Newsletter 6: Neflix Declines, Jan 6 Bottom Line & Profits/Inflation

In creating my Locals.com account and my Substack site, I do have long term objectives.  First, I wish to present, through my newsletter, white papers, books and discussion, an objectively supportable world view.  Second, by virtue of our objectively supportable world view, we will come to a superior knowledge of and vision for futurity.  Third, I hope that the audience, shared by an impressive roundtable of polymathic, public intellectuals, will transform into a constituency for a Polymathican subculture that has central principles of intellectual sophistication and lifelong learning.

I am building the business model as 'fee for service' rather than advertisement supported.  There are several reasons for that.  First, an ad based business model actually decreases the percent of total revenue that accrues to the content creator.  Google is among the worst, using some misleading calculations to imply that the content provider receives 50% of generated revenue.  Even if that was true, it does not compare favorably with the 70% or more that content creators receive on fee for service platforms.

Second, the content creator is providing a service of value.  It is on the basis of that value that they should be compensated. It should not be based upon their ability to sell T-shirts, insurance, electronic devices, etc.  Third, the attitudes of the advertisers can influence the content.  Why should they get a vote?  Many Youtubers complain that they are being demonetized, when, in reality, the problem is that advertisers do not agree with the message and, consequently, choose to advertise elsewhere.

The current business model at Patreon, Locals, Substack etc. is to have 'true fans' fund the operation.  This encourages the content creator to place most of their content behind a relatively expensive paywall.  I think that $60 per year or more is too much, but that is how the platforms are currently constructed.  My goal is to eventually set up a site where content creators can get 5X the audience at 20% of current prices and come out even.  That benefits both the content creators and the content consumers.

The Decline of Netflix, et al.

Recently, Netflix informed its employees that "We let viewers decide what's appropriate for them, versus having Netflix censor specific artists or voices."  It went on to say, 'If you'd find it hard to support our content breadth, Netflix may not be the best place for you."  This set off a firestorm, with many people rejoicing that, officially, Netflix refuses to put their programming decisions through a 'woke' filter while others were scandalized and threatened to quit or unsubscribe.

Most observers likened it to the wholly pragmatic Michael Jordan quote that, 'Republicans buy sneakers, too'.   I confess that I suspect that Netflix would have reacted less aggressively, if David Chappelle, the comedian whose comments in a Netflix special sparked the controversy, was not such a huge money maker for them.  Still, like Elon Musk, I support the Netflix decision to not let a minority sensibility dictate the programming intended to appeal to the largest market possible.

However, this is only a temporary fix.  A demographic earthquake is about to level the industry.  It will be one of a series of transitions that, in the end, will contribute to the fragmentation of EUNA (Europe and North America).  People do, in fact, respond to ideological issues through their content consumption, even when entertainment is the primary goal.  However, market forces are generally more powerful because they are more personal.

Internet based streaming services began with Netflix and, over time, Hulu and Amazon Prime, emerged as competitors.  Today, the market has expanded with many smaller streaming services.  There are exceptions, of course, such as Viki.  However, most are still attempting to seize the mass market.  However, in the longer term, more targeted streaming services will come to dominate.  While Netflix may remain the market leader, catering to the largest market segment, it really has little opportunity to reverse a long term trend of market share loss.

The reason is simply because there is significant diversity in personal preferences in streaming services.  Often it is just the traditional differences of romcoms vs. action films, etc. but it also can be a reflection of differences in intellectual abilities or cultural values.  While 'Leftish' consumers may see a proliferation of LGBTQ+ characters as a positive, for many 'Rightish' consumers it may make the content unappealing, not because they are bigots, but because they don't related to the depicted social environment.  The net result is that many people, whether Leftish or Rightish, have little or no interest in most of the offerings of Netflix, Hulu, Amazon Prime, etc.  Consequently, while a person may pay for over 100 different offerings, series, movies and documentaries, they may only be interested in 1/4 or less of them.

My readers and I tend to be intellectuals and lean toward Apollonian values over Dionysian values.  Also, intellectualism matters.  One of the reasons I liked 'Gilmore Girls' was because Yale graduates talked like Yale graduates, even though that meant that they used many words that most people don't know.  I prefer Science Fiction offerings that don't hit me over the head with bad science. 

So consider, a streaming service that provides an equal number of offerings as Netflix but is skewed toward Polymathicans.  Rather than less than 1/4 of the offerings being interesting, perhaps 3/4 are.  In other words, this more targeted streaming service will have a perceived value that is 3X greater than Netflix but at approximately the same price.  For us, Netflix can't compete.

In the other direction, the more customers a streaming service has the more offerings it can afford to make without materially increasing its costs.  This economy of scale limits how many streaming services will be viable.  However, streaming services are cheap enough that people typically have more than one.  So, a Marxist/Feminist streaming service may offer few content options, but the far greater cultural richness for the target market, combined with a larger 'progressive' streaming service of broader appeal may find success.

Another complicating trend is the emergence of the rental and purchase options for specific shows and movies.  A reasonable future consumer behavior might be to purchase first run offerings and then to subscribe to a targeted streaming service for culturally comfortable reruns.  Direct to streaming 'video novels', at 35USD per 12 hours of content, will likely supplant movies that typically sell for 15USD per 1.6 hours of content.

So, while Netflix is trying to deal with the pressures of a rapidly segmenting market by eschewing strong cultural signals in its content, in the end, the multiplicity of market segments will win.  An obvious reaction to the Netflix rejection of woke-only content is that a woke only streaming service will emerge.  This will be a watershed event in the process.

R.E. January 6, Pay Attention to the Bottom Line

We are now in the middle of a January 6 presentation and this has placed the 2020 U.S. Presidential election front and center.  The Republicans have charged that it nothing more than a 'Show Trial'.  Even some Democrats have said essentially the same thing.  That charge is not without merit.  When the committee was first formed, Minority Leader, Kevin McCarthy, as is the norm, appointed Republican members.  Speaker Pelosi rejected them and appointed two hand picked Republicans of her own.  Consequently, the current activity is  properly called a presentation rather than a hearing.  It is a carefully crafted by Democrats present evidence that benefits Democrats and is devoid oft any opportunity for rebuttal or refutation by Republicans.  It was produced by James Goldston, a former President of ABC News.  In other words, it more closely resembles '60 Minutes' than a House hearing.

One might very reasonably question whether the presentation is fair.  It clearly is not in the sense that the obvious target is former President Donald Trump and he, quite contrary to American principles, is being denied the opportunity to face his accusers.  He has no opportunity for cross examination.  There is no opportunity for discovery.  In other words, the presentation contains a subset of all evidence and neither Trump nor sympathetic media is allowed to view the evidence in its entirety to determine if the evidence has  been selected to present a biased interpretation of the facts.

The Left Silo, obviously, is pushing very hard on the narrative that there was a conspiracy to engage in insurrection.  The Right Silo is skeptical.  I strongly suggest that my readers who want to have an opinion on January 6 should read both the Left Silo and the Right Silo.  I, actually, do not intend to delve into the arguments on either side, either in support or in refutation.  Rather, I am going to pay attention to the bottom line.  What was the result of the event and which side does it favor?

If January 6 was, in fact, a Right Wing plot, it was a truly boneheaded one.  All we need do is put ourselves in the room when the plan was being hatched.  How did they see it going down?  A large number of unarmed rioters would burst into the Capitol building and be confronted by armed Capital police and, perhaps, National Guard.  The members of Congress, who were either presenting or listening to evidence of election improprieties, would be spirited away.  In some fairly short period of time, the mayhem would be subdued and the Capitol cleared.  The House would be called back into session and the process would continue, with or without, a continuation of the presentation of objections.

As it turned out, the hours of presentation of evidence was cancelled, the House went directly to a vote and the Biden Electors were ratified.  So, the bottom line is that the Trump supporters who were planning to present evidence of election irregularities didn't have the opportunity to do so.  Yes, there was a short delay in ratification, but mostly shutting up the Trump supporters was the only significant result.  Instead of reading hours of evidence purportedly supporting the charge of a stolen election into the Congressional record, they went directly to a vote.  So, in that sense, rather than delaying the ratification, it sped it up.

Now, we are meant to conclude that Donald Trump and some of his advisors orchestrated the riot.  My reaction to that is that while anything (almost) is possible, it would have been very stupid for them to do so.  It did not benefit them in the slightest and has proven to be a PR nightmare.  Furthermore, there doesn't seem to be any possibility of a positive outcome.  Are we to imagine that the intent was for this unarmed group to enter the Capitol building and hold the Representatives hostage until they agreed to not seat the Biden Electors?  The alleged scheme makes no sense on any level.  If Trump or any of his key advisors had been involved in this plot, they would have stopped it.  It was so clearly total folly.  Many of them believed that the election had been 'stolen', however, this plot, no matter how well executed, was in no way remedial.

Again, I'm bottom lining this.  I am not arguing for or against the quality of evidence for election irregularities.  However, the only significant result of this event was that several hours of evidence supporting election irregularities was not presented.  Once the situation was resolved, the House resolved to halt testimony and go directly to ratification of the election.  That was a benefit to the Democrats, not the Republicans. 
 

For all of the 21st Century, every time a Republican won the Presidency, some Democrat Representatives objected to the seating of Republican Electors and they presented evidence.  Every time a Democrat won the Presidency, some Republican Representatives objected and presented evidence.  This was not the unprecedented behavior.  Rather, it was routine and the MSM did not make a big deal over it in the past elections.  This time was different and the Left Silo behaved differently and implied that these objections were not the norm.  That is because, around 40% of Americans believed that the results in key states had been 'stolen' and the Right Silo MSM had become large enough to matter. 

Furthermore, more than any time in the past, save for, perhaps, the charges that the Democrats 'stole' Illinois in the Kennedy/Nixon election and that the Republicans 'stole' Florida in the Bush/Gore election, for the first time, there actually was a mountain of evidence that many fair minded people may have considered to be dispositive.  In other words, if the presentation of evidence in the Congressional Record was allowed, the Democrats were at risk of losing control of the narrative of the 'Big Lie'. 

The Democrats still have a problem.  It certainly appears that the Republicans will take over the House in 2023 and with a very large contingent of Trump supporters.  At that time, if they can't derail it, they will likely find that they will be the target of a House inquiry into the January 6 event with the intent to establish culpability on the part of certain Democrats.  Additionally, it is quite possible that the MAGA Representatives will be powerful enough to present their evidence of a stolen election.

Again, I emphasize that I am not attempting to support either the 'Big Lie' or the 'Big Steal' scenario.  I am agnostic with regard to who would have won, had the 2020 Presidential election been a perfect one.  Rather, I am generally of the opinion that the evidence simply does not exist to make a determination of which candidate 'wone'. This article is about who is going to own the narrative and what the sides may or may not have done to own it. 

I do believe that if the U.S. is to be taken seriously as a liberal, representative democracy, it really needs to clean up its election process.  However, that is a different article that I will publish in the future.

Corporate Profits and Inflation
Recently on one of my social media threads, someone implied that inflation is increasing because 'greedy corporations' are increasing their prices in order to increase corporate profits.  I can see why that may seem right, and the Left and Right Media don't contradict the inference.  It is, however, mostly not correct. Like nearly all issues of any significance, inflation is causally multivariate and not just a little bit so.  While 'X causes Y' is, in a sense, calming and fits easily into a twenty second sound byte, it is also rarely true and the desire to believe in simple answers can be used to manipulate an audience.  Both Silos, whether represented by a pundit, politician or professor, often will take advantage of this desire to simplify.  On the Left, it is manifested in the 'Putin price hike'.  On the Right, the canard is that it is all Biden's fault.  Both are, actually, components of the current acceleration in inflation.  However, neither is the predominant reason.

At the outset, I want to make it completely clear that I am not an apologist for corporations.  I worked in that environment for decades and frequently observed reasoning that caused me to think, 'Well, that just isn't right'.  Also, large corporations are run by people with graduate degrees.  In the business schools, students are indoctrinated with 'stakeholder theory'.  This is the idea that enterprises must first be good corporate citizens, beholden to customers, employees, vendors, local governments, etc. in addition to their traditional, fiduciary responsibility to maximize risk adjusted shareholder return.  However, they are people who, just like most people, want to provide well for their families.  They are remunerated by salary, but also by stock options.  So, it is a bit like Animal Farm.  All animals (stakeholders) are equal, but the pigs (shareholders) are more equal.

It is absolutely the case that money supply times velocity plus or minus change in net savings, defines the supply of money and it establishes the supply portion of supply and demand in the inflation equation.  In other words, if the supply of money increases by 5% but production of goods and services remains constant, there will be 5% inflation.  However, all of these factors have feedbacks, so it actually isn't that simple.  Having said that, it is still generally the primary cause of inflation.
 

Of course, there is scarcity inflation as well.  Recently, oil supply fell in relation to demand and the price of oil increased.  Because oil is a component of nearly all products and services, prices generally went up.  The Right will often suggest that if the price of oil goes up and there is no increase in money supply, the prices of everything else will go down.  That, actually, isn't what happens.  Rather, the demand for everything else goes down and we end up with an inflation driven recession.
 

The Federal Reserve and other central banks do not want to instigate a recession, so they do increase money supply.  However, there is another factor; the Federal government can have a deficit equal to the nominal increase in GDP with no consequence as long as the Central Bank buys the bonds necessary to fund the shortfall.  On the other hand, if the deficit is too large, and the Central Bank buys all the bonds, the money supply so created will exceed the banks' targets and inflation will grow above the optimal rate.  This is the primary reason for the current inflation.
 

The relationship between inflation and corporate profits is a complex one.  Obviously, if scarcity pushes up the price of oil, the oil companies will earn more money.  That, however, over the long term is usually compensated by the lower profits caused when prices fall.  That assumes that markets are perfect and they are not.  Profits in an industry can be higher than one would expect if there are barriers to market entry and that measurably restricts market entry and, thus, competition.  This creates a cartel effect.  In a industry with low barriers to market entry, if profits increase, competitors will emerge that will undercut prices and bring profits back under control.
 

As a general statement, corporate profits are going up over the long term.  That is partially due to growing economies causing growing profits.  However, it is also due to the long term trend toward more automation.   Corporations are always looking for ways to replace high cost employees with lower cost machines.  There are limits; the cost of the machines must be less than the savings from reducing labor.  If not, the corporation will experience lower profits and they would not knowingly do that.  In other words, if the net present value of the machines is one million dollars and it saves five hundred thousand dollars in labor, the automation will not be done.  However, if the net present value of the machines is five hundred thousand dollars and the labor savings is one million dollars, the enterprise will buy the machine and profits will increase by five hundred thousand dollars.  Because corporations generally do the latter but not the former, in general, corporate profits are increasing.

There is a persistent trend for the global economy to become more automated and will likely do so at an accelerating rate over the next 30 years, corporate profits will also increase. Because the costs of the machines, including the necessary increase in profits, must be less than the cost of the labor that they replace, the profits go up by more than is required and those excess profits typically are used to lower prices and increase market share.  We know this because in the 1990s and 2000s, as the manufacturing costs of electronics fell, competition did result in quickly falling prices.  Simultaneously, stock prices started soaring because the resulting corporate profits were increasing dramatically as well.  

There is a component of both the Right Silo and the Left Silo that will portray a future world in which AI and advanced robotics do everything.  They imagine a world of nearly 100% unemployment with just a handful of people who own everything.  This is called the Luddite Fallacy.  It has been around for 200 years and it has never been true.  I will discuss this in great detail in an upcoming book, 'The Death of Capitalism: Information Age Economics'.
 

If you have not already done so, please register for MichaelWFerguson.Substack.com and Polymaths.Locals.com.  Also, please like and share. My long term objective is to create educational, career, research, social and lifestyle options for Polymathicans.  The primary impediment to accomplishing that goal is lack of exposure.  A couple of your clicks will take only seconds, but will benefit you in the long run.h

Newsletter 4: Energy, Davos, Income Inequality

MichaelWFerguson.Substack.com grew 72% last week.  While that is impressive growth, the subscriber base is still very small in absolute terms.  It needs to be much, much bigger if it is to disrupt the Left and Right narratives.  That is my goal.  They both need to be disrupted.  They both tell a self-serving story rather than the truth. 

Growth is usually comprised of a linear component related to general exposure and an exponential component related to virality.  Consequently, I am not sanguine about our growth without some sort of promotion.  I have tried Facebook ads and the cost per new subscriber is prohibitive.  So, I still have a challenge in front of me, if our readership is ever to become large enough to matter.



Oil & Gas Now, But Geothermal Is the Future

With oil prices way up and supply threatened to be constrained by political tensions, oil and gas are definitely a major topic in both the Right and Left MSM silos.  However, neither are getting the story correct.  The short term solutions to crushing energy prices are different than the long term solutions but neither are what you might suspect nor as you are being told.

Joe Biden won the U.S. Presidential election and immediately oil prices took off.  While the conflict in Ukraine is causing 'uncertaintity inflation', most of the price increase before and after the Russian military action in the Ukraine is simply a matter of the market behaving rationally.  The concept is pretty straightforward.  The Biden Administration's hostility toward hydrocarbons caused them to take steps to constrain supply.  That simple fact, alone, caused prices to rise.

It is a matter of what it typically referred to as a vicious cycle.  Oil producers have some flexibility in how much oil they pump.  The logic is simple.  If I can pump my oil today and be paid $35 per barrel or I can keep it in the ground until next year and sell it for $70, which do I do?  Clearly, I keep it in the ground and that decision, alone, lowers supply and causes upward price pressure.  As an oil producer this fulfillment of expectations alone, convinces me that I should continue to keep my oil in the ground.  As long term contracts expire, I am reluctant to enter into new ones.  So, the price of oil continues to climb.

It is true that the restrictions that the Biden administration has placed on exploration and development will, over time, actually reduce supply and because of that, producers will be reluctant to pump at lower prices.  However, right now, the dynamic is primarily one of price expectations driving supply down and prices up.

Fortunately, it works in the other direction as well.  If the Federal government loosens supply constraints, general expectations will cause oil prices to fall from their current price of over $100 to, say, $50.  This will convince oil producers that they should pump and sell oil now before prices fall.  Since this, alone, will cause supplies to increase, prices will fall which will just further convince the market to start pumping as fast as possible.  By doing so, they fulfill their own prophesy.

In a recent speech, Biden actually 'said the quiet thing out loud'.  They are encouraging high gas prices because it makes alternative energy sources more cost competitive and thus, they believe, it will accelerate the transition to alternative energy sources.  There is more quiet part still not being said.  That is that with alternative sources, energy prices in general will never return to the low prices of the recent past. 

The long term alternative energy future, while optimistic, is not what is currently being peddled.  The future is actually dominated by geothermal, ocean power and, only third, nuclear power.  Those are all base load energy sources and 'peak shaving' energy supply will involve stored energy utilizing many technologies, including solar and wind, but also including natural gas and some biofuels.  The driving force behind this diversity of energy sources, as today, is locality and politics.

Enhanced Geothermal Systems (EGS) is simply a matter of drilling a hole down to hot rock, pouring water down the hole and getting steam in return.  It is a simple and functionally limitless energy source.  Why isn't it being touted loudly?  Because there are vested interests behind other energy sources that promote them and EGS lacks powerful sponsors. That can shape the midterm, but in the end, history shows that the best solutions almost always win.

How is EGS kept in the background?  By a studied and intentional lack of imagination that will convince the casual observer that it is not feasible.  For example, Europe has a 'technical potential' of around 7,000 GW which is several multiples of Europe's energy usage. However, the 'sustainable potential' is reported at around 35 GW, or a small fraction of current total energy usage.  What is the difference between technical potential and sustainable potential?  It is primarily the result of the assumed reservoir.  In other words, if the rock is porous, the water you pour down the hole will create a reservoir of large size, so that a lot of heat can be extracted in a short time.  If the rock isn't porous, the rock that is exposed to the water (which is turned into steam) is cooled off and the resource must wait until the natural thermal conductivity of the rock reheats it.

There is a similar problem with nonporous rock with oil and gas, except it is a matter of the resource flowing to the drill hole in order to be extracted.  We have solved this problem with fracking.  Fracking will also work with EGS and is being explored.  Of course, as it was with O&G, it is being fought.

I am currently writing a white paper on a hypothetical Polymathican microstate.  In it I propose that the primary energy supply should be an open cycle OTEC (Ocean Thermal Energy Conversion).  I do so for several reasons.  First, it is a local energy source that takes geopolitical considerations out of the mix.  Second, it produces prodigious quantities of fresh water.  The location, Samana Cay, Bahamas, is uninhabited primarily because of a lack of fresh water.  Third, it is more easily scalable to the population size than many of the potential energy sources.  The geology of the Caribbean does not make it suitable for EGS.

There is a couple of takeaways, here.  First, high oil prices are primarily a market phenomenon that results from the Biden Administration's hostility toward hydrocarbons.  Once a new, more oil friendly U.S. government is in place, prices will fall as they rose on expectations.  The Ukraine conflict is causing Russian O&G to be diverted to China who will rely less on Middle East oil and it, consequently, will be sold to Europe.  While there is mid-term disruption, once the delivery systems are in place, supply won't be a problem.  Second, the long term energy picture is very positive and supply will be even more diverse than today, with EGS replacing hydrocarbons as the primary source.


WEF, WHO and Davos

This past week the World Economic Forum held its annual meeting in Davos, Switzerland while, simultaneously, the World Health Organization convened in Geneva, Switzerland to create a global health response treaty.  In the U.S., on the Right, observers such as Steven K. Bannon have gone so far as to identify a 'Party of Davos' and declare that they represent a Global Elite that is attempting to take over the world.  It has been seen as a bit 'tin foil hat', but in a Davos speech, the founder of the WEF, Klaus Schwab, stated quite clearly that he perceives Bannon's statement to be true.  In other words, it is not a 'conspiracy theory' because they quite openly admit that they are manipulating the world for its own good.

This conspiracy theory of a Global Elite that secretly controls the world is far from new.  When I was a young adult, it was the Trilateral Commission that was secretly controlling the world.  Then, in the 1990s, it was Bilderberg.  Actually, the World Economic Forum was started in the same time frame but only recently has come to be the dominant NGO.  I have always been conflicted about the existence of these organizations.  On one hand, they represent a threat that coordinated, undemocratic organizations may exercise undue influence over communities and force an unnatural global homogeneity.  On the other hand, powerful people around the world acting unilaterally is also dangerous.  They should be talking with each other, but they also should respect regional and local differences.

Last year, Xi Jinping gave a rousing speech in which he rather blatantly presented a vision of the world where a Global Elite, led by the Chinese, would rule the world for the benefit of all the world's citizens.  Without placing the Chinese in a position of preeminence, Klaus Schwab, this year essentially concurred.  One panelist overtly stated that while the global elites are cooperating to an unprecedented degree, the local hoi polloi are not buying into it. 

In that observation, she appears to be spot on. There is, in fact, a developing a conflict between Globalism and National Populism.  The Globalists make the argument that since the threats and opportunities of an Information Age world are global, local autonomy is counter productive.  The Nationalist Populists argue that a Global Elite will enforced unnecessary cultural homogeneity and render the individual powerless to exercise personal sovereignty.  While the Left and Right MSM will argue one side or the other, the reflective person will likely, as I have, come to the conclusion that they both have a good point.

What conclusion should we draw from this?  My position is that humanity, as a whole, has not yet found the proper balance between collectivism and individuality.  Also, they will not likely do so in the contemporary environment of mutual antagonism.  The empowered MSM of the Left demonizes Donald Trump, Nigel Farage, Marine Le Pen, Victor Orban, et alia.  Why? It is not because they are generally evil. It is because they are resisting the formation and empowerment of a Global Elite.

The French Right has been vociferous in stating their commitment to the preservation of French culture.  I support that; it has been one of the great cultural centers in all history.  While Donald Trump has emphasized economic and geopolitical provincialism, he is certainly not blind to the distinctive American cultural identity that was forged in the 20th Century.  I am sympathetic with this, as well.  As a world traveler, I do not see it as a net positive that everywhere I go, there are McDonald's, KFC and Domino Pizza.  Local flavor is why you go.  The Nationalist Populists should not be demonized.  They have a point that true diversity should not be given short shrift as we create the future of humanity.

On the other hand, Globalism does not necessarily create an oppressive monoculture.  It is possible to coordinate without falling prey to groupthink.  This year at Davos, much to my surprise, Henry Kissinger articulated a perspective on the Russia-Ukraine situation that was surprisingly close to mine and certainly at odds with the collectively promulgated messaging of Davos.  Essentially, he said that Zelenskyy needs to accept that Donbas and Crimea simply do not want to be part of a Western facing Ukraine and that they should negotiate an agreement of independence.  So, some diversity of thought seems to be allowed within the WEF, but there is no doubt that the demonization of Putin and the lionizing of Ukraine and Zelenskyy which is WEF's consensus opinion is not threatened.  This is obviously a danger implicit in the concept of a Global Elite; one viewpoint can run roughshod over other viewpoints and there may be no mechanism by which minority opinions can find meaningful expression.  In other words, there is a meaningful risk of a tyranny of the majority and, if brought into existence, there is no obvious escape.

In the final analysis, this boils down to the question of, in a highly complex world of local, regional and global power structures, at what scale should the ultimate sovereign power reside?  There is no clear cut answer and no satisfactory solution will be found when the undeniable tension between collectivism and individualsm is ignored.

Give it some thought.  Even though it is generally being ignored, this is one of the great questions of our time.

Pareto is Not a Conspiracy

There is a surprising observation that the ratio .8ⁿ:.2ⁿ seems to describe a large number of natural and human social phenomena.  When n=1, it is commonly referred to as the 80-20 Rule, but over its whole range is referred to as The Pareto Distribultion.  A fundamental problem with the current interpretation of Western, Enlightenment Culture is that it embraces a notion of equality that conflicts with the reality of Pareto.

Simply put, in performance based environments, such as sales, publication of peer reviewed papers, various skill oriented games, etc., the distribution is not equal but, rather, conforms to a ratio of 

Xⁿ:(1-X)ⁿ where X=.8 most of the time.  Pareto, himself, noted that a bucket of peas will have 80% of its peas in 20% of its pods.  It has also been noted that the size of meteorites follows a Pareto distribution.  Nobody is going to seriously suggest that the distribution of natural phenomena are the result of any kind of restriction of opportunity.  Pareto also applies to results in human organizations and it is an uphill battle to put forth a discrimination argument.

As I state regularly, free enterprise is very efficient (some would say optimally so), but it is heartless.  An economy that operates on a strict Pareto distribution will result in 50% of the population receiving just 0.68% of the income and wealth.  In other words, without mitigating forces, Pareto will create a handful of winners and an enormous number of losers.  While the economic inequalities created by Pareto may be natural, they are certainly not advisable.

First, communities, whether small or large operate through implicit social contracts.  That is true even in those communities that are not the least bit democratic or liberal.  It is nearly universally understood that some minimum economic condition is required before a citizen feels properly cherished.  Right now, both North America and Europe are experiencing large immigration of economic refugees.  If people don't achieve a certain standard of living, they will leave, if they can.  If they can't, they are likely to riot.

Second, the hoi polloi are not just workers, they are all consumers.  If the bottom 80% make too much money, the 20% will see their profits decline because of high labor costs.  However, if they make too little money, the 80% make bad consumers and that hurts sales for the 20%.  So, these two considerations tend to be balanced to create the optimum situation and the maximal income for the 20%.  This, actually, was the great revelation of Henry Ford who, by the one decision to pay his workers substantially more, instigated the great economic growth of 20th Century America.

Third, the very wealthy are not quite as avaricious as the hoi polloi imagine.  Even the 19th Century 'robber barons' such as Carnegie, Mellon and Rockefellar gave very large amounts to philanthropic activities.  Today, the 'Giver's Pledge' has over 200 billionaires who have pledged to give at least 50% of their wealth to charity.  To be sure, we can find examples of people possessing great wealth and power who seem indifferent to the plight of others.  However, that is not the norm and the elites as a group do, in fact, care about the economic well being of the average person.  Today, many of the largest companies are setting internal minimum wages that are much higher than what has been set by governments.

The politics of Western civilization is dominated by the Left who views income disparity as a sign of unequal opportunities and the Right who, frankly, view it as a sign of indolence.  Neither position is defensible.  For the most part, income inequality is the result of differences in educational attainment which is primarily the result of differences in cognitive ability. 

So, while economic disparity may not be evidence of oppression, it is also the case that we, as a civilization, do want to mitigate poverty for both ethical and practical reasons.  The problem is that implementing anti-poverty programs can have negative and unintended consequences.

Arthur Laffer has made the observation that, while reducing economic disparities is a laudable goal, it comes with a price.  When one raises more taxes from the wealthy, assuming you are successful, you disincentivize them because the proceeds from their productive efforts is lessened.  When you give the proceeds from taxing the rich to the poor, you disincentivize them because they don't need to work to receive purchasing power.  This is why I say that increasing economic security lowers income on a society wide basis.  It may still be advisable to do so, but one should be cognizant of the trade-off.

So, to summarize, Pareto seems to naturally cause income and wealth inequality and mitigating that inequality comes at a price to society as a whole.  Still, it is a laudable goal and it is a topic that really needs to be discussed responsibly and not be made a partisan issue.

White Paper

My intention is to create and disseminate a weekly newsletter of approximately 3,000 words that will address matters of current significance.  This most often will be discussing 'sins of commission' but will sometimes be 'sins of omission', i.e. the press should have covered a topic and they didn't.  However, there are issues that are too big for a 1,000 word essay but too small for a book.  In these cases, I may publish a 'white paper'.  I am working on the first right now covering a topic about which many people have expressed some interest.

The last of a trilogy of books I am plannng is 'The Rise of the Microstate'.  After dealing with important fundamental issues in 'A New Enlightenment: Information Age Political Philosophy' and 'The Death of Capitalism: Information Age Economics' I will undertake a detailed examination of how microstates will evolve from the disintegration of large nation states, how they will differ, and how they will interact with each other.  However, as basic research into that book, I have designed in great detail a Polymathic microstate, located on the uninhabited Bahamian island of Samana Cay.  It is assumed to have a population of about 250K.

The design process includes matters of urban design, governance, geopolitics, economics, culture and sociology.  Aware that I have been creating this hypothetical polymathic microstate, some peope have asked about when I might make the design public.  I was thinking that it would come after the publication of 'The Rise f the Microstate'.  However, that won't be for years and I can, in fact, publish something now.  Naturally, right now I will simply assert things that I will support later.  But, I think that is better than leaving it to the end.

It will be published for 'supporters', but I will elaborate on that later.

As always, I encourage you to forward this newsletter and, if you are receiving it as a forward, to register at MichaelWFerguson.Substack.com

Newsletter 3: U.S. Politics, China and Monetary Policy

My newsletter is intended for readers with high IQs, well developed erudition and, most importantly, a life goal of acquiring an objectively supportable world view.  I suspect that nearly everyone will say that their world view is based upon evidence.  However, even a cursory consideration of the most widely held world views as expressed by the major media outlets are predicated upon demonstrably false assumptions. 

I recently got a question from a subscriber who wanted to know how the Federal Reserve's REPO facility might affect future Quantitative Tightening.  Great question.  It may have an effect.  He, like most of my readers, constantly strives to acquire a higher level of general knowledge and then use it to modify their view of things.  That makes them unusual at a very fundamental level.  In today's world, it is extremely difficult to not be tainted by partisan misinformation, which is rampant on both sides.  Here, however, I assiduously commit to following facts to conclusions without regard to what I may want to be the answers.  Reality has no obligation to conform to my sensibilities, or yours, or President Macron's or Putin's.  As the saying goes, "It is what it is" and that is what we should embrace.


Three political parties in the U.S. appears inevitable

It appears that the U.S. is about to evolve into three political parties.  This is critical to its operations because the U.S. does not have a parliamentary system.  It has no practical way to deal with three empowered constituencies at the Federal or State level.  This is an intermediate step toward the inevitable breakup of the country.  As I emphasize at every opportunity, making North America similar to Europe with many sovereign nations affiliated through a spectrum of treaties, is healthy for Western civilization as a whole.

The process that is underway begins with the seizure of the Republican party by MAGA.  There is no doubt that this is happening.  In one tranche of primaries, 22 of 22 Trump endorsed candidates won.  The strong tendency for establishment Republicans to be anti-Trump has transformed into an awareness among many Conservatives that establishment Republicans are better described as elitists (sometimes called 'country club Republicans) than as Conservatives.  Their objections to Trump were not, and still are not, political.  Rather he was seen as a threat to their power structure.

That is how MAGA views it and it has only strengthen their resolve to fight against 'the swamp'.  Estimates are that about 80% of Republicans have transferred their allegiance to MAGA from the 'establishment' Republican National Committee.  The nature of majority rule is that it tends to exaggerate majorities.  In other words, the Republicans of the 117th Congress will likely contain more than 80% MAGA House members.

In the 2022 mid-term elections, there is a high probability that MAGA Republicans will comprise more than 50% of all the House of Representatives.  Their policies are fundamentally incompatible with the establishment Republicans and the overwhelming MAGA majority within the Caucus will completely disenfranchise them.  We will know whether or not this is done successfully if Kevin McCarthy does not ascend to the Speakership.  The most likely MAGA candidate would be Jim Jordan.  If Jordan ascends to the position of Speaker, a torrent of anti-establishment legislative activity will ensue and a profound backlash will result among not just the Democrats and MSM, but from the establishment Republicans, as well. 

At that point, the establishment Republicans won't have much choice but to switch parties.  While they are definitely right of the establishment Democrats, they are closer to them than the MAGA crowd.  This is fundamentally different from what happened with the 'Gingrich Revolution' and the Tea Party movement.  While both brought in Republican majorities that contained many Conservative reformers, in reality, in both cases, the establishment Republicans retained control.  It is likely to be different this time.  It appears that the MAGA reformers will actually take over the Republican Caucus in the House.

There seems little doubt that Mitch McConnell, Mitt Romney, Lisa Murkowsky, Susan Collins, et alia will switch, should MAGA take over the Senate Republican Caucus as well.  There will undoubtedly be establishment Republicans in the House who will switch, but it is more difficult to determine which ones will survive the MAGA primary challenges, so the scope of the switch is uncertain.  According to many MAGA supporters, this party switch would simply be acknowledging the reality that moderate Democrats and moderate Republicans are, in fact, the Uniparty of the elites.

This Uniparty, or the Centrists, quite reasonably may assume that it will constitute a new majority.  It may in the Senate, but it looks unlikely that it will do so in the 117th Congress in the House even with likely Party switching.  While the Centrists may lose the House of Representatives for two years from 2022 to 2024, they may believe that, with the consolidation of Center Left and Center right, they will acquire control of both the House and the Senate in 2024. 

The problem with that scenario is that while they will cement their control of the middle, the 'woke' wing of the Democratic party may feel betrayed.  They are already complaining that the Biden Administration and the Democrat controlled Congress haven't governed enough to the Left.  They actually believe that, if it had governed more to the Left, it would keep the House in 2022.  The problem is that if there is an influx of Center-Right Senators and Representatives in the Democratic Party, the progressives in the Democratic Party will be even further marginalized.  In other words, while Democratic leadership has felt the need to accommodate 'the squad', with new Center Right members, they may not feel that it is necessary.

One might think that the far Left wing would stay with the Democratic party and work from within to get more done.  They may, but the polls suggest that doing so will be futile unlikely.  It is actually very likely that they will find more power in leaving the Democrats and forming a new, Progressive Party.  The demographics are surprising and different previous attempts at third parties.  On the few occasions that third parties have arisen in the past, they have been unable to gain even one member in Congress and save for George Wallace in 1968, even one Electoral College vote for President.  That is because their support has been diffuse and comprised a insignificant minority everywhere.

That would not be the case for a new 'Progressive Party'.  While it would be a relatively small percent across all of the U.S., it would likely constitute the majority in California, Oregon and Washington.  While not likely a majority in any Northeast Liberal State, it would likely win some House seats there that would compensate for the few that they would lose on the West Coast.  The Progressives might feel, as a meaningful swing vote in Congress and in Presidential elections, that it would obtain more power as a third party than as a relatively small minority within a new, more Centrist Democratic party.

It could be a meaningful third party with, perhaps, six Senators and 15% of House seats which could eliminate a functioning majority in both chambers.  There would be three caucuses that, as we have seen, strongly tend to vote along party lines.  This is primarily the case because Party leaders control committee assignments which, in turn, control the strings of power.  While it is likely that the Progressives would still support the proposed legislation of Democrats in the House, as the lesser of two evils, in the Senate, the lesser representation of the Progressive party might put the Republicans in effective control of that Chamber. 

The situation in the Presidency is different, because the approximately 13% of the Electoral College that would likely go to the Progressives would guarantee that no candidate reached a majority.  In this scenario, no Presidential race in the 21st Century would have been decided in the Electoral College and it is unlikely that they would going forward.  Virtually all Presidential elections will be thrown into the House.  There, because voting is done by State delegations, the Republicans would likely invariably win.

While these situations are fundamentally untenable, it is not clear how the outcome can be short circuited.  Political strife, which has been increasing anyway, would become, as it was during the Civil War, regional, ideological and rancorous.  This is both good news and bad news.  The tension that was felt between Trump and the EU would become more or less permanent.  Domestic polarization would continue to increase.  However, as I have been saying for over 20 years, the U.S. is headed for a divorce and this potential 2022 outcome could get it closer to that point.  Right now, the core of the MAGA region of the U.S. is becoming progressively more defiant and is tending toward outright disregard of Federal rules and regulations.  However, the political dynamic for the West Coast may favor secession for the West Coast, as well.  It unnerves many Americans, but it would make EUNA a geopolitically healthier place.

China is at risk, economically and politically

In 1986, virtually everyone believed that the Soviet Union was solid.  Five years later, it fell apart.  Today, a similar opinion seems to apply to China.  Is China, as a cohesive nation state, safe from substantial stress as the result of economic or cultural forces?  I do not believe so.  While the vast majority of its 1.4 billion population identifies as Hahn and has a strong sense of cultural and ethnic identity, its national identity, I think, is weaker.

There are actually many regional identities within China.  These are primarily linguistic, cultural, and ethnic. 

The largest is Cantonia, which is a region in the Southeast of China comprised of Guangdong, Guangxi, Hong Kong, Macau and Hainan.  Genetically, it is about 50% Han, primarily from male ancestors and is approximately 50% descended from local populations, primarily from female ancestors.  It is therefore, ethnically distinct, but also linguistically distinct, traditionally speaking Cantonese.  This is being mitigated by a large influx of Mandarin speaking and ethnically pure Han.  There is a discernible cultural difference as well..  It has a total population of about 190 million, however, as previously stated, many of them are transplanted Mandarin speaking Han.  That confuses the matter, but, still, there is a fairly well developed separatist movement in Cantonia.

The delta region of the Yangtze river is dominated by Shanghai, with a metropolitan population of about 40 million.  It is ethnically Han but, linguistically, its residents mostly speak local variants of Wu.  However, during the period of European colonialism, it was substantially westernized.  The qipao dress, began in Shanghai as a fusion between the Manchu traditional dress and French fashion.  When the Communists took over, they didn't approve of them, but the style quickly moved to Taiwan and to Hong Kong where they were given the Cantonese name, Cheongsam.  They are returning to Shanghai as it becomes defiantly more culturally Western.

If one watches Korean, Japanese and Taiwanese TV, it is immediately clear that the modern business class views its cultural universe to be these three countries but also encompassing Singapore, Shanghai and, to a degree, Australia.  They still view the U.S. and France as reasonable extensions, if a bit exotic.  What I mean by this is that the show's protagonists may go to Paris, San Francisco, Shanghai, Singapore, etc. as an unremarkable turn of events.  The inclusion of Shanghai is emblematic of a conflict among Shanghainese between their Han heritage and the more worldly cultural outlook that came from trade and the years of European colonialism.

Lastly, Shanghai is larger than Beijing, has a higher standard of living and from a reasonable historical position is establishing itself as the cultural capital of China.  Taken in total, it may feel that taking a politically subordinate position to Beijing is improper. 

Obviously, three regions that are not ethnically Han, Tibet,
Xinjiang (Uighur) and Nèi Měnggǔ Zìzhìqū (Mongolian) all have strong independence movements.  This means that if Beijing loses its political control of China, the country could easily fragment and do so quickly.  In other words, it could be a replay of the Soviet Union.  However, while the dissolution was completely peaceful with the Soviet Union, I wouldn't expect it to be so in China. 

This becomes a serious concern because, currently, China is in an economic meltdown.  As of April, 2022, building construction is down 57% year over year and young adult unemployment is approaching 20%.  The Chinese government is trying to mask this economic collapse with a sudden devaluation of the Yuan around April 15, with the intent to cover domestic economic shortfalls with increased exports.  Despite this tactic, economic activity is slowing dramatically.  The stated explanation of COVID lockdowns is not completely wrong, however, it is masking deep, underlying economic problems.

There is significant speculation that Xi cannot survive a substantial recession and one certainly appears to be on the horizon.  The question becomes, "Can the CCP survive?"  If the Chinese people blame Xi, perhaps the CCP can survive.  But, they may blame it on the CCP Communist system, itself.  As we see, there are cracks in the solidarity of China, so, if the powerful central control of the CCP and Beijing begins to falter, it is quite possible that the Yangtze river delta and the Pearl river valley will attempt to weaken the authority of the central government.  While Beijing finds itself struggling with that, Tibet, Xingjiang and Nèi Měnggǔ Zìzhìqū may attempt to take advantage of the distraction to loosen ties as well.

It is difficult to determine if this will happen and, if it does, if it will be a complete destruction of a unified China or, perhaps, just a move to greater local autonomy.  Either way, it would seem unlikely that any attempt to reunify Taiwan or maintain a firm grip on Hong Kong will be feasible, especially with a growing disapproval from the community of nations. 

Either way, I am not backing off on the assessment that the primary feature of 21st Century global geopolitics will be a struggle between EUNA and China for world preeminence.  However, the nature of the struggle may undergo a fundamental transformation.

For those who wish to follow Chinese events more closely, I do suggest on YouTube China Uncensored and China Update.  They present news, analysis and commentary that is from a Western perspective but is much more accurate than what is being presented within either the Right or Left information silos.

Understanding the Value of a Deficit

There is strong political sentiment within the U.S. in favor of a legally required balanced budget.  Several European countries already have instituted a balanced budget requirement.  This is very short sighted and rather typical of the tendency for Populist movements to force simplistic and imprudent actions.  Herein, I will explain why deficit spending is not a completely bad thing.  By the way, my arguments are not, as some will assume, at all Keynsian.  It stems from monetary considerations, not politically motivated arguments for growing government.

Suppose that there is 20 trillion dollars of GDP.  For our purposes and for simplicity, we will assume that the velocity of money is exactly 2.  The money supply is 10 trillion dollars.  That works out very nicely.  There is 20 trillion dollars of stuff to buy and there are 10 X 2 = 20 trillion dollars of money to buy it with.  Now, suppose that  next year's GDP is 21 trillion dollars.  Now, if nothing changes, 20 trillion dollars will be chasing 21 trillion dollars of stuff.  Either 1 trillion dollars of stuff will need to go unsold or prices must fall by about 4.8%.  

On the surface, that might not appear to be a problem.  However, Economists have been able to firmly establish that it is.  Since this has already been explained relatively well by Paul Krugman, I will simply link the explanation.  Paul Krugman is blatantly of the Left, but in this case, this is just basic Economics and not politically driven.

If you look for an expert in Economics who thinks deflation is good, you will have a difficult time finding anything more encouraging than the occasional assertion that some kinds of deflation may be OK.  Also, in the usual case where an Economy has underutilized capacity, a bit of inflation actually stimulates real economic growth.  So, there are not just arguments against deflation, there are arguments for inflation.  Consequently, most central banks shoot for a bit of inflation.  The U.S. Federal Reserve historically has set a target of about 2%.  2% inflation plus 3% economic growth, if achieved, means that money supply needs to grow 5% in order to hit their target of 2%. 

Actually, nearly all of the major, modern economies have governments and central banks that are converging around about the same money growth target of 2%+real economic growth. As of 2019, the U.S. GDP was around 21 trillion USD and money supply was around 15 trillion USD.  A 5% increase in nominal GDP would translate to 15 trillion USD X 5% = $750 billion of required increase in money supply.

The question becomes, 'How do you create this $750 billion increase in USD money supply'?  By the way, the Euro has approximately the same requirement.  The two ways that are being used are fractional reserves on bank lending and Quantitative Easing (QE).  When I was young and I first learned about this issue, I definitely didn't like fractional reserves because the unavoidable financial benefit to printing money accrued to the owners of banks and QE was not significant at the time.  My thought was that the Federal Reserve would take the amount that money supply needed to increase and divide it by the number of adults.  They would create new money and send it to all adult citizens equally.  With these numbers, that would be a check for $2,885 to every adult.  That is somewhat like the 'stimulus checks' that Americans periodically got through the Pandemic.

That, however, is not something likely to happen regularly.  It just appears too much like profligate spending, aimed at buying votes.  Demagoguery would kill it as an idea. Historically, money has been created by utilizing the fractional reserve rules.  As Investopedia explains, if someone deposits $100 in a bank, the bank must hold 10%, or $10, in reserve.  So, on the surface, it appears that they can only lend out $90 of the $100 and to many, that likely appears prudent.  However, that is not how it really works.  Because money is now electronic, what happens is that the bank can lend out $1,000 and they need to have $100 in reserves, which they do.  The net effect is that they pay interest on $100 but receive interest on $1,000.  This is why banks really like this tool as the primary driver of monetary policy.  That is why we, as citizens, not banks, should not. 

The fact is, however, that the reserve is typically more than 10%.  This is because, historically, the supply of bank deposits is more than 10% of the demand for loans.  Consequently, while the bank is allowed to lend out $1,000 on $100 deposits, in reality, it may lend out only $500.  Now, suppose interest rates fall, something that the Fed can make happen.  The demand for loans may go up to $600.  They still have enough deposits to cover that, but they have just created $100 of new money supply.  It's actually just a accounting transaction.  They book a receivable for an additional $100 and a liability for the same amount.  However, they will never need to pay that liability.  It is just carried on their balance sheet.

Quantitative Easing creates money in a completely different way.  The Federal Reserve, by law, cannot bid on Treasury bonds at auction.  However, they can buy them in the after market and they do.  That just adds a wrinkle that we won't delve into right now.  The important part is that the Federal Reserve settles the purchase with created money and puts the bond on their balance sheet as an asset.  They have no intention of selling the vast majority of their bonds.  When they mature, they buy more.  It was done to create money supply.  Only if they need to reduce money supply, will they sell them.

The bonds carry interest and the Treasury must remit those interest payments to the Federal Reserve on a regular basis.  However, because the Federal Reserve is, by statute, limited to 6% return, most of the profits from QE are just remitted back to the Treasury.  In 2020, they sent $86.9 billion to the Treasury.  With massive increases in interest rates in 2022, that number will likely jump substantially.

Money supply, as we see, needs to increase about $800 billion and about 700 billion Euros in order to hit M2 (the most followed measure of money supply) targets.  Those are the breakeven amounts to assure economic health.  If the governments do not engage in deficit spending, the Central Banks will be forced to buy up existing debt.  That might seem good, and it is not bad, but eventually, there will be no debt left to buy.  In reality, the amount of money supply increase that is required has become impossible to implement through fractional reserves.  While bank deposits are shrinking over the long term, so is the practice of borrowing money from banks.  If the system tried to rely entirely upon fractional reserve lending to create money supply, it would likely fail and deflation would become a real risk.

While we have focused on the Central Banks buying government debt, they can buy up mortgage backed debt as well.  In fact, in the aftermath of the 2008 financial crisis, the Federal Reserve did exactly that with the intent to stimulate a collapsing housing market.  Also, there may be times when the Central Bank may need to decrease the money supply and they can do this by selling some of their Treasury bonds.

The problem with that, if it is a problem, is that when a Central Bank sells government debt, it takes money out of the system, but the increased supply of debt will likely also increase interest rates.  Right now, for example, Federal Reserve could sell about $1.2 trillion of its Treasuries, thereby reducing the money supply by that amount, and assuming that velocity doesn't change, completely eliminate the excess projected inflation for 2022.  Why don't they do that?  Because,  in order to sell them, they would need to discount them and interest rates would go through the roof.  Rather, they are projecting Quantitative Tightening of about $95 billion per month.  That is, in theory, just about enough to compensate for the inflation.  However, because interest rates will be going up, lending through fractional reserve will likely decrease taking money out of the system.  Also, higher interest rates are a feedback to inflation.

I can't emphasize this enough.  Economics is far from intuitive and far from simple.  The Republicans lie in one direction to encourage you to vote for them and the Democrats lie in a different direction with the same intent.  This should definitely not be part of a well functioning democracy, but I have no idea how to fix it.  For my subscribers, I try to compensate for this demagoguery, but realistically, my articles are beyond most voters.

I keep refining and, hopefully, improving

I am very sensitive to the value of time.  I sometimes wonder about public intellectuals who produce 3 hour podcasts that, necessarily involve a whole lot of repetition.  That is why I try to limit my newsletter to about a 10 to 15 minute read and concentrate on just the most egregious and/or consequential misrepresentations of the Left and Right media.  All of my first three newsletters have contained three short articles.  I may, in the future,  write longer articles, but usually also limit the number contained in a newsletter.  I will not be a slave to this format.  If newsletters can be shorter, I will make them so. 

I continue to work on my books, 1) A Polymathic Subculture, 2) A New Enlightenment: Political Philosophy for the Information Age, 3) The Death Of Capitalism: Economics for the Information Age and 4) The Rise of the Microstate: Geopolitics for the Information Age.  I am also working on several white papers that will be available to my subscribers at no extra charge.  As with my Newsletter, I am jealous of your time and strive to keep everything as brief as possible but no briefer.

Do subscribe if you have not done so already and feel free to share.

Newsletter 2: Ukraine, Dystopia & Decreasing National Identity

If you get your news from either the Right silo and/or the Left silo (and you don't have much choice), you are being propagandized at least as much as you are being informed.  What to do?  Well, you need to cultivate intelligent, erudite, unbiased sources that will correct the most egregious misstatements.  I am unaware of any sources, other than myself, who are even trying to do this.  The Right silo is noticeably biased and the Left silo is, currently, ridiculously so.  There are, of course, smaller, nascent silos around the Singularity and the Gaian movement. 

That does not mean that all intellectually sophisticated commentators will agree.  I recognize that Polymathica represents a nascent silo and, because of that, there are some values bias to it.  Consequently, a diversity of points of view can exist within the intellectually sophisticated communities and their expression will, undoubtedly, be worthwhile.  I hope that over time, the activity of independent public intellectual will enjoy success and this will encourage others who cherish intellectual sophistication over ideology to join me.  

 
Right now, I am trying to get followers and supporters for myself.  However, my hope is that, with success, we can leverage the resulting network effects to enable other commentators. 

Where are the Donbas separatists?
To quickly review, in 2014, the Ukrainian provinces of Lugansk and Donetsk declared independence over a new Ukrainian government intent on joining the EU and NATO.  These Eastern provinces have a pronounced pro-Russian flavor to them and their residents overwhelmingly speak Russian.  The national government attempted to move into these two provinces and quell the independence movement militarily.  The effort was very violent and, at best, a middling success, with occupation of much of the countryside and Mariupol, which became the Provincial Capital after the separatists secured Donetsk.

The Ukrainian position is that no part of Donbas should be independent while the separatists and Russia hold the position that all of the two provinces, and perhaps parts of other provinces, should be independent, generally against EU and NATO membership and with more deep ties with Russia.  The reality is that, prior to the recent Russian invasion, the separatists had control of much of the Donbas, but Ukraine held much of it, too.  Now, Russia has entered Ukraine, primarily in the Donbas, with a substantial military force.  Their stated goal is to secure all of Lugansk and Donetsk provinces for the separatists and recognize them as independent nations.  Both the Left and Right silos (of the West) have been reporting that Putin's actual goal is to move westward and annex as much of Eastern Europe as possible.

Putin has stated that his only interest is in Eastern Ukraine.  He is not being taken at his word, because, in the past, Hitler did, in fact, state that Germany only wanted to annex a portion of Czechoslovakia.  An agreement was signed and Prime Minister Chamberlain declared 'peace in our time'.  Of course, it proved to be a pretext and Hitler went much further.  Is this the case for Putin?  It is impossible to tell for certain, but we do have some inferential evidence to suggest not.

The curious matter is, however, that the Donbassian separatists have somehow magically disappeared from both the Left silo and Right silo narratives.  After putting up a fierce fight, they apparently all went home secure in the knowledge that the Russians have it handled.  We know that prior to Russia's military incursion, the separatists did attack Mariupol several times but were unable to capture it. 

This is an example of ways in which we know that we are getting a narrative rather than fair reporting.  There are logical holes in the stories we are being told.  On all sides, the Western politicians and press are reporting this conflict as Russia invading Ukraine without purpose and to the universal condemnation of all Ukrainians.  However, there was no battle for Donetsk or Lugansk reported.  Does that mean that the Russians were invited in by the separatists?  While we can't conclude that with certainty, the absence of reporting means it would be a reasonable conclusion.  In other words, in truth, this is a civil war that Russia has entered on the side of the separatists and NATO is supporting on the side of the central government with resources, weaponry and intelligence, but not with direct military intervention.  I believe that the separatists are not being mentioned because accurate reporting would introduce a degree of moral ambiguity that the Western powers, government and press alike, don't want.

As the Western governments and press obfuscate with regard to the Russian-Ukrainian conflict, a more global issue is not being addressed.  To do so would highlight a philosophical issue that they want ignored. Crimea and now the Donbas do not want to be part of Ukraine if Ukraine's goal is to join the EU and NATO.  However, they are a part of a larger trend.  A portion of Moldova has declared independence, there was two years of war that, because of Russian protection, ended in a stalemate.  The Northern portion of Cyprus is predominantly Turkish while the Southern portion is Greek.  A defacto division has existed for 50 years without resolution.  In 2017, pro-independence parties took control of the Catalonian provincial legislature and declared independence from Spain.  The leaders were charged with crimes and they fled the country.  Apparently, Catalonians wanted independence but weren't willing to fight for it.

The fundamental question is whether the Westphalian model of nation states, which generally requires that other nations stay out of the internal affairs of other nations, allows nations to, intermittently, force minorities to remain against their wills.  Does the Westphalian model require other nation states to not recognize any seceding community?  Is that interpretation consistent with a 'liberal' nation.  Obviously, between South Ossetia, Crimea, Donbas and Transnistria, Russia doesn't think so.  In nearly all situations, what I call EUNA (EU and North America) does believe so.  While they speak out against a few situations save for the situation in the former Yugoslavia, which NATO supported and recognized the many breakaway republics and even bombed Belgrade over Kosovo independence, it is generally accepted that it is consistent with the Westphalian model and liberal democracies, to make secession illegal and to use force to stop it.

This is extremely important because the global explosion of unregulated communication channels are leading to an era in which many communities will resist the dictates of larger governments.  This is certainly being seen in the U.S. where States are blatantly disregarding national laws, policies and regulations.  The war over Donbas will end, one way or the other.  But, if the underlying principle of independence is not resolved, the world is going to become a very violent place.

Dystopia or Exponential Growth or Something Else?
You may have noticed that the majority of the Liberal Press are glass half empty kind of guys and that the Conservative Press generally has a glass half full kind of outlook.  I, of course, except those cultural issues that they consider to be evidence of Western decline.  There is, however, the Singularitarian Press that will try to sell you on unlimited scientific, technological and economic exponential growth.  It began with Ray Kurzweil, with his 2005 book, 'The Singularity is Near'.  His argument was that growth occurs exponentially and consequently, over time, measures of economics, technology, life expectancy, etc. will approach infinity.  From this, he concluded that civilization would reach a 'singularity', which occurs when a mathematical function approaches infinity in one of its variables.  He predicted it, originally, to be an event around 2045.  Because singularities are approached but never reached, there certainly was an inherent contradiction in his message.

Exponential Growth

While many people accept the threats of climate change, nuclear war, population bomb, resource exhaustion, etc. they really don't behave as if they believe any of them will happen, at least not in their lifetime.  However, they don't really believe the Singularitarians either.  They are accused to believing that tomorrow will be like today, only more so.  This can be described as a linear growth world view.  However, that doesn't appear to be exactly true.  For example, for the approximately 115 years of the High Industrial Age, say from 1875 to 1990, Real GDP per Capita grew at the rate of 2.1% per year.  However, if you tell the typical person that in 115 years, Real GDP per Capita will be $619,615, they won't really believe it.  In reality, they subscribe to a diminishing return model as below.

Diminishing Returns

 

Futurists and Economists have studied the nature of change as it has taken place throughout history.  What they have discovered is that almost invariably, change follows what is called a sigmoidal function.  The best known one is the logistic function, better known as the S-curve.  However, there are many varieties of sigmoidal functions.  They all share the characteristic of growing exponentially at the start, but then there is a point of inflection turning the curve into something like the diminishing return function.  So, the typical person's world view can be described as, 'Things changed quickly in the past, but will probably calm down going forward'.  In other words, their assumption is that the world is at the point of inflection.  While not always correct, it is less stupid that the Singularitarian world view.  The real question is, are we at the point of inflection.  Of course, until the point of inflection is reached we can't fully know if we are at X=-4, X=0 or X=4.  When it comes to computer technology, it is becoming clear that X>0.  With regard to anti-aging, It is tempting to conclude that we are lat X<0, but we really can't know.

The Logistical form of a Sigmoidal Curve

This article is somewhat different than most, that are clearly addressing a specific contemporary issue.  This one looks at a general bias in the Right silo, the Left silo and various other more nascent silos, such as Singularitarian and Transhumanism.  Nearly all news stories will either express or imply a view of the future based upon the expected profile of change.

For example, I believe that growth in affluence over the next century will be consistent with X<<0.  I do not do so based upon statistical trends but rather due to a review of robotics and artificial intelligence.  It militates for the perspective that we are, essentially, at the beginning of another explosion of real GDP per capita.  It is almost certainly a trend that will be sigmoidal and will reach an inflection point and approach an asymptote.  That, however, is a very complex issue that I will address in an upcoming book, 'The Death of Capitalism'. 

A Growing Multinational Global Population

The U.S. State Department estimates that between three million and six million Americans (between 1% and 2%) are living abroad.  Though not at a rate as high as the U.S., nearly all developed countries have substantial populations that have more or less permanently left their home country.  Interestingly, one study estimated that there are over 15 million Digital Nomads, just one category of expat, and that will likely increase dramatically over the next few decades.

I belong to this group of expats, having left the U.S., my country of birth, in 2017 with no intention of returning for more than visits.  I am not sure that I really qualify as either a traditional expat or as a Digital Nomad.  My ultimate goal is to maintain a summer home and a winter home.  At present, I have only my summer home in Tirana, Albania, but this winter I am planning to tour Southeast Asia, looking for a winter home.  I am, in reality, a person with no national identity.  Everywhere I go, I am just visiting.  To a degree that is a function of identifying as a Polymathican.  Like the Jews before 1949, I am without a home country.

I have a blog, The Nomadic Polymath and a private Facebook group in which I discuss my anational lifestyle in greater detail.  Here, my point is more limited but still an important one.  A growing number of people are losing not just a feeling of patriotism, but a sense of national identity, itself.  While this is a threat to the Westphalian model, an increasing number of countries are enabling the anational lifestyle in the form of  'Digital Nomad visas'.  Albania is one of them which has played a part in my choice of it as my summer 'Base of Operations'.  

At its inception, and still in the minds of many, this trend of Digital Nomads is viewed as a behavior of young people, similar to the Grand Tour undertaken by young upper class men from 17th through 19th Century.  However, today, it is undertaken by young people of every class.  They throw a change of clothes and a laptop in a backpack and take off to exotic places, working online.  It is viewed by most people as a phase of life rather than as a permanent lifestyle choice.  There is truth to that; perpetual travel does, for most people, get old after a year or two.

However, that view of the anational or multinational person as a young, economically marginalized individual is being replaced by more affluent people who are simply exploring the market of residential locations and choosing two or more of them.  Often, as with me, my home country didn't finish at the top.  The cost of living is too high and the regulations, especially regarding income taxes, are just too onerous.  The popularity of this life choice for more affluent and mature people is demonstrated by the success of Andrew Henderson, The Nomad Capitalist, who consults to 'seven and eight figure entrepreneurs' and whose YouTube channel has more than a half million subscribers.  As high value added, location independent productive opportunities explode, the affluent multinational or anational families will explode along with it.

This is already 'a thing', though, for some reason it is flying beneath the radar.  I am aware of many very affluent Europeans who winter in Dubai and summer on the Mediterranean.  Doing this, there are a surprising number of British millionaires who have not been 'home' in years.  I lived for six years in Sunny Isles Beach, Florida, where people from all over the world come to their seaside condo for the winter. 

The world looks quite different if, in the future, many, perhaps most, of the economically and socially enabled families don't have a strong tie to any single nation.  When Gavin Newsom, governor of California, was asked about people leaving his state, his response was 'Where are they going to go'?  There is a belief among many that people are anchored to the nation of their birth and that being an American or a Russian or a Korean is an immutable, and central, trait of the individual.  However, current trends and cultural evolutionary forces militates against that view. 

I, like many of the 'Nomad Capitalists' have a small enterprise that I hope will grow into something of moderate size over time.  The old paradigm was that this innovative energy was being expended, in part, for the benefit of the U.S.  After all, I am an American.  However, it is not.  The U.S. is certainly going to survive the loss of my productive activities.  However, when the absence of national identity aggregates into millions of similar anationals and multinationals, it becomes the 'death of a thousand cuts' for the Westphalian model. 

For me, and for a growing number of anationals and multinationalists, it is not that I have left the U.S. in favor of a different country.  I have more or less abandoned the concept of national identity, entirely.  When this is normative for upper middle and upper class people, as it may well become, the current system begins to fail.  The view of history as a series of interactions between sovereign states will necessarily wane.  It doesn't mean an end to group identity.  That is inherent in the human psyche.  It just won't be tied to a specific territory.  I do believe that people will aggregate in subcultural enclaves or microstates.  But, that is a book sized discussion, and I will write that book.

The Emergence of the Polymathic Content Creator

Recently, there was a move among the ultra-leftists to boycott Twitter in response to its takeover by Elon Musk.  That is self defeating.  The value of Twitter was that it was a social media platform under strong Leftist control.  It provided them with a captive amount of network effects.  The use of network effects can be understood by a historical review of regional malls.  When they first emerged many retailers balked at locating so near so many competitors.  This was one of the first cases that network effects was demonstrated.  Essentially, incidental walk-by traffic increased sales by much more than competition reduced it.

The same will be true with what is currently Polymaths.Locals.com I have enabled the 'tips' function there so that people can financially reward you if you post an article.  Eventually, we will transfer the membership to our own site.  My readers will walk by your content and your content consumers will wander by my content.  As long as the average person at our Polymaths site consumes content from more than one content creator, we all win.

So, please, please, PLEASE, if you have not, register at Polymaths.Locals.com and/or MichaelWFerguson.Substack.com and do share. It benefits me, yes, but over the long term, it benefits all of us.

Newsletter 1: A few points you absolutely need to know

The Internet is so overwhelmed with content that one cannot consume more than a tiny fraction of it.  That, generally, is not a problem because most of it is duplicative.  Choose your favorite content creator to present you with the standard Right and/or the standard Left narrative.  My goal is not to provide you with X number of words or Y minutes of video per time period.  Rather, my goal is to correct the most egregious misstatements within the Right and Left narratives.  Both sides 'lie to you for your own good'.  I don't condone that, especially because they get it wrong so often.

So, here are a few corrections of the most important current issues that are being reported and discussed. 

The Truth about Inflation

The U.S. Federal Reserve needs to print money - approximately 800 billion USD of it per year.  Parenthetically, the Eurozone needs to print about the same amount of Euros.  The Fed can do so directly by buying Treasuries with created money.  Or it can do it indirectly by lowering interest rates that are internal to the banking system.  This, usually, increases credit demand and allows the member banks (JP Morgan Chase, Bank of America, Wells Fargo, etc.) to loan more money using fractional reserves and thus they create more money that way.  The first method is a scalpel and because excess profits are returned to the Treasury, this method benefits the taxpayer.  The second is a blunt instrument that enriches the owners of banks.  The Federal Reserve has absolutely needed to increase the money supply in order to avoid the economic disasters that could have resulted from, first, the 2008 financial meltdown and, second, the forced closure of businesses during the 2020-2021 pandemic.  Since it absolutely had to be sure that the strategy worked, they resorted to Quantitative Easing (QE) or the buying of Treasuries to immediately and reliably infused money into the system.

Because of this, the Federal Reserve now holds about 9 trillion USD of Treasuries.  Because of this QE, the crises were, indeed, mitigated if not totally avoided.  However, now all that extra money in circulation is causing massive inflation.  The Federal Reserve can actually kill this inflation totally and completely dead by selling some (about 2 trillion USD) of its Treasuries.  Why don't they do that?  Well, they are planning on it, actually.  They just announced that they are going to start selling 98 billion USD of Treasuries per month.  However, while the Federal Reserve can effectively, either lower the inflation rate or interest rates through, Quantitative Easing or Tightening, they can't simultaneously affect both in a positive direction.  The best they can do is attempt to balance inflation and interest rates. They have also announced that they are going to increase interest rates, right now by 50 basis points (0.5%) and likely more later.

Just the signaling of rate increases has caused the Treasury interest rates to increase.  Since ten year Treasuries are the best predictor of all interest rates, including your credit card debt and mortgage, in isolation, this is not a good thing.   If they don't sell Treasuries, what is called Quantitative Tightening, inflation will continue and perhaps increase.  Since there is a lag between inflation and wage increases, higher inflation is painful to most voters.  So, in theory anyway, the Fed will try to balance the two, interest rates and inflation, in order to minimize the overall negative effect to the economy and to soothe political unrest.

In the long run the basic challenge is this.  The Federal Reserve needs to increase money supply by about 800 billion USD per year in order to maintain a healthy, growing, low inflation economy.  However, the structural deficit is about 1.5 trillion USD per year.  The Federal Reserve does not have the tools to resolve that 700 billion USD imbalance.  That must be done by Congress and their only tools are to either increase tax revenue or decrease spending.  The correct solution would probably to do a bit of each.  However, both are politically inexpedient and so the problem is left unsolved and both narratives are rife with lies.  In other words, both interest rates and inflation will likely go up to a painful level.

Reasonable people can disagree about the extent to which taxes should be increased or spending should be decreased.  But in combination, they can be used to balance the scales.  However, ignoring the problem simply won't make it go away.  If the problem is ignored, EUNA (this is happening in the Eurozone and U.K. as well) will walk blindly into extreme economic hardship.  Over time high inflation and high interest rates will result in a recession due to insufficient demand side.

Climate Sensitivity, again.

From time to time I discuss the Climate Sensitivity implicit in the models you hear about.  Changes in Solar output and albedo should be modeled, but generally aren't.  Typically, models input an increase in atmCO2 and the assumed climate sensitivity and that drives the answer.  While the IPCC shows all sorts of assumptions on CO2 output and the resultant atmCO2 levels, in fact ever since we have had accurate measures, atmCO2 has been increasing at a remarkably constant rate of 0.45% per year.  There have been all sorts of schemes, treaties and protocols, etc. but the rate of increase has remained unchanged.  That really leaves the uncertainty in the assumed climate sensitivity.  Know it and you know how much the Earth will warm (given flat solar output and no change in Earth's albedo).

In the IPCC AR5, the range for Climate Sensitivity was 1.5C to 4.5C.  In the latest IPCC AR6, the range was narrowed to 2.5C to 4.0C.  This implies an increase in Earth's temperature by 2100 of 1.5C to 3.0C.  Oddly, however, the Executive Summary goes on and on about temperatures that are up to 5C higher than today.  How do they manage this?  By assuming a much higher rate of increase in atmCO2.  While that is not impossible, it is highly implausible.  If one studies the internal forces that are responsible for the 0.45% per year increase and one wanted to argue for a change in the historical rate, one would argue that it will likely begin to decrease about mid-century, with the net carbon cycle reaching balance around the end of the 21st Century or a bit before.

Once the argument over the proper value of Climate Sensitivity is resolved, it is likely that a controversy will arise over the rate of atmCO2 increase.  There needs to be attention paid to the effects of albedo, as well.  However, right now, the argument is over Climate Sensitivity.

Peer reviewed papers describing research on Climate Sensitivity are published nearly every day and I read at least the Abstracts of all of them.  I did write about one such paper a few weeks back, but generally I do not.  First, not all of them are very compelling and second, many just aren't going to be technically accessible to most Polymathicans.  However, I develop a 'working hypothesis' on the likely value of Climate Sensitivity from all of the published information and my estimate has remained rather persistently between 2.0C and 2.5C.  In other words, I was within the IPCC AR5 published range, but I am now outside of the IPCC AR6 range.

Recently I said that the AR6 is the first report by IPCC that is overtly partisan.  One of the reasons that I say this is that the increase of the lower limit to 2.5 flies in the face of much of the published research.  In fact, like the one to which I provided a linked, most research is coming to a consensus in the 2.0C to 2.5C range.

What does this mean?  It means that, based upon best evidence, that is the range of Climate Sensitivity and, while it will result in a warmer planet, it does not support any catastrophic scenarios.  The IPCC AR6 Executive Summary, without stating it, does imply a climate catastrophe that just isn't easily supported by the evidence.  IPCC, in the immortal words of Taylor Swift, 'You Need to Calm Down'.  We are, collectively, allowing ourselves to be convinced of the advisability of a cure that is actually worse than the disease.

On Roe v Wade

A draft opinion on a SCOTUS pending case on Roe v Wade was leaked and has overcome much of the Internet and the Right and Left silo.  Ruth Bader Ginsburg's assessment that the decision was flawed was correct, though very unpopular on the Left.  SCOTUS does not rule on what laws should be enforced. It rules on the constitutionality of State and Federal laws and regulations.  It also, from time to time rules on disputes between States and between a State and the Federal government.  Clearly, the Constitution makes no mention of abortion which implies that it is a matter to be determined by the individual States.  But, of course, there are complicating issues. 

Can a right to an abortion be inferred by the existing Constitutional provisions?  This is what Roe v Wade attempted to do, through the novel interpretation of the 4th and 14th amendments.  While RBG is favor legal abortions, she could not support the justification within Roe v. wade.  This, however, does not mean that the Constitution has no applicability to the issue.  However, it is limited and, as is the case with all termination of life, the description and penalties revolving around the taking of a citizen's life is a matter for the States.  However, the rules governing whether any one individual is a citizen is a matter for the Constitution and it speaks directly to it.  However, it does not do so in a way that directly informs us on abortion. 

However, clearly, if at any point it the gestational period a fetus becomes a citizen, it will enjoy the rights of a citizen.  Also, clearly, removing it from a female's womb prematurely in a manner that unnecessarily ends its viability would be against its Constitutional rights.  By practice, a person is recognized as a citizen when a birth certificate is issued.  However, a reasonable modification to that would be that the Constitutional rights of a fetus should be recognized when it COULD be issued by its premature and intentional birthing.  To do otherwise leads to some logical contradictions.

Suppose, as an example, a female is 24 weeks pregnant and she is diagnosed with cancer.  She needs immediate treatment, but the treatment would kill the fetus.  Obviously, she wants the baby but she also wants to live.  So, her medical team, concluding that the fetus is viable, removes the fetus and places the baby in the neonatal ICU where it survives.  It, of course, has Constitutional rights as of the date of removal.  There is a clear difficulty in that a 24 week old fetus that could be removed and survive will have Constitutional rights in this case, but not in another because of the condition and desires of the mother?  That makes no sense.  If a 24 week pregnancy results in a viable fetus, it either has Constitutional protections or it doesn't.  To justify the termination of a viable fetus would require the determination that in the first case, the baby has no Constitutional protection until some set time after its birth.

So, if, in fact, the draft opinion is rendered in more or less the leaked form, the decision on abortion will, for the most part, be returned to the States.  That is certainly broadly consistent with the general tenor of the Constitution.  Like most of Europe, the States are signalling that they will allow an abortion on request until between 12 weeks to 15 weeks. There are exceptions.  Poland does not allow elective abortions.  Florida just passed a law allowing abortions to 12 weeks, reduced from the current 24 weeks.  The only States affected are those who currently allow abortion on demand later in pregnancy. 

I do not actually favor limiting pre-viability abortions for a number of reasons.  The major one has to do with the introduction of highly ambiguous reasoning.  Every State that limits abortions to 12 weeks to 15 weeks must make some sort of exception for females whose life is threatened by continuation of the pregnancy.  However, what constitutes a life threatened, while clear in many cases, is not so clear in others.  What about the claim that a continued pregnancy would threaten the females life via an increased risk of suicide?  If there were a valid logic to reducing the limit to 12 weeks to 15 weeks, then some ambiguity to what constitutes a threat could be tolerated.  This, however, is my personal assessment and as a matter of law, in the U.S. where laws are often issued by States but reviewed by SCOTUS, there is probably no legal justification for it.

An Addendum

I very much want there to be a forum by which more intellectually sophisticated content can be created, distributed and discussed.  However, at the same time, I recognize that there is far too much content out there already.  So, I want to be as efficient as possible.  I am settling in to a provisional system where I publish a weekly Newsletter on Substack and on Locals where, on Locals, the ultimate objective is to create a community of Polymathicans or intellectually sophisticated people.

I want to be the Mr. Ed of social media. 

People yakkity-yak a streak
And waste your time of day,
but Mister Ed will never speak
Unless he has something to say!

That means that my newsletter, while weekly, might be short or long depending upon how much I have to say.  Most and podcasters throw out one to three hours of content per day.  So, for financial reasons, they must have that much to say.  Since they don't, they repeat themselves a whole lot.  I won't do that.  I repeat but only as is absolutely necessary.

As I said, I am not here to say what is already being said, over and over, elsewhere.  If someone is saying something important, I will simply attach a link.  There is no reason for me to waste time saying it again.

Please encourage people to join Polymaths.Locals.com or MichaelWFerguson.Substack.  This activity is only financially justified if I have at least 10K paid subscribers and I am nowhere near that.