Reasons to be Pessimistic
Three Things #72: June 11, 2023
With a few exceptions I’ve tried to avoid certain “big” topics here like geopolitics, economics, and religion for a few reasons. One reason is that big topics take a lot of time to research, think about, write, and review, and the time I have to write here every day is limited. Another is that I’m not sure the format lends itself well to writing about big things. Big things need a lot of space and they can’t always be broken down into three neat things. I wrote about a few such topics elsewhere a few years ago and touched upon them briefly here as well (e.g., when Russia invaded Ukraine), but in general I’ve tried to steer clear of topics like politics and the long arc of human civilization here in favor of smaller, bite-size topics that I know well and can write more confidently about, like a recent trip I took or the Spacemesh protocol.
From time to time, however, I feel called to write about bigger things. At the end of the day, they’re the things that matter the most to the most people, right? Writing about big things in a small way is an art form that I can’t say that I’ve mastered, but I’m going to give it my best shot.
I’m inspired to write about a big topic this week because of a long form article I read and a podcast episode I listened to recently. At first glance they may seem to have very little in common, but they both touch upon the state of the world and modern society, and reasons to be optimistic or pessimistic about what comes next. That’s what I want to write about this week.
You’ll note that climate change isn’t one of these three things, nor will it be one of next week’s things. Many people would probably put it in their top three reasons to be optimistic or pessimistic as the case may be. I haven’t done so for the reason that climate change is playing out slowly over a very long time horizon, and we therefore have ample time to deal with it. While I do believe climate change is a serious issue, I also believe in technology and human ingenuity and I believe we’ll find a way through it. By contrast the challenges and threats outlined below are existential threats that we face imminently, and they’re by and large threats that mere technology or ingenuity alone won’t solve.
Thing #1: China vs. USA
“You can always count on Americans to do the right thing—after they've tried everything else.” - Winston Churchill
There’s a phenomenon called the Thucydides Trap that’s played out dozens of times in the history of the world, and probably hundreds or even thousands of times if you consider polities smaller than nation states. It involves a situation when an established world power, a hegemon, refuses to or is otherwise unable to make room for a rising power, ultimately leading to war. It happened most recently between Britain and Germany in WWI and it happened to Japan and Russia before that. In a book titled Destined for War: Can America and China Escape Thucydides’s Trap?, historian Graham Allison analyzes 16 such situations in world history and notes that 12 of them resulted in serious conflict.
This is one of the main arguments usually given for why China and the USA are bound for war, sooner or later. The USA has, of course, been the dominant world power since the second world war and has gone quite a long way towards shaping the world in its image in the decades since, especially in the form of international institutions, systems, and treaties including the UN, the World Bank and the IMF, NATO, the BIS, the WTO, etc. China feels that the cards are stacked against it and that the net effect of this world order is to repress it and prevent it from reclaiming its position as the wealthiest, most powerful nation on earth, a position it indeed held for much of civilized history. China has of course participated in many of these institutions—including the WTO and a seat on the UN security council, with the corresponding veto power—but it has been excluded from or made a minority partner in others despite its heft and has responded by beginning to build global institutions and alliances of its own.
The USA for its part does feel that China poses a threat for several reasons including its militarization of the South China Sea, its record of human rights abuses including recently in Xinjiang, its bellicose stance towards Taiwan, and the appalling way in which it handled the Covid pandemic including the early coverup and China’s refusal to seriously investigate or even allow foreign investigation into the cause of the pandemic. China’s suppression of free speech and a free press, and rising authoritarianism, certainly don’t help its case.
While they have many things in common the two countries and cultures are already quite far apart on many fundamental questions due to cultural differences and history. What Westerners don’t understand about China in a nutshell is that China is and always has been a fundamentally collectivist society where people define themselves in relation to larger units such as the family or the nation, in contrast to rugged American individualism. For this reason, American style liberty (for the individual) is less appealing in the Far East. What China doesn’t understand about the USA is that, while this rugged individualism does manifest in fractious, contentious politics and some degree of social strife, it’s precisely this messy process that ultimately produces better outcomes and allows American society to be enormously creative and dynamic and continually reinvent itself, something China doesn’t have a very good track record of doing. As Churchill famously said, “You can always count on Americans to do the right thing - after they've tried everything else.”
And the two countries are growing even further apart on many issues due to Xi Jinping’s cult of personality and the fact that he’s appointed himself leader for life, his crackdown on tech and business and western influence more generally, heavier surveillance and repression, etc. I’m sure the Chinese for their part could explain why American culture is moving further away from stable, sane Chinese culture due to some sort of “Western disease” brought about by decadence, greed, too much individualism, and laziness.
Quite frankly it’s hard to see a happy outcome if one extrapolates based on the current state of affairs. There’s no resolution in sight on Taiwan, to name just one major issue, and the world seems to be splitting into three camps again just as it did after WWII: a US-aligned western order, a China-aligned east and global south tied to China through the Belt and Road Initiative, and non-aligned countries including India. We’d be lucky if the status quo merely continues for some time.
The best case scenario I can imagine is that, rather than rapidly surpassing the USA in terms of economic and eventually military might as it was long forecast to, China stagnates, barely catches up, and then drifts into demographic decline due to the rapidly declining birth rate and near-total lack of immigration, eventually going the way of Russia. Indeed, these trends have already begun—but one need only look at Russia to see how much harm a once-powerful country can still do in stagnation and on the way down. But regardless of the outcome, it looks like China and the USA will be neck and neck for decades at the very least. There’s something to be said for one nation checking the power and ambition of the hegemon, in a game-theoretic sense, and there’s at least some historical precedent for avoiding the Thucydides Trap in such situations. Let’s hope this time, too, is different.
Thing #2: Money
“Fix the money, fix the world.” - Bitcoiners (origin unknown)
I wrote last week about how economics in much of the world feels increasingly unsustainable, especially in big, rich countries like the USA. The topic belongs on this list, too, because it’s one of the biggest issues we face and getting bigger, one of the hardest to solve, and one that doesn’t seem to have a solution in sight. In order to understand what’s going on today we have to look at history. There of course isn’t enough room here to cover the long history of money, government borrowing, and debt more generally, but the last few decades have been particularly interesting and are worth considering more closely.
During and after WWII, which was chaotic not just militarily but economically as well, in order to ensure global economic stability the US spearheaded the creation of a new global monetary order known as Bretton Woods. In brief it ensured that the US dollar was fully backed by and convertible to gold and that other currencies were pegged to the US dollar. This system was in place during the decades leading up to 1971 when Nixon shocked the world by suddenly ending US dollar convertibility. Then, something strange happened.
Macroeconomics is complex and I don’t think any single theory fully explains all of the economic issues the world is facing, but it does seem like too many things changed after 1971 for it all to be a coincidence. When money is backed by a real, scarce physical commodity like gold the government is limited in how much money it can print. As long as that money is truly backed one to one with gold it needs to go to the market to acquire more gold with goods of real value in order to print more money. Indeed, this is why Nixon ended convertibility: because the government had in fact been issuing dollars without the gold to back them. If there were a sudden “bank rush” on that gold, the government would’ve been caught with its metaphorical pants down—which is more or less what happened when France sailed its Navy across the Atlantic and demanded its gold back. When the government is limited in how much money it can print, it can only increase spending by increasing revenue (collecting more taxes), by cutting spending elsewhere, or by borrowing more money. If that sounds familiar, it should: it’s a reasonable way of operating and it’s how companies are run.
However, when that tether to reality is severed, the government can print as much money as it wants to. Ordinarily if it massively inflates the monetary supply the value of that money would collapse, prices would rise, and it would have trouble borrowing: witness similar episodes in countries as diverse as Greece, Portugal, Zimbabwe, Argentina, and, of course, Weimar Republic Germany (among an ignoble collection of many others). But the USA is special here because the US dollar has the status of a global reserve currency which means that many banks, companies, and even governments are mandated to hold dollars or assets denominated in dollars such as Treasury Bills or to denominate contracts and settle trade using dollars. This means that, even as the government is rapidly printing more dollars, ironically the demand and thus the price of dollars may continue to rise as we saw recently because in relative terms it’s still more stable and more desirable than other currencies. The French coined a fantastic name for this phenomenon: exorbitant privilege.
There’s even a fringe school of economic thought known as Modern Monetary Theory (MMT) that suggests that there are truly no limits to how much a country with this privilege can print. It gained in popularity over the last decade as countries including the USA printed massive amount of money but inflation and interest rates remained low. However, as we’re all well aware by now, inflation did finally begin to catch up last year. Eventually economic gravity must catch up.
As I discussed last week, the situation is bad and it’s about to get worse. The government wants to print a lot more money and only a very small number of senators and a divided Congress has prevented that to date. Interest rates have risen considerably which means that the interest on the national debt will begin to rise, too, and deficits will only get worse as entitlement spending continues to spiral out of control. I’ve never seen a modern politician that has a plan to address this, mainly since it would be political suicide to do so, i.e., to tell people the truth. Things are going to get a lot worse economically before they get better.
Yes, for the record, Bitcoin does address some of these issues, and as individuals we have the choice to move some of our long term savings out of this failing system. But (unlike Balaji) I don’t see bitcoin taking over as a new reserve currency anytime soon.
Thing #3: The Failure of Liberalism
“What we may be witnessing in not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government.” - Francis Fukuyama, The National Interest, Summer 1989
There was a moment, probably sometime in the nineties, when things were looking pretty good for the new world order. Most notably the Soviet Union had collapsed, hundreds of millions of people had been released from behind the Iron Curtain and joined the global economy, China was becoming wealthier and lifting hundreds of millions of its citizens out of dire poverty, and democracy and capitalism were on the rise globally. At the tail end of this (in retrospect) exceptional period of stability and growth known as the Great Moderation it looked like modern American liberalism and the Washington Consensus had won, that we had achieved an End of History, and that it would all be smooth sailing from there.
We all know what’s happened since then. Terrorism, ineffective and never-ending wars on drugs and over oil and energy security. Greater authoritarianism and human rights abuses in China and the rise of autocrats globally, leading to a massive reduction in the number of people living in free jurisdictions. Pandemics, with botched responses and a huge rise of mistrust in supposedly trusted public health institutions and in governments and institutions more globally. Surveillance capitalism and the rise of the surveillance state. Hyper-polarized politics and a massive echo chamber effect due to social media, causing people to be unable to agree on even common, ground truth. Rising inequality and the emergence of a left-behind class in the USA and elsewhere. A massive rise in opiate overdoses and other “deaths of despair.” The rise of populists and Donald Trump copycats globally. Central banks that respond to everything by making the money printer go brrrrr, as discussed above. I could go on.
What all of these things have in common is that they represent a breakdown in trust and a collapse of once-cherished, respected social institutions. To pick one obvious example, there’s not a lot we can do (yet) to prevent new deadly, contagious pathogens from emerging, but if we respond correctly when they do happen we can minimize both death and economic impact (both of which we utterly failed to do during the recent Covid pandemic). We can’t prevent crises and natural disasters from occurring entirely, but if our social systems are in healthy, functioning order we can respond constructively to them and minimize their damage. That’s why it’s so important that we fix our institutions.
The single biggest factor in the loss of trust in institutions as disparate as the US Congress, Presidency, and Supreme Court, the CDC and the WHO, and democracy and capitalism themselves is the emergence of a sheltered, elite class (what conservatives refer to as the “Davos class”) that is totally out of touch with the needs and preferences of everyday people around the world. Yes, 74 million Americans did vote for Donald Trump and, yes, Trump did a lot to erode trust in these institutions, but there’s a reason this happened, a reason that predates Trump and that I think a lot of elites and liberals haven’t yet come to terms yet and don’t fully understand despite ample evidence. In short, a hell of a lot of people feel left behind by pretty much everything: capitalism, globalism, technology, and the media just to name a few things.
In my mind this represents nothing less than the abject failure of liberalism. Liberalism of course has a long history and it’s quite multifaceted today but in a nutshell I’m talking about the sort of crunchy granola liberalism that believes in uniting the entire world in free trade and a single, universal system of governance, that believes in giving people total freedom to live their lives as sovereign individuals as they personally choose, without regard for the collective or the social structures and mores they might be leaving behind, that has a naive faith in the benevolence of government and its ability to respond effectively and act with accountability when things go wrong. Most of all it’s the sort of liberalism that wholeheartedly embraces globalization and global capitalism and the power of markets.
While liberalism does have a lot to offer—markets are, after all, good for many things—it lacks a soul. Liberalism totally lacks a “why,” a driving purpose. The closest it comes are fuzzy things like equality and allowing people the freedom to express themselves and be happy as individuals. Equality is quite tricky and hard to pin down as we’ve seen recently, however, and individual happiness is impossible and almost an oxymoron because by and large people aren’t happy as individuals. People are happy as part of something bigger than themselves, i.e., as part of a group, whether it be a family, an organization, a company, a community, a sports team, a faith-based community or a nation that stands for something that transcends the individual.
I don’t know exactly what comes next or how we get there, but I’m certain that it’ll more closely resemble where we’re coming from in one way at least: as a society we must put more emphasis on family and community, and this can by definition only come at the cost of individual freedom and sovereignty. Of course not every society will choose this path, but I believe that the ones that do will be the happy, healthy, successful ones.