Newsletter 8: Fed's Pickle, Blackbox Manufacturing, Right Ascending

My long term goal is to reach a sufficient number of thought leaders so that the Rightish Silo and Leftish Silo narratives are disrupted.  As  you will likely discern over time, neither is worthy of serious consideration.  Certainly, some of these unsupportable narratives involve technology, but at its core it relies upon people's misunderstanding of Economics, Political Philosophy, Sociology, etc.  So, I will regularly return to explaining the principles and mechanics of these subjects.

For those who have not read, 'Intellectual Sophistication' I hope you put it on your reading list.  If you have not yet read it, I want to clarify that I am not a high IQ guy.  Intelligence is necessary, but not sufficient, when it comes to producing high quality intellectual product.  The core of intellectual sophistication is comprised of erudition, objectivity and discipline.  If one is less than impressive in one's intellectual sophistication it is likely the result of a deficiency in a couple of components, of which one may not be intelligence.  As I have pointed out several times, high IQ societies tend to attract high IQ, low intellectual sophistication people, while Academia tends to attract people educated beyond their intelligence. 

The Pickle the Fed (and Euro central bank) Are In

As I have said over and over; if legislatures spend more than the Real GDP+the Central Bank's target inflation rate, the Central Bank is put in a no win situation.  It has a choice of either 'printing money' and thus exceeding the inflation rate or allowing interest rates to rise and likely instigating a recession.  In 2021, that magic number was about 800 billion USD in the U.S. and about the same in the Eurozone.  The actual U.S. Federal Deficit was 2.8 trillion USD.  If the Central Bank monetizes the excess, inflation explodes.  The Fed and the Eurozone Central Bank, both in fact, monetized the deficit and, as a consequence,  inflation has been exploding.  The 'pickle' is that if the Fed doesn't buy Treasuries, then the excess 2.0 trillion USD will flow through to auction and interest rates will skyrocket.

There are a few dynamics that complexifies this.  First, there is a proper relationship between inflation and interest rates on Treasuries, especially the 10 year bond.  The reason is because it historically has been the first choice among several lesser options to park one's unutilized financial resources.  It has been marginally more attractive than gold because 1) gold carries no official return and 2) gains, unlike for Treasuries, are not exempt from taxation.  Of course, other governments issue similar debt instruments.  If the interest rate on 10 year Treasuries is too far below the inflation rate, people find other options, often off shore. 

As a store of value, the sensible rule of thumb should be that the 10 year Treasury interest rate should exactly reimburse the holder for loss of purchasing power through inflation of USD.  Currently, inflation is at 8.6%, however, 10 year Treasuries are currently yielding 3.1%.  However, as the Fed sells its inventory of Treasuries, M2 will fall and so will inflation.  It is not necessarily the case where the two will meet in the middle.  However, if it does, that point will be around 5.9%.  That interest rate will substantially increase the cost of financed assets, such as houses and cars, which, in turn, will likely result in a recession.

Since the Eurozone is in the same situation, the coming recession will be global.  Of course, 5.9% inflation and interest rates are not optimal.  Fortunately, the Fed still has a whole lot of Treasuries to sell and by not buying new ones, money supply will likely fall and with it, inflation.  It is generally taken that an inflation rate of 2% is optimal.  There are several reasons for that.  First, deflation is harmful and, because monetary policy is not completely accurate, a little inflation as a safety margin is wise.  Second, while people don't like inflation, it is actually economically stimulative.  Here is a simple example.  Suppose you buy a house for 200K USD and you have P&I of $1,200 per month.  Next year, there is 5% inflation and so, your income of $3,600 increases by 5% to $3,780.  Your P&I did not increase by 5%, so, assuming that everything else stayed at 5%, you have an additional $1,200X5%=$60 per month of purchasing power.  So, you spend it and that stimulates the economy by increasing demand.

So, if Congress limits the deficit to around $800 billion, inflationary pressure will subside and return to 2% relatively quickly.  However, that can only happen after the current extra $2 trillion of spending can be wrung out of the system and that can't happen without a bout of increasing inflation and interest rates and a recession.  By the way, the U.S. was in a very similar situation at the end of the 1970s and that was precisely how it was solved.  It was painful, but there seems to be no alternative.

Despite all the rhetoric on both sides and the hostility toward the Fed, the fact is that the FOMC is moving, albeit a bit late, in a prudent and proper way.  However, that does not defuse the pickle and a recession can only be moderated, not avoided.

Blackbox Manufacturing is Coming

Blackbox Manufacturing is a term that I coined in a 1970 term paper.  In it, I imagined that robotic trucks would bring raw materials to a factory where robotic forklifts would unload it and put it on pallet racking.  When the time came, a robotic forklift would bring it to the assembly line where robots would assemble the parts into finished goods.  Robotic forklifts would bring the finished goods to a picking line where other robots would assemble orders entered by computers.  Robotic forklifts would bring the completed orders to the shipping dock where they would be loaded onto robotic trucks and be taken to their final destination.  I predicted that it would be feasible in about 50 years.  That was 52 years ago, my prediction was close.

Obviously, I called it a black box because raw materials go in and finished goods go out and there is no human intervention in between.  Now that it is an eventuality generally accepted, it is being called, 'Lights Off Manufacturing'. This is critical to understanding the near future, because this is not science fiction; it is feasible today.  Foxconn attempted to fully automate the assembly of Apple products.  They were unsuccessful, but they were close and it was far more challenging that, say, manufacturing shampoo.  Such less demanding automation are being implemented and many are predicting their almost universal use in the near future. 

During the Agricultural Age, farming was the most common job and it occupied over half the population.  Today, it employs only about 2% of the population.  At that time, rather than farming, people worked in factories making products.  Now, with black box manufacturing, the number of people engaged in manufacturing will also likely fall to around 2%.  This has actually already started with only about 10% of the workers engaged in manufacturing today.  Already, most people are engaged in the processing of information or providing services.  In the past, the primary information jobs have been dubbed 'pink collar' and services have been dominated by low wage hospitality jobs.  Because of this, non-systems thinkers, which sadly comprises most of the MSM, have predicted the death of the middle class.  They imagine an economy that is dominated by minimum wage service workers.

Because of this, in my group, Polymathica, I use this banner.  Its message is that while the middle class is in fact disappearing, the majority of those leaving are rising to the upper class, not falling to the lower class.  It is also worth noting that the fastest growing group are households with incomes in excess of 200,000 2020USD.  These are the Information Age independent workers that I talk about, one might say incessantly, when I discuss the proper careers for Polymathicans.

There is growing discussion of UBI (universal basic income) and the justification is often the misplaced belief that automation will result in 50% or higher unemployment rate and the massive replacement of humans by machines over the next few decades.  While it is true that automation is about to explode, the belief that it will lead to enormous unemployment is called 'The Luddite Fallacy' referring to the belief, in the early 1800s, that power looms would result in massive unemployment.  Despite 200 years of disproof of this concern, the Internet is full of essays proclaiming that 'this time is different'.  It isn't. 

Consider an economy that has a GDP of one trillion dollars and a worker population of ten million.  That means that the average worker has an annual added value of one hundred thousand dollars.  Now suppose that through automation, the average worker has an added value of two hundred thousand dollars.  It could be that GDP would remain at one trillion dollars, but the number of workers will fall to five million.  The unemployment rate is now 50%.  That is not what happens.  Rather, the number of workers falls, but then rises again to one hundred thousand.  However, GDP is now two trillion dollars.  So, the standard of living doubles.

As we saw in the above graph, the extra one trillion dollars is not spread equally.  It mostly goes to decreasing the number of poor people and increasing the income and number of households at the very highest level.  This is why, in the past 70 years, GDP per capita has increased substantially, but the median household income has increased only slightly.  The 50%'ile person is not the same person as 70 years ago, but their value added is about the same.

An important thing to understand is that the middle class will continue to disappear.  We are headed toward a bimodal, rather than trimodal, economy, with service workers at the bottom and owners, innovators, and deciders at the upper end.  The lower class, which, oddly, will include Physicians, Architects, Attorneys, but also wait staff, gardeners, beauticians, etc., will comprise about 80% of the labor force while the upper class will comprise the other 20%.  The result is much better than it might initially appear.

The High Industrial Age began around 1875 and continued to about 1995.  That is the beginning of the Information Age.  In 1875, according to Measuring Worth, the average GDP/capita was 3,506 2012USD.  By 1995, the average GDP/capita has increased to 39,900 2012 USD.  So, during that 120 years, standards of living seem to have increased 11.38X.  Standards of living will increase by a similar amount during the Information Age, but it will take, perhaps, half that long.  So, we would project that GDP/capita will increase to around 450,000 2012USD or about 863,000 2021USD.  If we use Pareto, we will conclude that the upper class will have an income of around 3,500,000 2021USD and the lower class will have an income of around 215,000.  This assumes, unrealistically, that no government efforts would be employed to decrease income disparity.

This process, actually, has already started.  Recently, the 'great resignation' has been reported in the news.  Obviously, some of these resigners simply had stimulus money in their pockets and decided to spend it on a little vacation and a search for another job.  However, many are likely responding to the spate of advertisements touting the opportunities to work independently.  They got a taste of it during the COVID-19 lock downs, decided they liked it and are pursuing the 'opportunities' being advertised.

How the economy of the Information Age will differ from the Industrial Age is extremely complex.  Consequently, I am working on a book entitled, 'The Death of Capitalism: Information Age Economics'.  By this, I do not mean a rise of Socialism.  Rather, I mean that imagination, connectivity, creativity, and quality judgment will replace Capital as the 'Wealth of Nations'.  Peter Diamandis argues for a coming 'Age of Abundance' and, while likely misguided in many of its details, is spot on with regard to the changes that automation will bring to society.

EUNA Is Moving Right

I know that it sounds like tin-foil conspiracy theory, but there is, in fact, a well developed, self identified power structure that spans all of the EU and North America.  Many on the Right call it 'The Party of Davos' and in the U.S. is often referred to as 'The UniParty'.  The term 'Party of Davos' refers to the World Economic Forum, an organization supported primarily by 1,000 multinational corporations.  It has 3,000 members who are mostly large investors, business leaders, political leaders, economists, celebrities and journalists.  While hardly the only mechanism for coordination and cooperation of the elites across the world, it is likely the most visible.  It describes its mission as "improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas".

There is also the Bilderberg Meeting and the Trilateral Commission, both of which have been frequently mentioned in conspiracy theories.  Again, they rather blatantly state their purpose is to coordinate the efforts of elites.  However, because of its size, corporate funding and the inflammatory headlines that have described past meetings, most notably the 2020 'Great Reset', WEF has come to the forefront and become the focus of a growing, global populist, nationalist movement.  Given a constituency of billionaires and national leaders, it is difficult to refute the charge that its aims are nothing less than a global plutocracy.

While integral to the current socio-political dynamic of much of EUNA, Davos is only a part of the whole.  There is, simultaneously, a renaissance of conservative values among the young.  Also, since voters become about .38% more conservative per year, as populations age, they can become dominated by conservative voters.   A third phenomenon is that people tend to vote like their parents and conservatives have more children than liberals.  For these reasons, Liberals, who have controlled the politics of most of EUNA since WWII, are losing control of the political dialogue.

'The Great Replacement' theory says that Liberals are intentionally importing refugee masses with the intent to get them the right to vote so that, presumably, they will give Liberals a more or less permanent majority.  Is this true?  It is not easily proved or disproved.  However, there is little doubt that both the U.S. and Europe are being flooded with immigrants.  In both Eastern Europe and Southern U.S. this flood of immigrants is creating a backlash.  So, whether the flood of immigrants was an intentional effort to dilute 'white voters' or not, it is creating a conservative, nationalist, populist movement.

I will grant that those who are in favor of large refugee populations entering EUNA do so for ideological reasons.  In other words, they may be properly moved by the political and economic privations of Syrians when they allow them to move to Europe or for Venezuelans when they allow them to move to U.S.  However, it does mean that the expatriated Middle East and Latin America expatriated residents are increasing the percentage of the population without a strong Enlightenment heritage.  However, it is not necessarily the case that, if they gain voting rights, either officially or surreptitiously, that they will support the Liberal side.  There is no doubt that the Liberal side thinks so, but the data is starting to question that premise.

There is, however, a danger that the Left may, ultimately, be hoisted by their own petard.  In both cases, whether the Muslim refugees in Europe or the Latin refugees in the U.S., they may be of a more Socialist world view, they are culturally very conservative.  While, in the U.S., the Democrats thought that they could turn Texas blue because of the increasing Hispanic population.  However, the Hispanics are now voting culture and are moving to the Republicans.

Lastly, in the American inner cities, a growing number of residents are coming to realize that Leftish policies are mostly to blame for the squalid conditions within which they live.  As all Hispanics are moving Right, so are black males. 

Watershed moments just took place in both France and the U.S.  While Macron won re-electiion over Marine Le Pen by a comfortable margin, though much less than in prior elections.  However, the Liberals lost control of the French legislature to the more Conservative parties.  In the U.S., there have been several interim elections that went the Republican way.  However, Hispanic Republican candidate, Mayra Flores, beat the Hispanic Democrat candidate, Dan Sanchez by nearly 8%.  What makes this such a significant harbinger is that Biden won the District by nearly 15%.  It suggests, especially in Districts and States with large Latin population, that no previous Democrat win makes the seat safe.

We should not ignore the traditionally Christian Conservative nations of Eastern Europe.  They are not necessarily becoming Conservative, but they appear to becoming more intransigent to more Liberal policies of the EU.  The focus has been on Hungary where long term President Viktor Orban has been increasingly at odds with Brussels.  While the EU has emphasized what they consider to be human rights violations, the Hungarians perceive the conflict to be more over their Christian Nationalist values, specifically over anti LGBTQI+ and forced acceptance of Middle Eastern refugees.

However, the EU is having a Conservative backlash over all of Eastern Europe.  Abortion in Poland is legal only in cases when the pregnancy is a result of a criminal act or when the woman's life or health is at risk.  This stands in stark contrast to the general abortion rights.  Also, about 1/3 of Poland, in the Southeast, is an LGBT-free zone.  Due to this, the EU is withholding some funding.  Also, Poland was the major safe-haven for Ukrainians, it pushed back on accepting refugees from the Middle East, suggesting, if not nationalist sentiments, a greater Slavic solidarity.  Combined with a much more Christian sensibility, there is, if not a move Right, a more strident expression of a Conservative set of values.

We see that the interaction of many factors are all causing a cultural and political sea change over most of EUNA.  That does not mean that there will be an eradication of the Left.  Rather, we will see a more balanced and, hopefully, tolerant distribution of empowered subcultures.

Recent Supreme Court Decisions

Two major Supreme Court decisions on gun rights and abortion were released in the last few days.  It is a lot of reading and I have not yet assimilated all of the opinions, much less thought critically about it.  However, on an initial skim, I will likely take umbrage to both majority and minority opinions on both decisions.

As I end every newsletter, please register, if you have not and share either way.  We are growing at a gratifying rate and initial analysis indicates that the growth is exponential rather than linear.  Consequently, within a year we can possibly reach the point where we can exert meaningful influence on the public discourse.

Newletter 7: Modifying the Westphalian Model

This week I am dedicating the whole newsletter to one of the biggest problems in Western civilization that nobody talks about.  That is, specifically, the inability of the Westphalian model to accommodate the current rapid increase in cultural fragmentation and the political fallout that is resulting from it.  Despite the Rightish and Leftish coverage, it is the underlying problem in Ukraine right now.  However, it is also a problem in other places and it is one that will become worse as the forces of social change accelerate over the next few decades.

At its core, the problem is that the Westphalian model results in an extremely illiberal stance within the community of nations with regard to secession.  That would not be a problem if modern society was culturally homogenous.  However, even within a liberal, democratic ideological world view, there is a whole lot of room for disagreement.  Additionally, ethnic, national and/or group identity, within EUNA, is potentially very diverse.  The development of the Internet, through print and video news and entertainment content, is allowing these groups to find each other and reinforce their sense of identity.  Also, the formation of cultural or ethnic identity is not geographically defined.  There have been several diasporas that now can remain cohesive rather than being assimilated into their local community.  

I often speak about the Right Silo and the Left Silo.  Very little information or ideas move from one Silo to the other.  Consequently, they each are mechanisms that are reinforcing and magnifying several, clustered cultural identities.  The Left Silo is comprised of Socialists, Marxist/Feminists, Greens, (for now) Traditional Christian Democrats,  etc.  The Right Silo is comprised of Christian Conservatives, Opportunity Conservatives, Libertarians, etc.  Even this is an oversimplification.  However, there are also groups, including Polymathica, that cannot comfortably fit into either of these two dominant Silos.  Consequently, over time, more Silos will form in order to accommodate them.

Regional and ethnic identities are compounding the problem, especially in Europe.  However, in North America, the West Coast and the South are developing Regional identities with very different, probably incompatible, ideological viewpoints.  They still are part of the, Enlightenment, European culture, but likely too different to comfortably share a common body of laws, policies and programs.

By way of background, between 1642 and 1648 much of Europe undertook six years of negotiations that resulted in major treaties, referred to as the Peace of Westphalia.  It instituted several changes in how the European community of nations interacted with one another.  The part that, over time, revolutionized the global community of nations, and changed the future, was the introduction of the concept of sovereignty.  Essentially, it was the birth of the concept of territorial integrity and the modern nation state.

The Peace of Westphalia took place prior to the emergence of the Political Philosophy of the Enlightenment.  Hobbes is generally credited with its beginning when he  wrote Leviathan in 1651. However, it was more than a century later that the primary principles were fully formulated by Locke, Montesquieu, Rousseau, Smith, Kant, et alia.  Consequently, the drafting of the Peace of Westphalia was not fully informed by the Enlightenment and it is not fully compatible with it.

During and immediately after the Enlightenment, nearly all nation states in Europe became liberal democracies.  Many retained their Monarchies but in a ceremonial role.  This means that there is a pronouncement in some form that the individual enjoys liberty, despite the sovereignty of the nation state.  The 1789 "Declaration of the Rights of Man", approved by the National Assembly of France carefully delineated the Rights that accrue to the citizens of a liberal democracy based upon these Enlightenment principles.  A critical point of the document was, "4. Liberty consists in the freedom to do everything which injures no one else; hence the exercise of the natural rights of each man has no limits except those which assure to the other members of the society the enjoyment of the same rights."  This presaged the concepts of Kant's 1797 Categorical Imperative, which in some ways, completed the Political Philosophy portion of the Enlightenment.

On the other hand, the previous item, "3. The principle of all sovereignty resides essentially in the nation. No body nor individual may exercise any authority which does not proceed directly from the nation." precludes sovereignty claimed and exercised by aggregations of citizens unless they constitute a majority within the whole nation state.  It is unlikely that the framers intended it to be interpreted in an illiberal way, but that is precisely what happened in practice.

The ratification of the Constitution of the United States of America in 1791, through its Bill of Rights, enumerated many of the same principles codified by the French "Declaration of the Rights of Man".  The Bill of Rights confers to States a degree of Sovereignty.  However, it is subordinate to the Sovereignty of the Federal government.  The U.S. has a benefit in that a number of States did secede and, when they did so, made several arguments that doing so was legal and, even, just.   However, these arguments did not persuade the Federal government and a war of reintegration ensued.  For many, this firmly established the principle that communities within a nation state are irrevocably subject to the ultimate sovereignty of the nation.  

Again, this could be construed as oppression, as Thomas Jefferson asserted, when he penned in the Declaration of Independence, "Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness."

Locke, especially, argued that the rights of the individual are natural and, as such irrevocable  One of those rights, expressly enumerated, was liberty.  Yet, the claim that the nation state possesses ultimate dominion over its citizens clearly violates the natural right of liberty.  This contradiction remains unresolved and, even today, as demonstrated in Yugoslavia, Crimea, Donbas, South Ossetia, Transnistria, North Cyprus, Catalonia, etc. the declared desire on the part of a community to sever ties with the nation state within which it finds itself nearly always, as it did with the North American colonies,  leads to violence.  

Several Enlightenment Philosophers, most notably Jean Jacques Rousseau, argued that the legitimacy of the nation state was based upon a social contract with its citizens.  While attractive as a concept, the Social Contract concept has several very serious flaws.  In nearly all cases, current residents did not agree to the Social Contract, but rather were simply born into it.  Generally, they are allowed to leave if they did not agree with the terms of the Social Contract (It is generally considered illiberal when countries establish 'exit visas'), however, the rights of citizenship are considered to be non-severable and are forfeited with expatriation. 

Additionally, current boundaries of nation states are a legacy to all current citizens.  Long ago in various events, groups of people met and drew perimeters around large parcels of land and called them countries.  With the Peace of Westphalia, the perimeters were memorialized and thereafter nation states became the center of focus of geopolitical interactions.  There is no mechanism by which they can be changed.  It is definitely not the case that the territorial integrity of nations were never again challenged.  Wars still happened and when they ended, often the borders of nations changed.  However, the community of nations, in aggregate, generally condemned these wars of conquest.

 
Today, almost no nation state grants the right of portions of their population to withdraw and to claim sovereignty for themselves.  This is despite the current borders often being arbitrary and even nonsensical.  For example, after attempting secession in 2017, Catalonia found its action declared illegal by Spain's Constitutional Court and an arrest warrant for sedition was declared against the former Catalonian President.  This was done on the basis of the very historically recent 1978 Spanish Constitution.  Catalonia's identity is quite ancient.

Their history began its formal regional recognition as part of the Roman Empire after a period when it was occupied by an indigenous population with a few Greek colonies.  When Rome fell, it had a brief period of indeterminate status and then, in 718, became part of the Umayyad dynasty.  Around 800 A.D. it fell under Frankish rule.  In 1137, much of it became part of Aragon, with the remainder becoming the Principality of Catalonia.  In 1469, through marriage, Castille and Aragon partially merged under the marriage of Ferdinand II (of Aragon) and Isabella I (of Castille).  However, it was not until 1714 under Philip V of Bourbon that Spain came under common rule, which included the modern Catalonia.  This, then, becomes the point in time when Catalonia became part of Spain, in a meaningful way.  Even then, however, with the Napoleonic wars, the continuity of Catalonia as part of Spain was interrupted.

The current nation of Spain was established in 1978 and it is under that Constitution that Spain's Constitutional Court declared the the 2017 referendum for Catalonian independence illegal.  The referendum was held anyway and the independence side won.  The Spanish central government declared the referendum invalid and arrested many of the organizers, while others fled the country.  The Spanish Senate called for direct rule of Catalonia and a new election was held in which, again, pro-independence parties took control of the legislature.  However, in 2019, finally, calmer heads prevailed and a 'table of negotiations' was instituted.  However, the Federal government, before it started announced that it would not consider Catalonian independence.  So, with a pro-independence Catalonian Legislature and an obdurate central government, this disagreement is clearly not over.

This situation where the majority of Spain is against Catalonian independence, while the small majority of Catalonia is in favor, is being repeated over Europe.  Clearly, this is a tyranny of the majority.  We see it in Ukraine, where the majority of Ukrainians were against Crimean independence, but the vast majority of Crimeans were in favor.  Transnistria is in favor of independence, but the majority of Moldovans are against it.  The northern portion of Cyprus is Turkish and wants independence, while the majority of Cypriots are against it.

In these and many other cases, the Westphalian model is counterproductive and, many times, promotes illiberal treatment of minority groups of citizens.  The Kurds, comprising minority populations in Turkey, Syria, Iraq and Iran have never had a homeland and the currrent interpretation of the Westphalian model, never will.  In the worst cases, as in the current Ukrainian situation, substantial military conflicts arise.  Even in the best of situations, 'break away' regions, such as Kosovo are caught in a state of limbo.  Serbia considers it to be part of Serbia, while Kosovo, primarily ethnic Abanians, considers itself to be independent.  They have their own money, their own license plates, their own border control, but they are not recognized by about half of the UN members and are not a UN member, themselves.  Northern Cyprus is in a worse situation with de facto independence, but recognized only by Turkey.  Turkey maintains a substantial military presence there to dissuade Cyprus and/or NATO of engaging in a military intervention.

The above mentioned cases are examples where there is little controversy over whether the majority of the people within the region favor independence.  However, a very substantial minority (>40%) do.  Such has been the situation in Quebec, Scotland, Northern Ireland, Chechnya, Abkhazia, Donbas (perhaps), to name a few.  While imposing laws, programs and policies that the regional majority accept but a minority profoundly disagrees with is also illiberal.  Resolution is even more problematic.

I am writing a book entitled, 'A New Enlightenment: Political Philosophy in the Information Age'.  In it I propose a new principle of liberalism, specifically, 'No person should be required to live under a body of laws, programs and policies that (s)he considers to be fundamentally unjust'.  This does not mean that every difference of opinion should invoke this principle.  There is plenty of room for political resolutions.  However, this does not apply to significant differences in principles.

Politics is the art of compromise.  It is wrong to compromise one's principles.  Therefore, political resolutions are not proper when differences are matters of principle.  Resolutions are also not likely to be found because the opposing sides won't compromise.  This divergence of values is central to the polarization in the U.S. It will be central to the coming 'divorce'.  Nor, I argue, should they.  Enforcing 'territorial integrity' over a minority because the minority agree with it is fundamentally counter to the principles of liberalism.

Originally, Crimea was populated by Scythians but Persia rendered the peninsula more or less uninhabitable.  Over time, other populations moved in.  By 600 A.D., Crimea was ethnically a mixture of Greeks, Bulgars, Kypchaks and Goths.  However, around 900 A.D. Russians took it from the Byzantine Empire.  They held it until around 1200 A.D. when briefly Venice took it over, but lost it 30 years later to the Mongol invasion.   In 1475, it was taken over by the Ottoman Empire.  They held it until 1783 when Russia took it back.  While Russia and, later, the Soviet Union had difficulty holding it until after WWII.

During the 2014 conflict in Crimea, the news talked about what the U.S. wanted, what the national government of Ukraine wanted, what Russia, Germany and France wanted.  I kept asking, 'What to the Crimeans want?  Isn't that most important?'  What I learned was that few people could think outside of the Westphalian model.  Those stuck in it interpreted Russia as invading Ukraine.  However, those who could transcend the Westphalian model might conclude that, rather than an invasion, Russia was defending the Crimea's right to self-determination.  One might argue, as I would, that if Ukraine is allowed to defend its right to self determination, the same right should be granted to Crimea and now Donbas, as well.

 
Today, all the ethnic populations that comprise Crimea's history have disappeared through interbreeding save for the Tatars.  The Tatars came to Crimea through the Mongol invasion.  They comprise about 12% of the population of Crimea.  While Ukrainian is more of a national identity than an ethnic one, but it comprises about 15% of Crimea.  That is somewhat misleading since Pew Research found that about 88% of Crimeans favor the joining of the Russian Federation.  However, that means that 12%, presumably mostly Tatars, who do not.  

If there is an ethical justification for Crimea to withdraw from Ukraine, then that same logic will apply to any decision of the Tatars to leave the Crimean government.  We don't know that there is any appetite for such a secession.  However, that is not important with regard to their right to do so.  The problem arises when there is no clear geographic definition of the population.

Northern Ireland is an example of a minority population within a geographically defined region that did not want to belong to a larger nation state but did not define a specific geographic location within Northern Ireland.  It is a good example of an intermediate situation.  A minority of Northern Irish were Catholic and wanted Northern Ireland to reunite with Ireland.  Most Northern Irish did not and preferred to remain in the U.K.  They really had just two reasonable options.  One, they could individually move to Ireland and, in fact, that has slowly been happening.  Two, they could all move to the most Catholic portion of Northern Ireland and when they become the majority in that area, declare independence for that region and/or apply for membership in Ireland.

In most of Europe, minorities that contain separatist movements typically already have their own region or province.  This is certainly true in the Basque region of Spain and France, Scotland, Alsace in France, Bavaria in Germany, etc.  It means that if the separatist movement reaches a critical mass, the independence demands will be fairly well defined.  However, in every case, they comprise a very small minority of the nation state's population. 

While most of the separatist movements in North America are not ethnic or regional, that is beginning to change.  That is because, as the majority in a given State or Province uses the 'tyranny of the majority' to create the laws, programs and policies that they prefer, the minority leaves.  This is often just concentrating pre-existing subcultural differences.  In other words, California, for example, has been progressive and secular for quite awhile.  On the other hand, Florida has been conservative and Christian.  What is happening is that conservative and religious Californians are moving to Florida and while there is not yet evidence for it, presumably, eventually, as this process continues, progressive, secular Floridians will move to California.

At some point, one can easily imagine that California, Oregon and Washington may not want to share a country with Texas, Tennessee, Florida, etc.  However, will there be justification for the withdrawal from the Union?  We know that in 1860, there was not.  A war was fought.  However, it is now over 160 years later.  Laws, interpretations of laws and public opinions have changed.  Say that Florida seceded from the U.S.  The majority of Americans would likely be against it.  However, would they be willing to see columns of tanks roll into Tallahassee, arresting local officials and bombing pockets of resistance?  Most likely the answer is no and a situation that now prevails in Transnistria, Abkhasia, Kosovo, Northern Cyprus, etc. would result.  In other words, Florida would behave as if it was independent, the Federal government would not recognize it, but would only engage in non-violent resistance.

I am currently in-process on a book, 'The Rise of the Microstate: The geopolitics of the Information Age' in which I will explore the mechanisms by which nation states will end and subculturally defined microstates will emerge.  Here, however, we are focusing on whether nation states are on sound philosophical ground when they assert, as they almost always do, that secession is illegal.  The current interpretation of the Westphalian model, they invariably say that it is illegal.  Other countries will claim that it is an internal affair and other nations should not recognize breakaway regions until and unless the nation state involved does so. 

Enlightenment principles support the concept of individual liberty.  The issue of liberty aggregated while often addressed in scholarly communities has generally concluded that secession is a natural extension of the individual right to liberty and self-determination.  However, among legal communities, whether addressing international law or the legal status within a specific nation state the right to secession has not regularly seen as justified and when it is seen as justified, only so in extreme situations.  This is primarily the result of the canonization within the United Nations and other transnational organization of the Westphalian system.  Being of a more philosophical rather than legal perspective, I am more convinced by the former than the latter.  However, the issue is quickly becoming a more practical one than either a philosophical or legal one.

We currently have a number of 'breakaway' regions that are functioning as de facto nations.  We also have several where secession was declared but where national governments recaptured control.  Other regions, such as Northern Ireland have become peaceful but are likely to have continuing problems due to changes in demographics.  Lastly, the fragmenting and polarizing processes of the Internet will likely see increasing calls for independence.  Simply put, if each event results in a war, the 21st Century will become quite bloody.  The Westphalian model simply must be modified so that secession and the emergence of microstates is an orderly and peaceful one.  Right now, the war in Ukraine is being misapprehended as a war between Westphalian nation states when it is, in reality, about the right to secede.  It is the present one, but it is hardly the last one.

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'.
 

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