04 December 2016

So why was the TPP so important to Obama?

This has been bugging me for awhile; Obama is widely reputed to be a smart guy, and certainly has way better information sources than I do. So if they're strongly for something I think is an obvious bad idea, I tend to wonder what I've got wrong.  (The TPP is, or was, obviously a terrible idea; extra-national profit-guaranteeing tribunals?  Urgh.)

And then the clue hit.

About four-fifths of the value of the US economy is IP of some kind.  It's very hard to tell how much of that is the intangible output of creatives -- new music, new design, new chemistry, materials, medicine, and biology -- and how much is rents extracted by the power of the American empire.

So let's consider a piano.  A piano is nigh-useless unless you know how to play it -- which someone smart can figure out -- and without the music you play on it, which is an accumulation of skilled people over time.  If you lose the accumulation, you can't get it back; it's contingent on events.  (If you restart the universe, you don't even get humans; you certainly don't get Bach's music.  If in ten thousand years your rising civilization finds a pipe organ in a buried hockey arena and builds a reconstruction, no one is going to re-invent Bach at that remove, either.)

So there's a bunch of questions about what should be charged for the music (above and beyond the material costs of making copies) and who gets the money.  There's also the question about what you pay a performer and what you pay a composer of new music.  (What the piano tuner gets paid and whether it's worthwhile to make more pianos and how much effort you put into making better piano wire for strings are all defined by the answers to that first set of questions.)

Those answers are cultural.  Which means contingent; the answers we have now are not the answers we would get if we did it again.

The current answers greatly benefit the US and somewhat benefit the satellite states of the unofficial empire; that's for a lot of reasons but that state persisting in the present comes down to "change is risky and the current situation isn't intolerable".  (Establishing the current answers is some mix of a very strong economy, getting nuclear weapons first, and being the only non-devastated major combatant at the end of the Second World War.)

I think it's really hard to tell how much of that four-fifths-is-IP is rent extraction.  I very much doubt the people doing economic intelligence for the Obama White House cannot put a number on it, or that the number isn't tolerably accurate.  Is it half?  I could easily believe half.

Anything that forces change leaves the situation open to ending up who-knows-where.  And wherever that is, it's worse for the US.  The TPP was a means to make significant change more difficult so it was less likely.

Completely open change as the current trade arrangements -- which are certainly showing both economic and political strain -- fail is nigh-certainly going to be produce something systemically simpler.  The influence of the US will be greatly reduced.  (It's much much harder to recreate a position of military dominance without the empire's economic dominance than it is to have a historical condition of military dominance acknowledged as persisting while the economy which created it persists.  Guns don't turn into butter.)

The greenback ceasing to be the reserve currency with no replacement available isn't good.   Two fifths of the value in the US economy going away in a short period of time -- rents the empire is no longer able to exact -- doesn't have an adjective.  Even one-fifth, because the current long supply chain situation doesn't have a graceful way to shorten the supply chains or collapse into domestic production.  (Compare the US domestic production of shoes with demand, just as a for-example.)  A depression is what happens when the mechanism is all there and the price signals get messed up.  This would be what happens when the mechanism collapses and has no immediate replacement.

Obama's basically a conservative.  Given a choice between trying to create a new set of economic mechanisms, and trying very hard to be sure the current set will persist, of course Obama would pick "persist".

Trump's approach looks like it's going to be status-quo-by-autarky, aka the worst possible choice; the status quo depends on the empire (which autarky abandons unrecoverably) and the autarky removes anyone else's interest in the "mutually beneficial" part of any new trade structures.  (Trade is a good thing as a means to greater general prosperity.  The problem isn't the idea of trade, it's using the necessity of trade as a means to obtain a political guarantee of profit that's the problem.)


Max Osman said...

>The greenback ceasing to be the reserve currency with no replacement available isn't good. Two fifths of the value in the US economy going away in a short period of time -- rents the empire is no longer able to exact -- doesn't have an adjective. Even one-fifth, because the current long supply chain situation doesn't have a graceful way to shorten the supply chains or collapse into domestic production. (Compare the US domestic production of shoes with demand, just as a for-example.) A depression is what happens when the mechanism is all there and the price signals get messed up. This would be what happens when the mechanism collapses and has no immediate replacement.

So 30% unemployment?

Graydon said...

+Max Osman

I was more thinking "gasoline goes out of supply"; unemployment implies a functioning economy with some kind of pricing problem. A value collapse like that wouldn't leave anything-much functioning.

There'd be lots of plant, and it'd be materially fine, but the ability to do the price-based stuff like orders and paying your accounts would be at the bottom of the metaphorical smoking crater. It would also not be the *right* plant; no one in the US makes LCD panels, for example. (How well does anything keep functioning after you delete a fifth of it at random?) (And, shoes. The US needs way, way more shoes than it produces. Starting shoe production, well, that'd be interesting in the midst of nothing working and not knowing what to order or who makes the necessary machinery or the special foam for the midsoles or... Disrupt a long-term nuanced supply chain *just a little* and you can lose an industry.) Doubtless several critical five dollar parts required to keep agriculture functioning, too.)

A really determined and lucky response from the central government could conceivably keep things on the rails, but all I can imagine a Trump administration doing in response to "there is a problem with the money" is doing its entire best to enact a fully convertible currency at 20 USD per troy ounce of gold.

Max Osman said...

>I was more thinking "gasoline goes out of supply"

So no gas to be had anywhere?

Graydon said...

+Max Osman

Gas stations typically have about three days' supply. They order more on a credit system.

2008 was what happened when the investment articulation of the banking system goes down; lots of people lose savings, there's a big blip in construction so people lose their jobs, and so on. It's not what happens when people and businesses lose access to credit. Take out a fifth of the economy via long-supply-chain-and-IP-value problems and you likely lose general access to credit (at least significantly and regionally but the banking system is so concentrated and integrated now I wouldn't bet against generally) until some other system can be stood up.

That general loss of credit access is part of what happened in 1929; much more of the economy was in cash, and a much larger fraction of the population was still on the farm. (Where your food supply problems aren't quite so immediately pressing.) It didn't happen for long and it didn't happen everywhere and it still made a huge mess.

Today, well, there are gas stations that don't *take* cash. They certainly don't get supplied using transactions involving cash. They're nearly all franchises or owner/operators, rather than owned by the parent corporation (which could decide to do the accounting internally and worry later).

So I think there will be plenty of gas close to the refinery, but should the mechanisms of credit fall over for a week or so, there won't be any you can buy.

Anonymous said...

Thanks, that's the first reason that actually makes sense. The TPP has some excellent features for limiting (somewhat at least) environmental and human rights abuses in the developing world, which would both definitely be nice, but is otherwise drastically terrible for anyone except massively wealthy IP holders, and so it never made sense why Obama was so fervently for it.

As for the Dumpster, his goal (insofar as he has any goals beyond constantly seeing his name in the press - one of my partners has correlated his more extreme tweets and similarly bizarre actions with world events like Castro's death taking him off the front page of the NYT) may be autarky, but that's definitely not the GOP's goal, and so success along those lines will prove difficult by any means other than sufficiently belligerent diplomacy that drives away trade.

I'm also betting that too much of that and Congress will impeach him (a trick made trivially easy by his astounding level of conflict of interest and foreign investments). That fact half makes me wonder if he wants to get impeached so he can get on with creating his TV network of crazed hate, but I suspect he's too much of a narcissist to want to ever give up the spotlight that being president provides.

In short, I'm betting that Michael Moore is correct about the Dumpster's fate in office and that before the end of 2018 (if not well before) we'll see President Pence, which is its own horror-show, but a rather less apocalyptic one - assuming his personal brand of Dominionism doesn't include starting massive Middle East wars to usher in the "End of Days".

Max Osman said...

Have you read the global minotaur by Yanis Varoufakis?

Graydon said...

+Max Osman

I have not!

Though I have read Jane Jacobs' Cities and the Wealth of Nations which allows one to reach the same conclusions by an alternate route.

Graydon said...


I don't think Trump will leave office early. (Not alive, anyway. He's not especially healthy for his age.)

The GOP no longer exists. It's a lot easier to model this as a takeover by the Confederacy; an authoritarian slave-holding police state with no women's rights run by an unofficial aristocracy in it for their own material fortunes. Not good at logistics but very good at propaganda and identity politics.

The people around Trump want submission; they're not going to get it. (China as a modern state exists to not submit to foreign powers!) How stupid they manage to be demanding it, well. That could be interesting.

The current Congress especially will not impeach; there's been going-on-two-generations of "the only legitimate president is a republican president" and they're not going to give that up. It's not likely that it's going to be "drive away trade"; it's likely going to be "trade ceases" and then the authoritarian reflex in disaster is to obey. Plus Pence has a list and they need another six state houses to rewrite the Constitution, and that's going on for _four_ generations as a goal where Pence is coming from. They're not going to risk that by putting Pence into the Oval Office.

Anonymous said...

That's a good description of a good bit of the Republican Party, but it ignores one crucial section - the money. The billionaires behind the GOP - the Koch Brothers and the rest are as far as I can tell, astoundingly greedy individuals who want power, all the money they can get and a state based on brutal social darwinism. They also make large amounts of their money in international trade of various sorts, much of it with China. Cutting off or even significantly reducing trade hurts them in their wallets, and that won't go well with them.

These people are pretty much the only reason every Republican candidate (except the Dumpster) has for almost the last 20 years talked about privatizing or getting rid of Medicare and Social Security, despite the fact that the vast majority of the populace want both of these left alone. They have staggering amounts of power in the Republican Party and most of the Republican Congress (with the notable exception of some of the Tea-Party fanatics) dances to their tune to as much of an extent as they can and still get re-elected. No trade isn't an option for these people, and so I'm not seeing that happening.

Graydon said...


That's certainly the historical reason the GOP supported some approximation of free trade, yeah.

However, the billionaire-backed candidates all got beat by Trump in the primary. Trump is not beholden to any of the right-wing billionaires and (because Trump works on patterns of submission like woah) hates and fears their attempts at control. Pence is not beholden to them. The collection of third-string nutcases forming Trump's cabinet is not beholden; they're mostly goldbugs and "tough stance on China" crazies because it is intolerable to them that China could ever argue with the US about policy.

Ryan is Speaker (and insecure) because the Tea Party can remove a speaker, and, yeah, the Tea Party was originally astroturf but it isn't anymore. And the autocrat does what they say they're going to do.

So I expect Medicare and Medicaid are gone (Ryan's price for supporting Trump); I suspect the "get tough on China" policy will be followed off the cliff of China withdrawing diplomatic recognition of the US and the general ghastly trade-war consequences. (This will hurt in China, too, but the people running China will have a plan for it. And "not submitting to foreign control" is a huger deal there than in the US.)