans either need to massively deindustrialize so that their economy matches their current military power, or they need to massively re-arm so that their military can sustain their current economic power. In times past the first option generated the 30 Years War, the Great Depression, and the near collapse of European civilization. In times past the second option generated the Nazis, the World Wars… and the near collapse of European civilization.

Which is a roundabout way of me saying that I think the Germans will end up trying something a bit different. They don’t currently have the military required to look after their own interests, and they don’t have an economy that is sustainable without someone powerful looking out for them. What they do have is a few neighbors who find themselves in hauntingly similar situations, many of which are also tied into pre-existing and most certainly non-military German manufacturing supply chains.

Courtesy of Bretton Woods, NATO, the Soviet collapse and the euro, there is an arc of countries that have broadly the same top-level concerns as Berlin: a crumbling European system, a supply chain model dependent upon extra-European end consumption, a concern about large-scale refugee movements, a shortage of local energy resources, and above all a resurgent Russia.

  • Poland, the Czech Republic, Hungary, Slovakia check all the above.
  • Estonia, Latvia, Lithuania, Sweden, Finland and Denmark check all but the supply chain issue.
  • Belgium, the Netherlands, and Austria check all but the Russia issue.

The first two bullets suggest a Germanocentric NATO in miniature. The latter two bullets suggest a Germanocentric EU in miniature (perhaps selling military goods to the Germanocentric NATO?).

Neither is likely to last the test of time. Russia’s demographics are so horrid that it is unlikely to be a long-term problem and nothing kills an alliance like the lack of an enemy. Any revised supply chain system still needs a market, and once war-related demand fades, what then? And a Germanocentric system of any type is certain to attract the gentle crowbars of the French, British, Russian and Turkish diplomatic services within minutes of getting going.

Compared to the long dark of Germany’s past, the possibility — however impermanent — of a third way between near-pacifism and a raging war machine is a surprisingly upbeat future. Merkel has presided over the best years in German history. What’s in front of her with a bit of luck just might be brighter than the German norm.

I Think They Get It Now, Part Deux: France

Jump to other parts of this series: Intro, Germany, UK, Italy, Japan, and Canada.

French President Emmanuel Macron is a bit aggravated these days. He went out of his way to court a personal relationship with U.S. President Donald Trump with the belief that chumminess would enable him to tilt American policy decisions. Between the Iran nuclear deal, steel and aluminum tariffs, the Paris Climate Accords and now the G7 debacle, Macron has learned otherwise. Social lubricant in international politics can be important, but it rarely trumps policy and national interests. The Americans have shifted from an alliance-based to a transactional foreign policy, and a parade followed by a firm handshake and a nice dinner just isn’t strong enough currency.

So, atmospherics aside, let’s talk about the French strategic position.

The French think of the European Union as theirs, and with good reason. They are, after all, the people who made it. With the end of World War II the Austrians, Germans and Italians were occupied, the Low Countries were rebuilding from rubble, the Swedes and Swiss were neutral, the Spanish were languishing under a local despot, and all Central Europe was locked away on the other side of the Iron Curtain. The strategic competition that had dominated the past millennia of European history was on hiatus, and the French found it almost too easy to force their political will on a shattered continent. And so Paris pulled together Italy, Germany, the Netherlands, Belgium and Luxembourg to create the European Coal and Steel Community, which a dozen treaties later evolved into what we now know as the European Union.

But for the French it was never about economics. The French metropolitan territories are rich. Phenomenally productive farmland. A wealth of inhabitable climate zones. Great rivers for industry and internal transport. A population far younger and aging far more slowly than the European norm. The French economy has always been held mostly in house, and the Cold War era was no exception.

France also boasts easy access to the North Sea, Atlantic Ocean and Mediterranean Sea, giving France – and France alone – fingers in every pot that matters to Europe. France’s position near the westernmost extreme of the European Peninsula even grants it good strategic depth, even if that “depth” belongs to other countries.

French strategic isolation freed up French defense planning to focus on the far horizon, as evidenced by France’s nuclear aircraft carrier and nuclear missile force. Nearly alone among the European states, the French do not need someone to defend them. It all means that the French didn’t really see a huge attraction to the Americans’ Bretton Woods plan.

The French know full well that should the Americans walk away from Bretton Woods, the global security that enables the European Union – which is at heart a union of exporters dependent upon global access – would no longer be possible. That obviously upsets Macron, but it doesn’t overly hurt France. Just as the Americans designed the world order for strategic reasons and so never lashed their economy to Bretton Woods, the French designed the EU for strategic reasons and so never lashed their economy to Europe.

Any global breakdown, even a European breakdown, is one that France can survive without the sort of catastrophic and transformative economic, political, cultural and strategic shocks that will so ravage almost everyone else.

France also faces no meaningful strategic challenges in the near- or mid-term. It is far enough away from Russia and Turkey to avoid complications from their expansions. Its position on refugees is so hostile that few try to go there. Its neighbors are militarily inept, demographically imploding, horrifically dependent upon America’s global trade and security strategy, or in most cases, all the above. In contrast, outside of the United States and the United Kingdom, it is the French who have the longest and most active history of engaging in military interventions. French forces are capable, experienced, professional, not at all in danger of rusting on the shelves, and when they go in, they go in hard – even in places such as Sub-Saharan Africa where the Yanks fear to tread.

That more or less dictates that in a world without the Americans running things, France is by far in the best position of any country on the planet (besides the United States itself) to chart an independent course. Macron isn’t hopscotching around the world (just) because he is a megalomaniac on an ego trip. He is doing it because he represents a waking superpower, because the world that is shaping up is a world in which France will shine, because he’s laying the foundation for France to once again be an imperial power.

No wonder Macron has been so combative with Donald Trump of late. Not only does his country have the most insulation from any meaningful trade conflict, his country is by far in the best position to do well should it all fall apart.

One of the beautiful things about having a strong national system with no international dependencies or exposures means that you can choose your battles rather than having them chosen for you. France will become a free actor at heart. That makes it somewhat difficult to suss out precisely what the French will go after, but there are three themes worth considering.

First, the French have to have a German strategy. The French have fought multiple wars with the Germans over the years and most of them… have not gone particularly well. The combination of Bretton Woods and the European Union enabled France to both defang the German military and harness the German economy to serve French strategic interests. It has been a happy time, but it is nearly over – which means Paris now needs to figure out a way to either re-harness Germany, point it firmly in another direction, or both. A rumbling Russia intent on re-securing its outer periphery before demographic collapse turns it into a brittle shell provides opportunities for both options simultaneously.

Second, the French need a Western Mediterranean strategy. As the only Northern European country with a Southern European foothold, the French have a unique capacity to leverage the capital, industrial and population densities of Northern Europe into a region that doesn’t have a whole lot of capital, industry or population. (France’s most important imperial territories were in the Mediterranean basin for good reason.)

There is a great deal more opportunity than danger for the French here. Italy and Spain and Portugal may be European, but projection-based powers they are not. With the EU on the ropes and likely soon to be gone from this world, France quickly becomes first among not-even-close-to equals and will be able to use its superior capacity to shoehorn the Southern European trio into any container it wishes. France already enjoys solid relations with Morocco and Tunisia, and while French-Algerian relations are reliably testy, in a post-American world Algiers will have no reliable partners aside from their former imperial overlords. Libya even presents an opportunity for a French state-building effort which, courtesy of Libyan oil, might even pay for itself.

Success in the first two strategies requires a third strategy: that of temporary alliance. There will be conflicts of interest constantly not only with Germany and Algeria, but with countries one step removed: the United Kingdom, Turkey, Egypt, Israel, the Netherlands, Sweden, Russia, even the United States. All will maintain capacity to get in France’s face, and yet all will prove to be tactical allies based on the issue of the moment. Securing such temporary alliances is a French national specialty, but a flair for dealmaking does not mean France will be able to leverage those positions into something greater.

Projecting power beyond your home region requires reach, access, insulation and strength. France has all of those, but only enough to dominate its front and back yard, and only then with a lot of back and forth. Moving into the Eastern Mediterranean or Sub-Saharan Africa or the Middle East, much less Asia or the Western Hemisphere requires a degree of spare capacity that France simply cannot generate unless it simplifies its neighborhood.

That could take many forms. Overcoming Algerian cantankerousness and successfully burying the hatchet would make the Western Med a French pond. An entente with merry ole London would lend itself naturally to co-dominion of the North Sea. A meaningful alliance with desperate Russia or neo-imperial Turkey would put Germany so firmly into a box that it would buy France a free hand in Western Europe. A (public) understanding with those neurotic Americans would go a very long way on everything.

But all these options require the French doing something they do not do well: act reliably and in good faith. That’s not how the French tend to function. France tilts the board. France switches sides. France abandons lost causes. France ditches allies. France extracts what it can when it can however it can because the French know they won’t be involved in any particular situation for long. France is a successful player because France is a player. As the French themselves say, “France has no enemies or allies, only interests.”

That switch-hitter mentality has served the French well for centuries, and continuing to follow the only-interests mantra will indeed enable France to reclaim its position as the first power of its region. But the constant back and forth prevents France from becoming more.

It is easy for a powerful, united nation to carve out a temporary sphere of influence in a time of global upheaval. But building something bigger, something that lasts, that requires a cleared board – and that is something that France cannot do unless it has a few allies who truly trust it.

Times of international chaos are wonderful opportunities to reset cultural norms. Emmanuel Macron’s rise to power shattered the traditional French political elite, making this an opportune time to change the French mindset on what the word “alliance” means.

Let’s see what he does with it.

This Is How the World Ends, Part II

by Peter Zeihan, Melissa Taylor, and Michael N. Nayebi-Oskoui

Part I is available here.

Event 2 – Europe Guts Itself (May 10)

The way the Trump administration withdrew the United States from the Iran nuclear deal has consequences, but for the most part I’m less concerned about the local fallout than I am about the ripple effects beyond the Middle East. Let’s start in Europe.

The response from the European governing institutions to the American withdrawal from the nuclear deal can be best summed up as righteous indignation.

In part this is economic: the Europeans were fast to pour investment into Iran after the deal was codified and are not looking forward to rolling those efforts back.

In part it is political: the Europeans are signatories to the deal, working long and hard to show Europe could contribute to a strategic normalization beyond their borders. No one likes it when another country simply informs you that your efforts don’t matter to them and they are imposing their own reality upon a situation.

In part it is personal: French President Emmanuel Macron was sure he had a strong relationship with Trump, and his personal charm offensive a few weeks back was intended to sway Trump to keep the Iranian deal. Such a public rebuke has to sting.

In part it is institutional: bureaucrats are supposed to ignore politics and strategy when making policy, and the folks within the European Commission (said bureaucrats) are the ones most cheesed-off by the Americans’ dictating of Europe’s economic and security policies. Commission officials have been talking of counter-sanctions against the United States, as well as offering legal and financial guarantees to firms who still want to do business in Iran.

But the politicians are singing different tunes, not just from the bureaucrats, but from one another. Macron has, as expected, been if anything even more strident than the Commission. On the other end of the spectrum, a few Central European countries sabotaged a French effort to condemn the Americans for moving their Israeli embassy to Jerusalem – in part to stick it to the French, in part because they plan to move their own embassies.

But as seems increasingly the case, the person who matters most is German Chancellor Angela Merkel. While lamenting the end of the Iranian deal, she sees bigger forces at work than “merely” the future of the Middle East. American policy evolutions/gyrations under the Trump administration have adversely affected many, but none more so than the Germans.

Brandenburg Gate, Berlin, Germany

Germany is individually powerful, but anything it does to enhance its national power tends to spark an alliance among its neighbors to tear it down – typically in a cataclysmic war. The only way the Germans – and by extension, the Europeans – have ever found around the problem is to bring in an external security guarantor who forces everyone to be on the same side. That’s the United States.

And so Merkel has watched in increasing horror as the Americans stop treating the Europeans as allies, or even partners, but instead as competitors. The prospect of American secondary sanctions must terrify the chancellor: Germany is the world’s third-largest exporter and nearly half of German goods are traded outside of the EU on markets that are managed by the SWIFT system the Americans plan to use to box Iran in. Even a minor application of American sanctions would be catastrophic to German economic and political stability.

To that end Merkel noted two days after the Americans withdrew from the Iran deal that “it’s no longer the case that the United States will simply just protect us. Let’s face it, Europe is still in its infancy with regard to the common foreign policy.”

But while her words were a call for Europe to deepen its integration, her actions indicated something very different. If the Americans cannot be trusted to put Europe first, then the Germans have no choice but to act to prevent a broad-scale coalition from containing German interests. That means courting new allies… from beyond Europe. And so after making the comments that Europe needed to pull together, Merkel didn’t travel to Brussels. Or Paris.

She went to Moscow.

Now don’t overreact. I’m not saying that Molotov-Ribbentrop v2.0 is just around the corner. What I’m saying is that even with seven decades of the most favorable strategic environment the European continent could have ever hoped for, that a meaningful strategic and political merging of the European countries still hasn’t happened. That forces the individual powers of Europe to chart their own – individual – destinies. For the United Kingdom that means Brexit. For the Italians that means a new populist government that will veto any effort to further federalize the EU. For the French that means some serious globetrotting to build up an independent strategic position.

And for Germany it means putting some irons in the fire that have nothing to do with Europe whatsoever. That means economic and energy connections to Russia. That means at least giving Russian demands a hearing. That means taking Russian strategic interests into account as concerns the countries between Germany and Russia.

OK, maybe that does sound a bit like a Molotov-Ribbentrop redux.

Never forget that the founding concept of the EU and NATO were to keep the Americans in, the Russians out, and the Germans down. All three of those pillars are gone.

History is moving on.

Next up: The Chinese discover they have no clothes.

Bolton in a China Shop

Thursday, March 22 was a big day, but before I get into the meat, there’s a couple of items I need to do a quick update/refresh on.

On March 1st the Trump administration announced tariffs on imported aluminum and steel. In the three weeks since the Americans have granted temporary waivers for a majority of the countries that send America the two metals, most notably Canada, Mexico, and the European Union. In the case of Canada and Mexico, it was so that the tariffs could be used as a cudgel in ongoing NAFTA renegotiation talks – something that has annoyed the Canadians and Mexicans more than a bit.

The European case is a touch more involved. Within hours of Trump announcing the initial tariffs, the European Commission – that’s the EU’s administrative/executive arm – announced a wide-ranging series of counter tariffs targeting firms headquartered in the districts of the entire Congressional leadership. I got a good laugh out of this. Not only did the Commission clearly have that list drawn up well in advance, it also highlighted just how ignorant they were of U.S. politics. Foreigners punishing Nancy Pelosi’s or Mitch McConnel’s districts for something that Trump did isn’t going to earn those foreigners any favors. If anything it might have encouraged the Americans to close ranks a bit.

(What Brussels was likely aiming for here was to copy the tried-and-true American strategy of selectively targeting countries in Europe that are causing problems in trade negotiations, for example putting tariffs on French cheese when France is causing issues in agricultural trade talks. That works well. But going after folks in unrelated industries who are not responsible for trade policy just tends to piss people off.)

All in all it was a traditional bureaucratic kneejerk reaction that can only come from a keyhole view of the situation, and Trump very quickly shattered the myth of European options by tweeting out that should those counter-tariffs come into play, he would simply bar the import of European automobiles into the American market. This would hit the Europeans on two fronts. First, the Americans are at least nominally still Europe’s security guarantor and any real trade war between the two would erase any pretense of alliance at a time when Turkey has become unhinged from NATO and the Russians are on the march (security issues are not a remit of the European Commission so such never entered into their calculus). Second, fully half the German economy is trade-dependent, and some 80% of the vehicles Germany manufactures are sent abroad. Any meaningful trade war would quickly wreck Europe’s core.

One can imagine the Prussian fury that surely flowed across Europe’s phone circuits when German Chancellor Angela Merkel called up the eurocrats to tell them what they were going to do. Those eurocrats have since cooled their jets and sought talks with the Americans on how to get a waiver for the aluminum and steel sanctions. Those talks were completed last week, and the Europeans made a very interesting concession. The EU only received its (temporary) waiver on the condition that they enter into talks with the Americans on presenting a joint position on aluminum and steel versus the Chinese.

China’s steel industry is the most overbuilt and oversubsidized sector in a country that is massively overbuilt and oversubsidized. It alone is now the source of the majority of the world’s excess steel capacity and global steel exports. A TransAtlantic gang-up makes a lot of sense.

Now back to March 22.

On that day President Trump announced tariffs on a mix of $50 billion to $60 billion of Chinese exports to the United States in retaliation for a product dumping, lack of reciprocity on market access, and intellectual property theft. The whiff of a trade war between the world’s two largest economies is in the air, and the American media is apoplectic… as it tends to be whenever it discovers the president did not die in his sleep. This time more serious commentators (i.e. the stock markets) also registered their concerns with most indexes selling off sharply.

The issue is this isn’t about “merely” $60 billion in goods. The Chinese development model is based on overbuilding, subsidization, product dumping, lack of reciprocity and intellectual property theft. Any serious effort by the Americans to pare any of that back cuts to the core of Chinese economic growth, employment, Communist Party dominance and the very political stability of the entire Chinese system.

But the Chinese have little leverage here. Let’s go down the list.

  1. China is a massive exporter to the American market, but the converse is not true. In any trade conflict the Chinese get hosed economically.
  2. The Americans maintaining of the global trade order is what enables the Chinese to export to everyone else. Just as the Germans fully realize that a fight with the US on trade is one in which they have no hope, so too do the Chinese (at least at the top, at least in private).
  3. Even without the trade order, the U.S. Navy controls the oceans to an overwhelming degree. Even with recent expansions the Chinese navy is no more than 3% as powerful as the American Navy on a global basis. If a bilateral trade war were to evolve into something more shooty, the Chinese would lose nearly allexports and all imports – including some three-quarters of their oil needs.
  4. North Korea is no longer a card the Chinese can play. Pyongyang’s recklessness with its nuclear and missile program has now attracted the full attention of President Trump – a man not known for his subtlety. There are only three ways forward for North Korea at this point. The United States nukes it which eliminates China’s only “ally”. The United States rings it with missile defenses which negates China’s own strategic deterrent. Or the United States cuts a deal that both Washington and Pyongyang can live with. Option 3 is by far China’s preferred option and Beijing is (quietly) facilitating a pending summit between Trump and North Korean leader Kim Jong Un.
  5. The T-bill bomb that many have suggested is China’s supposed ace is utter rubbish. The logic is that in a real spat the Chinese, the second-largest foreign holder of U.S. government debt, could just dump some of the U.S. T-bills it holds on the market and crash the U.S. economy. That’s not how things work.
    1. You cannot just walk up to the U.S. Treasury building and demand your money back; it’s a fixed term note.
    2. Any interim sale of a T-bill to another party has to have a buyer. No buyer, no sale.
    3. China could theoretically try and sell its T-bills whenever the U.S. Treasury was trying to sell new debt and that would raise the cost of U.S. financing. But not only is the U.S. T-bill market the largest in the world so it would have to be a big sale, but what would “massive” success bring? It would push down the value of the U.S. dollar. Considering the Chinese regularly intervene in their markets to push the U.S. dollar up so that they can sell more goods into the U.S. market, it would work at cross purposes to the set of Chinese policies that make the Chinese economy possible.
    4. And of course, the U.S. Federal Reserve can simply mop up the T-bill market if it chooses by printing currency. It’s a perk of running the global currency.

It isn’t that the Chinese cannot hurt the Americans on trade, just that they can’t without also causing themselves catastrophic damage. It is an America-sneezes-China-gets-Ebola sorta thing.

Which brings us to the other news of the week. Enter John Bolton.

On March 22 U.S. President Donald Trump fired his national security advisor, General HR McMaster, a man whom many in the national security establishment have profound respect for, and replaced him with John Bolton, a man whom very few hold any respect for.

Many people might rightfully despise Bolton and all that he stands for. Critics say he has never met a country he didn’t want to bomb, a government he hasn’t wanted to overthrow, and an ally he didn’t want to intimidate. And when you look at his public statements on Iran, Iraq, Saudi Arabia, Turkey, France, Germany, the United Kingdom, Russia, China, Japan and the Koreas it is pretty easy to come to the conclusion that the dude holds some fairly strong and mean-spirited opinions. I tend to lean toward the majority view on Mr. Bolton when it comes to his policy preferences. That, and he’s a prick.

But no matter how unlikable he may be, what you can not say about Bolton is that he’s incompetent or inexperienced. If you can put politics and personality aside for a moment, Bolton is one of the most skilled diplomats the United States has ever had. He was a protégé of James Baker, arguably the best Secretary of State in modern times. He knows the ins and outs of how diplomacy – both hard scrabble and polite – works and just where to dot i’s or twist arms, send flowers or send ammunition. His most infamous innovation is that he fully embraces military options as part of the “diplomatic” toolkit, something that many diplomats are too meek or polite to say publicly, but he also excels at building ad hoc international coalitions on the fly to change international law as he did to rein in North Korean missile proliferation in the 2000s. He certainly breaks the mold that claims that diplomats have to be diplomatic.

The worldview of Donald Trump is far closer to Bolton’s heart than any other president, and it is obvious to everyone with a pulse that what Trump has been missing is someone who can translate TrumpTantrums (TM) into actual policy. For those (like me) who are frustrated with the lack of consistency in Trump’s actions, this could be a positive sign. For those terrified (like me) of all the implications of some of Trump’s positions, this could be horrible.

I don’t want to overplay this. The position of the National Security Advisor has exactly as much power as the president chooses to delegate. Some – like Condoleezza Rice and Henry Kissinger – had massive reach, while others – Susan Rice comes to mind – were barely in charge of their own stationery. But whether Bolton is large and in charge or simply tickles the part of Trump’s psyche that loves disorder while holding the door open so the bull can ravage the China shop, John Bolton may be just what Trump needs to translate his foreign policy goals into hard reality.

And the Chinese know it.

Consider the timing of events last Thursday. First, Trump announces his tariffs on China. Second, Chinese media explodes with vitriol and threats of retaliation. Third, the Europeans cut their deal with Trump to avoid the aluminum and steel tariffs should they join Trump’s efforts against China. Fourth, it is confirmed that Bolton will replace McMaster as Trump’s new National Security Advisor. Fifth, the Chinese government forces Chinese financial houses to massively intervene in Chinese stock markets to prevent a rout of epic proportions.

Beijing knows exactly what’s going on here.

If this is real, if Trump means to break the Chinese position (and maybe even the Chinese system’s back), then Bolton is a solid choice and tariffs are a good knife and Bolton will repeatedly use that knife in ways too effective and cruel for me to opine about at present.

Finally, a parting thought:

Trump is not a freshman president anymore. Might he be finding his feet? He seems to be linking issues and personnel and approaches together into a kind-sorta unified theme. If I didn’t know better, I’d say that Trump just might be in the process of getting a handle on this foreign policy thing.

It’s Time to Start Worrying About Europe (Again)

In the past yearish, the Brits have voted themselves out of the Union, Italy’s banking system has started to melt down, the Russians are on the march, the French right and left more or less dissolved, the Americans have unofficially pulled out of NATO, and now we’ve had the German general elections.

There has been hope among many that with the Trump administration removing itself from being the guarantors of the global order, that Frau Merkel would become the new leader of the free world. That hope died last night.

Merkel’s center-right Christian Democrat alliance did come in first, but both they and their coalition partners – the center-left Social Democrats – racked up their worst showings since 1949 according to official preliminary results. The pro-Soviet (not a typo) Left Party remains in Bundestag, while the neo-neo-Nazi Alternative For Germany has entered as well (its rise is partially responsible for the mainstream parties’ poor showing). With the Social Democrats refusing to consider renewing the coalition government, Merkel’s only option is an unprecedented three-way alignment with the Greens and the pro-business Free Democrats, who are nearly diametrically opposed on issues ranging from Brexit to bailouts to Ukraine to the military to NATO to the environment to refugees (i.e. every issue of note that has mattered to Germans in the past four years).

The labor required to assemble a new government out of such pieces will only be eclipsed by the labor required to maintain it.

So yes, Merkel will remain the German chancellor, but any room she had to maneuver domestically has vanished.

Then there’s the “free world” bit. What has long enabled that free world to exist is the post-WWII American security over watch which allowed countries of all sizes to escape the fear of their bigger neighbors. The Americans outlawed war among the participating members of the international system, and for the first time in world history imposed security upon the global commons so that anyone could purchase any resource from anywhere as well as export any product (most notably to the open, ravenous U.S. market). That requires a global military presence – and since the United States Navy is the only one that can patrol the oceans, there simply is no option of a replacement. Germany’s navy isn’t even one of the top five in the Baltic Sea. It isn’t regionally deployable in any meaningful sense, much less globally.

And while I personally find it mildly amusing that anyone thinks a country that is a massive net exporter can lead Europe in the first place, Merkel’s bandwidth to do so has more or less evaporated. So now the Europeans have to figure out how to manage issues as diverse as the Syrian refugee crisis, Russian encroachment onto Europe’s eastern periphery, democratic devolutions in Poland and Hungary, civilizational collapse in Greece, Turkey’s increasing belligerence, and financial collapse in Italy not just without the Brits, NATO or the Americans, but in all likelihood without all that much input from Merkel as well.

Gathering Strength

Elections are funny things. They are the culmination and distillation of forces economic, political, military, technocratic, social, racial, ethnic, linguistic and cultural. Elections are the small bites that the media loves because they’re easily digestible data points, plus the dates are announced ahead of time. After the Brexit and Trump surprises of last year, election-chasing has become the new sexy. Think of the global cheers when Le Pen lost in France. Or the consternation when Turkey’s constitutional reforms went through. Or the sighs of relief when the Dutch and Austrian elections didn’t result in victories for neo-Nazis.

Drawing conclusions can be difficult. Of the endless minutiae that factor in, voters ultimately have to select from a less than subtle palette of choices. Making sense of it all is as difficult for the outside observer as it is for the voter. Generating predictions in such conditions are, in a word, problematic.

I’ve kicked out three big election calls for 2017, and all are in need of updates.

The Germans

If the polls hold at where they’ve been for the past nine months, Angela Merkel will earn her fourth term as chancellor this autumn. Her primary opposition (which just happens to double as her current coalition partner) has hemorrhaged nearly its entire leadership cadre in recent years and ruling with Merkel’s Christian Democrats has contaminated them in the eyes of most center-left voters. Such disenchantment, however, hasn’t really benefited Germany’s other two leftish parties, leaving Merkel & Co. with a commanding lead. Considering all the crises that continue to batter the European system, having Merkel’s deep expertise and calm demeanor at the heart of all things European remain the Continent’s most positive and reliable feature.

The Brits

Tory leader and Prime Minister Theresa May called snap elections this spring, and to many (me included) it appeared her Conservatives were poised for an epic routing of their opposition.

Didn’t happen. Come election day (June 8) the Conservatives stumbled, losing their majority and only being able to continue ruling because of assistance from the DUP (think: Orange). Many might remember the Ulster Unionist Party (UUP), the pro-British Protestant party that dominated Northern Ireland during the Troubles. The DUP are to the right of the UUP, who incidentally lost their two seats in parliament during the snap election. The party’s supporters are among the most pro-Brexit, pro-life, pro-British, anti-gay, anti-immigrant, socially conservative and Eurosceptic parties not only in Northern Ireland but throughout the UK. And these are the people Theresa May (and her more moderate, center-right party) will have to court in order to stay in power.

Two things changed. First, the Conservatives made a series of policy-release gaffs, denting their credibility as the only adults in the British political system. The Tories made deep inroads against the Scottish Nationals, focusing on putting the Scottish independence issue to bed for now, but it cost them against a massively underestimated Labour party.

Second, British Labour is no longer of the center-left. Jeremy Corbyn, often lampooned as the “British Bernie Sanders,” ran a sophisticated and successful campaign that even included a law & order platform heavy on the sort of pro-security spending and rhetoric that are the hallmark of not just the Right, but the hard right. The shift provided Labour its best showing in a decade, especially as younger, urban voters came out in higher numbers than expected.

May’s government’s top task will be to negotiate the country’s exit from the European Union with nothing resembling a mandate. Odds are a hard crash out of the EU that will generate a multi-year recession – and that’s the positive case. The less-positive case involves May’s government falling to its mildly-rebellious front bench or to the whims of a chaotic and hostile Labour opposition.

France

La Republic En Marche! didn’t even exist as a party 14 months ago, and after the June parliamentary polls its coalition now holds a commanding majority of 350 in the French parliament. The hard-right National Front quadrupled its representation, but only to 8. The real story is the absolute gutting of the conservative Republican-led alliance down to 137. The Socialist-led alliance lost the most, dropping to 44, following steady gains that began in 2004.

The question is what does this mean for the Fifth Republic. En Marche! is new. Most of its legislators have never held public office. The same holds for the party’s leader and France’s new president, Emmanuel Macron.

Here’s France’s problem:

The economy has been moribund since the 1970’s and consistently fails to preform to snuff. The primary obstacles are cultural and regulatory: the post-WWII social welfare model has put down remarkably deep roots in France, leading the French to value government services and quality of life over the sort of activity that tends to generate taxes and… well, high quality of life. The result is a combination of ennui and rage that government isn’t doing more (sound familiar?).

The issue has gotten so bad as to contaminate France’s foreign relations with its most important partner: Germany. French governments have consistently demanded that the EU subsidize all things French with German money, as well as to use more German money to pay for whatever ails the broader European system. The Germans have politely, if firmly, declined to do so. Macron realizes and acknowledges that until such time as France can repair its own house, calling upon the Germans to fork out more for Europe just isn’t going to happen.

With a commanding majority, Macron and En Marche! will attempt to force the sort of economic, cultural and social overhaul that the last several French governments have tried and failed to do. Succeed or fail, expect strikes of a scale that France has not seen in decades (which is saying something).

If Macron is successful, then he will carry the case to Berlin that the Germans need to dig deep to pay for the federalization of the European Union. That means a common budget, common government debt, and some sort of sharing of existing liabilities. For Marcon’s case to get any hearing, his reforms at home must be far more painful than anything any French government has enacted since Napoleon.

So what does it all mean?

The common thread here is centralization.

Merkel is slowly, steadily, quietly, drawing power within the German and European system. Politically, it is to marginalize her opponents at home and abroad. Strategically, it is to prepare for a world with a more active Russia and Turkey and a less active America.

May has to wield her minority government as if she had a crushing majority. The only way to do that is to strengthen state institutions so that whoever holds them has an outsized influence in all things British. Somewhat ironically, Jeremy Corbyn’s shift to the hard right will make it easier for the moderate right to do just that.

While Marcon has the best political tools of the three, he is also attempting the most dramatic transformation: attempting nothing less than a complete overhaul of French policies and economic system. That will require the government forcing its will on an often unruly population who has the tendency to vote “No! What was the question?”

The centralization theme isn’t exactly coming out of the blue.

The world has felt more chaotic of late as the problems we face are getting larger and the tools we have used to respond for so long no longer work. Europe has had a migration problem but the tools needed to manage it are overwhelmed. The financial crisis left much of the world scrambling to get back to where they were a decade ago. But most importantly, the organizing principles of the world Order have been flaking at the edges. Governments the world over are starting to feel the cold as the Disorder sets in.

The rapid changes on the horizon require agile, quick decision making and implementation. These are anathema to many of the multiparty, parliamentary systems that dominate Europe. Germany, Italy and Spain in particular are amalgamations of smaller competing statelets that have been cobbled together over centuries – they’re not designed to allow the central government to implement changes easily. It is hardly a problem the Europeans have a monopoly on: Canada functions as ten countries in one – with all the complications that holds for policy. Brazil is confederal, while Japan struggles with a deep state that resists change in all its myriad forms. India is less a country and more a geographic expression akin to the Holy Roman Empire.

So countries are consolidating. Britain is preparing for a bruising Brexit. Japan has built its largest carriers since WWII and their constitution doesn’t even allow them to have a wartime military. The European Commission is desperate for a roadmap to demonstrate the end of the EU is not nigh. The Indian government is hoping to obliterate the opposition Congress Party as a political force so it can rule unfettered. China’s preparing for political lockdown at its autumn party gathering. Russia’s implementing Snowden-stolen social monitoring techniques at the speed of thought. France aims for a root-to-branch consolidation that guts parties and unions (most of us call these pillars of civil society). Turkey, Hungary and Poland are implementing personality cults. Liberal heartthrob Justin Trudeau wants to nearly double Canadian defense spending (yes, that Canada). Angela Merkel – brilliant, measured, and often boring – is openly discussing Germany’s need to secure its own defenses (and if that doesn’t terrify Europe as much as it titillates Putin, I don’t know what will).

As weird as it sounds, the United States is – so far at least – the exception. Donald Trump’s consolidation moves are typical for any freshman leader, not someone eyeing a storm on the horizon. Funny enough, it took Trump’s Twitter account to make the rest of the world look up.

Read The Absent Superpower for more on why each of these countries is – or isn’t – likely to succeed.

Some Inconvenient Truths

U.S. President Donald Trump pulled the United States out of the 2016 Paris Climate Accord June 1. In the past 24 hours the media has been, in a word, lively. Trump’s decision was an appeal to a base that has hungered for these kinds of dramatic, headline grabbing actions – and the media has not failed in providing the “liberal clamoring” that so energizes Trump’s supporters.

Let’s get my personal politics out of the way. I’m a Green. I’ve got solar panels on my house. I recycle. I drive a Prius. I backpack the Rockies in the summer. I would have handled the Paris Agreement differently, but I certainly agreed with its tenor and thrust. I’m part of the whole “Science is Real” movement because of, you know, the Enlightenment.

I’m not a normal Green, however, because of, you know, the Enlightenment. I can do math. And that means that I’m pretty good at looking into the guts of a topic and sussing out facts and trends that supporters of this or that movement or ideology often find unsettling. Climate change in general and the Paris Agreement in specific are no exception.

As a Green, it might be uncomfortable to admit but the reality is that the market is driving green technology development and application in most economies, especially the United States. If you agree with former President Obama’s statement that cities, states and businesses (i.e. the engines of the US economy) are picking up the mantle of leading on responsible climate action, then the market will ultimately decide how well and how long countries adhere to “green” behaviors.

The real inconvenient truth for those condemning Trump for the Paris withdrawal revolves around fossil fuels. They certainly have problems, but fossil fuels don’t all pollute equally. The new combined cycle natural gas burning power plants that have been going up in recent years have but half of the emissions of coal, and because natural gas is either a waste product out of the shale fields or can now be produced at roughly $2 per 1000 cubic feet (less than half the forty-year average), it is wiping coal from the board. Most Greens hate natural gas because it is cost-competitive with pretty much everything – especially alternatives – but the bottom line is because of shale natural gas the United States is going to meet its Paris commitments regardless of what happens to the agreement itself. With or without Obama, with or without Trump, with or without the EPA, and largely with or without alternative energy sources.

Alternatives just are not ready to take over baseload capacity, and until that happens we are stuck with fossil fuels. Despite the rise in effectiveness in and demand for solar and wind technologies, another inconvenient truth is that peak daily demand for power in most places is just after sunset, while peak seasonal demand in most places is after sunset in the winter. That desperately degrades the solar argument anywhere that has high solar variation between summer and winter (like most developed countries). I, however, live in Texas – a sunny location where peak supply and demand line up almost perfectly.

Between cost and recharge cycle restrictions and safety, battery technology needs at least another decade to work out the kinks before it can really start to square the supply/demand circle. In the meantime, it isn’t as if lithium extraction is the most environmentally sound practice; if you like lithium batteries and electric cars in their current incarnation, you have to love strip mining. And always keep in mind that many of the components of your standard cars are recyclable or reusable, but your Tesla’s fuel cells – or at present any lithium car battery – are definitely not.

Which brings us back to the Paris deal.

It’s unclear what Trump’s withdrawal from the Paris accords will have on climate change, because it’s unclear what a non-binding agreement like Paris could do in the first place. Critics of the U.S. withdrawal who note the U.S. is joining the ranks of Syria and Nicaragua are inadvertently making the point for me: there’s no way a non-binding deal that has members as diverse as Vanuatu, Germany, Brazil, India and Congo is going to be entered into and applied equally across the board. That even the big oil companies – the traditional bugbears of environmentalist nightmares – are on board with the Paris deal shows both how toothless it is but also how much industry has already shifted toward reaching the emissions aims it sets out. And to do so with or without a deal.

I’ve found it particularly entertaining that many seem to be cozying up to China. CNN went so far to publish a story titled “Has Donald Trump Given the World to China on a Silver Platter?” China being the country that has added more soft coal burning capacity than the rest of the world combined during the past decade. Germany is also often feted as the future of Green politics – despite continually moving away from cleaner fuels like natural gas and nuclear in favor of lignite coal. Yes, Germany has installed loads of solar power capacity, but because the sun does not actually shine in Germany all those panels are in essence giant paperweights. U.S. per capita emissions have been collapsing since shale kicked in; China’s have tripled since 1990. Despite Germany’s PR sparkle, their emissions reductions have far more to do with demographic decline than alternative energy. In fact, German emissions reductions have actually slowed since they started their solar buildout.

The booming noise of 10,000 pundits and analysts in what has become standard media covfefe misses the forest for the trees. Trump isn’t just the poster child for an obnoxious new form of politics, but also for a far deeper geopolitical shift that is already past the point of no return. The question is not if China will lead on climate change, or whether France or Germany will pick up the mantle of Leader of the Free World, but the most critical inconvenient truth is that the era of unipolar global leadership is slipping away from us.

Love or hate the United States, love or hate the global order, the United States created and maintained that order to serve its Cold War interests. The Cold War is long gone, and now the U.S. – quite belatedly I might add – is letting the order go. We are no longer living in an age where the U.S. has the will or ability to continue being the lead on everything, everywhere, all the time.

We’re all gaining insight and empathy into the minds of carriage makers in the face of rising automobile production, or whale oil traders at the dawn of the kerosene era. Everything we know for the past 70 years is predicated upon American-instilled international stability. That’s the European Union. That’s the Communist Party of China. That’s Brazilian soy production. That’s Toyota. That’s the iPhone supply chain. That’s even the Paris Accord. None of them can function without the American-maintained Order. We don’t know how to function during such a fundamental paradigm shift.

The end of the Paris Agreement has triggered the ultimate in rear-view-mirror longing. It’s a waste of time to mourn a nostalgic view of what America’s role in the world once was. Our effort would be far better spent preparing for the Disorder to come.

The Left Leaves

A terror attack in the United Kingdom May 23 killed at least 22, and injured dozens more. As the attack targeted a youth pop concert, a high proportion of the deaths were among children and teenagers. United Kingdom Prime Minister Theresa May immediately cancelled all her ruling Tory Party’s campaign events — national elections are June 8 — so her government could focus on the crisis. The country’s other parties quickly followed suit.

As of yesterday, the Tories had this election locked up to the degree that a generational shift in UK politics was in the offing. If the polls are accurate, the Tories would have eaten deeply into the holdings of other parties not just in England, but in Wales and Scotland as well. Ongoing Brexit talks have justified and energized the Brits separate-and-superior mindset, and Theresa May has been using that energy to reshape the UK political space. That means, among other things, the British Labour party moving into the political wilderness, the de facto absorption of the anti-EU UK Independence party into the Tories, the Liberal Democrats’ return to the fringes of British power, and the evisceration of the Scottish National Party’s stronghold on Scottish politics and an end (for now) of talk of Scottish independence.

That was before the attack.

Between the rally-round-the-flag effect of terror attacks and the fact that the ruling Tories are the law-and-order party, the UK is now on the cusp of a complete overhaul. Barring some truly unprecedented revelations that bring down May and the entirety of the Conservative leadership, the Tories will walk away from the June elections with the strongest showing of perhaps the last century. In the election’s wake, Labour will not simply be weak, it will be gone and it is unlikely to come back in a meaningful way.

What’s going on in the United Kingdom is hardly unique; Center-left parties are collapsing across the developed world. It is a symptom of a wider change in the way we all live.

Contemporary political systems are an outgrowth of the economic structures established by the industrial revolutions of the 18th and 19th centuries.

Before those economic revolutions the world was a constellation of fairly small places. Low-output per hour of work in agriculture forced most of the population to be farmers. Life before semis and railroads and globalized supply chains meant that foodstuffs needed to be lugged around by horse and backpack. Cities — places where you could not grow your own food — were small as well as, well, revolting. Cram a bunch of people in a small space with no running water or plumbing, make them dependent upon food that has to be carried in from somewhere else, and things get gross and violent pretty quickly. In such a world, there weren’t a lot of mass-mobilization politics. Either you were a landowner or other flavor of aristocrat who ruled, or you were a pleb who didn’t get a vote.

The First Industrial Revolution of roughly 1760 to 1820 upended that system. The introduction of mechanized energy such as steam engines enabled us to shift from producing goods by hands to producing them with machines. Such mass outputs increased worker efficiency while concentrating the geography of production. The result was mass urbanization and mass worker concentration. Within a few decades these economic evolutions shifted the balances of power. The “Left” catered to those who provided the labor in the new order, while the “Right” represented those who controlled the land and capital. There are many different ways to categories the Left and the Right, but the transition to industrialization is where the political cleavages in the modern world started, and have remained the most powerful delineating factor in Western politics ever since.

Plenty of folks vested in the pre-industrial order fought tooth and nail against the emerging political landscape, but they faced two insurmountable challenges. First, the winds of history were blowing and you cannot un-invent technology without removing the bedrock of the civilization that supports it (i.e. devolution into anarchy). As the new Lefters and Righters gained power, these older groups fought back. Political instability and even revolutions were the rules of the day. And even when the old-order folks won, its isn’t like their areas suddenly de-industrialized. New challenges arose the very next day until all the old world was swept away.

Second, there was a new country on the scene that had the gall to let the people decide who would be in charge. Those pesky Americans devised a political system — democracy — that was (quite accidentally) able to reshape itself, contain and ultimately harness the new economic-political lines of identification. Democracy quickly became a way to accelerate the shift from the old world of aristocrats, plutocrats and royals to a newer system with a deep economic rationale that enjoyed broader support.

The Second Industrial Revolution of 1860 to 1945 was the equivalent of rocket fuel in a station wagon. Machine tools gave way to assembly lines. Coal gave way to diesel and gasoline. Railways, telegraphs and ocean-going fuel-burning cargo ships took over global commerce. Many of the new developments — in transport, medicine and sanitation — were expressly designed to counter some of the more disgusting aspects of early industrialization. Antibiotics, sewers, electricity and new distribution techs didn’t just make cities bigger, but also removed some of the features that made them death traps when compared to the countryside — accelerating urbanization. The countryside, where Left-Right classifications weren’t entirely appropriate, became systematically less important as populations en masse shifted into the urban worker-capital categories.

This broad system of political alignment then held until about ten years ago.

The financial crisis of 2008 was a watershed because it seized up traditional capital markets. That disruption damaged everything that the economic structures of the industrial revolution sustained: life-long careers (and even jobs), labor unions, traditional manufacturing, employment patterns…and the Left-Right split that represented all those things in the political arena. The 2008 crisis occurred just as computerization was really hitting its stride, and the link between capital and capital-owners has blurred. Unequally distributed wealth isn’t the point — it is that capital is no longer linked at the hip to organized industry. Capital is now free-flowing. It goes to any place in any industry in any volume based on what looks promising.

That is exciting, but it is also disruptive. Less Walmart, more Amazon. Fewer assembly lines, more 3D printing machine shops. Fewer accountants, more TurboTax. Fewer unions, more Uber. Fewer financial firms and more AI-driven stock trading. Fewer supermajors and more tiny firms using infotech to wrestle oil out of shale formations. Fewer landlines and all the labor and mammoth companies that go along with them, more iPhones that just require the odd cell tower. We are now in a Digital Revolution that is redefining the relationship between labor and capital. Sure, it means that you can do more with less and have fancy gadgets, but it also means that anyone who had a stake in the old system — whether a line worker or a bank teller or a secretary or a stock broker or a roughneck — has to abandon not just their job, but their career. And that has political consequences.

The new technologies are far less labor intensive — meaning fewer workers. The new technologies have far lower barriers to entry, so there is no monolithic employer — meaning no unions to support, and no employer to bargain with or fight against. The traditional “Left” just doesn’t fit in the world rapidly unfolding, and so it is collapsing. Everywhere.

  • In the United States the populist uprising that elected Donald Trump is a textbook case of how economic evolution shapes political choice. Line workers — even union workers — deserted the Democrats en masse for Trump. What’s left of the Democrats — and they’ve lost over 1000 elected positions at state and national level since 2008 — is now incapable of taking any stance save a general opposition to all things Trump. That’s not enough to hold, and they face a generational wipeout in the 2018 by-elections that is likely to hand the Republicans their strongest Congressional majority in decades.
  • French presidential elections in May eradicated the ruling Socialists. Their candidate didn’t only not make it to the second voting round, he only garnered an 6% share of the first-round vote. Parliamentary elections in June may well reduce them from the dominant party in the National Assembly to the fourth-largest.
  • The European financial crisis has gutted the political stability of Europe’s peripheral countries. Greece is ruled by the nationalist-communists. Italy will likely have a comedian as prime minister by year’s-end. The Spanish Left is being displaced by a party that takes its developmental cues from Greece.
  • In Israel the economic shift has been so holistic that it has nearly banished the Israeli Labor party — the party that founded Israel — from the Knesset.

The only significant country where the Left is holding any ground is Germany, a country artificially re-constructed after World War II to have a very specific — and durable — political system. And even there the Social Democrats are on course to lose their fourth consecutive election this fall. (Yes, the center-left actually rules Canada — the only place of note that it still does. but Canada both lives in strategic nirvana and is disastrously complicated from a domestic political organizational point of view so I’d not draw too many lessons from the Great White North.)

What’s left of the economic Left is being subsumed by populism, a movement that broadly speaking is unhappy with the current state of affairs, thinks that everyone is out to get them, wants change, wants it now, and wants to use a mass government overhaul in order to force the issue (in the 1930s we would have called this national-socialism). Populism has managed to capture much of the Left’s thunder in a wide variety of countries including — but hardly limited to — Hungary, Poland, Austria, Finland, Israel, France, Italy, the Netherlands and Turkey. Yes, Trump is a symptom of the Populist rise. But so too are Bernie Sanders and Elizabeth Warren. (There are many types of populists. None have ever ended up delivering what they promise.)

It is tempting to say that politics is cyclical and the Left will recover, or that it botched the chance to rule in the past two decades and it just needs a little time in the wilderness to reconnect to its roots, or that the Left can embrace other issues like identity politics and social issues to reinvigorate itself. But that misses the point. The economic Left has lost power everywhere. The grab bag that remains is important and will obviously color political and social evolutions, but it cannot define the era. Such awkward coalitions can garner votes, but not in the quantities sufficient to govern. The term “Left” itself may be appropriated by new and varied causes — the most likely is to support the coalition of those devastated by Apple, Amazon, Uber and the rest — but those are not workers, but instead the opposite. The rubric that has defined the Left for nearly two centuries is gone.

And before those of you on the Right get too excited, just because the Left disappears doesn’t mean the Right wins. The Left is not alone in dissolving into the Digital Revolution. The Right as we understand the term is finished too. Trump won by running against the Republicans. May is in charge in the UK because the traditional Right collapsed in the Brexit vote. France’s Right is in just as much trouble as the French Socialists. The Right parties of Poland, Israel, Austria and Japan are now more nationalist and/or populist than that the classical Right in the labor-capital divide.

It is about to get a whole lot worse. As the global demographic flips into mass retirement around 2022, the availability of capital that has made the Digital Revolution so broad and deep will drastically shrink. Currently, changes in capital allocation are breaking down our “normal” Left-Right political systems, but the Digital Revolution’s advances at least maintaining an economic structure. Remove all the capital that makes the Digital Revolution possible and we’re in for a world of hurt…with populism the only political movement that has traction.

The last time our economic-political systems faced this much evolution and upheaval, the disruption lasted over a century and culminated in the world wars. The issue is that you can’t have normal political parties unless you have a grand vision, and you can’t form a grand vision unless you understand the rules of the game. As the developed world moves into a post-industrial economic system — and one in which the global population structure shifts from young, working tax-payers to retirees — we don’t know what those rules are. And until we do, we cannot begin process of exploring how to rule ourselves.

France Dodges a Bullet…By Catching a Bullet

The results are in:

Emmanuel Macron defeated Marine Le Pen of the National Front by 66% to 34%, making him the youngest president in French history.

Many were worried about the implications of a Le Pen presidency as the right-wing, pseudo-racist, anti-European populist has called bluntly for an immigration ban, a withdrawal from the euro and EU, the severing of most economic connections with the wider world, and a general break with the whole French system since World War II.

But while there were admittedly a couple of big gulp moments during the campaign, I wasn’t ever really that worried about such an outcome. France’s pro-European instincts are still pretty strong, and the French political center is robust as well. As soon as it became apparent that the center-right wasn’t going to go down the rabbit-hole, I was pretty sure that Le Pen didn’t have a serious chance. The bullet would be dodged.

Which isn’t the same as me saying that all is good in the state of France.

Just because the center remains strong in the French electorate doesn’t mean it remains strong in the French political system. In the first of France’s presidential election’s two rounds, the two parties that have ruled France since the formation of the Fifth Republic only scraped together 26% of the vote between them. And Marine Le Pen increased her father’s share of the vote – when he made the second round a decade ago – by half.

So should the French be congratulated, even celebrated, for their election results? Sure. But let’s not get ahead of ourselves. All the trends in play that enabled the National Front to so hugely improve its vote take remain fully in force, and all will push France in a much darker direction in the months and years to come.

Automation at home and abroad continues to erode the earning power and job prospects of French workers. So long as the global trade system and EU survive, the French system’s lack of competitiveness continues to hollow out the French economy. France’s vulnerability to energy shocks continues to deepen.
Europe’s sovereign debt crisis is loads worse than it was in 2007, and continues to sap economic activity in France’s Spanish and Italian neighbors. Inward immigration from France’s colonial legacies continues to flow as those former colonies face issues of systemic collapse. Germany remains shielded from the worst of most of this, and so long as it is the heart of the EU not just geographically, but also economically, financially and politically it will continue to ascend at France’s expense. France is trapped in a system it cannot control and that system is in terminal decline. I’d be scared and angry too.

And let’s not understate the challenge the new president faces. The entirety – yes, the entirety – of the parliament is made up of parties that were just wholly discredited on the national scene. The new president doesn’t have a single legislator in office. The comparison is imperfect, but can you imagine if Donald Trump ran on a third-party ticket to become president? How do you think the Democrats and Republicans would treat his priorities when they hold all the legislative cards?

Sure Macron can try to capture the French imagination (and some seats) in the June parliamentary elections, but so too can Le Pen. And now that one-third of the French electorate has broken the seal and voted for the National Front, it is highly likely that Le Pen’s (massively) more organized and institutionalized party will do just as well as Macron’s neophyte on-a-shoestring En Marche. When we get to the next presidential election, France is likely to have a president with few successes, an ossified and discredited center-left and center-right, and a National Front that has racked up dozens of electoral successes in both national and regional bodies.

Doesn’t take a pessimist to guess how that will turn out.

Part II: The End of Europe

EU’s institutions are rearranging the Titanic’s deck chairs during a Godzilla attack with a tsunami on the horizon.

President Donald Trump entertained his first foreign dignitary Friday, January 27: UK Prime Minister Theresa May. The primary outcome of their trip? The two pledged to work towards the formalization of a “quick trade deal.”

This takes us all kinds of interesting places.

First, from a strategic point of view anything that binds the United Kingdom closer to the United States is phenomenal for U.S. power. Britain maintains the world’s third-most powerful navy, and soon will float the only functional supercarriers in the world not in the U.S. fleets. London is the world’s second-largest financial hub, and the chief route out for capital fleeing Continental Europe. London has centuries of bred-in experience manipulating political and economic systems the world over. Add in a wealth of preexisting bilateral political, economic and cultural ties, and if there is one country that is a natural complement to American power projection, it is Britain.

Second, the EU is spotlighting the path to its own end with a bizarre sort of enthusiasm. Technically, the May-Trump summit is illegal; under EU law only the European Commission — the EU’s executive — can engage in trade talks on behalf of its members, and the UK’s exit negotiations haven’t yet begun. Just to be sure that the Europeans know that this isn’t an accidental oversight, May has also announced the commencement of trade talks with Canada, Australia, New Zealand, Turkey and India.

 

 

The Commission and EU Parliament are bubbling with fury about how this won’t be allowed to stand, will poison the UK’s pending Brexit talks with the EU, and that Britain will be punished for it. But considering May has indicated that she prefers simply walking away from the EU to any sort of divorce deal that doesn’t serve London’s interest, the EU is absolutely bereft of leverage.

If there was an issue that could prove that the EU had some flexibility, a flat-out Brexit negotiation was it. It will be a negotiation that is predominantly economic in which the EU has lots of leverage and for which the EU has lots of options to choose from. This should be easy.

Guess not.

Such obstinacy pretty much dooms the EU in its grappling with its far larger problems: the EU faces a demographic implosion, a sovereign debt crisis that only increases by the year, anemic-at-best economic growth, a rising banking crisis, an aggressive Russia, an increasingly belligerent Turkey, waves of refugees as Mideast countries crumble, and so on. Rather that start reimagining the Union or getting on with the very real work ahead, the EU’s institutions are doing the equivalent of rearranging the Titanic’s deck chairs during a Godzilla attack with a tsunami on the horizon. Britain is already moving on, yet it looks like Brexit will consume all the EU’s emotional bandwidth for months (years?). Such ossification makes it scarily easy to predict how this will all go: everything that happens in the EU is now an institutional crisis.

Third, after decades of Continental military downsizing, the UK and U.S. are Europe’s security policy. May still went through the motions of pledging her support for NATO, which literally earned no more than a curt nod from the new American president — a man that, since his election, has made no secret of his belief that the alliance is already over. So long as Europe cannot come to terms with Brexit, it is a mighty reach to assume that the UK will continue going to bat with Trump for the sake of the Continent. Expect American drawdowns of its warfighting capabilities in Europe to begin in the not-too-distant future. The only question now is whether this is done in league with evolutions in U.S.-Russian relations or not.

 

 

Where does this leave Europe? Trump probably put it best by calling the EU a “vehicle for Germany.” That may sound harsh. After all, the EU is nothing if not a constant multi-lateral tug of war among all the EU’s 28 members. But consider what’s happened in the past year: The Brits are leaving. NATO is all-but-gone. There’s political stall — if not outright breakdown — in Italy, Spain, Austria, Belgium and the Netherlands. Poland and Hungary are wallowing in their moves away from democracy. Like it or not, planned or not, Germany is the center that holds.

And a quick glance through history indicates that a German center to Europe never holds for long.