Tag Archives: PeterZeihan

Giving globalization a bad name

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Reacting to a post by Peirre Lemieux on the coronavirus, Alberto Mingardi writes,

Will people learn the lesson, and realize that a closed economy is poorer, as Pierre hopes? I fear not. Though the emergency measures somehow provide us with a preview of the kind of country the economic nationalists would like us to live in, they will quickly turn the tables, blaming the virus on globalization, and making trade with China the villain of the story. Italy’s reaction to coronavirus is convincing other countries to treat Italians as we treat ourselves – limiting direct flights, imposing quarantines, etc. This will also increase the perception that reliance on international trade is a weakness, thereby fueling a renewed rhetoric of the marvels of autarky. Sure enough, when people travel they carry their diseases with them: this is not news. Prepare for a new nationalist narrative built around this idea.

I agree. I don’t think that this will make people appreciate globalization–quite the opposite.

Incidentally, I think that this makes it unlikely that President Trump will suffer a political setback because of the coronavirus. Closing the border is his signature issue, and the Democrats have staked out a position as the “resistance” to that. I know that they think they can benefit from this crisis, but I would be surprised if they do.

As for the economics of the crisis, I see it in terms of a PSST story. Many patterns of specialization and trade depend on globalization. The conventional wisdom seems to be that the central banks will be prominent actors, but I could not disagree more. I would suggest that instead of monitoring the Fed, one should watch the transportation hubs–especially ports–and manufacturing centers. To the extent that the attempts to contain the virus cause those places to be shut down, patterns of specialization and trade will be broken, and there won’t be anything that the Fed can do about it.

In my view, Scott Sumner and Jason Furman and other macroeconomists who apply a monetarist or Keynesian “model” are simply not capable of interpreting the world as it really exists. That is a harsh judgment, but I cannot be more gentle.

As Peter Zeihan puts it,

Modern manufacturing is a logistical marvel that taps hundreds of facilities in dozens of countries, but that system is based on frictionless international trade. Break just a few links and the entire network collapses. A modern car has about 2000 parts. If you are missing ten, you’ve got a large paperweight.

I suspect that for the economy, the best-case scenario is that authorities gradually decide that it’s not such a crisis, they let everyone go about their business, and whoever gets the virus, gets it. The worst-case scenario is that clusters of cases continue appearing, and each appearance leads authorities to strangle more transportation and production centers. If the latter happens, then I am pretty sure you will find the PSST paradigm more useful in explaining and predicting outcomes.

Paula Bolyard draws an interesting analogy with the Y2K computer scare. If that analogy proves correct, then we should be closer to the best-case scenario. But one thing about the Y2K scare is that it had a definite endpoint–by mid-January of 2000, doomsday was a dud. I only see the coronavirus panic ending when the media can no longer attract eyeballs to the story.

As to the outlook for the virus itself, consider three scenarios:

1) the proportion of people exposed to the virus approaches 100 percent

2) the proportion of people exposed to the virus approaches 0.

3) the proportion of people exposed to the virus approaches some middle number.

I am not a virologist, but this virus seems optimized for spreading. So wouldn’t you bet on 1)?

Suppose that the virologists in the media successfully convince us to become OCD handwashers and germophobes. Will that actually be able to stop the virus? What other consequences, good and bad, might accompany such a change in culture?

Note that I wrote this at the end of February, adding the Bolyard paragraph on March 2 and the references to Peter Zeihan and Jason Furman on March 6. By the time this post appears, I may have to correct some of my claims in light of developments.

UPDATE: John Cochrane has thoughts. Also, Scott Alexander. And Tyler Cowen.

On Peter Zeihan’s latest book

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It is called Disunited Nations. From the introduction:

What’s been different in recent decades is that geography has been suspended somewhat, enabling deep global economic interconnections. We’ve come to see those connections as a great strength; they are turning into weakness before our very eyes.

Of course, those words were written even before the media discovered the term “coronavirus.” UPDATE: Today, Zeihan posted his take on the coronavirus, and it is exactly what a reader of his book would expect.

Much later in the book, Zeihan writes,

On the farm, we marry young, we work young, and die young. In the city, we marry old, work old, and die old.

In explaining the decline in family size, he argues that industrialization/urbanization is the main cause. Adults who run family businesses, especially farms, usually value children. So a more rural society will have more children. Furthermore, cities are very crowded. Because living space is expensive, an urban society will have fewer children.

One virtue of this explanation for declining family size is that it applies to countries that did not go through the American sexual revolution but still have experienced declining family size as they urbanized. Also, it occurs to me that perhaps the Baby Boom can be attributed in part to the way that suburbs relieved the crowding of cities.

It makes me wonder more generally about the social effects of a shift from family businesses to corporations. What sort of cultural changes result from that? Have other countries succeeded in protecting family businesses, and if so, has this helped maintain birth rates? I suspect that the answer is “no.”