Dec 10, 2023·edited Dec 11, 2023Liked by Noah Smith
There is absolutely no one better on the planet than Noah Smith at 'splaining economic issues. He is superbly well informed on economics, and his communication skills are exceptional.
But I frequently disagree with his geopolitical assessments. Even if the US stops supporting Ukraine, Russia cannot win and then attack Poland and the Baltics.
1. As military technology changes, the advantage shifts back and forth between offense and defense. Military analysts agree that the Ukraine war proves that without a robust Air Force, defense Is currently dominant. Neither Russia nor Ukraine has a robust Air Force, and neither has been able to budge the frontline significantly since November 2022. Thus, Ukraine can return to their tactics of 2014 - 2021, and simply hold Russia to the territory they already occupy with relative ease.
2. Because Russia cannot occupy the whole of Ukraine, there is no way they will ever attack Poland and the Baltics. This war has diminished Russia's military resources by at least half. Not even Putin is crazy enough to sign up to attack a NATO country. He would have to totally rebuild the Russian army before he even tried.
3. The following is a minor consideration, but Putin does pay attention to public sentiment in Russia. A telephone poll indicated that more than 50% of Russians would like the war to end right now. The war is so unpopular in Russia that Putin doesn't plan to mention it during his presidential campaign. Russian is currently obtaining most of its recruits from non-Russian populations. If the Russian people have no bodies of loved ones to bury, their only suffering is economic, and Putin can continue to pursue a policy that has basically become unpopular. As for the non-Russian populations, they are so fragmented, that they have little collective political power.
As you point out, on EVs, China has built real capability. Right now, ignoring Tesla, they are likely the best at building EVs...world class. There is also real innovation happening there in mass production of batteries which is why Ford wants to license from Chinese battery maker. The real question is: Will the CCP find a way to screw this up ? We will see, but my guess is yes. One need only look at Alibaba to see what can happen. The regression of the Xi regime vs the Deng regime is very sad.
At a higher level, one thing to keep in mind is that the dominant role of an automobile is declining. At a very fundamental level, conventional passenger cars are one of the worst utilized assets one can own. The average automobile is parked 95%+ of the time. Capitalism, especially driven by the explosion of on-demand services, is relentlessly optimizing this down with sophisticated alternatives which are lower cost and higher productivity. As this continues, the aggregate demand for traditional cars will go down .... based on utilization alone... this can go down by an order-of-magnitude (10X). Virtualization was the first big turn in this move (ecommerce, online education, telehealth, work-from-home, etc), Fleetization (uber, food delivery, other shared services model) is next, and the final turn will be autonomy (when the technology matures).
Fifty years from now the importance of traditional auto will be as muted in the overall economy as trains from the 19th century.
Does electrification break the link between the domestic automotive sector and reserve capacity for military production?
I'm assuming tanks and other military vehicles aren't going to be electrified (although I could be wrong?) Once ICE vehicles are no longer sold or manufactured in Europe, would an all-electric civilian car industry still be relevant for making those if needed?
Noah, Europe surely has a problem that you point out. But the U.S. automakers are losing market share in a big way to Chinese EVs in our own backyard - Mexico. It looks like the US may have to work together with the Europeans on this issue, over and above the Inflation Reduction Act.
“since Putin will then turn his eyes to Poland and the Baltics”. Will he? Ukraine was supposedly at risk of joining NATO. Meaning a potential enemy in direct sight of Moscow. Why do you think Poland and the Baltics would be next?
Noah contends at one point that the substantial subsidies for EV consumption in Europe and substantial subsidies for EV production in China is an easy Econ 101 question. Then he introduces Econ 102 issues like the existing car production labor being 7% of jobs and Econ 103 issues like a need to maintain (and improve) current and future potential defense production. All clearly important factors in how economic systems between countries interact and often clash. But then we get the statement "But the shock came, in the form of the shift to EVs, and now the long, easy daydream is over." Using Noah's Econ 101 explanation the shock of shifting to EVs was heavily impacted by government policy, not by market choices. As an extreme example, replace the EV subsidies with a Euro 5k "infrastructure tax" (for building out charging stations). Policy decisions can impact markets substantially. It would be easy to make consumer EV demand approach zero if there was a large tax.
From a technical viewpoint BMW and VW built some incredible diesel engines with large engineering investments, but VW got caught cheating and those wonderful engines went away. I am fortunate to have one of the incredible turbo-diesel BMWs, a 328d XDrive wagon ; 287 ft/lb of torque, only 185 HP, 4 wheel traction control (can be turned off), avg. 35mpg around town (driven like the go-kart it is with that much torque in a car about the size of a Toyota Corolla) up to 50mpg on long road trips in the intermountain west, and a 500 mile range on the highway.
A few things to think about with future transportation changes. 1.) Two of the deepest engineering talent bases by company are BMW and Toyota; both are still committed across the globe to producing plug-in hybrids. A close friend on the Penisula just replaced his BMW 535D with a 530i (a plug-in hybrid with an 18mi battery). The west facing roof of his 1918 house in Burlingame produces plenty of solar, with a 2nd battery in the works, and a fast charger in the tiny garage for his BMW (even after putting a dozen or more in at rental properties he manages in Hillsboro, Burlingame, San Mateo, Half Moon Bay, ..., with tons of contacts it was still a >$12K electrical upgrade [1918 -> it is a detached garage]). With his driving habits, mostly daily around mid-Penisula, but regularly in the City, some managed properties in Palo Alto, he is around 95mi/gallon and keeps trying for 100mi/gallon. The performance around town is crappy compared to a 535D, with ca. half the torque, and he got 32mpg in the far higher performance 535D.
It would be interesting for Noah to investigate and do his analysis on automobile and motorcycle racing around the world. The most expensive racing series globally today use incredibly high-tech "power-units", a technologically impressively complex of mechanical engineering and real-time computer analysis from hundreds/thousands of sensors, but based around a turbo charged V6 engine, with battery backed supplemental energy available after harvesting through (incredibly complex engineering) braking. What companies currently make F1 power units? Honda/Red Bull, Ferrari, Mercedes, and Renault. What companies will make F1 hybrid power units in 2026? Odds currently are that Red Bull will become Red Bull/Ford, but most of the lineup will be European companies: Renault, Audi, Ferrari, Mercedes. A closer focus on hybrid power at the highest level of racing engineering is the current Le Mans and elsewhere hybrid specs in the highest end of sports car racing where Toyota has often dominated.
Hybrids likely solve some of the Econ 102 and 103 issues. Technologically they are the most complex (with related expense). But we have the engineering talent to do this.
There is zero chance that my next vehicle will be an EV. I need a 1/2 ton pickup truck with a shell/pop-up-camper, serious fishing/hunting/camping off road capability, and a 300+ mile range (a mile of 4WD low in difficult terrain is 20+ miles of gas). This would be considered standard by anyone who lives and camps and skis and hunts and fishes in the entire western US, and all of Canada, and a 300mile range is questionably low.
The transition to EVs will be far slower than Noah envisions. Real infrastructure work for most all uses will be dominated by diesel powered machines for decades. It is difficult to envision long distance trucking in the US transitioning to EVs from diesel in under 2 decades. The US economy depends on long haul trucking. Sections of major interstate highways in the west, to this day, have gaps of 40-60mi without any fuel. It will be a long time until an EV truck can even exist in this important economic environment.
A big issue for EU is that alot of time an money goes into ensuring this didn't happen and yet it has. EU industry has got somewhere with wind turbines,. Green building and engineering. But has wiffed massively on evs despite churning out some reasonably competence evs in the past. BMW decided it would prefer not to be a mass market car manufacturer. Volkswagen decided it could write its own software (why?). And renault seems to have got caught out by the pandemic (last one is so odd - how can you sell a shit ton of Zoe's and then fail to bring the magane in in anything like appropriate volume or cost? )
“An electric vehicle is a much simpler machine than an internal combustion car — it’s basically just a battery with wheels.”
I always thought this fact would mean a proliferation of EV companies and an easy pivot by existing auto cos. Why is the pivot so difficult? Does the Chinese advantage come down to subsidization (including of the supply chain)?
“Some forecasts say that by 2025, about 15% of EVs bought in Europe will be made in China — some by Western automakers like Tesla and Volkswagen, some by Chinese companies like BYD.”
What’s China’s plan when an American company brings a silicon anode Li-ion battery to market in 2025? Don’t think it’s a better, cheaper, and safer battery? Then why are Chinese smart phone manufacturers falling all over themselves to be the first to install it in their devices? 30% more energy density that will run a smart phone on a neural network, to say nothing of true 5G or 6G; silicon a secure, inexpensive off-the-shelf commodity, patented 3D architecture with stainless steel plates to reduce substrate expansion/contraction/cracking (longer battery life), and patented technology to mitigate thermal runway (short-circuited fires). Elon Musk has publicly stated that the silicon anode is the way forward for lithium-ion batteries. And at some future point (2027?), we may see a solid state battery brought to market by an American company. Sure, BYD brags about greater energy density/driving range with EV batteries; but the greater the energy density the greater the risk of thermal runway/short-circuited fires. Ask the NYFD about Li-ion battery fires. With an Li-ion battery short circuit, you have 60 seconds before the battery reached 1000F and starts spraying molten substrate. I’m not sure I want to be driving a huge bank of batteries in a serious collision.
It’s not a good idea to bet against creative American technologies. Just ask MSB or Putin about oil-field tracking, horizontal drilling, to name just two. Or as Sinovel that got caught stealing the best wind-turbine technology in the world from AMSC, which also invented a deGaussing technology that renders U.S. destroyers invisible to current surveillance technologies.
Sure, we have some overregulation, but entrepreneurs in the U.S. aren’t arrested or disappeared for being too successful -- just ask Jack Ma. Better still, ask Elon Musk, who has opened and operates an EV battery pack factory in China (40,000 battery packs/year, so far).
It occurs to me that one of the things that Europe could do is to limit the number of EV's from China coming into their region. China could of course build auto plants in Europe. Giving labor costs perhaps companies like VW might shift plants away from China to other places in Southeast Asia
There is absolutely no one better on the planet than Noah Smith at 'splaining economic issues. He is superbly well informed on economics, and his communication skills are exceptional.
But I frequently disagree with his geopolitical assessments. Even if the US stops supporting Ukraine, Russia cannot win and then attack Poland and the Baltics.
1. As military technology changes, the advantage shifts back and forth between offense and defense. Military analysts agree that the Ukraine war proves that without a robust Air Force, defense Is currently dominant. Neither Russia nor Ukraine has a robust Air Force, and neither has been able to budge the frontline significantly since November 2022. Thus, Ukraine can return to their tactics of 2014 - 2021, and simply hold Russia to the territory they already occupy with relative ease.
2. Because Russia cannot occupy the whole of Ukraine, there is no way they will ever attack Poland and the Baltics. This war has diminished Russia's military resources by at least half. Not even Putin is crazy enough to sign up to attack a NATO country. He would have to totally rebuild the Russian army before he even tried.
3. The following is a minor consideration, but Putin does pay attention to public sentiment in Russia. A telephone poll indicated that more than 50% of Russians would like the war to end right now. The war is so unpopular in Russia that Putin doesn't plan to mention it during his presidential campaign. Russian is currently obtaining most of its recruits from non-Russian populations. If the Russian people have no bodies of loved ones to bury, their only suffering is economic, and Putin can continue to pursue a policy that has basically become unpopular. As for the non-Russian populations, they are so fragmented, that they have little collective political power.
As you point out, on EVs, China has built real capability. Right now, ignoring Tesla, they are likely the best at building EVs...world class. There is also real innovation happening there in mass production of batteries which is why Ford wants to license from Chinese battery maker. The real question is: Will the CCP find a way to screw this up ? We will see, but my guess is yes. One need only look at Alibaba to see what can happen. The regression of the Xi regime vs the Deng regime is very sad.
At a higher level, one thing to keep in mind is that the dominant role of an automobile is declining. At a very fundamental level, conventional passenger cars are one of the worst utilized assets one can own. The average automobile is parked 95%+ of the time. Capitalism, especially driven by the explosion of on-demand services, is relentlessly optimizing this down with sophisticated alternatives which are lower cost and higher productivity. As this continues, the aggregate demand for traditional cars will go down .... based on utilization alone... this can go down by an order-of-magnitude (10X). Virtualization was the first big turn in this move (ecommerce, online education, telehealth, work-from-home, etc), Fleetization (uber, food delivery, other shared services model) is next, and the final turn will be autonomy (when the technology matures).
Fifty years from now the importance of traditional auto will be as muted in the overall economy as trains from the 19th century.
Does electrification break the link between the domestic automotive sector and reserve capacity for military production?
I'm assuming tanks and other military vehicles aren't going to be electrified (although I could be wrong?) Once ICE vehicles are no longer sold or manufactured in Europe, would an all-electric civilian car industry still be relevant for making those if needed?
Noah, Europe surely has a problem that you point out. But the U.S. automakers are losing market share in a big way to Chinese EVs in our own backyard - Mexico. It looks like the US may have to work together with the Europeans on this issue, over and above the Inflation Reduction Act.
“since Putin will then turn his eyes to Poland and the Baltics”. Will he? Ukraine was supposedly at risk of joining NATO. Meaning a potential enemy in direct sight of Moscow. Why do you think Poland and the Baltics would be next?
In Japan EV sales seem to be over 35% of new car sales. How is Japan dealing with the Chinese EV makers and exporters.
Noah contends at one point that the substantial subsidies for EV consumption in Europe and substantial subsidies for EV production in China is an easy Econ 101 question. Then he introduces Econ 102 issues like the existing car production labor being 7% of jobs and Econ 103 issues like a need to maintain (and improve) current and future potential defense production. All clearly important factors in how economic systems between countries interact and often clash. But then we get the statement "But the shock came, in the form of the shift to EVs, and now the long, easy daydream is over." Using Noah's Econ 101 explanation the shock of shifting to EVs was heavily impacted by government policy, not by market choices. As an extreme example, replace the EV subsidies with a Euro 5k "infrastructure tax" (for building out charging stations). Policy decisions can impact markets substantially. It would be easy to make consumer EV demand approach zero if there was a large tax.
From a technical viewpoint BMW and VW built some incredible diesel engines with large engineering investments, but VW got caught cheating and those wonderful engines went away. I am fortunate to have one of the incredible turbo-diesel BMWs, a 328d XDrive wagon ; 287 ft/lb of torque, only 185 HP, 4 wheel traction control (can be turned off), avg. 35mpg around town (driven like the go-kart it is with that much torque in a car about the size of a Toyota Corolla) up to 50mpg on long road trips in the intermountain west, and a 500 mile range on the highway.
A few things to think about with future transportation changes. 1.) Two of the deepest engineering talent bases by company are BMW and Toyota; both are still committed across the globe to producing plug-in hybrids. A close friend on the Penisula just replaced his BMW 535D with a 530i (a plug-in hybrid with an 18mi battery). The west facing roof of his 1918 house in Burlingame produces plenty of solar, with a 2nd battery in the works, and a fast charger in the tiny garage for his BMW (even after putting a dozen or more in at rental properties he manages in Hillsboro, Burlingame, San Mateo, Half Moon Bay, ..., with tons of contacts it was still a >$12K electrical upgrade [1918 -> it is a detached garage]). With his driving habits, mostly daily around mid-Penisula, but regularly in the City, some managed properties in Palo Alto, he is around 95mi/gallon and keeps trying for 100mi/gallon. The performance around town is crappy compared to a 535D, with ca. half the torque, and he got 32mpg in the far higher performance 535D.
It would be interesting for Noah to investigate and do his analysis on automobile and motorcycle racing around the world. The most expensive racing series globally today use incredibly high-tech "power-units", a technologically impressively complex of mechanical engineering and real-time computer analysis from hundreds/thousands of sensors, but based around a turbo charged V6 engine, with battery backed supplemental energy available after harvesting through (incredibly complex engineering) braking. What companies currently make F1 power units? Honda/Red Bull, Ferrari, Mercedes, and Renault. What companies will make F1 hybrid power units in 2026? Odds currently are that Red Bull will become Red Bull/Ford, but most of the lineup will be European companies: Renault, Audi, Ferrari, Mercedes. A closer focus on hybrid power at the highest level of racing engineering is the current Le Mans and elsewhere hybrid specs in the highest end of sports car racing where Toyota has often dominated.
Hybrids likely solve some of the Econ 102 and 103 issues. Technologically they are the most complex (with related expense). But we have the engineering talent to do this.
There is zero chance that my next vehicle will be an EV. I need a 1/2 ton pickup truck with a shell/pop-up-camper, serious fishing/hunting/camping off road capability, and a 300+ mile range (a mile of 4WD low in difficult terrain is 20+ miles of gas). This would be considered standard by anyone who lives and camps and skis and hunts and fishes in the entire western US, and all of Canada, and a 300mile range is questionably low.
The transition to EVs will be far slower than Noah envisions. Real infrastructure work for most all uses will be dominated by diesel powered machines for decades. It is difficult to envision long distance trucking in the US transitioning to EVs from diesel in under 2 decades. The US economy depends on long haul trucking. Sections of major interstate highways in the west, to this day, have gaps of 40-60mi without any fuel. It will be a long time until an EV truck can even exist in this important economic environment.
A big issue for EU is that alot of time an money goes into ensuring this didn't happen and yet it has. EU industry has got somewhere with wind turbines,. Green building and engineering. But has wiffed massively on evs despite churning out some reasonably competence evs in the past. BMW decided it would prefer not to be a mass market car manufacturer. Volkswagen decided it could write its own software (why?). And renault seems to have got caught out by the pandemic (last one is so odd - how can you sell a shit ton of Zoe's and then fail to bring the magane in in anything like appropriate volume or cost? )
I love the way your publication times suggest you write everything late at night
“An electric vehicle is a much simpler machine than an internal combustion car — it’s basically just a battery with wheels.”
I always thought this fact would mean a proliferation of EV companies and an easy pivot by existing auto cos. Why is the pivot so difficult? Does the Chinese advantage come down to subsidization (including of the supply chain)?
“Some forecasts say that by 2025, about 15% of EVs bought in Europe will be made in China — some by Western automakers like Tesla and Volkswagen, some by Chinese companies like BYD.”
What’s China’s plan when an American company brings a silicon anode Li-ion battery to market in 2025? Don’t think it’s a better, cheaper, and safer battery? Then why are Chinese smart phone manufacturers falling all over themselves to be the first to install it in their devices? 30% more energy density that will run a smart phone on a neural network, to say nothing of true 5G or 6G; silicon a secure, inexpensive off-the-shelf commodity, patented 3D architecture with stainless steel plates to reduce substrate expansion/contraction/cracking (longer battery life), and patented technology to mitigate thermal runway (short-circuited fires). Elon Musk has publicly stated that the silicon anode is the way forward for lithium-ion batteries. And at some future point (2027?), we may see a solid state battery brought to market by an American company. Sure, BYD brags about greater energy density/driving range with EV batteries; but the greater the energy density the greater the risk of thermal runway/short-circuited fires. Ask the NYFD about Li-ion battery fires. With an Li-ion battery short circuit, you have 60 seconds before the battery reached 1000F and starts spraying molten substrate. I’m not sure I want to be driving a huge bank of batteries in a serious collision.
It’s not a good idea to bet against creative American technologies. Just ask MSB or Putin about oil-field tracking, horizontal drilling, to name just two. Or as Sinovel that got caught stealing the best wind-turbine technology in the world from AMSC, which also invented a deGaussing technology that renders U.S. destroyers invisible to current surveillance technologies.
Sure, we have some overregulation, but entrepreneurs in the U.S. aren’t arrested or disappeared for being too successful -- just ask Jack Ma. Better still, ask Elon Musk, who has opened and operates an EV battery pack factory in China (40,000 battery packs/year, so far).
It occurs to me that one of the things that Europe could do is to limit the number of EV's from China coming into their region. China could of course build auto plants in Europe. Giving labor costs perhaps companies like VW might shift plants away from China to other places in Southeast Asia