The Long View

What Dreadful People

If Ambrose Evans-Pritchard of the Telegraph is to be believed, there are parallels between China's young officers today and the 1930s syndrome:  

[I]t was slightly disturbing to hear the warnings of a distinguished China-watcher at a closed-door session of the annual Ambrosetti conference on Lake Como….

“China's military spending is growing so fast that it has overtaken strategy,” said Professor Huang Jing from the Lee Kwan Yew School of Public Policy in Singapore. (He kindly let me quote his remarks.)

“The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. They are thinking what they can do, not what they should do. This is very dangerous.

“They are on a collision course with a US-dominated system”.

Harvard Professor Niall Ferguson rattled me even further with a talk warning that the Chimerica marriage of the last generation is “on the rocks”….

China's trade surplus is surging back to near record levels, yet the yuan has barely moved against the dollar since the fixed peg ended in June. It has actually fallen against a trade-weighted basket of currencies.

This is not an accident. The exchange rate is controlled.…Prof Ferguson said naval rivalry is passé – cyberwarfare is the issue of the future

[But chairman of US chiefs of staff, Admiral Mike Mullen, apparently never got that memo. He says:]

[H]e had moved from being “curious” about what the Chinese were doing, “to being concerned about what they're doing. They seem to be taking a much more aggressive approach.”

“I see a fairly significant investment in high-end equipment – satellites, ships … anti-ship missiles, obviously high-end aircraft and all those kinds of things. They are shifting from a focus on their ground forces to focus on their navy, and their air force.”…

Let us hope that the Communist hierarchy in Beijing can rein in those young officers. But as Dr Huang said, they can no longer control much of anything, least of all the 17m-strong base of the Communist Party.

“The empire has lost control of its officials, which is how Chinese empires have always fallen in history.”

So what are the moving parts here? We have an up-and-coming power that is up-and-coming in the sense that a helium balloon attached to an open valve will tend to rise until it bursts, ruled by a government that has less and less control of its principal agencies. It is in implicit economic and, presently, military conflict with an international system whose key features are in the care of a power whose political class increasingly looks on public institutions as resources to be mined rather than trusts to be conserved.

Readers may share a certain sense of inevitability about where all this is going. When the dust settles, there will be considerable regret. The barbarians were a kind of solution.

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Meanwhile, the rich grow ever more hateful, according to a comment by Mathew Lynn that appeared on Bloomberg News:

[A]t a conference in Zurich last week, the head of Barclays Wealth Management's private-banking unit, Gerard Aquilina, appeared to issue a red alert about the richest of clients.

“Beware of the complexities of dealing with ultra high net worths,” Aquilina told his audience. “Demanding and often unreasonable” requests from them may create “impossible demands on the organization.”

Such as? Help with getting children into the right school, securing credit to buy property, or obtaining last-minute concert tickets, for example. Even worse, the richest of the rich turn out to be pretty stingy as well. They don't even want to pay the full fee for all the services they demand.

It was strong stuff. But it was also an insight into the way the rich have changed over the past decade. They are, it turns out, a nasty bunch of people who are only getting nastier. And the banking industry only has itself to blame…

There is an increasing amount of evidence that the rich are a vicious tribe of people. One study last year from the University of California, Berkeley, found that the rich are ruder than others. Another piece of research, conducted at the same institution, concluded they were less likely to give to charity than poorer people were. A third study, carried out at the Humboldt University in Berlin, concluded they were “nastier,” in the sense of being keener to punish others…

In the past, most fortunes were built in association with ordinary people. Factory owners were aware of the shop-floor workers on whom their wealth depended, and that shaped the view of themselves….

The growth of the financial-services industry and the bonus culture has changed that. The investment bankers and hedge-fund managers who make up most of the new rich elite don't have much contact with ordinary people. They assume their wealth is entirely the result of their own brilliance. And they cut themselves off from normal life…

Let us not be too hard on pure capitalists. The House of Morgan used to provide substantial management expertise to the new railroads and manufacturing companies it financed, for instance. In the 19th and most of the 20th century, capitalists as well as industrial entrepreneurs generally had a sense that their activities had systemic implications for their societies. The Old Left may not have kept them honest, but it did help keep them careful.

No doubt the evaporation of that kind of that Left has enticed the globe's capitalists to careers of unfettered avarice and outrage, but that's not the important part of the story. The financial industry has grown irresponsible because it has grown increasingly anachronistic. It was created to foster the establishment of advanced industrial societies. This is duly did, to such effect that, in developed countries, there has been a diminishing return from the amount of capital invested to the improvement of the human condition. Finance is not about anything anymore. No wonder if the personalities of its principal practitioners decay.

The model here may be the fate of those first great Western capitalists, the Knights Templar. They built the first international banking system unintentionally, simply as a way to move the money of pilgrims to and from the Holy Land and all the stops in between. They were focused on the defense of the Holy Land itself; so were the secular powers of Europe, who were willing to tolerate this rather arrogant organization because it was seen to be essential to the crusading enterprise. After the final fall of the Crusader States, the Templars assumed that Europe still owed them a living.

This was not the case.

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But there is a further class of miscreants soon to get their comeuppance, says David Goldman::

Full disclosure: I just unloaded a large part of my municipal portfolio. I am restricting my holdings to bulletproof bonds with ring-fenced revenue streams... A great deal of Obama's $800 billion stimulus went to cover state and local budget gaps. It was political life-support for the hard core of the Democratic party political base, the public employee unions whose generous pension deals have turned into an estimated $3 trillion underfunding gap. As bond yields remain depressed and equity returns remain non-existent that gap will grow.

And we are about to get a Republican Congress populated by candidates who ran on a promise of no more bailouts... The cure for the crisis is to break the public employee unions. It's as simple as that. Layoffs, salary and pension givebacks, hiring of non-union employees, and so forth will enable cities and states to adjust to the misery of their circumstances. I wouldn't own Illinois state debt on a dare. Obama's home town can't expect mercy from the Republicans.

It has to get ugly. Police, firemen, transit workers and teachers will fight for what they have. The tug of war over scarce funds will take cities and states to the brink of bankruptcy and in a few cases, over

Ever eager to parrot the Party Line, back in the 1980s I fully agreed that private sector labor unions were impediments to economic efficiency and personal liberty. I applauded their precipitous decline to little more than minority rentiers. The economic argument against the unions still has force, if economic efficiency is the criterion. Now I wonder whether I should have valued that criterion. The eclipse of the unions opened the borders, thus making it difficult to see how the middle-class character of the workforce can be continued. The eclipse of the unions also unmoored electoral politics from genuine mass organizations, turning it into a species of marketing.

Yes, I know the limits of labor politicians. Nonetheless, I say better them than real estate developers and rich cranks who replaced them.

And I also have a lively understanding of the reactionary incompetence of the public sector unions. They are crooked, greedy, intolerable. Based on experience, though, I suspect we will miss them when they are gone.

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Readers of the reviews on my website may have a noticed that I have a long review up of Carl Gustav Jung's Red Book, the illuminated record of his self-examination from 1914 to 1930. I was thinking about burning my copy and displaying the event on YouTube, to see whether outraged members of the Jungian Ummah would send me email in which they claim to have foreseen the desecration in a dream. But no: I bought the book to give away as a wedding present. Otherwise, not even a bibliophile of my dedication could have justified paying so much for a single book, however large.