Climate change

Jobs per Dollar

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As an indication of where the economy is going, someone should calculate permanent jobs created per dollar of capital expenditure for all the new datacenter construction.  That’s probably a new low for expenditures of this magnitude.  It’s more complicated to predict the effect on jobs in the rest of the economy, but that’s most probably negative.

It’s hard for me to think this doesn’t say something about the world we’re going toward.  It’s not so much that there will be a shortage of jobs overall as of good jobs.  What is it that we are going to use to bargain with employers?  Traditional education is about knowledge and capability.  In our familiar world it takes years to put together the package that an employable person represents, and there are many distinct niches that need to be filled.  In the new world, knowledge is more readily accessible, the capabilities required are more generic, and staffing levels may be reduced by efficiencies.  We’re only beginning to see how that will shake out.

As we noted last time, the private sector is not good at managing effects of radical change—on people and on the environment.  On the other hand, we’re talking about really significant productivity improvements, so in principle that should be a good thing.  But that’s not going to happen by itself. It sure didn’t happen at the start of the industrial revolution—for most of humanity that meant misery and war.

In this anniversary of the American Revolution there is a relevant quote from the signing of the Declaration of Independence: “We must, indeed, all hang together, or, most assuredly, we shall all hang separately.”  That’s now true worldwide.  In this time of economic ferment, climate change, and nuclear weapons we had better learn to work together for global well-being or there may be nothing left at all.

The Bigger Story from Rare Earths

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The Rare Earth affair tells us a very important simple truth:  contrary to the endlessly-repeated Republican message, the unfettered private sector (AKA the “free market”) does NOT solve all problems.  The private sector by itself is not sensitive to national security concerns and isn’t terribly worried about single sourcing so long as the price is right. After all there has never been a problem.  Tough luck.

This isn’t some strange outlier issue—it’s the main story.  The business community serves its own interest and generally with a short-term focus.  No one gets promoted for wasting money on what isn’t going to happen, which includes low probability events and any significantly different futures.  The private sector is good at optimizing its own operation.  It’s not good at providing for the population, the environment, or even the conditions for its own long-term success.  There is no “free market” magic to make that happen.  If the government doesn’t do it, it won’t get done.  And that is terrible for the future of the country.  We’re going to get one Rare Earth problem after another (and not just for security reasons), because we’re making sure not to look out for them.

We should be very clear about what we have today.  Trump wants to run everything, but that doesn’t mean we have government doing its job.  On the contrary what we have is business capture of government, so government is making sure that what business wants and nothing else gets done.  That’s why we can’t have government-sponsored basic research or any consideration of consequences of climate change.  Instead we have a whole bunch of protectionist tariffs and business tax cuts—just what business always wants.  There’s a juicy story of golden futures for everyone, but that comes cheap.  There’s no serious logic behind it, just what businessmen always want to believe.  Trump wants to mess with the business environment, but he hasn’t taken his businessman’s hat off.  He just thinks he’s such a genius he can tell all those big shot execs how to run things. Even the H1B affair fits here—there’s no strategic issue, since those pointy-headed engineers are a dime a dozen.

You don’t have to be a PhD economist to understand this.  Adam Smith understood it in 1776. I won’t give the usual long quote.  We just need a shorter one: “The government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatever.” — Book IV, Ch. VII

Things Aren’t Okay—We’ve Been Here Before

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It strikes me that comparisons of Trump with other would-be dictators are actually a distraction from a more important historical parallel.  Unless we can stop it, we seem hell-bent on replaying the 1930’s with even more at stake.

This isn’t just an economic story; it’s a story of response to worldwide crisis.  When the US stock market collapsed in 1929, it wasn’t inevitable that the entire world would move to disastrous depression and then war.  That it did so was a failure of national and global governance.  We humans did it to ourselves.

There’s a problem with human psychology.  When something bad happens, we pull in and defend what we’ve got.  In societies, that means in downturns those on top focus on defending themselves (e.g. with austerity) from what they see as the moral failings of the rest.  That’s why countercyclical policies are so hard to do—they’re the last thing ruling classes want to see. However austerity itself breeds more declines and a vicious cycle to the bottom.  In international relations the corresponding phenomenon is xenophobic retrenchment in a cycle of increasing grievance, paranoia, and hostility.  All that matters is to make sure you end up on top.

That’s pretty much what happened in the 1930’s. It drove the world to economic disaster and then World War II. (World War I contributed, but dire times in Germany elected Hitler.) The post-WWII institutions—whatever their shortcomings—were an attempt to prevent it all from happening again.  They gave us an unprecedented period of worldwide economic growth.  Even with the 2008 crash the US and China basically cooperated in keeping the world economy afloat.  But we’re a long way from that now—all we hear about is being on top.

We haven’t had 1929-style crash, but there are problems that can’t be papered-over. Even before the current AI explosion, technology change was making working populations obsolete far faster than governments could cope. In the West there is nostalgia for a simpler, somewhat-mythical past—a fertile ground for anyone willing to lie about recreating that past and to blame others (elites, immigrants, other countries) for lost status and security.  For the East and global south it is a time to get even with past oppressors.  It’s a hard time for global action when everyone is looking to get ahead in a hostile world. As many have noted, Trump’s high tariffs recall the Smoot-Hawley tariffs of 1930.  Those tarrifs should be recognized as a sign of danger above and beyond the immediate damage that they do.

In addition we’ve got something new.  Climate change is an existential threat to everyone, but a hard sell for real action.  It requires real money in the present to prevent locked-in damage in the future.  It’s all too easy to claim it’s all unnecessary or can be put off to some unspecified future—with immediate benefits as a sweetener.  The US may win prizes for foolhardiness (no real businessman would tell his investors that no risk contingencies are needed because of his personal genius and intuition), but there are few countries whose expenditures match the danger or even the Paris agreement objectives.  No one can be beyond the risks of climate change, but with Trump’s incessant hawking of US fossil fuels we’re sure are trying to believe we’re special—like the 1930’s rich people who couldn’t be bothered with the problems of the depraved poor.

Given that, what is the world working on today?

  • It’s certainly not working toward global governance and not effectively working on climate change.
  • It’s not working on political stability, since the UN is now extraneous to most of what is going on.
  • It’s not working on peace (despite Trump’s many claims), since the most basic rule of the post-war system—that countries shouldn’t invade each other—has pretty much fallen by the wayside.  It was never fully obeyed, clearly not even by us, but we’re now in new territory.  Russia is making no apologies in Ukraine, and the same is true for the US in Venezuela. If anything the new stated mantra is about spheres of influence where the strong have a right to do what they want to the weak.
  • However there is one thing that the world IS definitely working on:  a desperate competition for dominance in artificial intelligence, and that is serious enough for a discussion of its own.

Where is AI taking us?

  • Since AI has both military and economic consequences, this amounts to a full-scale arms race.
  • The money spent on data centers is phenomenal even compared with total investment in the participating countries.
  • As such, it drains resources that would otherwise be used to the benefit of the population, accelerating the disaffection noted earlier.
  • Its massive energy use accelerates the timetable for climate change (and takes money from climate-oriented activities). In this country of course wind and solar contributions are banned.
  • Most importantly its objective—Artificial General Intelligence, basically surpassing human capabilities for reasoning—is ill-defined, and the work to get there is hard to predict.
  • Because of the huge level of debt financing, it raises the specter of financial collapse if gains don’t match revenue expectations in predicted timeframes.
  • Even more dangerous, the military consequences are considered so important that the arms race threatens to become more and more serious, with competitive positions extremely difficult to assess—raising risks of instability and preemptive war.

The story is not exactly the same as the 1930’s, but the parallels are too clear to ignore.  We’re not addressing the festering problems, and we’ve created new opportunities for economic collapse and unimaginable war.  That isn’t okay.

We, the human race, can’t aford to fail as we did last time.

I’m not going to propose any simple answer, but there a few things worth saying.

  • I believe that climate can be a model for international cooperation, because it is a true common problem that can only be effectively solved if everyone benefits.  We have a lot to walk back, since Trump killed the original Paris Agreement unanimity, but we have to do it.  The US had a big role then, and needs to play a big role now.
  • The best way to address a full-blown arms race is to diminish the incentive to use them.  The world needs a workable notion of fair trade that will allow all countries to succeed.  We were a lot closer to that than self-interested propaganda would have people believe.  The test for success is shared prosperity, including labor standards and environmental protections.
  • The biggest barrier to that endeavor is how prosperity reaches national populations—obviously a problem today even in developed economies.  Ruling elites everywhere want a big share and have many means to get it.  What’s more AI will make the problem even more pressing, since future job losses can destabilize any progress. Maybe trade groups such as the EU can stand as models, where considerable national autonomy has been ceded in exchange for what has been a very large gain for all. That may sound strange but in fact the US only got going when the states gave up part of their independence for the Constitution, and the EU has managed to unite age-old enemies for something better than war.

Obviously none of this is going to happen tomorrow.  But unless we do something, we can see all too well how this story can end.

The Zero-Sum Trap

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It’s not unusual to talk about zero-sum games as a political issue. Probably the most common example is in international relations, where the Trump people treat countries as ordinary business competitors: what profits them is lost to us. That’s a false analogy as we’ll discuss later, but that’s not the main point here. What we want to emphasize is that the notion of zero-sum games—where all gain is someone else’s loss—is even more pervasive and dangerously wrong than commonly believed.

There are many kinds of zero-sum examples:

  • Our progress means taking it from someone else (as just mentioned)
  • Anyone else’s progress means taking it from us (racial progress means blacks taking from whites)
  • Hurting others means helping us (the party line with DOGE).

Notice the logic runs both ways: not only does our progress require hurting others, but also hurting others can be assumed good for us!

The issue is not that such things can’t happen; the problem is assuming that they always do. The chaos around DOGE produced wild enthusiasm in Trump’s base even though there was no logical connection to anyone’s well-being (either in theory or in the One Big Beautiful Bill). Moreover, paradoxically, all the publicity about DOGE viciousness seemed to increase confidence in the unstated zero-sum assumption. “Look at all the progress in the first 100 days!”

To start with it is not surprising that a zero-sum situation is more the exception than the rule: that two different phenomena are so directly related means there is an explicit causal connection, and the costs and benefits need to more or less match up. There are such connections in budgeting decisions for example. However the connections between tariffs and anyone’s well-being, for example, are so circuitous and filled with logical gaps that no one is trying very hard to argue for them. Instead promoters fall back on a kind of instinctive belief in the zero-sum game. The more Trump talks about making others poorer, the more it must be the path of progress.

It’s useful at this point to review just how far the tariff argument is from being true. What companies are the pillars of US economic strength? They are the big tech companies that dominate market valuations, earnings, and international influence. Just eight such companies represent 40-50 percent of market valuations. What is the basis of their success? Are they winning because they can make better cheaper products that anyone else can make, so that tariffs can lead to even greater success and lots of new good jobs for US workers?

Actually not. Those companies represent technological advances that led to monopoly powers in their chosen sectors (those sectors are now starting to merge, but that’s another story). They have clear profit advantages over businesses in competitive sectors, and in fact they can force those companies in competitive sectors to bid against each other to supply them. These are primarily software companies (so they are not well-counted in balance of payment figures that ignore services) and their reason for success is technological advancement—often predicated on government-funded basic R&D—and ability to attract the best and brightest from everywhere to contribute to their success. Such monopolies are actually not new. In the good old days of American manufacturing it was the high-tech of its time. We don’t get to choose where the money is.

Tariffs have little or nothing to do with this picture. Somehow tariffs are supposed to create a new golden age for factory workers, recreating the good old days. However that is without the technology advantages that fueled the wages, without unions, and after many decades of automation that mean far fewer (and more skillled) people are needed in production. Tariffs have of course been threatened as retaliation for restrictions on tech company activities in other countries, but those are different fights over different issues. None of this means extracting blood from evil foreigners will deliver gold to Trump supporters here.

How about the benefits of white racial dominance and the deporting of immigrants? Most of the arguments for those come down to “everything they’ve gained is taken from us”. That’s easy to believe (one thinks of Vance’s performance in the VP debate where immigrants were the answer to every issue raised) but is it true? You can certainly find examples, black people promoted for their race or professions where desperate immigrants have depressed wages. But that isn’t the same as the net effect of what has happened. You can’t argue that by assuming it’s true.

What made this country’s historical success is the (relative) freedom of US society from the centuries-old societal hierarchies elsewhere. Anyone could come here and succeed. The US pioneered mass education, and its own aristocracies just didn’t have the powers to exclude that existed elsewhere. We have prospered from everyone’s contributions, people of all races and from everywhere. That there are more people in the picture does not mean everyone is poorer; historically it has made us richer. Even today the immigrant population (including the illegal part) is paying taxes, using fewer social services, committing less crime, and staffing difficult jobs (in agriculture, eldercare, and construction) that locals don’t want to do. The big technology companies are filled with immigrants and children of immigrants who are making the country richer for everyone. (As is evident from any discussion of AI for example, this is more a matter of scarce talent than outsourced jobs.)

When you think about it each zero-sum argument assumes a static world where all that matters is dividing up a fixed pot of goods. That’s where the zero-sum comes in—who is giving or taking. But the picture is completely wrong. It’s not just that the overall pot is growing, it’s that the pot is being redefined entirely. And it’s that effort—the creation of the new pot—that will determine our success as a nation. And again looking at the new corporate leaders of our economy, that new pot (as noted) is being created in large measure by immigrants and children of immigrants of all races and nationalities.

(It’s important to be careful about the conclusion here. This isn’t an argument for uncontrolled immigration or even for what rules should be applied for who gets in. It’s also not an argument either for or against any kind of affirmative action. In both cases there are tradeoffs that have to be made rationally. Every country decides how many immigrants it can absorb annually, but that decision should not be based on false stereotypes of what those immigrants represent. In the case of affirmative action, you don’t want to create new forms of favoritism, but at the same time you need to find ways to prevent existing prejudices from perpetuating past discrimination. That those subjects are out of scope here doesn’t mean they can’t be addressed.)

Government’s task is providing the environment for both economic progress and well-being of the population. A key objective is equality of opportunity, as we need contributions from all. And it is up to government to see that the two objectives—for the economy and for the population—are both satisfied. That is always a political challenge.

Government structure is important. That the private sector will miraculously do it all is a myth understood perfectly even by Adam Smith. That myth only persists (without evidence) as an excuse for government to neglect its second objective—for the population. Expecting arbitrarily-powered dictatorship to be more dynamic and effective is even worse—for reasons that are already evident. Dictators make uncorrectable mistakes and ignore what they don’t want to hear. We’re cutting basic research in all domains and treating climate change as treason, exactly what we don’t need in a technology-based world economy. That hurts BOTH the economy and the population. By our own history, democracy is a good thing.

Finally we need to return to the issue we started with—international relations. Are nations just a bunch of business competitors fighting for market share? The answer is no, because we all share one world and there is an enormous (if not always recognized) common interest in making it work. Without thinking hard we are all confronted with the pressing problems of climate change and the ever-present threat of war. Chaos risks disaster. And there is a positive push also. Over the past decades we have proven that by cooperation (admittedly incomplete) we have been to grow the pot of benefits enormously for all. This could hardly be farther from a zero-sum scenario.

Zero-sum reasoning is a big problem, because it is instinctive and can be crucially wrong. We can’t prosper by believing life is all about fighting it out for advantage. If we want to be successful the task is to build prosperity for the future—for our entire population and for the world. Nothing says that’s easy, but it’s the only game there is.

Trump’s Tariffs are a Dry Run for the World’s Future

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As the Trump administration ramps up its efforts to sabotage climate action, we have to think about what that means.  There is only one atmosphere, and the consequences of climate change are becoming ever more obvious.  Our policies are not just putting the US at risk, we’re putting everyone at risk.

So it is only a matter of time before the rest of the world will have to react.  The US has become not just a rogue state but a criminally insane one.  The only reasonable action is a global embargo.  The US has to be treated as a matter for quarantine.

Fortunately for the rest of the world, Trump is providing an excellent transitional strategy.  As exports to the US become subject to draconian and unpredictable risks, the world has a chance to live without us. The supposed lifeline we’re throwing to the rest of the world is actually worthless—building factories in the US just increases the exposure to Trump’s whims, and further the fossil-fuel-privileged industries of the US (e.g. cars) will have little future elsewhere.

There is a remarkable consistency in US policy—we are doing everything we can to turn ourselves from a world power into an afterthought.  That’s not just the tariffs, it’s the attacks on education, healthcare, and forward-looking research.  The demonizing of all immigrants. It’s amazing what dreams of past imperial greatness can do.

Maybe it’s in part an Anglo-Saxon thing.  The parallels with Britain are close, although our fall is much greater.  Brexit was Britain’s effort to restore its nineteenth century dominance by withdrawing from cooperation with the EU.  The result was an instantaneous economic downturn that took about five years for the population to understand.  There may well be no way back—with more Farage populism in the offing, the downward spiral could continue.

We voted for Trump to bring back the glories of the post-war fifties.  He has promised to make everyone rich by shaking down the rest of the world.  With tariffs, we are in essence doing our own Brexit with everyone else. Whatever the evangelicals may believe, there is no God protecting us from folly.

We Are Russia In Ukraine

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In case you haven’t noticed we just declared war on our independent neighbor Canada.  We haven’t sent an army yet, but that’s only because we think we can win with financial weapons.  But there’s no mistaking it—it’s war.  And our declaration of war was beyond ludicrous—for few immigrants, just about no fentanyl, and a balance of payments deficit that has nothing to do with protectionism.  The real reason is no better—a vanity project so that Trump can say he personally added the extra territory to the USA.

That’s pretty bad, but it is certainly not the worst of the lying going on.  For that, you can point to all the talk about getting rich. We’re constantly told that everything going on, no matter how painful or immoral is about getting rich.  But no one has any intention of creating a world where the population gets rich. This is government of, by, and for big corporations.

There is no linkage between all the firings and the well-being of the population—the money being saved is to justify the tax cuts for rich people and Wall Street.  The tariffs are a sales tax paid by buyers—a regressive tax.  The deportations will raise prices even on basic foodstuffs and essential services such as elder care.  Finally and most importantly, as even Adam Smith understood and the entire nineteenth century demonstrated, the big corporations are not going to shower golden paychecks.

If you want to understand what’s in store for the population just look at what uncontrolled free enterprise did in the nineteenth century.  The picture was very much like the story Trump tells—the European powers dominated their colonies and brought all the profits home.  Industrialists made fortunes, controlled government, and kept the work force desperate.  Uncontrolled capitalism is good at making money for itself full stop.  Most people are in no position to bargain.

There is no miracle world of uncontrolled free enterprise—the only people who preach that religion are handsomely paid to do so.  Governments can do bad things too, but without the countervailing power of government there is no one to speak for the well-being of the population.  Just look at some problems facing us today: 

– AI (with robotics) is already becoming a hit on employment. Musk’s savaging of government jobs is actually a foretaste of what to expect throughout the private sector.  Someone will have to help.

– Climate change is real—whether Trump likes it or not—and there will be major changes to be managed if the population is to be kept whole.

– Education and healthcare are necessary for personal financial success and stability.  The private sector is not going to fund it.  Punting it to the states is something business interests do to avoid paying for it.  Musk goes a step beyond that—preferentially hiring H1B slaves whose education was paid-for by someone else, and who can’t quit or change jobs.

– The technological environment is changing faster and faster.  No one predicted just how far generative AI would be able to go.  Unless we are prepared to spend real money on pure research we will be left behind.  That means not only missed opportunities in the economy but these days also military weakness.  Regardless of what politicians may say—the private sector does not do basic research.

Trump’s golden world does none of these things. It’s not good for the vast majority of people.  Except in the very near term it’s not even good for the billionaires.

In business I’ve been to plenty of meetings where someone proposes a new idea—different and exciting, thinking outside the box.  Frequently what makes it new, different, and exciting turns out to be that it’s wildly unethical—kind of like invading Canada.  Wildly unethical may be different, but that does not mean good.  In fact most of the time it’s terrible.  And with Trump that’s what we’ve got.

Two Views of Government

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It seems to be taken for granted that everyone knows the objective of government:  it exists for the good of the country.  However it’s not obvious what the “good of the country” means, and that ambiguity leaves plenty of room for confusion.  There are two models.

Model number one is more or less derived from the family.  The good of the family is the well-being of its members.  Government exits for the well-being of the population. Reasonable enough.

Model number two is a business.  The goal of a business is returns to its investors.  The employees are a cost center, and every dollar earned by the workforce is a dollar lost to investors.  The population is at best a necessary evil, with fewer and fewer really required for business operations and with available slave substitutes (who can’t quit or change jobs) as Musk’s beloved H1B’s.

We are currently seeing model two in full operation.  Everything has to be sacrificed to the 4.5 trillion dollar tax cut for rich people and businesses. Despite all the rhetoric about a golden era, all the money from the cuts and firings ends there.  It’s golden for the people with the gold.

And that’s not the end of the story. As even Adam Smith understood perfectly, the private sector is actually not good at providing for its own success. Left to its own devices it rutherlessly sacrifices everything to immediate profit, which leads to longer-term collapse. Think about the cuts to education, research, and climate change. So as far as the two models of government are concerned, we’re running headlong into a worst of both worlds–sacrificing both the population and the economy.

Clarifying Some Issues for Climate Change

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It bothers me how much confusion there still is about what it takes to fight climate change.  A recent article in Bloomberg was a case in point.  They rank new EV’s by “greenness”.  I’m not going to talk about the details of what they call green, but the problem is that the whole idea is wrong.  All EV’s are green in the only way that matters, and a ranking by “greenness” just confuses the issue.

I’ll try to be organized about this.  First of all, the primary change that has to take place is the replacement of fossil fuels by sustainable sources of power.  In practice that comes down to moving everything to the electric grid, with a beefing up of that grid to handle the greatly increased demand and with sustainable sources.

The timescale for this transformation is dictated by a carbon budget—there is only so much more carbon dioxide we can put into the atmosphere before the consequences become catastrophic.  All that carbon dioxide just adds up, and the results continue to get (exponentially) worse. To succeed we have to stop burning fossil fuels before we hit the carbon budget limit.  That process has three parts:

  1. Make the electric grid what it has to be:  sustainably generated with much more capacity and much better connectivity.
  2. Move all applications to the electrical network. (Note that hydrogen apps fit here since most of the hydrogen will be electrically-generated.)
  3. Cut down on usage for all of the remaining fossil fuel applications.

The first thing to note is that most conservation efforts fit under item #3, so it’s worth stating unequivocally that conservation by itself is not the solution to climate change. It’s only a piece of what has to happen, and the rest is most of the problem.  And conservation for EV’s doesn’t fit here at all. Item #1 has to happen for all energy uses, so “greenness” of particular car models is an insignificant blip on a much bigger issue.  Finally, it should be obvious that despite what the oil companies tell you, climate change is not primarily a matter of everyone’s personal responsibility:  governments have to take large-scale action.

It’s worth saying a little more about items 1 and 2.  There is quite a lot of #1 that can start now:  improving and expanding the capabilities of the network as well as deployments of solar and wind power.  There are of course limitations to what we can currently get done.  The biggest current issue is in-network energy storage, to handle periods where there isn’t sun or wind.  However, this is an area of such active work that one can expect big improvements in the next few years.  For that reason it’s fair to regard item #1 as mostly a matter of money and commitment. (That’s not to say there can’t be big contributions from new technologies—such as fusion—as they become available.)

Item #2 is harder.  This involves not just familiar issues such as heat pumps but also industrial processes, such as for steel, cement, and plastics.  For these there is still research to be done before we can talk about worldwide deployments.  Overall this is an area with many different application-specific issues and deployment scenarios, so lots of work has to be organized and done in parallel.  Again this goes way beyond individual responsibilities. Note that EV’s fit under item #2—changing to an EV is a contribution regardless of whether your electric utility has done its work yet or not.

Finally there is the international aspect to the whole problem.  It’s amazing how much of the discussion of climate change is about us doing our part–as if our atmosphere were somehow detached from everyone else’s.  This really needs to sink in:  there is only one atmosphere, and we will only succeed if everyone else succeeds too.  Helping poorer countries to cope is not a matter of charity; it’s a matter of our own survival.  Obviously there are going to be negotiations over whose money gets spent on what, but rich countries are going to have to do what it takes for poor countries to redo their infrastructures.  Like it or not we are going to have to help with technology development and deployments worldwide.