International

The Trade Deficit Is Not the Problem, Believing That Story Is

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We all know about the huge US trade deficit with the rest of the world.  Most of us know this is just about trade in goods, so that it does not include the trade surplus in services—which historically compensates for roughly 40% of the total deficit.  So services are large and growing but nowhere near the size of the problem.  What’s less obvious is just how wildly incomplete this story is.

It’s straightforward to see why. Look at the iPhone.  iPhones imported into the US are a significant (but of course not decisive) contributor to the deficit.   It’s an expensive item and we get lots of them.  However what’s imported is the hardware—which is what counts for the balance of payments. But great majority of the profit goes to Apple, because most of the product value is from the software written here.  The balance of payments calculation is backwards—it’s a win recorded as a loss.

It’s worth noting a historical parallel. Early in the Industrial Revolution the British insisted that India only export raw cotton to Britain, so that all the value-added would be captured there. All parties recognized this as an example of colonial exploitation. We’re in exactly the same position, and we’re worried about the balance of trade!

We can even go a step farther. Consider an iPhone made in India and sold in Korea. It shows up nowhere in balance of payments calculations, despite the profits earned by Apple on every such sale. There is no reality to the balance of payments statistics at all.

And this isn’t a one-off.  Here is a list of the top ten US companies by market valuation. 

🏆 Top 10 U.S. Companies by Market Capitalization (2026 estimates)

  1. NVIDIA Corporation – approx. $4.5 trillion (currently world’s largest)
  2. Apple Inc. – ~$4.0 trillion
  3. Alphabet Inc. – ~$3.8 trillion
  4. Microsoft Corporation – ~$3.6 trillion
  5. Amazon.com, Inc. – ~$2.5 trillion
  6. Meta Platforms, Inc. – ~$1.4 trillion
  7. Broadcom Inc. – ~$1.7 trillion
  8. Tesla, Inc. – ~$1.3 trillion
  9. Berkshire Hathaway Inc. – ~$1.0 trillion
  10. JPMorgan Chase & Co. – ~$0.6–0.7 trillion (approximate, rounding into the top decade range)

The #1 is now Nvidia.  Perhaps surprisingly it’s just like Apple.  They don’t make the hardware either.  What they provide is another kind of software—detailed specifications embedded in a form for transfer to TSMC for fabrication.  The high-value contribution is made by developers in the US, which is where the profit is realized as well. (It’s interesting to compare Nvidia with TSMC.  Both companies have monopoly positions in their markets, but Nvidia avoids the huge capital expenses of hardware, and makes much more money by being on top of the production stack.) There is something more than a little disturbing about national policies based on numbers that are completely off-base for the two biggest companies in the world.

The problem here is that the goods versus services distinction doesn’t mean what we think it does.  We want to think about that distinction as somehow capturing hardware versus software, but it doesn’t work that way.  More and more software is getting embedded in products, so it’s counted wrong.  It’s more correct to think about software (broadly-defined) as highly-skilled manufacture.  The same kind of thing happens with pharmaceuticals.  More and more of the value creation is not in building the product hardware, but in defining content.  So the value-added enabled by the imports is not captured anywhere in trade statistics.

And the software business is great—fewer capital requirements and you’re on top of the heap for revenue.  There is also a strong trend to monopoly from network effects and software’s built-in economies of scale. Most of the businesses on the top 10 list—one way or another—are software businesses and many are effective monopolies in their sectors.  It’s not surprising our economy has evolved in that way, and the top 10 list is anything but a sign we don’t know how to make money. However since the statistics have not kept pace, we end up deluding ourselves about both the present and what matters for the future.

We can put some numbers on that.  What are the actual revenue impacts of the balance of payments deficits?  For Apple and Nvida the calculation is straightforward from available product costs.  For the iPhone the ratio of enabled revenue to the balance of payments deficit contribution is 5 to 1.  For Nvidia the ratio is 6 to 1.  Those are big wins, and perhaps less exceptional than you might think. It’s harder to get numbers for US companies overall, but arguing from both S&P 500 foreign sales numbers and OECD value-added statistics gets the ratio of aggregate revenue linked to trade to the deficit at about 4 to 1. (The argument is not complicated.  Both approaches yield US foreign sales of about $5.5T which means $2.3T of foreign revenue above all reported exports, both goods and services.  That’s real value not captured by the trade stats. Further as a conservative estimate we can assume that same uncaptured value for US domestic revenue by the same companies.  That’s now $4.6T of revenue linked to international trade.  Divide by the goods deficit of $1.2T and you get 3.8, and the more correct goods + services deficit of .9T gives 5.1). Our true global trade balances are a resounding plus.

 So what do we conclude about the balance of payments deficit?  First of all it’s NOT a problem.  It’s a reflection of the way our economy works, and that’s a proven productive direction.  The unbalance is not because we are losing out but because the trade statistics don’t see where we make money.   Furthermore this is not a picture of everyone taking advantage of us; on the contrary we have much of the world competing with lower-margin items to supply us in our higher-margin activities.

That’s not to say there are no issues—we obviously need to talk about jobs and security of the supply chains.  Jobs are the more pressing item.  However the only reason jobs are in this discussion is the assumption that people are hurting because other countries are stealing our prosperity through trade.  That story is false.  People are not poor because we as a nation are not making money—we are–they’re poor because the distribution of wealth in our society has left them behind.  The idea that we’re going to solve that problem by having our people substitute for the workers in the low-margin industries that feed our industrial giants is so ridiculous it’s hard to know where to begin.  Those aren’t manual labor jobs, and they can only be good wage jobs in this country if the government basically pays their wages.  There’s no other way they are going to meet the price targets for the final products.  Even then it’s hard to imagine anything practical about these half-governmental uncompetitive companies.  What we should do for disadvantaged populations is part of a bigger story about government responsibilities—we’ll return to that later.  But this story—solving poverty by bringing low-margin, low-wage factories here—was never more than populist gloss.  No one ever cared enough to work it out at all.

As for supply chain security, the argument seems to be that we need to bring all of these supporting activities in-house to make sure that supply chains are under control.  That argument is also false. Bringing supply chains in-house is no guarantee.  During Covid the CDC had a contract to provide M95 face masks prior to the pandemic.  However, the contracting company got acquired, and the bigger company noticed there was no health emergency and no real business.   So they spent their money elsewhere and no single mask was ever delivered.  Running an artificial, uncompetitive business for reasons of security is anything but a sure thing, and providing a second such business for redundancy is even worse.  And again if the business is to be price competitive lots of money needs to be pumped in.  It’s an expensive bad solution.  Instead what is most useful is real multi-sourcing.  We need diversified supply chains with production spread across Taiwan, South Korea, India, Vietnam, and Mexico, so that no single disruption can choke off supply entirely.  Instead of competing with those real, productive companies, our interest is in making sure they keep it up.

Just about everything involved with the balance of payments discussion is out of touch with the realities of US economic strength and the needs of the population. Thus far it’s too early to see the full dangers of the mismatch of policy and reality: The final tariffs were significantly lower than originally proposed, so that supply chains have been able to adapt, but multiple studies have shown that the tariffs for more than 90% are paid by us (regressively).  And there has been only pain—not benefits—to the people Trump is nominally saving; it’s the billionaires cleaning up left and right. (But at least today we can celebrate the Supreme Court’s blocking Trump’s ill-conceived and illegal tariffs!)

However the future is the main story, which is where we need to go now.

For that we need to recognize just how dynamic the world economy is becoming.  There is every reason to believe the trends we discussed for the top 10 list—software (broadly-defined) and monopoly—will continue and even accelerate.  AI makes it ever easier to build software that interworks with all kinds of products.  And robotics in particular can be revolutionary. As robots become software platforms, rather than individual products, a greater range of businesses can be imagined primarily as software applications.  That way the iPhone business model can extend to all kinds of physical devices. AI has already made it possible for small teams to do things that used to require many more people with distinct specialties.  We’ve already seen companies come from nowhere in a very few years—there will be more and faster.

How do we prepare for success in that future?  The balance of payments view of the world doesn’t help, because it is static and already out of touch with the present.  Fixing that gets us nowhere.  Further Trump’s rhetoric about bringing back the good old days of factory jobs mixes up corporate value-added with imagined low-skill job creation—for jobs that largely no longer exist!  He may want to think about people standing in front drill presses all day, but we had better not take him too seriously.  We have to deal with the future as we see it coming

To begin we need to talk just about business competitiveness.  If we’re going to succeed in the kind of business environment just described we need three things: 

  • We need innovative types able to start the new businesses which will make up the rapidly evolving landscape we just described
  • We need people who will provide the kind of value-added needed by such businesses
  • We need government to support innovation.  In practice that means not choosing winners and losers and protecting innovators from the powers that be.

Those are absolute requirements.  Before we can talk about anything else, we have to satisfy those. At the same time however we need to provide for the well-being of the population and the national security of the country.  Those two types of requirements seem distinct, but as we’ll see they are closely linked.

On the innovation side we have traditionally been well-positioned here.  The single most legitimately-true feature of American exceptionalism has been our openness to enable people from anywhere and with any background to find a home where they can thrive and fit in.  We have been the place for the best and brightest from everywhere to come and build success. Immigrants and children of immigrants have been prominent for Nobel prizes, in founding companies, and more generally in staffing the high-tech companies driving the US economy. It’s true for AI today.  And the strong network of research universities and government labs has meant that the latest technologies could be counted on to be supportable for new businesses. 

US openness has been perceived as unique worldwide—which matters for all of us. Because we draw from the whole world, the US achieves levels of technological dominance and wealth that are hard to match. China may be big, but the whole world is a lot bigger—and so are we. It matters in every domain. That not everyone experiences that wealth is a different issue—a political problem (as we’ll discuss later) not a national wealth problem.

The bottom line is that the overall well-being of the population is not just a matter of decency—it’s intrinsic for national success. Our dominance is in a very basic way a reflection of what we as a nation represent.

It’s interesting that China is a kind of opposite pole from us—a huge inwardly-focused country whose export businesses are primarily in hardware with hard-won price advantages.  That’s not to say they can’t move in our direction, but thus far their focus has been different, with less emphasis on software value added.  As the following chart indicates, China’s exports have been considerably less oriented toward added services than ours.  If we’re worried about competition we have to recognize and play to our strengths.  Our big world of economic as well as political allies has been of major importance.  As in the discussion of imported inputs for Apple and Nvidia, they do their jobs for us better than we would do for ourselves.

All of that is why it is so serious that we have recently decided to relinquish many of those traditional advantages in a burst of self-destructive nationalism.  We now have overt hostility to foreigners, attacks on universities, and cancelled research money.  We’ll throw lots of money into today’s hottest development item—the current version of AI—but we have chosen to be deliberately blind to whatever comes next.  In addition we’ve decided to choose winners and losers in technology based entirely on “intuition”.  Since climate change is now officially non-existent, all technologies associated with it are removed from our national consciousness.  Unless some of this is reversed we will be like the British after World War II, living in past and lost grandeur.

Beyond competitiveness, we need to talk about national security and population well-being. For both the most important message is a simple one:  there are a great many important problems that the private sector will not solve by itself.  That may seem obvious (it was to Adam Smith) but it’s contrary to the endlessly restated ideology of the last decades: that the unfettered private sector just needs to be left alone to work its magic.  I’ll start with security.  We need to be clear—we’re talking about national security here, not the reliability of value chains as before.

Government needs the professional competence to decide what actions have to be taken in the economy for reasons of national security.  That includes what products and capabilities we need to have here and what needs to be done proactively to prevent the kind of dependencies we have with rare earth elements today. We have to be able to think ahead in a way that the private sector won’t.   So government needs professional competence protected from political persecution.  After all, the Chinese clearly were able to think ahead; a primary reason we couldn’t was the ever-present private sector mantra just mentioned. We were too smart to think about government telling businesses what to do.

In addition government needs to think more broadly about security.  As we noted earlier we will never be able to take everything in-house, and even domestic suppliers have their own interests.  So complete self-sufficiency is a chimera, and security is intrinsically concerned with international relations and the world order overall. That’s a big subject worth discussing but out of scope here.

Returning finally to the well-being of the population, the most important thing to say is that the businesses that form the basis of US economic strength won’t necessarily fix it.  They’re not going to employ everybody.  To some extent the overall wealth of the country will translate to general prosperity in the domestic economy (e.g. entertainment, home services)—but there’s no way, particularly with AI, that will be enough. It isn’t enough now, which is why we get Trump’s fairy tale with 1950’s jobs. Government will need to be involved with things like an adequate minimum wage as well as a bigger role in infrastructure of all kinds.  There is no shortage of work that needs to be done—in physical infrastructure or healthcare for example.  Also climate change will require significant near-term modifications all over the country.

That takes money, but national wealth is not the issue. The companies in our top ten list aren’t low-margin businesses even if they’re happy to get tax cuts. And going forward, we’re talking about sector-dominant software companies for even more of the same.  The challenge instead will be to restore the idea that shared prosperity is ultimately for everyone’s benefit, so that progress can happen.

It’s a truism that we have to grow the economy and ensure that wealth is broadly shared. But it’s important to recognize the two aren’t the same thing, and we need both to make the economy work. (Stephen Miller’s much-repeated slogan—getting rid of immigrants means more of the pot for all the rest of us—is a good way to fail at both.) This isn’t easy, but it’s not as if we haven’t done it before. Trump talks about the good old days of the 1950’s, but he doesn’t talk about how we got there. That broad-based prosperity was most assuredly not achieved by liberating the miracles of the unfettered private sector; it was by doing what we’re talking about here.

Last time we had to go through the Depression and two world wars to get there. This time we need to do better—both the risks and rewards are too great not to.

We’re Betting Everything Against Climate Change

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The takeover of Venezuela has made us a colonial power. Trump is now the dictator of Venezuela for the indefinite future. It has also led to new rhetorical heights about spheres of influence and how we should be able to use our superpower status to take whatever we want from anyone. So seizing Greenland from a NATO member is our perogative by right.

We’re telling all nations of the Americas that their independence is only for as long as we like it. Outside the Americas we’re threatening NATO’s existence by seizing territory. More generally we’re legitimizing the use of military force by anyone with the power to do it. History shows where that goes.

And what we’re getting for all that is oil. Oil that for the most part is not going to become available without billions of dollars of investment and years of development. Even without climate change that’s a shaky prospect; with the reality of climate change it’s nuts.

Climate change denial is not just a matter of sabotaging the Paris agreement and killing research funding.; it’s fundamental to everything they do. The rest of the world is continuing without us. It has to, since there is no other choice. China may be a dictatorship, but it values competence. Europe has kept its act together despite US pressure. Others are already seeing climate impacts. We’re off in our very own never-never land farther and farther from reality.

We’re going nowhere. The only question is whose sphere of influence gets us.

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

/ ontheoutside / 4 Comments

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.