Free Markets Don’t Buy Peace
politico.com
politico.com
Take the China example - China as of this September holds $3.055 trillion in foreign currency reserves. This makes the US and China mutually interdependent - if China stopped selling products to the US then it would cause a massive recession in China. If the US couldn't find buyers to finance its spending, it would default on its debt. If the US defaults, the entire international economy would likely go up in flames.
So it's like mutually assured destruction, but instead of stockpiling nukes (though we do that, too), we're actually producing useful goods and services. And it doesn't make war impossible, but it does mean that war won't happen on a whim - it will be an utter last resort, with millions of wage earners and business owners wanting to try to make any other solution work, lest they lose their livelihood.
It's hard to take the article seriously without this sort of analysis.
> If the US couldn't find buyers to finance its spending, it would default on its debt.
Why would the US have to default on its debt, when the debt is denominated in a currency that the US can freely print?
Whether prices get higher (government bidding up prices following monetary inflation) or taxes increase, the effect is the same: the good/service production in question will get modified relative to other parts of the economy.
Inflation is just a tax increase on "everything but" what the government is buying.
Is this some sort of hot take where you try to classify government spending as monetary inflation?
I don't know what the point of this reply was otherwise. It's still very misleading to imply some money printing has the same scale of ramifications as a default.
Hyperinflation isn't numbers like 10% annual inflation, which are extreme events in functioning economies. Some definitions put it at more like 10,000%. That's not caused by central bank manipulation. That's caused by a complete collapse of the economy. The central bank can try to deal with that by printing almost-valueless currency as an IOU, but that's the result, not the cause.
That's often caused by war, though it's sometimes caused by massive mismanagement of resources. It's not really relevant to the kinds of situations being discussed in the article, which are functioning economies (as long as they can keep from going to war on each other).
Also
> won't cause inflation
won't cause HYPERinflation
That's not the claim. Government bonds are like 30 years, so it's not 127% of the GDP all at once. Second, the context was not all debt everywhere, it was Chinese held debt, which is at about 5% of GDP, without spreading it across the duration of the bonds.
> you still haven't posted evidence from an authoritative source.
https://www.theonion.com/fed-raises-interest-rates-in-effort...
Source: Argentina.
Accepting possible economy collapse is taboo for USA, but autocratic or totalitarian countries are able to gamble on that.
We need a League of Democracies rather than a United Nations.
Treating all nations as if they respect human rights the same is a major folly that experts like Henry Kissinger have made all of their lives. The world is not a game of Risk where it's power vs power. The system has a fundamental impact on the behavior of the state.
The democratic world should not do business with dictators or Communist countries. All we do is empower those with no checks-and-balances on power. Hard empire building as China and Russia are attempting is difficult to do in a democracy. Not impossible, but far less likely.
There's extremely high demand for US debt as it's considered the safest bond in the world. All that would happen is interest rates might go up a bit, Congress raising taxes to make up a shortfall, or perhaps some kind of Fed intervention. Default is out of the question.
Russia did it in 1998. Its not impossible, but it's never necessary.
So you don't really find many people making this argument anymore (outside of the ignorati, like Thomas Friedman), because evidence suggests this theory is incorrect (and, to be clear, this theory was huge: Angell was one of the most famous academics in the world, he won the Nobel Peace Prize, it was probably the prevalent theory of international relations pre-WW1).
And Jacob Soll, being a relatively well known historian of economic and political thought, is aware of that.
Also, your economics is not accurate. Before WW1, the economy was roughly as interdependent as it is now. The world kept turning, and it would in the case of another world war. All that happens is that economies re-orient towards domestic production and everyone gets a bit poorer (and this has already been happening with China and the US, the world economy did not go up in flames). The scenario where the US is unable to fund itself has already happened in the recent past with the UK (which was actually relatively larger than the US today), with any financial shock there is a way through.
I think the point is Soll is making, quite correctly, is that markets are situated within a political context. One man's "free markets" are another man's colonialism (a point Putin demonstrated a few weeks ago). So you saying there is interdependence is actually the exact problem that some people have, and the reason why strategic errors have been made repeatedly.
Imo, this is an angle that is not well understood (for example, most IR theorists aren't familiar with the mid-19th century market evangelists of Britain) precisely because we have passed through this unipolar period that strips political context from reasoning (i.e. this person is rational, we are interdependent, they won't do X or Y...this is exactly what people thought in 1910).
This myth has of course been thoroughly debunked within the scientific literature, but it has taken a long time to die within some economic circles. Just recently there was a post here on HN about nudge theory—a theory which seems as it is trying to patch up homo economicus.
Your post here seems to suggest that homo economicus is still alive in theories about international relations—at least among laypeople—the believe that states somehow will act rationally—even though individuals won’t—and always act in a way that optimizes their wealth.
Off course, there is always a reason to be skeptical about such absolute patterns in such a complex and dynamic system, especially if the same pattern has been debunked in other fields.
This is untrue. In 1913, exports were roughly 14% of economic activity. Today, it's at 24% [1]. This effect is exaggerated when you consider that people were a lot more self reliant back then, and most of this labor doesn't get recorded as economic activity (e.g. hand-washing clothes vs using a washer, subsidence farming vs buying food at a supermarket).
Today, there is also a lot more multinational corporations and international investments. For example, Foxconn is a Taiwanese company, but the vast majority of its over a million workers are Chinese. As far as I can tell, you never saw Austrian elites buy a ton of Serbian real-estate, which is what China's elites are doing. Had that been the case, you'd see a lot Austrian elites fight very hard to keep the peace to prevent their investments from going into flames.
[1] https://ourworldindata.org/trade-and-globalization#trade-has...
Is it as simple as just comparing these two proportions? [let alone the fact that comparing proportions is generally a bad idea when there is a difference in absolute quantity/quality between the two samples]. In 1913 a huge proportion of the world’s populations were colonized. The economic activity within these colonies is something that is really hard to compare to today’s situation of global capitalism. I think comparing these proportions is not what your parent had in mind when they stated this, and honestly I don’t think they give a good insight into how global trade was back then compared to today.
Aside: Citing our world in data leaves a general distaste in my mouth. They seem to take Hans Rosling’s idea of needing a good visualization to an extreme. Throwing everything but the kitchen sink into these graphs. Missing the fact that a misleading graph can do more damage then a good graph can provide insight.
US could just freeze/seize those assets, just like it did with the Russian ones hold oversees. And it can forbid accepting the other ones.
As the saying goes, when you owe the bank $100 mil, the bank has a problem.
Of course, as retaliation China could stop all exports to US. This is the real mutual assured destruction.
What weighs more, a kilogram of iron or a kilogram of feathers? Wrong question!
Which is more likely (not “possible”, “more likely”) to injure you: a kilogram of iron falling overhead, or a kilogram of feathers?
It's supply routes are highly vulnerable. It's called "The Malacca Dilemma".
1 minute video: https://www.youtube.com/watch?v=B-u3saTerYU
Example: The US is all A-OK with China's Hong Kong, Taiwan, and various Human Rights violations and realisticly refuses real action on it. In fact...we bankroll it.
And peace doesn't require that the Russians and Chinese become our friends; it requires that they recognize that trade would be a greater loss than any gains from war could recompense.
It's somewhat similar to the situation with democracies, there are many democratic systems. Each favours some over others to at least some extent, the question is whether there is a significant disillusionment among the electorate and an appetite among them for change. As a Brit I don't like the fact that a candidate for President in the US can get a majority of the actual votes, but lose due to the electoral college system, as has happened. An American Might deplore the fact that we don't directly elect our Prime Minister. There are those in each country that deplore these features of their own systems. Nevertheless our respective systems as a whole enjoy broad support among their electorates and that's what matters.
Then engage in dialogue, which requires a shared understanding. It very much matters the definition of free market if you intend to disprove (or more charitably, propose improvements towards) its existence between state actors in the current world stage.
Let's therefore consider something pathological: let's suppose that a country has a free market in this sense, but is owned in its entirety by a small group, such as how the nobility in Denmark owned something like 90% of the land, while the population are kept as permanent renters, never permitted to buy any land that has been obtained by that group, not due to law, but to traditions of the land owning group. Do you think it would be reasonable to permit trade with such a country?
The fact that America buys Iraqi oil didn't prevent it from being bombed back by decades.
This seems to be people ruing that our project to dominate the entire world with an ideology that had us comfortably in charge is failing.
Obviously, trade between a hegemon and a small country isn't going to deter wars of imperialism. Because the hegemon can force the trade relationship.
But it should deter war between the US and China. China's leaders want to survive. If they stop the gravy train of trade, they're putting their own survival at risk.
The Iraq war wasn't 4D chess it was much worse: Americans really believed in it. Which is ultimately also why they got their ass kicked: free elections were held and the Iraqis wanted the Americans out. Instead of installing a puppet government what they got was Iraqi politicians with agency.
We should not get wedded to a particular prism. They're all partly true.
Trade and treaties deter war to an extent (liberalism). Nationalism can sometimes be a major factor as in Iraq 2003 (constructivism). And sometimes it's actually about defense concerns, e.g. the Soviet-Finnish Winter War (realism). These are all partly true theories.
Just like Baltic states few months later.
Of course, we're reading his mind here, so it's hard to say for sure.
I didn't study Stalin's proposal to Finland that much, but essentially it was same deal as for other Baltic states. Take our military bases for „defence“ and we may sweeten the deal a little bit with a gift. Because who cares if we're going to annex you next summer one way or another :) Couldn't do that in 1920, but USSR thought it's strong enough in 1939.
For example Lithuania and Vilnius case. Well, so nice of him to give back historical capital, isn't it :) Just to use sweeten the deal of installing army bases in Lithuania-proper and then using them to annex the whole country next summer.
Until they wanted us back to fight Daesh.
In any case, the GoJ is keen for us to leave as well, and we probably will soon, but that doesn't make Japan our enemy or mean that we "got our asses kicked" in WWII.
This is an interesting take - I don't think the goal at the start of the war was to install a puppet government; it was to dismantle the government in power and prevent whatever took its place from having any real ability to project power against vital US interests. Both of these goals were accomplished.
Any cursory study of recent history will tell you that people will readily accept poorer material conditions as long as amorphous ideas like pride, identity, etc. remain intact.
― F. A. Hayek, The Fatal Conceit: The Errors of Socialism
https://www.goodreads.com/quotes/303269-the-curious-task-of-...
People like libertarianism as an abstract ideology but not as a practical one.
In a practical sense, it may require access to good information, across all domains, to be acted upon by rational agents capable of synthesizing all that information into a decision. That may work with a yeoman farmer society, but is incongruent with modernity. Creation of institutions like a government and regulatory bodies may be the natural reaction to facing the complexities of modern society. As an example, I don't have the sufficient knowledge or information to assess the air-worthiness of an airplane and even if I did, fear may bias my decision toward the irrational. Instead, public institutions like the FAA create a system of regulations to standardize that decision. Same with electrical codes, drug quality, and a bunch of other common risks.
People can’t get all the information they need to make good individual decisions in a complex environment. Even if they could, assuming people are rational may ironically be an extremely irrational assumption.
The issue is that groups (at any size, and worse when turned into hard-to-change institutions) have their own unique disadvantages even beyond the flaws & shortcomings of the individuals that make up the group.
And it's precisely that inaccessible, dispersed knowledge that's crucial to operating an economy. Complexity if anything overwhelms government. They're usually far too slow & old to even begin to effectively regulate complex aspects of society.
>inaccessible, dispersed knowledge
I think the distinction is I don’t consider this a good thing. Opaque information hinders an economy; I don’t know how you can claim the opposite. I’d also argue inaccessible information is often at odds with dispersion of knowledge. For example, written knowledge wasn't dispersed until it became more accessible through the moveable type printing press. Making information inaccessible is just a way of hoarding power; that's generally not good for an economy (with some notable exceptions).
If it's a relatively high percentage, it's not a modest position.
How do you know those are the things that actually matter (as opposed to the things they say they value)? Because those are the things they work to maximize.
>How do you know those are the things that actually matter (as opposed to the things they say they value)? Because those are the things they work to maximize.
The counterpoint from behavioral economics, is that homo ecnomicus is a myth and people aren't wholly rational actors. Implying there may be a gulf between what they actively maximize and what they think "actually matter."
But on average, people want to live in comfort and have their needs met. It's even worse because leaders very rarely struggle under the same hardships, and when they do it's a PR stunt.
It's like Brexit - people voted for it (just barely) but now are hating the consequences. The only option is increased trade and commerce, the UK government simply can't socialism / money print their way out of the mess. Only productive enterprise will save them, meaning a freer market, freer trade, lower taxes, etc. but this will take a decade:
- Conservative government falls
- Leftists take over
- Leftists destroy everything and make stuff worse for a few years
- People give up hope
- Thatcher-like figure emerges, cuts taxes, promotes business, free trade
- People get comfortable and start thinking socialism can work again
- Go back to the beginning
- Thomas Friedman, The Lexus and the Olive Tree
Hold our beers
- Russia and Ukraine
I remember the first place I heard it was a military general… but we might as well attribute Mark Twain.
> 'Every state is founded on force,' said Trotsky at Brest-Litovsk. That is indeed right. If no social institutions existed which knew the use of violence, then the concept of 'state' would be eliminated, and a condition would emerge that could be designated as 'anarchy,' in the specific sense of this word. Of course, force is certainly not the normal or the only means of the state--nobody says that--but force is a means specific to the state. Today the relation between the state and violence is an especially intimate one. In the past, the most varied institutions--beginning with the sib--have known the use of physical force as quite normal. Today, however, we have to say that a state is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory. Note that 'territory' is one of the characteristics of the state. Specifically, at the present time, the right to use physical force is ascribed to other institutions or to individuals only to the extent to which the state permits it. The state is considered the sole source of the 'right' to use violence. Hence, 'politics' for us means striving to share power or striving to influence the distribution of power, either among states or among groups within a state.
There's a meaningful difference between a society that allows and supports a government that has a law enforcement body of some sort, and an active armed conflict.
If Yeltsin hadn't been a drunk, it's possible that Russia would be more like the Poland of 2022 than the Russia of 2022. I still believe that being open with Russia was the right strategy even if it has blown up spectacularly in our face.
At the end, Yeltsin was just the face of KGB/FSB regime, and later directly abdicated power to it's representative, who bombed buildings in Moscow to get elected.
Actually Yeltsin abolished the elected parliament in Russia in 1993, and then had the army bomb the parliament. This was done openly and celebrated by President Clinton, the US Congress and the US press. The US put all its weight behind removing power from democratic elections and a parliament as it wanted to consolidate power under the Russian army and president (now Putin).
This was FSB deciding what army does 101.
It claims that EU's trade with Russia didn't prevent war, but weakened EU's response to Russian aggression.
Except that's exactly wrong. Russia's trade with the EU 100% prevented EU going to war with Russia, and is preventing Russia from being more ambitious.
Did it prevent the war in Ukraine? No. But it absolutely did prevent the EU from actually going to war with Russia over their actions in Ukraine.
This article is basically making this argument: If Bob and Jane went to the grocery store, why doesn't Sally have food in her fridge? Clearly grocery stores don't sell food!
>Adam Smith, however, had a more nuanced view. The “father of economics” felt that a country with an absolute monarchy, such as France, did not have the requisite political virtue for free trade. He believed that its monarchical system was controlled by monopolizing merchants who would never let it trade freely.
For French monarchy, substitute modern Chinese or Russian autocracy. If you have two mutually trading free democracies the interests of the people will always be best served by peaceful negotiation, so that is what they will demand of the leaders they elect. With autocracies what's best for the people isn't the primary concern, rather it's what's in the best interests of the autocrat that drives policy.
As an aside I think it's pretty evident that Putin did not enter into the invasion of Ukraine with the intention to end up in a catastrophic trade war with the West, and bogged down in an un-winable quagmire in Ukraine. He was expecting a quick victory and lots of glory, presenting the west with a fait accompli as he did with Crimea. Nevertheless he was doing it to serve his own goals as an autocrat rather than because it was genuinely in any way in the interests of ordinary Russians. Nevertheless there's always the possibility of severe miscalculation. However in a democracy a plurality of the population has to miscalculate, while in an autocracy it only takes on person to get it wrong and you have a disaster.
Maybe there is a useful analogy here: mutual love and respect is a great foundation for a strong long-term relationship between two humans. But one party dominating or abusing the either is not a good basis for such a relationship.
I suspect it's also true as another comment noted, that mutual free trade is necessary but not sufficient. As the old saying goes, "No nation has friends only interests." So if a core national strategic interest (e.g. "Taiwan is part of china" from the Chinese government's point of view) comes into tension with the idea of mutually beneficial trade, it's obvious which one will make way for the other.
Maybe there are some folks around here who still believe in liberty and are optimistic about technological progress.
It's not wrong, either. It's just imperfect. Like any IR theory, it's only a partial explanation, and things beyond the theory's scope happen.
In fact, it's a fairly good theory. Autocrats want to survive. Which means they don't want to get sanctioned and cause a recession, because they fear protests.
Other factors can often overwhelm that -- again, the theory isn't perfect.
Is a free market even possible with an top-down, authoritarian, surveillance state like China? They even describe themselves as a "socialist market economy", which is pretty far from what economists would call a free market.
I'd argue that from the outside, the only agency we have is to give an authoritarian state more customers. That might be liberalizing, or it could just empower and entrench the status quo. A debate about this might be more relevant to current times.