@EvolLove I guess I just think the characterization is incomplete. China definitely has its problems, and I detest the authoritarian control over political participation and speech. There are definitely large populations of people living in terrible conditions, including both underpaid, exploited internal migrant workers and left-behind subsistence farmers. But I think there are hundreds of millions of people also enjoying the fruits of modernity and prosperity.
@EvolLove I haven’t been to Sweden, but from traveling in other Nordics (Finland, Norway), my impression has always been things seem quite expensive there!
@EvolLove I agree that nonintegration of Russia into the West was a profound lost opportunity, and I think triumphalism and dismissal of Russian concerns and pride contributed significantly to that catastrophe.
Russia’s leaders, however, have been far from entirely innocent too. Perhaps too late, Obama really did try to reset things with Russia, and behaved generously and deferentially towards them. Then 2014 reopened a door to 1944.
@EvolLove All these awful things about China are true, but it’s also true that China’s rocketship development has been the greatest prosperity miracle in human history, bringing hundreds of millions of people from near subsistence poverty into the technologically advanced global middle class in 40 years. 1/
@EvolLove I think a synthesis between the good parts of what China does and Nordic social democracy could be practical, and would be the best system of governance ever devised. Use more Western-style transparent, open forms of subsidy to engender competitive industries in roughly the same way China does, require continued independence of firms — nonconsolidation — as a condition of subsidy. https://drafts.interfluidity.com/2024/09/04/income-driven-repayment-of-fixed-capital/index.html /fin
@EvolLove I agree with this Part 3 much more than Part 1!
The US was hubristic in imagining, long after we were the world’s industrial heartland, it was indispensible, could govern the world via the dollar. China and Russia want to do some things we think quite bad, and even if they are quite bad, we are not their rulers. China is more than capable of anchoring a prosperous community of trading states. Dollar sanctions and export controls can only be bumps in the road. 1/
@EvolLove I don’t think that China is “doping their economy”. Yes, they are using stimulus and papering over bad investments. But bad paper is only paper. Their real economy, their capacity to produce and adapt their production, is now best in the world. All the games they’ve played with subsidy and finance have been more like testosterone than fentanyl, if we want to reach for doping analogies. /fin
@EvolLove We’ve entered an era of heightened geopolitical distrust and competition, which is good for no one. Some of that is down to leaders with revisionist geopolitical ambitions — Putin, Xi. From the US side, much of it is due to our having mismanaged our trade policy for decades, in ways that left us unhappy, incapable, and vulnerable, and lashing out at others rather than taking full responsibility ourselves. 1/
@EvolLove We are all in a bad way now.
I hope we can find our way back to a more stable, better balanced win-win. /fin
@EvolLove I think we can all learn a lot from China. They’ve succeeded not because they are constitutionally better or tougher, but because they found some institutions that sustain competition while Western institutions invite consolidation and cartel. https://drafts.interfluidity.com/2024/08/13/china-as-a-model/index.html
@EvolLove I’m not a fan of inviting desperation for virtuous side effects. I am a fan of setting terms of competition that inspire and motivate innovation and efficiency. I don’t think we require hard times, just serious institutions. Football players can be both well-paid and stalwart competitors.
Re petro dollar, yeah. And foreign demand for dollar holdings more broadly. https://www.interfluidity.com/v2/63.html
@EvolLove Prices fall to approximately input prices when they are produced competitively by efficient factories. American producers have grown fat and lazy by expecting thick profit margins to be a sustainable norm rather than an occasional, transient reward for innovating ahead of your competitors. American firms should be selling goods at close to the price of our inputs too, and be disciplined by competitors when they reach for margin.
@EvolLove Yeah. You can finance general government from tariffs much more if you are small economy that serves largely as a trading hub. Even Trump’s most aggressive tariff proposals would raise well under $1T a year, under the implausible presumption that trade volumes wouldn’t fall. You can’t finance a modern administrative state through tariffs. Some people think they don’t want a modern administrative state. To them, I’d say careful what you wish for.
@EvolLove China hasn’t taken any kind of step back. It is pursuing exported manufacturers as a growth strategy more aggressively than ever. Domestic manufacturing in the US, measured in terms of US jobs and investment, continued to wither through Trump’s presidency. Only Biden’s IRA/CHIPS/BIL trilogy has begun to reverse that, with increased domestic manufacturing fixed investment. It’s too early to tell whether that beginning will lead to a significant renaissance in the US.
@EvolLove It’s a common case that foreign firms compute prices in their domestic currency (because that’s what the costs they have to cover are denominated in), and set foreign prices by converting domestic prices at an exchange rate. Effectively, if the dollar falls, foreign goods become more expensive (which is a market mechanism which, like a tariff, is supposed to encourage trade balance). 1/
@EvolLove Of course the US, at a government level, if it doesn’t like terms of trade resulting from FX fluctuations or anything else, can impose tariffs (which would render Swedish steel even more expensive to US users in this scenario). We are free to do these things! (WTO etc are only as strong as the support of its most powerful backers, including especially the US.) Some things we might do are wise. Some are unwise. /fin
@EvolLove Negotiation would be what policymakers do when deciding mutual tariffs. Incidence is not a process directed by political leadership. It’s just how consumers and producers respond to their choices.
I have mixed feelings about Trump’s tariff proposals. Some I think reasonable and unfairly maligned. But whatever tariffs ends up getting imposed, as a product of whatever negotiation, it’s incorrect to claim only the foreign seller ends up paying it.
@EvolLove Trump doesn’t AFAIK use the word incidence but he frequently and incorrectly claims that tariffs are paid by foreign sellers and do not burden domestic purchasers. That is untrue, in general.
@EvolLove it’s economics-speak for who actually pays. suppose (oversimplifying) there’s a foreign exporter and domestic buyer. the government can tax 10% of the exporter’s sales, or it might tax the consumer the same 10%. economists mostly think those choices are close to equivalent. 1/
@EvolLove if consumers are much more motivated to buy the good than the exporter to sell (“inelastic demand”), a tax on the exporter will mostly be passed on to the consumer in the form of higher prices. 2/
@EvolLove if consumers are very price-sensitive in how much they buy, while producers are motivated to produce (say they have a factory, investment in which has already covered most of the cost of producing a certain large quantity), that’s “inelastic supply”, and even if structured as a 10% sales tax on the consumer, the producer is likely to reduce its selling price to maintain the quantity sold. 3/
@EvolLove in a nutshell, when demand is much less “elastic” (price-sensitive) than supply, however the tax is structured, the consumer is likely to pay for it, while when supply is much less elastic than demand, producers are likely to pay for it. 4/
@EvolLove many goods will sit between these extremes, with both producers and consumers price-sensitive to some degree. in that case, the incidence will be shared. perhaps the producer will drop prices by 4% and the consumer ends up paying a tax of 6% to cover the total 10% tax. so, in this case, the “tax (or tariff) incidence” falls 40% on the producer and 60% on the consumer. /fin
It’s absurd of Trump to pretend the incidence of tariffs falls entirely on foreign sellers of goods, but it is also disingenuous to claim the incidence would be solely on domestic consumers.
@BenRossTransit I’ll see when I’m at a computer if my jstor account gets me access to your piece!
But the main inconsistency I see is just perfect competition doesn’t recoup fixed costs, so renders firms liable to bankruptcy, and (as you pointed out previously) supply chains then grow increasingly brittle with depth.
I think excess production capacity is desirable, but not prerequisite to competition. I don’t think there’s any reason (in general) to produce in excess of demand.
@monoidmusician i’m right heeeere! 🪳
@kentwillard Yes. “Failed states” very often are better characterized as sabotaged than failed. Standing up and maintaining a legitimate state is genuinely hard under the best of circumstances. When neighbors arm militias or rivals encourage subgroups to become restive, that makes it much, much harder. Proxy wars between fully sovereign states are rare, I think. More powerful allies have a hard time persuading suicide. Usually a state is broken before its role as proxy begins in earnest. 1/
@kentwillard My hope here is that we can become more explicit and intentional about enforcing respect for Westphalian states as an international norm. This would supercede and proscribe a lot of Western human-rights advocacy and “international law”. It would also proscribe Iran-style militia-building and Russia-style frozen conflicts and use of Russian speakers as pretexts for intervention. /fin
@agocke @StryderNotavi Gack! Fixed! My whole project here is to say yes, that’s the status quo, but we can learn from China’s experience and innovate on top of it to develop a form of capitalism that is structurally both more resistant to monopoly power and more resilient to vigorous competition. See also https://drafts.interfluidity.com/2024/09/04/income-driven-repayment-of-fixed-capital/index.html
@agocke @StryderNotavi (Thanks for pointing out the broken link!)