Bengal tigers exist, dragons don’t
How we are looking at things wrong
All empires must die. In our view, the US is now in decline, and has been losing muscle mass since 1999. Of course, a national renewal is not out of the question; a few major policy changes — major cuts to Social Security, Medicaid, and the Pentagon, balanced budgets, a solid dollar, honest interest rates, and a more modest foreign policy — could restore real growth and prosperity. But for now, if there’s one thing our elites all agree about, it’s that no major changes are urgently needed. They like the system as it is. No redistribution of power…or money…required. — (Bill Bonner, reckoning today from San Martin, Argentina…)
THE CASE AGAINST CHINA
By now, the decay of American power is almost a self-realising prophecy. Empires are not nations or kingdoms or republics. They could not be normal. And in doing so, they age, they overextend, they spend too much, they fight too much. Much like a celebrity or a chairman, an empire needs to act like an empire — and it is compelled to do so. And the more one has to demonstrate, to flaunt and control, the more likely they are to have misplaced their power and influence. Taking the position for granted, the empire slumbers soundly, until another being comes to poke at it, not fearing that its old age and bad shape would spell doom once a worthy opponent comes along. Debt, inflation, war, social strife, political instability, crisis, and more disasters eventually ensue. The empire is no more.
As a result, many have look to China's overwhelming economic growth as the indicator for its resurgence as the ruling empire of the world, which it had been for the majority of the last 5 thousand years. There is, indeed, no doubt about the rise of China, as Ray Dalio's schemes so remind us. Education, competitiveness, financial centrality, trade, military, output, innovation and tech, reserve status — such are the factors considered, and they are powerful indeed. But is that reason enough to believe it will take over for another century-or-so of hegemony?
I do not think it is. There are many factors lacking in this story, some of which the Party has been trying to course-correct, some which they have not. It is thus that I will discuss each point briefly:
- Firstly, we might consider that economic success does not begin and end with cash flow. And on the stock-front, America is far from outdone. We might consider the proposition of inclusive wealth. That is, the total assets of a given unit, not their income, their revenue or their production — their assets.
- Still on the economic front, it is clear that the growth seen in the last decades-or-so is not sustainable. As the Party has abandoned the sole focus on growth, it is clear that maintaining a grip on power and promoting the so-called "common prosperity" has taken hold of the agenda. Should we see increasing economic intervention in that country, it is very much possible we might return to the economic days before Deng Xiaping.
- Further down the line, China is also in the middle of the global demographic roller-coaster, while its regional rival and fellow populational powerhouse (India) is at the back seat. It should be said that the historical dominance of the Middle Empire was always greatly owed to it having the largest population. Should that no longer be true in the future, India would have the very same reason to take over.
- The population problem is further reinforced by youth unemployment, the bai lan ("let it rot") mindset, the planned and unplanned childlessness and more pointers.
- Also on the demographic point, China is already an urban country, while the bengal tiger neighbor is not. This is important for two reasons. The first is that urban settings are closely associated with lowering birth rates. The second is that, thanks to the one-child policy previously enforced by the Party, there is a significant sex imbalance in the Chinese urban setting.
- To more specific issues, China has elected to pursue what may be the most (or one of the most) costly — financially and politically — anti-COVID policies in the world. This may still have lasting impacts in Chinese politics and economy — and should this lead to political change, it is very much possible it could lead to the growth of Chinese power, but alas it is more likely to lead to pointless bloodshed and crisis.
- The real estate market of China is, by most analysts views, overextended. Entire ghost cities are left to what may very well be a financial bubble — or, at the very least, a problem for the traditional method of saving for the Chinese population (and the State, which continues to inflate this market, amongst others).
- Still on finance, a currency has to become trustworthy if it is to take over the world, and the Chinese Yuan is not transparent even on its official monetary policy. Furthermore, the search for dollar alternatives does not implicate exclusively a shift for the Yuan. So, while investors may currently look to the Yuan, consumers and companies should not be particularly trusting of its commercial, accounting and asset values. After all, domestic control, stability and industrial interest would obviously continue to trump international matters for China. In this topic, it should also be noted that even Ray Dalio's analysis points an insignificant reserve status — though, to be fair, it presumes that is still to come.'
- On the side of planning and infrastructure, China now faces losses and depreciation of its all-too-dense railroads, for instance. Abroad, multiple projects financed with Chinese credit and resources towards the Belt and Road project — and others — have been "falling apart”.
- Having noticed the point we are at (at last), the USA has moved (as slow as it now is) to respond. Both parties of that country have by now mostly abandoned the ludicrous "business as usual" policy. However, as I have argued, there is nothing to be won, only to be lost in this conflict — for both sides. All parties involved may lose, and an external entity may seize the stage then. The USA would perform better if it were to roll back the empire of its own accord, evaluation the true value of one or another position, so as not to fight meaningless battles. That would, however, take much modesty and an admission of the end (or, at least, pause) of the empire. Such things have been rarely seen by most countries, and already-decrepit empires have had extra difficulty taking this stance; and so I do not believe that is a likely outcome here.
While China watches closely the action unfolding on Russia’s western border with the Ukraine, and the subsequent response of western governments, it’s no secret that the sleeping dragon has one eye on the “Island of Formosa,” Taiwan. (Joel Bowman, appraising the situation from Buenos Aires, Argentina…)
- Moving further to the outside, we might observe the case of Taiwan, which is now being tested out by proxy in the war for Ukraine. There is little to no doubt that this seems to be the point when the eagle and the dragon will have it out. And it does not matter if we have Smaug, fellbeasts or the great eagles; the end point should be massive losses. And this is an important point, as it would appear that the USA will not be surpassed, but rather that it will be crippled alongside its rival, inclusive wealth and all. That is, if armed conflict actually erupts.
- On a smaller note, North Korea remains a massive liability for geopolitical discussion and maintenance of regional stability. Whilst China remains as the parent, it is likely it will continue to see people staring at the unruly kid. Furthermore, as North Korea inevitably fails, it may fall on China to sustain it, as the USSR once did for Cuba.
To end this first case, I would cite The Economist:
China’s slowing growth and accelerating demographic decline have cast new doubt on its economic destiny. These trends have delayed the date when China is expected to become the world’s biggest economy. And some now think the day will never come. When Khrushchev’s regime declared that his generation of Soviet citizens would live under fully realised communism, a speechwriter joked that the slogan “would last for centuries”. The Soviets were 20 years away from utopia and always would be. A similar sentiment is now being expressed about China: it is 10–15 years away from overtaking America — and always will be.
THE CASE FOR INDIA
Having made the case against China, it should be easy to see the little ember of elements in which it is outdone, not by the USA, but by its neighbor: India. Population trajectory, urbanisation and one might say even the young's mindset — though I cannot speak to that as much.
India, of course, is also far from surpassing the USA's massive inclusive wealth and GDP, which seems plausible to change only with outrageous economic destruction both for GDP and inclusive wealth of the sino-american part. It should be said indeed: it appears India has no hope, economically speaking, of becoming the empire. And that remains true even if we also consider the rise of India on Ray Dalio's criteria, for instance. As an example, India has outdone China and the USA in the share of GDP for which trade accounts for more than a decade by now.
The scenario does not improve if we take into account Indian politics. India has endorsed socialism on the side of economic central planning. The Permit Raj, as it became known, would put most countries to shame in matters of slow and inefficient bureaucracy. Needless to say, bad systems and incentives make place for corruption and work-arounds. Stifled internal enterprise, a protective market and consequences explain much of what is still a stagnant, sleeping, bengal tiger.
Hindustan motors, much like India, has lost itself the opportunity of a lifetime: the economic prosperity brought about in the second half of the 20th century. Japan and Toyota, on the other hand, have been most prolific with it — and even China by the end of it. Let us take a look at what has happened:
- The USA entered the second half of the last century behaving like a true empire. It soared consistently, and its slowing is doubtful for most anyone, which would find wise advice from Warren Buffet: "Never bet against America". One might even observe this is not old advice, on the contrary. And on that note, I must add that I do find difficult to agree with anyone that proposes American companies will begin to colapse any time soon. But the empire, that is another matter entirely.
- China has not had the same trajectory of a rising-star as America, the British Empire and others before them. There is no steadiness to its growth. It is great, no doubt, but it is also new and unsustainable. Not only that, but we should find hard to fully believe official results, given results in this area of research:
I find that the NTL [night time lights] elasticity of GDP is systematically larger in more autocratic regimes. This means that the same amount of growth in NTL translates into higher reported GDP growth in autocracies than in democracies. This result is visible in a simple comparison of the average growth rates of GDP and NTL across political regimes, in panel regressions with country and year fixed effects, and in event-study specifications exploiting transitions into and out of autocracy. My main estimate of σ suggests that autocracies overstate yearly GDP growth by about 35% (i.e., a true growth rate of 1% is reported as 1.35%).
- It is clear Japan grew steadily into the 1990s. However, arriving there it has began to face problems ranging from its front-row seat in the demographic roller-coaster to its monetary sustenance of what might as well be called a zombie economy by now. Having taken advantage of past growth, Japan is an example of a country that lays out a great policy case (as the saying goes, there are 4 types of economies: developed, developing, Japan and Argentina). It is a case for a wealthy and healthy population that, however, faces more complex problems having solved economics' more basic questions.
- India, on the other hand, has not followed this path. It began to show signs of growth after moving away from the Permit Raj, but it is still not free from the shackles of corruption and inneficiency. One might observe that India is perceived to be only slightly less corrupt than China and Brazil. Close to this nations, it is a world away from the USA. However, its demographic backseat, energy potential and motivation, infrastructure creation make it a strong case for this century. One might even say the oligarchy and ruling class might not be keen to watch a heatwave, poverty and conflict lay waste to the power grid, create mass death zones, cripple law and order and, by then, turn that country into an apocalyptic middle age — as would suggest the novel version by Kim Stanley Robinson.
That being the scenario of past events, India has a prime real estate position, as stated. As with the Chinese growth spurt, India offers cheap labour, which proposes productivity from the sustainable and trustworthy fronts of new energy sources, education and infrastructure.
Should India in some capacity achieve some sort of success against its institutional misgivings, its cultural prejudice, its problems with Pakistan and China, its women workforce deficit and other things; there is a clear scenario for regional domination, which may put India in a similar situation as the then-poor England during the beginning of the Dutch Empire. We may see America supporting its empire, we may see a short-lived Chinese empire or we may yet see other circumstances — after, all, there is no nomological law commanding the existence of the empire in a way or another. We might observe, for instance, that the American continent was fractured into regional empires of low development for most of its history. On the same vein, Europe was left without the universal empire from the Fall of Rome to the rise of the Dutch — the Franks, the HRE and the Byzantines hardly deserve to be considered as the empire. Africa looked like the other side of the Atlantic on this matter, and Asia devoted itself to being the creator of imperial Chinas, imperial Persias, imperial Indias and, of course, the Mongols. We should observe that these last imperial mantles were short-lived, unlike the more recent European empires, the main Chinese dynasties and, of course, Rome. The empire must not end on conquest, production or trade, it begins there.
Considering all that has been put forward, we must consider: bengal tigers exist, dragons don't. But, if they did, dragons would obviously be much more powerful. And, with that said, I would like to quote from a fantasy story video I much enjoy, which explains in some sense why certain powers cannot be:
He tries to animate nostalgia into an immortal fantasy, but the tragedy of nostalgia is that the feeling itself is an admission of things lost. By dreaming backward, we accept that the fantasy has already died. Our relationship with it will never be the same again.
And so it goes with every fantasy we create, every fantasy we experience.
To stay forever is to die ourselves — otherwise we always have to return from it, and in some form or another, the fantasy must die.
