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Effective Democracy

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Let’s start with facts:  we live in a failed democracy that has transitioned to incompetent dictatorship. Given that kind of mess, it is worth going back to first principles to think about effective government.

First of all it should be noted that there is an intrinsic conflict of interests in any national government.  This isn’t complicated; it is basically parallel to what goes on in any corporation between the interests of labor and interests of management.  Near term they are dividing up profits, but longer term both have a common interest in the success of the company.   Successful companies are able to manage the conflict.

In government you have the economic powers-that-be versus the population as a whole.  Both have to benefit for success, but immediate interests are opposed in much the same way.  It should be emphasized that here too exclusive power to one or the other is disastrous. We’re accustomed to hearing one side of that story—uncontrolled spending on government benefits for the population will bankrupt the economic engines of the country. But an exclusive focus on the business side is equally bad and it’s not just a matter of living standards:  business interests are myopic both in terms of time scales and in terms of the environment needed for success.  You won’t have the technologies, or the people, or the physical environment necessary for the economy (and as we’ve seen recently, business people can risk bankrupting the country too!). Government has to speak for the whole picture.  Even the patron saint of free enterprise—Adam Smith—was well aware of this issue.  “The government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatever.” There is nothing sacred or proven about claims that government should never interfere with the marvelous natural workings of the marketplace—that’s just self-serving propaganda for the “haves” side.

This intrinsic dichotomy is very important for effective government.  Both sides must be present but neither side can win.  That’s one of the reasons we’re in such bad shape right now.  What we have today is business capture of government—exactly what Adam Smith worried about.  To be effective government needs to provide means for functional negotiation and cooperation between both sides.  Those sides don’t map exactly to the Republicans and Democrats, but that’s pretty much what it comes down to.  Bipartisanship is not about being nice; it’s working out fundamental tradeoffs between the two sides.

That is precisely what we have lost–structurally.  There are three immediately obvious issues.  The first is the primary system.  Since primaries are partisan, candidates are chosen exclusively based on appeal to one side or the other.  That guarantees extreme positions and more importantly disenfranchises the center of the voting population.  A second example is the way partisan power is used to control legislation offered in Congress.  In the House the so-called Hastert rule only allows on the floor measures that are supported by a majority of Republicans.  In the Senate the majority leader Mitch McConnell routinely blocked anything he disagreed with—regardless of overall support.  Both rules disenfranchise the center and make the country effectively ungovernable except in extremes—so whiplashing policies are a matter of course.  Finally there is the Supreme Court: lifetime appointments plus limitless power give a huge incentive for partisan appointees.

All of this is bad news and good.  The bad news is that it isn’t clear when we’ll be in a position to fix any of it. The good news is that there are significant items that really aren’t so hard to fix.  For primaries, there are a number of possible variants, including non-partisan primaries with rank choice voting.  For the Congress, you don’t need to change the constitution to change the rules.  And there are many proposals to fix the terrible mistake that is the Supreme Court—an undemocratically-chosen body with lifetime appointments and no constraints on its power.   With a decent Supreme Court we should be able to fix gerrymandering, for example.  That is a math problem we chose to turn into a political mess.

Bipartisan cooperation is fundamental, and we can stop going out of our way to make it hard.  That way we can make the tradeoffs for the country to be governable.  Then we can move on to two other necessary and straightforward matters:  direct election of the President (the current system is grossly inequitable and invites fraud) and adding the few extra Senate seats needed to compensate the ill-represented largest states. Such measures won’t solve everything (not control of media for example), but we can make things quite a lot better.  We can make our democracy work.

It’s not so complicated–if we ever get a chance to do it.

A Meeting in China

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Let’s talk about the basics of the Trump-Xi meeting.

What does Trump think about the situation?

He’s one of the smartest people who has ever lived and can only be compared to historical predecessors such as Julius Caesar or Alexander the Great.  His perfect intuition means that he has never made a mistake.  He is happy to be meeting with one of his only two peers on the planet—Xi and Putin.  And he has brought a bunch of his underlings (i.e. executives) as symbols of his power.  So he is there to glory in shared power and to bring back something he can tout as an achievement.  Glory is the thing.

What does Xi think?

On both ideological and racial grounds he is meeting with a representative of an old elite that is well past its prime.  Furthermore it is an elite that used its power to despoil China–Xi remembers the Opium Wars and the West’s abiding confidence in racial superiority. As for Trump, he actually started a trade war when the Chinese (with superior planning) held all the cards–i.e. complete control of “rare earth” resources required even for the military.  The Iran war is another sign of undisciplined impulsiveness—wasting enormous resources to achieve more damage than benefit.  So the challenge is how to take advantage of the opportunity. Strategy is the thing.

We can be more specific about objectives.  Trump wants some kind of big splash.  That can mean many things, but Trump’s weak position limits options. He’s not going to get a solution to Iran or a permanent relief from rare earths. One prediction has been a major new commitment of Chinese investment in the US.  That’s what he demanded from Japan and the EU. It’s true those are allies—as opposed to China—but Trump’s strategy document is more positive toward his two bros than toward them. That of course fits with Trump’s much-repeated story of all the new foreign-financed factories in the US that will make everyone rich.  On the Chinese side there are two objectives: opening the US market (e.g. for cars) and weakening of US resolve on Taiwan.  Both are useful near-tern and consistent with Xi’s longer-term goal of world economic dominance.

The scary thing is that those US and Chinese objectives could match up!  A big Chinese investment satisfies both—but only one outcome is real.  “Foreign-financed factories will make everyone rich” was always a fairy tale based on the world of the 1950’s.  It’s a mismatch with the world of today and even more so with coming AI and robotics. But Chinese involvement in US markets and technology could be very real.  Competing with the Chinese industrial machine is a challenge at best, and that would give them inside access to US markets and new means to get at US intellectual property.

The Iran war showed that Trump was ready to spend hundreds of billions of dollars and deplete US military inventories, so that he could imagine himself Napoleon.  (He’s given us every other possible explanation as well.) We may be on the verge of surrendering competition to China, so that he can imagine filling the country with 1950’s factories.

We’re so used to normalizing Trump, that we’ve become numb to consequences. This isn’t playacting; it can be real.

Disconnects

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One of the biggest problems with politics in this country is assumed connections that simply don’t exist.  DOGE and the closing of USAID and other government programs were money in the bank for the Trump base (instead it went to tax cuts for the rich).  Getting rid of immigrants would leave more of the pot of gold for everyone else (but growing the pot is the big issue and immigrants are contributors).   The reason we can’t have free public college here is that the Europeans didn’t contribute enough to NATO (though the Republican Party has consistently blocked any such public services).  And of course the big one—making rich people richer will trickle down to everyone else (which has never happened anywhere—they just get more power to help them keep it).

You have to be really careful with anyone’s tacitly-assumed connections.  Even if they existed in the past, there’s no guarantee they’re going to continue as before.  The particular case I want to talk about is the assumed link between national power (military and corporate) and population well-being.  For most of the 20th century that link was real.  That’s Trump’s factory economy with good jobs and the corporate might that won two world wars.  But that’s not the reality today–manufacturing is 8% of GDP, unions cover 10% of workers, and many service sectors are low-wage and dead-end.  It’s going to be even less the reality going forward.  The AI world is simply not going to supply that kind of employment-linked prosperity—there will be good jobs but not so many of them for a good long while. Experts spill ink arguing about the impact of AI, but the desperation of new college graduates (and current students) is the real world.

Many people have compared AI to the industrial revolution of the nineteenth century.  Britain at the time was the most powerful and prosperous country that had ever existed.  It was a world of fabulous wealth and horrendous destitution, both domestically and in its empire.  Eventually the world was able to adapt to the new reality, but that took a whole century of well-documented horrors.  Economies can’t adapt overnight.  The private sector will not miraculously solve the problem.  The only way is for government to create the link that is broken. (Note there is another side of this picture–we are all increasingly dependent on a relatively limited group who make the difference for rest of us. There is no alternative to spending money on education and research and also restoring our standing for the best and brightest from everywhere.)

Despite all the propaganda to the contrary, government needs a bigger role in employment. This isn’t charity. Government needs to finance work that needs to be done but won’t get done by the private sector alone.  An obvious case is climate change, which will require monumental transformations well beyond the cost of the new equipment.  (In this country we have the dubious distinction of currently paying for a huge, debt-financed, fossil-fuel-powered datacenter expansion–that will end up being reworked in short order for a cheaper sustainable successor that meets the actual needs of the 21st century.) There are also many other parts of the public sector that have been starved for years–for example in healthcare and education.  All of that sounds like a recovery plan from a depression—how to put people to work–but there’s a big difference: we have the money. As with the industrial revolution the problem is not a shortage of work or a shortage of money—it’s making the link.  This time we need to do it.

That isn’t a trivial problem, but it’s worth understanding it as THE economic challenge of our era.  The wealth growing out of the new AI economy has to benefit societies overall. In this it’s worth recognizing that the companies we’re talking about are not in cut-throat price competition with each other–if anything our problem today is too much consolidation and sector monopoly behavior.  Tech companies operate with profit margins that would have been unthinkable in competitive industries. Google’s operating margin runs over 25%. Apple’s over 30%. Microsoft’s over 40%. But we do need to be careful to make taxation work effectively, and we need to avoid an international race to the bottom.  I’m not going to attempt to solve all of that here. But I will note that the prevalence of stock buybacks is an indication that companies have more money than they know what to do with, and also that some kind of equity participation by the government in business is consistent with the value of the infrastructure provided. Fitting this wealth distribution into international trade rules isn’t simple, but we’ve done that sort of thing before–with labor standards and environmental regulations.

To end here I’d like to take the international part a step farther. There are many reasons why the world today needs new forms of cooperation–including tough problems like nuclear proliferation and war. This economic issue is everyone’s problem, and (as opposed to many other issues) it can be rationally addressed. It would also be stabilizing for the welfare of national populations.  So if we can make progress with this one, perhaps it is also a step towards the rest. We need to do it.

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 companies 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.

Climate Change is Jewish Physics

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It goes with the territory. Fascist leaders are convinced they are always right and therefore empowered to make judgments about anything that comes their way. As often noted, for Hitler that meant denial of most of 20th century physics, especially relativity and quantum mechanics, as “Jewish physics”. There was a direct line from that to the Germans’ inability to mount any significant challenge to allied development of nuclear weapons. In the end the Germans were defeated without such weapons, but it was only a matter of luck that it happened in time. Hitler in effect defeated the entire German war machine, because he was always right.

The parallels to climate change are exact. Climate change is real, and the technological underpinning for the rest of the world is being built about combatting it. We’re either part of that future or we’re not. It affects not only how energy is generated and distributed but also how major applications (transportation, construction, steelmaking. heating and cooling) use it. We sit around talking about how to “win” our competition with China when we have ceded all of that to them. It was an accident that Jewish Physics didn’t lose the war for Germany–we’re choosing to have our version of it lose our dominance to China.

Our power network gives one example. The many new mega-datacenters demand vast increases in electrical power to run them. We could use that opportunity to upgrade our (outdated and insecure) electrical infrastructure nationwide in a way that would serve the datacenters, the public, and the evolution to new energy sources. That would buy benefits for the datacenters themselves, and would certainly improve public attitudes about their construction–and that’s in addition to the benefits as we address climate change and new energy sources come online. (See what China is doing here.) In fact we have refused to do any such thing, leaving the implementation as a bunch of point solutions based primarily on fossil fuels and an outright prohibition on wind and solar.

We the human race may or may not succeed in avoiding real climate disaster, but any successes we achieve will be despite Trump’s sabotage. Whatever international order comes out of it all will reflect the interests of those who build it. And the status of the US will recognize that Trump’s sabotage was in literal terms a crime against humanity.

Jobs per Dollar

/ ontheoutside / 2 Comments

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.

We’re Wrong About Divisions

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The most important division in American society is not between Republicans and Democrats.  It’s within the Democratic Party itself.

As an indication of what I’m talking about, I think about an episode of the program Peaky Blinders.  In that episode the hero Thomas Shelby’s sister’s boyfriend is a communist, and the hero has to figure out how to keep him alive.  When the subject comes up with the police, the answer is “Normally we don’t have to worry about those people.  They’re so busy killing each other that they’re just not a problem.”

The Republicans can say amen to that for our tamer version of the left:

  • We’re still living down “defund the police”
  • We’ve had an endless supply of articles about how privileged, racist whites just have to get used to taking a well-deserved hit, including for education.
  • Virtually any statement made about “neo-liberals” is a whitewashing of Republican failures so that chosen Democrats can be blamed instead. One hopes George W. Bush is duly grateful.
  • We had a chance to pass a Biden agenda, but the Democratic Party spent so much time posturing and pretending that Manchin and Sinema didn’t exist that when they finally got around to voting it was too late–inflation was THE issue and it was easy for Manchin to hide. The left wing of the party is gleefully blaming Biden, without any alternative policy or blame for Republicans.
  • Democrats are actually fighting over whether Biden will be the nominee in 2024—when the real issue is the 2022 midterm election.  The only result of this fight is weaking the remaining days of the Biden administration and undermining the Democrats’ message for 2022.

With friends like this who needs enemies.  As in the Peaky Blinders quote, they hate each other so much that it trumps any desire to do anything good for anybody. It’s hard even to count the self-inflicted wounds.

Just think about it.  That Democrats can do anything good at all—given this nonsense—means that they could perhaps do something really big if they could get organized and stop the knife stabbing. If they stopped providing amunition to Republicans, they might just be able bridge the other divisions we hear so much about.

What Matters for Climate Change

/ ontheoutside / 6 Comments

Last year this blog had an overview of the major factors involved in fighting climate change.  Most of that is still current, but it has also become clear that there is a lot of confusion—even in the climate movement—about consequences.  So this piece is not about the basics; it’s about the reality of what it takes to combat climate change.

To start with, Here is a list (off the top of my head) of widely-believed nonsense.  There is probably something to annoy everyone.  You can see if I’ve made a case for it by the end.

– Conservation is a primary issue

– It’s important to get solar cells on rooftops everywhere

– Recycling is important

– Local initiatives are important

– State initiatives are important

– The main game is getting our house in order

– We don’t need to do anything, since technologists will solve it by themselves

– We’re ready for electric cars to take over the transportation sector

– Current solar and wind are ready to take over everything

– Winning is simple, we just have to stop the oil companies and start deploying the good stuff.

– For climate change employment, we need local communities to decide what they really need

– The private sector is doing it all by itself

– Carbon pricing is optional

– Carbon pricing is all it takes

– We need to get a better deal than the Paris Agreement

– We’re in control of our own destiny

– We all need to change our lifestyles

– Fighting climate change will tank the economy

– Economic dislocation means taking care of miners

– Since poor people get hurt worse, climate action is a matter of charity—for social justice

– Same thing for racial justice

– Same thing for regional justice

– Internationally, this is a matter of everyone taking care of their own

– With China and India, the important thing is to stand tough to get what we want

– We have to insist that any new technology developed here gets manufactured here

 

Let’s start this off with item #1—conservation.  From within the US it’s easy to believe the fight against climate change is all about conservation.  After all, we’re up against a hard limit on tolerable levels of carbon dioxide in the atmosphere, so we’ve just got to cut down on burning in all ways.  And we’ve got to learn to behave differently in the future.

However that logic breaks down quickly.  What about all the people in China and India?  Our conservation is a blip compared with them, but we share the same atmosphere.  Do they just have to get used to the idea that cars and air conditioning aren’t for them?  They should accept permanent sacrifice for the good of mankind?  Even in the US, no amount of conservation will move people to electric cars or eliminate the CO2 production from heavy industry.

So even for the near-term we have to recognize that the fight against climate change is not primarily about conservation but about alternative energy sources.  Worldwide, we need to evolve energy sources, so that there will be enough to take care of people everywhere.  As noted in the prior piece, there is in fact no reason to fear we will ultimately lack for power.  This isn’t about learning to live with energy scarcity—it’s about creating a future for all people, all countries, and all life styles.

For that reason we need to focus on the transition to alternative sources of power.  There are two quite different types of problems to be solved:

– Generating and distributing power

The first thing to recognize is that (despite some obfuscation from the oil companies) the future is electric.  That’s the common currency for the energy to be used everywhere, in factories, in homes, in cars.  It’s what all the renewables produce today, and what will be produced by all future candidate technologies.  Electricity is easily transmitted over long distances, and can be stored for later use (although there is much still to be done for high-volume, in-network storage).

So this work includes the electrical network, the sources of energy, and the means to store it.  Since everything will move to the electrical grid, its capacity will need to grow significantly and fast.  This is a huge project, but this is ultimately just a matter of national will.  That makes it the easier part.

– Adapting applications to use it

For that you need to work through the major sectors of energy usage.  Here is the chart for the United States.

consumption-by-source-and-sector

This is a larger and more complex undertaking, requiring careful planning for each sector.  Carbon pricing is one of the few actions that can be done across the board.   As we noted previously, assuming the atmosphere is free amounts to an annual subsidy of $1 T to the US fossil fuel industry.  Even low-level initial pricing (as with CCL) sends a message for corporate planning.  However, it is naïve to believe that carbon pricing will just take care of all sectors in time to avert disaster.  Note also, for priorities, that the residential and commercial sector is the smallest by far.

We also have to think about this problem not just for the US but for the rest of the world as well.  The US Energy Information Agency has released a document that helps in thinking about that task.  (A short summary of conclusions is available here.)  It has projections of energy use throughout the world going out to 2050.  With that it includes variants of the US energy use chart (just given) for other countries.  A significant fact is that many developing countries have a proportionally much larger industrial segment than we do, as high as 70%.

The report shows some influence of climate concerns, particularly in the US and China, but overall it describes the dimensions of a disaster.  The following chart taken from the report shows a continuing growth of CO2 emissions for the entire period.   While the report itself doesn’t explicitly call out the bottom line, the numbers from the report imply that the world will hit a point of no return already by 2035—with a CO2 concentration of 482 ppm and a temperature rise of 1.6 degrees C.

eia1

In the EIA scenarios, the world does a pretty good job of migrating electric grids to renewables (or to some extent gas)—but a terrible job of moving applications to electricity.  In developed countries this translates to business as usual, but in the developing world it’s much worse.  India, for example, is seen as growing exponentially with much of the increase powered by coal.  This isn’t just a question of forcing them to meet our standards.  Heavy industry is a particular problem everywhere.

So the application area is a big job with many industry-specific issues.  The world desperately needs focused research efforts with results that can be applied large-scale worldwide.  This can’t be a matter of everyone guarding discoveries for national advantage.  Cooperative international arrangements will be key to meaningful progress.

 

Even at this high level there are a number of conclusions to be drawn:

– There is no do-nothing alternative.

Technology will deliver a viable future, but we’ll have to work to get there.  There’s no silver bullet that makes it all go away.

– Technology development is important and has to be figured into any planning, but technology concerns are not the barrier to success.

It is perfectly possible to put together a plan to get the US where it needs to be by 2030.  That’s not saying all technology problems have been solved (after all electric cars are still much too expensive), but we can see a path to success.  We shouldn’t trivialize the effort and sophistication required, but based on where we are, and given financing, it appears that the technical side can get done.  The next point is less clear.

– Changes are huge and have to be dealt-with politically.

This isn’t just a matter of coal-miners losing their jobs.  Electric cars alone will have pervasive consequences.  We have to understand that worries about change are rational, so an important part of domestic climate policy has to be an assurance everyone will be made whole.  Otherwise we will continue to face the push back seen most recently in the Australian election.

In the US there is every reason for the less advantaged to distrust the political powers that be.  In the developing world it’s even worse—you’re talking about giving up on the benefits of development for some unknown duration.  The situation is necessarily difficult.   It’s only going to work if wealthy people and wealthy countries realize it’s in their own interest to come up with the goods.  No one will escape the consequences otherwise.

– The international side is unavoidable.

There is only one atmosphere.   Every country in the world has to cooperate, or we all lose.  When the US opts out, everyone loses faith in the future—as was evident in the recent Madrid meeting.  We have to restore international unity in order to make progress.  And that will only come when every country sees a just role for itself individually.  As for the terms of the Paris Agreement—it is only a first step and actually better for rich countries than will ultimately be workable.

We cannot go into this with the attitude that the objective is to come out a winner at the expense of everyone else.  If everyone doesn’t win, we all lose.

– This is not a matter for incrementalism.

We’re not going to get there with well-meaning people insulating their houses or businesses putting solar cells on the roof.

It’s worth putting some numbers on this.  With current technology, the power output of a solar cell is 20 watts per square foot.  From that you can calculate how many solar cells would be needed to meet current US electrical demand.  The answer is about 2500 square miles, assuming they’re all in brilliantly-lit, weather-free Arizona.  (And there are serious problems in managing that one too.)  All of it gets an order of magnitude worse if we decide to go piecemeal in random, less promising locations–and that’s just for today’s electrical grid, not where we have to get to.

That’s not to say that Arizona is necessarily the solution.  The point is that there has to be a rational national policy that will actually get the job done.

 

Greta Thunberg is right—there is no substitute for major political action.  Anything less is delusion, regardless of who says it.  The 2020 election is the single, deciding climate issue today.

Perhaps we need the right metaphor.  The fight against climate change is a war.  We’re all in it together—losing is losing for everyone.  The countries of the world are allies in the sense that each of them is necessary for success.  National economies will be affected, but through national climate efforts with no shortage of jobs.

Right now we’re like the US in mid 1941.  We can see and understand the enemy, but we’re not convinced we really have to be involved.  That situation only got resolved when the Japanese attacked Pearl Harbor, and it was clear there was no other choice.  You can make a case we were lucky that it wasn’t too late.  Without the Nazi’s disdain for “Jewish physics”, they might even have gotten the bomb.

For climate, if we act today we have the elements of victory.   We also have ample evidence it’s a near thing.  A climate Pearl Harbor may well be too late—and beyond anything we want to live to see.