The Economics Of Democratic Empire

The economics of empire are fairly well understood. Persia for example, conquered the surrounding people, because it meant those people paid tribute to Persia. The cost of conquest was covered by the initial booty, at least in theory. Tribute was calculated on the ability to pay and the cost of defending the new land. While ego certainly played a major role in empire building, the economics were also a factor. In agrarian society, land was the store of wealth, so acquiring new lands was how a people got rich.

This is the reason empires preferred to negotiate with potential new vassals, rather than just invade. It made the math predictable. The initial conquests were all about the warrior spirit or maybe old grudges, but as an empire matured, it was about economics. If a city-state on the Aegean, for example, was willing to submit to Persia without a fight, the cost of conquest was easy to calculate. Not only that, it lowered the cost of maintaining the relationship, as the new vassal would be cooperative.

This has been the rule of empire since the first empire. The Romans conquered the Italian peninsula because of age old conflicts with the neighboring people. They conquered the Mediterranean because it made them rich. The British Empire was a purely financial empire, as were all of the colonial empires. There were rivalries between the European powers, for sure, but their main motivation was economic. Conquering the New World and Africa was all about enriching the conquerors.

There has always been another element to the economics of empire and that is the nature of rule. Empires have always been defined by personal rule. A ruling family or maybe a ruling tribe, sat atop the system. They owned lands themselves and treated their conquests as personal property, even if they were not defined so legally. When new lands were acquired, the emperor or king got his cut first. Then the rest was distributed to his lieutenants and supporters down to the soldiers themselves.

Personal rule means personal responsibility. Darius, the Persian emperor, had a personal stake in the welfare of his vassals. To simply loot them would be like a shepherd skinning his flock, rather than shearing them. The economics of empire have always been the same as the economics of monarchy. The people at the top must treat their vassal states as they would treat their own property, which means they have a stake in their prosperity and therefore a motivation to preserve the value of the conquest.

America is the first democratic empire. The British Empire had democratic elements, like a parliament and limited suffrage, but it was a long way from liberal democracy, as we currently define it. By the time liberal democracy swept the West in the first half of the last century, the British Empire was in steep decline. That process was the result of America rising to dominate the West and eventually become the global hegemon. America elected to conquer the world in order to spread democracy.

Democracy, of course, turns the ruling class of a country into renters. Unlike an owner, a monarch for example, the office holders in a democracy are in it for short term profit. The next election could find them back in the dreaded private sector. In order to hedge against that eventuality, they must convert as much private property into public property, in order to distribute it to friends of government. Democracy is just a formalized version of tragedy of the commons, that always ends in it murdering itself.

The question then is how a democratic empire can survive, when the ruling elite of that empire are motivated to loot the empire. In the Cold War, this was not a consideration, because the other side was a similar empire build around communism, which is just the material implementation of democracy. The natural inclination of both systems to loot themselves was checked by the very real threat of nuclear annihilation. The commies invested in territorial integrity, while the West invested in their economies.

The collapse of the Soviet Empire is something that gets little attention, as it is just assume to have been inevitable. Communism, however, shares something with liberal democracy. The people at the top have no incentive to invest in society. The Soviets did not develop their social and human capital. Instead, it ruthlessly exploited it, along with the natural resources of the territory. The Soviet system was like a renter using the furniture for firewood. When the energy markets collapsed, the Soviets collapsed.

Liberal democratic empire, rather than strip mine natural resources from the land, monetizes social capital through cost shifting. For example, business brings in foreign workers to suppress wages, but then dumps those workers into the surrounding community. Their cost of support consumes the social capital of that community through corruption of local institutions, increases in crime and social alienation. In other words, the cost of cheap goods is the loss of community and local control.

Another aspect of the exploitative economics of liberal democratic empire is how America strip mines foreign lands of their human capital. Silicon Valley, for example, is majority non-white. The best minds from around the world are recruited to the economic centers of the empire. Spend time around the Imperial Capital and it is not only a foreign country, it is an alien country. It is nothing like the rest of the empire. That’s because it is a collection point for foreign elites serving the empire.

What collapsed the Soviet system was the same as with any economic enterprise. The cost of maintaining it exceeded the benefits of maintaining it. The Soviets ran out of cash to pay their bills and went bankrupt. The Soviets had to subsidize the vassal states in order for the local elites to remain in power. They also had to spend on security forces to keep those local elites from getting any ideas. The cost of doing those things eventually exceeded the proceeds of natural resource extraction.

In the American empire, a different crisis is brewing. The destruction of social capital has reached a point where the middle class is collapsing. Inequality has never been higher, but it promises to soar as the Baby Boom generation ages off and their assets are consumed by the state. The proliferation of private debt to provide the illusion of prosperity and mask the loss of social capital, has beggared the young. The next generation is guaranteed to have a lower standard of living than their parents.

The collapse of social capital is surely one cause of the decline in entrepreneurship. To start a business is to take a risk. Having social support not only mitigates the cost of failure, it encourages risk taking. As capital, social and human, has been collected into the control of an increasingly narrow elite, entrepreneurship has declined while overall leverage has grown. The rentier system of liberal democracy, has turned the ruling elites into renters, using up resources without replacing them.

The Russian implementation of democratic communism in an empire became unstable when the proceeds from energy sales could not cover the cost of empire. Like a business with a negative cash flow, it simply ran out of money and collapsed. It’s tempting to think something similar happens in America. After all, government debt at all levels is staggering and is accelerating. That’s a mistake, however, as the state is no longer in control of the empire. Control now rests in private hands.

Proof of that is the inability of the empire to control the borders. Across the West, the voters want to sharply reduce legal immigration and end all illegal migration. Yet, supposedly sovereign governments are unable to do it. In America, the President is stymied at every turn by a system largely controlled by forces that exist outside the government. The reason there can be no border wall is the managerial elite that benefits from and is in charge of the empire, will never permit it.

The more likely source of instability will come from the cannibalization of social capital that has been the fuel of the “new economy” for decades. The loss of social capital has reduced social trust, which in turn has resulted in a decline in trust of national civic institutions. Why would people put faith in their institutions when it is clear that their office holders are powerless? That is a lesson rocketing around Europe. It explains the “yellow vest” protests and the rise of right-wing populism.

In America, only a fool believes the ruling class. People are becoming increasingly alarmed by what’s happening in the administrative state and its private partners in the technology and financial class. This loss in trust will inevitably lead people to look for alternative sources of legitimacy, authority and collective security. Identity politics is just a preview. As America becomes majority-minority, politics becomes a winner take all proposition, which will foster a rise of tribal politics.

The traditional empire always stagnated when it stopped expanding. What followed was a long period of decline. In a democratic empire, the economics that naturally flow from democracy hollow out the empire, by converting its social capital into power and status of a detached ruling elite. The global rulers of today see themselves as detached from those over whom they rule. Their subjects are just resources to be utilized and discarded.

The question to be answered is what happens to the American empire when the social capital is gone? Is it possible for a tiny alien elite to maintain control of a continent-wide population entirely dependent on the system for order and stability? Can the culture of the penitentiary scale up in such a way that the inmates still believe they are in charge of the institution? No one knows, because there has never been a democratic empire, but that is the task facing the ruling class of the American empire.

The Coming Crisis

In a crisis, people either turn to their institutions or they turn to their leaders to provide a path forward through the emergency. This is especially true when the path forward is waiting out the emergency. People respect action, so they have to have faith in their leaders if the right course is patience. Alternatively, if the leaders and institutions are not up to the task, then the people turn on each other.The French Revolution is the perfect example of what happens when leaders and institutions fail in a crisis.

It has been a long time since American faced a real crisis. The closest we came to anything major was the financial crisis a decade ago. For people foolish enough to take on the crazy mortgages, it was a very real emergency, but for most people it was more of an abstraction than a real crisis. Unemployment ticked up and the stock market took a header, but it was not the Great Depression. There was a concern, for sure, that the wheels were about to come off the cart, but it never materialized.

Of course, one could say that the leaders and institutions stepped in and guided the country through the crisis. People tend not to think of the Federal Reserve as an essential institution, but it is probably the most important part of government now. The head of the central bank is every bit as important as the President. In fact, he may be more important, as we saw with Greenspan and George Bush. An overly tight monetary policy led to a slight downturn in the economy at just the right time to sink the Bush election bid.

In 2008, the world was lucky to have a Fed chairman, who had prepared his whole life for such an event, and a very weak political class. Bush was near the end of his reign and no one thought much of him anyway. Congress has not had much credibility in decades, so they could not cause too much trouble. Bernake was given the room to do what had to be done to stabilize the financial system. People can argue about the solution and various alternatives, but the Fed did provide a peaceful path forward.

The world was lucky in another way. The public was still confident in the system, even though they may not have liked many of the people in it. George Bush was down in the polls, because of the Iraq war, but people still trusted he was a good guy. The restoration of public trust during the Reagan years still cast a shadow over the Bush years. Even though Clinton had been a degenerate and Bush was an incompetent, people still thought the system was fine. They could trust the system.

That brings us to the present. Half the country voted for Trump and increasingly blames the system for blocking his efforts. The other half voted against him and increasingly suspects he is punishment for a broken system. The political class is at war with itself, as it grapples with the fact it no longer commands respect. Then there is the hidden war between the semi-permanent administrative state and the reformers in the White House and Congress. Right now, the people and institutions are not very stable.

That’s what makes the rumblings from the financial system ominous. Wall Street is not Main Street, so a year long bear market should not be overstated. The old line about the markets being predictive is nonsense. If people could see the future, there would be no stock market. The US markets went on a crazy upward run and may simply be going through a correction. Still, the housing market is heading into a recession and the economy is showing signs of a slow down, if not a recession.

None of this is cause for alarm, but what if the long prophesied collapse of the credit system is a lot closer than we know? A lot of smart people said that 2008 was one of those tremors that precedes a major earthquake. Maybe what we have been experiencing is something like the Long Depression, which ran in fits and starts for two decades. The last few years have simply been a respite and we’re about to have another serious downturn or even a panic. Will the leaders and institutions hold up?

In other words, the economic pendulum swings back and forth. That is the lesson of economic history. The salient question is whether or not the political institutions and the leaders are able to hold up as the pendulum swings. In the 19th century, Europe was convulsed with civil unrest and war as the Industrial revolution blasted through traditional institutions. In the US, the post Civil War period was relatively calm, even though the same forces were at work. The institutions and leaders held up.

Again, we really don’t know if the current system and the people in it could hold up under a real crisis. Maybe the 2008 crisis can be read as proof that the system is better than the people in it. Maybe the lessons learned from it have made the system even stronger. On the other hand, maybe the system held up up because of residual stability that has now dissipated. That’s increasingly obvious with regards to public trust. It is much lower today than it was a decade ago. Maybe the same is true of the internal stability.

The thing is though, there are a lot of signs that the people at the very top of the global system are slowly rearranging the board. For a long time, America could count on the dollar as the world reserve currency and, more important, a hungry market for US Treasuries. The system built by the American empire relies on credit to operate and the reserve credit of the world is US debt. If there is even a hint of that changing, the great crisis will be upon us. Will those institutions and people hold up?

The Wizards

In the 1980’s, one of the great puzzles for conservatives was how left-wing economists could not bring themselves to acknowledge the obvious. The Soviet economic model was a failure in absolute terms, as well as relative terms. Even long after the Soviets collapsed, guys like Paul Krugman remained puzzled by the inability of the communist system to keep pace with the West. His answer was that the Soviets either lost their will or lacked the moral fiber to make revolutionary socialism work in the face of capitalist cynicism.

As Greg Cochran has pointed out, the failings of socialism were obvious to anyone willing to look at what was happening behind the Iron Curtain. Once the Soviet Empire fell, it was undeniable, but economics never paid a price for being so wrong. In fact, the status of the field went up in the years following the Cold War. Nobel Prize–winning economist Joseph Stiglitz become something of a shaman to the ruling class, despite a miserable track record. He’s another guy who thinks the morality of socialism should make it work.

Now, part of this is something that John Derbyshire pointed out in his infamous review of Kevin McDonald’s book, The Culture of Critique. “Jews are awfully good at creating pseudosciences—elaborate, plausible, and intellectually very challenging systems that do not, in fact, have any truth content.” In fairness to John, he was summarizing what McDonald had written, but he largely agreed with the assertion. There’s a fair bit of this in economics, where smart Jews often play clever games arguing against observable reality.

That’s a fun point to make, but that’s not the reason for economists to be wildly wrong about so much, yet immune from criticism. By now, someone in the field should have pointed out that Joseph Stiglitz is a crank. Someone like Christine Romer, who was Obama’s top economist, was completely wrong about the effects of his stimulus plan, yet she was rewarded with a plum job in the academy. In most every field, even astrology, being that wrong is disqualifying. In the field of economics, it has no effect whatsoever.

Now, it is fun to mock economics, but it really should be a useful field and play a positive role in public policy debates. There are useful observations that come from the field, with regards to how people respond to various economic policies. In theory, the economics shop should provide objective analysis of government performance, policy proposals and basic data about the state of the economy. Government is about trade-offs and with regards to domestic policy, economics should provide the details of those trade-offs.

Of course, there are reasons for the field being a useless mess. One reason is that economics is not science. It is a basic set of immutable truths swimming in a sea of pointless analysis, clever models that mean nothing and wishful thinking. Then there is the fact that there is money to be made in putting your stamp on the polices of one party or the other. When Christine Romer was selected by Obama, it was the golden ticket to elite of the New Keynesian Economics cult. She and her husband are now senior clerics.

There’s something else that can be teased out of this phenomenon and that is the corrosive effect of democracy on objectivity. Democratic forms of government lack legitimacy, because they start with the assumption that anyone can hold any office within the system. No one is going to respect the office of legislator if the job can be won and held by anyone. Even in a republican form of government where you have to pass through a process to stand for office, the assumption is that anyone can enter the process.

Unlike other forms of government that can rely on the blessing of the religious authority, democracy inevitably obliterates any threat to itself. Christians like to believe that the decline in faith corresponds with the rise in public corruption, but it is the reverse. The spread of democracy is what drives the decline in faith. Everywhere democracy becomes ascendant, religion moves into decline. This is an observation Muslims have made, which is why they oppose democracy, and specifically American liberal democracy.

That need for moral authority is still there, so inevitably democratic system evolve a civic religion and before long a civic clerisy. This intellectual elite, supported by the political elite that control the democratic institutions give their blessing to the whims of the office holders. The role of economist is that of the court astrologer in Persia or Merlin in the court of King Arthur. They appear to be consulting hidden knowledge to find the correct policy answer, but they always end up endorsing whatever their patron desires.

The other side of this coin is there is no reason for the political class to attack their court magicians, even when they are completely wrong, because they will need them to bless the next set of polices. The worst thing that happens is what you see with Romer. Her and her husband have lifetime positions at an elite university. Stiglitz gets treated like the senior shaman by all sides of the political elite, because someone has to fill that role. It’s a lot like how the Catholic Church handles pedophile priests, when you think about it.

The Mysteries Of The Collapse

While I was in Europe, the world celebrated the anniversary of the collapse of Lehman Brothers, the financial house at the center of the mortgage meltdown. Like everyone, the fact that it has been ten years since the world teetered on the edge of the abyss slipped my mind. It is important though, to think back on the last decade, since many economists and analysts still think it was a near-death experience for the world. Danish television was playing the movie The Big Short, which was based on the great Michael Lewis book.

As to the crisis itself, a few things remain remarkably obscure. One is that the best minds on this stuff still cannot bring themselves to notice the biological element. Blacks and Hispanics were wildly over-represented in the default numbers. The only analysts and commentators, outside of those on this side of the divide, to notice this fact, do so in order to “debunk” it. These are the folks who run around making sure everyone in the human sciences says “race is a social construct” five times a day while facing Frankfurt.

The other mystery is that the so-called experts still have not explained how the sub-prime mortgage bubble formed, why it went unnoticed and what happened in the after math. Even a decade on, it is hard to get reliable numbers on the quantity of mortgages that constituted the bad paper. The only thing that the experts agree upon is that the lowering of lending standards created a speculative bubble. The result was a wave of over-lending and over-building, that led to the great mortgage bubble which burst a decade ago.

Currently, the druids from the grand economic council claim that eight million people lost their jobs as a result of the recession that followed the collapse. That seems small, given that the labor force is roughly 160 million. That means unemployment would have gone from about four percent to just under ten percent. That’s the official line from the druids in the academy, but it certainly does not fit with the narrative about this being a near-death experience for the economy. Those numbers suggest a fairly common recession.

Another part of the official narrative is that super-smart druids from the academy rushed in and saved the world from ruin. That’s an interesting aspect of this story. Economists all believe that the Great Depression could have been thwarted, and as a result the events that followed could have been avoided, if central banks had expanded the money supply in response to the crash of ’29. Therefore, the reason this crash did not result in world war and the rise of you-know-who was the central banks expanded the money supply.

Another number that was presented at the end of the film was that the collapse resulted in six million foreclosures. This number is hard to judge, other than the presence of the mystical number six. There’s no question that lots of people lost their homes. It’s also true that lots of connected people cashed in on this by quietly investing in house flipping operations that preyed on the vulnerable. I recall being in Las Vegas sometime after the crash and thinking that the only guy getting rich was the guy selling “For Sale” signs.

Of course, the inability to figure out the details of what was billed as the greatest economic event in world history since the crash of 1929, may have something to do with who was responsible. In a world run by bankers of a certain sort, it is probably a bad idea to point out that the bankers were responsible for destroying the economy. The economists start from the assumption that the failure was not systemic and not deliberate. They seem to view it as a weird accident like leaving the coffee pot on before leaving for work.

It’s like the bias toward normal distributions that Nicholas Taleb discusses in his book, The Black Swan. This blind spot for various aspects of the crash is not the result of some complex conspiracy. Economists are not sitting around plotting to obscure the facts from the public. They simply start from a set of assumptions that rule out things like a cultural bias that manifests as a systemic bias. They can only think systemically within the accepted parameters of the system itself. That means ignoring lots of possible answers.

Like the Great Depression, the mortgage collapse of 2008 has created a specialty of study within the field of economics. PhD’s in economics will be based in this event for generations, assuming the we make it that long. Each book and paper will fill in a bit of the official narrative until the only people questioning it will be cranks and oddballs. This is how religions evolve. As long as the disaster is not repeated again in the near term, the ambitious will be happy to go along with the conventional wisdom.

Another part of the official narrative is what is assiduously excluded from the official narrative. For example, the fact that no one was held accountable for the disaster. Take, for example, Franklin Raines, the head of Fannie Mae. He walked away with millions, never having to answer for his crimes. Angelo Mozilo, the guy in charge of Countrywide Financial, was allowed to avoid acknowledgment of wrongdoing and criminal charges, by paying a relatively small fine to the SEC. He retired a gazillionaire.

Just as important, as Steve Sailer likes to point out, no one even mentions that the Bush Crime Family was largely responsible for the sub-prime loan disaster. It was the Bush administration that pushed banks to drop their lending standards as a part of the “ownership society” campaign and the desire to buy votes from migrants. In fact, the political class emerged unscathed from the disaster. If anything, the catastrophe that was the Bush administration strengthened the managerial state’s stranglehold on society.

Here’s where you see the race obscurantism warp official reality. To focus on the wrongdoings of the Bush people, would require acknowledging some unpleasant realities about diversity. For example, default rates for blacks and Hispanics were three and four times the rate for whites. Similarly, the people targeting these groups with bogus loans were doing so because they knew they were not savvy enough to understand what was happening to them. That opens doors that must remain bolted closed in this age.

My own view on this, to wrap up the post, is that the financial system is built on the biases of the people who control it. A system designed by people who keep a bug-out bag next to their desk, and leave their car running in the parking lot, is never going to incorporate long term risk. Ours is a parasitic system that is designed to drain the blood from the American middle-class. The patches and remedies to keep it going are just that, quick fixes to keep the blood flowing. Eventually, the host will die and the bankers will move on.

The High Cost Of Cheap Labor

From time to time, the claim is made that we need to import indentured servants from Asia, because the STEM fields are short of labor. This is a variation of the old line about crops rotting in the fields for the lack of stoop labor. The fact that no human living in America has ever experienced a food shortage due to crops rotting in the fields underscores the fact that these claims are nonsense. Indentured servants from Asia are cheap and more important, the threat of them depresses wages for American workers in the STEM jobs.

That’s the cost of cheap labor that is easy to see. There are other costs that are not so obvious. In the case of the tech fields, indentured servants from Asia have had the perverse effect of discouraging young Americans from going into these fields. When tech firms started filling entry level jobs with foreign labor, they made the field unattractive to young people, who correctly saw that jobs were scarce and the ones available paid low wages. Young Americans were advised to not go into technology, as a result.

Put another way, cheap foreign labor drove out domestic labor from these entry level jobs, thus institutionalizing the use of indentured servants in the low level tech jobs. Slavery had the same effect where it was practiced. In the case of tech, there is a social element involved. You go to college in order to get  a good job. That’s a social definition that goes beyond earnings. If your field requires you to work with smelly South Asians for five years until you can be the supervisor of smelly South Asians, that’s viewed as a low-status field.

There’s been another consequence to the use of indentured servants. People think of tech as coding shops in Silicon Valley, but the vast majority of American business relies on small local firms that bring a combination of technical and business skills to the their role as technology consultants. The usual pattern is someone works as a programmer for a developer and then goes out on his own as a consultant, supporting clients that use the software that he worked on as a developer. He becomes their part-time CTO.

The result of flooding the entry level jobs with middle-aged Asians on H1-B visas has been a shortage of people in these higher end consulting and development jobs. In many parts of the country, the shortage of people with a mix of business and technology skills that can be used to solve real world problems is acute. You can find plenty of pajeets, who can write code but are useless at solving problems. Locating someone with business and programming skills that can solve real problems is becoming close to impossible.

At the other end of the labor market, the hidden cost of cheap labor has created another problem. The landscaper hiring Mam-speaking tribesman from Guatemala is no longer hiring teenagers on summer break. Retail operators in vacation areas game the system and import Eastern Europeans for service jobs. The availability of cheap foreign labor has made the summer job a thing of the past. It used to be a part of growing up in America, but now it is a rarity. Instead, seasonal work is done by foreigners.

In general, the part-time job and summer job was when a young person started to learn how to be an adult. They had to show up on time and learn how to get along with strangers. They had to learn how to put up with a crappy boss and perform tasks that seemed stupid and pointless, in order to get paid. They also learned the value of money and its connection to labor. That first check, with the taxes taken out of it, was the great eye opener for every young American. Today, they don’t experience that until adulthood.

There’s another aspect to this. The summer job for boys was often manual labor, like operating a rake or lawnmower for that landscaper. Maybe it was as a laborer on a job site for a roofer or painter. It was there that a young man got his first taste of being a man, because he was around adult males in their natural habitat. A young man learned that men are not as forgiving as mom and that you had to be earn their respect. Young males today don’t experience this. Instead they live like girls through college and come out soft.

This is probably why millennials have such a terrible reputation among employers. The girls are spoiled brats, making crazy demands, while the boys are hysterical sissies. One of the things employers will tell you on the side is that they are very careful about hiring millennials. They would prefer to overpay for a semi-retired boomer than hire a petulant man-child from the millennial generation. When a millennial takes over a family business from a retiring parent, it is a good bet the company will go through a rough transition.

Public policy is about trade-offs. The cost of cheap labor is not limited to the direct cost to labor markets. There are hidden, long term social costs. The generations of young people warped by the consequences of not working will show up in the culture long after pajeet is back in Bombay wrangling cobras. What foreign labor does is it monetizes future social capital and pulls it forward. It is a form of debt creation, not a lot different than eating the seed corn. Future social harmony is consumed today, with no way to replace it.

Techno-Socialism

Something I noticed, when I started posting podcasts to YouTube, is that copyright strikes come up automatically. Put in just a few seconds of any song, no matter how obscure, and YouTube will say the copyright owner made a claim. This is nonsense, of course, as no one could be policing this stuff and filing claims. The software scans the uploads for patterns matching something in their database. If the pattern is close enough to anything, then YouTube issues a copyright strike and puts the onus on you to dispute it.

I tested this by using some music I found on an old CD. It was from a cover band a million years ago. I took some clips and uploaded them with some talking by me. Sure enough, the clip got flagged for a copyright claim. The ridiculous part was the alleged claimant was another cover band. I tried a few more clips and no hits, but then a few more were flagged, with different claimants. The last batch of hits were completely wrong. It appears close enough is enough for them to make you go through the hassle of disputing it.

The game that YouTube is playing is both defensive and underhanded. By defaulting some copyright claim on everything, even vaguely similar to what they have in their database, they avoid being sued by legitimate copyright holders. That makes sense, given the nature of copyright laws. Of course, they’re also using this as an excuse to avoid paying creators for their work. YouTube loses money, so anything they can do to avoid paying creators drops right to their bottom line. They know most people will not dispute the claims.

That came to mind when I saw this on Drudge the other day.

Ed Sheeran is on the receiving end of a monster $100 million lawsuit by a company claiming the singer ripped off a Marvin Gaye classic.

A company called Structured Asset Sales filed the lawsuit, claiming Ed’s song, “Thinking Out Loud,” is a carbon copy of Gaye’s “Let’s Get it On.”

According to the lawsuit, Sheeran’s song has the same melody, rhythms, harmonies, drums, bassline, backing chorus, tempo, syncopation and looping as “Let’s Get it On.”

Gaye’s song was written by a guy named Edward Townsend and Gaye in 1973. Townsend died in 2003, and Structured Asset Sales bought one third of the copyright. So, take that in … the claim is that just 1/3 of the song is worth $100 MIL!.

Sheeran’s song was a huge hit … nominated for a Grammy for Best Record, Best Performance and Song of the Year in 2016.

And, according to the docs, Ed’s single and the album it’s on — “X” — sold more than 15 million copies and the song has been played on YouTube more than a billion times.

Sheeran has already been sued by Townsend’s heirs. He called BS on that suit. No word if the Gaye family might also sue.

Now, I clicked on the story, because I was puzzled by why the estate of a long dead singer would be suing some goofy looking white kid. It turns out that the goofy looking white kid is a pop star of some note and he is accused of ripping off Marvin Gaye. It is another reminder that I am now completely disconnected from modern pop culture. Not in a million years would I have guessed that guy was a pop star. He looks like a dork you would see working in a cubicle. I did not find his music enjoyable, but what do I know?

Of course, the idea of making a copyright claim on something you give away, by posting on the internet, is a mockery of the law. It’s perfectly reasonable for a performer to complain about people ripping off their music and posting it on-line, but when the performer gives the content away, they should have no complaint. Not only that, a quick search of YouTube finds every Marvin Gaye song ever recorded, is posted multiple times. There’s even live stuff from the old days. Exactly no one is paying for Marvin Gaye music.

Listen to the songs in question and it is hard to see the similarities, at least not enough to support the claim. That’s not going to be an issue, because if it goes to court, both sides will have digital experts claiming the songs are digitally the same or different, according to each side. There are only so many possible song ditties, so by now every conceivable riff has been used in a song. Using software to compare songs, it’s possible to claim everything is derivative, if not a straight copy, of something else.

None of that matters. A battle of experts in front of a jury means a coin toss, so the case will be settled. It does not cost a lot to file the initial claim, but it does cost money to litigate these claims. Plus, the goofy white guy has his reputation being tarnished, so both sides have an incentive to settle. The estate of Marvin Gaye just wants money, so they will be happy to take a quiet payoff off, without the goofy white guy admitting to anything. That’s the whole point of these lawsuits. The whole thing is a form of greenmail.

Copyright abuse is a becoming a racket. The Digital Millennium Copyright Act (DMCA) was intended to protect owners of digital content, but grifters have figured out how to game the system for all sorts of reasons. Video game companies will file DCMA notices against YouTubers, who post bad reviews. Hosting platforms slip language into their terms of service, to claim ownership of your content. Restaurants are suing reviewers for bad reviews. Of course, everyone can claim ownership of just about any digital content.

It is a good example of another negative outcome from the technological revolution. The ability to copy and distribute content digitally means it is easy to steal. That means people steal it. The normal way an owner protects his property is by locking it up, but in the case of digital content, that’s not possible, so the state has tried to create a magical solution, which just encourages grifters and racketeers. My guess is the legal fees for copyright issues are one of the biggest cost of producing pop songs now.

The unexpected result of the technological revolution is that large swaths of intellectual property have been inadvertently swept into the public domain. In an effort to return the profits to the private owners of the content, laws have been passed, but the result is all of the costs have been swept into the public domain. The definition of the technological revolution is the socializing of costs, with the privatization of profit. Technology makes it possible to shift costs a million small ways, onto an unsuspecting public.

Venezuela’s Future — and Ours

There are a lot of ways to describe the new political divide that has emerged over the last decade. We have nationalists versus internationalists, globalists versus populists and identitarians versus the multiculturalists. All of those are true, but another way of thinking about it is that the debate is now moving upstream. For a long time, public debate was focused on economics or maybe politics. Those are downstream from institutions, culture and biology. Now, the debate has moved upstream, to the the stuff that really matters.

Not everyone has figured out that the debate has changed. The Bernie Bros, for example, are like the Japanese soldiers, who were cut off in the war and lived in the jungle for years, still fighting the war. The Bernie Bros still think the Democrats are the party of the working man, as if anyone in Washington cares about the working man. The legacy conservatives are similarly trapped in a bygone era. You see that in this post, by our old friend Sloppy Williamson, on the ravages of socialism on Venezuela.

he United States has resigned in protest from the UN Human Rights Council, which has a long and ignominious record of protecting the world’s worst abusers of human rights. The proximate cause of the U.S. resignation was the council’s unwillingness to act on the matter of Venezuela, where the socialist government of Nicolas Maduro is engaged in political massacres and the use of Soviet-style hunger-terror against its political enemies. Venezuela remains, incredibly enough, not only protected by the Human Rights Council but an active member of it, an honor shared Vladimir Putin’s Russia and its political assassins, the People’s Republic of China and its organ harvesters, and the Castro dictatorship in Cuba with its torturers and al paredón justice.

Venezuela and North Korea could not be more dissimilar in terms of their respective cultures, peoples, and histories. And yet they have arrived in approximately the same place: at the terminus of F. A. Hayek’s “Road to Serfdom.”

For generations, it has been an article of faith, among conservatives, that everything depends upon economics. It’s not just that if you get the economics right, then the miracle of the marketplace will usher in the the age of bliss. It’s that their preferred economic models are intrinsically moral. That means the wrong economics must always result in terrible outcomes. Bad tax policy not only makes people poor, it makes them corrupt, violent and cheat on their wives. Like Marxists, they think the system makes the man.

Well, what about Venezuela? What’s really going on? Here’s the per capita GDP.

 

 

 

 

 

 

 

That’s in constant dollars and it shows a remarkable thing. After the turmoil that brought Hugo Chavez to power, the Venezuelan economy started a nice run. Per capita GDP is a benchmark number that economists love to use to measure the health of a country. Here’s what wages look like in the country:


source: tradingeconomics.com

Now, wages and economic growth don’t tell the whole story. Venezuela suffers from the curse of natural resources, which in her case is oil. What dumb people call socialism is really just the way things have always operated in countries with low levels of human capital. The elites monopolize the natural resources and the profits that come from selling them on the international market. They spread enough money around to prevent a revolt, but otherwise it a system not all that different from what existed in colonial times.

In other words, what ails Venezuela is not ideology. It is biology. It is the way it is because of its people. What determines the nature and character of a country is not the tax code or the regulatory regime. The nature of a country comes from the people. Venezuela lacks the human capital to operate a modern economy. It has and always will suffer from the smart fraction problem. That is, it lacks a large enough smart population to carry the rest of the population into a modern economy. It remains stuck in a model suited for its people.

Put another way, it is people, not pots. Replace the Venezuelan population with Finns and they will figure out how to make a mild form of Nordic socialism work just fine. Fill the place up with Japaneses and the country will look like an Asian tiger. At the same time, begin to fill up the United States with Latin Americans and it is going to start to look like Latin America. That’s why your newly imported replacements are running on platforms familiar to anyone getting ready to vote in the upcoming Mexican elections.

Of course, the reason that raging cucks like Sloppy Williamson avoid the obvious is that it is much safer to focus on trivialities. Lefty mobs are not going to swarm his Rascal scooter if he avoids taboo subjects. That and these guys have been playing the role of useful idiot for so long, they are unable to notice that the world has changed. They operate like a cargo cult, convinced they can pretend it remains the 1980’s and it will magically be so. National Review is like a weird living museum to the Reagan era.

The world has changed, though, and the debate has shifted upstream. People are noticing that when you elect a new people, you don’t actually end up with a new people. You end up with a culture that reflects the biology of the people you imported. Whites in America are now coming to terms with the choices in front of them. Keep their head down and play make believe while they are replaced, or risk moral condemnation for defending their heritage and their culture. It’s a future with you or without you. That’s the debate.

The Cost Shifting Economy

When most people think of business, they think of people buying and selling, making something and selling it or maybe selling a service. The old adage of buy low and sell high is still the basic idea of business. Rich people, however, like the people who currently rule over us, don’t think about any of that stuff when they hatch a business scheme. Instead, they think about how they can shift the cost of doing business onto the public or some unsuspecting suckers, like the American taxpayer. It’s how rich people do business.

This is not a new idea. Cost shifting was an integral part of the Industrial Revolution. The factory owner was not covering the full cost of his labor, for example, because he did not have to cover the cost of workplace health a safety. Building a bridge was a lot cheaper, because the cost of worker deaths was not the responsibility of the builder. No one thought about the costs of environmental degradation in the 19th century, so companies were free to dump poison into rivers and pump pollutants into the atmosphere.

It is not unreasonable to argue that the great fortunes made during the Industrial Revolution, at least in America, were made in large part from cost shifting. After all, it was not just the direct costs like labor, that were shifted onto the public. Once a man got rich, he could afford to buy politicians, who would pass laws giving the rich business owners leverage over their smaller competitors. It’s not an accident that those great fortunes were created early in the industrial age and none were created in later stages.

The political class in the early 20th century was still strong enough to push back against the industrial barons. It became politically popular to push through trust busting to weaken the industrialist. Then it became popular to push through reforms and allow unions to organize labor. Conservative proselytizing against these policies over the decades has obscured the fact that much of it was an effort to push those private costs back into private hands. The end of the industrial age corresponded with the end of cost shifting.

Today, cost shifting is everywhere in the economy. Tech companies have exploited pubic utilities, like the internet, to provide media services, without having to pay distribution costs. Amazon built its business, in part, on not having to collect sales taxes like every other retailer in America. Currently, their shipping costs are subsidized by the US Postal Service which loses billions every year. Then there are the many rackets that rely on government subsidies. Higher education is just one big upper middle-class subsidy.

The biggest cost shifting racket today is the use of imported labor. Recruiting, hiring and training Americans is expensive, because America is a first world society.Citizens expect first world working conditions. That makes it hard to shift labor costs onto the public, so companies prefer foreign labor. That way, they can pay lower wages and they avoid having to deal with employees who know their rights or have ideas about forming a union. Plus, foreign workers don’t sue for things like discrimination or poor safety conditions.

There’s a cost to this sort of predatory labor system, but those costs are shifted to the public in the form of depressed wages and high social costs. The migrants in every hospital emergency room are not having their bills picked up by their employer. When Pablo decides to get drunk and drive over an American, his employer is not paying the victim’s family or covering the cost of Pablo’s incarceration. The fact is, there is nothing more expensive to a society than cheap labor, it’s just hidden from public view.

The question though is if it is possible to get rich in a mature economy without massive cost shifting. No great fortunes were amassed from the end of World War Two until the technological revolution. That was a period when business costs were shifted back onto business. The tech revolution made it possible to get around the regulations and laws, because government never anticipated a digital economy. That’s starting to change just as the technological revolution is winding down and the public is pushing back.

Take a look at the newspaper business. Prior to the digital age newspapers could be run profitably, but they had high labor and capital costs. In theory, the digital age offered the chance to slash those costs. The internet does not require printing presses and delivery trucks. But, the internet also slashed their revenue stream. All those ad dollars are now at eBay, Monster and so forth. Newspapers, without monopoly power and with no ability to shift their costs to the public, are all losing money and headed for extinction.

That does not mean it is impossible to turn a profit without cost shifting, but it does suggest it is impossible get rich without it. At least not billionaire rich. That would certainly explain the fanatical commitment to migrant labor by American business. It also explains the increasingly opaque financial system. It’s not so much about reducing costs as hiding them in the costs of other goods and services, like taxes and health care. It’s a lot easier and profitable than trying to make a better product or become more efficient.

The Cheap Credit Era

The current age is one of extreme short term thinking. Americans have always been known for taking the short view, but today our culture is built around a “live for the moment” attitude. Sit in a business meeting and exactly no one talks about downstream possibilities. It is all about this month, this quarter or, for the sprinkling of long term planners, the remainder of the year. You see this in our politics, where everyone reacts to the latest polls or latest news event. We are a high time preference society now.

This is why immigration reform is proving to be a non-starter. The Left side of the political class sees nothing but opportunities to rig the next election with foreign ringers, so anything that interferes with that is blocked. The Right side is wholly owned by the cheap labor lobbies, who like the idea of disposable labor. It’s not that the people in charge think their grandchildren will be exempt from the ravages of mass migration. It’s that they are unable to think past the moment. For our rulers, tomorrow never comes.

Just because the people in charge have no interest in the future does not mean the future is equally disinterested in us. That’s what will make the coming years interesting, with regards to the economy. The Fed has finally begun the process of tightening the money supply, after a decade of an extremely loose policy.That means rising interest rates in the US and a strengthening dollar, relative to other currencies. This is not going to happen overnight, but the Fed is going to move quickly now that there are signs of real inflation.

The trouble is s big chunk of the economy have become addicted to cheap money. Take a look at the car business. Every car maker has setup special lending facilities so they can entice buyers. Instead of figuring out how to make cheaper cars, they offer near zero interest and extended terms. You can get from most makers a seven year term on a new car, along with a super-low interest rate. They may even offer cash back you can use for the down payment. There’s even sub-prime lending at the lower end of the market.

Now, the Feds are not bringing back 1970’s interest rates and they are going to move slow. Still, it has been a long time since interest rates have been close to historic averages and that means most people making decisions don’t know what it is like to live in that world. It has been 18 years since mortgage rates were above seven percent. It’s been 27 years since we saw eight percent rates. It’s been a decade since rates were above five percent. In other words, the world has become used to historically low rates.

It’s not just the retail end that will have to come to terms with a world of rising interest rates. Most business runs on credit these days. The bigger the business, the bigger the debt burdens. US corporation have $4 trillion in debt that will roll over in the next five years, according to industry analysts. What this means is their debt service will increase as they refinance old debt with new, more expensive debt. That’s how corporate debt works. Most of it is fueled by bonds, so new debt pays maturing debt plus interest.

Of course, business is not the only institutions relying on cheap credit. Governments around the world have come to depend on the endless appetite for sovereign debt to keep borrowing rates low. When central banks take money off the street, it means there is less money to chase after sovereign debt. Healthy debtors like the US government will not feel the pinch, but the struggling countries in Europe and South America are going to find it more difficult to sell debt. It may not take much to topple a country like Argentina.

Again, the Fed is not bringing us back to the 1970’s. Baring some inconceivable catastrophe, no one reading this will ever see double-digit interest rates again. It’s just that since the end of the Cold War, America has been living with historically low interest rates and it has changed the nature of our economy. Cheap credit makes short term deals more viable and more common. It also increases risk taking. The result of all this cheap money is an economy that lives for the moment. Everyone is in it for the quick buck.

In theory, the slow gradual return of interest rates to something close to historic norms should not have a big impact. Almost thirty years of super-low rates, means most of the institutional knowledge about working in a normal rate environment is gone or heading for retirement. That means a lot of people are going to have learn the hard way about how business and finance works in a less than free money era. Therefore, no one can really be sure what is going to happen as the Feds slowly raise rates over the next years.

Celebrity Experts

A few years ago Greg Cochran pointed out that western economists had been very wrong about the economic condition of the Soviet block countries. Paul Krugman had claimed that the East German economy was 80% of the West German economy. When the wall fell, what was revealed was a backward economy with environmental devastation and low quality consumer goods. All of this was obvious from the outside. All you had to do was take a look at the cars, which were a joke compared to the cheapest western cars.

The reason western economists were so laughably wrong about the Soviet economy is that it was worth their while to be wrong. The Left side of the ruling class wanted to believe the commies were doing well. They owned the media and the academy, so it is not hard to figure out the rest. That, of course, calls into the question the integrity of the field, but in reality they just believed what was convenient. Even PhD’s can delude themselves if it has social value. You see that in this post by celebrity economist Tyler Cowen.

Will Ethiopia become “the China of Africa”? The question often comes up in an economic context: Ethiopia’s growth rate is expected to be 8.5 percent this year, topping China’s projected 6.5 percent. Over the past decade, Ethiopia has averaged about 10 percent growth. Behind those flashy numbers, however, is an undervalued common feature: Both countries feel secure about their pasts and have a definite vision for their futures. Both countries believe that they are destined to be great.

Consider China first. The nation-state, as we know it today, has existed for several thousand years with some form of basic continuity. Most Chinese identify with the historical kingdoms and dynasties they study in school, and the tomb of Confucius in Qufu is a leading tourist attraction. Visitors go there to pay homage to a founder of the China they know.

This early history meant China was well-positioned to quickly build a modern and effective nation-state, once the introduction of post-Mao reforms boosted gross domestic product. That led to rapid gains in infrastructure and education, and paved the way for China to become one of the world’s two biggest economies. Along the way, the Chinese held to a strong vision that it deserved to be a great nation once again.

My visit to Ethiopia keeps reminding me of this basic picture. Ethiopia also had a relatively mature nation-state quite early, with the Aksumite Kingdom dating from the first century A.D. Subsequent regimes, through medieval times and beyond, exercised a fair amount of power. Most important, today’s Ethiopians see their country as a direct extension of these earlier political units. Some influential Ethiopians will claim to trace their lineage all the way to King Solomon of biblical times.

Cowen is either trying hard to please the Ethiopian economic and cultural ministers or he has spent too much time in the sun. The reason Ethiopia has seen growth rates tick up is the Chinese, and to a lesser degree India, have been investing. The reason they are investing is both are competing for control of the the Indian Ocean. In fact, the Chinese have invested in other East African countries, including a naval base in Djibouti. That’s why China and Indian are investing in East Africa. It’s a modern form of colonialism.

Further, comparing China and Ethiopia, at the civilization level, is a bit ridiculous. China is basically one people, the Han, with minority populations around the fringes. This has been true for a very long time. Ethiopia is a combination of pastoral and settled people, who see one another as rivals. The country is experiencing civil unrest, bordering on civil war, in response to the ruling Oromo minority. China has never had this issue. China also has an average IQ over 100, while Ethiopia is one of the lowest on earth, estimated below 70.

Now, economists are easy targets, because the profession has evolved into something similar to the celebrity chef racket. There’s not a lot of money in making good food and running a quality restaurant. There’s big money in being an entertaining chef with a TV show on cable television. Something similar has happened to economics. You don’t actually have to be very good at economics to get a spot in the commentariat. You just have to sing the praises of the managerial class and play the professorial role well.

Even so, it takes special talent to be this wrong about observable reality. Cowen’s trick, like most celebrity experts, is to couch his obsequiousness and nutty ideas in the form of a question. “Is Ethiopia the next China?” This way, when called on it, he can pretend it was just an intellectual exercise, a thought experiment. Meanwhile, he appears to be lending his authority to the rather ridiculous notion that Ethiopia is poised to be the next boom town. It is no wonder that so many in the managerial class are so vapid and silly.

It is tempting to dismiss this, but the proliferation of celebrity experts says something about the nature of managerialism. It has evolved a class of people that are luxury goods. They have no utility, other than to make the people inside feel special. The TED Talk is a great example. Cloud People pay to be told by a celebrity expert that their lives have purpose and they are on the side of angels. It’s not explicit, but the point of the expert is always to confirm the beliefs of the audience, rather than broaden their understanding.

If the celebrity expert was just the current version of the court jester, it would probably be harmless, but that’s not the case. The people making public policy have risen through the system, never having been told a discouraging word. They end up having opinions about the world that border on lunacy. The people running the Bush foreign policy really believed they could democratize the Middle East. They still believe this and they probably think East Africa is the next economic boom town. That’s what the experts tell them.

There is an argument that the proliferation of lawyers is responsible for the proliferation of laws. The extra lawyers, looking for a way to make a living, inevitably started to pervert the law to create opportunities for themselves. This results in more cases in court, that means more courts, more judges and then more laws to address the crazy outcomes. It is a bit of chicken and egg theory, but there is no question that having a lawyer for ever conceivable case has changed the nature of the law, as well as the volume of laws.

Something similar seems to be happening in the other parts of the managerial class. The excess of middling strivers, means an excess of mediocre men pitching themselves as experts. Since being an expert is hard, the more fruitful course is to tell the audience what they want to hear. As a result, in the public policy arena, the people charged with actually knowing stuff are surrounded by an amen chorus that cheers their every move. Instead of rule by expert, as some imagine, we have rule by people who never faced adversity.