SCHWEIKART: Don’t Be A Pessimist. Trump Is Leading Us To A Brave New American Future
Larry Schweikart
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Over recent decades, most “futurists” have been on the depressing side, warning about overpopuolation, global warming, or any number of other perils. There are plenty of “futurists” who, analyzing current demography, economic developments, political trends, and so on, predict future events.
In the past, perhaps the most famous of these was Herman Kahn, who in 1967 published “The Year 2000,” in which he made a number of accurate predictions, including widespread use of lasers, the use of shape-charged explosives, more accurate long-term weather forecasting, and extensive expansion of agriculture. (Don’t forget another “futurist,” Paul Ehrlich, in “The Population Bomb,” only a year later would predict the utter inability of humans to feed themselves in the future.)
Oops.
Peter Zeihan is one of our better “futurists” today, relying heavily on “geographical determinism” (i.e., a country’s geography pretty much enables it to succeed or fail), demography, and energy analysis. Largely left out of Zeihan’s analysis is anything to do with culture, religion, or political heritage. This is right in line with authors such as John Reader (“Africa: A Biography of the Continent”) who explains all of Africa’s backwardness as the result of bad luck, as it were.
What follows is a review of Zeihan’s 2014 book “The Accidental Superpower.” It is both frightening and uplifting, because in his analysis, the US is uniquely positioned to not only survive coming international chaos but to thrive.
Zeihan describes himself as “green and internationalist and libertarian” but says that reality is dictating much different outcomes and that his book is not about what “should” happen, but what will happen.
He begins with a review of Egypt and the Ottoman Empire as models for discussing his geographical determinism. In essence, successful powers have very good navigable rivers, easy access to good ports, fertile land, all of which promote unity within the land. Moreover, the US through “the luck of the geopolitical draw” has a high-capital land mass that is “one of the most physically secure regions on the planet.”
Right away we have a problem: It wasn’t always that way!. Indeed, the original 13 colonies—once you got away from the ports—were vulnerable to the French, Spanish, and a dozen different Indian nations. The Appalachians may have constituted something of a natural barrier, but invasion was always possible by either the French or the Indians from the Northwest, North, and from the Spanish and Indians from the South. Later, after the French and Indian War, young America’s borders were easily invaded by the Spanish from the west and south, Canadians and British from the North. (I’m not saying we were invaded, although we were in the war of 1812, but that the borders were certainly less than secure, especially with our standing army of only about 7,000 men.)
So why was America NOT invaded? Because of political theory and the concept of common law, that said law bubbles up from the people to the leaders, and is not dictated down by the leader or a king. This in turn had led to the 2nd Amendment, which in turn was a recognition that EVERY American was already armed and as such constituted America’s “walls.” (A visitor from Athens to Sparta once asked the Spartan king where were his city’s walls: He pointed to the people and said “THESE are Sparta’s walls.”)
Of course, Zeihan does not look at the Pillars of American exceptionalism except for the fourth one, a “free market economy.” But the other three came first: a Christian, mostly Protestant religious tradition (key because it is bottom up in its congregational structure); common law (bottom up); and private property with WRITTEN titles and deeds (ensconced into American law even before the Constitution in the Land Ordinance of 1785).
Laying that aside for a moment, Zeihan then jumps ahead to the end of WW II and the Bretton Woods (BW) agreement, which established the post-war global order. In a nutshell, BW was notable for what it didn’t do: a completely victorious USA did not establish colonies (as the Euros would have, or certainly as the Axis powers would have). Rather, the USA established a global open market system protected by the American navy. In short, we rebuilt our competitors, invited them to compete with us, and protected their shipping on the high seas!
This of course was unheard of in human history. All other victorious powers established colonies. Zeihan says we didn’t need them because of BW, that the international trade system basically created an international system of allies and buffer states whom we subsidized. Ok, that’s fair. Zeihan notes that 70 years afte the inception of BW, only 11% of U.S. GDP comes from exports (2014).
Here is Zeihan’s key: “the Americans are no longer gaining a strategic benefit from that network, even as the economic cost continues . . . . Americans are going to reprioritize . . . .”
At points, Zeihan is brilliant. He notes that from 1994-2002, “real money was flowing into—instead of out from—the United States,” giving the country “its lowest inflation rates since the 1960s.” That’s dubious. I think there were periods under Reagan where the inflation rate was extremely low, so it probably depends on your overall timeline. He correctly notes that former Soviet money was now flowing into the USA, but fails to note that the opening of Ukraine, the Baltic Republics, the Stans, and Russia itself was a bonanza for Americans selling products there.
But this is an important key: whereas Zeihan attributes virtually all of the financial stability and low prices until the 2007 mortgage crash to capital imports—despite continually rising national debt, which should have triggered inflation—I think he misses an even bigger factor, namely the “computerization” of the US and the west. As computers truly seeped into every aspect of economic life in the west, a profound productivity revolution occurred—one that to this day has not been adequately monetized.
Think of it this way. Prior to the late 1970s, the productivity gain of a rotary dial telephone was measured mostly by price. One rotary phone was hardly better than another. In that case, it’s easy to fix a monetary value on productivity gains for phones. Enter the Smart Phone. Now you don’t just have a phone, but a computer, a mail system, a game box, a GPS, and so on and son on. In short, it’s nothing whatsoever like a “phone.” How is all that value measured? It really isn’t. The value increase, or productivity increase, of a phone is just accounted for as a Smart Phone over a rotary dial.
This left a massive, massive gap in productivity measurements, and the money that flowed into the US was more than absorbed by these in every industry. BUT . . . Zeihan’s overall point, that the US was relatively speaking not even dinged by the 2000-era computer retrenchment, is valid no matter whose theory accounts for it.
Zeihan then moves to demographics. You know, the “demographics is destiny” crowd that see America losing this game? Well, not quite. “Economically, global trade is predicated on the ability to sell into growing markets. In the post-World War II era it has been the American market that has been far and away the largest . . . .” However, chronic aging in Europe and the rest of the world and even China means that “the American Market will be the largest one in the world, but that aging demographics will have capped—and in most cases reversed—consumer market growth in Japan, Germany, the United Kingdom, China, Italy, Canada, Spain, Russia, Korea, the Netherlands, Switzerland, Belgium, South Africa, Austria, Greece, Norway, Denmark, Portugal, and Finland.” If they are not major consumers of US goods, the US will have little interest in these states. He then argues, correctly I think that “as early as 2030 the United States will emerge as the only country that is capital-rich, the only country with a growing economy, and the only country with a growing market.”
Next, Zeihan adds another major factor to the US side of the mix, energy. He shows how shale will be “the” energy of the future and that ONLY the US has the ability to take advantage of shale. “But what is most disruptive,” he argues, “is the timing. The Americans are backing away from BW, the global dmographic is inverting, and shale is paring back the single most energetic American connection to the wider world all at the same time.”
Here comes the frightening part: Zeihan sees the global financial wave crest sometime between 2020 and 2024, when 13 of the world’s top 25 economies will be in the ranks of the financially distressed” including Canada, Germany, Holland, South Korea, the UK, and Switzerland. Interest and mortgage rates will climb into the teens in the developed world and higher in the developing world, consumption will plunge, while older people will increase government outlays on health care and pensions. The pace of technological change, he argues (because it is driven by younger people and capital) will come to a halt. At that point, only lower-cost producers will have a relatively secure place in the market, with the exception of energy supplied from shale in the US.
American previous guarantees of backing BW, but now pulling back, will trigger economic and energy crises for Europe, East Asia, and South Asia. And, he conclude, “that is the positive scenario.” Only Norway is self-sufficient in oil, and of the 20+ Middle Eastern countries—including Israel! not one is even remotely self-sufficient in foodstuffs. Venezuela, Columbia, Singapore, Jordan, Saudi Arabia, Cuba, Iraq, Japan, and South Korea all must import a whopping 2/3 of their grain needs.
Zeihan’s point is that once BW starts to collapse, and the US moves inward, we will not be extending security to all these nations as we once did. And when it comes to food, the REAL “green revolution” in Africa and the Middle East was almost entirely bought and paid for by American capital—which involved making vast regions of relatively unproductive land somewhat productive. When the US capital retreats, the entire “green” revolution is shaky.
Believe it or not, the US is actually demographically younger than Australia, Canada, France, Germany, Italy, Japan, England, Russia, Spain, and Poland, and by 2020 will be younger than . . . CHINA. The US market will thus continue to grow yearly as these nations collapse. Only America has prime lands available for improving, plus we have—remember?—cheap power. As of 2014, US GDP only spent 14% on imports of which 5% was energy. Another third is spent on Canada/Mexico trade, which we can control. That means that REAL US imports from overseas are only 5% and shrinking. “Disengagement will be the rule of the day,” Zeihan predicts. “Trade links will whither.” And that’s good for America, with its interior linkage, its vast energy, its relative youth, and its astounding capital base, means that “Americans will actually be fairly comfortable compared to everyone else.”
Remember, this was written in 2014, BT (Before Trump). Trump is politically riding a wave that VERY FEW others saw (Zeihan saw it) without ever needlessly discussing the demographic and historical causes of this wave. Trump asks not why the oceans produce the waves, he asks only, “how soon can we get on it?” In terms of tariffs, Trump has given a teetering China a push. With Mexico, he has given Mexico a chance at survival, but at the cost of enforcing its own southern border and spending dear capital to help secure its northern border.
Neither has a choice whether to help Trump and the U.S. It’s only about the size of the final bill. And in each case, Trump has squeezed another 5-7 years of prosperity out of the only system in the world that is set up to ride out the coming collapse.
Zeihan has a number of other observations about this coming collapse, including predictions that Germany, Japan, Uzbekistan, Saudi Arabia, Russia, Turkey and Angola will all become “aggressive powers,” and of that lot, the most dangerous is Germany. Lacking secure borders and theoretically open to invasion from at least four sides (Russia is vulnerable from SIX directions!), Germany will face an energy problem in that its nearest accessible energy sites are 2,000 miles away in foreign hands. “Without the Americans, Germany’s economic crisis quickly escalates to a European-wide strategic crisis.” In this crisis, “Germany will not lie down and die.”
Zeihan then finally addresses China, which he sees as verging on collapse. There is the demographic problem, and its financial system subsidizes prices for finished outputs that drives down the price of Chinese finished goods and leads their exports to displace competition. This has been responsible for Chinese growth in recent decades of 9%–but this was illusory. By 2007, Chinese lending topped $600b, or more than all US lending at the peak of the subprime bubble, despite the fact the Chinese economy is less than ONE-THIRD the size of the US economy. When the bubble burst, Chinese companies borrowed even more. Thus China’s total financing is about $5 trillion in an economy worth only $8 trillion— a level seven times that of the US, the equivalent of the Obama porkulus every 29 days!! As Zeihan puts it, “the entire Chinese system is subprime, in every economic sector.”
By 2030 the Chinese will average 42 years old while the US will only average 39. Unable to move away from its current export-driven model, and having run out of surplus labor, the Chinese are going to find themselves out of young workers AND consumers. NO policy the Chinese can design will result in the needed doubling of births in the next 20 years.
Further, the Chinese—despite fear-mongering—do not have a blue water navy and is hemmed in by Japan, the Philippines, Taiwan, and all sorts of other powers with long-range aircraft. Zeihan predicts “everything from Hainan Island to Shanghai will become a series of unaffiliated city-sttes that hitch their wagons to American, Japanese, Taiwanese, Koreian, Australian, and even Singaporean stars.” Production is “likely to relocate back to the United States itself”.
But ask Luo Ping, director of the China Banking Regulatory Commission, who in 2009 said “Except for U.S. Treasuries, what can you hold? Gold? You don’t hold Japanese bonds or UK bonds.U.S. Treasuries are the safe haven. For everyone, including China, it is the only option . . . . there is nothing much we can do.”
Zeihan concludes with, “The world is going to hell, but the Americans are going to sit this one out.” Demographically and in terms of capital, he’s right. But I think it is likely to be even better than that. Elections have consequences. An election Zeihan didn’t predict has had enormous consequences, pushing up U.S. output and government revenues, accelerating American innovation and investment far more than his trajectories would have predicted in 2014.
This leaves only one last issue: immigration. Zeihan thinks, mistakenly, the answer is open immigration. Quite the contrary—and Trump has this exactly right—we not only can, but must stop the southern invasion and, yes, we can do it with a combination of the Wall, e-verify, active deportation, taxation of remittances, and other means.
If we win this immigration war—and it is war—and Zeihan’s other predictions come true, the U.S. will in fact surpass even the “golden accident” that left the U.S. as the only superpower from 1946-1960. Trump was the wild card, the supercharger to this already good prognosis, and our enemies foreign and domestic know it.
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