March Round Up
I don’t know how your March went, but it turns out the latest global crisis was one too many global crises for me to process. To borrow a cycling term, I “cracked,” which in cycling refers to someone “losing their legs,” so they can no longer match a competitive pace and get left behind. It typically happens on mountain stages with insanely steep climbs that bring cyclists to their physical and emotional limits. (If you’re curious, this video shows elite cyclist Cadel Evans cracking on a brutal climb in the 2010 Tour de France.)
So, I’ve been mostly avoiding the news, analyses, substack posts, newsletters, twitter posts, etc. And I’ve had trouble getting myself to write anything.
By the way, this feels extremely great and healthy, and I strongly recommend it from time to time.
One thing that’s helped is rewatching some older, lighter movies, like Office Space, a movie that has become even more relevant today on account of the massive corporate hyper-consolidation of the last twenty years. The opening traffic jam sequence is especially salient given the current push by that same corporate world to end the remote revolution and bring people back to the cubicles.
I did a manage to read a few excellent and more “serious” articles over the last month
A couple articles I couldn’t resist reading were about the end of globalization, as well as the free market fundamentalist ideology that’s been propping it up for forty years.
What’s really interesting to me is there’s now serious criticism hitting from both the progressive left and an insurgent group on the right. Those in the middle of both parties—who are now working overtime to hold the pro-corporate, pro-monopoly, pro-free trade status quo together—are now officially dead-enders. They will either lose their power or change their views. And quickly.
The End of Globalism
Taking the progressive side, this article by Robert Kuttner at The American Prospect is about how our current system of globalization was actually the third version in a century—and how the Russian invasion of Ukraine has officially shattered the illusion that laissez-faire cross border capital flows, reliance on cheap overseas labor working in abhorrent conditions (which is where low prices come from), and economic interdependence can magically make the world peaceful.
World War I not only killed 20 million people and the era of prewar prosperity. It irrevocably put an end to Globalization I. The catastrophic 1919 Treaty of Versailles failed to resurrect global commerce and finance in a sustainable way.
There followed two other brands of globalization. After World War II, the Bretton Woods system created a managed form of global trade, in which countries had plenty of policy space to pursue full employment, creation of welfare states, and economic planning. Globalization II coexisted with a Cold War, in which the Soviets had no economic contact with the West.
But as capitalists recovered their normal political influence in a capitalist system, this bout of shared prosperity and mixed economy gave way to Globalization III—the attempt to resurrect something like laissez-faire. Tariffs were cut, regulations reduced, and global deals promoted by domestic policy shifts and World Trade Organization rules.
Meanwhile, the Cold War ended. Russia and China each displayed variations on dictatorship combined with elements of capitalism.
Russia’s was built heavily on exports of oil and gas, blending corrupt klepto-capitalism with deals with new Western partners. China’s was more productive, combining extensive state subsidies with market exports, and even more deals with Western corporations and banks.
Both violated supposed Western norms about both capitalism and democracy. But Western capitalists and their allies in government didn’t mind, because there was so much money to be made.
Searching for Capitalism in the Wreckage of Globalization
For a critique from the conservative angle, this piece by Oren Cass at American Compass is an excellent read. He discusses his own journey from free market orthodoxy to economic reality, and shows quite clearly how truly devastating that orthodoxy has been to both the American economy and the American worker.
What are we going to do about China? It was not a question one asked in polite company back then, for fear of being revealed as an economic simpleton or, worse, a protectionist. Despite this, or perhaps because of it, the question fascinated me. Determined to find my boss an answer, I soon encountered two challenges.
First, the right-of-center’s leading free-market economists and trade experts had no interest in the question, let alone interesting answers. Dissidents found little purchase in the debate. Politicians like Patrick Buchanan and Ross Perot were mocked as charlatans—or worse. Serious analysts like Dani Rodrik, a Harvard University political economist; Clyde Prestowitz, a trade official from presidential administrations of both parties; and Robert Lighthizer, a trade lawyer and former deputy U.S. Trade Representative under President Reagan, were considered heretics—intellectual curiosities at best. The labor movement’s concerns were dismissed as special interest lobbying, and broader critiques from the left were presumed to be anti-capitalist.
Second, the problem was much bigger than just China. The entire edifice of globalization—the case for the unfettered flow of goods, people, and capital across borders—was built upon the firm faith that more of these things was always better. This free-trade dogma possessed a compelling internal logic, but it insisted explicitly on unconditionality. Paul Krugman provided a clear statement of the principle in 1997: “The economist’s case for free trade is essentially a unilateral case. A country serves its own interests by pursuing free trade regardless of what other countries may do.”
According to this model, as economists had been taught and now themselves taught, free trade was and would always be America’s optimal strategy. If China wanted to steal our intellectual property, manipulate its currency, subsidize state-owned enterprises, and sell us the results for cheap, they were the suckers and we should just enjoy all the stuff. If China took back our financial assets instead of our exports, accepting IOUs in return for sending us products we might once have made ourselves, all the better. Excoriating the strong stance Romney ultimately took on trade, the Wall Street Journal’s editorial board concluded that what would truly be in America’s “national interest,” rather than confronting Beijing’s mercantilism, was helping the Chinese Communist Party “liberalize its financial system and allow the free flow of capital.”
Bad Economics
For me, the real question is where all these ideas about a laissez-faire global economy come from. The answer, of course, is from economists.
The rise of the economist as an untouchable political class is well documented in The Economists’ Hour, a fun, readable, and infuriating book I strongly recommend (and hope to write about soon). But this review by Simon Torracinta in Boston Review is also extremely good. He’s reviewing three new books on how microeconomic reasoning took over the institutions of American governance.
Yet all this macroeconomic Sturm und Drang has obscured the basic unity of microeconomic methods employed by the vast majority of working economists today, whether in the academy, government, or industry. Crack open a bestselling introductory textbook like Harvard professor N. Gregory Mankiw’s Principles of Economics (now in its ninth edition), and the first “principles” one encounters are not the fundamentals of growth or employment but rather “opportunity cost, marginal decision making, the role of incentives, the gains from trade, and the efficiency of market allocations”—all microeconomic ideas. Far more than any core tenets of macroeconomic theory, it is this core bundle of microeconomic principles that defines and unites the modern economic profession. It is also what distinguishes mainstream methods, sometimes termed “neoclassical,” from the various heterodoxies—Marxist, Austrian, post-Keynesian, ecological—that most academic economists studiously ignore.
Although some of its roots stretch back centuries, microeconomics as we know it was born in the 1930s and ’40s, when a starkly formalist and deductive approach to modeling market behavior gradually but firmly displaced its historicist and institutionalist rivals in the Anglo-American profession. During World War II scores of economists were recruited to apply optimization models to wartime planning, and in the postwar era this shift was further entrenched by the global hegemony of intensely mathematized techniques (a trend pioneered by Samuelson himself). This revolution has proven exceptionally durable—far more, in fact, than the “Keynesian revolution” in macroeconomics that initially unfolded around the same time.
Given the outsize influence of economic thinking in modern life, it is odd that these microeconomic foundations have largely escaped public scrutiny. Three recent books help set the record straight. Each freely courts Samuelson’s scorn, showing how microeconomic methodology structures not only the theory and practice of economics, but the very institutions of American governance. In the face of the concatenating disasters of the present, economics will have to be remade, these authors suggest—from the inside and out.
The Reckless Driver Narrative Is Reckless. Stop Spreading It.
Charles Marohn at Strong Towns has an interesting, heterodox take on why traffic deaths have spiked during the pandemic. He pushes back against the seductive argument that an increase in reckless drivers are to blame, because those same reckless drivers have been with us the whole time.
What has actually changed is less gridlock during rush hour—gridlock being a mechanism that slows traffic during normal times, negating the impact of reckless drivers and masking how dangerous our roads really are. Less gridlock, on the other hand, means higher speeds and more random encounters, so the already-existing reckless drivers have more opportunities to create mayhem.
It almost always takes more than reckless behavior to cause a crash to occur. It takes something else, something we can broadly categorize as a dangerous encounter. A million people might text and drive over the next hour and one or two of them will be in a crash where someone dies as a result. The thing that will distinguish the 0.01% of trips that results in a death is not recklessness; it is something else, some random and likely unexpected occurrence that led to the crash.
A person unexpectedly turns across traffic. A person pulls out when it wasn’t expected. Someone brakes when the driver behind them isn't focusing. There are countless random situations for a crash to be catalyzed.
Over-simplified for the sake of this discussion, we can think of this as an equation with two variables: reckless driving and random, dangerous encounters.
Traffic Deaths = (Rate of Reckless Driving) x (Number of Dangerous Encounters)
Yes, we will get more deaths if we increase reckless driving—I’ve never argued otherwise—but as the AAA report points out, self-reported reckless driving is endemic. It always has been. Even the people they suggest are in a lower risk category are talking on their phone, texting, speeding, running red lights, and driving impaired at shocking rates. The pandemic has not dramatically changed this.
What has changed dramatically is the number of dangerous encounters, the number of times that the reckless driver is in a high-risk situation. Before the pandemic, most daily trips were made during periods of high congestion, where the danger inherent in our roadway designs was masked by the slow, stop-and-go speeds of Level of Service D and F. Now, with pandemic conditions and then expanded work-from-home moderating congestion levels, most trips are made at unsafe speeds in environments filled with randomness. The pandemic has dramatically increased the number of dangerous encounters a typical driver experiences.
March 2022 Newsletter: Global Bifurcation
This is professional investor Lyn Alden’s take on the economic implications of the Russian invasion of Ukraine. She provides a bit of history on how, beginning in the 1980’s, our supply chains traded away resiliency for efficiency, which consequently made them far more brittle—the bite of which we’re all feeling now that the world order has been shattered. She also suggests that commodities, like wheat, nickel, and fertilizer, are the new currencies, and gives her view of the macroeconomic implications of this.
The global economy, in a blank-sheet-of-paper naïve design that disregards the complicating factors of geopolitics, basically says this: we’ll take Chinese labor and logistics infrastructure, Russian and Brazilian commodities, and developed market institutions and capital, and combine them (and resources from similar countries across the spectrum) into full products and services across the world.
Under this operating framework, we don’t need to build secondary manufacturing and shipping facilities, because we assume the ones we have in China will always be available. We don’t need to build secondary nickel mines for our EV batteries, because we assume the ones in Russia will be open and able to supply the world. Chile can supply our copper, Brazil can supply our soybeans, Russia and Ukraine can supply our wheat, Taiwan can supply our semiconductors, China can supply our labor, and there’s no issue here.
All good, right? For decades yes, until it’s not.