Tag Archives: economics

The Great Disruption Part 2: A laundry list of failed predictions

I wrote earlier about The Great Disruption by Paul Gilding, a book which claimed to be an unerringly scientific prediction of the future of our climate’s future, but was in reality a pseudo-religious call to action in favor of degrowth ideology, with every counter-argument ignored without even a retort. I’ve meant to write for a while but all I have is a laundry list of grievances against the book. This is the streams of my consciousness, so let’s go.

The author understands a tiny bit of economics, and understands that technology does not destroy jobs but rather lowers costs. The powered loom didn’t destroy jobs in the clothing industry, more people work in this industry today than before it’s invention. Rather the powered loom lowered the price of clothes such that all of us can afford many more pairs of clothes than could our ancestors. Lower prices, more efficiency, more consumption.

But he considered our human drive for technology to be a “pathology” because “it doesn’t work” (in what way?). He seems to claim that our lives are not tangibly better than our predecessors, we just have “more stuff.” I strongly disagree, I live a life of much more comfort an ease than did my parents on the 20th century, and I can even point towards tangible benefits since he wrote his book in 2008. The ability to call my family no matter where either of us are has greatly eased my mind when my family are taking a long cross-country trip. I no longer worry that they may be stuck or stranded without help, or that they’ve taken a wrong turn and gotten lost. Both of those are impossible as long as smart phones exist.

Furthermore, Paul believes that we reached the limits of resource extraction in *2005*, and that the 2008 crash was proof of this. This is again laughable, US oil production has nearly tripled since 2005, China has increased its demand for coal and iron, even food production has continued to increase. There is no way in hell to defend the idea that 2005 was the point where we reached maximum resource extraction, we’ve easily breached that mark every year since 2010. In 2008 when he wrote his book, the global economy was in a recession, and his thesis may have been believable. But with 20 years of growth since then, his claim is clearly bunk.

He claims that he predicted the 2008 crash by looking at resource constraints and ecological changes. Desertification, bleaching of corals, global warming, these were all signs that humanity was reaching the limits of growth and our economy would eventually crash.

But since 2020 our economy has boomed, even if the bottom 99% haven’t felt it. So question for Paul: have those ecological changes stopped? Because if desertification, coral bleaching, and global warming all predict an economic crash, then the only way to account for our economy *not* crashing is to say that those things are no longer happening. Or perhaps Paul’s prediction was bunk and ecological changes *do not* predict economic ones.

Paul also falls into what I call the Paradox of the Evil Billionaire. On the one hand, Paul claims that we all know how billionaires don’t have a shred of patriotism in their bodies, and would gladly sell out their own countrymen to make a quick buck. On the other hand, Paul and others claim that Foreign Billionaires will buy up American farms and send all the food back to their home countries, even though they’d make much more money by continuing to sell that food in America. Note that American food prices are *much much much higher* than in places like China or India, food is worth a lot more here than it is there.

So why are these Evil Billionaires, who *only* care about making more money and *definitely* will sell out their own countrymen for a buck, suddenly being secret patriots by taking a loss in order to send American food back to their home countries instead of selling it for a profit in America?

It’s because Paul (and others) believe in conspiracies more than facts, and the conspiracy that “foreigners are out to get us” is a much more powerful one than “all rich folks are amoral bastards.”

So Paul has this fantasy that in the future, countries will be forced to enact harsh laws on who can own farmland, because there won’t be enough food to go around and people will be sending food to their homelands instead of selling it for the highest price. In reality, farm production has continued to increase and food is still affordable for most Americans. Egg prices for one have crashed in 2025, making them much more affordable than last year.

Paul brashly contends that “2008 was the year that growth stopped.” LOL. LMAO even.

Paul contends that 2008 was only the beginning of a sustained economic downturn and global emergency which would last decades. Here’s some of his predictions, and the results of the past 20 years:

  • Food demand will increase but agricultural output will decrease, causing skyrocketing food prices. Hasn’t happened
  • Fresh water, fisheries, and arable land will run out leading to sky-high prices for food and water. Nope, hasn’t happened.
  • “Sustained and rapid increases in oil prices as peak oil is breached.” LMAO, no.
  • He does claim that “there could be” a global pandemic which shuts down air travel, so he weasels his way into one correct prediction. Still, the pandemic is over and air travel is back, so it didn’t lead to any lasting effects like he claimed.
  • He also puts the global pandemic right alongside “terrorists attacks wiping out a major city,” so I think clearly he was just making shit up that sounded scary. Again no, terrorists haven’t wiped out any major cities.
  • He claims there will be a “dramatic drop in global [stock] markets and a tightening of capital supply.” Again, no.

So basically all of his predictions are bad. He’s a degrowther, after all.

He essentially predicted a mass global crisis because we’d run out of oil and coal. He wasn’t really an environmentalist either, he didn’t think renewables could ever bridge the gap. Rather he just wanted the economy to be *smaller*, and so he created a bunch of fanciful predictions that proved it would become smaller in the future. He was wrong of course, the global economy has never been larger.

Here are also some of the changes he thinks society must make, and WILL make, to stave off the catastrophe, along with my commentary:

  • He thinks the societies that will best cope with the catastrophe will be the ones that start to “ration electricity.” In reality, rationing electricity is a sign that your society is *failing*, not succeeding, at coping with the present.
  • He wants to “erect a wind turbine and solar plant in every town.” This is just stupid on top of everything else. Not every town is suitable for wind or solar power, and besides power generation is done best using *economies of scale*, where lots of power is generated all in one place and then distributed to the markets far away. His idea would be inefficient and bad, so of course it hasn’t happened.
  • He wants to “ration the use of ICE cars,” “ground 1/2 of all aircraft,” “shop less, live more.” No, no, and no. And what does he mean by “live more?” People buy things they want because they think it will improve their lives. When he says “live more” he just comes across as a boomer complaining that society is too fast-paced for his old back to handle, and that he doesn’t like how women wear so much makeup these days. Most of his complaints come across as cultural rather than economic, and these are severely *conservative* cultural complaints at that.
  • He thinks we must (and therefore WILL) stop using fossil fuels by 2024. Hasn’t happened.
  • He thinks that as of 2008 there is “no significant future for coal or oil, short of some surprising breakthrough technology.” Was fracking really all that surprising?
  • “The market hasn’t priced in that all coal and oil companies will be worthless.” LMAO, nope. I’m sure he’s moved the goal-posts by now, but these companies have continued chugging along regardless.

Paul also says “I talk to people all the time who understand this *common sense*, they know that despite so-called “experts” saying their lives are improved these past few decades, they don’t feel any better off.” He has just discovered nostalgia, and thinks he’s the only one who understands. Again, he is fundamentally a cultural conservative, things were better in the “good old days.”

Anyway these are just my thoughts on Paul’s book. It really is not worth a read as anything other than blog fodder. It is badly written, badly argued, and hasn’t stood the test of time. I’m glad I didn’t pay for it, I got it at the library instead. But they should really discard it and put something better on their shelves.

EDIT: one final aside: when I posted this post, WordPress suggested I add additional tags to increase it’s reach. They suggested “faith” and “Jesus” as appropriate tags. Why?

The Great Disruption: A Degrowth Apocalypse

In 1972, a report on “the limits to growth” was published laying out a detailed argument that there simply weren’t enough resources in the world for economies to continue growing.  In 2008, the fruits of that 1972 paper came to pass, as every grifter who’d read it published a book saying that the financial crisis was proof that economic growth was now at an end.  Richard Heinberg said this in 2010, and in 2011 Paul Gilding did the same.

In a blurb, “The Great Disruption” by Paul Gilding is just like “The End of Growth” By Richard Heinberg, which I reviewed previously.  The two books both claim that resources, *especially fossil fuels* are running out (or rather, ran out back in 2010-2011 when these books were published).  Both books claim that the 2008 financial crisis was caused by this resource constraint (and *not* by the sub-prime mortgage crisis which actually caused it).  And both claim that since we’ve reached the limits of growth (back in 2010…) we now have to live in a world where no more growth is possible.  We instead need to adopt Degrowth, where we eliminate fossil fuels entirely and shrink out economies and our livelihoods in order to continue living on this earth.

But unlike “The End of Growth,” this book is much more than a thesis, it’s a sermon.  In my opinion, “The Great Disruption” is Paul Gilding’s stab at writing a Degrowther Book of Daniel.  

For those of you who aren’t faithful, the Book of Daniel is one of the primary “apocalypse” books of the old testament.  An apocalypse doesn’t really mean the “end of the world,” rather it literally means “revealing,” and an apocalypse book is when the truth of the future is revealed to a prophet and he writes that truth down for all to read.

In the Book of Daniel, Daniel foresees the rise and fall of several earthly empires, culminating in the rejuvenation of Israel and the eternal reign of God.  It doesn’t matter, says Daniel, that the current world is ruled by tyrants and that the situation seems hopeless.  God will destroy the evil and restore the righteous, and it *will* happen just as Daniel says it will.

In “The Great Disruption,” Paul Gilding foresees the inevitable fall of capitalism and the liberal world order, culminating in a degrowther paradise where we all agree to consume at little resources as possible to maintain the world’s stability.  It doesn’t matter, says Gilding, that the current world is ruled by capitalism and the situation seems impossible.  “We have no other choice” he says, and so everything he says *will* happen, just as he says it will.

This comparison to scripture isn’t an idle one.  The whole time I read “The Great Disruption” I kept noting how it felt like a sermon, not a argument.  Paul Gilding doesn’t really try to persuade the reader that his plan for a degrowth future is the best one, instead he repeatedly asserts that “we have no other choice” and that everyone *will eventually accept* that “we have no other choice.”  And so, once Government, Corporations, and People eventually accept that we “we have no other choice,” they will all begin acting exactly as he thinks they should act, by cutting off fossil fuels, travel, and all consumer goods in order to degrow the economy.

He tries to persuade the reader of some things, yes.  He works to persuade us that climate change needs to be addressed, that there are limits to growth, and that the 2008 financial crisis was the moment when Growth Finally Stopped for all time.  

But he doesn’t ever try to persuade the readers that his degrowth future is possible, feasible, or better than the other options.  He doesn’t even try to persuade us that it will actually happen.  He keeps writing anecdotes about people questioning the possibility and feasibility of his plans and predictions, and he keeps responding the same way: “we have no other choice.”

This is the hallmark of a sermon, or an apocalypse.  In such works as these, The Truth (capital Ts) isn’t something you argue or persuade, but something you announce and reveal, with no room for questioning or doubt.  Any quibbles about the details are brushed aside because “it will happen, don’t question it.”  Instead, the focus is on laying out this revealed future, what will it look like, who will be punished, and who will be rewarded.

I’ll try to write more on Paul Gilding’s book, but I can’t recommend it as anything other that a hoop to be dunked on.  Paul’s predictions and prognostications are all wildly off-base, he doesn’t understand economics *or* energy, and everything he said Will Happen simply Hasn’t.  He wanted to impart a moral imperative into the Degrowth movement, with a vision of the future that was as utopian as it was unquestioned.  But his predictions for the future have all been disproven by our present, and he looks as mad as the Malthusians who believed we’d run out of food in the 19th century.

Overall this book is what I’ve come to expect from degrowthers.  Every single prediction of theirs has been disproven, yet they keep pretending that history is on their side.  I don’t know if they’ll ever learn. But their books give me something to dunk on.

What exactly is Ezra Klein’s “Abundance Agenda?”

Answer: it’s neoliberalism. But if that answer fills you with disgust, fear, or just confusion, please read on as I promise the explanation will be worth it.

In the wake of the 2024 election, Ezra Klein and buddies published a book called “Abundance,” and in talks and interviews they have been trying to sell it as a way forward for the defeated Democrats. The key question of the book is this: if liberal policies are so great, why do blue states have the most homelessness? Why do they have the highest overruns on their infrastructure projects? Why do they have the most difficulty building renewable energy?

These are difficult questions because they cut at the heart of the liberal/progressive promise for America. There was a half-century long political touchstone (within the American media sphere) that the Democrats were who you voted for if you cared about social issues, but you voted Republican if you cared about economics. Never mind that this misses the many socially conservative/economically re-distributive voters who saw things the opposite way, this “vote Republican for the economy” belief was one that Democrats wanted to push back on.

For my entire adult life, Democrats have been making the argument that no, “Republicans are actually bad for the economy, vote Democrat if you care about economics.” In the wake of the Financial Crisis, this message resonated, but after 4 years of inflation it seems voters no longer bought it.

Worse still, Ezra Klein’s “Abundance Agenda” argues that *you can’t blame voters for coming to this conclusion*. Blue states may be the *richest states*, but it is the Red states that are *growing*. They are building housing, they are building infrastructure, and in the next census it is predicted that Blue States (California and New York especially) will lose electoral votes to Red states (such as Florida and Texas). People are literally voting with their feet, moving from Blue states to Red states when every part of the liberal mindshare says that’s insane, and that all migration should be happening in the *other direction*. The only explanation is that people believe they’ll have higher quality of life in these Red states than what they have in the Blue states, how can that be?

Ezra Klein’s answer is that Democrats haven’t lived up to their economic promise, and they need to embrace Abundance if they are going to do so.

Much of his suggestions are things I myself have blogged about, land use should be deregulated, housing and energy should be made easier to build, and the free market should at times be deferred to to bring down prices for consumers. Government bureaucrats can’t run markets.

In this sense, Ezra Klein is making a (small) break with Bidenism. Tariffs on solar panels make it more expensive to build clean energy, tariffs on lumber make it more expensive to build houses.

When it’s more expensive to build things, then the supply is lower. When the supply is lower, the price is higher. If we want consumers to enjoy low prices, we should encourage higher supply by making it less expensive to build, this is the core of the Abundance Agenda. “Build what?” you ask? Everything. Housing needs houses to be built, energy needs power plants to be built, jobs need companies and factories to be built, and the Abundance Agenda encourages policies that make it cheaper to build all those things.

In essence, the Abundance Agenda is deregulation.

See, Biden is actually a pre-Carter Democrat, recall that he was elected to the Senate in 1972. The New Deal consensus at that time included a lot of skepticism of markets, and a certain degree of autarky in which the government should step in to ensure the economy is making the things it “needs” to make. So if car companies are struggling, we need to give them subsidies or protect them with tariffs, because cars are so important. Same with solar panels, microchips, and steel.

Biden’s economic record is actually reminding me a lot of Jean Jacque Servan-Schreiber, who you may remember from previous posts. Like JJSS, Biden seemed to be trying to use government power to “direct” the economy, and my criticisms of JJSS apply just as well here: governments can’t predict the future and so don’t actually know what the best investments are. Companies can’t predict either, but at least companies have price signals and the profit motive directing them towards the best bets, governments are immune from both by their sovereign nature.

JJSS wanted the Europe of the 1960s to invest heavily in supersonic planes, but we now know that those bets were quite wasteful as the fruits of their labor (Concorde) were outcompeted by the private sector (Boeing) who had already abandoned supersonic travel entirely. Will Biden’s chip foundries built in Arizona stand the test of time? Or will they be like Concorde, an unprofitable venture held up solely by the demands of national prestige, until such time as prestige becomes to expensive to maintain?

While Ezra still sees a need for government “leadership” (which I don’t, but more on that later), he is more comfortable in the post-Carter consensus, stating that governments should cut back the regulations which prevent companies from giving us cheap goods and services. Housing is expensive because governments don’t let us build houses. Energy and infrastructure are expensive because solar farms and railroads get blocked by environmental review. Even healthcare and education are burdened by over-regulation which prevents competition and protects the current megacorporations that dominate the market.

So Ezra Klein could be most accurately described as a “left-capitalist.” He is solidly on the left with regards to all social and moral issues, but does not have the skepticism of profit and corporations that Bernie and Biden do. In other words, he’s a neoliberal.

Now that is a *very* loaded term, because my time around the Internet has shown me that many people define neoliberalism as “anything I don’t like.” But philosophically neoliberalism *was* a thing, and in many ways did represent a real ideology. It was a break with the New Deal consensus on governments directing the economy, while still accepting a government role in social welfare and poverty reduction. Carter and Clinton both governed this way, and so are usually considered “neoliberals” by people who don’t consider it a slur.

Ezra Klein is therefore arguing that this “neoliberalism” should be part of the way forward for Democrats and America at large. California and New York should take more cues from Texas and Florida, at least economically. But to do so means touching a lot of third rails within the liberal coalition:

  • To deregulate housing, you need to remove the ability of local residents to block new housing. This can easily be reframed as “removing local control” and “overturning democracy” if the neighborhood votes against a new house and you let it be built anyway. This deference to localism is hard to overcome politically when it’s framed in terms of gentrification and “Residents vs Corporate Developers”
  • To deregulate energy and infrastructure, you need to end a lot of environmental regulations. You need to get acceptance from the coalition that sometimes we’ll have to cut down a meadow to build a solar farm, or pave over a creek to build a railroad. And if there’s a species of animal or plant that *only lives* in that meadow or creek, then you have to get buy-in that biodiversity is less important that fighting climate change.
  • Energy and infrastructure also touch on “local control” and activist veto. Ezra Klein wants to make it easier for companies to get environmental lawsuits dismissed, and would likely applaud the recent supreme court decision on NEPA. But in any fight between “corporations” and “climate activists,” the coalition is inclined to side with the activists, and that will be hard to overcome
  • To deregulate schools and childcare, you need to remove laws that were put there in the name of “safety.” Many states have very low caps on child-to-adult ratio in daycares, as low as 1:3, as well regulations that the workers must have a degree in childcare and training in a wide variety of emergency medical scenarios. When a certain democrat suggested raising the child-to-adult ratio to 1:4 in one city, I saw comments that “this change will kill babies,” which is a thought-terminating incitement intended to protect regulations by force of emotion, rather than reason. If 1:4 will kill babies, then isn’t 1:3 already killing babies, since we could instead be having a 1:2 ratio? Or 1:1? At some point you have to weigh up the costs and benefits, even in cases of life and death.
  • And to deregulate any of these things, you need to overcome the cries that “every regulation is written in blood,” ie no deregulation should ever happen. This is yet another thought-terminating cliche but it’s one that has a lot of power on the left-side of the political spectrum.

So will Abundance succeed? Will Ezra Klein and the new “Abundance Caucus” make New York and California as affordable as Texas and Florida? Will they reverse the migration trends and made New York lose so many of its electoral votes? I don’t know, but I have more to say on this later. Now that I’ve defined what abundance is, I’d like my next post to discuss what it isn’t. Stay tuned…

Draghi wants to unify Europe’s capital markets 

Note that this one’s more rambly than I wish, but I have a lot of thoughts and am not good at editing.  Suggestions for how to cut this down are appreciated if you want to leave a comment or an email. 

You might as well be lighting your money on fire…

When talking about the American vs European economies, the discussion always turns towards Tech.  “Europe missed the Tech boom” is a true, but surface level description of Europe’s stagnation in high tech industries.  Cloud computing, social media, AI, all the buzzwords of the last 20 years have been American, and some wonder why Europe doesn’t have trillion-dollar companies like Apple and Microsoft.  I’ve already pushed back on the “cultural” explanations for this, but I want to look deeper at some of the proposed solutions for helping Europe’s economy catch up. 

If you ask why Europe has a smaller Tech industry, there’s a few common answers given.  One is that Europe is fragmented linguistically, most people don’t speak each other’s language, while America has 300 million people all speaking one language.  But I’ve never been convinced by the argument that tech companies stop at the border.   

You can maybe make the argument that social media spreads fastest among people who speak the same language, but I’ve never seen this argument be well-quantified.  Facebook is used by half the earth’s population, they don’t all speak English, so why did it spread so easily even after maxing out in the English-speaking world?  And TikTok has been a viral hit among westerners, even though it started in China.  The language argument is often presented as obvious but without any evidence to support it, and I don’t think it’s reasonable until I see some evidence. 

Furthermore, social media is just a tiny piece of the Tech industry.  Apple, Microsoft, Spotify, Samsung, these aren’t social media companies.  So what explains why half of them are American, and the non-American ones aren’t even in the top 10? 

Another argument is that Europe is fragmented economically.  Still, I don’t really buy this.  It’s true that Europe is not wholly unified, different countries have different regulations.  But the EU is a common market of goods and services, overwhelmingly products sold in one country can likewise be sold in another.  If there was a European version of Apple or Samsung, their smartphones would almost certainly be buyable in any EU country.  Indeed, the market fragmentation never stopped Nokia from its 1-time dominance of cell phones, so why did this fragmentation prevent the emergence of a European smartphone company, if it never stopped the top European cell phone company? 

The final common answer is the one I want to discuss today: European investment is low because there is no unified capital market.  German investors invest in German companies, French investors in French companies, and this drastically limits how much capital is available for startups.  While Europe is trying to have 27 different capital markets, American capital is clustered in just 1 (Silicon Valley) or 2 (if you count Boston, New York, or one of the other “also rans”). 

I buy this argument more, but I want to start with some clarity on what it *really means* for a capital market to be “unified.” 

We’d say a market is unified when investors from one area are equally capable of investing in any other area.  Why might investors not invest across the border?  Tax and regulation mostly.   

Taxes don’t have to be *higher* to deter investment, *different* is more than enough.  Think of capital gains tax when an investor sells something they’ve invested in.  Some places allow a lower tax when you hold the investment longer (long-term capital gains), while others don’t make a distinction.  This may lead to a lower tax burden overall, but more tax-season headache in proving how long each investment was held, and proving it was held in the correct jurisdiction which allows this long-term capital gains distinction.  Sometimes it’s better to just invest everything in one place and hire less accountants. 

Different regulations would also be self-explanatory, there’s more bureaucratic overhead in understanding and applying different regulations for each different investment.  But here we come to the difficult part, and why I think Draghi’s drive for unification will face stiff headwinds.  Regulations have a moral component for lack of a better word.  When discussing regulations online, it’s not uncommon to see “regulations are written in blood” as an emotive argument put forth against deregulation.  Any attempt to pair back anything in the way of “red tape” faces a mountain of pushback from voters, and unifying the regulations will require *some* deregulation.   

*Some* country’s regulations will have to be cut, even if they’re simply replaced with those of another countries.  Even if regulations are “harmonized” by trying to bring them closer together, that still means some things get cut and some things get added.  And this will necessarily inflame the passions of the voters and commentators who say that “regulations are written in blood.”  Because while regulation of the capital markets might not have to do with healthcare and worker’s rights directly, they do have much to do with bankruptcy and ownership, which can be even more emotive. 

Trump is often jeered for his numerous corporate bankruptcies.  He in turn calls bankruptcy a smart business move when needed.  It’s true that an investor can expect 9 investments to go bust for every 1 that succeeds.  And it’s true that American bankruptcy laws are quite lenient.  And it’s also true that a smart investor be foolish to not take advantage of any edge the law can give them, lenient bankruptcy is one such edge. 

But bankruptcy stirs passions because someone’s left holding the bag.  If Europe is going to unify its capital markets, it’s going to inflame those passions.  When the banks went bankrupt in 2008, it stirred immense passion because of who had to pay and who was left holding the bag.  Changing these laws raises the specter of the financial crisis, and any recent bankruptcies will get put under a microscope to point out how things would be different in a unified EU capital market.   

To put some meat on these bones, let’s say a car company is going bankrupt in Bulgaria.  We’ll call it “Bulgarian Cars,” its owner and CEO is Mr Car, its workers belong to the “United Car Workers Union,” UCWU.  It has purchasing agreements for steel with “Steely Corp” and its sole creditor is “Big Banking,” who is unfortunately unaware that Mr Car is about to go bankrupt. 

Under the current Bulgarian system, Big Banking can (if they desire) simply take possession of all the “Bulgarian Cars” assets, and sell them in a fire sale to get back the money they are owed.  This means the factory, the showroom, and anything else could be closed down in an instant.  Big Banking gets back their money, Mr Car is broke, UCWU are out of their jobs, and Steely Corp lost its biggest customer. 

But how would this situation be effected by Draghi’s directive to unify EU capital markets?  How would the bankruptcy be altered?  Who would win, and who would lose? 

Draghi has already signaled that unified EU bankruptcy must allow for “debtor in possession,” meaning Mr Car can keep control of his company while working out a repayment plan with Big Banking.  This system allows Mr Car (or any investor) to try to rescue their company, even in bankruptcy. It’s part of what made Trump’s bankruptcies so painless. 

In France, a debtor is immediately granted relief from creditors upon filing restructuring plans.  In Germany, the debtor may *request relief*, but it isn’t automatic.  But if the capital markets are to be unified, Bulgaria must follow the direction of France and Germany and give Mr Car a reprieve from his creditors.

But should Mr Car even be *granted* relief?  He drove the company into the ground in the first place!  Why does he get to stay in charge, paying himself an obscene salary all the while?  Draghi’s unified capital markets would allow a lot more “Trump-like” bankruptcies ripe for this kind of outrage-bait, with a villainous CEO stiffing creditors, unions, and business partners while still bringing home fat checks. 

And what happens to UCWU?  They just finished negotiating a new contract with Bulgarian Cars. The contract included conditions and a long notice period before a new contract can be renegotiated.  But most EU countries allow the suspension of a union contract to help the company exit bankruptcy.  So Draghi’s unified capital market raises the possibility of workers losing out so that bankers and executives can keep the company going.  Workers’ pain for bosses’ gain. 

And through all this, what about Steely Corp, who just lost its biggest customer?  Bankruptcies are always politically fraught as they can cause a domino effect into other industries.  This is why some nations focus so much on business continuity, even if it comes at the expense of creditors and workers.  Steely Corp will want to lobby the government that UCWU and Big Banking can go to hell, they want to ensure that Bulgarian Cars returns to solvency no matter what.  Otherwise Steely Corp itself may go under, and the national news will blame the Government for letting not one, but *two* major employers go bankrupt.   

How much will Draghi’s unified capital market allow Governments to “save” companies this way?  Under certain restructuring scenarios, the Government will essentially be picking winners and losers in the market.  Demand Big Banking take a debt restructuring, demand UCWU accept a new contract, and you’re making banks and workers lose so that car and steel companies can win.  This doesn’t always fly with EU rules around fairness, and certainly won’t fly with some sections of the commentariat. 

This post was a lot less focused than usual, but it’s been in my mind for weeks.  “Unify the EU’s capital markets” sounds so obvious, why haven’t they done it?  They haven’t done it because it involves politically fraught trade-offs about ownership and hierarchy.  “Who wins and loses in a bankruptcy case” is just the top of the mountain.  Questions of equity investment, investor’s rights, corporate governance, union rights, these are also fraught questions that will have to be answered in a unified capital market.  Whatever answer is chosen will inevitably piss *someone* off, which is why countries are so slow to change these laws.  But until countries are willing to make big changes, the EU capital markets will never be unified. 

Carter and Thatcher: Champions of deregulation

When people talk about the British economy, one complaint floats to the top of the internet discourse: the Financial Sector. According to the Twitterati, the UK spent too much money “building up” a sector of the economy that has done nothing but push up inequality, force everyone into London, and doesn’t even do anything useful.

You’ll hear it said that while finances pay most of the taxes and provide most of the GDP of the UK, this was due to a stupid choice the Government made not a fact of nature. Britain should have been more like Germany, investing in industry so they could have more middle class jobs spread around the whole country. Instead they invested in Finance and got one single city filled with rich people and their servants while the entire rest of the country goes to waste.

This complaint is wrong in many ways, but the most direct falsehood is that successive Governments *did not* “invest in” or “build up” the Financial services industry, services succeeded so rapidly because the Government *kept out*. For a long time, British financial services were heavily regulated and weren’t much larger than than what was available on the continent. But then the Government stepped away from the sector, dropped its regulations, and the sector thrived. The Government didn’t put money and time *into* finances, instead the Government was taken *out* of finances.

Maybe the Government should have gotten out of more industries?

But I’m getting ahead of myself, the changes to Britain’s financial sector all happened in a “Big Bang,” named such because instead of piecemeal deregulation over many years, there was massive, sweeping deregulation all at once. The sudden drop of onerous requirements made the sector highly competitive, and drove massive investment into London/the UK at the expense of the rest of Europe.

But most people look askance at “deregulation.” They think there must be some “catch” to this story. What regulation was dropped, and how did this secretly allow Bankers to suck blood from the unions and the working class? Well here are a few regulations that were dropped:

Broker price fixing: before the big bang, if you wanted to buy a stock from a broker they were required to charge you a minimum price for the service of selling you the stock. This price was set by the Government, and it was illegal to offer lower prices. This is bad for consumers and bad for business, I mean should the Government set a *minimum price* for food? For rent? Hell no. So why a minimum price for stocks?

Ending the price fixing meant suddenly bankers had to compete on price. The price to trade a stock went lower and lower, and this had the effect of opening up the stock market to the common people as well. Suddenly there wasn’t some onerous price on top of any stock you wanted to buy, you could pay for just the stock plus a paltry service fee of a few pence. And in time, even this few pence fee went away, as brokers offered fee-less trading in an attempt to compete on volume.

Price ceilings are terrible, but leftist will still argue they are at least good for the consumer. Price *floors* are exactly as terrible, and I hope even leftist realize they aren’t good for the consumer.

Electronic trading: before the big bang, it was mandated that to buy or sell a stock, two people had to meet in person and agree to the sale. You put in your order to a broker, they wired the order to someone else, and eventually your order would make its way to two people standing on a crowded floor screaming at each other to haggle over the price of your stock. They weren’t screaming in anger, but just to be heard over everyone else on the floor, who was also screaming.

The big bang introduced electronic screens with prices and volumes, and allowed orders to be made totally electronically. This helped end the monopoly of overpaid men screaming at each other. It made ordering easier, allowed it to be done from anywhere, and by cutting out the middlemen it helped bring down the price for buying and selling stock. Once again, this helped democratize the stock market, few workers today would be able to invest for their retirement on the stock market if prices to buy and sell were still as high as the 70s.

Foreign ownership: the big bang allowed foreign companies and individuals to act as brokers. Much like electronic trading, this broke the monopoly on overpaid men screaming at each other, and lowered prices; are you seeing a pattern here? Anyway foreign banks and brokers could now bring outside investment and outside technology to the British stock market, where before they’d been banned.

The ban on foreign brokers had been done solely to “protect” the profits of British banks and British brokers. But like tariffs, it did not help the British economy nor protect British wages. It was just another facet of a Government sanctioned oligarchy, which allowed only certain, connected individuals to profit from Britain’s stock market. Foreign investment created competition, and it also created a flood of incoming money, which boosted demand for workers and drove up British wages. These new brokers needed buildings, needed computers, needed employees etc. The flood of incoming money was a great boon for workers and builders in every sector of the British economy.

These are just a few of the deregulations brought on by Thatcher’s big bang, but they all had the same theme. They broke the monopoly of the overpaid bankers and brokers, and brought in competition that brought down prices and democratized the stock market. The financial industry grew like never before, eclipsing every other sector of the British economy. And it did so not through Government support, but because the Government *kept out*.

But let us turn now to Jimmy Carter.

Deregulation is too often seen as a boogieman of the right wing. The conservative party (whichever party it is in your country), wants to deregulate because they secretly want to destroy the environment and make workers their slaves. It is a too-common dogma on the left that any regulation is necessary and sacrosanct for the good of the economy, and that deregulation doesn’t even help GDP but merely lets well-connected CEOs impose a monopoly that makes everyone poorer.

So I thought I’d push against that view with a man no one could accuse of being a right-wing conservative: Jimmy Carter. Jimmy came to the presidency at a time of great difficulty. Inflation, oil crisis, stagflation even, the American economy was nuts in the 70s. There was even fear that the USSR would overtake America. Jimmy would fix that.

One of Carter’s signature policies was deregulating the airline industry. Once again, a modern leftist might see this as a betrayal: what did Carter’s deregulation do to break the unions, harm the workers, and price-gouge the people, and how much did the airlines pay him to do this? But nothing could be further from the truth. Prior to Carter’s deregulation, the airline industry worked like a Gilded Age trust, with strict rules that protected the big players at the expense of workers, people, and anyone trying to get a foot in the door.

First, to make a new airline route, companies had to submit their request to a centralized body. This body would then look to see if the new route created too much competition with any other airline’s route, and if it did, the route was forbidden. Imagine if Walmart could forbid anyone from opening a store within 5 miles of their own, that was basically what this law did.

The airline submitting the new route had to basically get a hospital-style “certificate of need” proving that there weren’t enough flights for the amount of passengers who *wanted* to travel. This was of course very difficult to prove, and the airlines already serving that route could try to maintain their monopoly by promising to increase flights, so usually the monopoly was protected.

In addition, a centralized agency set a price floor on airline tickets. Like we discussed earlier: price floors are bad. They only serve to enrich the big players by making it impossible for new companies with better tech to come in and compete on price.

In fact, even *starting a new airline company* was all but impossible, as any new company had to get permission to run airlines. Imagine if Walmart could forbid the creation of Costco solely on the basis of “we were here first.”

Airlines in America had a ton of overregulation that only served to protect the big players at the expense of everyone else. No one benefited from this, not the workers, not the fliers, not the American economy, no one except the big boys who lobbied hard to prevent deregulation from passing.

In the end, deregulation democratized flight in America the way same way it democratized the stock market in Britain. Adjusted for inflation, the average New York to LA flight was 1,200$ in 1970, today you can fly that route for under 300$. There is no question in my mind that the American people are better off without being price-gouged by airline lobbyist. And Carter made all that possible.

So my final thought is this: deregulation is a dirty word, but it shouldn’t be. Regulations are not necessarily good. They are not necessarily bad either, but don’t assume they are always good. Deregulation is likewise value neutral. It is good to remove bad regulations, it is bad to remove good regulations.

Britain has a lot of bad regulations holding it back, that’s why I suggested deregulation to Keir Starmer. Starmer has a once-in-a-generation opportunity to change Britain for the better. He’s got a big majority, there is wide agreement that his predecessors were bad for the economy, and he’s hemmed in by debt and deficits preventing any big spending. This is the perfect time for deregulation.

So I say cut the red tape, kick out the cartels, and trample all over the lobbyists who want to protect their corporate fiefdoms. If Britain is going to build, it needs change, the kind of change that Jimmy Carter understood. And even if Thatcher deregulated, that doesn’t mean deregulation is always bad. Would you like to pay 10 pounds every time you wanted to purchase a stock? Would you like to pay 4 times as much to fly to another city? Starmer should cut costs for the working folk, and deregulation can make that happen.

“No more austerity! The Government needs to invest!”

“Government” is capitalized here because we’re talking about the UK today. I meant to write about it earlier, but Keir Starmer and Rachel Reeves have been announcing that benefits cuts will hit the UK this year. On top of last year’s tax hikes, this has raised the specter of Austerity, and fears of another Lost Decade in the UK, only this time with Labour at the helm.

Critics of the cuts abound, bringing complains and counsel:

“What happened to the tax rises from last year?!?”

“Austerity failed already! We can’t keep cutting!”

“Tax the rich! Don’t cut off the poor!”

And finally: “We should invest, not cut!”

Let me address these one by one. First, as much as the left-of-center despises the Laffer Curve, it is still an accurate reflection of reality. Raising taxes increases prices and reduces demand. This nearly always leads to a tax rise bringing in less money than the government predicts. They may claim to be modelling the demand reduction, but governments that raise taxes are heavily incentivized to make broad claims about bringing in lots of money to balance the books. Accurate modeling plays second fiddle.

And this has been the case in the UK, the 40 billion pound tax rise announced last year isn’t expected to bring in quite that much. For instance, a tax on private school education was expected to raise money while affecting a minimal number of pupils. But the government underestimated how many families would be unable to afford the tax, pushing those kids back into the public schools, where they aren’t paying the tax and the government will have to pay for their education.

So the government’s tax rise didn’t bring in near enough, and they even raised spending on top of it. The UK now faces a yawning deficit, nearly 5% of GDP. With Debt to GDP already over 100%, the government is finding borrowing unaffordable. The cost of financing all that debt is soaring, it’s 25% higher than it was a year ago at more than 100 billion pounds a year. Remember, that 100 billion pounds is *just the cost of the interest payments*, assuming no money is spent actually paying down the debt. Labour is then adding that 5% deficit on top of that, which will need even more borrowing.

So borrowing is going to cost way more than Labour expected. If they don’t want to enter a debt spiral, they need to manage that deficit.

“But Austerity failed already!” When did the UK ever implement austerity? It was the word of the decade under the coalition government, but despite the tough talk and tax rises, total spending increased every single year of the coalition, and never went down. And this wasn’t “cuts in real terms either,” *real spending* ie inflation adjusted spending, never went down during the Coalition government. It grew more slowly than under Blair/Brown, but it never went down. Boris Johnson has the (dis)honor of overseeing the only year on year reduction in real Government expenses, thanks to the massive pandemic spending that then petered out.

The UK hasn’t done austerity, and it isn’t doing austerity now. The announced cuts aren’t actual reductions in spending, they are really just slowing the rate of spending *increase*. Labour promised massive spending increases last year, and a few of those are being paired back into a smaller increase. This is still an increase in real spending, just less of one than what was promised. This isn’t austerity.

And what of taxing the rich? They’re already pay all the tax. The top 10% of UK earners pay 60% of all taxes, the top 1% pay half of that (ie 30% of the total). The bottom 50% of earners pay 17% of tax. About a third of working age Britons pay no tax at all.

And that is significantly more progressive than on the Continent, the German 10% pay a little over half of their country’s taxes, the German 1% pay a little under a quarter. By and large, the UK taxes the rich more and taxes the poor less than in the rest of Europe.

Of course, the real definition of “rich” is “1 standard deviation above my personal income.” Everyone agrees that someone *else* must pay more, but will the British economy really be improved by chasing off its last remaining high earners to America? Europeans have boasted that Trump will set off a “brain drain” of wealthy Americans, but the difference in after-tax earnings means historically that brain drain has only happened in the America-ward direction. Further tax hikes will only enforce that paradigm.

Finally, shouldn’t the Government *invest* rather than *cut*? The private sector does it all the time! They take out eye-watering amounts of debt and yet somehow come out on top, the public sector should too!

But the Government doesn’t really invest. It spends money, and it uses the language of the private sector to claim that the money is spent well. But the Government doesn’t have the profit incentive that the private sector does, it’s overwhelming incentive is for optics and votes. So as Biden showed us, Government “investment” never really generates a return.

Labour is right to cut spending. They’ve already hiked taxes, and they need to get borrowing costs under control somehow. Besides, Government spending as a proportion of GDP is already nearly 50% in the UK, about 17,000 pounds per person. Just over 10% of the population (people making more than 50,000 pounds) are putting in more money than they’re getting out. The Government already spends a lot of money, and not well. More money in the fire won’t necessarily help.

But like Nigeria’s president Tinubu, Keir Starmer has talked a big game on growth without having the stomach to follow through with it. So again, here’s my unsolicited policy advice:

Keir Starmer should liberalize (liberalise?) the UK’s labor (labour?) laws. UK companies are significantly constrained in their abilities to fire, and this generates a reluctance to hire. The UK has stiff requirements on minimum notice before firing, minimum compensation when you get fired, and if you work there for 2 years a company needs to jump through significant regulatory hoops to be allowed to fire you. These laws should be liberalized to make it easier to fire, and therefore incentive companies to hire.

I know this proposal doesn’t sit well with any of my readers. We’re all workers, I doubt any of us is an owner. But here’s the rule of labor markets: easy go, easy come. The easier it is to fire a worker, the more willing a company will be to hire, and the more nimble a company will be at navigating a changing market.

If a UK company wants to expand, they have to do so very slowly and carefully because any new hire becomes a big liability after 2 years. UK Companies can’t downsize to adjust to market conditions, and so they are hesitant to upsize even during the good times. That makes them grow more slowly, and believe it or not it reduces wages.

Let’s look at Meta as an example: they laid off tens of thousands of employees when the “metaverse” was proven to be a bust. They were able to lay off quickly and adjust their company focus because those metaverse employees weren’t guaranteed a silver parachute. If firing was harder, they might have held on to their losing bet on the metaverse for much longer, because the cost of firing mitigated the upside potential in changing tactics. Then again if firing was harder, Meta might have never made a big expensive bet on the metaverse to begin with.

See the metaverse was a big, expensive failure, but US companies have to expect that most of their bets will fail. But some bets will succeed and wipe out all the loses from the failures, and so US companies are very quick to hire when they’re chasing a big bet.

The ballooning wages in Tech are a symptom of this. Companies like Google and Amazon have made big bet after big bet in the last 20 years, and to when those bets pay off the company starts offering higher and higher wages to expand the company on the success of their big bet. Sometimes those bets go bad and you get layoffs like at Meta. But many of those bets go good and you find that starting salaries in America become higher than mid-tier salaries in most of Europe.

And while Tech is the most famous example, this is endemic in every American industry from energy to pharma and beyond. Liberalized labor markets mean companies are willing to make big bets, meaning some of those bets pay off and the workers get chased by higher salaries. The workers are ultimately the ones who benefit here, that’s why America is such a magnet for high-skilled immigration (on top of its attractiveness for all immigration). Even with Trump in power, tens of thousands of highly skilled immigrants will continue to come to America every year he’s in office, the salaries are just too good to pass up.

That was a lot more than I expected to write on labor markets, but I’ve got more if you’re interested. Stay tuned for the next exciting installment of “if I ruled the world.”

Victoria 3: I hope you like GDPmaxxing

You may have thought this blog was abandoned.  Nope, I’m just lazy.  So I didn’t want to write about Factorio (which I have a lot of thoughts about), instead I asked my friend from the Victoria post if he’d talk to me about Victoria and I could type it and clean it up to use as a blog post.  As this was from a conversation, it’s very much in stream of consciousness.  But then isn’t that what this is all about?

I asked him to describe what drew him to playing Victoria 3, and he answered:

The Victoria series is a peculiar one.  A mix of economics, politics, and war that this time is much heavier on the economics than anything else.  The real strategy of Victoria is Soviet Planning meets Laisse-Faire capitalism: the state invests heavily into construction and heavy industry, while letting the capitalists build the consumer goods factories for the masses.

I start every game, no matter the country, by building a bunch of construction sectors. Then I build lumbar yards for wood and iron mines for iron.  Construction sectors are what actually build things, they’re kind of like building companies, and the capitalists can contract them out the same as you.  You get a couple to start but you want a lot more to get off the ground quickly.  Wood and iron are the base construction materials at the start of the game.  If you’re an industrialized nation, you can also add tool factories into the mix, as you’ll be building with tools too.  

I want as much wood, iron, tools, as possible, because the larger surplus you have the cheaper it is to construct things.  Building a port costs the same amount of materials no matter what, but if I can buy those for 30,000 dollars instead of 100,000, that’s a better deal.  Oh yeah Victoria has a sort of supply and demand to model prices, if there’s more of a good available than what is being used, it’s price is cheaper.  So when you have a surplus it’s cheap, when you have a shortage it’s expensive.  A surplus of construction materials makes construction cheap.

I also want a lot of construction sectors so building goes faster.  Construction can only happen at a certain rate, so even if I have infinite money and materials, I’d be waiting for years to build all the factories I wanted if I don’t have enough construction sectors.  

So while I’m building out the construction economy, I’m hoping the capitalists and aristocrats of my country privatize the mines and lumbar yards I’m building.  When they privatize, they give me cash and get themselves an asset in return.  That asset will make money (since I’m building so much stuff), and they can reinvest that money into building more buildings later.  Remember that.

But I’m spending money like water trying to build out my construction economy.  I can jack up taxes but that hurts government legitimacy and makes everyone rebellious (insert American Revolution joke).  And even with sky high taxes, I’ll still run a deficit while building up.  So eventually my national debt will become a problem and I have to stop building before I go bankrupt.  This is when I hope the rich people of my country are ready to reinvest, and give back for the good of the nation.

When rich people in Victoria own a farm or factory, they get dividends based on how profitable it is.  They then use those profits to reinvest back into the economy by building more farms and more factories.  Once I’ve built out the construction industry, it should be very cheap for them to start building things themselves, things like wheat farms and clothing factories.  These soft goods are what my people actually want, you can’t eat iron or wear wood.  So if the peasants actually want to their lives to improve, more wheat farms and clothing factories need to be built by the capitalists, which creates a food and clothing surplus letting the peasants buy things cheaper, meaning the peasants can afford to buy *more things* as well.  

This is industrialization in action.  The rich people who built the factories and farms reinvest their profits into building more things, like wine farms and furniture factories and eventually telephone lines. This makes all those things cheaper and now everyone can afford to live much more comfortably than when we were all living as dirt farmers.  Also the rich Job Creators™ will gracious pay a wage to the factory workers and farmhands, and this wage pays better than what you can get as a subsistence farmer.  So this puts extra money in my peoples’ pockets and is another way that their standard of living can increase.  And since people have more money, they can demand even more stuff, which is why my capitalists have to always be building.  No one is ever satisfied, we always want more, so we need to make more factories to make more goods to bring prices down, hire more people into higher and higher paying jobs so they can buy things, and reinvest all that profit we make so we can keep the cycle going.  Forever.

This is economics, and it’s why I like Victoria.  It takes a real stab at simulating an economy.  And like a real economy, industrializing creates a virtuous cycle that spurs on more industrialization and economic expansion.

EDITOR’S NOTE: this is also why I, the editor not the talker, enjoyed Victoria 2.  Vicky 2 and Vicky 3 both have their strengths, *severe* drawbacks, and plenty of edge-cases where things go crazy.  But they both try in earnest to develop a real, working economics simulator that models both why industrialization was so beneficial, and why it was so hard.

Anyway, as the economy expands, it is hopefully my capitalists doing most of the building, spending their hard-earned dividends on new clothing factories and lowering the price of clothes for my people.  Because as my people can afford more stuff, their Standard of Living (SOL) increases.  The Vicky 3 typeface infuriatingly makes SOL look like SOI, but forget that.  When the people’s SOL increases, they become more loyal to my magnanimous government that made it all happen.  Should their SOL decrease, they become more rebellious (imagine that!).

So we want capitalists to build more factories so people can afford more goods so their SOL increases so my regime becomes stronger and more resilient to all the violent revolutionaries/liberals who would overthrow my absolute monarchy.

See Chapel Comics to understand the joke about liberals https://www.chapelcomic.com/64/

Now I made it sound complicated-yet-manageable up there, but trust me like any good economic simulation there are a ton of moving parts.  In addition to micromanaging what your country builds, you can micromanage its trade, setting up each and every trade route with foreign nations.  It’s *kind* of OK.  Trade routes cost convoys (which you build at ports) and bureaucracy (which you build at government institutions).  So there is still the Victoria 2 problem of there being no travel cost for goods, (a sheaf of wheat costs the same whether you bought it from the next town over or from China).  But by having trade require limited resources the player is at least fenced as to how much trade they can easily do.

And while the game does sort of try to model different economic systems, you’re still playing God even in the Laisse-Faire capitalistic system, you’re still an all-knowing god building the construction sectors and various heavy industry.  

So that’s the stuff I like about Victoria 3, so why couldn’t I convince my friend to play it?

EDITOR’S NOTE: really I didn’t want to buy another paradox game and sign up to a lifetime of DLC

Well I love Victoria 3 as an industrialization simulator, but it doesn’t do much besides that.  

So let’s say you’ve built all the heavy industry and now construction is cheap in your country.  Let’s say you keep on top of things as your economy grows, expanding the construction sector to meet new demands, upgrading your factories with newer technology, and so on.  What else can you do once you have a strong, powerful empire?

Not much really.

In fact, upgrading your factories is sort of a frustrating minigame in and of itself.  In older games, researching a new technology would just apply a flat boost to all your factories that used it, researching a better plow made your farms better.  Now however, you have to actually tell all your farms to use that newer and better tech, and that tech will have some cost (of iron, or tools say) that your farms will have to pay in order to use it.  If you upgrade your farms without having enough iron or tools for them to use, you can actually cause them to lose money as the grain they sell doesn’t cover the cost of the tools they use.

But why am I an omniscient god telling everyone how to run their farms?  Who cares.

OK not sidetracked now: what can you do besides economy?

Well war sucks, so don’t do that.  I mean in the game by the way, it is never fun in real life but games should be fun and in this game war isn’t.  They decided moving every individual army was boring an unrealistic, so instead you vaguely tell all your units to go fight along a “front” and they’re supposed to do all the action for you.  A few problems with this:

First, a “front,” is very very vague and yet each army can only and exactly cover one front.  The whole border between Russia and China could be a front.  Or two neighboring towns in Germany could be two different fronts.  It all depends on how the AI decides to split up the map and sometimes it chooses poorly.  But regardless of how the fronts are split up, a single 60 division army can cover exactly one front, and it will always be able to reach every battle along a ridiculously long front, but will never be able to fight a battle happening on a different front even if it’s within spitting distance.

But then, how exactly do the armies even fight on these fronts?  It’s pure diceroll and I don’t know if any skill is involved.  I click to tell my armies to go to a frontline and fight the enemy, then war vaguely happens offscreen, and I can neither influence it nor does it influence me.

See, wars in Vicky 3 are strangely bloodless affairs.  Soldiers are supposedly dying, territory is blasted with artillery, but it doesn’t seem to affect anything besides a vague “war weariness” number that ticks up until you’re forced to surrender or you win.  If your territory is conquered, you still get all the money from it, your people are still working their jobs, and all the factories are still sending ammo and artillery to your frontline (even though the factories themselves are behind enemy lines).  If your army is annihilated, they flee back to your territory to rest and recuperate, but you never see units wiped out that you have to replace, or see the effects of all the dead soldiers on your populace.  It’s weird, bloodless is the only way I can really describe it.  It’s like they *had* to have wars, because you can’t simulate the 19th century without them, but they didn’t want war to interrupt the economics lesson so they just put it to the side.

EDITOR’S note (long one this time): This is a complete change to how war was in Victoria 2.  Not only on a higher level, in that Vicky2 let you move around every individual division, but on a lower level in how war effected the rest of the game.

Occupied provinces in Vicky2 didn’t send you taxes or resources.  Their factories were blasted to rubble, their farms were torn to pieces.  The people living there would slowly run out of supplies, which not only lowered their life expectancy but made them militant and angry, angry enough to start a revolution.  More than once I would be fighting a war only to see enemy rebels pop up in the lands I had occupied, the occupied people deciding now was the time for a revolution to overthrow both invaders and oppressors.  Wars could turn into an interesting 3-way dance in this way, or even a 4-way dance if multiple different groups rebelled simultaneously.  

And beyond the front lines, the soldier pops themselves were important.  Soldiers staffed their regiments, and as they died in battle new soldiers needed to replace them.  That meant that during war you’d have to use your national focus points to encourage other people to become soldiers and fill the ranks, essentially you put on a huge recruiting drive, and that took away from your abilities to raise literacy or factory output or anything else.  The soldiers themselves all had an identity too, and a home they were from.  

There might be a regiment of say Hungarian soldiers in Vienna.  They might have come from Hungarian people migrating to the Big City for work, and then being encouraged to become soldiers and join the army by your recruitment drive.  You can form them into a division, and as they take loses those Hungarian soldiers in Vienna will shrink more and more and more.  Eventually their division will take so many loses that it will completely disappear, along with the soldiers it was connected to.  

There may be other Hungarians, other Viennese divisions, but the *Hungarian Soldiers From Vienna* could come to an end, all because of a single bloody war where their division took the brunt of the fighting.

You could see these effects happening in real time.  If you recruited soldiers mostly from your nations ethnic minorities, then they’d be the ones to take most of the loses in your wars.  And if your nation discriminated against ethnic minorities, you could find that your own soldiers would rise up and join the rebels when the time came.

None of this seems to happen in Victoria 3 wars.  Farms, factories, and soldiers aren’t all that troubled by the killing, dying, and destruction.  It’s one of the biggest misses in a game full of misses, war doesn’t seem like war.

But unfortunately war is the major way you can interact with an affect the game world.  The AI knows it too, and can be a lot more trigger happy in this game than previous one.  Victoria 2 had a habit of AIs being fairly passive unless you screwed with them.  The “crisis” system was supposed to satisfy a player’s warlust by forcing all the great powers to have a showdown every decade or so, but if you weren’t in Europe you could ignore the crises and everyone else would ignore you (mostly).

Now though a strong AI is happy to march their army to war anywhere, anytime, for any reason.  Russia will send everything it has to Spain in order to support the independence of the Phillipines.  Britain will march on America because they want to change the rulership of Liberia (America’s protectorate).  Italy will send everything it has to Guatemala just because they didn’t want to join Italy’s alliance.  These are all wars that are possible, but somewhat fantastical because in the real world nations didn’t send large armies halfway across the world just for kicks.  Wars happen either with large armies close to home or with very small armies very far away, you don’t send out everything you have because what if your neighbors want to try something while your whole army is away?  You could be conquered in a day by someone far smaller than you.

EDITOR’S NOTE: fun fact, this was kind of the case in WW1.  I was watching a show that pointed out that Germany delayed the implementation of unrestricted warfare submarine warfare until it could bring units back from the Eastern front to station on the border with Denmark.  Submarine warfare didn’t just piss off the Americans and bring them into the war, it pissed off all Germany’s neighbors and could have brought any one of them into war.  There was a real fear that with literally the entire army in France and Russia, a nation as small as Denmark could pull a surprise invasion and be in Berlin before anyone could react, and they would definitely have a reason to if German subs started sinking a lot of Danish ships

So war feels very very gamey, AIs are way too willing to throw down for the slightest cause, but then again war is so painless that they might as well do so yeah?

On and politics?  It’s ok I guess.  Very confusing, very deep, very much something that you dream about and think “oh I wonder what cool things I can do!”  Then you actually play the politics and it’s not much.  

It’s not the worst when it interacts with economics I’ll say that much.  See the powerful people in your country are split up into interest groups (IGs) that have their own ideals and their own desires.  And in a non-industrialized nation, most of the power is held by the large landowning families.  And surprise surprise they don’t like changing the laws in any way that would negatively affect them.  So maybe you want to rationalize the economy to allow for private investment, open up trade to allow for importing of valuable goods, or ending serfdom to allow peasants to take factory jobs.  Any one of those is a threat to their power, so the landowners will forbid it.  And if you try to force the issue, they’ll rise in rebellion and overthrow you, reverting all your hard-fought laws to back to how they were before your reforms.

Reforming an economy in the politic sense is thus an uneasy balance of placating the powerful landowners, undermining their influence where possible, and desperately trying to enact laws before they can rise up against you.

But once you’re past that, the politics is just timers and dicerolls.  There really isn’t much you can do to direct the fate or your nation.  You can sometimes invite foreign agitators to try to start a movement for some cause or another.  You can suppress or support some interest groups to get them to be powerful enough to pass laws.  But it is really all down to chance and factors outside your control.  And there isn’t any real novelty to the politics either, there is pretty much always a “best” law that you want to be aiming for at any one time.  So no matter your nation no matter your starting position, you’ll be trying to pass the same laws the same way everywhere using the same dicerolls and timers.

Not exactly fun.

I’ll end on a final note about Power Blocs, or rather what they should be called which is the EU-lite.  Power Blocs aren’t what they seemed to be named after, where multiple countries join together for a common cause.  Instead they’re modelled almost exclusively after the British and Russian empires, where one nation (Britain, Russia) is *really* in charge but let’s other nations (Canada, Finland) have a tiny bit of sovereignty as a treat.  Those nations can set some of their own policies, but their ultimate fate is to either be swallowed up and annexed by their overlord, or fight a war and escape.  Or I guess wait for their overlord to fight a big war and then ask to leave, that works too.  

Anyway why would anyone join a power bloc, when it all leads to annexation?  Well the key is the EU part of it.  Nations in a power bloc all share a single market.  You should read an economist for a good deep dive as to how common markets are more efficient, but the game does do a damn good job at modeling that too.  You the player don’t have to make sure your own nation produces one of everything, instead other nations can produce some stuff and sell to you in exchange for your stuff.  This lets everyone specialize in their comparative advantage, and unlike the normal trade system this doesn’t cost bureaucracy or convoys, the trade is automatic.  

What this means is that as soon as Britain start building factories to make tools, the rest of its Empire benefits from lower priced tools.  Britain also benefits from having a captive market for its finished goods, sure it’s a lot harder to overproduce tools and cause a surplus that makes your construction cheaper, but you can also let your factories go wild on producing the most high value finished products, because you’ve always got a captive market to sell to.  In turn you can buy up their low value products to keep your population satisfied and keep their standard of living (SOL) rising.

It all makes a certain kind of sense.  I formed a power bloc as America that was a kind of Trade League, which seems to be the only type of Power Bloc that doesn’t end in Annexation.  I invited all of Central and South America into my EU-style trade league, and my population’s SOL shot through the roof.  Overproduction of a good isn’t always useful, because if the cost goes down too much then the people working in the factory don’t get paid (because there is no profit).  This can end with a depression cycle, where their income goes down so their SOL goes down so they buy less meaning the factories sell less meaning their income goes down more, etc.  But all of the Americas was my captive market, any time I build a factory there was someone somewhere to buy the surplus.

And since I had all the best tech, it was always better for the factories to be built in America rather than anywhere else, so it was always my people who got the high paying factory jobs.  The rest of the Americas usually only worked the jobs that were cut off by geography instead of economics.  Large scale coffee and rubber farming for instance.  My capitalists opened rubber farms anywhere they could in South America, and since my factories needed the rubber those rubber farms paid a lot better than any of the less efficient factories opening in those South American countries.

This created a sort of anti-capitalist’s nightmare, capitalism was working by way of a permanent underclass.  The workers in America were getting ever richer because they were producing finished goods to export to South America.  The workers in South America couldn’t compete with the American factories because their nations didn’t have the tech that America did.  They were instead relegated to rubber, coffee, and any other jobs that just couldn’t be done in America or couldn’t be done efficiently.  But they were still benefiting from a rising standard of living (SOL) because the cost of rubber/coffee/etc was rising thanks to American factories and American demand for goods.  This lead to South America also having a rising SOL, just one that was never as high as America, and was capped well below America’s.

The one problem is that that isn’t how it really works in real economics.

The technology of a factory isn’t determine by what country it’s built in, but by the technology available to the investor.  When Apple started building factories in China, they didn’t use Chinese technology (which at the time was well behind America’s).  They brought over all the innovations and insights from Silicon Valley and set up all the tech there.  The factories of China used all the same high tech you’d find anywhere else, just with a lower cost of labor.  

That should be the case in Victoria 3 as well.  It doesn’t make sense that South American factories can never keep up with American ones, if an American capitalist built both then the assembly lines, automatic sewing machines and so on can be brought and shipped to a factory whether it’s in Columbus or Colombia.  You’d expect outsourcing to happen in this scenario, same as happened with China in the 90s and 2000s, but since the technology of a factory is determined by where it’s built and not who builds it, we instead get the anti-capitalist’s nightmare described above.

One final fun fact to end this one: Hawaii was also in my Power Bloc.  I checked the rankings at one point and it was the damnest thing: Hawaii’s standard of living (SOL) was head and shoulders above anywhere else on earth, even my own SOL in America.  

Most nations start the game at SOL of 9 or so.  Industrialized may start at 10, lower tech nations may start at 8.  It’s long and hard to improve your SOL but I’d done a respectable job of bringing America’s SOL up to a baseline of about 20, double what it was at the start and bringing my nation from its starting point of “impoverished,” up through “middling” and into the giddy heights of “secure.”

Hawaii by contrast had an SOL of *35*, way past “secure” and “prosperous,” all the way to “affluent.”  I was shocked, how had this happened?

Well the EU is how, and in a funny way.  See since all the best paying jobs were in America, the people migrated to where the jobs were.  America starts the game with roughly open borders, and if you keep it that way the tired, poor, and huddled masses will be very happy to leave their rubber/coffee jobs and come live in America to work in car factories and get paid 3x as much.

Hawaii starts the game with a miniscule population, and it seemed almost every dang one of them had left and gone to America.  So who was even left to live it large in Hawaii with the SOL of 35?  The capitalists, of course.  

Capitalists can invest in factories remember, and at some point the Hawaiian capitalists had taken advantage of my EU power block to invest in an American factory.  Naturally it was doing gangbusters, and they in turn were swimming in dividends.  So of course they could live the high life, buying lots of stuff since my factories had made everything so cheap.  They could have lots of clothes, porcelain, furniture, even a car or two.  And since all the working classes had gone off to be Americans, the wealthy capitalists were the only ones left on the islands.  This defaulted Hawaii’s SOL to the SOL of the poorest capitalists, an affluent 35 or so.

But wait, if all the working classes left, who sold the capitalists their food?  Who brought over the cars from America, who built their homes and fixed them after the storm?  

No one, like a lot of things Victoria 3 abstracts that all away.  If goods aren’t moved by rail they move by magic, so everything can come off the factory floor in America and teleport magically to the rich capitalist in Hawaii, who never needs to hire a poor handyman to fix his windows or garage either.  

EDITOR’S NOTE: Anyway that’s Vicky 3 in a very long nutshell.  As my friend describes it, you’re here for the economy and *nothing else*.  If economics doesn’t interest you, I hope you don’t mind my blogging.  But if it does, I hope war doesn’t interest you because Vicky 3 doesn’t do it well.  I’d like to say this will be the last time I make a post this scattered and unusual, I wanted to write but didn’t want to so I had someone else write for me essentially.  Hopefully next week we’ll be back to Factorio, I swear I still have much to say about it.

If the government doesn’t do this, no one will

I’m not exactly happy about the recent NIH news. For reference the NIH has decided to change how it pays for the indirect costs of research. When the NIH gives a 1 million dollar grant, the University which receives the grant is allowed to demand a number of “indirect costs” to support the research.

These add up to a certain percentage tacked onto the price of the grant. For a Harvard grant, this was about 65%, for a smaller college it could be 40%. What it meant was that a 1 million grant to Harvard was actually 1.65 million, while a smaller college got 1.4 million, 1 million was always for the research, but 0.65 or 0.4 was for the “indirect costs” that made the research possible.

The NIH has just slashed those costs to the bone, saying it will pay no more than 15% in indirect costs. A 1 million dollar grant will now give no more than 1.15 million.

There’s a lot going on here so let me try to take it step by step. First, some indirect costs are absolutely necessary. The “direct costs” of a grant *may not* pay for certain things like building maintenance, legal aid (to comply with research regulations), and certain research services. Those services are still needed to run the research though, and have to be paid for somehow, thus indirect costs were the way to pay them.

Also some research costs are hard to itemize. Exactly how much should each lab pay for the HVAC that heats and cools their building? Hard to calculate, but the building must be at a livable temperature or no researcher will ever work in it, and any biological experiment will fail as well. Indirect costs were a way to pay for all the building expenses that researchers didn’t want to itemize.

So indirect costs were necessary, but were also abused.

See, unlike what I wrote above, a *university* almost never receives a government grant, a *primary investigator* (called a PI) does instead. The PI gets the direct grant money (the 1 million dollars), but the University gets the indirect costs (the 0.4 to 0.65 million). The PI gets no say over how the University spends the 0.5 million, and many have complained that far from supporting research, the University is using indirect costs to subsidize their own largess, beautifying buildings, building statues, creating ever more useless administrative positions, all without actually using that money how it’s supposed to be used: supporting research.

So it’s clear something had to be done about indirect costs. They were definitely necessary, if there were no indirect costs most researchers would not be able to research as Universities won’t allow you to use their space for free, and direct costs don’t always allow you to rent out lab space. But they were abused in that Universities used them for a whole host of non-research purposes.

There was also what I feel is a moral hazard in indirect costs. More prestigious universities, like Harvard, were able to demand the highest indirect costs, while less prestigious universities were not. Why? It’s not like research costs more just because you have a Harvard name tag. It’s just because Harvard has the power to demand more money, so demand they shall. Of course Harvard would use that extra money they demanded on whatever extravagance they wanted.

The only defense of Harvard’s higher costs is that it’s doing research in a higher cost of living environment. Boston is one of the most expensive cities in America, maybe the world. But Social Security doesn’t pay you more if you live in Boston or in Kalamazoo. Other government programs hand you a set amount of cash and demand you make ends meet with it. So too could Harvard. They could have used their size and prestige to find economies of scale that would give them *less* proportional indirect costs than could a smaller university. But they didn’t, they demanded more.

So indirect costs have been slashed. If this announcement holds (and that’s never certain with this administration, whether they walk it back or are sued to undo it are both equally likely), it will lead to some major changes.

Some universities will demand researcher pay a surcharge for using facilities, and that charge will be paid for by direct costs instead. The end result will be the university still gets money, but we can hope that the money will have a bit more oversight. If a researcher balks at a surcharge, they can always threaten to leave and move their lab.

Researchers as a whole can likely unionize in some states. And researchers, being closer to the university than the government, can more easily demand that this surcharge *actually* support research instead of going to the University’s slush fund.

Or perhaps it will just mean more paperwork for researchers with no benefit.

At the same time some universities might stop offering certain services for research in general, since they can no longer finance that through indirect costs. Again we can hope that direct costs can at least pay for those, so that the services which were useful stay solvent and the services which were useless go away. This could be a net gain. Or perhaps none will stay solvent and this will be a net loss.

And importantly, for now, the NIH budget has not changed. They have a certain amount of money they can spend, and will still spend all of it. If they used to give out grants that were 1.65 million and now give out grants that are 1.15 million, that just means more individual grants, not less money. Or perhaps this is the first step toward slashing the NIH budget. That would be terrible, but no evidence of it yet.

What I want to push back on though, is this idea I’ve seen floating around that this will be the death of research, the end of PhDs, or the end of American tech dominance. Arguments like this are rooted in a fallacy I named in the title: “if the government doesn’t do this, no one will.”

These grants fund PhDs who then work in industry. Some have tried to claim that this change will mean there won’t be bright PhDs to go to industry and work on the future of American tech. But to be honest, this was always privatizing profit and socializing cost. All Americans pay taxes that support these PhDs, but overwelmingly the benefits are gained by the PhD holder and the company they work for, neither of whom had to pay for it.

“Yes but we all benefit from their technology!” We benefit from a lot of things. We benefit from Microsoft’s suite of software and cloud services. We benefit from Amazon’s logistics network. We benefit form Tesla’s EV charging infrastructure. *But should we tax every citizen to directly subsidize Microsoft, Amazon, and Tesla?* Most would say. no. The marginal benefits to society are not worth the direct costs to the taxpayer. So why subsidize the companies hiring PhDs?

Because people will still do things even if the government doesn’t pay them. Tesla built a nation-wide network of EV chargers, while the American government couldn’t even build 10 of them. Even federal money was not necessary for Tesla to build EV chargers, they built them of their own free will. And before you falsely claim how much Tesla is government subsidized, an EV tax credit benefits the *EV buyer* not the EV seller. And besides, if EV tax credits are such a boon to Tesla, then why not own the fascists by having the Feds and California cut them completely? Take the EV tax credits to 0, that will really show Tesla. But of course no one will because we all really know who the tax credits support, they support the buyers and we want to keep them to make sure people switch from ICE cars to EVs

Diatribe aside, Tesla, Amazon, and Microsoft have all built critical American infrastructure without a dime of government investment. If PhDs are so necessary (and they probably are), then I don’t doubt the market will rise to meet the need. I suspect more companies will be willing to sponsor PhDs and University research. I suspect more professors will become knowledgeable about IP and will attempt to take their research into the market. I suspect more companies will offer scholarships where after achieving a PhD, you promise to work for the company on X project for Y amount of years. Companies won’t just shrug and go out of business if they can’t find workers, they will in fact work to make them.

I do suspect there will be *less* money for PhDs in this case however. As I said before, the PhD pipeline in America has been to privatize profits and subsidize costs. All American taxpayers pay billions towards the Universities and Researchers that produce PhD candidates, but only the candidates and the companies they work for really see the gain. But perhaps this can realign the PhD pipeline with what the market wants and needs. Less PhDs of dubious quality and job prospect, more with necessary and marketable skills.

I just want to push back on the idea that the end of government money is a deathknell for industry. If an industry is profitable, and if it sees an avenue for growth, it will reinvest profits in pursuit of growth. If the government subsidizes the training needed for that industry to grow, then instead it will invest in infrastructure, marketing, IP and everything else. If training is no longer subsidized, then industry will subsidize it themselves. If PhDs are really needed for American tech dominance, then I absolutely assure you that even the complete end of the NIH will not end the PhD pipeline, it will simply shift it towards company-sponsored or (for the rich) self-sponsored research.

Besides, the funding for research provided by the NIH is still absolutely *dwarfed* by what a *single* pharma company can spend, and there are hundreds of pharma companies *and many many other types of health companies* out there doing research. The end of government-funded research is *not* the end of research.

Now just to end on this note: I want to be clear that I do not support the end of the NIH. I want the NIH to continue, I’d be happier if its budget increased. I think indirect costs were a problem but I think this slash-down-to-15% was a mistake. But I think too many people are locked into a “government-only” mindset and cannot see what’s really out there.

If the worst comes to pass, and if you cannot find NIH funding, go to the private sector, go to the non-profits. They already provided less than the NIH in indirect costs but they still funded a lot of research, and will continue to do so for the foreseeable future. Open your mind, expand your horizons, try to find out how you can get non-governmental funding, because if the worst happens that may be your only option.

But don’t lie and whine that if the government doesn’t do something, then nobody will. That wasn’t true with EV chargers, it isn’t true with biomedical research, and it is a lesson we all must learn if the worst does start to happen.

China is getting the trade war it deserves

And the US is getting the inflation it clearly wants.

Contrary to the title, this post will only be about America, because I don’t have any real insight into the CCP that hasn’t been covered elsewhere. But I read this article running cover for Biden’s disastrous policy of protectionism, and wanted to post my thoughts.

The central premise of the article is that cutting off trade with China is good because they’re a fascist and expansionist foreign adversary. Now, that’s also a great reason to cut off trade with Saudi Arabia, but America’s trade policy isn’t actually about foreign policy, as you’ll soon find out.

Even more importantly, tariffs don’t hurt the country you’re tariffing, or at least they hurt them *less* than they hurt your *own country*. Even Biden knows that, just ask the Biden of 2019

Tariffs are a great way to push up your own country’s inflation by taxing supply without reducing demand. Furthermore, even if you don’t buy Chinese products you will be paying for this inflation because of substitution effects: someone who is no longer able to buy a Chinese EV may instead purchase an American car, increasing demand for American cars and therefore driving up their price.

There’s two great ways to understand how terrible tariffs are. First, think of the oil shock in the 1970s: middle east nations cut off America’s access to oil and gas from their countries, causing spiraling prices and runaway inflation. By blocking America’s access to energy, they were able to put an economic squeeze that defined the decade.

China is being tariffed on solar power, wind power, and green industries of all kinds, and China makes up more of our imports than the middle east ever did. Spiraling prices are yet again on the menu.

Furthermore, think of Britain’s strategy against Germany during both World Wars. Britain used its powerful navy to prevent Germany from importing goods. This caused shortages and spiraling inflation, leading to riots that overthrew the government in the First World War and overwhelming shortages during the Second.

Tariffs are a way for us to do to ourselves what our enemies would do to us in war: restrict the import of needed goods.

Finally, consider Biden’s empty words about the “existential threat” posed by Climate Change. If Climate Change is dire, then why is Biden raising tariffs on solar power, wind power, and EVs, rather than Chinese oil and Chinese airplanes? Biden is essentially setting up an “anti-carbon tax,” in which polluting industries are exempt from a tax being paid by green industries.

The truth is that none of this is about national security, anymore than the Japan Scare of the 1980s was about national security. Just look at how Japan’s peaceful economic expansion was seen back then:

“The Danger from Japan.” Mr. White warned that the Japanese were seeking to create another “East Asia Co‐prosperity Sphere”-this time by their “martial” trade policies, and that they would do well to “remember the course that ran from Pearl Harbor to the deck of the USS Missouri in Tokyo Bay.

Biden is a 1980s style politician, with the (failed) economic outlook of that time. When he sees foreigners being successful it makes him scared, so he raises tariffs to “protect” American industries. But far from protecting industries, tariffs only harm them.

Industries rely on consumers to sustain them, but tariffs are a tax on consumers, sucking up consumer surplus and leaving less money for consumers to spend on domestic industries. Politicians think that domestic industries can magically appear to replace all the foreign ones, but simply put: no man is an island and nor is any country. Autarky is the failed economic policy of fascism, not an economic model for democracies.

Just look at a country like Brazil. Heavy tariffs were supposed to promote domestic industries and help consumers. Instead, consumers pay exorbitant prices for things like video games, while Brazil’s gaming industry remains anemic relative to the nation’s size and wealth. Brazilian cars, Brazilian microchips, and Brazilian steel are not the envy of the world.

And it isn’t because Brazilians are bad at industry, its because their government is doing everything it can to stop them. The high tariffs on everything from steel to cars to microchips are supposed to spur domestic industry, but who’s going to open up a factory when you have to pay those high tariffs just to import the machines and inputs needed to make your products?

Biden is a protectionist because he’s a protectionist. Not because China or Canada are scary or because he needs to fight climate change. But to be fair, Trump is just as protectionist as Biden if not more-so. It’s clear that the current crop of American politicians supports higher inflation and poorer consumers. And that bodes ill if you want to see America succeed and its enemies fail.

Doing the Possible: Musings on good governance

I’ve been reading “If We Can Put a Man on the Moon,” which is a book that attempts to explain why some government policy succeeds and some fails. The book outlines how public policy requires a clear objective, a clear plan to reach that objective, and the ability to follow through with it. It all seems rather obvious when you write it out like that, but the book offers some definite insights.

A clear objective seems obvious, but is surprisingly easy to overlook. Gerald Ford promised to “whip inflation now,” but how exactly did he expect to do that? Supposedly the government would politely encourage citizens to do things like grow more food and use less fuel, to increase supply and decrease demand. It’s a nice idea, but polite encouragement doesn’t move the economy, and Fords “WIN” policy went nowhere.

A clear plan is also something that seems obvious, but often gets overlooked. When California reformed its electric grid in the 90s, no one had really thought through how the new system would work. They set mandates to ensure that prices were capped for consumers, but did nothing to ensure adequate supply. It was legal, for example, to buy power at a low price in California and export it for the uncapped price in other states. Then, if California didn’t have enough power, the utility was obligated to import power from other states no matter the cost, but was not allowed to pass this cost on to customers. This lead to companies easily gaming the system by exporting power for cheap, then re-importing it at a higher price. 

People like to blame greedy companies for the failed California power experiment, but companies are always greedy in all cases. The government should create a system in which corporate greed leads to societal good, such as how tech companies have given us ever better computers at lower and lower cost. Failure to plan leads to a system that is designed to fail.

The ability to follow through is a common complaint, but it too has unexpected pitfalls. The political class has different incentives than both the bureaucrats and the people, but they all work together for a plan to succeed. Politicians have an incentive to pass a bill and say they “fixed” something, that’s why most celebration happens on when a bill is pass instead of 5 years later when its effects are being evaluated. Bureaucrats are just career workers like anyone, and have an incentive to do their job and get paid. They aren’t incentivized to go above and beyond for the benefit of a politician who might not be there in four years. 

This is why it’s so common for politicians to take office promising “big changes” but still not accomplish much. Once the bill is passed and the photo-op is finished, it’s out of their hands and they don’t has a reason to keep caring. And when someone comes in saying they’ll “upend the stuffy bureaucracy,” well if they don’t meet the career employees halfway they’ll engender resentment in a group that can drag its feet and wait for the political will to die down.

All told, the book does have a lot of prescriptions for good governance:

  • Have an idea for how to fix a problem, and don’t make a plan of action without a strong idea. Likewise, seek out good ideas from everywhere, and be willing to challenge your own ideas to see if they’re actually appropriate.
  • Make a rational design for how the problem will be fixed. Focus on the design, not just on getting buy-in from the right pressure groups. Stress-test the design and hire people to poke holes in it. Then fix those design holes before passing a new law.
  • Ensure oversight and continued evaluation even after a law is passed. The job doesn’t end after the vote and the signature.
  • Understand that government is different than any other sector, and that you have to meet people halfway. You can’t treat public employees or the public at large as workers in your company or as cogs in a machine. 
  • Don’t assume the success of a plan. And don’t assume that just because it hasn’t failed yet that it won’t in the future. Look for any signs that cracks are forming, and fix them before they get too big. The space shuttle Colombia flew 27 missions, many of which showed problem signs, before the fateful 28th mission that ended in disaster.
  • Keep re-evaluating. If a program is no longer fit for purpose, fix it, replace it, or kill it. Be willing to see that something isn’t working and be willing to change it. And don’t keep trying the same program over and over without change, be willing to go back to the beginning and look for new ideas and new designs.

That, in a nutshell is what the book is about (or at least my reading of it). It’s certainly more uplifting that what you expect from a book about governance, but without ignoring the data and the details. I’ll have more to say on it later, but I think anyone who likes this sort of thing should check it out.