economy

The Bigger Story from Rare Earths

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

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

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

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

The Zero-Sum Trap

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

There are many kinds of zero-sum examples:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do We Neeed More Proof that Dictators are Bad for the Economy?

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When dictators make bad decisions no one can stop them. Here are a few:

  • Trump likes oil, so we’re doing everything possible to push fossil fuels in the economy, and eliminating anything to support sustainable energy.   We are even so petty as to take out installed car charging stations for government employees.  So we’ve pegged our economy and everything in it to fossil fuels, a future that is going away–not tomorrow but necessarily soon, whether we like it or not.  We’re not just a non-player in the coming economy (presumably the US auto manufacturers will be lucky if they’re picked up–instead of closed down–by the dominant Chinese players), we’re tying a weight around the neck of all our industrial production.
  • We’re killing any kind of government supported research.  We have made ourselves non-players in anything beyond current mainstream production.  If you ask business leaders how much basic research is done by the private sector they will tell you the answer is pretty much none.  Business deals with current and coming product.  We as a country will no longer be inventing the future.  We can ask the Chinese for help when we need it.
  • We have decided there is no need for competence in government employees.  Instead for the entire federal government all that matters in loyalty.  There are no more real government jobs—just political appointees.  If these are the rules of the game, there will be no more competence or help from Washington.  If you don’t think that matters you should look at the mess today.  That’s the tiniest piece of what is coming.
  • We have decided to convert all of our alliances to protection rackets.  Unfortunately we’re not the only game in town.  We have opponents in China and Russia.  They, not us, have understood there is strength in numbers.  We have given them an enormous present with no positives in return.  For Russia we have even descended to flattery.
  • Our now to be jettisoned international order was established to provide stability and reduce the danger of war. It wasn’t perfect but it gave us many years of growth and peace. The danger to growth has been much talked about, but the danger to peace less so. In this new era of every land for itself, all efforts to manage nuclear proliferation are now out the window. On the contrary, every country had better get its own nuclear weapons fast–or be prepared to face defeat. In our glorification of selfish greed we’re stupidly asking for disaster.

Many people have figured out these are mistakes.  But as long as this dictatorship continues, we as a nation we have no way to fix it.