John McCain’s passing poses more questions than answers

McCain Feingold

I am not usually interested in talking about “current events” but the death of John McCain is worthy of consideration in terms of all the questions it poses for the long trajectory of politics in the US and elsewhere.

First, cards on the table: I was for many years a card-carrying member of the McCain fan club. I met the man twice, once when I was interning on the Hill in 2001 when he and Joe Leiberman were the Statler and Waldorf of American politics, and again three years later when he came to the Oxford Union; somewhere in the back of my desk drawer is a grainy first-generation camera phone video of the standing ovation he received from all as he left that hall. To my mind, in his 2000 incarnation he was perhaps the greatest President the US never had, combining nobility and grace with a far-reaching sense of mission and destiny for his country. On top of this, he was a patriot and in his own way, had a strong sense of America’s purpose in the world. His defeat at the hands of Karl Rove’s borderline racist campaign in the 2000 Republican primaries was a tragedy all round.

McCain sponsored the only substantial campaign finance reform bill of recent years, and was one of the few sources of bipartisanship in an era of increasing polarisation. He also attempted, being a Western conservative rather than a Southern one, to find a way to reform immigration in such a way that America could still be sensitively preserved before the difficulties set in. He failed, but not before dragging Bush along with him and not before cementing that alternative Republican approach towards success in states that were not whiter than white – including Arizona and Texas. In party terms it might be said that he was the future, once.

Yet by 2008, McCain was a sad shadow of his former self. For the previous few years he had begun to cravenly solicit the support of the GOP machinery by supporting an extension of the Bush tax cuts and in the end turning to Karl Rove, of all people, for advice in the Presidential campaign. For my own part, I struggled to support McCain during that election and only did so in the end as a counter to the vapidity that would prove to characterise Barack Obama; in fact my preferred candidate in early 2008 was Hillary Clinton. Where in 2000 I was so deeply upset at McCain’s failure, by 2008 I could only shrug as his team decided to invite Sarah Palin onto his ticket.

This stark decline was not just a measure of his political choices; it was indicative of the declining relevance of McCain and his whole faction, well-meaning but ultimately anachronistic as they were. For a start, his ideological hawkishness over Iraq showed an antiquated notion of how to manage international relations. Elsewhere, I have written about the idea that greatness can only be achieved through a judicious mixture of both nobility and ruthlessness, not through ideological optimism alone. For a country like the US, some countries may be won over, but others need to be kept down with all the skullduggery in one’s arsenal. McCain was blindly wedded only to the former; his worldview was effectively one of nobility alone – the idea that sheer “rightness” would be enough to win America’s conflicts.

McCain, even in 2000, embodied all too much that post-Cold War complacency which first failed to foresee the emerging threat of militant Islam and then also dealt with it so clumsily and inconclusively. Leaving aside Iraq, it is also difficult to imagine what McCain’s reaction to China would have been in recent decades. The likelihood is that in dealing with what has become the single largest threat to American hegemony, he would have undertaken the same combination of sabre-rattling and indecision which was to inform the Bush and Obama administrations. McCain would also have had nothing to say on China’s post-WTO gamesmanship, because trade, commerce and business were not his strength. He would have been just as distracted by pointless sideshows against Russia and just as obtuse, I am sad to say, about the key issues of wage growth and trade.

McCain young

It is incredibly sad to think of how irrelevant many of the things we put McCain on a pedestal for ten years ago, are today. Yet he does bequeath some traits which remain important, of bipartisanship, integrity and patriotism which are so obviously lacking throughout the ranks of both political parties today. McCain would have taken us into perhaps ten wars and back; but he would always have done so on first principles. Nonetheless his passing closes the chapter on an era when America could still afford to think in clean cut terms about its role in the world; and highlights the fact that his naivety on occasionally doing the cynical thing, is also passed. For McCain, I believe the world was always the world of 2000. I adored the man, but it is time to move onto a new reality.

Donald Trump and the right side of history

Trump TPP

The Guardian recently caused a splash by publishing a piece discussing Donald Trump’s remarkable resilience in the polls despite the near universal opprobrium being heaped on him by the media. It had some sage words for why media hostility was actually hardening Trump support, as well as pointing out that ultimately, Trump is giving most Republicans what they want. Both are true, but the piece also omits one major explanation for the stubbornness of the numbers; after all, 87% of Republicans support Trump, but that is far too little to explain 43% approval numbers. Instead, it is the support of 36% of “Independents” and even more surprising 9% of Democrats which he continues to command (both numbers which have increased markedly during the first half of 2018), which make up the difference:

Presidential Approval Ratings between Q1 and Q2 of 2018

Trump polling

Source: Gallup

In the climate of public discourse, his avowed critics find it incomprehensible to imagine who these non-Republicans might be. But yet it is these independents and Democrats who make up the group supposedly so “racist” that they voted twice for Obama before voting for Trump. Why, as the Economist asks, will the Democrats “struggle to win back Obama-Trump voters”?

The biggest problem for Trump’s detractors is the fact that he is, on some level, on “the right side of history” at a moment when hardly anyone else in public life is. By this, I mean that on some of the largest issues weighing on the public today such as trade, immigration and even international institutions, it is Trump who is pushing at an open door, not his opponents. We can be pretty certain for instance that whoever wins the next few elections will not be doing so on a wave of championing more free trade, more open immigration or more faith in organisations such as the UN, NATO, the IMF or the WTO. Instead, the winners are likely to be those who are talking Trump’s language, even if they are not using his vocabulary.

No doubt this idea will cause outcry amongst my liberal friends, but let us consider the evidence. The first such exhibits are the underlying macro themes. For instance, UBS released a note in 2016 charting the recent decline of globalization as a very natural part of the development cycle, and why also there are structural tensions being created in the current situation:

UBS - globalisation

The globalization cycle typically sees high growth in trade matching high levels of growth, followed by periods when trade and growth decline. These are the moments when societies spend a moment to draw their breath and “catch up” to the excessive changes that have been wrought. In an earlier blog I noted the limitations of explaining away trade deficits with capital surpluses for instance, as some commentators quite unashamedly continue to do. The reality is that those who gain from the latter are not the same who lose out from the former, resulting in a political and social tension unaccounted for in scholarship which is postgrad IQ but high school EQ.

Additionally, there is the element of inequality over growth distribution. In the UBS analysis, we can see that despite a substantial slowdown in growth, exports remain at an unrelentingly high percentage of GDP resulting in limited social recalibration. Furthermore, the growth even during the previous wave of globalisation mainly benefited the non-West as this recent HBR study shows:

HBR - gloablisation

This is supported from a different angle by HSBC’s analysis of which countries have gained in which era of the recent past:

HSBC - globalisation

Source: HSBC presentation, January 2017 (not available online)

In broad terms therefore, there is such a thing as “too much trade” and its corollary “too much freedom of movement” (aka immigration). For all these reasons, from the perspective of the American voter, the “right side of history” is the side which will make these changes.

The second piece of evidence for Trump being on the “right side of history” is the surprising consensus for change in these areas. The China “trade war” – an irresponsibly used term if ever there were one – has seen much fear and anguish in the media (very few of whom understand even the basics of trade economics) but actually commands widespread bipartisan support in Congress and has done for some time. The same applies to pulling the plug on TPP and questioning NAFTA – both positions that have long animated the party that produced Bernie Sanders, Dennis Kucinich and Howard Dean. Some determined anti-Trumpers of the Left have now painted themselves into the absurd position of defending the free trade of the WTO, when just a few years ago they were its greatest opponents. On this, they have a credibility problem if nothing else.

But it is not just trade. On immigration, the Democrats are caught between arguing against Trump’s policies even whilst occasionally defending the fact that Obama deported more illegal immigrants than any other president. The reason he did this was popular support for the general principle that borders mean borders. And even with regards international institutions, it has long been understood that many are not working for the US. Obama called his NATO allies “free riders” as recently as 2016, and abandoned the Quadrilateral and G7 to try and reach an agreement in Copenhagen in 2010 much to their anger; meanwhile George W Bush spent the best part of two terms criticizing the WTO and finally abandoned the Doha Round. Clearly, no-one thought these institutions were working well or serving best American interests.

Yet strangely the Democrats have done almost nothing about this, and have found no real successor to Sanders, the only candidate from their side who talked about this. Sanders’ various successors – whether Liz Warren or the newly crowned Alexandria Ocasio-Cortez, have surprisingly little to say on any of these themes other than wanting to abolish ICE. Instead they have left the field to Trump who therefore feels (to the average voter) more like someone who is looking forwards, not backwards, about the world we live in. Where a politician stands on that nexus of trade, immigration and institutions has become a defining and almost apolitical issue; once you strip that away, you are only left with the usual rancorous debates on gun control and whether to install transgender toilets. Those arguments though, pale into insignificance against the background of how to remedy (rightly or wrongly) median wage stagnation. Democrats and Republicans are navel-gazing whilst Trump is allowed to speak unhindered to large swathes of the nation that voted for him in 2016. At the moment, he owns that space even if his methods seem clumsy – as former Australian Prime Minister Kevin Rudd recently said, Trump has been “strategically comforting but tactically terrifying”.

(As an aside, I would point out that the liberal desire to cast Trump as some sort of “reactionary” does not ring true either. I do not believe most of the public actually see him as being particularly anti-gay or anti-abortion for instance. Instead, one of his defining moments on the campaign trail was the highly pragmatic response to the transgender toilets issue, saying they should use whichever one they wanted but business could not pay for new facilities. Mostly, he just does not care. Sure, he is not actively helpful to liberal causes but he is hardly aiming to contain them. Remember, too, that in the Republican primaries almost every sort of more extreme candidate ran: states’ rights fundamentalists, religious fanatics, neo-conservatives and Koch-ite free traders. Trump was none of these things and triangulated quite effectively between them all.)

Of course much of the support for Trump remains cultural, and on what is sustaining this one need look no further than the exceptional piece written by Joan C Williams in the days immediately following the 2016 election. It remains the best depiction of that amalgam of economic, cultural and social thought which passes for “what’s best for my family” in many voters’ minds:

One little-known element of that gap is that the white working class (WWC) resents professionals but admires the rich. Class migrants (white-collar professionals born to blue-collar families) report that “professional people were generally suspect” and that managers are college kids “who don’t know shit about how to do anything but are full of ideas about how I have to do my job,” said Alfred Lubrano in Limbo. Barbara Ehrenreich recalled in 1990 that her blue-collar dad “could not say the word doctor without the virtual prefix quack. Lawyers were shysters…and professors were without exception phonies.” Annette Lareau found tremendous resentment against teachers, who were perceived as condescending and unhelpful.

Michèle Lamont, in The Dignity of Working Men, also found resentment of professionals — but not of the rich. “[I] can’t knock anyone for succeeding,” a laborer told her. “There’s a lot of people out there who are wealthy and I’m sure they worked darned hard for every cent they have,” chimed in a receiving clerk. Why the difference? For one thing, most blue-collar workers have little direct contact with the rich outside of Lifestyles of the Rich and Famous. But professionals order them around every day. The dream is not to become upper-middle-class, with its different food, family, and friendship patterns; the dream is to live in your own class milieu, where you feel comfortable — just with more money. “The main thing is to be independent and give your own orders and not have to take them from anybody else,” a machine operator told Lamont. Owning one’s own business — that’s the goal. That’s another part of Trump’s appeal.

Hillary Clinton, by contrast, epitomizes the dorky arrogance and smugness of the professional elite.

This is a major part of the real world, and Trump has no competitors here. It has led, as the Economist lamented well before Trump arrived on the scene, to “the return of history”. Skillful as Trump is, he did not create these issues or the popular sentiment driving the polls; years of poor governance did.

The fact is that none of these things – free trade, more multiculturalism, faith in institutions – are going to be more popular in five years time than today. In the areas of policy most commonly associated with Trump, there is a near consensus amongst the population but yet he alone is telling the story. The Democrats are therefore reduced to hoping for a candidate to come along that will articulate Trump’s message better than Trump. That may happen; but it’s an audacious hope. In the meantime, whisper it: whilst the Democrats and Republicans are wrangling over tax cuts and repealing Obamacare, it is Trump who is on the right side of history. For now, anyway.

Guns don’t kill people. Americans kill people.

Time to target the real cause of America’s non-criminal gun violence problem: Americans

Gun family

The perennial scene of a US school shooting brings a timely reminder of American exceptionalism. Typically, this is the time when both sides of the gun control debate rehearse their equally absurd statistics defending their position. So why should I be left out!

There are some unfortunate issues with the gun control lobby. The first is that they often roll out data which talks about total gun deaths and its correlation with gun ownership. The problem with this is, that total gun deaths includes suicides – and in fact, the vast majority of gun deaths are suicides. Arguably, this is also a problem but the gun control debate clearly is not one about regulating how people choose their own way to die. Secondly, and unhelpfully for domestic discourse, many also bring up comparisons with abroad – something which will surely cause more provocation than it solves given the NRA lobby’s notorious rejection of taking signals from foreigners. Two examples of data which commonly does the rounds are below:

But let us look at this in a bit more detail nonetheless, because the comparison with other countries is actually more nuanced than it seems. The US of course has by far the OECD’s highest gun-ownership per capita – but it is not way off the scale. At about 89 guns per 100 people, this is “only” about twice as much as some other perfectly peaceful countries such as Switzerland and Finland, which both have over 40 per 100 people:

Guns per capita

There are all huge numbers compared to countries such as the UK. But the US also has far higher than twice the number of gun deaths and, as per this astute chart from the New York Times, has vastly higher numbers of mass shootings in particular:

NY Times gun mass shootings

Even stripping aside some of the obvious issues with this comparison, such as the facts that gun ownership has actually been much more mature in the US than several other of these countries (the chart looks at mass shootings since 1966) and that gun ownership in some countries is a function of national service (with commensurate training), this tells us something quite important: it is it not actually gun ownership that leads to lots of deaths, it is specifically gun-owning Americans.

This leads to a broader point about national character, of which I have written before in talking about the uniquely brash and ruthless personality of the Anglosphere. The fact is, gun control is not so much a universal human issue so much as one linked specifically to the perfect storm of mass gun ownership and American culture which currently exists. Intuitively, what would apply to the US, UK and Australia may not be true of Switzerland, Germany and Austria, where social discipline is that much stronger. I would be much more sanguine about the need for restricting guns in Japan, for instance, than I would in China, simply based on the type of people there.

This is not to say that other countries do not have problems – Switzerland has certainly not been immune to mass shootings. And it would be churlish to deny the obvious basic rational linkage between possessing guns and using them. But there is clearly something deeper about the American psyche that makes gun control a more poignant issue there than elsewhere.

For the record, I am in favour of gun control. I believe that since guns are actually designed for the purpose of inflicting damage – unlike cars or any other tools that cause harm as a side effect – society through its government ought to minimize its presence. There can be some leeway for practical or recreational use of course, but these should be restricted in both type and regulation. If a farmer needs a gun just as he needs a car, he should get a license for one.

I acknowledge that restricting legal gun ownership will not impact the larger issue of gun violence in the US. In fact it would be marginal. However, there is no evidence that legal gun ownership helps in preventing crime either; and the reality is that the few instances of legal gun-related disaster such as almost every school shooting, are much more high profile and in their way, rather more tragic than mere gang shootings in inner cities. They affect middle class suburbia and are preventable. This alone justifies action by the government.

But let us not assume that taking guns away from Americans is descriptive of the human condition; it is not. Instead it is descriptive of the American condition. “Guns don’t kill people.” Well, people don’t kill people, either. It is Americans that kill people. Time, therefore, to restrict Americans from owning guns …

Why the Tottenham penalties were correct – and why Liverpool fans are whingers

Kane Klopp

Liverpool fans have always been rather an irritating lot. The combination of hubris and inconsistency, as well as constant bleating about “heritage” and history as though somehow this renders the modern success of rivals such as the Manchester clubs less worthy, lead to popular conceptions of this group as probably the fan base other fans most love to hate – “football supporters think you are either tiresome, cringeworthy or both.

So it has been particularly enjoyable not only to watch the draw that Spurs battled to in front of the Kop last weekend, but also the whingeing that poured through social media in its aftermath from fans, players and manager alike. Other than maybe Barcelona, few football supporters come at things from such a moral high horse and, as with Barcelona it is great to see them get their comeuppance once in a while. Come to think of it, maybe that’s why all their players end up moving there.

Therefore let us examine forensically the two controversial incidents from the match, through some of the most common refrained heard from excitable Liverpool fans in the few days since.

1. “Kane was offside the moment Dele passed the ball”

The implication of this is that the moment the ball left Dele’s foot, the referee should have blown for an offside against Tottenham. This is simply factually wrong and demonstrates a lack of understanding about the offside rule and even Klopp was guilty of this mischief in his post-match press conference where he said:

… there is a new rule, I don’t know exactly? I don’t know who played the pass but in the moment the ball left the foot of the Tottenham player, Harry Kane is offside.

It is true that Kane was in an offside position when the ball was passed, but this is not the same as actually being offside. For the latter to be the case, Kane actually has to play the ball – in other words, had the ball not come off a Liverpool player, Kane would only be offside at the point when he received the pass and played. There is absolutely no requirement of the referee to call an offside before this point and it would be wrong to do so – players are constantly in offside positions through the match, which is why the rule was clarified to only include situations where a player in an offside position is “interfering with play”, and why today players who are in an offside position but not anywhere near the ball are not called for offside.

Kane offside

(Incidentally Klopp should know better and actually gets away with murder in a lot of his post-match comments, but let’s leave that for another day.)

Case for Liverpool: 1/10

2. “Kane was interfering with play at the point when the pass was made”

This charge has slightly more legs, but only slightly. Clearly, Kane is in an offside position but the referee deemed him not interfering with play. These are the situations which come down to referee’s opinions and it seems questionable to assume that Lovren necessarily struck the ball because of an awareness of Kane being behind his shoulder. If you look at the replay, Lovren seems to be all over the place and there is more than enough space for the referee’s opinion to be that Lovren played the ball purely because that was his instinct, not because of any perceived goal-side threat. In such situations one assumes that a seasoned referee’s opinion and read is as good as anyone’s – certainly VAR would not have resolved this question one way or another.

Case for Liverpool: 4/10

3. “Lovren was not playing the ball on purpose”

 At this point we have to accept that after the pass commenced from Dele, it ended up being (mis)played by Lovren and quite possibly by another Liverpool player also, first. Therefore the question is whether Lovren played the ball on purpose as per the official rules on exemptions for offside, which state:

A player in an offside position receiving the ball from an opponent who deliberately plays the ball (except from a deliberate save by an opponent) is not considered to have gained an advantage.

First, let us be clear that the purpose of this wording is designed to make sure that this exemption does not apply to completely accidental deflections and rebounds, the kinds of things where a ball hits the back of someone’s head inadvertently and so on. It is not supposed to cause a nuanced consideration of how professional footballers at the top level play.

In this situation Lovren clearly went to strike the ball and, due to being a simply terrible footballer (as we saw at Wembley earlier in the season), mis-kicked it. It was not an inadvertent deflection, just a crap piece of play. As such, it takes quite contorted logic to try and make the case that the exemption does not apply. Yes, it does not fall under the initially intended rule designed to exempt offsides from back-passes, but yes it falls under the strict laws of the game – the ball did not continue towards the Liverpool goal due to an accident.

Leaving this to the Professional Game Match Officials Limited (PGMOL) in their official statement, it seems pretty clear:

The interpretation of “deliberately” kicking a ball considers whether a player has intentionally tried to kick a ball – it does not consider whether the ball ends up where a player may have wanted to kick it.

Case for Liverpool: 3/10

 4. “Kane dived for the penalty”

Now onto the meat and drink of the incidents. Subsequent to the event, Kane has both admitted that he drew the contact, whilst Karius – and this is quite important – admitted that contact was made. In these circumstances, under the current refereeing environment, any challenge which a goalkeeper makes where they fail to get the ball is a poor challenge. To be clear, any time where a goalkeeper comes for a ball and fails to do so properly, leaves them exposed by definition to having committed a bad challenge – the very definition of a foul.

As that well-known Tottenham fan Jamie Carragher said on Monday Night Football (focusing principally on a similar incident involving Delafeu and Courtois):

When goalkeepers come out like a train, like he has – like Karius has – I’ve got no sympathy whatsoever. If he’s complaining about it, don’t come out like a lunatic … It was a poor decision to come out; Karius’ was as well. If there is a problem with attackers leaving their legs in there, then goalkeepers need to do something different.

My mind harks back to last season’s FA Cup semi-final between Tottenham and Chelsea, when Son’s mistimed sliding tackle gave away a penalty in much the same situation. A goalkeeper who, in missing the ball when coming out for it, makes contact with an attacking player, has committed a foul as per the rules. End of.

Case for Liverpool: 2/10

5. “Jon Moss was not sure about the decision”

This charge is linked in part to the slightly bizarre moment when the referee appeared to ask the fourth official for extra information, then did not bother to pursue this line of enquiry. The BBC’s transcript of the conversation with the linesman did seem to indicate some confusion, but the PGMOL statement also seems to put this to rest, noting that the conversation over whether Lovren had touched the ball was misrepresented:

Eddie Smart, having identified that Kane was in an offside position, correctly sought clarification on whether Dejan Lovren had deliberately played the ball. His question created some momentary confusion when Eddie asked if ‘Lovren’ had touched the ball. Moss knew a Liverpool player had touched the ball but not that it was Lovren.

There was also some manufactured controversy over why Moss had asked the fourth official for anything when he was not entitled to do so since VAR was not in action, but this is quite a sideshow which Moss has in any case admitted was “misguided”. Importantly though, he followed through on his own original opinion, as he is supposed to do.

I hate to break the news to Liverpool fans but the vast majority of refereeing decisions in a match are matters of opinion. They are not only entitled to act on such opinions but are indeed paid to do so. It is perfectly obvious that in complicated situations, referees are not going to be 100% sure of what happened but their job is to go with their instinct and the point of a seasoned professional referee is that they get these things right most of the time – as they did in this case.

Case for Liverpool: does not even justify a response

6. “Lamela dived for the penalty”

More meat and drink. To be honest this incident has barely been even controversial amongst the commentariat and much of the initial reaction seemed to be due to poor camera angles about what had happened, possibly informed by lingering bias against “latin players” and their record in this. But a closer inspection, as was done on the BBC’s MOTD2, shows it was actually a pretty hefty kick up the backside by Van Dijk on Lamela, and as Mark Lawrenson (another well-known Tottenham fan) put it clearly there:

Don’t get me wrong, Erik Lamela does extremely well and he’s very very clever. He just gets himself into a position where as Van Dijk is going to kick the ball he kicks the back of his leg, and yes that’s a penalty. Is that not a foul anywhere else on the pitch? So it’s a pen.

The threshold Lawrenson describes is of course important: the rules a are specific in saying that there should be no higher or lower threshold for what constitutes a foul within the penalty box as outwith. Again, however clever Lamela has been in positioning, if Van Dijk had undertaken such a piece of contact on the half way line, it would have been given as a foul and a free kick. A poor challenge is a poor challenge anywhere. Not being intentional is not an excuse; nor is the fact that Lamela appeared to go down heavily (although again from certain angles the kick seems more substantial that it did at first anyway).

Frankly, if the first penalty had not caused so much furore it is doubtful that the second incident would really cause any controversy whatsoever. ESPN’s Ali Moreno was one of many commentators who felt it was bizarre that it was even being talked about; whilst on The Football Ramble’s Luke Moore noted that:

… if Liverpool fans want to complain about that, I suggest they complain as well in turn about the VAR penalty they were awarded when Salah hit the ground like a ton of bricks with minimal contact, and that was overturned and awarded as a penalty.

I am not fan of whataboutery, but glasshouses and stones comes to mind. The foul component of the kick on Lamela is pretty indisputable.

Case for Liverpool: 2/10

7. “Lamela was offside when Llorente played the ball”

Now we get to the least discussed point of the whole episode, but ironically the one with the most grounds for questioning. Looking at the evidence, Lamela is probably offside by the width of a human foot, so I will not argue otherwise. However in the overall scheme of things, this kind of decision is well within the typical margin of error in football matches at the highest level and the very fact that people have barely mentioned it speaks in part to an acceptance that small errors like this are not abnormal and typically even themselves out over the course of a season. If Liverpool fans really want to moan though, this is the part they have most grounds to.

Lamela offside

 Case for Liverpool: 5/10

******************

So much for the technical analysis. Now, far be it for me to let popular support influence how one views decisions, but it is worth looking at the professional commentators and punters, and their opinions of what went on. Clearly, the PGMOL has given its own opinion that Jon Moss was correct – although Liverpool fans have been heard to allege that “of course they will protect their own!”, cue much eye-rolling. But Dermott Gallagher, seasoned referee and watching in the Sky TV studios, said the same thing:

In the debrief after the game, they’ll be told that they made the big, match-changing decisions correct on the day.

I will be fair and note that Mark Clattenburg, another pundit through his column, disagreed. Let’s see what everyone else thinks – the “court of public opinion” as Harriet Harman would call it:

Picture1

Note: “LOTG” refers to the opinion that the decision was technically correct as per the laws of the game, but that the strict application of the laws in this case made a mockery of the spirit of the rules.

Overall, a case of all is fair in love and war …

The Lessons of History – why confabulation may be worse than amnesia

It is normal for any society to look back to their past for paradigms of “greatness”. In Will and Ariel Durant’s masterful work The Lessons of History, they wrote that:

To break sharply with the past is to court the madness that may follow the shock of sudden blows or mutilations. As the sanity of the individual lies in the continuity of his memories, so the sanity of a group lies in the continuity of its traditions; in either case a break in the chain invites a neurotic reaction.

In other words, a grasp of history is important and as a historian myself, I am quite skeptical of those in public life who clearly do not have or act on such a grasp – Tony Blair in the build-up to the Iraq War being a case in point.

But what is the right history to look to? What of the rich tapestry of our past really tells us about the tenets of our national character? History will always be twisted to aid politics; but the current ahistoricism amongst the governing classes has I believe reached something of a new low – and it matters for policy. Reaching for the correct memory is as important as having memories at all.

Britain, for instance, has an imperial history which as a nation it has yet to move on from despite the best efforts of the PC brigades. The signs of it – from the remnants of actual empire (now reduced to the Falklands and Gibraltar) to the permanent seat on the UNSC – still pervade much establishment and tabloid newspaper thinking. But whereas many British subconsciously see the height of empire as the regal majesty of the Delhi Durbar, the real Britain was something altogether less dignified. The British character, I would submit, is one of unruly mobbishness at heart which can be seen throughout society from football hooligans through to the Bullingdon Club – perhaps the best representations of contemporary life being the social diversity of rioters in 2011, and the undignified rush to loot cargo from a sinking ship in 2007.

Hooligans

British hooliganism – two sides of the same historical coin

Rather than harking back to formal empire therefore, the British memory should look more to the Gordon Riots, to Clive of India and James Cook, than to parades at Spithead. Because in this riotous assembly, were also the seeds of Britain’s real greatness: as privateers and traders, entrepreneurs and innovators rather than organisers. In the 18th century Britain stumbled across empires in India and America, and created the Industrial Revolution; arguably, as soon as Britain’s organization skills were brought to bear in the 19th century, the Empire started its decline.

America, too, has the Anglospheric trait of tending towards natural lawlessness as shown by moments such as Hurricane Katrina (in contrast to an example like Fukushima). But there is a deeper romance to the American story as told in elementary schools across the land, of idealism, diversity and tolerance. This too, though, is misremembered. America became great not because of its tolerance, but because of its moments of judicious intolerance and plain ruthlessness – against indigenous people, against Britain, and later against Japan and the Soviet Union (the fraught relationship with Britain was the theme of a 2005 paper of mine). Yes, there were waves of immigration which fed into the so-called “melting pot”, but America would be much less of a country today had it been run with the kinder, gentler governance associated with neighbouring Canada for instance (even if this may also be exaggerated).

Some Americans will not like to see this as the basis of their history, but the reality is that the country’s “manifest destiny” – to rule the continent and then the world – was not built on being nice to people. The American Revolution was not mainly a principled stand of Enlightenment values, but an opportunistic socio-economic power grab by one set of elites from another*. There is a reason why Andrew Jackson, until recent events, was held high in the pantheon of bank notes. And this memory, tinged with a harsh edge and violence, is every bit as important for the country as self-congratulatory myths about the Founding Fathers or Abraham Lincoln. Just as Britain is more Clive than Hardinge, so America is more Jackson than Lewis and Clark.

Jackson Lewis Clark

Andrew Jackson,  Meriwether Lewis and William Clark

As an example of how these falsified memories impact policy, let us take the rhetoric surrounding immigration, an issue applicable to both the US and Britain. The common liberal mantra is the fallacy that “this country was built on immigration!”, a cry heard around hipster cafes from Primrose Hill to the West Village. Factually true, but rather irrelevant. Yes, there has been plenty of immigration in the past, although few have come close in scale to what has occurred in recent years. Yes, immigrants by and large contribute enormously to skills, ambition and demographics in both these countries. But it is not immigration itself which has been good; it is appropriate amounts of immigration when building on a platform of strong host culture. It is an “and”, not an “or” – the tired, poor, yearning huddled masses in the US would be nothing had not the violent ruthlessness of mostly white, protestant Anglophone Americans established a country of enormous land and resources. In other words, there are two pillars to this story of progress, not one:

  1. preserve a coherent indigenous identity;
  2. then add immigration as needed.

But the one-dimensional appreciation of history from those that dominate the media and education misses all this. Immigration is put on a pedestal in and of itself, as though it somehow generates positive impacts on a standalone basis. National identity is practically a dirty word – or has been captured by cynics who believe it can be watered down to nothing by adding foreign elements into the mix via the “we were all immigrants once” fallacy. To do this is the sow the seeds of destruction for any nation-state. Just as Blair had no regard for the longer sweep of history in the Middle East, so also the likes of Corbyn or Pelosi for their own country (although strangely Bernie Sanders actually did – and consequently struggled with certain corners of Liberaldom).

But the point is this: whether we are talking about British lack of self-discipline or American violence, these are not actually bad characteristics. People should not be judging these with opprobrium – they can be positives which lead to other strengths. Anglo-American consumerism and short-term thinking helps the whole world in terms of innovation and just plain growth. If Americans did not love spending money so much, the rest of us would not have iPhones. A planet of Germany’s and Japan’s would achieve nothing. Finding a place in the world is partly about adapting – but only on the basis of recognizing what one’s inherent strengths are. Politicians should not be complaining about these characteristics or still less, try to change them. They should be trying to harness them in productive ways – opportunism becomes enterprise, violence becomes robustness. The world certain needs all of these.

I will finish on a macro view. A former boss of mine once asserted that there are three types of competitiveness in the corporate world: price, quality and innovation. Capture one, and you will survive; capture two, and you will succeed; capture all three and you will rule the marketplace. Countries are not dissimilar, and it is no surprise that the one nation which comes closest to an adequate level of all three is also the only hyperpower – America. Historically, even during the Industrial Revolution, Britain was not known for quality, but rather for inventiveness in products and processes. Since emerging, Germany always had a superior record on pure quality, but they have rarely created anything completely new. Nations have their place; national identity will be a determinant of it.

Britain, post-Brexit, needs to thoroughly reflect on which of these features it possesses and how it pursues them (in my opinion, clearly led by innovation not quality)**. It may seem obvious to say that she needs to see herself as an underdog, yet shockingly few statesmen have really digested this fact. America, in this period of potential decline, also needs to rediscover which qualities it still has. Problems like the rise of China and the new “community of empires” will not solve themselves. But for either country to successfully confront their dilemmas, a closer examination of the collective, subconscious social memory is needed; for without it, we face the insanity Durant outlined so long ago.

 

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* Perhaps this will be a major point of debate, but as something of a historian in the era (see eg my 2005 paper on the Anglican Bishop Controversy) the American Revolution was by and large a moment when local elites, separately in Boston and Virginia, found Britain a convenient scapegoat for directing local discontent against. By the 1740s, ports such as Boston and the southern backcountry were facing, for the very first time in colonial history, economic stagnation and the rise of an underclass. A war (The French & Indian) put this on hold, but by 1763 the Boston families and the Tidewater oligarchies needed to stir a conflict for their legitimacy. They got one with Britain, and this, much more than tiresome debates about Lockean Liberalism vs Republicanism (rf Bailyn, Pocock et al), or “taxation without representation”, lies at the heart of the rebellion – and partly explains the surprisingly strong loyalist sentiment throughout the war.

** I will also add that one of the only intelligible and plausible post-Brexit British identities I have heard comes from a potential future guest blogger here, namely that Britain could become an Israel – in other words, a medium-sized maverick which punches above its weight simply through unpredictability. Better not decommission those nuclear weapons, in which case.

The End of Entrepôts – why the future is big, not small

Lugard

Photo: Lord Lugard with the Legco in 1909

It is one of the most oft-repeated fallacies in modern politics that the future is destined to be ever smaller and fragmented. One only has observe the fetishization of breakaway movements such as Scotland or Catalonia and hear the accompanying, knowing murmurs telling us that in political terms at least, atomization is the way of the future – small is beautiful. Some still reach further back, summoning up the collapse of the Soviet Union as proof that all large entities must collapse.

This is completely at odds with reality, on a number of levels. First, recent history has, far from being driven by a narrative of devolution, instead been dominated by the rise of “big countries” which in turn are resurrecting their own brand of Great Power relations. The corresponding decline in relevance of smaller entities is pronounced – most noticeably in the shape of individual European nations which have seen their weight fall off considerably. The 2010 Copenhagen agreement, where Obama sidelined the Europeans to reach straight for emerging giants, was an early sign of this; the gradual extinction of the Quadrilateral in determining trade policy was another.

Indeed in my 2013 paper on China and multilateralism, I noted that the world is if anything heading towards a new “community of empires”, with both the foreign and domestic policies of China, Brazil and India joining the US and Russia in pursuing an unrelentingly imperial logic. In response, those outside of their orbit are banding together to form what are prima facie trade blocs, but which are in reality the beginnings of something much more. Whether the European Union, ASEAN or Mercosur, nation-states are ceding sovereignty slowly but surely for the express purpose of aggregating their power in the world beyond. Even in unexpected corners of functioning humanity such as East Africa, union is the name of the game. Status and size do not have a linear correlation; as one reaches critical mass, the relationship becomes exponential. A power ten times as large as its neighbours is far more than ten times as important.

At the heart of this is a simple thesis: in the long run, the power of any country will be determined by the size of its population (with a shared identity – more of that another time), somewhat adjusted for a country’s natural resource base. In the long run, all else is mere noise. Yes, certain countries or civilisations may exercise disproportionate power for a period of time, even centuries. This can have any number of causes but often it is because of temporary technological disparities – temporary because in the long run, all technology will permeate meaning that we arrive back at where we started: population. Any vision of a world where the largest population blocks are not the most important countries must be premised on a smaller, more nimble country actively and exploitatively keeping larger population blocks subject. This was a kernel of much of European colonialism of the 19th century (which should not be conflated with a general model of imperialism exercised in human history).

Now in the long run, as Keynes says, we are all dead. So does it matter? I would say yes it does, particularly for those living in and around the rising powers of Asia such as China, Indonesia and to a lesser extent, India. Because some of these changes are no longer concerns for the long term, but coming to maturity now.

One lesson is this: the age of entrepôts such as Hong Kong and Singapore is fast coming to an end. In the future, there will be no space for such outposts any longer, at least in their current form. This is because the very existence of such centres is a lingering post-colonial legacy, based on an economic system that is now no longer extant. City-states like Singapore thrive because they are a form of offshoring, and the offshoring they offer is reaching the end of its useful life.

We should be crystal clear that offshoring has two forms: there is offshoring for work a country does not want to do, and offshoring for work it cannot do. On the one hand, there is what we classically understand as “offshoring” where one jurisdiction offers a cheaper way of producing goods and services for a richer one – offshoring from below. Textiles in Bangladesh fall into this, as does the core of China’s economic rise during the 1990s and 2000s. The second form is what hubs such as Hong Kong, Singapore, Dubai and even London offer to an extent – offshoring  from above. They provide capabilities that other poorer, less developed countries cannot do themselves.

The problem is that much of the world is catching up. There is precious little that can be done in Hong Kong today that cannot be done in China; yet Hong Kong really only exists to serve the Chinese economy, much as some lament its progress to becoming “just another” Chinese port. Singapore is safer for the moment, but it is still implausible to imagine that Malaysia, much less Indonesia, will allow the island to remain an offshoring hub for high value-added industries such as finance. As with China, they will end up doing everything themselves. The post-colonial legacy of substantially inadequate skills and infrastructure will be bridged, if not today, then tomorrow. At that point, the city-states will have precious little left. This is a problem not faced by Bangladesh – but then no-one wants to be Bangladesh. There is a reason why entrepôts barely exist in the OECD and if they do, they service a tiny, marginal sliver of their neighbours’ economic life as Jersey or the British Virgin Islands do. It is because there is no room at the top.

Britain suffers from many of the same issues. Plenty have lauded the supposed rebirth of the British automotive industry, and in a few instances, this is well justified. But for every Aston Martin or Morgan, where real value-add and R&D is achieved in the UK, there is a far bigger presence of Nissan or Toyota. The latter however, are essentially a little Bangladesh model – investment into the UK occurs not because of any inherent capabilities, but because we are marginally cheaper and have fewer regulatory restrictions (unionization etc) than regional neighbours. This is not much of a national dream.

The other side of the UK is that of the entrepôt. Here I am referring to her services exports – but not the headline-grabbing financial services sector, which will be pretty easily replicable elsewhere, but rather industries such as advertising, publishing, design and architecture which are more genuinely unique. And one can tell that they are unique, since whereas the UK can barely export any financial services to the big empire economies of the US or China, it sells large quantities of stylish design. The problem is, this is nowhere near enough to support an independent UK – the idea of the UK becoming a “Singapore of Europe” is beyond fanciful, as I have noted before.

Singapore has been conspicuous in how strongly it clings to and pushes for ASEAN. And the reason is clear: if ASEAN does not succeed in binding the region together, Singapore will soon have nothing to offer its larger neighbours. Only a union of sorts will allow it to continue holding a position of import. Hong Kong’s commercial residents have long acquiesced to the fact that it will have to be another Chinese city, albeit one offering some special rules and playing a specific role. Hong Kong’s flagship airline’s troubles reflect the decline of hub-and-spoke trade in favour of point-to-point, and are a microcosm of how the whole economy is developing. Dubai will play off the inability of regional giants to pull their weight (Iran, Egypt and Turkey) but if and when they do, it too will face the same problems of reinvention.

But the old model of “Singapore” is a complacent and condescending anachronism – and those pushing the model for countries like Britain are living a sheer fantasy.

Explaining the Umbrella and Sunflower protests

As a brief follow-on from my previous piece on Taiwan, I have done a quick and dirty analysis on what is driving youth discontent in Greater China, and specifically what has arisen in Hong Kong and Taiwan in recent years.

In this single chart, I believe I capture what I would call the “aspiration deficit” in being a young person in these two jurisdictions today. Here I have calculated the house pricing and rental in key cities as a multiple of graduate starting salaries.

Graduate salaries

Sources:

  1. Graduate salaries for PRC cities from Baidu News, as per 2017
  2. Graduate salary for Hong Kong from SCMP, as per 2016
  3. Graduate salary for Taiwan from Taipei Times, as per 2016
  4. House price and rental data from Knight Frank Greater China Property Market Report Q3 2017, based on Luxury Residential

The caveats: this is not designed to give any sort of rule of thumb about how long it takes to save for a flat, or how much is used up of income to pay for rent. I may even come up with a better methodology going forward – if the data allows. Instead, this exercise is simply a measure of what pressure there is on the dreams of those who newly come onto the job market, having been promised that their four years at university would lead them to a better life. This is why the luxury Residential market is I think an adequate metric on which to judge.

What is shows is quite how desperate prospects are for many of those in Hong Kong and Taiwan. Their earnings are stagnant, yet house pricing is going up. Welfare is better than in China, but the infrastructure is beginning to creak. The idea of looking after themselves – let alone looking after their parents – seems distant; and of course having children in this environment is ever less appetising. This is perhaps the single largest contributor to the upheavals experienced from students and other youth in the Umbrella and Sunflower movements – and it explains why so many young people see their future in China or elsewhere abroad.

To bring this back to politics, I wrote some time ago on the problems Beijing has had in relying on local tycoons to press their case in Hong Kong:

… less obvious has been how housing prices are preventing young local Hong Kong residents from starting lives properly, and in this as with much else the fault lies in a government that has existed to serve the tycoons – let us call them the Oligarchs – instead of the people. Beijing has been complicit in this since it decided to use the Oligarchs as a shortcut towards legitimacy after the handover. In colonial times, many tycoons were respected by locals as examples of being able to escape the unspoken racial glass ceiling, but since 1997 these Oligarchs have gone on to really take local people for a ride. Beijing is now paying the price for siding with the rich against the poor for so long. There is a limited amount of time that this can continue before Beijing must begin to change sides.

The same, in a sense, is true of Taiwan, where the big business lobby has been allowed to get rich off mainland China, repatriate their earnings and create asset bubbles in Taiwan that put home ownership increasingly beyond the reach of locally based graduates. It is a death spiral for aspiration – and it is this, much more than any real impact on living standards – which diminishes the legitimacy of any regime.

American poverty is neither urban nor rural – it’s small, mostly white towns

A vacant, boarded up house is seen in the once thriving Brush Park neighborhood with the downtown Detroit skyline behind it in Detroit,

It has been a year since Trump entered the White House, and eighteen months since the Brexit vote. Yet the media still display an astonishing lack of understanding about several aspects both of US wage stagnation, as well as how it interacted with voting.

The Brookings Institute came out with an important piece recently which has not received the attention it deserved. They produced five maps, showing the winners and losers in median wage change across the US between 1999 and 2016. Some of the results are obvious: the first map, of “winners”, shows that wages in the tech hubs and in government subsidised DC have done rather well; the last map, showing where wages have done the worst – step forward Detroit amongst others – is also a well-worn narrative.

But it is the penultimate map which should be most concerning. I have long argued that American liberals take far too narrow a view of poverty, and see the role of government as essentially providing urban answers to urban problems, which are the most visually obvious to those inside the Beltway. This ends up focusing on helping ethnic and other minorities, albeit usually in a less-than-constructive method. Altogether ignored is where much of the real poverty lies – as this map shows:

metro_20171012_alan-berube_fig4-struggling-v3

It repays some close study. The problem areas are not Detroit or Flint or Cleveland. The problems are that 10 urban areas of over 1 million inhabitants – and another 59 towns of between 100,000 and 1 million – have experienced median wage declines of 10% – 15% over the period. On the basis of this study, that’s 50 million people constituting the single largest group, and are not all names you would expect:

While the group contains a handful of large Sunbelt metro areas still laboring to rebound from the late 2000s housing crash (e.g., Miami, Orlando, Phoenix, Tucson) and a few major industrial centers in the Midwest (e.g., Chicago, Indianapolis, Milwaukee), small- to mid-sized urban areas predominate in this category. Most are manufacturing centers that lost significant numbers of middle-income jobs in the 2000s that have not been replaced, including 10 urban areas in Wisconsin, six each in Michigan and Ohio, and five each in Georgia and Indiana. A few have shown some green shoots in the 2010s after a rough decade, including Ann Arbor and Kalamazoo in Michigan, and Oshkosh in Wisconsin. Others, however, have slipped considerably since 2009, such as Charleston, W.Va., Davenport, Iowa, and Springfield, Ill.

This reinforces two lessons. The first is that the often quoted cliché about urban vs rural voters is a false one; neither America (nor Britain) are about large urban centres. By my last count, well fewer than half (43%) of Americans lived in conurbations of over a million people. Fewer again (33%) lived in cities of over two million. The genuinely rural population is also small (15%). Instead, real American life is about small market and post-industrial towns.

Politics focused on what happens in New York or LA, and contrasted perniciously against what happens “out on the ranch”, is not helpful to anyone. Reporters and politicians know all about the urban indigent, even if they do not do much about it; but they seem to know nothing of the small-town working poor. That is what Trump and Sanders were all about. It is also the case with Britain, as was identified in an excellent piece in 2007 by Blair Freebairn.

The obsession with reporting on urban areas is one I have discussed before in relation to media misinformation about street protests in the developing world.

Neatly compact urban street protests are highly photogenic and easily captured on camera. Crowds sell news … It is difficult for outside observers to empathize with anyone other than those who are so passionately occupying the capital. It also involves much greater effort and investment in time – time which is not afforded by the twenty-four hour news cycle.

The great tragedy is that the same misguided focus is applicable at home, where we discovered last year that journalists who should know better, did not.

The second lesson is the danger of economists and economic commentators continue to fall victim to the intellectual Tyranny of the Mean, whereby average numbers still form the focus at the expense of median data. What I should hope is by now a very commonly seen chart shows the disparity which still leads to the incredulous question: “who are all these poor white people?”

US_GDP_per_capita_vs_median_household_income

There is little sense in technocrats informing voters that their economy has been growing, or that living standards have been rising, when no-one recognizes it as such. The disparity shown here is not only obvious as a chart, but more importantly in how voters feel about the economy. Median calculations are not perfect, but a good starting point would be for all economists to rethink along median lines each and every time they put out a statistic or indicator.

All said and done, it seems to me most liberals have still not grasped the underlying lessons of the last few years. Obama, of course, had precisely zero to say on the issues that would come to dominate 2016 – he barely seemed curious about such trends, for someone so supposedly intellectual. Fighting the urban-rural battle is to continue the last war. Small white towns are where it’s at right now, and telling them they’ve been doing okay is not going to win any votes.

Taiwan’s spiral of economic and political decline

Taipei-City-Skyline-Storm

My attention was drawn to this piece, detailing a new book – Unfinished Miracle: Taiwan’s Economy and Society in Transition – which feels like it could be quite important. Whilst I await the final version, I nonetheless would offer a few thoughts on Taiwan, and not least its asymmetric relationship with China.

Few states are as substantially bound to and distorted by a single other large, connected country as Taiwan is by China (for the record, I do not acknowledge Taiwan as a sovereign nation but will for the purposes of this blog post refer to it in the short hand). The only other examples which spring immediately to mind are the relationships between the US and Britain, and between Brazil and Portugal – and both of those are largely historical cases. In each instance, the existence of the larger and younger frontier came to capture the economic imagination of the wealthier, older land – such that in many cases there was a disproportionate focus on these opportunities at the expense of other potentially more profitable ones.

Taiwan’s love-hate relationship with the Mainland along these same lines appears to be the heart of the thesis offered in the new book. In particular, the writers detail the “three-way trade” in which Taiwanese companies operate an export model using Chinese assets rather than domestic Taiwanese ones, creating employment and generating returns in China rather than at “home”:

One can see from employment figures that Taiwanese enterprises have created far more jobs overseas than in Taiwan. The top 500 companies employ about 2.5 million people abroad (mostly in China) but only 1.5 million people at home. According to estimates, for every 29 people these companies employ in China, they employ one less person in Taiwan.

Not every point makes sense to me. For instance the authors start off with the matter of SMEs accounting for a declining proportion of direct exports – which may well be true but I will have to wait for the book to see why it is relevant. After all any economy, as it develops and consolidates along the value chain, should see local export champions aggregate value so that a few higher end entities become the point of export, rather than SMEs serving as offshore suppliers to a foreign aggregator.

article-ck-5a2136e3f0456

But the issue of how and where Taiwanese companies are making money is of great consequence. If the article is correct, Taiwanese companies are struggling to improve their gross margins despite moving their workforce into the PRC. This is clearly an issue about where they sit on the value chain. But there is another, even more gigantic elephant looming in the room: Taiwan is becoming nothing more than a remittance economy barely differing from the Philippines.

article-ck-5a2136c94bf7c

Consider that an estimated two million Taiwanese live abroad – one million in China alone (and half a million just in the Shanghai area). And these are not the old and invalid – they are the young, the brightest, the entrepreneurial two million out of a total workforce of only 11.8m people. Those that can, leave; those that can’t, remain. The social and cultural disjuncture between the diaspora and those staying at home, where graduate salaries are now lower than comparable roles in Shanghai or Beijing, is increasingly stark.

Furthermore, whilst domestic salaries are stagnating, business engaged in the offshore model discussed in this paper (“SMEs that become big companies in China”) are making huge returns, and often repatriating large amounts as a consequence. The earnings made from Chinese exports is leading to a huge asset bubble, particularly in property prices. Those same left-behind graduates are therefore experiencing not only depressed wages, but increasingly unaffordable housing. Even Chinese tourism is driving up the cost of living. The ongoing polarization of Taiwanese politics has its roots in this dichotomy. It is a perfect storm into which the DPP and the Sunflower Movement have emerged, but without any noticeable plan and only trite promises.

Political unrest is an outcome of the country’s inevitable economic model – inevitable because of China’s clever strategy of stymying Taiwanese attempts to trade elsewhere; but giving privileged access to China itself. This integration by stealth has paid huge dividends in terms of making the Taiwanese understand which side their bread is buttered. And it has led to two tangential outcomes – but only one is positive.

First, Taiwan has become a major centre for RMB internationalization. Much of the corporate earnings on the Mainland end up flooding back into Taiwan in its original currency. The island province therefore already constitutes the world’s second largest offshore RMB pool after Hong Kong (which occupies its leadership position for other reasons). Ordinary people are already getting used to RMB banking and wealth products on a day-to-day level, whilst corporates are beginning to issue RMB Formosa bonds. Mainland China is a fact of life for many people, accounting for the relative prima facie ambivalence towards independence.

Secondly and more worryingly, left-behind Taiwan has become increasingly parochial, with a poverty of means being matched by a poverty of ambition. Indeed the Taiwanese even have a term for this, the monstrous concept of 小確幸 which tells them that “good enough is good enough”, the ultimate expression of a “small country” mentality. Fewer and fewer overseas voters – “those that can” – bother to return for elections, especially in midterms, leading to legislative gridlock. And the media, who are left to focus on “those that can’t”, enter a downward spiral of navel-gazing such that news is more akin to a parish newsletter than real journalism.*

All this makes it far more problematic either for the KMT or any “One China” platform to succeed; and easier for peddlers of cheap myths for independence. In this sense, the Chinese strategy of binding Taiwan close may have the unexpected effect of creating a more troublesome rump population who have so little that they also have nothing to lose.

Taiwan’s economic decline is something of a tragedy. Of the four Tigers, its comparative decline is the most visual: Taipei looks like a city that simply stopped developing in c. 1990. Yet for many of us, it is a hugely romantic – and romanticized – version of much that is good about China. Unless someone can come up with a plan of action that captures the essence of all this, the island will continue slipping into a sea of irrelevance, regardless of any formal takeover by the PRC. That will be a situation where everyone is a loser.

 

* My own speculative thesis is that Taiwan, despite being very educated, has a lower per capita consumption of international quality media such as the Financial Times, the Economist or the Wall Street Journal than other equally non Anglophone societies such as Japan or Korea, or China.

A currency by any other name ….

Crypto currencies

With all the traction that crypto-currencies have been gaining in the media, it would be rude for me not to weigh in. One observation I would make is that since even my cousin has been invited to speak as an expert on the subject, we can probably safely assume that it is a bubble of the highest order – as alluded to by Charles Schwab in their recent analysis of similar phenomenon.

Cryptocurrency_and_bubbles

Source: Charles Schwab & Co.

On a more serious note however, I remain skeptical mainly because Bitcoin, Ethereum and the rest cannot fulfil one of the three primary functions of money. Yes, they can be used as a medium of exchange, and already are. Yes, I could see a point at which they could become a unit of account. But there is currently no pathway to being a store of value other than the value confidence ascribes to it. This is because it has no central bank or a state to back it up.

Proponents of “cryptos” like to mock conventional money by labelling them “fiat” currencies – in other words, money which has artificial value only on the orders of the government issuing them. “Look,” some gleefully point out, “most money today is not even backed by physical assets such as gold!” By doing so, they miss the point on two levels. First, the very purpose of money is to be an instrument of the state through its national treasury or central bank. In this resides the stability of the economy and society at all levels. Secondly, therefore, the official backing of recognisable assets such as gold is helpful but ultimately irrelevant. A functional government has the resources of an entire country at its disposal, which is why it has the power to issue, or at least back, legal tender in the first place.

At the heart of this lies a necessary understanding of the concept and role of “recourse”. In 2013 I wrote a paper on the why the dollar, despite pessimism from those seeing the end of American dominance, will likely remain the global reserve currency for a long time. Faith in a currency is more than just a confidence trick; it is more even than just the backing by specific collateral. What belief in a given currency rests on is belief in the power of a government to mobilise the totality of its resources in an extreme circumstance, for instance war. To wit:

Eichengreen has nowhere identified a much more substantial reason as to why institutions across the world, from central banks to investors, choose a given reserve currency: namely, the ability of the issuing party to hold recourse over actual assets. Whether these assets are physical (in the form of industrial facilities or natural resources) or financial, it is a government’s ability to ultimately take control over them – to mobilise them in support of government policy and national necessity – that is the final arbiter of how safe that country’s currency is to you as a holder. This is particularly true of non-resident holders abroad, since they do not suffer downside from asset seizures but are instead a totally arms-length counterparty.”

I went on to explore the concept of Total Resource Mobilisation (TRM) capacity as a mainstay of how a country – and with it, its currency – is supported. I noted that one  the interesting historical example was the delayed decline of the Sterling Area well after Britain had ceased to be the primary global trader – because of a perception that Westminster still held recourse over an empire. For all the contemporary fears of American decline – in trade, hard and soft power and its institutions – the dollar has been unmoved as a reserve currency, as shown by the statistics.

Dollar reserves

Source: Bank of International Settlements

The same lessons are true of the new virtual currencies. A form of money without a form of state will render the inherent value of that money limited to only supply, demand and confidence –  all fine, but these do not offer a store of value. With no central bank, and no government to back it, there is no recourse for comfort – no “liquidation value” to act as the backstop as it currently does for all real currencies.

On a side note, I also wonder if those pushing the new currencies are being rather too geeky about the whole thing. I have no doubt that in many ways, the technology behind cryptocurrencies are superior to conventional ones. But being more perfect does not necessarily mean it will supersede the less perfect product – indeed history is littered with examples of technically superior inventions which did not end up “winning”, not least because its backers were too worried about theoretical perfection: Microsoft vs Unix, for instance; Betamax vs VHS; even arguably the internal combustion engine vs diesel. The dollar is easily forged, and stolen, and inflated; but it is good enough, and that is good enough.

This is not to say that I see no use for Bitcoin and its ilk. I accept that they can perform a useful function, particularly as a cross-border payment system – which, incidentally, is what many of those currently inside the industry currently see it as. These currencies have the benefits both of allowing anonymity and, potentially, offering greater security of online transfer. But then the real competitors for cryptocurrencies are not so much the Dollar, Euro or RMB, but rather the nexus of Visa / Mastercard, UnionPay and even Western Union. I can also accept that since we are only at the beginning of the cycle,  the ultimate level of valuation of these currencies may still grow. However, short of finally moving into a post-national world, I do not believe they will replace national currencies. The eschatological nature of these crypto-evangelists concerns me.

As ever, it is a lack of awareness about macro historical trends which concerns me – a deficiency which would always see good money thrown after bad. I am going to stick my neck out and short this – and if anyone has any clever ways of shorting the whole sector, let me know!