International

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.

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.

Our Colony on the Mediterranean

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There’s something simple behind Trump’s 20-point plan for Gaza—we now have a colony on the Mediterranean. It is a state containing Palestinians without being a Palestinian state. Since we’re in charge it’s ours, even if we counting on others to pay for it or somehow keep the peace.

It’s not the first colony we’ve had recently.  There was also Afghanistan and to a lesser extent Iraq.  Colonies can seem rational—even benevolent—at the start, but it doesn’t tend to work out that way.  So we have to hope this one works better.

But that’s getting too far ahead.  What is there to say about the plan?  First, there is no denying that it is a lot better than continuing the war.  This has always been a particularly terrible affair, because in this horrible mess both sides wanted to kill as many Palestinians as possible.  For Netanyahu, the prime objective has been to kill enough of the enemy so that the Israeli population would forget that he was responsible for the success of the October 7 attacks.  For Hamas, the main point was to prevent any kind of Israeli-arab cooperation and to provoke an Israeli counterattack that would demonstrate the evils of Israel to the wider world.  Before his death Sinwar gloated to his boss in Qatar about the number of Palestinian dead he had achieved for the cause. What world this is!

With the peace comes the colonial bureaucracy.  The Palestinians aren’t running anything, because the Israelis don’t trust them to even the slightest degree.  In Netanyahu’s UN speech the Palestinians were described in every instance as unrepentant, vicious terrorists.  The plan has a lot of talk about how Gaza will be purged of Hamas, and there will be a whole new body to keep the peace—once it is ready.  Until then (whenever that is) the Israeli army will need to do that job.  There is a longer-term objective of maybe someday a Palestinian state once Palestinians can somehow be trusted to live in peace with Israelis.  Netanyahu has been explicit about when that is—never.

In the interim it’s not clear what is going to happen, except hopefully relief for Palestinians (an expensive proposition) and the encouragement of business investment.  There is no guarantee how much business investment will be aimed at the well-being of Palestinians.  Anything done for the Palestinians will come under US control and with arab or even Israeli investment.  On the face of it, this sounds like a bunch of fancy hotels and a massive complex of cheap apartment buildings to serve them.  I’m also a little worried about who else might be coming as immigrants, but which may or may not be an issue.  It’s hard to guess how peaceful this is going to be.  The horrors of the past two years are such that one can’t imagine there won’t be resentment.  The ideas of Hamas will be harder to exorcize than the known Hamas fighters. And we can’t know what will happen with the released arab prisoners.

So it’s great that the war is going to end.  At least to start with this particular plan seems dictated by the needs of Israeli security combined with Trump’s fervor for real estate development. However, the first step will be meeting the immediate needs of the Palestinians for a peaceful, livable future.  That is already such a challenge that the rest is up for grabs.

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.

Genocide is the Wrong Question

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It seems to me that the discussion of genocide yes or no in Gaza is actually letting Israel off the hook.

It’s easy to defend a charge of genocide. It’s true that the war with Hamas is still going on. It’s true that Hamas’ network of tunnels is such that it is impossible to imagine military action that doesn’t involve large numbers of civilian casualties. It’s even true that the Israelis are more or less losing the war, because they haven’t significantly reduced Hamas ability to launch another October 7 attack, and they haven’t even made much headway on those tunnels. So it’s not genocide, it’s an ongoing war of self-defense.

But that’s not actually what’s going on. When Netanyahu launched the war he certainly knew there was no chance of completely eliminating Hamas. He may have believed he could do it anyway; he may have just decided it was a good slogan. But early in the war it must have been clear to everyone that it wasn’t going to happen. For Netanyahu himself the war brought its own benefits–so he didn’t have to care–but you can’t fight a war without real objectives. And it must have been clear to everyone what those objectives had to be.

They had to be the same objectives as in the occupied zones: make sure the population knows who is boss and that massive force stands ready to crush any missteps or simply act on whim. For years that had been Netanyahu’s answer to all questions. It had worked to stop blowing up busses. It was the only achievable option for Gaza.

It’s not genocide, but it’s a war against the population. Make sure they never forget what happened to them–and that we can do it again. Absolute hell in every dimension. You don’t even have to try very hard. It’s mostly a byproduct of fighting Hamas and not caring about consequences, although blocking food trucks is a step beyond. It also serves Netanyahu’s other long-term objective–making a two-state solution impossible by hatred.

One hopes against hope there is some way to recover from this mess. That’s another subject. But it’s worth being clear about what is actually going on–and that it’s not new.

Summarizing the Gaza War

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After all the bloodshed and polemics it’s easy to forget what has actually happened with the Gaza war.

Prior to October 7 Israel was in a pretty good situation that seemed likely to get better.  They had relations with several Arab countries and the prize of a relationship with Saudi Arabia seemed to be in the offing. Palestinians weren’t the main topic, but they also had something to gain from leverage in the process.

Hamas was desperate to prevent all that.  Any moves toward peace were the enemy of a purified Islamic state in Palestine.  On October 7 they carried out the most horrifying and offensive attack possible, with killing of children in front of their parents (and then killing the parents) as well as rapes and anything else they could think of.  The objective was to provoke an Israeli reaction that would torpedo the looming progress.

The Israeli government was certainly capable of understanding what was going on.   However instead of the obvious reaction—whatever we do we do we’re not going to let Hamas dictate our future—they did exactly the opposite.  Why was that? (Contrary to the usual rhetoric this was not a fight for Israel’s existence.)

Simply put, Israel’s interest and Netanyahu’s interest were not the same.  Netanyahu’s long-standing support of Hamas (as a counterweight to the Palestinian Authority) and his negligence of reported threats were directly responsible for the success of the Hamas attacks.  And despite his denials, all polls indicated that the Israeli population understood that.  So he had a problem. And the only way out was a great big war.

From that point on, the interests of Hamas and Netanyahu once again coincided.  The more civilians killed the better.  For Hamas it made them heroes defending the Arab world against the inhumanity of the Israelis.  For Netanyahu it proved that only he was tough enough to do what it takes.  (And what’s more, the longer the war the better the chance to bring back his buddy Trump who would support the dictatorial takeover of Israel.)

The interests of Israel however have been lost in the shuffle.  Anti-Semitism everywhere is on the rise, with not just relations with the Arab world but even the existence of Israel now active subjects of dispute.  Further the stated military objective—the elimination of Hamas—is nowhere near accomplished.  Despite the massive destruction and loss of life, it is estimated that Hamas has lost approximately 8,000 of its approximately 30,000-man army.  As the tunnels are mostly intact, there is no plan for how to change that.

But this war was never fought for Israel.  For Netanyahu it’s not clear how much he has burnished his reputation, but any challenge to his power has been pushed out to the indefinite future.  And Hamas is riding high.  So whatever horror the rest of the world may feel, we’ve got to call the war a smashing success for its perpetrators.  May they both rot in Hell.

Threats to Israel’s Existence

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There is one aspect of the Gaza mess that hasn’t drawn enough attention:  that there was nothing inevitable about the success of the Hamas attack.  There was ample warning, but the defense was too complacent and the government was too preoccupied with its own priorities (the judicial takeover and the draconian measures on the West Bank) to pay attention to what mattered.

There’s nothing new about this statement, but the necssary conclusion doesn’t follow—that the Hamas attacks did NOT put Israel in a war for its existence.  The attack should have been a minor issue with far fewer consequences.  The reason it wasn’t was complacency and government corruption.  The attacks became the horrendous incident they were only because of the past and present failures of Netanyahu governments. The outcome of any subsequent such attack depends primarily on whether Israel addresses those failures—arguably more so than on Hamas. 

It was always strange that Israel would respond to the Hamas attack by doing exactly what Hamas clearly wanted them to do. I won’t say options were easy, but it didn’t have to be this. As we’ve noted before, the only way to understand it is to recognize that Netanyahu’s interests and Israel’s interests were not the same. As a distraction from his responsibility, Netanyahu had every incentive to turn the Hamas attacks into the biggest incident he could possibly create.

At this point it’s not even clear how much all the death and destruction has contributed to the “complete destruction” of Hamas. More generally it’s certainly hard to conclude Israel’s position has become more secure.

We all have to come to terms with that fact that the apparently self-evident statement that Israel was in a war for its existence was actually—primarily—Netanyahu’s self-serving lie. And what’s even worse is that for both Hamas and Netanyahu, the more people who die the better.

Hamas and Netanyahu are still playing each other’s game

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One big revelation (at least to me) to come out of the Gaza war is that Netanyahu provided for major financial support to Hamas as a way of weakening the PLO.   The idea was that weakening the PLO would undermine any efforts for a two-state solution.    Netanyahu hates the two-state solution, because his stock-in-trade is as a strongman protecting Israelis from Palestinian evil.  Hamas hates the two-state solution, because (as they announced) they want all non-Muslims gone.

It’s worth emphasizing that these converging interests are still driving this war.  First of all, there is no question that Israel is playing Hamas’ game.  Hamas launched an infinitely repulsive attack in order to provoke a violent Israel response—one that would undermine efforts for peace between Israel and the Arab world.  That Hamas placed its tunnels and other military installations under civilian institutions (such as hospitals) was not just to provoke outrage in the world in general but most specifically to provoke outrage in the Arab world.  The inevitable horrors inflicted on the population would make any coexistence with Israel intolerable.

If anyone other than Netanyahu were running the Israel government, there would have been at least some consideration for the wisdom of giving Hamas exactly what they wanted.  However for Netanyahu there were no such qualms.  This was a marvelous opportunity for pumping up hatred of the Palestinians as well as an opportunity for redeeming himself politically. “Just imagine how much worse this all would have been if instead of from Gaza this was all coming from a Palestinian state right next door!”  What’s more he could put on a show of irreplaceable toughness.  Any issues with his criminal activities or his treasonous past relations with Hamas would be erased by crushing the Palestinians now.  (And think of the opportunities from a subsequent occupation of Gaza.)

Once Israel started with such a response, they were stuck in it–because they had to succeed no matter what.  And for now there is little incentive for either side to stop.  The well-being of the Palestinians, or even the Israelis for that matter, is simply not an issue.  Things are going just fine, and both sides are delivered from the one thing they hate most—which is a workable (two-state) peace.