> Mao Zedong’s rule was an economic and humanitarian disaster
Apropos of nothing much except I really like this quote about Mao from Chen Yun,
"Had Mao died in 1956, his achievements would have been immortal. Had he died in 1966, he would still have been a great man but flawed. But he died in 1976. Alas, what can one say?"
While it is okay to hope for Xi to make bad decisions, we must prepare for that not to happen.
It is an absurd notion that one man should control the economy, the future of any single large country. If you were to say that about China and Russia, you’d be right. Yet some in America think it is perfectly fine to have Donald Trump making decisions down to individual companies. As if he has some magical power.
Eventually, the tariffs he enacts will be passed on to the American consumer. It is a tax, after all. The miracle he has pulled off is that 15% seems small when he starts at 40% or 50%. I doubt it will achieve what he said he wanted, which is for foreign countries to manufacture their products here.
At best, many will wait him out. If he goes ahead with a 50% tariff on Pharmaceuticals, it will only hurt federal spending on healthcare. Like the rest of Trump’s actions, there is a level of ignorance, with unintended consequences that are matched by the incompetence of implementation.
Before they're anything else, both of Trump's terms will be remembered as enormous *opportunity costs*. Not least of all for actively sabotaging innovation, development and installation of US solar/battery capacity and ceding dominance of this essential, transformational technology to Xi's China.
This degree of willful ignorance from an American president, abetted by a reckless, cowed legislature is despairing Greek tragedy.
Tariffs, at least, allow companies to adapt and consumers to change their mind.
Both subsidies (like Biden’s EV handouts) and tariffs are a way to change consumer behavior and incent the purchase of products the politician wants. Biden made the price of EVs cheaper relative to ICE while at the same time taking regulatory steps to disadvantage ICE.
Is this a tax? Of course. He could have made ICE more expensive via taxes rather than handing out cash to rich people to buy EVs, paid for by borrowing (which reduces future consumption of all Americans).
Tariffs are broader - they could incent domestic production generally rather than focusing on specific product purchase decisions (eg, prohibiting gas furnaces and requiring solar panels).
In each case the consumer pays. If a person will pay $40k for an EV
And there is a new $7k subsidy, the list price of an EV could rise to $47k. Meanwhile the government debt of $7k per car persists forever. No benefit to the consumer- just profit to the producer and eventually higher taxes to pay the debts.
Tariffs are similar. Initially, American products are cheaper due to tariffs, but over time could rise to meet the price of tariffed foreign goods. No benefit to consumer, while the profit goes to the producer.
Sensible people oppose high tariffs and also opposed progressive regulatory degrees and massive unfunded handouts meant to force consumers to change buying behavior. They are two sides of the same coin. Partisans like to criticize one and champion the other.
Yes- there are valid national security reasons for things like the CHIPS act and tariffs (combined with supply side measures, better schools and job training/apprenticeships for high school students) could be a way to reduce American overconsumption of imports while narrrowing fiscal deficits (at the margin).
I don’t see much evidence Trump has any grand or coherent plan whatsoever. Like Biden, he loves the idea of more assembly jobs in America (even if assembling foreign components and IP- whether a lithium battery plant or a Toyota factory), whereas assembling other people’s products is not (on its own) enough to build a true industrial capacity and could actually steal “skilled” labor from industries that could better use them (defense, Chips, processing minerals).
What you point out is true. Subsidies didn’t make car companies lower their prices, tariffs on foreign cars will actually see a price rise by American makers. Perhaps not to the level of the foreign makers. It happens in every business. As soon as a buiness sees an opportunity to raise prices they will do it.
US automakers will have more than the tariff on their importing competitors to use to justify their own price lifting, since the parts that go into the car (steel, aluminum, copper, semiconductors, parts) all have higher tariffs now compared to the tariffs on whole completed cars from Japan and Europe – we don’t know about Korea or Canada yet. And if companies actually do start reshoring factories, demand for labor will also rise and so all labor costs will also rise.
Demand for labor with a fairly static Labor Participation Rate. Yep, labor costs will go up eventually. I think the Democrat that runs is going to run on affordability which Trump is crushing.
I would add a lack of willingness to stimulate domestic spending fiscally through transfers. Prices are deflating. Domestic spending is weak. He seems to believe in the value of work and finds suffering valuable. Fine. But Keynesian economics is still a thing. The domestic economy has under performed for years. Much like most of the developed world did in the early 2010s.
Keynes was somewhat indifferent between C, I, and G. G was meant to make up for cyclical shortfalls in C and I.
In China’s case there had been an excess of I. Pushing on a string and misallocating resources. The solution isn’t to replace excessive spending and borrowing on I with G (in fact “G” is already backing the banks keeping loss-making factories alive). Smooth the adjustment temporarily, sure, but eventually the excess should stop and there will be a one-off downward adjustment. Labor will become cheaper and more abundant. Or a currency deval could help smooth the change,
There are so many things that Xi just can’t credibly do that a potential successor could, but I think the most important one is to sit down with the PLA leadership and have an honest conversation about the real state of their forces:
“Look guys, I get it, I lived quite well when I was governor of Some Province, none of us are in it for devotion to Marx, but I need to know, seriously, how bad are things in the PLA? No consequences, no one is getting yelled at or purged or demoted, just tell me, so I don’t look as stupid as Putin… how bad are we talking?”
Because for all the flaws in the Russian military that became apparent in Ukraine in 2022-present, that was a military with a LOT more operational experience than the PLA…
Obviously no one guy can ID every weapons system that doesn’t work, every unit that’s under-manned or under-trained, every rocket that’s supposed to be full of fuel but is instead full of water, but each general in that room would know about SOME of them… and if no one speaks up (under Xi, they can’t), these weaknesses won’t be apparent to the party leadership until the first wave assaults on Taiwan end in a catastrophic failure.
I mean there was a reason why Putin's generals didn't speak up before the Ukraine invasion either. They had got to that position by being yes men and just either lied or didn't know and hoped for the best when the invasion started.
A huge question out there in the world right now that no one really knows the answer to is “How combat-capable is the PLA?”
Nobody knows, of course, but the best-placed people to answer that question have obvious incentives to lie to Xi JP when he asks them, then hope the Taiwanese fold quickly before anyone finds out about all the lies they told. He lacks credibility to promise them immunity for any confessions they make, since all their malfeasance happened under his watch, so it’s essentially impossible for him to figure out the answer to this question other than to just throw his country into a war and hope for the best.
The only other major power leader worse than Xi is Putin, who has made one bad decision after another. The result? Russia is now a weaker economy, has lost most of its young and talented educated youth to the West. Under Putin, Russia has become economically subordinate to China. The problem with centralized control is that one person is capable of lurching from one bad policy to another bad policy. Declining birth rates hurt all major powers, but China’s educated youth have a +20% unemployment rate.m — so bad China stopped publicly announcing unemployment statistics. Xi’s answer or solution to these educated unemployed youth (they refer to themselves as “ghosts”) was to tell them to “Eat dirt.” In short, go back to mom & dad back on the farm. Oversupply of goods isn’t the only problem for China. We frequently read about how many engineers, etc. China graduates, but oversupply leaves 20% without jobs.
2. Real wages in Russia also skyrocketed due to high spending, and even though Russian Central Bank raised interest rates to ~20%, the actual interest rate for mortgages is far lower.
3. Many Russians who fled ended up not getting a job and had to go back home as well.
Side note: "Sigma Boy" (the first video) was originally a song for kids, but ended up getting called by the EU as Russian propaganda, so Russian army just used it to be a promotion song for this year' Defender of the Fatherland day (23 Feb)!
The Atlantic doesn’t separate out the educated Russian youth who have valuable skills and those who will continue their education in European universities. They are not returning to Russia. Average Russians returned because they didn’t have good prospects. Russia’s best and brightest youth have been absorbed by countries outside Russia.
OK, that was my memory from an article from The Economist in 2024 - I could not find it anymore, so I have to use that article from the Atlantic.
You are right that now Russians find harder to get a good mortgage loan (I think The Economist also reported about this, but I could misremember), and now the inflation starts to bite Russians purchasing power (a grandma actually complained to Putin in his national address that "why are eggs and potatoes so expensive?")
The question, as put by aforementioned authors from the Atlantic, is that does Putin really care about this?
(Possibly we would see elderly Russians revolted due to lowered pensions way before any mass outrage about the war in Ukraine!)
The main takeaway is that Putin has economically damaged the economy and youth demographic for at least two generations. In the process, he has rendered Russia economically dependent and subordinate to China. One hope Xi’s takeaway from all this is that invading and taking over Taiwan — an island is a self-isolating strategy — would be an opportunity cost China can’t afford.
However, Xi is the Party and the Party is China. Hence, he cant “hold it back”. There is no hypothetical China outside of Xi (until the next caudillo or junta is installed) and the Party.
Maybe also food for thought for those who push a government-directed, interventionist “abundance” agenda rather than a supply-side agenda that reduces impediments to investing?
The young progressives, and all graduates of elite colleges will volunteer to fight on the ground in Taiwan, just as they have in Ukraine? And leftist billionaire tycoons will pledge half their wealth to the cause (just as in Ukraine- you know the guy who put the internet satellites up…..oh, wait).
the problem with invading Taiwan is either you need to attack the US first in Japan and Korea which gives China enough time to invade and occupy Taiwan then tell the US that they will Nuke anyone who tries to respond.
If you don't attack the US first and we do intervene the invasion is dead before the boats even hit the landing zones because all of them will be sunk.
So China needs to be 100% sure of what the United States response will be before attempting anything. Trump is too much of a wild card to be 100% certain of anything.
A blockade of Taiwan and/ or seizure of outlying islands will come first.
There will be a market panic at the prospect of war (and end of trade with China) and China will gauge the response from the US, Europe and Asia. Europe will do little or nothing- they don’t want to go to war and don’t want to lose trade. The current Korean government is fairly China-friendly. The US likely will not go to war over such “salami-slicing”. Depends on who is prez, of course. I could see AOC leading from the beaches 😂. Agree Trump may be too much of a wildcard.
China will also watch the reaction in Taiwan. The KMT and the business community and wealthier people (who own property on the mainland as investments) are pro-China (as are most American appeasers- er, I mean tech execs). The Taiwanese might prefer trying a “peace in our time”
solution rather than escalating.
No need at all for China to start with an attack on US bases or other Asian countries. They see what Russia was able to accomplish in Georgia in 2008/09 and in Ukraine/Crimea in 2014. These territorial seizures were essentially fait accomplis, met with appeasement (even a reset- unconditional forgiveness!) by the US and Europe.
For someone like Elon Musk it becomes increasingly hard to manage effectively and one tends to surround oneself with sycophants who just tell you what you want to hear. For Xi it's doubly bad as there isn't even a media (social or otherwise) that can push back.
The other issue is cognitive ability begins to decline in one's 40s and it accelerates as one ages. Putin is not as sharp as 30 year KGB agent Putin. Xi isn't as sharp as he was when he was a 30 year old making his way to the top of the CCP.
Deng have enough seniority and gravitas to get his way. Remember he was one of the original. When he came to power all the other old guards are no longer around.
There’s a great story that I cannot remember the author of, of how Deng quickly realized the three separate power blocks in the Chinese political economy – big ag, industrials, and defense. He seems to have made the pact with industrials and defense to turn on big ag and implement the reforms needed to jumpstart productivity that paid for the required payoffs to industrials and defense. A recipe that Gorbachev missed out on by the way. Something Iran should look into for their respective power blocks.
> Mao Zedong’s rule was an economic and humanitarian disaster
Apropos of nothing much except I really like this quote about Mao from Chen Yun,
"Had Mao died in 1956, his achievements would have been immortal. Had he died in 1966, he would still have been a great man but flawed. But he died in 1976. Alas, what can one say?"
"Xi Jinping is the main thing holding China back"
man that sounds so familiar, just can't put my finger on it
Yup
While it is okay to hope for Xi to make bad decisions, we must prepare for that not to happen.
It is an absurd notion that one man should control the economy, the future of any single large country. If you were to say that about China and Russia, you’d be right. Yet some in America think it is perfectly fine to have Donald Trump making decisions down to individual companies. As if he has some magical power.
Eventually, the tariffs he enacts will be passed on to the American consumer. It is a tax, after all. The miracle he has pulled off is that 15% seems small when he starts at 40% or 50%. I doubt it will achieve what he said he wanted, which is for foreign countries to manufacture their products here.
At best, many will wait him out. If he goes ahead with a 50% tariff on Pharmaceuticals, it will only hurt federal spending on healthcare. Like the rest of Trump’s actions, there is a level of ignorance, with unintended consequences that are matched by the incompetence of implementation.
Before they're anything else, both of Trump's terms will be remembered as enormous *opportunity costs*. Not least of all for actively sabotaging innovation, development and installation of US solar/battery capacity and ceding dominance of this essential, transformational technology to Xi's China.
This degree of willful ignorance from an American president, abetted by a reckless, cowed legislature is despairing Greek tragedy.
Who knew Trump was a Luddite
Tariffs, at least, allow companies to adapt and consumers to change their mind.
Both subsidies (like Biden’s EV handouts) and tariffs are a way to change consumer behavior and incent the purchase of products the politician wants. Biden made the price of EVs cheaper relative to ICE while at the same time taking regulatory steps to disadvantage ICE.
Is this a tax? Of course. He could have made ICE more expensive via taxes rather than handing out cash to rich people to buy EVs, paid for by borrowing (which reduces future consumption of all Americans).
Tariffs are broader - they could incent domestic production generally rather than focusing on specific product purchase decisions (eg, prohibiting gas furnaces and requiring solar panels).
In each case the consumer pays. If a person will pay $40k for an EV
And there is a new $7k subsidy, the list price of an EV could rise to $47k. Meanwhile the government debt of $7k per car persists forever. No benefit to the consumer- just profit to the producer and eventually higher taxes to pay the debts.
Tariffs are similar. Initially, American products are cheaper due to tariffs, but over time could rise to meet the price of tariffed foreign goods. No benefit to consumer, while the profit goes to the producer.
Sensible people oppose high tariffs and also opposed progressive regulatory degrees and massive unfunded handouts meant to force consumers to change buying behavior. They are two sides of the same coin. Partisans like to criticize one and champion the other.
Yes- there are valid national security reasons for things like the CHIPS act and tariffs (combined with supply side measures, better schools and job training/apprenticeships for high school students) could be a way to reduce American overconsumption of imports while narrrowing fiscal deficits (at the margin).
I don’t see much evidence Trump has any grand or coherent plan whatsoever. Like Biden, he loves the idea of more assembly jobs in America (even if assembling foreign components and IP- whether a lithium battery plant or a Toyota factory), whereas assembling other people’s products is not (on its own) enough to build a true industrial capacity and could actually steal “skilled” labor from industries that could better use them (defense, Chips, processing minerals).
What you point out is true. Subsidies didn’t make car companies lower their prices, tariffs on foreign cars will actually see a price rise by American makers. Perhaps not to the level of the foreign makers. It happens in every business. As soon as a buiness sees an opportunity to raise prices they will do it.
US automakers will have more than the tariff on their importing competitors to use to justify their own price lifting, since the parts that go into the car (steel, aluminum, copper, semiconductors, parts) all have higher tariffs now compared to the tariffs on whole completed cars from Japan and Europe – we don’t know about Korea or Canada yet. And if companies actually do start reshoring factories, demand for labor will also rise and so all labor costs will also rise.
Demand for labor with a fairly static Labor Participation Rate. Yep, labor costs will go up eventually. I think the Democrat that runs is going to run on affordability which Trump is crushing.
I would add a lack of willingness to stimulate domestic spending fiscally through transfers. Prices are deflating. Domestic spending is weak. He seems to believe in the value of work and finds suffering valuable. Fine. But Keynesian economics is still a thing. The domestic economy has under performed for years. Much like most of the developed world did in the early 2010s.
Keynes was somewhat indifferent between C, I, and G. G was meant to make up for cyclical shortfalls in C and I.
In China’s case there had been an excess of I. Pushing on a string and misallocating resources. The solution isn’t to replace excessive spending and borrowing on I with G (in fact “G” is already backing the banks keeping loss-making factories alive). Smooth the adjustment temporarily, sure, but eventually the excess should stop and there will be a one-off downward adjustment. Labor will become cheaper and more abundant. Or a currency deval could help smooth the change,
There are so many things that Xi just can’t credibly do that a potential successor could, but I think the most important one is to sit down with the PLA leadership and have an honest conversation about the real state of their forces:
“Look guys, I get it, I lived quite well when I was governor of Some Province, none of us are in it for devotion to Marx, but I need to know, seriously, how bad are things in the PLA? No consequences, no one is getting yelled at or purged or demoted, just tell me, so I don’t look as stupid as Putin… how bad are we talking?”
Because for all the flaws in the Russian military that became apparent in Ukraine in 2022-present, that was a military with a LOT more operational experience than the PLA…
do the generals know the true state of the army?
Also, all the Generals themselves are skimming some off the top, so they least of all want a true investigation of the actual state of the military.
Obviously no one guy can ID every weapons system that doesn’t work, every unit that’s under-manned or under-trained, every rocket that’s supposed to be full of fuel but is instead full of water, but each general in that room would know about SOME of them… and if no one speaks up (under Xi, they can’t), these weaknesses won’t be apparent to the party leadership until the first wave assaults on Taiwan end in a catastrophic failure.
I mean there was a reason why Putin's generals didn't speak up before the Ukraine invasion either. They had got to that position by being yes men and just either lied or didn't know and hoped for the best when the invasion started.
Yes, this is my point though!
A huge question out there in the world right now that no one really knows the answer to is “How combat-capable is the PLA?”
Nobody knows, of course, but the best-placed people to answer that question have obvious incentives to lie to Xi JP when he asks them, then hope the Taiwanese fold quickly before anyone finds out about all the lies they told. He lacks credibility to promise them immunity for any confessions they make, since all their malfeasance happened under his watch, so it’s essentially impossible for him to figure out the answer to this question other than to just throw his country into a war and hope for the best.
Great article. What could be Xi's swansong during his 'winter' years?
A war for Taiwan?
A 'unification' with Russia?
A global Renminbi (i.e. a BRICS currency)?
The first seems very possible.
Mercantilist economies focused on trade surpluses have a hard time turning their currencies into global reserve currencies.
As for Russia - why buy the cow when the milk is free?
The only other major power leader worse than Xi is Putin, who has made one bad decision after another. The result? Russia is now a weaker economy, has lost most of its young and talented educated youth to the West. Under Putin, Russia has become economically subordinate to China. The problem with centralized control is that one person is capable of lurching from one bad policy to another bad policy. Declining birth rates hurt all major powers, but China’s educated youth have a +20% unemployment rate.m — so bad China stopped publicly announcing unemployment statistics. Xi’s answer or solution to these educated unemployed youth (they refer to themselves as “ghosts”) was to tell them to “Eat dirt.” In short, go back to mom & dad back on the farm. Oversupply of goods isn’t the only problem for China. We frequently read about how many engineers, etc. China graduates, but oversupply leaves 20% without jobs.
Many of the educated youth ended up going back to Russia in 2023, btw:
1. Putin ended up not call for conscripts anymore, instead they lured volunteers with eye-watering amount of money (and slick ad videos too:
https://www.youtube.com/watch?v=4OA-vemQ8Ls&ab_channel=TsarV
https://www.youtube.com/watch?v=OzeugwGHSQI&ab_channel=TimofeyPopov)
2. Real wages in Russia also skyrocketed due to high spending, and even though Russian Central Bank raised interest rates to ~20%, the actual interest rate for mortgages is far lower.
3. Many Russians who fled ended up not getting a job and had to go back home as well.
There was a post in the Atlantic about why Russian economy is so sanctions-resistant: https://www.theatlantic.com/ideas/archive/2024/02/russia-sanctions-economy-putin/677555/
Side note: "Sigma Boy" (the first video) was originally a song for kids, but ended up getting called by the EU as Russian propaganda, so Russian army just used it to be a promotion song for this year' Defender of the Fatherland day (23 Feb)!
The Atlantic doesn’t separate out the educated Russian youth who have valuable skills and those who will continue their education in European universities. They are not returning to Russia. Average Russians returned because they didn’t have good prospects. Russia’s best and brightest youth have been absorbed by countries outside Russia.
https://russiapost.info/society/emigrants_integrating
OK, that was my memory from an article from The Economist in 2024 - I could not find it anymore, so I have to use that article from the Atlantic.
You are right that now Russians find harder to get a good mortgage loan (I think The Economist also reported about this, but I could misremember), and now the inflation starts to bite Russians purchasing power (a grandma actually complained to Putin in his national address that "why are eggs and potatoes so expensive?")
The question, as put by aforementioned authors from the Atlantic, is that does Putin really care about this?
(Possibly we would see elderly Russians revolted due to lowered pensions way before any mass outrage about the war in Ukraine!)
The main takeaway is that Putin has economically damaged the economy and youth demographic for at least two generations. In the process, he has rendered Russia economically dependent and subordinate to China. One hope Xi’s takeaway from all this is that invading and taking over Taiwan — an island is a self-isolating strategy — would be an opportunity cost China can’t afford.
As for current Russian real estate interest rates:
https://realting.com/news/russian-mortgage-market-analysis
Hoping your opponent is an idiot is rarely a good strategy. The fact we're here is telling.
Good piece.
However, Xi is the Party and the Party is China. Hence, he cant “hold it back”. There is no hypothetical China outside of Xi (until the next caudillo or junta is installed) and the Party.
Maybe also food for thought for those who push a government-directed, interventionist “abundance” agenda rather than a supply-side agenda that reduces impediments to investing?
The key question is will he solidify his legacy by attacking Taiwan and if he does this before Trump leaves office will the latter TACO?
The young progressives, and all graduates of elite colleges will volunteer to fight on the ground in Taiwan, just as they have in Ukraine? And leftist billionaire tycoons will pledge half their wealth to the cause (just as in Ukraine- you know the guy who put the internet satellites up…..oh, wait).
the problem with invading Taiwan is either you need to attack the US first in Japan and Korea which gives China enough time to invade and occupy Taiwan then tell the US that they will Nuke anyone who tries to respond.
If you don't attack the US first and we do intervene the invasion is dead before the boats even hit the landing zones because all of them will be sunk.
So China needs to be 100% sure of what the United States response will be before attempting anything. Trump is too much of a wild card to be 100% certain of anything.
A blockade of Taiwan and/ or seizure of outlying islands will come first.
There will be a market panic at the prospect of war (and end of trade with China) and China will gauge the response from the US, Europe and Asia. Europe will do little or nothing- they don’t want to go to war and don’t want to lose trade. The current Korean government is fairly China-friendly. The US likely will not go to war over such “salami-slicing”. Depends on who is prez, of course. I could see AOC leading from the beaches 😂. Agree Trump may be too much of a wildcard.
China will also watch the reaction in Taiwan. The KMT and the business community and wealthier people (who own property on the mainland as investments) are pro-China (as are most American appeasers- er, I mean tech execs). The Taiwanese might prefer trying a “peace in our time”
solution rather than escalating.
No need at all for China to start with an attack on US bases or other Asian countries. They see what Russia was able to accomplish in Georgia in 2008/09 and in Ukraine/Crimea in 2014. These territorial seizures were essentially fait accomplis, met with appeasement (even a reset- unconditional forgiveness!) by the US and Europe.
That will be the model.
What about the thorium nuclear reactor? Thats new? And Maglev basically too?
You don't have much understanding of CPC as an ideology or belief. Probably you don't care anyway.
For someone like Elon Musk it becomes increasingly hard to manage effectively and one tends to surround oneself with sycophants who just tell you what you want to hear. For Xi it's doubly bad as there isn't even a media (social or otherwise) that can push back.
The other issue is cognitive ability begins to decline in one's 40s and it accelerates as one ages. Putin is not as sharp as 30 year KGB agent Putin. Xi isn't as sharp as he was when he was a 30 year old making his way to the top of the CCP.
I saw this article and it sounds correct: https://nationalinterest.org/blog/middle-east-watch/why-iran-needs-its-own-deng-xiaoping-to-survive
It makes me wonder: suppose an Iranian leader were to try to make peace with the West. Would they be overthrown by hard-liners in the military?
Surely Deng would have faced the same threat. How did he deal with it?
Deng have enough seniority and gravitas to get his way. Remember he was one of the original. When he came to power all the other old guards are no longer around.
There’s a great story that I cannot remember the author of, of how Deng quickly realized the three separate power blocks in the Chinese political economy – big ag, industrials, and defense. He seems to have made the pact with industrials and defense to turn on big ag and implement the reforms needed to jumpstart productivity that paid for the required payoffs to industrials and defense. A recipe that Gorbachev missed out on by the way. Something Iran should look into for their respective power blocks.
Really, not the entire communist party and their ghastly regime? Okay.
Noah,
Have you read Piketty’s Capital and Ideology? I’d like to read your take on his analysis.