We are witnessing the self-immolation of a superpower
This interesting article provoked a lot of thought...
We Are Witnessing the Self-Immolation of a Superpower .... archive.is link
You want to destroy the Western rules-based order that has preserved peace and security for 80 years, which allowed the US to triumph as an economic superpower and beacon of hope and innovation for the world. What exactly would you do differently with your marionette other than enact the ever more reckless agenda that Donald Trump has pursued since he became president last year?
Nothing.
For the 80 years since the end of World War II, the US model of innovation, trade, and economic hegemony has been built on a foundation of six seemingly inviolable traditions and policies held steady across both Republican and Democratic administrations:
(1) easy access of immigrants to the US, particularly its unparalleled world-class schools and universities;
(2) rich and steady government support of higher education, medical research, and laboratories;
(3) broad and ever-more-frictionless trade access to US markets and, reciprocally, a flow of US products to the rest of the world;
(4) a firm, unyielding, and unquestionable adherence to the rule of law at home that made the US a predictable and safe place to create, build, and do business at home; and
(5) a similarly firm, unyielding, and unquestionable network of geopolitical alliances abroad that knitted together a security blanket that stretched around the entire globe, backed up by the most powerful and widest-ranging military ever seen in human history.
All five of those pillars helped firm up and underpin another equally critical pillar:
(6) a politically independent and fiscally prudent monetary policy that established the US dollar as the world’s safest reserve currency.
This made US Treasury bonds the savings bank for the entire world—for democracies and authoritarian regimes alike!—and made US banking networks and capital markets the place to be for any company looking for access to investors.
This last point is particularly interesting. Janet Yellen warns the $38 trillion national debt is testing a red line economists have feared for decades
I can't imagine a better way to create a sovereign debt crisis than Trumps policy of politicizing the Fed Reserve, sudden tariff flip flops, coercing partners, making then breaking agreements, pushing deficits to new highs, committing to unfunded tax cuts, weakening anti-inflation institutions, reducing transparency by pushing crypto, weaponizing sanctions and creating policy chaos.
Sovereign debt crises aren't a problem until they suddenly are, then all of a sudden you are in a world of hurt.
Yet most of Donald Trump supporters don't seem to care about any of this, the tea party protestors now only seem to care about hating anyone who doesn't look, act or think like them.
Once trust in institutions, alliances, and monetary independence is lost, rebuilding them takes decades and often requires crisis to force alignment. If history is any guide, that crisis wont be pretty, and might cause America to dive deeper into Authoritarianism.
The prosperity of the US is indeed built on boring foundations: market liberalism, a safe and friendly business environment, advanced technology, sound monetary policy, rule of law, military supremacy, US-centric globalism, etc.
But in our recently digital democracy, people have been riled up to look for easy boogeymen and have forgotten the hard, boring foundations of our prosperity. This happens across the political spectrum, both right and left. Most people I talk to in real life—both liberal and conservative—actually don't know how/why the US is prosperous: they just retreat to the same tired tropes.
An aside, I heard that in California voters are contemplating a tax on unrealized capital gains, and it's a close tie so far. Californians think that they're going to wrest what's theirs back from the evil billionaires, but they don't realize they're actually drawing their knife to their golden goose's neck.
Wealth taxes are less about funding anything useful than they are about redistribution of economic gains. The impossibility of having a functioning democracy when a handful of rich people can single-handedly move markets based on rash decisions made during a ketamine bender should be readily apparent to everyone now. It’s not really a “golden goose” if all the returns are just concentrating into the hands of a few gatekeepers. I don’t think the concept of having an app-based taxi dispatch service magically goes away because you taxed away the outsized returns from setting up a monopoly over it.
The intent behind wealth taxes is correct. We should better distribute wealth
Wealth taxes do not accomplish what they intend. They are not good at distributing wealth. They're basically good at fucking literally everything up. There's much better ways to redistribute wealth (aggressively or with incentives) than wealth taxes.
It’s not about migrating the money, it’s about diminishing their political influence and market power. THAT is what conditions the entire ecosystem.
Sure. Lots of ways to do that. Wealth tax isn’t one of them. It will not fix the fact that they have way too much power in elections due to their money. Hell that one really boils down to things like citizens united.
I dispute the notion that all the returns are concentrating in the few and none are going to normal people. Everyday Californians are incredibly wealthy: the median Californian has a net worth of $288k. For comparison, the median American has a net worth of $109k. The median European? A paltry $28k.
There are high housing costs and high living costs, which are driven by high housing costs driving high labor costs, but that is largely a policy issue that Californians inflicted upon themselves through Prop 13 and zoning, which respectively hinder development of high-value urban land and has severely restricted the housing supply from keeping up with the state's expanding and increasingly affluent population.
Besides, California's 200 billionaires only own 7% of the state's wealth. There's a notion/vibe that the billionaires own nearly everything, but that's not true.
I think any issue that makes its way into the mind of the average person is prone to hyperbole, but the idea that we can look at 200 people (or .0005% of the population) owning 7% of the wealth and say 'Eehh, not that big of a deal' leaves me with the feeling that you might be desensitized to a trend that has spiraled out of control over the past ~15 years. For the record, the 20,000,000 people that make up the bottom 50% own less than 1% of CA's wealth. There's a notion/vibe that they own nothing, but that's not true.
The real issue is how we define "the few." Is it the 200 billionaires? Is it the top 1%? The top 10%? Top 20%? There is a cutoff point somewhere around the 25% mark where people stop getting a slice of the pie, so in NaraVara's defense, I think 2 or 3 out of 10 counts as "the few." The reason why there is so much focus on the billionaires is that their percentage of the country's total wealth is so outrageously high, even the most right-wing, red-blooded, "don't tread on me/taxes are theft" American would agree to taxing them a small percentage as a way to pay for a miniscule version of the services that are afforded to our much poorer European counterparts.
I found this analysis pretty interesting, and a lot of it agrees with your quoted statistics.
I think your statement about the 200 billionaires only controlling 7% of the wealth is somewhat misleading, considering that they’re 0.0005% of the population.
My linked source has an interesting section on the distribution of both income and wealth in California:
I think something that gets overlooked is how California wealth inequality is undergirded by inequality in human capital and productivity. The economy is structured around very high value-added industries, which rely on highly educated workers, and California attracts a good number of the planet's most exceptionally educated and productive people.
Just because a person, a business or an industry is exceptionally well positioned to extort money by abusing vendor lock-ins, for example, does not automatically make their functions value-adding. Not even if that's what is taught to economists these days.
It seems that we're taking a step further now: someone who doesn't even have enough paying customers to cover expenses but who is able to attract venture capital by being extra manipulative and future-faking seems to be considered a high level value creator by many, when their pursuits are effectively making life and societies worse for the majority of people.
Something needs to happen to stop this delusional detachment from reality.
I'd be hesitant with this comparison because of the significant difference in public entitlements. A well-funded public pension, for example, contributes nothing to your net worth.
The whole comparison isn't helpful. What is a median "European" anyway, we're not a country you know. A median Portuguese person is bound to have less income than a Dutchman (pun intended) because they have lower prices generally. Even comparing, say, a median Dutch person is not helpful. Everyone has guaranteed minimum health insurance with a co-pay of a few hundred dollars vs whatever ridiculous amount Americans are paying nowadays. Add to that, the fact that everything is insanely expensive in cities like LA and I would call the median Dutch persons income "paltry".
Unfortunately this isn't as true as you might think. In some areas, it's the opposite, actually.
You have a lower VAT and products distributed EU-wide are shipped to Rotterdam or, if not, somewhere nearby anyway. Then they have to be transported to Portugal by truck or airplane at additional cost.
Purchasing power is also affected by things like our world-class housing crisis and insane fuel costs.
I’m not talking about owning things, I’m talking about how the entire technology industry has evolved into a gambit to blitz scale to gain dominant market power and then leverage logistical advantages to act as gatekeeper and leech all the surplus out of every other leg of the entire value chain. It’s been absolutely noxious for society and the economy.
How do you see the billionaire tax backfiring?
Do you see it backfiring if it were implemented nationally within the entire USA?
The Tax Foundation did an excellent analysis breaking down the complexity and side effects of the proposed tax, and how assessment of wealth is not straightforward.
The tl;dr: Assessing wealth is complicated. Billionaires' net worths are inflated because have non-tradable assets like voting shares. The proposed tax leaves open the possibility of the state taxing private assets as publicly tradable, which would make the wealth tax much, much bigger than 5%. It'd be irrational for many billionaires to not leave California.
Californians will think they defeated the billionaire class when really these billionaires are going to take their companies with them elsewhere, and California will be worse off economically for it. If I were so cynical I'd think it'd make a deviously good plot by a Machiavellian ultraconservative think tank to convince Californians to gleefully dismantle their own economic influence.
It's complicated. People see 5% and they think it's small, but the tl;dr is that voting shares cause billionaires' net worth to be significantly inflated, and so taxing that inflated net worth is actually onerous. Plus, it makes California a drastically less attractive tax environment.
People think, "we're not going to miss the billionaires." But when the billionaires move, so too will the center of gravity for their companies. Then in 5–10 years, the headquarters will be changed to Austin or Miami. And then 10–20 years, the ecosystem of talent will start shifting over. And everyone knows that California isn't the most business-friendly: it has succeeded in spite of its environment because it lucked out on network effects for tech, biotech, and film and entertainment.
We can see a parallel in LA where the film industry has been struggling. The number of film productions has been dropping by 10–20% YOY, and unemployment in the entertainment sector has been rising. This is due to rising labor costs (the IATSE and SAG union strikes increased the cost of hiring in LA), in combination to other places offering cheaper labor costs and more generous film tax credits. So now, places like New Jersey, Georgia, Toronto, and Vancouver are merging as new film production hubs.
I realize I'm pulling the topic away from the US and toward California. But I see in California the same psychological process: people are experiencing a world that's changing and becoming more competitive, but in search of boogeymen they are leaping for short-term solutions that cause lasting damage to the foundations of their prosperity.
Slight digression, and not a 1-to-1 comparison, but the additional tax for millionaires in Massachusetts doesn’t seem to be causing migration.
Source
Note, this is waaaaay different from a wealth tax, but the “the millionaires will flee!” Argument was loud for this taxation plan as well.
This is a valuable addition to the discussion, but I do want to underscore - I know you did, but again - that an additional 4% tax on high household income (the Massachusetts proposal, so far working) is completely different from a flat wealth tax (California's current proposal).
Which one? The most talked about proposal is a wealth tax. There's lots of excellent information on why those are deemed terrible ideas by economists, and France tried it and had it fail horribly.
There ARE taxes/solutions economists support for handling wealth disparity, but there's nothing sound about the proposals that have been made.
As for HOW it would backfire, likely in the same way it always does.
ABSURD overhead. Whats wealth? When was the wealth? How do you prove the wealth? "oh the value of a stock on a given day" or based on X networth calculation. Okay cool enjoy tracking that and proving it. These billionaires have the money to dance around dumb regulations, and this would be exactly that.
Tremendous downsides. Lets say they play ball, no tricky stuff, roll with the punches. Cool. Depending on the fluctuation of a stock number entire sections of the country could wind up unemployed. It's less of a deal with Tesla because it's such a fucking mess of a stock, but Amazon employs millions. Some of that "net worth" is tied up in stocks, which is based on the value of loans and infrastructure (fleets of cars/ships, buildings, etc). When the "tax" comes due and your stock has dropped and you start selling it can absolutely have knock on effects on those deals because they're backed by, you guessed it, stocks.
Oh and while you liquidate those stocks to pay the tax, the stocks become worth less, requiring more liquidation, but the Tax doesn't drop.
The entire "billionaire" concept is toxic from the ground up because it's based on a magic number with VERY specific use cases in the financial world but it's not REAL. The "wealthiest people in the world" lists are bullshit because they're based waaaay too much on a calculation that no one in fiance would EVER use. Musk is the biggest winner of the this misconception because it vastly inflates his perceived worth which he leverages into actual assets.
Don't get me wrong, these people are a problem, they have too much, and there's a lot we can do, but saying Musk is worth billions because a stock he cannot legally liquidate maths out to that is insane (literally. He cannot sell all his stock right now if he wanted to.) There's a much more realistic number you could estimate based on what musk would legally be allowed to do with estimations on market predictions based on that, but that's not what any of these pointless laws talk about.
I sincerely believe that wealth taxes discussions/proposals ARE IN FAVOR OF THE WEALTHY because they're so obviously flawed to anyone actually in these industries and with expertise that it sabotages the discussion right out the gate. It's another fucking hyper loop where rather than do something sane (high speed rail) we're wasting time talking about something batshit insane (wealth taxes).
And to be clear this is a super brief and hand-wavey version of this discussion. None of the proposals that have been floated make a lick of sense and should be fundamentally insulting to anyone who actually wants to see the wealth gap shrunk and these morons out of power. It has become a GIANT red flag when politicians support them that they are either totally incompetent or outright not serious about solving anything.
It's the economic equivalent of "kill the sparrows"
I wonder is there another example in history of a leading power in the world just voluntarily dismantling its own apparatus like this? Not a big failed venture, not picking the wrong war, just waking up one day and dissolving arrangements that took decades to create.
I believe medieval China was poised to become a global seafaring superpower until a new leader took over and burned their whole fleet? That might be an apt comparison if I have any of the details right.
OH man, time to share my favourite example of how one person being an asshole changed history: Shah Muhammad II of Khwarazm. The Khwarazmian Empire was roughly the Persian/Iranian Empire from 1077–1231. A massive, rich, culturally leading Empire at the centre of the Silk Road.
Genghis Khan, seeking to increase trade in preparation for his invasion of China, sent envoys to Khwarazm to ask to open trade. The Shah, in his supreme arrogance, decided these smelly Mongols insulted him by their very presence, and had them executed. Genghis, who very famously established the Imperial Mongol tradition of absolute protection for envoys, was furious. And yet, focused on his goal, he sent a SECOND group of envoys to demand an explanation and try to smooth things over. And the Shah executed them too. This pissed Genghis and his leadership off so much they paused the invasion of China, and launched a punitive expedition to conquer Persia/Khwarazm. I want to stress again that the records we have make it clear that the Mongols at this point had no interest in going further West. They were very focused on achieving victory over their arch-nemeses in China.
Within two years the entire Empire had fallen, the Shah was dead, and its fabulously rich cities torched and massacred. Following this, the Mongols realized they could continue to press on and ended up invading the rest of the Islamic world, famously including the destruction of Baghdad, the world's finest city of learning and culture at that point. The fall of Baghdad is widely considered to be the end of the Islamic Golden Age. Estimates of deaths in the Islamic World vary widely, but it is undeniable that many of the most populous and prosperous cities from the Mediterranean to the Caspian Sea were totally destroyed and depopulated. All because one jackass decided he couldn't be bothered to take some smelly Mongols seriously.
When you think about it, it's kind of amazing that something like this hasn't happened before.
Historically, the most vulnerable time for an empire is during succession. The ruler dies, and his designated heir is just an idiot, or is lazy, or doesn't have the vision his father had. Or the heir isn't designated, or another would be ruler has a claim on the throne and there's a succession war.
In a monarchy, that sort of thing happens once every 40 years or so, the adult lifespan of a ruler. In a liberal democracy, it happens every four years.
Yeah, in theory, the fact that we vote our rulers in instead of them being designated by birth should mean we have qualified presidents instead of kings who just got there by happenstance, but in practice it's just a popularity contest backed by capital and someone's qualifications have very little bearing on whether they're president or not.
This whole problem was supposed to be tempered by checks and balances, but those have been consistently eroded to the degree that the president is effectively a king now, if only for four years stints (we hope).
I don't see how under those circumstances, something like this was anything but an inevitability.
I don't think it is any coincidence that this is happening relatively shortly after the creation of twitter and other social media.
Most people believe what they read. News used to be a high effort and high quality affair. Newspapers. Radio. TV.
I remember when my father would sit down after work, and dedicate half an hour to reading the newspaper, and another half an hour to watching the news on TV.
My wife, who will dive into long form anything, often barely reads more than the headlines, because there are too many articles to read.
Fox news came along, and effectively weaponized the headline. They A/B test headlines for maximum engagement, to the point where the article rarely has anything to do with the most inflamatory headlines.
Twitter came along, and effectively said forget the details, all you need is the headline.
The headlines are doing our thinking for us, and are often encouraging us not to think by enraging us instead.
I think Trump was successfully elected because he tapped into that rage baiting, one tweet at a time.
The monied elites used to be able to heavily influence who was elected. Which mostly seemed to work.
I remember when Trump was first elected, Murdoch tried to go against Trump, and lost viewers for being "too liberal."
All the other candidates in the Republican primary tried to take Trump down, only to kiss the ring or ultimately quit politics.
I remember when Trump was first running, a small, vocal minority said "Trump will burn it down? Let it burn!"
Most seemed to say "God can use even flawed individuals to achieve His will."
It's no surprise to me that Trump controls congress. It's no surprise to me that the elites are manipulating him rather than standing up to him.
Trump directs the anger of his substantial set of followers, and he could very well continue to do so even if he is not president.
The Democrats were afraid to go after him for this reason.
What surprised me, is that the Supreme Court has effectively anointed Trump king.
Are they true believers? Do they see him as a useful idiot? Are they bought off? Are they afraid of the death threats?
Edit:
I suspect they are simply motivated by institutional self preservation. If they piss off the Republicans, it will be the end of their power play.
What wont surprise me, is how the Supreme Court will contort themselves to take the golden crown and scepter away from any Democrat.
They may have mixed feelings about Trump, but they have Ideological hatred of any Democrat.
This supreme court is the most ideologically sorted in history. This means the justices’ votes align more closely with the ideology of the appointing president and party, than ever in history.
Which is the second reason why this is happening now, and was less likely to happen any time in history.
I suspect we also have a third reason, and that is Trump himself.
He is not only good at getting people to hate, he has successfully collapsed all the historical norms.
He is encouraging us to be the worst version of ourselves.
He has run a blitz kreig on democratic institutions that are slow to react.
It turns out, no one cares to enforce the norms (telling the truth, not being credibly accused of theft, corruption, rape.)
It turns out, all those norms that we thought were enforceable, either are not, or aren't enforceable at speed, or that people are simply too afraid of going after a known bully, with the most powerful bully pulpit in the world.
That's why democracies have separation of powers and large numbers of elected positions. Even if they're all shit heels, the wisdom of crowds balances their stupidity into a kind of competence in aggregate.
I don't think America is volunteering its own downfall, more like giving a lot of power to someone/people who has/have an opposite interest, then them acting in a way that is harmful to the realm. In America's case, putting power in the hands of big money, and then the fall has been a LONG time coming.
Example off the top of my head, an entire dynasty ended
A quick skim of the Wikipedia articles doesn't have a good summary, but the fall of the Ming is much more incompetent than the quote suggests.
The Shun Army/"Dynasty" was a rebel army led by a former military officer whose army wasn't being paid. Moreover, the incompetent officials by this period followed the time-honoured Chinese tradition established by the Song Dynasty of insulting, attacking, and trying to execute their best generals during times of crisis. It's a bizarre, uniquely Imperial Chinese recurring problem. Most famously, see Yue Fei. In this case, Wu Sangui, by far the most effective general the Ming had and the only one who was able to stop the Manchu/Qing advance, was also sentenced to death by the Imperial Court. They had demanded he return from the front for execution after he was defeated and fought a controlled retreat...after he defeated the Qing four times in a row with no reinforcements or supplies. I strongly disagree with the Wikipedia Article on him's characterization of his retreat, which is why I am not linking it. The Court then immediately panicked after the Shun arrived and told him to instead come save them, which I find hilarious. At this point, Wu was already highly incentivized to surrender to the Qing, who had sent him many messages offering treasures, titles, and favour. They were very impressed with his capabilities. It's not shocking at all that he defected and opened the pass after that.
Great background. An Empire doesn't just fall from one guy going rogue: there should have been checks and balances. And here as well, Trump is the visible boil on top of a dying cancer ridden near-carcass. The folk story of Chen follows a long pattern of let's blame the evil witch woman. So it's kinda of hilarious this time we don't even have Melania to blame.
The way I would put it is "tearing wires out of the wall because they don't know what they do". They're knowingly dismantling things, not realising that those things are what keep them in a position of hegemony.
I’m sure there’s a limit on how many US Treasuries the world will buy, but it’s very difficult to predict what it will be. There is not actually a red line anywhere, just guesses. It might not happen this year just because things seem particularly crazy.