Plurk paste

Introduction
The past century or so has been a bit of a blitzkrieg of progress. From horse-and-buggy to passenger trains to the family car to everyday air travel.
From the abacus to adding machines to desktop calculators to smartphones.
From iron to stainless steel to silicon-laced aluminum to touch-sensitive glass. From waiting for wheat to reaching for citrus to being handed chocolate to on-demand guacamole.
Our world has gotten cheaper. And certainly better. And most definitely faster. And in recent decades the paces of change and achievement have accelerated further. We’ve witnessed the release of more than thirty evermore-sophisticated versions of the iPhone in just fifteen years. We’re attempting to shift wholesale to electronic vehicles at ten times the pace we adopted traditional combustion engines. The laptop I’m tapping this down on has more memory than the combined total of all computers globally in the late 1960s. Not long ago I was able to refinance my home at a rate of 2.5 percent. (It was stupidly awesome.) It isn’t simply about stuff and speed and money. The human condition has similarly improved. During the past seven decades, as a percent of the population, fewer people have died in fewer wars and fewer occupations and fewer famines and fewer disease outbreaks than since the dawn of recorded history. Historically speaking, we live in an embarrassment of riches and peace. All of these evolutions and more are tightly interwoven.
Inseparable. But there is a simple fact that is often overlooked.
They are artificial. We have been living in a perfect moment.
And it is passing.
The world of the past few decades has been the best it will ever be in our lifetime. Instead of cheap and better and faster, we’re rapidly transitioning into a world that’s pricier and worse and slower. Because the world—our world—is breaking apart. I’m getting ahead of myself.
In many ways this book is the most quintessentially “me” project I’ve done. My work lands me squarely at the intersection of geopolitics and demography. Geopolitics is the study of place, exploring how everything about us is an outcome of where we are. Demography is the study of population structures. Teens act different from thirty-somethings versus fifty-somethings versus seventy-somethings. I weave together these two disparate themes to forecast the future. My first three books were about nothing less than the fall and rise of nations. About exploring the “big picture” of the world to come.
But you can only speak at Langley so many times. To pay the bills I do something else.
My real job is a sort of hybrid public speaker/consultant (the fancy marketing term is geopolitical strategist).
When groups bring me in, it’s rare that they want to ruminate over the future of Angola or Uzbekistan. Their needs and questions are closer to home and their pocketbooks, wrapped up in a series of economic questions about trade and markets and access. What I do is apply geopolitics and demography to their problems. Their dreams. Their fears. I peel out the appropriate parts of my “big picture” and apply them to questions of electricity demand in the Southeast, or precision manufacturing in Wisconsin, or financial liquidity in South Africa, or the nexus of security and trade in the Mexico border region, or transport options in the Midwest, or energy policy during the turn of American administrations, or heavy industry in Korea, or tree fruits in Washington State.
This book is all that and more. So much more. I’m once again using my trusty tools of geopolitics and demography to forecast the future of global economic structures, or, to be more accurate, their soon-to-be lack thereof.
To showcase the shape of the world just past the horizon.
The crux of the problem we all face is that, geopolitically and demographically speaking, for most of the last seventy-five years we have been living in that perfect moment.
At the end of World War II, the Americans created history’s greatest military alliance to arrest, contain, and beat back the Soviet Union. That we know. That’s no surprise. What is often forgotten, however, is that this alliance was only half the plan. In order to cement their new coalition, the Americans also fostered an environment of global security so that any partner could go anywhere, anytime, interface with anyone, in any economic manner, participate in any supply chain and access any material input—all without needing a military escort. This butter side of the Americans’ guns-and-butter deal created what we today recognize as free trade. Globalization.
Globalization brought development and industrialization to a wide swath of the planet for the first time, generating the mass consumption societies and the blizzard of trade and the juggernaut of technological progress we all find so familiar. And that reshaped global demographics.
Mass development and industrialization extended life spans, while simultaneously encouraging urbanization. For decades that meant more and more workers and consumers, the people who give economies some serious go. One outcome among many was the fastest economic growth humanity has ever seen. Decades of it.
The Americans’ postwar Order triggered a change in condition. By shifting the rules of the game, economics transformed on a global basis. A national basis. A local basis. Every local basis. That change of condition generated the world that we know. The world of advanced transport and finance, of ever-present food and energy, of never-ending improvements and mind-bending speed.
But all things must pass. We now face a new change in condition.
Thirty years on from the Cold War’s end, the Americans have gone home. No one else has the military capacity to support global security, and from that, global trade. The American-led Order is giving way to Disorder.
Global aging didn’t stop once we reached that perfect moment of growth.
Aging continued. It’s still continuing. The global worker and consumer base is aging into mass retirement. In our rush to urbanize, no replacement generation was ever born.
Since 1945 the world has been the best it has ever been. The best it will ever be. Which is a poetic way of saying this era, this world—our world— is doomed. The 2020s will see a collapse of consumption and production and investment and trade almost everywhere. Globalization will shatter into pieces. Some regional. Some national. Some smaller. It will be costly. It will make life slower. And above all, worse. No economic system yet imagined can function in the sort of future we face.
This devolution will be jarring, to say the least. It’s taken us decades of peace to suss out this world of ours. To think that we will adapt easily or quickly to such titanic unravelings is to showcase more optimism than I’m capable of generating.
But that’s not the same as saying I don’t have a few guideposts.
First comes something I call the “Geography of Success.” Place matters.
Hugely. The Egyptian cities are where they are because they had the perfect mix of water and desert buffer for the preindustrial age. Somewhat similarly, the Spanish and Portuguese rose to dominance not simply because of their early mastery of deepwater technologies, but because their location on a peninsula somewhat freed them from the general melee of the European continent.
Toss industrial technologies into the mix and the story shifts. Applying coal and concrete and railways and rebar en masse takes a lot of money, and the only places that could self-fund were those with a plethora of capitalgenerating navigable waterways. Germany has more than anyone in Europe, making the German rise inevitable. But the Americans have more than anyone in the world—than everyone else in the world—making the German fall just as inevitable.
Second, and you may have figured this out for yourself already, Geographies of Success are not immutable. As technologies evolve, the lists of winners and losers shift with them. Advances in harnessing water and wind eroded what made Egypt special into history, providing room for a new slate of major powers. The Industrial Revolution reduced Spain to a backwater, while heralding the beginning of the English Imperium. The coming global Disorder and demographic collapse will do more than condemn a multitude of countries to the past; it will herald the rise of others.
Third, shifting the parameters of the possible impacts . . . pretty much everything. Our globalized world is, well, global. A globalized world has one economic geography: the geography of the whole. Regardless of trade or product, nearly every process crosses at least one international border.
Some of the more complex cross thousands. In the world we are (d)evolving into, that is relentlessly unwise. A deglobalized world doesn’t simply have a different economic geography, it has thousands of different and separate geographies. Economically speaking, the whole was stronger for the inclusion of all its parts. It is where we have gotten our wealth and pace of improvement and speed. Now the parts will be weaker for their separation. Fourth, not only despite the global churn and degradation, but also in many cases because of it, the United States will largely escape the carnage to come. That probably triggered your BS detector. How can I assert that the United States will waltz through something this tumultuous? What with its ever-rising economic inequality, ever-fraying social fabric, and evermore bitter and self-destructive political scene?
I understand the reflexive disbelief. I grew up during the age of duckand-cover. I find it galling that issues such as “safe spaces” in colleges devoid of divergent viewpoints, transgender bathroom policy, and vaccine benefits have even crossed into the proverbial town square, much less all but crowded-out issues such as nuclear proliferation or America’s place in the world. Sometimes it feels as though American policy is pasted together from the random thoughts of the four-year-old product of a biker rally tryst between Bernie Sanders and Marjorie Taylor Greene.
My answer? That’s easy: it isn’t about them. It has never been about them. And by “them” I don’t simply mean the unfettered wackadoos of contemporary America’s radicalized Left and Right, I mean America’s political players in general. The 2020s are not the first time the United States has gone through a complete restructuring of its political system.
This is round seven for those of you with minds of historical bents.
Americans survived and thrived before because their geography is insulated from, while their demographic profile is starkly younger than, the bulk of the world. They will survive and thrive now and into the future for similar reasons. America’s strengths allow her debates to be petty, while those debates barely affect her strengths.
Perhaps the oddest thing of our soon-to-be present is that while the Americans revel in their petty, internal squabbles, they will barely notice that elsewhere the world is ending!!! Lights will flicker and go dark.
Famine’s leathery claws will dig deep and hold tight. Access to the inputs— financial and material and labor—that define the modern world will cease existing in sufficient quantity to make modernity possible. The story will be different everywhere, but the overarching theme will be unmistakable: the last seventy-five years long will be remembered as a golden age, and one that didn’t last nearly long enough at that.
The center point of this book is not simply about the depth and breadth of changes in store for every aspect of every economic sector that makes our world our world. It is not simply about history once again lurching forward. It is not simply about how our world ends. The real focus is to map out what everything looks like on the other side of this change in condition. What are the new parameters of the possible? In a world deglobalized, what are the new Geographies of Success?
What comes next?
After all, the end of the world really is just the beginning. So, it’s best if we start there.
At the beginning. Section I: The End of an Era How the Beginning Began
In the beginning we were wanderers.
We didn’t wander because we were trying to find ourselves; we wandered because we were HONGRY. We wandered with the seasons to places with more abundant roots, nuts, and berries. We wandered up and down elevation bands to forage for different plants. We followed the animal migrations because that’s where the steaks were. What passed for shelter was what you could find when you needed it. Typically, we would not stay in the same place for more than a few weeks because we’d forage and hunt the yard to nothing in no time. Our stomachs would force us to start wandering anew.
The limitations of it all were pretty, well, limiting. The only power source an unaided human has are muscles, first our own and later that of the handful of animals that we could tame. Starvation, disease, and injury were common and had the unfortunately high likelihood of proving lethal. And any provided-by-nature root or rabbit that you ate was one that someone else would not be eating. So, sure, we lived in “harmony with nature” . . .
which is another way of saying we tended to beat the crap out of our neighbors whenever we saw them.
Odds are, whoever won the fight ate the loser.
Pretty exciting, eh?
Then, one miraculous day, we started something new and wondrous that made life less violent and less precarious and our world fundamentally changed: We started gardening in our poo.
THE SEDENTARY FARMING REVOLUTION Human poo is an odd thing. Since humans are omnivores, their poo boasts among the densest concentrations of nutrients in the natural world. Since humans know where their poo gets, er, deposited . . . let’s call it “inventorying” and “securing fresh supplies” was a simple process.* Human poo proved to be one of the best fertilizer and growth mediums not just in the pre-civilized world, but right up until the mass introduction of chemical fertilizers in the mid-nineteenth century—and in some parts of the world, even today. Managing poo introduced us to some of our first class-based distinctions. After all, no one really wanted to gather and inventory and distribute and . . . apply the stuff. It is part of why India’s Untouchables were/are so . . . untouchable—they did the messy work of collecting and distributing “night soil.”* The Great Poo Breakthrough—more commonly referred to as humanity’s first true technological suite, sedentary agriculture—also introduced humans to the first rule of geopolitics: location matters, and which locations matter more changes with the technology of the day.
The first Geography of Success, that of the hunter/gatherer era, was all about range and variety. Good nutrition meant being able to tap multiple types of plants and animals. No one likes moving house, so we wouldn’t relocate until an area had been picked clean. Since we tended to clear out an area pretty quickly, and because hunger would mercilessly nudge us to greener pastures, we needed to be able to easily relocate. We tended to concentrate, therefore, in areas with a great deal of climatic variety in a fairly dense footprint. Mountain foothills proved particularly popular because we could access several different climatic zones in a relatively short amount of horizontal distance. Another popular choice was where the tropics bled into the savanna so we could tap game-rich savannas in the wet season, and the plant-rich rain forests in the dry.
Ethiopia was particularly favored by hunter/gatherers as it blended savanna, rain forest, and vertical striations into a single neat package. But that was utter crap for (poo) farming.
Getting all the food you needed from one place required a single largeish chunk of flattish ground—not the sort of spread or variety that could sustain hunter/gatherers. The seasonality of movement of the hunter/gatherer diet was largely incompatible with the constant attention requirements of crops, while the seasonal nature of harvesting crops was largely incompatible with the needs of humans’ desires to eat year-round. And just because you were staying put and farming didn’t mean your neighbors were. Without proper disincentives, they’d tend to forage right through your garden and you’d be out months of work and back into starvation mode. Many tribes started farming only to abandon it as unworkable.
Squaring these particular circles not only required that we learn a different way of feeding ourselves, it also forced us to find a different sort of geography from which we could source the food.
We needed a climate with a sufficient lack of seasonality so crops could be grown and harvested year-round, thus eliminating the starving season.
We needed consistent water flows so that those crops could be relied upon to sustain us year-in, year-out. We needed places where nature provided good, sturdy natural fences so that the neighbors couldn’t just walk in and help themselves to our labor-fruits. We needed a different Geography of Success.
THE WATER REVOLUTION
The only places on Earth that sport all three criteria are rivers that flow through low-latitude and low-altitude deserts.
Some parts of this are obvious.
» As any farmer or gardener knows, if it doesn’t rain, you’re screwed. Yet if you set up shop on the banks of a river, you’ll never run out of water for irrigation unless some bearded dude starts writing a Bible.
» Low-latitude regions get long, sun-filled days all year; the lack of seasonal variation enables multi-cropping. More crops at more times means less hunger, and hunger sucks.
» High-elevation rivers flow fast and straight and cut canyons in the landscape as they go. In contrast, low-altitude rivers are more likely to meander through flat zones, bringing their water into contact with more potential farmland. As an added bonus, when a braided river overflows its banks with the spring floods, it leaves behind a nice thick layer of nutrient-rich sediment. Silt is a great poo enhancer. » Being in a desert region keeps those pesky foraging neighbors at bay.
No sane hunter/gatherer is going to get to the edge of a desert, gaze into the endless mass of heat ripples, and dreamily opine, “I bet there are some awesome rabbits and rutabagas that-a-way.” Especially in an era when loose sandals were the most durable footwear available.
Rivers also hold a couple of less obvious advantages that are just as critical.
The first of them is transport. Moving stuff around isn’t all that easy.
Assuming you have access to an asphalt or concrete road—the sort of road that didn’t even exist until the early twentieth century—it takes about twelve times as much energy to move things on land as compared to water.
In the early years of the first millennia BCE, when a top-notch road was gravel, that energy disconnect was more likely in the neighborhood of 100 to 1.* Having a slow-moving desert river running through the hearts of our first homelands enabled humans to relocate everything from where it was in surplus to where it was in demand. Labor distribution enabled early humans to exploit more fields and so increase plantings and food supplies, and to do so in places that didn’t need to be within a short walk of where we lived.
Such advantages were often the difference between spectacular success (that is, everybody doesn’t starve) and equally spectacular failure (everybody does starve). There was also the not-even-remotelyinsignificant issue of security: soldier distribution via the waterways enabled us to fend off those neighbors dumb enough to cross our desert lawns.
This transport issue, all by itself, separated the early agriculturalists from everyone else. More lands under more secure production meant more food produced, which meant larger and more stable populations, which meant more lands under more secure production, and so on. We were no longer wandering tribes, we were established communities.
The second issue rivers solve is one of . . . digestion.
Just because something is edible does not mean that it is edible right off the plant. Things like raw wheat can certainly be chewed, but they tend to be hard on every part of the digestive system, contributing to bloody mouths, bloody stomachs, and bloody poo. Not good things in any age. Raw grains can be boiled to make a gruel that is disgusting in taste, appearance, and texture, but boiling both wrecks the grains’ nutrient profile and anyway requires substantial fuel. Boiling might work as a supplementary food stream for a tribe that wanders from place to place and often has a supply of fresh firewood and only a few mouths to feed, but it’s a complete nonstarter in a terminal desert valley. Deserts never have many trees in the first place. Where deserts and trees overlap would of course be along rivers, putting fuel sourcing in direct competition with farmlands.
Anywho, the point is that successful riverine agriculture generates big local populations. Boiling food for a lot of people—for a community—every day simply isn’t feasible in a world before coal or electricity.
Bottom line? Clearing land, digging irrigation trenches, planting seed, tending crops, and harvesting and threshing grain are the easy parts of early agriculture. The really brutal work is getting two pieces of rock and grinding your harvest—a few grains at a time—into a coarse powder that can then be prepared into easily digestible porridge (without needing heat), or, if you lived with a foodie, baked into bread. Our only available power was muscle power—both humans and our critters—and the sad physics of the grinding process required so much labor that it kept humanity in a technological rut.
Rivers helped us flush this problem. Waterwheels enabled us to transfer a bit of a river’s kinetic energy to a milling apparatus. So long as the water flowed, the wheel would turn, one big rock would grind against another, and we just needed to dump our grain into the grinding bowl. A bit later, presto! Flour.
Waterwheels were the original labor saver. At first nearly all that savings was simply folded back into the backbreaking work of irrigated agriculture, bringing more land under cultivation, enabling larger and more reliable yields. But with the farm-to-table process becoming somewhat less labor intensive, we started generating food surpluses for the first time. That too freed up a bit of labor, and we had inadvertently come up with something for them to do: manage the food surpluses. Bam! Now we have pottery and numbers. Now we need some way to store our urns and keep track of the math. Bam! Now we have basic engineering and writing. Now we need a way to distribute our stored food. Bam! Roads. All our stuff needed to be kept, managed, and guarded in a centralized location, while all our skills needed to be passed on to future generations. Bam! Urbanization and education.* At each stage, we pulled a bit of labor out of agriculture and into new industries that managed, leveraged, or improved the very agriculture the labor had originally come from. The steadily increasing levels of labor specialization and urbanization first gave us towns, then city-states, then kingdoms, and eventually empires. Sedentary agriculture may have given us more calories while deserts provided better security, but it took the power of rivers to put us on the road to civilization.
During these early millennia, there . . . wasn’t much traffic.
River-driven agricultural systems could—and did—pop up all along the world’s many rivers, but cultures enjoying that crunchy desert coating were rare birds. Our first good choices for sedentary agriculture-based civilizations were the Lower Tigris, Euphrates, and Nile, the mid-Indus (today’s Pakistan), and to a lesser degree, the Upper Yellow (that’s today’s north-central China), and . . . that’s about it.
Cultures may have been able to carve out niches—or kingdoms, or even empires—for themselves along the Missouri or Seine or Yangtze or Ganges or Kwanza—but none of them would have enough insulation from the neighbors to persevere. Other groups—whether civilized or barbarous— would wear these echo cultures down with unrelenting competition. Even the biggest and most badass of all those echo empires—the Romans —“Only” survived for five centuries in the dog-eat-dog world of early history. In contrast, Mesopotamia and Egypt both lasted multiple millennia.
The real kicker is that the next technological change didn’t make human cultures more durable by insulating them, but instead less durable by ratcheting up the competition.
THE WIND REVOLUTION
In the seventh century CE, humanity’s milling technologies finally ground through a series of technical barriers and married the milling wheel to a new power source. Instead of using paddle wheels to reach below a structure to tap the power of moving water, we used fins and sails to reach above and tap the power of moving air. The rest of the apparatus—a crankshaft and a pair of grinding surfaces—stayed more or less the same, but shifting the power source shifted the geography of where human development was possible.
In the water era, the only places that enjoyed surplus labor and labor specialization were those anchored into river systems. Everyone else had to reserve a chunk of their labor force for the grueling work of grinding. By tapping the wind, however, almost anyone could use a windmill to mill flour. Labor specialization—and from it, urbanization—could occur anywhere with rainfall and the occasional stiff breeze. It wasn’t so much that these newer cultures were more stable or secure. They weren’t. On the whole they suffered from far less strategic insulation than their pre-wind peers. But wind power expanded the zones where farming could generate surplus labor by a factor of one hundred.
This widespread spamming of new cultures had a rapid-fire series of consequences.
First, civilized life may have become far more common as the straitjacket terms for the Geographies of Success loosened somewhat, but life became far less secure. With cities popping up anywhere the rain fell and the wind blew, cultures found themselves in each other’s faces all the time. Wars involved players with better food supplies and increasingly capable technologies, meaning that war didn’t simply become more common, it also became more destructive. For the first time, the existence of a human population was linked to specific pieces of infrastructure.
Destroy the windmills and you could starve an opposing population.
Second, just as how in the jump to sedentary agriculture the geography of what generated success shifted from varied elevations to low-lying desert river valleys, the shift from water power to wind power favored different sorts of lands. The trick was to have as big an internal frontier as possible with easy distribution. Rivers were still great, of course, but any sort of large, open flatlands would work. Balancing that would be good, crunchy external barriers. Deserts would still work, but anything that did not allow agriculture would suffice. Armies had to walk, and walkers could only carry so much food. In this era most armies tended to loot their way through their invasions, so if your borderlands didn’t have anything to loot you tended to get invaded less often and less . . . thoroughly.
Too open a frontier and groups like the Mongols tended to ruin your life. The Chinas and Russias of the world tended to do pretty badly. Too rugged an interior and you could never achieve enough cultural unification to put everyone on the same side. No one wanted to be Persia or Ireland, constantly struggling with internal discord. The goldilocks geographies were those with solid, crunchy outsides and gooey centers: England, Japan, the Ottoman Empire, Sweden.
Third, these new wind-dependent cultures didn’t necessarily last any longer—in fact, most of them were just pan flashes—but there were so many more of them that the absolute supply of skilled labor that humanity could generate exploded, kicking the pace of technological advancement into a higher gear.
The first phase of sedentary agriculture kicked in with people more or less parking around 11,000 BCE. Another roughly three millennia and we figured out how to domesticate both animals and wheat. The jump to watermilling finally happened in the last couple of centuries BCE (and was popularized thanks to the Greeks and Romans). The grinding windmill took several additional centuries, not becoming common until the seventh and eighth centuries CE.
But now history sped up. Tens of thousands of proto-engineers found themselves constantly tinkering with dozens of windmill designs for the benefit of thousands of populated areas. All that nerdwork naturally had spin-off effects on a host of related wind-dependent technologies.
One of the oldest wind technologies is the simple, square-rigged sail.
Sure, it will generate a bit of forward motion, but you can only sail in the direction the wind is going—a big limitation if you don’t want to go in the direction the wind is blowing, or if there are ever, well, waves. A bigger sail doesn’t really help (in fact, a bigger square of fabric tends to just make you almost certain to capsize).
All this new experimentation with windmills, however, meant bit-by-bit improvements in our understanding of air dynamics. Single-masted, singlesquare sailing vessels gave way to multi-masted vessels with a dizzying array of unique sail shapes designed for different water and wind conditions. The improved locomotion, maneuverability, and stability capacities sparked innovation in everything from ship construction methods (out with pegs, in with nails) to navigation techniques (out with staring at the sun, in with the compass) to weaponization (out with bows and arrows, in with gun ports and cannons). In a “mere” eight centuries humanity’s experience on the sea transformed utterly. The quantity of cargo that a single vessel could ship increased from a few hundred pounds to a few hundred tons—not counting weapons or supplies for the crew. Trips north to south across the Mediterranean—once so dangerous as to be considered borderline suicidal —simply became the first, small hop on multi-month, transoceanic and circumcontinental voyages.
The result was its own flotilla of consequences for the human condition.
Political entities that could leverage the new technologies gained an Olympic track of legs up over the competition. They could generate massive income flows, which were in turn used to fortify defenses, educate their populations, and pay for expanded civil services and military forces.
The city-states of northern Italy became full-fledged independent regional powers on par with the empires of the era.
And the advances sailed on.
Until deepwater navigation, tyrannies of distance proved so consistently overwhelming that trade was exceedingly rare. Roads only existed within a culture and within most cultures there wasn’t a wide enough variety of goods to justify much trade in the first place. (Places lucky enough to have navigable rivers were the exceptions, and as such tended to be the richest cultures.) Items ripe for trading tended to be limited to the exotic: spices, gold, porcelain—items that had to compete with foodstuffs in the would-be trader’s cargo.
High-value goods generated their own problems. Someone showing up from out of town with a loaded wagon asking to buy some food was the equivalent of that idiot in contemporary times who puts a sterling silver luggage tag on his checked bag at the airport.* Because of the food restriction, no single trader could make the whole trip. Instead, trade took the form of hundreds of middlemen laced along rough routes like a string of pearls, with each adding their own price hikes to the goods’ cost.
Transcontinental trade via routes like the Silk Roads by necessity generated 10,000 percent markups as a matter of course. That kept trade goods firmly in the categories of lightweight, low bulk, and nonperishable.
Deepwater navigation sailed around the entire problem.
The new ships could not just sail out of sight of land for months at a time, reducing exposure to threats; their cavernous holds limited their need to stop for supplies. Their fearsome arsenals meant that when they did need to stop, the locals tended to not wander by and see what they could steal.
The lack of middlemen reduced the cost of luxury goods by an excess of 90 percent—and that was before the powers backing the new deepwater traders started dispatching troops to directly take over the sources of the spices and silks and porcelain that the world found so valuable.
Smarter powers * didn’t content themselves with sourcing and distribution, but also nabbed ports all along the sailing route so that their cargo and military vessels had places to shelter and resupply. Profits surged.
If a ship could safely pick up supplies along the way, it wouldn’t need to pack a year’s worth of supplies. That freed up more cargo room for the valuable stuff. Or simply more dudes with guns so they could better protect themselves . . . or take other people’s stuff.* The income from such goods, goods access, and savings empowered the more successful geographies even more. The requirement of having large high-quality chunks of arable land didn’t go away, but the importance of being able to secure yourself from land attack became far more important.
As much money as there was to be made in maritime trade, the support infrastructure of docks and ships represented fundamentally new technologies that could only be exploited with great expense. Any cash dished out to float a merchant fleet would by definition not be available to maintain an army.
The new Geographies of Success weren’t places that excelled at building ships or training sailors, but instead were those that weren’t overworried about land invasions and had the strategic space to think over the horizon. The first deepwater cultures sat on peninsulas—Portugal and Spain to be specific. When armies can only approach you from one direction, it is easier to focus your efforts on floating a navy. But countries based on islands are even more defensible. In time, the English surpassed the Iberians.
There were plenty of also-rans—cultures that could harness deepwater techs but who couldn’t necessarily keep up with the Spanish or English. A near-peer group that included everyone from the French to the Swedes to the Italians to the Dutch demonstrated that as revolutionary as deepwater technology was in everything from diet to wealth to warfare, it didn’t necessarily shatter the balance of power if everyone had the new technologies. What it did do is open a yawning gap between those cultures that could pull it off and those who could not master the new technologies. France and England couldn’t conquer one another, but they could—and did —sail to lands far removed and conquer the shit out of people who couldn’t match their technical acumen. The world’s dominant political unit rapidly evolved from sequestered agricultural communities to globe-spanning, trade-based deepwater empires.
With trade routes now measured not in tens of miles but thousands, the value and volume of the trade exploded even as the cost of that transport plummeted. The change hit the urbanization trend at both ends. Between the new naval industries and the dizzying array of traded products, the empires needed hubs to develop and process and craft and distribute everything under the sun. Demand for urbanization and labor specialization had never been higher. The collapse in per-unit shipping costs also opened up opportunities to ship far less exotic goods such as lumber, textiles, sugar, tea, or . . . wheat. Foodstuffs from a continent away could now supply Imperial Centers.
This did more than give rise to the world’s first megacities. It created urban centers where no one was involved in agriculture. Where everyone was engaged in value-added labor. The resultant explosion in urbanization and skilled labor supplies accelerated the technological curve even more.
Less than two centuries into its deepwater era, London—a city as far away from the trade hubs of the Silk Roads as is possible in Eurasia—became the world’s largest, richest, and best-educated city.
Such a massive concentration of wealth and technical skills in one place quickly reached critical mass. All by themselves, the English generated sufficient new technologies to launch their own civilizational transformation.
THE INDUSTRIAL REVOLUTION
Despite the ever-building technological reach and depth of the deepwater era, humanity retained many of the limitations that had hobbled advancement since the beginning. As “recently” as 1700, all energy used by humans fell into one of three buckets: muscle, water, or wind. The previous thirteen millennia can be summed up as humanity’s effort to capture the three forces in larger volumes and with better efficiencies, but in the end if the wind didn’t blow or the water didn’t flow or the meat wasn’t fed and rested, nothing was going to get done.
The harnessing of fossil fuels upended it all. The ability to burn first coal (and later oil) to generate steam enabled humans to generate energy when and where and in the quantities desired. Ships no longer needed to sail around the world based on the seasons; they could carry their own power with them. Increasing the strength and precision of energy application by two orders of magnitude redefined industries as broadly arrayed as mining and metallurgy, construction and medicine, education and warfare, manufacturing and agriculture—each generating its own technological suite, which in turn transformed the human experience.
Advances in medicine didn’t just improve health, they doubled life spans. Concrete didn’t just allow for real roads, it gave us high-rises.* The development of dyes didn’t just spawn a chemicals industry, it directly led to fertilizers that increased agricultural output by a factor of four. Steel— stronger, lighter, less brittle, and more corrosion-resistant than iron— provided every industry that used metal with a quantum leap in capacity, whether that industry be transport or manufacturing or war. Anything that made muscle power less necessary helped build a coffin for institutionalized slavery. Similarly, electricity didn’t just expand worker productivity, it generated light, which manufactured time. In pushing back the night, people had more hours to (learn to) read, expanding literacy to the masses. It granted women the possibility of a life not utterly committed to garden-, house-, and child-care. No electricity, no women’s rights movements.
The biggest restriction of this new industrial era was no longer muscle, water, or wind—or even energy in general—but instead capital. Everything about this new era—whether it be railroads or highways or assembly lines or skyscrapers or battleships—was, well, new. It replaced the infrastructure of the previous millennia with something lighter, stronger, faster, better . . .
and that had to be built up from scratch. That required money, and lots of it.
The demands of industrialized infrastructure necessitated new methods of mobilizing capital: capitalism, communism, and fascism all emerged.
The “simple” economics of moving goods from places of high supply to high demand became infinitely more complex, with industrialized locations providing massive volumes of fundamentally unique products adjacent to other industrialized locations providing similarly massive volumes of similarly fundamentally unique products. There were only two limitations on expansion: the ability to fund the industrial buildout, and the ability to transport the products of that buildout to paying customers.
And so the logic of Geographies of Success . . . split. Stretching all the way back to the shift from hunter/gatherer economics to the age of the waterwheel, it had always been better to be by a river. That had not changed. But it was no longer enough, and no one really had it all. Dense webs of navigable rivers could amp up local trade and generate scads of capital, but never enough to both fund local development and purchase the outcomes of that development. Trade became more important, both as a source of capital and as a source of customers. Germany proved the most successful at the former, with the Rhine, Elbe, Oder, and Danube decisively proving to be the industrial world’s densest capital-generation zone and elevating the German Empire to the era’s most powerful player. But it was Britain who ruled the waves, and therefore access to the trade routes and customers required to make Germany a global hegemon.
The pattern of favored geographies locked in by the rules of the deepwater era held solid in the industrial era. The empires of navigable waterways with far-flung dominions got bigger, tougher, and more lethal as they industrialized. Deepwater navigation made these empires global in reach, while the industrialization of warfare made that reach deadlier with the addition of machine guns, aircraft, and mustard gas. Even more importantly, the combination of deepwater navigation and industrialization enabled these deepwater empires to visit their new military capacities upon each other in a matter not of months and weeks, but days and hours. And to do so at any location on the planet.
From the first real industrial conflicts—the Crimean War of 1853–56, the American Civil War of 1861–65, and the Austro-Prussian War of 1866 —it didn’t take but two generations for the Industrial Age to generate the most horrific carnage in history, resulting in some 100 million deaths in the two world wars. One of the many reasons why the wars were so catastrophic in human terms was that the technological builds of the Industrial Revolution didn’t simply make the weapons of war more destructive, they made the cultural fabric, technical expertise, economic vitality, and military relevance of society far more dependent upon artificial infrastructure. Combatants would target opposing civilian infrastructure because it was that infrastructure that enabled warfighting. But that same infrastructure also enabled mass education, mass employment, mass health, and an end to mass hunger.
If anything, the world wars proved that geography still mattered. For while Britain and Germany and Japan and China and France and Russia were busy destroying each other’s wind and water and industrial-related infrastructure, a relatively new people—in a new geography—not only were not a target of all this broad-scale destruction, they were instead using the war to massively apply the technologies of water and wind and deepwater and industrial capacity to their territory . . . in many cases for the first time.
Maybe you’ve heard of them. They’re called Americans. Enter the Accidental Superpower
The Americans are an odd lot.
There are a great many things about the Americans that generate a great deal of interest and offense, discussion and argument, gratitude and jealousy, respect and anger. Many point to the dynamism of the American economy as the quintessential manifestation of the United States’ individualistic, polyglot culture. Others emphasize its military acumen as a global determinant. Still more see the flexibility of its constitution as being the secret to its two-going-on-three centuries of success. It isn’t that any of these are incorrect. All certainly contribute to America’s perseverance. But I’m a bit more straightforward: The American story is the story of the perfect Geography of Success.
That geography determines not only American power, but also America’s role in the world.
THE UNITED STATES IS THE MOST POWERFUL RIVER POWER AND LAND POWER IN HISTORY
Conforming to the technologies of the time, the American colonies were all agricultural in nature. None of them were what we would call breadbaskets in the contemporary sense. The New England colonies of Connecticut, Rhode Island, Massachusetts, and New Hampshire suffered from thin, rocky soils, often-cloudy weather, and short summers, limiting farming options. Wheat was a hard no. Corn was a meh. The core agricultural economy was a mix of whaling, fishing, forestry, and Fireball.* Georgia and the Carolinas enjoyed more farm-friendly weather, broadening and bettering agricultural options, but the soil was poor in a different way. Piedmont soils’ primary inputs are the decayed remnants of the Appalachians—clay high in minerals, but not necessarily bursting with organic nutrients. The natural result was roving production, with farmers clearing land, growing crops on it for a few seasons until the nutrient profile was exhausted, and then moving on to a new patch. Staying in one place necessitated hand-applied fertilization, which is backbreaking work in any era. Non-standard employment models such as indentured servitude and slavery took root in the South because of the need to improve soil chemistry as much as anything else.
The best farmland of the Original Thirteen resided in the Middle Atlantic colonies of Maryland, Pennsylvania, Virginia, New York, and New Jersey. But we aren’t talking about Iowa (midwestern) or Pampas (Argentinian) or Beauce (French) levels of quality.
* They were only considered “good” due to a lack of competition. In addition to these colonies having the least-bad mix of land and weather, they also sported the bulk of the colonies’ useful maritime frontage: the Chesapeake and Delaware Bays, Long Island Sound, and the Hudson and Delaware Rivers.
The dense waterway network encouraged concentrations of populations (aka towns), and townies don’t farm.
Less than ideal setups for farming, combined with geographic nudges in the general direction of urbanization, pushed the hard-scrabble colonists in decidedly nonagricultural directions, leading to value-added products like crafts and textiles . . . something that put them into de facto economic conflict with Britain, who saw that particular part of the imperial economy as something the Imperial Center was supposed to dominate.* The patchwork and shifting nature of agriculture in the colonies required some serious logistical ballet. Most local food distribution occurred via coastal maritime traffic; it was the cheapest and most effective means of moving goods among largely coastal colonial population centers.
When the revolution arrived in 1775, things got decidedly animated, as the Americans’ colonial overlord controlled the world’s most powerful navy.
Many colonial Americans went hungry for six long years. The American Revolution may have been successful in the end, but the economics of the new nation was, in a word, questionable.
Expansion solved most everything. The Greater Midwest by itself boasts 200,000 square miles of the world’s most fertile farmland—larger than the total land area of Spain.
Midwestern soils are thick, deep prairie soils, laden with nutrients. The Midwest is squarely in the temperate zone. Winter brings insect kills, which keep pests under control, limiting pesticide costs as well as forcing an annual soil regeneration and decomposition process that limits fertilizer needs. The full four-season experience all but guarantees ample precipitation—including snow in the winter—which typically supplies adequate soil moisture and relegates supplemental irrigation to the region’s western fringes.
The initial American cross-Appalachian migration wave funneled through the Cumberland Gap, leaving the most concentrated footprint in the Ohio territory. Ohio had access to the Great Lakes, so it behooved the New Yorkers to construct the Erie Canal in order to ship in Ohioan agricultural bounty via the Hudson. The next big migration wave fanned out from Ohio into what is today Indiana, Illinois, Iowa, Wisconsin, and Missouri. It was far easier—and cheaper—for the new midwesterners to send their grain west and south via the Ohio and Mississippi Rivers to New Orleans. From there it was a cheap, easy (albeit long) sail via America’s barrier islands’ intercoastal route to Mobile and Savannah and Charleston and Richmond and Baltimore and New York and Boston.
Between the Great Lakes and the Greater Mississippi, everyone in those first two big settlement waves landed within 150 miles of the world’s greatest navigable waterway system on some of the world’s best farmland.
The math was pretty easy. For the equivalent cost of a contemporary lowend hatchback—about $12,500 in 2020 money—a family could obtain a land grant from the government, Conestoga themselves out to the new territories, break ground, farm, and within several months be exporting high-quality grain.
The midwestern settlement proved utterly transformative—both for the new territories and the Original Thirteen—in a host of ways:
With the twin exceptions of shortages related to British blockades during the War of 1812 and Confederate governmental collapse in the Civil War aftermath, famine is something continental Americans have zero experience with as an independent country. Food production is simply too reliable, too omnipresent, and America’s internal transport system too efficient and effective for famine to be a meaningful concern.
With the North able to access foodstuffs from the Midwest, most of the Middle Atlantic and nearly all the New England fields returned to forest, with what agriculture that remained tending to be in midwestern-inappropriate specialty crops like grapes, apples, potatoes, sweet corn, blueberries, and cranberries. This de-agriculturalization process freed up labor to throw at other projects. Projects like industrialization.
Midwestern growth also nudged the South into cash crops. Growing indigo, cotton, or tobacco is far more labor intensive than growing wheat or corn. The Midwest didn’t have the labor to pull it off, but courtesy of slavery, the South did. Each region of the country specialized in outputs based on its local economic geography, with water transport enabling cheap and omnipresent intrastate trade, generating economies of scale heretofore unheard-of in the human experience.
All the land in the new Midwest was high quality, so there were no massive gaps between settled areas like there were in the Appalachians. This relatively dense settlement pattern, combined with the region’s high productivity and low transport costs, naturally led to the formation of the heartland’s small-town culture. Small banks popped up throughout the Mississippi system to manage the capital generated from product sales to the East Coast and Europe. Financial depth soon became a defining American characteristic. This not only enabled steady expansions in midwestern agriculture in terms of territory and productivity, but it also provided Middle America with the capital required to bootstrap early regional development in terms of infrastructure and education.
The easy movement of people and goods throughout the river network forced Americans to interact with one another regularly, contributing to the unification of American culture despite a wide variety of ethnic backgrounds.
The Civil War obviously interrupted this process. The Midwest lost access to the Mississippi-intercoastal shipping route until the war’s end. But by the beginning of Reconstruction in the late 1860s, farmer density in the Midwest had reached a critical mass and the steady stream of agricultural products reaching the East Coast became a flood. What had always been the most densely populated and industrialized portion of the country no longer had to worry about producing its own food at all. And all that midwestern grain generated massive capital inflows to the United States, amping up industrialization and urbanization processes that were already lumbering forward.
Beyond economics and culture and finance and trade and structure, there are security issues to consider as well.
America’s territory is the very definition of “safe.” To the north, deep, rugged forests and giant lakes separate most American and Canadian population centers. Only once, in the War of 1812, have the Americans fought their northern neighbors. Even that should be more accurately considered as a war with the Canadians’ then-current colonial master—who at the time was the world’s military superpower—than one between the Yanks and Mounties themselves. In the two centuries since the war, American-Canadian hostility has gradually given way to not simply neutrality or friendship, but an evolution into alliance and brotherhood.* The American-Canadian border today is the least-patrolled and longest undefended border in the world.
America’s southern frontier is actually more secure against conventional military attack. The fact that illegal immigration across America’s southern border is an issue in American politics underlines just how hostile that border is to formal state power. Rugged, high-altitude barrens like the American-Mexican border region are among the most difficult topographies in which to maintain meaningful populations, provide government services, or even to build basic infrastructure.* Military action in such an unforgiving, remote area has never been anything other than borderline suicidal. The single large-scale invasion across the border—that of Santa Anna in 1835–36 in his attempt to crush the Texican rebellion—so enervated the Mexican army that it was roundly defeated by an irregular force half its size, guaranteeing success to the Texican secessionists.
No wonder that a decade later, during the Mexican-American War of 1846–48, the Americans simply waited until the bulk of the Mexican army was past the point of no return in its second attempt at crossing the border deserts before using naval forces to drop troops at Veracruz. One bloody, 250-mile march later and the Mexican capital was in American hands.
THE UNITED STATES IS THE MOST POWERFUL DEEPWATER POWER IN HISTORY
Most of the world’s ocean coasts are somewhat problematic. Flat coastlines and extreme tidal variations expose would-be port locations to such unrelenting oceanic battering that truly epic port cities are a relative rarity.
Except, that is, in the United States. The middle third of the North American continent’s Atlantic coast isn’t simply blessed by an egregious number of indentations that make siting port cities child’s play; most of those port locations are then positioned behind peninsulas or barrier islands that shield America’s coasts even more. From Brownsville on the Texas– Mexico border to Miami at Florida’s tip to Chesapeake Bay, the barrier islands alone give the United States more natural port potential than all the world’s other continents combined. Even without the barrier islands, America’s beyond-world-class coastal indentations provide almost omnipresent shielded maritime access from Boston Harbor to the Long Island and Puget Sounds to the Delaware and San Francisco Bays. And don’t forget those omnipresent rivers: of America’s top 100 ports, fully half are upriver—some by as much as 2,000 miles.
Then there’s the not-so-little issue that, unique among the world’s major powers, only the United States has major populations on the coasts of two oceans. From economic and cultural angles, this enables the Americans to access trade and expansion opportunities in the bulk of the world as a matter of course. But the key word there is “opportunities.” The vast distances between America’s Pacific and Atlantic shores on one hand and the Asian and European continents on the other means that there is no requirement for interaction. Should the lands across the ocean be racked by recession or war—or should the Americans just be feeling antisocial—the Americans can quite simply stay home. No harm, no foul.
Those vast distances also mean the United States is at the very top of a very short list of countries that face no near- or mid-range threats from other oceanic powers. What islands that exist in the Pacific or Atlantic basins that theoretically could be used to launch an attack on North America—Guam, Hawaii, or the Aleutians in the Pacific, or Bermuda, Newfoundland, or Iceland in the Atlantic—are held either by close allies or the Americans themselves.
The Americans—and the Americans alone—have the capacity to interact with any power on either ocean on their own terms, whether those terms be economic or military.
THE UNITED STATES IS THE STRONGEST AND MOST STABLE INDUSTRIAL POWER IN HISTORY
Industrializing isn’t cheap or easy. It requires a wholesale tearing up of what occurred before and replacing wood and stone with more productive —and more expensive—steel and concrete. Replacing old one-at-a-time craftsmen laboring under lantern light with assembly lines, electricity, forged steel, and interchangeable parts. Overturning and discarding economic, social, and political traditions that stretch back not decades, but centuries, and replacing them with new systems that in many cases are as foreign to a culture as the new technologies that suddenly appear omnipresent. Anywhere industrialization occurs it is massively disruptive, as everything about how a country functions is tossed to the side, with entirely new systems then imposed—typically from above. The financial and social costs are typically the greatest disruptions a culture ever experiences.
In Europe, centuries of simple habitation had long ago gobbled up all available land, raising its cost. European workers were engaged in activities over every inch of that land, raising their cost. Any changes to the system demanded capital in large volume, raising its cost. Anything that made even a small change to the availability of land (like a flood or fire) or the supply of labor (like a strike or military skirmish) or the stock of capital (like someone important emigrating or a recession) would throw off the balance, raise costs dramatically for everyone, and trigger massive social upheaval. Ergo, European history for much of the preindustrial era has the feeling of a world living on a knife edge . . .
. . . and then the arrival of industrial technologies to this world tore the delicate balance apart at every level. The result was an avalanche of social upheaval, revolutions, riots, political collapses, and wars even as the countries of the Continent competed to apply the new technologies to their systems and in doing so transform themselves into massive industrial powers.
The British experience led to product dumping, global in scale, that brought the British Empire into sharp military conflict with every major power.
Russia’s industrialization in the early twentieth century broke both the landlord and serf classes simultaneously, while failing to replace them with anything better. The resulting turmoil led directly to the mass oppressions of the Soviet Union (which generated its own flavor of not-anything-better).
Germany’s breakneck industrialization transformed the power of the country’s military princes and gave rise to an industrial oligarchic class while shattering the middle class, generating a series of revolutions and civil wars that set the stage for the world wars.
Japan’s early industrialization efforts created a schism between the rising industrial-nationalists and the old feudal landlords, resulting in the eradication of the samurai class and the radicalization of the political system—taking Japan straight as an arrow to the oppression of Korea and China and the bombing of Pearl Harbor.
China’s process centralized power so firmly in so few hands that it unleashed the bleak horrors of the Great Leap Forward and the Cultural Revolution.
No country that has ever industrialized has ever managed the process without crippling social and political mayhem. Industrialization is necessary and unavoidable, but it is hard.
Unless you’re American. Understanding the why of that begins with the understanding that the United States truly is a land of plenty: The Americans were only starting to hit their stride when the industrial wave crashed upon American shores at the end of the 1800s. America’s vast size kept land costs low. Its river network kept capital costs low. An open immigration system kept labor costs low. The low cost of preindustrial inputs changed the economics of industrialization in America, even as the lack of local geopolitical competition meant there was never a national security impulse to accelerate industrialization.* Instead of hitting everywhere all at once, the new technologies first went where they could get the biggest bang for the buck: places where inputs of land and labor were already more expensive, typically in the line of cities from Washington, D.C., north to Boston. Then industrialization linked these cities together in a webwork of infrastructure. Only then does that infrastructure begin spreading out to generate suburbs, or linking in smaller cities and towns, or plunging deep into the countryside.
Germany industrialized and urbanized in barely more than a generation.
In comparison, the United States didn’t even finish electrifying the countryside until the 1960s. By many measures, the United States still isn’t even close to finished. If one eliminates lands unsuitable for habitation like mountains, tundra, and deserts, the United States remains among the least densely populated countries even today. Of those in a similar population density category, most have recently hollowed out (post-Soviet republics) and so kind of cheated, or, like the United States, are also part of the New World (Canada, Argentina, and Australia).
Simply to achieve the degree of population density that Germany had in 1900, the United States would have to nearly triple its 2022 population (and that doesn’t even count the half of American territories—such as the Rocky Mountains—that are not well suited to settling). Industrialization could and did happen in the United States, but the transformation was slower and less jarring, giving Americans generations to adapt to change.
America’s industrial splash also didn’t have a huge impact globally.
Unique among the major powers, the American population was both expanding and wealthy. Industrial output—particularly in the Northeast and the Steel Belt—could be easily absorbed by America’s own population.
There was no need to export to maintain local balances, and so no need for the economic warfare for which the British Empire had become well known (and hated). The ability of local community banks to finance local developments prevented the sort of centralized authorities that so devastated the Russians and Chinese, or that so radicalized the Japanese and Germans.
Throughout America’s early industrial period, the country’s primary interface with the global economy remained via its agricultural exports.
While the Industrial Revolution’s introduction of chemical fertilizers in the late 1800s certainly increased output, it did so just as the Industrial Revolution’s introduction of modern medicine was lengthening life spans.
Supply increased hand in hand with demand. Americans’ relative participation in the international economy simply wasn’t altered to a huge degree.* The Americans certainly had (and have) regional disparities and their own oligarchic issues, but America’s oligarchs—most infamously their robber barons—had such massive opportunities in the private sector in large part because there were still so many resources to be metabolized, they had little need to enter government for business reasons. Economic stress did not automatically translate into political stress—or vice versa. And Now for Something Completely Different
The Americans were only truly hitting their stride when World War II began. After three years of frenetic mobilization they emerged not simply as the most powerful expeditionary power in history—carrying out major integrated military actions in multiple theaters of operation simultaneously —but also as the only belligerent that at war’s end occupied all the defeated powers.
And that wasn’t all. On the roads to Rome, Berlin, and Tokyo, the Americans found themselves in control of key economic, population, and logistic nodes on three continents and two ocean basins. Between lend-lease deals and direct amphibious assaults, they now held all meaningful launching pads for attacks between the Western and Eastern Hemispheres.
Combined with their massive wartime navy, the Americans had quite inadvertently become the determining factor in issues European and Asian, financial and agricultural, industrial and trade based, cultural and military.
If there was a moment in history that a power could have made a bid for global domination—for a new Rome to arise—this was it. And if there was ever a good reason to make such a bid, it was the nuclear-tinged competition that was arising with the Soviets the day after the guns fell silent in Germany.
It didn’t happen.
Instead, the Americans offered their wartime allies a deal. The Americans would use their navy—the only navy of size to survive the war —to patrol the global ocean and protect the commerce of all. The Americans would open their market—the only market of size to survive the war—to allied exports so that all could export their way back to wealth. The Americans would extend a strategic blanket over all, so that no friend of America need ever fear invasion again.
There was just one catch. You had to pick sides in the Americans’ brewing Cold War. You could be safe and rich and develop your economy and culture however you wanted, but you had to stand with (technically, stand in front of) the Americans versus the Soviets. Instead of forging an empire global in scope, the Americans bribed up an alliance to contain the Soviet Union. The catch-all phrase for the pact is Bretton Woods, named after the New Hampshire ski resort where the Americans first made the pitch shortly after the Normandy invasion. It is perhaps more commonly known as the free-trade era of the post–World War II period, or simply as globalization.
Seems a bit like a copout, doesn’t it? Why, at the very edge of victory, did the Americans give away a worldful of imperial opportunities?
Partly it was a numbers game. In 1945 the American population was roughly equal to that of the combined Western European population, which was roughly equal to that of the Soviet population. Even leaving teeming East and South Asia aside, not only did the Americans lack the forces at war’s end to keep the territory it held, but simple math meant that they could not muster sufficient occupation forces to make a global empire work.
Partly it was a distance contest. Even with the strength of the U.S. Navy, the Atlantic and Pacific Oceans are some serious moats—and moats work both ways. The logistical costs and overreach of maintaining permanent forward-positioned garrison systems several thousand miles over the horizon simply wasn’t practical. As the Americans discovered in the decades that followed, it is difficult to occupy a country on the other side of the world if the locals don’t want you there. Korea, Vietnam, Lebanon, Iraq, and Afghanistan were often more than the Americans could handle when they were managed one at a time. Imagine what it would have been like to occupy Germany and France and Italy and Turkey and Arabia and Iran and Pakistan and India and Indonesia and Malaysia and Japan and China (and Korea and Vietnam and Lebanon and Iraq and Afghanistan) all at once.
Partly it was a map thing. The Soviet Union was a massive land-based empire that fought with huge, slow-moving armies. America’s military may have been the largest of the Allies, but the United States was primarily a naval power. Duking it out with the Soviets soldier-to-soldier simply wasn’t an option when the bulk of the American military capacity required, well, water, and wasn’t designed to fight a thousand miles from the nearest friendly port.
Partly it was a culture clash. The United States was the modern world’s first democracy. Democracies are pretty good at defending their own and tearing down dictatorships and fighting for truth and justice and all that.
Long-term occupations expressly designed to bleed the locals dry? That’s a harder sell.
Partly it was an organizational mismatch. The United States is a federation—where the states wield as much power as the national government—for good reason. The country’s safe security geography combined with its rich economic geography meant the federal government didn’t need to do much. For the first three generations of U.S. history, all the federal government was perennially responsible for was building a few roads, regulating immigration, and collecting tariffs. The Americans have never had a tradition of governing excellence* because for much of their history they didn’t really need a government. Managing foreign territories twice the size of the United States would have been, like, really hard. And the Americans are, like, really bad at government.
If the United States couldn’t—or wouldn’t—forge an empire to fight the Soviets, then the Americans needed allies that were sufficiently numerous to make a difference, sufficiently proximate to the Soviet border to mitigate America’s distance, sufficiently skilled in land-based warfare to compensate for America’s naval and amphibious nature, sufficiently wealthy to pay for their own defense, and sufficiently motivated by their own independence to bleed for it should fighting be required. None of that would have been possible with American occupation armies on their soils and American customs officials in their boardrooms.
But most of all, the Americans didn’t want an empire because they already had an empire. The useful lands of the United States’ portion of North America were greater in potential than that of any empire that had come before. And at war’s end the Americans not only were not yet done metabolizing them; they wouldn’t be for decades. Based on population density, one could (easily) argue that the Americans in 2022 are still not done. Why send your sons and daughters abroad to bleed in a day-to-day fight against dozens of peoples to maintain a global empire when you could just build some new roads around Detroit and Denver and get the same payout? The American break with the traditions of international relations went beyond its abandonment of the to-the-winner-go-the-spoils style of postbellum realignments. It also extended to the nature of human existence itself, resulting in a fundamental rewiring of the human condition.
At war’s end the Americans used Bretton Woods to create the globalized Order and fundamentally change the rules of the game. Instead of subjugating their allies and enemies, they offered peace and protection.
They transformed regional geopolitics by putting nearly all the warring empires of the previous age—in many cases countries that had been in a shifting, cutthroat competition with one another for centuries—on the same team. Inter-imperial rivalry gave way to inter-state cooperation. Military competition was banned among the Bretton Woods participants, enabling the former empires (and in many cases, their former colonies) to focus their efforts not on armies or navies or borders, but instead on infrastructure and education and development.
Instead of having to fight for food or oil, everyone gained trade access global in scope. Instead of having to fight off empires, everyone gained local autonomy and safety. Compared to the thirteen millennia of history to this point, it was a pretty good deal. And it worked. Really well. In a “mere” forty-five years the Bretton Woods system succeeded in not just containing the Soviet Union, but in choking it to death. The Bretton Woods system generated the longest and deepest period of economic growth and stability in human history. Or at least it did until disaster struck.
Until the Americans won.
On November 9, 1989, the Berlin Wall fell. Over the course of the next few years the Soviet Union lost control of its Central European satellites, Russia lost control of the Soviet Union, and Moscow even briefly lost control of the Russian Federation. Across the American alliance network, there were celebrations. Parties. Parades.* But there was also a new problem.
Bretton Woods was not a traditional military alliance. In order to combat the Soviets, the Americans had used their dominance of the oceans and superior economic geography to purchase an alliance. The United States enabled global trade and provided a bottomless market for alliance members’ exports. Without a foe, the Bretton Woods alliance lost its reason to be. Why expect the Americans to continue paying for an alliance when the war was over? It would be like continuing to make mortgage payments even after your house is paid for.
As the 1990s unfolded, the Americans somewhat lazily segued into an amorphous middle area. They would continue to uphold the Order so long as the Europeans and Japanese granted them deference in regional defense planning. Given that the Soviet Union was gone, the Russians were in disarray, and the Islamic world was more or less quiet, the costs to the Europeans seemed low and the benefits high. The biggest issue the NATO alliance faced was the disintegration of Yugoslavia, a rather esoteric event whose spillover didn’t threaten the security of a single NATO country. The hottest event in the Middle East was the occasional pop of the PalestinianIsraeli conflict. In Asia, China may have been rising with the unwinding of the Mao cult, but to think of China as a serious military power was borderline laughable. In such a benign environment, no one thought much about rocking the proverbial boat.
The 1990s were a nice decade for most. Strong American-provided security. No serious international conflicts. Global trade penetrated deep into the former Soviet space as well as into countries that had done their best to sit out the Cold War. The cost of the American overwatch and market access steadily expanded, but in an environment of peace and prosperity it all seemed manageable. Germany reunified. Europe reunified.
The Asian tigers roared. China came into its own, driving down the price of consumer products. Resource producers, whether in Africa, Latin America, or Down Under, made scads of money helping more parts of the world industrialize. Globe-spanning supply chains made the Digital Revolution not simply possible, but inevitable. Good times. We all came to think of it as normal.
It is not.
The post–Cold War era is possible only because of a lingering American commitment to a security paradigm that suspends geopolitical competition and subsidizes the global Order. With the Cold War security environment changed, it is a policy that no longer matches needs. What we all think of as normal is actually the most distorted moment in human history. That makes it incredibly fragile.
And it is over. The Story of . . . Us
Different people behave differently. I’m not talking about the cultural differences geography causes among groups as diverse as Romanians and Russians and Rwandans and Roswellians. Instead I’m thinking about the horizontal layers within a society: differences based on age.
Kids act different than the postcollege crowd than middle-aged parents than empty-nesters than retirees. Stack them up and you get a modern economy. Hive them apart and you can identify many of the contemporary trends racking the global system. Modern population structures—the technical term is “demographics”—are a direct outcome of the Industrial Revolution.
DITCHING THE FARM
It matters where we live. One of the defining traits of the post–World War II era is mass urbanization. This urbanization process occurred in diverse ways at distinct rates in various eras. In large part the differentiator is time.
Not everything in the Industrial Revolution happened at once.
The generally accepted first step of the Industrial Revolution occurred in the sleepy world of textiles. Preindustrial textile work was typically a cottage industry. A variety of different plant and animal inputs required a variety of different processing methods, ranging from cutting to breaking to scutching to heckling to boiling to retting to shearing to carding. Once the raw material had been somewhat processed, it could be spun or thrown into yarn or thread, plied into thicker yarn, and finally either woven into cloth with a loom or knitted or crocheted. It was all kind of tedious, the very definition of labor intensive, and few ever really enjoyed it.* That hardly means there wasn’t money to be made, with the British the first to become interested at scale. It began by using ultracheap Indian labor (that’s South Asian “Indian,” not North American “Indian”) to do all the tedious, annoying work. The East India Company, founded in 1600 to bring in spices to make English food less soul-crushing, transitioned by the century’s end to more heavily focus on distributing Indian cloth throughout the empire. Imperial citizens all became aware of the accessible glory of cotton, muslin, calico—even silk. Having tasted the profits of someone else’s labor, and having discovered that pretty much everything out of India was better than the wool that was used in Britain’s homegrown textile industry, the race began to do everything better.
As the 1700s rolled on, the British began importing cotton—at first from the Indian subcontinent and later the American colonies–turned– United States—and started building a larger-scale cottage-cum-guild industry for textiles. As the years ticked by and profits from cotton processing and textile manufacture grew, workers and bosses developed newfangled ways of increasing productivity, complexity, and durability.
Flying shuttles, spinning wheels, water frames, spinning jennies, spinning mules, steam power, cotton gins, Jacquard looms, variable-speed battons, synthetic dyes. One by one the new inventions increased what was possible in terms of speed, volume, and value. By 1800 all these inventions (and more) were widespread throughout Britain.
Inventions built upon inventions to the point that in the early 1800s, cotton goods accounted for 40 percent of the value of British exports. Nor were they the end of the story. At the same time the British were experimenting with a million variations of how to spin, weave, and sew, they were making the transition from charcoal to coke to coal, from pig iron to wrought iron to cast iron to steel, from waterwheels to steam engines.
Hand-made tools gave way to lathes and milling machines that could make the instruments that enabled the fabrication of chemicals.
Bit by bit, people found employment in the development and operationalization and refinement of these new techniques. Nearly all the new technologies required mass colocation at specific work sites with installed equipment. The old cottage textile system was farm- or ranchbased and wind- (or more likely, human-) powered. The new industrial conditions were urban-based and coal-driven. The countryside drained as people chased the money. Towns became cities. The new concentrations of people generated their own challenges, necessitating demand for and innovations in the fields of medicine, sanitation, transport, and logistics.
And each of these hundreds of technological improvements altered the relationship of humans to economics and resources and place.
Governments started facilitating or providing mass services— everything from electricity to health care—and those services are easier to provide in dense urban footprints than across the scattered countryside.
People moved en masse off the farm to the cities, seeking what they perceived as higher standards of living for less of an outlay of personal effort.
A second aspect of the Industrial Revolution proved equality adept at changing people-versus-geography relationships: the development of chemical fertilizers, pesticides, and herbicides. Once they were introduced in the mid-1800s it was fairly common to see agricultural output per acre triple (or more) while simultaneously reducing labor inputs. The economics of agriculture shifted irrevocably. It was no longer the towns pulling people from the farms, but now the farms were pushing people into the cities.
The net effect of the new urban industries and the newly hyperproductive countryside started all of us down the road to city living, spawning a host of issues the human race is still grappling with today. By far the most dramatic impact has been on birth rates. On the farm, having children was often more an economic decision than it was about love.
Children were free labor that were de facto chained to their parents’ economic needs. There was an understanding—rooted in millennia of cultural and economic norms—that children would either take over the farm as their parents aged, or at least not move all that far away. The extended family formed a tribe that consistently supported one another. This culturaleconomic dynamic has held true since the dawn of recorded history, even to and through the consolidation of the world into empires and nation-states.
Much to my mom’s chagrin, urbanization tossed those norms out the window. Move from a sprawling farm into a quarter-acre plot in a small town—much less a high-rise condo in a dense metropolis—and the economics of children collapse. There is no longer all that much work for the kids to do. Yet the kids still need to be clothed and fed. With the farm’s output no longer at the parents’ fingertips, food must be paid for. Even with summer jobs and paper routes, the best parents can hope for as regards their mini-me’s is a net-zero financial position. Move from the small town to the city, and children quickly (d)evolved (in economic terms) into being little more than really pricy conversation pieces. And while more than one parent cries tears of sad joy when the kids finally move out, there tends to be little of the panic that would have occurred had such vacating happened on a preindustrial, near-subsistencelevel farm. When much of the economic rationale for having children evaporates, people do what comes naturally: they have fewer of them.
And yet, populations grew throughout the industrialization process. Part of the reason for this is obvious: vastly improved distribution systems, combined with the development and application of synthetic pesticides and herbicides and especially fertilizers, generated more and more reliable food production, removing the famine cap.
Part of this is less so: Sewers disposed of waste, reducing incidence of disease. Town living reduced accidents and improved access to medical care, reducing mortality—especially infant mortality. Better medicines reduced deaths from already-less-common disease and injury. All expanded life spans. Double the average life span and in a generation you have doubled the population, independent of people having more kids, because they have more child-bearing years to live through.
But it isn’t like this all happened all at once. Take the power loom, which is generally credited as being the most significant of the early breakthroughs, increasing output per worker hour by a factor of fifty. The first prototype was built in 1785, but it ultimately went through five decades of refinement in seventeen distinct phases. Even then it took nearly another century of tinkering to make the loom fully automatic so that the whole operation didn’t need to be shut down when the shuttle ran out of material.
The “Revolution” part of the Industrial Revolution is a bit of a misnomer. The new techs weren’t magically developed or applied at once, but instead designed, prototyped, perfected, mass produced, and mass applied, and in turn they gave birth to daughter and granddaughter technologies over the course of two hundred years. The shift from the farm to the town took time. The growing of London into the world’s largest, richest, most educated city took time. The transformation of cultural and economic norms of huge families flush with backup children, where the average adult died in his thirties, to tiny families where kids were considered obnoxiously loud and annoyingly mobile safety hazards and where sixty-year-olds were common took time. The tripling of the British home population took time.
For the British, the entire transformation took seven generations.
But only for the British. History Speeds Up
Nothing about the industrial technologies the British developed was destined to remain purely British. Just as the previous technologies of the sedentary agriculture, water, wind, and deepwater eras diffused outward, so too did the industrial techs of textiles, steam, steel, electricity, and fertilizer.
Because much of the work on developing and operationalizing these new techs had already been done, their application in new lands was much faster, which also means their impacts upon demographic structures were faster.
The second major country to experience the mass transformation of industrialization was Germany. In the century leading up to World War I in 1914, Germany rapidly evolved from a shattered, preindustrial, guild-based economic system, which was often preyed upon by its neighbors, to a united industrial, economic, technological, and military powerhouse that had in shockingly short order defeated Denmark, Austria, and France. The German population, like the British population before it, nearly tripled due to the industrialization and urbanization process. The German population, like the British population before it, aged due to lower mortality rates. The German population, like the British population before it, saw its birth rates plummet. But because the German population, unlike the British population before it, could follow a path blazed by others, the entire process from tip to tail occurred in just four generations.* Throughout the British and German experiences, three additional—and completely unrelated—issues intensified the urbanization trends that industrialization launched.
First was the rise of the women’s rights movement.
At its core, the women’s rights movement didn’t really gain traction until the European revolutions of 1848. The technologies of the industrial era spawned massive economic and political upheaval across Europe, culminating in a series of intense civil wars as old political and social structures within and across countries struggled to contain unfamiliar pressures. The new technologies all had one thing in common: they required people, and lots of them. Some of the new techs, like the new assembly lines, required largely unskilled labor. Others, such as petrochemicals, demanded people who really knew what they were doing, because, you know, explosions. But for all classes of labor the new demand drove labor costs up. Culture and ethics and morality aside, whether it was women looking after the farm as the men took factory jobs in town, or the women themselves taking positions at the new industrial textile factories where they could easily earn more than double the income of a strapping lad back on the farm, there was now an economic case for women to be mistresses of their own lives.
In traditional societies women tend to be wed to a very specific physical location: farm and home. If there is a famine or war, it is the men who venture forth to scrounge or battle, while the women remain behind to care for the household. Such restrictions ensured women were typically . . .
available. As such, in preindustrial societies it was very common for a woman to bear more than six children during the course of her life. But break the link to the household and agriculture. Enable mass female education. Allow women to earn their own income. Even women desiring large families quickly discovered that careers tend to crowd out other items on their to-do lists, in part because—regardless of intent—spending a few dozen hours a week at factory job reduces the opportunities for pregnancy.
The second factor encouraging a collapsing birth rate sits at the intersection of women’s rights and industrial technologies: birth control. In the days before the Industrial Revolution, the most reliable method of birth control was good timing. Industrialization expanded the options list. In 1845 the U.S. government awarded a patent for rubber vulcanization to Charles Goodyear, * which set industry on the path to making cheap, reliable condoms. Combine such advances with the early women’s rights movements, and the political and economic stars of the fairer sex began their long rise—but at the cost of overall fertility rates. The third incidental factor depressing birth rates can be laid at the feet of the Americans’ grand plan for their post–World War II international Order. The urbanization trend was already going full steam before the world wars blasted the old system apart, but with the onset of the free trade Order, the world’s most advanced economies—most notably Western Europe and Japan—were no longer burdened with a world of constant, high-velocity war. Countries could focus on what they did best (or at least, what they wanted to do best), and the security placidity of the Order enabled them to import food from half a world away.
The very nature of the Bretton Woods globalization process depressed birth rates by squeezing the agricultural sector across the industrialized world. In the pre–free trade world, importing food en masse was rarely a viable, large-scale option. That drove government calculations both economic and strategic.
Cloudy, short-summer Germany is hardly known for its rich agricultural system, but in the general melee that was pre-1945 Europe, the Germans had no choice but to wring out as much crappy food from their crappy land as was required for the survival of the state.* Great Britain—known for its food only because the food is so bad—was able to take a different road only because the place is an island. By the late nineteenth century, the imperial system enabled the Brits to source their food from colonies far removed from Europe. Depending on the decade, that meant Egypt,* South Africa,* India,* or Australia and New Zealand.* Such sourcing options enabled the Brits to not only focus their energies on the manufacturing side of the Industrial Revolution, but also gain the benefits from a globe-spanning empire to boot.
The Order turned this system inside out. By enforcing global security, shattering the empires, opening the world to trade, and enabling the spread of the agricultural technologies of the Industrial Revolution, the Americans inadvertently introduced the world to “global” agriculture. No longer did a country need to conquer some distant bit of farmland in order to guarantee food security. Parts of the old imperial networks could now maximize output with an eye toward servicing global demand rather than the narrow needs of their imperial masters.
Not only did opportunities increase in a globalized world; so too did scale. More capital flowing to more places triggered transformations in agriculture.
Larger farms could be more mechanized, achieving greater efficiencies and output with less and less labor. Such optimization granted them the economic heft to demand better pricing for inputs. Instead of getting a few dozen bags of fertilizer and the odd hoe and such from the local store, large farms would contract directly with petrochemical firms and manufacturers for their needs. The very rationale for small towns eroded.
Globalization didn’t simply empty the countryside; it also gutted the world’s smaller communities, forcing everyone into the major cities. And as true as this was in Nebraska or New South Wales, it was wildly more true in places like the Brazilian Cerrado or Russia’s Black Earth region or China’s rice belt. Every change results in the same change: more food grown and more food distributed, but done so with less labor.
The initial phases of the Industrial Revolution may have pulled people off the farms by providing industrial employment, and the development of synthetic agricultural inputs may have pushed them into the cities, but the global competition provided by the Order hurled farmers off their lands.
And even that assumes the rising local agricultural behemoth firms don’t muscle smallholders out, or that the government doesn’t forcibly consolidate small plots into larger, more efficient factory farms.* And so it spread. Territories that had lacked regional security or sufficient capital since the dawn of recorded history could suddenly tap global flows to become significant producers—and even exporters—for the first time. Foodstuffs both increased in quality and decreased in cost. That put pressure on legacy producers in the developed world, forcing them to either up their game with tech to increase yields, or give up the ghost and instead focus on things they did better. Tastes diversified. For the most part countries gave up attempting to grow foods they couldn’t grow well, drastically increasing their output for the crops they could grow well. The Americans’ prohibition of military conflict among their allies eliminated the heartburn of worrying where one might get their next meal. Global agricultural trade exploded, and the need for national and imperial autarky went out the window.
Americans’ transformation of the global security and economic architecture—or more accurately, the Americans’ creation of the world’s first truly global security and economic architecture—enabled the industrialization and urbanization experiences that had defined Europe for the previous quarter millennia to go global.
The first wave of globalization impacted the early incarnations of the Order alliance: Western Europe, the defeated Axis, the ward states of South Korea, Taiwan, and Singapore, and the other Anglo settler states: Australia, Canada, and New Zealand.* As with the British and Germans before them, the peoples of all these nations experienced mass development, mass urbanization, mass reductions in mortality, mass extensions of life spans, mass expansions in population, and mass reductions in birth rates, in that order. In fact, nearly all the population gains in the developed world since 1965—overall a greater than 50 percent increase—are from longer life spans. And just as the Germans had followed the British path and so experienced a faster, more compressed version of the entire demographic transition, so too did the first big batch of post–World War II states.
After all, the path had gotten easier to follow. Water, not electricity, powered the first factories; there were as many limitations on where they could be built as there were on the cities of ancient times, which similarly limited the need for workers to staff them. Likewise, the rise of interchangeable parts and assembly lines predated electricity. Such early industrial efforts may have surpassed the output of previous manufacturing norms by an order of magnitude, but they still required either wind, water, or muscle to energize them. That limited the speed and scope and location of their adoption to very specific Geographies of Success, retarding the urbanization impact. But by 1945 the Germans had demonstrated that electricity was the only way to go. Suddenly a factory could be put anywhere. History sped up. The British may have blazed the path to development, but it was the Germans who paved it for the rest of us.
Instead of the seven generations it took to transform Britain or the four for Germany, the Canadians, Japanese, Koreans, Italians, and Argentines did it in two and a half, while a group of advanced nation latecomers— Spain, Portugal, and Greece—did it in two.
Nor did the story end there.
After the Cold War’s end, the Americans threw open Order membership to the former neutrals as well as the former Soviet world. The result was the same assault of capital access, resource access, and technological access that generated the European and Japanese booms of the 1950s and 1960s, but across a much wider swath of the world and a much larger slice of humanity.
Now the vast bulk of the developing world could join in the industrializing, urbanizing, demographics-changing fun, with the largest new players being China, India, Indonesia, Pakistan, Brazil, Nigeria, Bangladesh, Russia, Mexico, Philippines, Vietnam, Egypt, Ethiopia, and Turkey. Just as the addition of electricity to the industrial tool kit sped up the process, so did the Digital Revolution. With information no longer locked within individual brains but instead flowing freely on a river of electrons, expertise could be shared with the click of a button. Prototyping sped up from a years-long process to mere weeks. What was known could be disseminated within seconds, while research collaboration could cross continents and oceans alike.
Just as the Germans were able to walk down the path faster than the British, and just as the Japanese were able to jog down the path faster than the Germans, and just as the Spanish were able to run down the path faster than the Japanese, now the more advanced nations of the developing world —specifically the Chinese, Brazilians, and Vietnamese—could sprint down that same road faster than the Spanish.
And yet, despite all the wildly unplanned changes, somehow it all not simply worked, but worked beautifully. What was truly spectacular, even magical, about the post–Cold War moment wasn’t simply that war and famine had largely vanished from the world, but instead that all these countries’ populations, aging and expanding at different rates, created the perfect foundation for breakneck, historically unprecedented economic growth.
Between roughly 1980 and 2015, all the world’s internationally wired systems fell into one of two broad buckets.
In bucket #1 were those countries relatively early in their demographic transitions. Mortality was rapidly falling and life spans were rapidly expanding, but the drop in birth rates had not yet led to catastrophic reductions in the number of young workers. These countries were ravenous, and not just for food. Most of the spending a person does occurs between the ages of fifteen and forty-five—that’s the life window when people are buying cars and homes and raising children and seeking higher education.
Such consumption-led activity is what drives an economy forward, and this bucket of countries had consumption to spare.
The countries in bucket #2 were further along. Mortality was still falling, and life spans were still expanding, but the pace had slowed. After all, these countries had generally begun their industrialization a few decades earlier. But the drops in their birth rates had also begun earlier and the dearth of children in their demographic profiles was becoming obvious.
Priorities changed. Fewer children meant fewer resources needed to be expended upon child rearing and education, while more could be splashed out on cars and condos. Older populations had accrued more capital, enabling more money to be saved and invested. These aging societies did not become less dynamic, but instead more so because they were able to develop and implement technologies at a more rapid pace. Productivity surged while the products produced became more sophisticated. What these countries lacked was enough young people to consume what they produced.
In this the Americans accidentally provided the solution. Not only was a central tenet of the Order that the American market would be open to all, but also the Americans’ security commitment to holding up the world’s collective civilizational ceiling meant that these older demographics—these export-led economies—could access consumer markets the world over.
Consumption-led and export-led systems were not simply in approximate balance. The Americans seeing to the world’s security concerns enabled a truly globalized world to not only emerge, but thrive.
But there is nothing about it that was normal. Globalization was always dependent upon the Americans’ commitment to the global Order and that Order hasn’t served Americans’ strategic interests since the Berlin Wall fell in 1989. Without the Americans riding herd on everyone, it is only a matter of time before something in East Asia or the Middle East or the Russian periphery (like, I don’t know, say, a war) breaks the global system beyond repair . . . assuming that the Americans don’t do it themselves.
But even if the Americans choose to continue holding up the world’s collective civilizational ceiling, there was nothing about the heyday of globalization that is sustainable. The halcyon days of 1980–2015 are over.
The collapse in birth rates that began across the developed world in the 1960s and across the developing world in the 1990s now has decades of steam behind it.
The pipe bomb in the ointment is that what proved true for accelerated industrialization proved equally true for accelerated demographics. In 1700 the average British woman bore 4.6 children. That’s almost identical to that of the average German woman in 1800 or the average Italian woman in 1900 or the average Korean woman in 1960 or the average Chinese woman in the early 1970s. Now, in all these countries, the new average is below 1.8 and in many cases well below.
* This is a position the average Bangladeshi woman will likely find herself in by 2030.
Now comes the other side of the hill.
A central factor in every growth story that accompanies industrialization is that much of the economic growth comes from a swelling population.
What most people miss is that there’s another step in the industrializationcum-urbanization process: lower mortality increases the population to such a degree that it overwhelms any impact from a decline in birth rates . . . but only for a few decades. Eventually gains in longevity max out, leaving a country a greater population, but with few children.
Yesterday’s few children leads to today’s few young workers leads to tomorrow’s few mature workers. And now, at long last, tomorrow has arrived.
In the 2020s, birth rates are no longer simply dropping; they have been so low for so long that even the countries with the younger age structures are now running low of young adults—the demographic that produces the children. As the already smaller twenty-something and thirty-something cadres age into their thirties and forties, birth rates will not simply continue their long decline, they will collapse. And once a country has more older folks than children, the next, horrible step is utterly unavoidable: a population crash. And because any country that begins this process is one that has already run out of young adults, these countries will never recover.
* Even worse, just as the entire transformation from rural to urban has proceeded ever-faster since the British started us all down this road, so too does the demographic transformation from lots of children to lots of retirees. The faster the transformation and growth on the front end, the faster the population collapse on the back end.
By far the most unfortunate tsunami of consequence of this compression phenomenon at work is China. The long stretch of Chinese history was comparatively preindustrial until one Richard Milhous Nixon’s 1972 visit to one Mao Zedong, in what would prove a successful effort to turn Red China against the Soviet Union. The price for Chinese realignment was pretty straightforward: admittance into the American-led global Order. Some 800 million Chinese started down the route to industrialization, a route that was now less a newly blazed path, and more a fourteen-lane superhighway with double HOV lanes. Following the patterns established by much of the rest of humanity, Chinese mortality plummeted by three-quarters and the Chinese population expanded to match. China, like everyone before, saw its population surge from under 800 million in 1970 to over 1.4 billion in 2021.* What many in the world see as a threat—the rapid rise of China in economic, military, and demographic terms—is nothing more than two hundred years of economic and demographic transformation squeezed into a searing four decades, utterly transforming Chinese society and global patterns of trade . . .
. . . as well as the Chinese demography. No matter how you crunch the numbers, China in 2022 is the fastest-aging society in human history. In China the population growth story is over and has been over since China’s birth rate slipped below replacement levels in the 1990s. A full replacement birth rate is 2.1 children per woman. As of early-2022, China’s only partly released 2011–2020 census indicates China’s rate is at most 1.3, among the lowest of any people throughout human history. The country’s demographic contraction is now occurring just as quickly as its expansion, with complete demographic collapse certain to occur within a single generation. China is amazing, just not for the reasons most opine. The country will soon have traveled from preindustrial levels of wealth and health to postindustrial demographic collapse in a single human lifetime. With a few years to spare.
Nor will China die alone. The time-staggered nature of the industrialization process—from Britain to Germany to Russia and northwestern Europe and Japan to Korea to Canada and Spain—combined with the steadily accelerating nature of that process, means that much of the world’s population faces mass retirements followed by population crashes at roughly the same time. The world’s demographic structure passed the point of no return twenty to forty years ago. The 2020s are the decade when it all breaks apart.
For countries as varied as China, Russia, Japan, Germany, Italy, South Korea, Ukraine, Canada, Malaysia, Taiwan, Romania, the Netherlands, Belgium, and Austria, the question isn’t when these countries will age into demographic obsolescence. All will see their worker cadres pass into mass retirement in the 2020s. None have sufficient young people to even pretend to regenerate their populations. All suffer from terminal demographics. The real questions are how and how soon do their societies crack apart? And do they deflate in silence or lash out against the dying of the light?
Coming up behind them—rapidly—is another cadre of countries whose birth rates have dropped even faster, and so who will face a similar demographic disintegration in the 2030s and 2040s: Brazil, Spain, Thailand, Poland, Australia, Cuba, Greece, Portugal, Hungary, and Switzerland.
Even further forward, in the 2050s, are countries who started their birth rate collapse a bit later, and so who still may have a chance to avoid demographic disillusion if they can get today’s twenty- and thirtysomethings to have a whole mess of kids, but honestly, these late arrivals’ birth rate collapses have been so severe it doesn’t look great: Bangladesh, India, Indonesia, Mexico, Vietnam, Iran, Turkey, Morocco, Uzbekistan, Saudi Arabia, Chile, the Czech Republic.
The next batch of countries—mostly in the poorer parts of Latin America or sub-Saharan Africa or the Middle East—are even more concerning. Their demographic structures are younger—far younger—but that doesn’t mean they are in a better position, because there is more to economic and demographic health than just numbers and ages.
In most cases these countries are extractive economies that ship out this or that raw commodity, using the proceeds to supply their population with imported food and/or consumer goods. In many ways they’ve managed to access portions of the industrialization process—most notably lower mortality, more reliable food supplies, increased urbanization, and population booms—without experiencing the bits that make advancement stick: increased educational levels, a modernized state, a value-added economic system, social progress, industrial development, or technological achievement.
In a safe, globalized world such a hybridization model can limp along so long as the commodities flow out and the money flows in. But in an unsafe, fractured world where trade is sharply circumscribed, outright national collapse will by far not be the biggest problem these peoples face.
In these countries the very population is vulnerable to changes farther abroad. The industrial technologies that reduce mortality and raise standards of living cannot be uninvented, but if trade collapses, these technologies can be denied. Should anything impact these countries’ commodity outflows or the income or product inflows, the entire place will break down while experiencing deep-rooted famine on a biblical scale.
Economic development, quality of life, longevity, health, and demographic expansion are all subject to the whims of globalization. Or rather, in this case, deglobalization. Learning a Scary Word
Let’s make this a bit less theoretical: I live at 7,500 feet above sea level in rural, mountainous Colorado.
Snow is less a seasonal occurrence and more a way of life. When I first moved here I thought to myself, “Self? New start? New home? New ‘you’?
Let’s get the body to go with it!” I started hiking nearly every day, and when the snow came I attacked with gusto! And a shovel.
Only a shovel.
It was . . . the stupidest thing I’ve ever done.
A month later I was ready with a Toro gasoline-powered snowblower.
What had been a twenty-plus-hour ordeal that nearly put me in traction was now a slightly less than two-hour inconvenience.
That twenty-something hours was just for my drive- and walkways. Just my home. It’s a two-mile hoof from my driveway to the base of my mountain, and another seven-and-a-half-mile canyon-threading ruck down to the highland plains which host the city of Denver. That’s a lot of shoveling. Without gasoline-powered snow clearing gear, my house at 7,500 feet not only would have never been built, it could not even theoretically be maintained.* And now we are in Denver, which sits in what used to be very appropriately known as the Great American Desert. As one moves west from the humid lowlands of the Midwest, the land steadily rises and dries.
Denver sits at on the eastern flank of the Rockies’ Front Range, permanently and firmly in rain shadow, getting less than seven and a half inches of precipitation annually. Higher altitudes mean that whatever rain does fall tends to evaporate quickly. In “mile-high” Denver, the humidity is so low, light snows don’t so much melt as sublimate directly into vapor.
Roughly three-quarters of Colorado’s population lives in similar conditions east of the continental divide, but roughly three-quarters of the precipitation that falls in Colorado lands to the divide’s west.
Denver—Colorado—addresses this problem in two ways. The first is to put dams everywhere. Look at any map of any metro that, like Denver, lies on eastern edge of the Front Range. You’ll notice lakes. Lots and lots of lakes. But they are not lakes. They are reservoirs designed to capture as much of the spring snowmelt rage as possible. Urban Colorado has modified its immediate terrain in order to store every drop of water it can for as long as it can.
It isn’t nearly enough. The second action is to drill tunnels through the Rockies in order to connect the state’s western watersheds to its eastern populations. At present there are two dozen of these transbasin diversion monsters. Collectively, storing every drop and relocating some 25 billion gallons annually enables Fort Collins, Estes Park, Greeley, Boulder, Colorado Springs, Pueblo, and Greater Denver to exist. Not to mention the near entirety of the state’s agricultural sector.
Remove the technologies required to construct and maintain this water management system, and the maximum sustainable population of the Front Range cities would plummet from the roughly four and a half million it is today to something roughly one-tenth that.
Some version of this story exists for most of the world’s populated places. Maybe it is an infrastructure issue. Maybe it’s climatic. Maybe it’s about resources or food or security. But the bottom line is always the same: If for whatever reason global flows of products and services and energy and foodstuffs are interrupted, the population and political and economic maps will change.
In a post-globalized world, large, diversely resource-rich countries like the United States can shuffle products around internally to make everything work. I live in zero fear that I won’t be able to source gasoline (refined in Colorado from crude oil produced in Colorado) for my snowblower (manufactured in Minnesota) to keep clear the driveway (the asphalt is from Oklahoma) to my house (wood framing from Montana) that I often telecommute from (using a comms network composed of steel from Ohio, aluminum from Kentucky, and plastics from Texas).
Precious few places have this sort of diversity, reach, access, and redundancy. Most are dependent—often wholly—on globalization to do their locality’s equivalent of something as “simple” as clearing the snow. It begs the question of what Shanghai would look like without oil? Or Berlin without steel? Riyadh without . . . food? Deglobalization doesn’t simply mean a darker, poorer world, it means something far worse.
An unraveling.
The world currently has two reasonably disturbing and disturbingly reasonable examples as to what this unraveling might look like: Zimbabwe and Venezuela. In both cases mismanagement par excellence destroyed the ability of both countries to produce their for-export goods—foodstuffs in the case of Zimbabwe, oil and oil products in the case of Venezuela— resulting in funds shortages so extreme, the ability of the countries to import largely collapsed. In Zimbabwe, the end result was more than a decade of negative economic growth, generating outcomes far worse than those of the Great Depression, with the bulk of the population reduced to subsistence farming. Venezuela wasn’t so . . . fortunate. It imported more than two-thirds of its foodstuffs before its economic collapse. Venezuelan oil production dropped so much, the country even lacks sufficient fuel to sow crops, contributing to the worst famine in the history of the Western Hemisphere.
I don’t use these examples lightly. The word you are looking for to describe this outcome isn’t “deglobalize” or even “deindustrialize,” but instead “decivilize.” Everything we know about human civilization is based on the simple idea of organization. Once a government lays down some basic ground rules like “don’t kill your neighbor,” people start doing what people do: raising families, growing food, hammering out widgets. People start trading, so that the farmer doesn’t also have to make flour and the blacksmith doesn’t have to grow his own food. This specialization makes us more productive in our chosen fields—be it farming or milling or blacksmithing. This society gets richer and expands. More land, more people, more specialization, more interaction, more internal trade, greater economies of scale.
This pattern developed bit by bit since the dawn of civilization, but there were often not merely setbacks but collapses. Empires rose and fell, and when they fell, much of their progress fell with them. The Americanled Order (big O) did more than change the rules of the game; it institutionalized order (little o), which in turn allowed industrialization and urbanization to spread everywhere. That shifted the global demographic from one of lots of children to lots of young and mature workers, generating a sustained consumption and investment boom the likes of which humanity had no previous experience with. With security guaranteed and supplies of capital and energy and foodstuffs ample, six thousand years of ups and downs were replaced by an unstoppable freight train of progress.
Under the Order and this magical demographic moment, we have become so specialized and our technology has advanced so much that we have become totally incompetent at tasks that used to be essential. Try producing your own electricity or enough food to live on while keeping up your full-time job. What makes it all possible is the idea of continuity: the idea that the safety and security we enjoy today will still be here tomorrow and we can put our lives in the hands of these systems. After all, if you were pretty sure the government was going to collapse tomorrow, you’d probably worry less about whatever work-related color-coded minutiae your manager insists is so important and instead focus your time on learning how to can vegetables.
Labor hyperspecialization is now the norm, and trade has become so complex that entire economic subsectors (loan officers, aluminum extruders, warehouse planning consultancies, sand polishers) now exist to facilitate it. Nor is this specialization limited to individuals. With global peace, countries are able to specialize. Taiwan in semiconductors. Brazil in soy. Kuwait in oil. Germany in machinery. The civilizational process has been reaching for its ultimate, optimal peak.
But “optimal” is not the same thing as “natural.” Everything about this moment—from the American rewiring of the security architecture to the historically unprecedented demographic structure—is artificial. And it is failing.
There are a number of ways down for countries looking down the maw of demographic oblivion and globalization’s collapse, but they all share something in common: reduced interaction means reduced access means reduced income means fewer economies of scale means less labor specialization means reduced interaction. Shortage forces people—forces countries—to look after their own needs. The value-added advantages of continuity and labor specialization wither. Everyone becomes less efficient.
Less productive. And that means less of everything: not just electronics but electricity, not just automobiles but gasoline, not just fertilizer but food. The parts are less than the sum. And it compounds. Electricity shortages gut manufacturing. Food shortages gut the population. Fewer people means less chance of keeping anything that requires specialized labor working. Say, things like road construction or the electrical grid or food production.
That is what “decivilization” means: a cascade of reinforcing breakdowns that do not simply damage, but destroy, the bedrock of what makes the modern world function. Not every location had the right geography to make a go of civilization before the Order. Not every location will be able to maintain civilization after Order’s end.
It is one thing for a country like Mexico, which is wired into the United States, to struggle through an industrial buildout and get by without parts imported from Asia. It is quite another for a country like Korea to muddle through when it loses access to imported oil and iron ore and foodstuffs and export markets.
Worst of all, many less advanced countries are wholly dependent upon civilization holding together in other places. Zimbabwe and Venezuela are examples of countries that chose the path to a sort of decivilization. For most, it will be foisted upon them due to events a continent or more away in places they cannot hope to influence much less control. Even moderate struggles in places like Brazil or Germany or China will so disrupt demand for materials from Bolivia or Kazakhstan or the Democratic Republic of the Congo that the weaker states will lose the income required to enable import for the products that allow for basic modernity. And the world’s Brazils and Germanys and Chinas face far more than mere moderate struggles.
There are a few bright spots in this deepening gloom, but only a few.
A precious few countries have managed a high degree of development while simultaneously avoiding a collapse in birth rates. It is . . . a painfully short list: the United States, France, Argentina, Sweden, and New Zealand.
And . . . that’s it. Even if politics aligned, even if everyone’s hearts were in the right place, even if all the Americans and French and Argentines and Swedes and Kiwis wanted to put the rest of the world’s needs in front of their own, the sheer scale of humanity’s demographic turning means all of them combined would not comprise nearly enough of a foundation to support a new global system.
By most measures—most notably in education, wealth, and health— globalization has been great, but it was never going to last. What you and your parents (and in some cases, grandparents) assumed as the normal, good, and right way of living—that is, the past seven decades or so—is a historic anomaly for the human condition both in strategic and demographic terms. The period of 1980–2015 in particular has simply been a unique, isolated, blessed moment in time. A moment that has ended. A moment that will certainly not come again in our lifetimes.
And that isn’t even the bad news. The End of More
In the bad ol’ days before deepwater navigation, the height of the human experience wasn’t very high at all. Most governing systems were a mix of imperial and feudal.
The issue was one of reach.
The few places with rich geographies would establish themselves as Imperial Centers and use their wealth to reach out militarily and economically to control other territorial swaths. Sometimes these Centers would innovate or adapt a technology that would alter the regional balance of power, enabling more successful land grabs. The Romans used roads to dispatch troops here and there more quickly. The Mongols developed the iron stirrup, which enabled their mounted warriors to wipe the floor with, well, pretty much everyone.
But there was nothing about these techs that couldn’t disseminate out to the competition, eliminating this or that power’s momentary advantage.
And of course, as few wanted to be another’s occupied subjects, everyone would attempt to develop or adapt rival techs. Hannibal famously tamed a few critters—elephants—which enabled him to attack Rome’s core territories in ways unexpected. The Poles erected a raft of horse-resistant castles, allowing them to wave their private parts in the general direction of Mongol raiders.
That’s the big picture, but it isn’t very accurate. Or at least, not very complete. Organizationally speaking, the imperial expansions were hardly the norm. Sure, we know these technological and countertechnological struggles as, well, history. But for every successful imperial expansion there was an imperial collapse as well as ten thousand territories that never managed to eke out a moment in the sun.
The smaller picture was very small indeed. At the local level, life wasn’t nearly so dramatic. Most people were serfs, a fancy term for grueling, near-subsistence farming. What security the serfs had was wholly due to their relationship to their local lords. These lords controlled a fortified town or keep, and when raiders or small armies came a-lootin’, the serfs would rush in panic into the fortification, and hunker down until the threat passed. In “exchange” for this security, the feudal lords collected taxes and food and labor from the serfs.* Since the most common way to pay taxes was with some surplus food, the various lords didn’t have much goods differentiation to trade among themselves. It wasn’t a system that encouraged broad-scale interaction or education or advancement or development. Not a lot changed. Ever.
The economics of these two systems were depressingly similar.
Feudalism was simply a trade of securities: the lords provide protection to the serfs, while the serfs pledge their lives to their lords. Finis. Imperial systems weren’t much different: any large-scale “trade” had to exist within the borders of the empire. The only way to secure access to new goods was to venture out and conquer. And since any advantage would be temporary, it all came down to the security-for-loyalty trade of the Imperial Center to its provinces, as guaranteed by imperial armies.
The pie wasn’t very big. It could get bigger only slowly. It often got smaller. No one had access to the whole thing, and the tyranny of geography kept trade sharply circumscribed. Humanity did battle with itself over who controlled what slices of a stagnant and fractured pie.
Then, all at once—historically speaking—everything changed.
The Columbus expeditions around the turn of the fifteenth century set off a runaway chain reaction of interconnectivity. Deepwater navigation enabled first the Spanish and Portuguese and later the British and, well, everybody to reach out and interact with every piece of land that touched ocean. Empires still existed, but their economic bases had changed because they could reach nearly any product nearly anywhere. With the now-broader economic bases of the larger systems, the economics of the local, feudal systems collapsed. Imperial wars required more people. Imperial economic expansion required more workers. Imperial trade generated new industries.
In all cases the unabashed losers were the feudal lords, who could offer nothing but a near-subsistence existence.
As the decades ticked into centuries, expectations changed because the economics changed. No longer was the pie singular and stagnant. It was growing. It would never stop growing. And that, above all else, is the world we know.
More products. More players. Bigger markets. More markets. Easier transport. More interconnectivity. More trade. More capital. More technology. More integration. More financial penetration. More and bigger and bigger and more.
A world of more.
Ever since Columbus sailed the ocean blue, human economics have been defined by this concept of more. The world’s evolution within the idea of more, this reasonable expectation of more, is ultimately what destroyed the old economies of the pre-deepwater imperial and feudal systems. New products and markets and players and wealth and interactions and interdependencies and expansions required new methods of managing the new relationships. Humanity developed new economic models, with the most successful and durable ones proving to be fascist corporatism, command-driven communism, socialism, and capitalism. Competition among such systems—among these -isms—has defined the past few centuries of human history.
At their core, all economic models are systems of distribution: deciding who gets what, when, and how.
Capitalism is what most Americans are most familiar with. The idea is that government should have a light touch and leave most decisions— especially as regards consumption and production, supply and demand, technology and communication—to private citizens and firms.
Capitalism is America’s economic baseline, but the Americans are hardly the world’s only capitalists: Japan, Australia, Switzerland, Mexico, Taiwan, Lebanon, and the Baltic states all have their own iterations of capitalist systems.
Socialism is either the norm (if you’re in Europe) or the enemy (if you’re on the American political Right). In modern socialist systems, firms and government and the population exist in a shifting kaleidoscope of cooperation and struggle. The core idea to all truly socialist structures, however, is that government belongs as an inseparable part of the economic system. The debate is over how central the governmental role should be and how the government should use its power and reach to shape or maintain society. Canada and Germany are probably the best contemporary examples of wellrun socialist systems. The Italian, Brazilian, and South African versions of socialism could . . . use some work.* Command-driven communism is socialism carried to its absurd extreme. The idea is that the government is the sole decider of all the things capitalism would outsource to the private sector and population.
Eliminating private choice—and the private sector altogether—enables the government to direct the full power of society to achieve whatever goal needs tackling. The Soviet Union is the biggest and most successful country to use command-driven communism, but versions of it have popped up in many places where the political elite is particularly . . . bossy. Early Cold War–era South Korea was an exceedingly well-run, fairly closed, command-driven system, despite politically being vigorously “anti-communist.”* Fascist corporatism is one we don’t often think about; it fuses business leadership with state leadership. The government ultimately calls the shots and it obviously coordinates firms to work toward government goals, but the key word is “coordinate.” Firms are government-linked and government-directed, but not as a rule government-operated. In a well-run fascist economy, the government can co-opt the private sector to achieve broad government-derived goals, like, say, building an autobahn or wiping out the Jews. But for the most part, day-to-day management is left up to the firms themselves. Hitlerite Germany is obviously the leading example of a modern fascist-corporatist system, while late Cold War–era South Korea put in a couple of fascist decades before segueing in a more capitalist/socialist direction. Contemporary “Communist” China far more closely resembles fascism than socialism, much less communism. The same goes for post–Arab Spring Egypt.
Each model has its own pros and cons. Capitalism trades away equality to maximize growth, both economic and technological. Socialism sacrifices growth at the altar of inclusivity and social placidity. Command-driven communism writes off dynamism, instead aiming for stability and focused achievements. Fascist corporatism attempts to achieve state goals without sacrificing growth or dynamism, but at the cost of popular will, a massively violent state, epically awe-inspiring levels of corruption, and the gnawing terror of knowing that state-sponsored genocide is but a few pen strokes away. Capitalism and socialism are broadly compatible with democracy and all the political noise and chaos that comes with it. Command-driven communism and fascist corporatism are far more politically . . . quiet.
But what all these -isms we have developed in recent centuries and finetuned in recent decades have in common is something our world is about to lack: more.
Geopolitics tells us the post–World War II and especially the post–Cold War economic booms were artificial and transitory. Going back to something more “normal” by definition requires . . . shrinkage.
Demographics tells us that the number and collective volume of massconsumption-driven economies has already peaked. In 2019 the Earth for the first time in history had more people aged sixty-five and over than five and under. By 2030 there will be twice as many retirees, in relative terms.
Nearly all countries that boast sufficiently friendly geographies to enable development without American security sponsorship have already developed. Nearly all have been in terminal demographic decline for decades. Nearly all are now aging into mass obsolescence.
On the other side, those countries without good geographies who need that American sponsorship have now missed their window. In the middle, those countries that managed to develop under American sponsorship in recent decades are having the demographic and geopolitical rug pulled out from under them.
Combine geopolitics and demographics and we know there will be no new mass consumption systems. Even worse, the pie that is the global economy isn’t going to simply shrink; it is being fractured into some very nonintegrated pieces, courtesy of American inaction.
Think of your hometown. What if everything it needed for manufactured goods and food and energy, it had to provide itself? Even if your hometown were Shanghai or Tokyo or London or Chicago, it would be impossible for you to live your current life. What the Order has done is encapsulate the bulk of the world into a single “town” in which we all specialize in whatever we are good at—whether it be picking avocados or cutting metal or purifying butadiene or assembling flash drives or wiring wind turbines or instructing yoga. We then use the income from the sales of what we’re good at to pay for the items and services we aren’t good at. It isn’t perfect, but it has promoted the greatest technological advancement in human history, brought most of us into the Digital Age, and created evergreater demand for ever-greater levels of education.
But none of this is a natural outcome of the “normal” world; rather, it is instead an artificial outcome of the American-created security and trade Order. Without global peace, the world gets smaller. Or, put more accurately, the one big world breaks up into several smaller worlds (and oftentimes, mutually antagonistic worlds).
To be blunt, our existing -isms are woefully unable to manage coming challenges.
Capitalism without growth generates massive inequality, as those who already have political connections and wealth manipulate the system to control ever-bigger pieces of an ever-shrinking pie. The result tends in the direction of social explosions. Three, of many, examples of how it can go to pot are the anarchist movements within the United States during the Great Depression, the rise of Donald Trump in the Rust Belt as a reaction to the region’s deindustrialization, and the general societal collapse of the Lebanese Civil War.
The future of socialism is, if anything, darker. Socialism cannot generate capitalist levels of growth even when the pie is expanding, much less when it is shrinking. Socialism might be able to preserve economic equality, but that’s unlikely to save the model. Unlike capitalism, where at least the elites might be able to struggle through, in socialism everyone will become noticeably worse off every year.
Mass uprisings and state fracture are pretty much baked into that particular dessert product.
Fascist corporatism might provide an option by outsourcing much of the clinical management of the economy to large corporations. But ultimately it will face the same problems as capitalism and socialism —inequality from concentrating power with firms, degrading stagnation from a shrinking pie—and since the government is clearly in charge it wouldn’t take long for finger-pointing to transition into pitchfork-marching.
That just leaves command-driven communism. Sadly, it just might be the most viable of the four. But only if it crushes the population’s souls to the degree that having an opinion is suppressed by an overarching, 1984-style propagandaesque dictatorship. And of course, it will retain all the normal shortcomings of the model as we know it: it really only works if those running the command economy guess correctly on which techs will win out and which goods will be needed and how to access the relevant inputs to make them. Every. Single. Time.
We aren’t simply looking at a demographically induced economic breakdown; we are looking at the end of a half millennium of economic history.
At present, I see only two preexisting economic models that might work for the world we’re (d)evolving into. Both are very old-school: The first is plain ol’ imperialism. For this to work, the country in question must have a military, especially one with a powerful navy capable of large-scale amphibious assault. That military ventures forth to conquer territories and peoples, and then exploits said territories and peoples in whatever way it wishes: forcing conquered labor to craft products, stripping conquered territories of resources, treating conquered people as a captive market for its own products, etc. The British Empire at its height excelled at this, but to be honest, so did any other post-Columbus political entity that used the word “empire” in its name. If this sounds like mass slavery with some geographic and legal displacement between master and slave, you’re thinking in the right general direction.
The second is something called mercantilism, an economic system in which you heavily restrict the ability of anyone to export anything to your consumer base, but in which you also ram whatever of your production you can down the throats of anyone else. Such ramming is often done with a secondary goal of wrecking local production capacity so the target market is dependent upon you in the long term. The imperial-era French engaged in mercantilism as a matter of course, but so too did any up-and-coming industrial power. The British famously product-dumped on the Germans in the early 1800s, while the Germans did the same to anyone they could reach in the late 1800s. One could argue (fairly easily) that mercantilism was more or less the standard national economic operating policy for China in the 2000s and 2010s (under American strategic cover, no less).
In essence, both possible models would be implemented with an eye toward sucking other peoples dry, and transferring the pain of general economic dislocation from the invaders to the invaded. Getting a larger slice of a smaller pie, as it were. Both models might theoretically work in a poorer, more violent, more fractured world—particularly if they are married. But even together, some version of imperialist mercantilism faces a singular, overarching, likely condemning problem: Too many guns, not enough boots.
In the old imperial (and mercantile) days, when the Brits (or Germans, or French, or Dutch, or Belgians, or Japanese, or Portuguese, or Spanish, or Argentines, etc.) showed up, they’d bring guns and artillery to regions whose peak military technologies were decidedly spear- and knife-driven.
The newcomers didn’t typically have to make too many examples of the locals before the locals decided it would be best if they did what they were told (assuming they survived long enough to have a decision to make).
Possessing such a sharp and obvious technological edge meant the occupiers could maintain control with tiny overseas forces. The best example is probably the British Raj in India. The British typically had (far) fewer than 50,000 soldiers in their South Asian colony—sometimes fewer than 10,000—to a local population of over 200 million. At the typical high ratio of one occupier per 4,000 occupied, it would be as if the population of my hometown of Marshalltown, Iowa, tried to occupy the entirety of the United States west of the Mississippi.
In an era when one side was industrialized and the other was not, such a numerical imbalance could work. But as the Indians became more technologically sophisticated, the idea that the Brits could maintain control went from eyebrow-raising to inordinately hysterical in short order. It was only a matter of time and political will before the Indians sent the Brits packing.* Today there are certainly parts of the world that are more industrialized (and better armed) than others, but there no longer is a nineteenth-centurystyle yawning chasm between an industrialized world and a preindustrial world. Consider how much fun the United States (a country near the head of the pack) had attempting to reshape Afghanistan (a country near the bottom). It doesn’t take excellence in guns and railroads and asphalt and electricity and computers and phones to still have guns and railroads and asphalt and electricity and computers and phones.
The only countries in a post-2022 world that might be able to maintain an overseas empire are those that can have three things going for them: a serious cultural superiority complex, a military capable of reliably projecting power onto locations that cannot effectively resist, and lots and lots and lots and LOTS of disposable young people.
The last country that boasted that combination of factors was the United States in the World War II aftermath. America’s rise in the 1800s and early 1900s was technological, geographic, demographic, and economic, but when the guns fell silent in 1945, the Yanks enjoyed technological, geographic, demographic, economic and military and strategic and numerical advantages. But even then, the Americans chose not to occupy the territory they had conquered—even when their potential subjects had welcomed them as liberators. Today we live in a world of accelerating demographic collapse. There are no countries who boast the mix of youth and reach necessary to project power out of their own neighborhood on a cost-effective, sustained basis.
The best that might be managed is a pre-deepwater era, regional empire set up with local superpowers dominating their neighborhoods in the rudest sort of way: via direct intimidation and/or conquering. And even then, I have a hard time seeing this working for any countries aside from France or Turkey, countries who have stable demographic structures, strong industrial bases, and a very large tech edge over their possible future neo-colonies.* Anything more would be a numbers game that few countries in few places could even theoretically play, much less play well enough that the effort could pay for itself. The point of this discussion into possible economic models isn’t to depress you (although in my opinion that’s a perfectly reasonable takeaway), or even to put a finger on what outcome is most plausible.
Instead, it is to underline two outcomes: First, everything is going to change. Whatever new economic system or systems the world develops will be something we’re unlikely to recognize as being viable today. We will probably need far higher volumes of capital (retirees absorb it like sponges), but we’ll have far less of it (fewer workers means fewer taxpayers). That suggests economic growth and technological progress (both of which require capital as an input) will stall out. And that’s just one facet. Everything that capitalism and fascism and the rest were designed to balance or manage—supply, demand, production, capital, labor, debt, scarcity, logistics—isn’t so much contorting as evolving into forms we have literally never experienced as a species. We are entering a period of extreme transformation, with our strategic, political, economic, technological, demographic, and cultural norms all in flux at the same time.
Of course we will shift to a different management system.
Second, the process will be the very definition of traumatic. The concept of more has been our guiding light as a species for centuries. From a certain point of view, the past seventy years of globalization have simply been “more” on steroids, a sharp uptake on our long-cherished economic understandings. Between the demographic inversion and the end of globalization, we are not simply ending our long experience with more, or even beginning a terrifying new world of less; we face economic free fall as everything that has underpinned humanity’s economic existence since the Renaissance unwinds all at once.
Between the collapse of the global Order and the inversion of global demographics, the old rules clearly don’t work, and it will take us decades to figure out what might. Different countries will feel the old system breaking down at different speeds in different ways, and they will react to such stimuli using approaches shaped by their own strengths and weaknesses and cultures and geographic positions. Nor will developing a new -ism be done under controlled circumstances over a leisurely period. It will happen in the here and now of demographic and geopolitical collapse.
We are not going to get this right on our first try. We will not follow the same paths forward. We will not arrive at the same destination. It took our world centuries to suss out our current quartet of economic models. It is a process, and not one that proceeds in a predictable, sedate, straight line. The last time humanity struggled with changing factors that necessitated new economic models, the causes were the Industrial Revolution paired with the first globalization wave. We argued—vigorously—over which system might be best. We had fights. We had wars. We had big wars. Most were not Cold.
Living through history is messy. Messy, Messy Models
Now that we all need a fleet of drinks, let’s look at a couple of examples of what success might . . . resemble. For while our world has never experienced anything like what we’re about to go through, some countries’ demographic and geopolitical realities have forced them to deal with this transformation’s leading edge sooner than the rest of us. There are a couple of places we can look to for inspiration. Or for goalposts. Or at least for land mines.
I have two for you to consider.
RUSSIA . . . AS A SUCCESS STORY
While everything in Russia is and always has been done in its own . . .
peculiar way, it is undeniable that Russia was part of the first big batch of countries to industrialize: after the Brits and on a similar time frame to the Germans. The intertwined demographic and industrialization stories of the Russians and Germans, in fact, have been the story of Europe from the early 1800s right up to the current day.
* But whereas the Germans used the American-led Order to take a quantum leap up the value-added scale and turn their economy from an industrialized one to a more export-oriented, technocratic structure, the Soviet Union was the Order’s target and so could do none of that. Instead, the Soviets went down the road of command-driven communism. Outside of the military realm, Russia simply could not keep up with the technological dynamism of the American-led world. As the years stacked up into decades, the Soviet economy plateaued in terms of sophistication, and nearly all economic growth in the 1960s and 1970s wasn’t from technology or productivity, but instead from an expansion of the workingage population. More inputs, more outputs.
To believe the Soviet Union would continue to function over the long haul, you had to believe that the Soviet population would continue growing, and that just wasn’t in the cards. Between devastation in the world wars, Stalin’s tender urbanization and collectivization efforts, broad-scale mismanagement under Khrushchev, and organizational stagnation under Brezhnev, the Soviet Union stopped generating sufficient numbers of new workers. By 1980 the demographic pipeline was already running dry . . .
and then the bottom fell out. The trauma of the Soviet collapse was economic, cultural, political, strategic—and demographic. Between 1986 and 1994, the birth rate halved while the death rate nearly doubled. Russia today is deindustrializing at the same time its population is collapsing.
Dark? Yes, but Russia is probably one of the best-case scenarios for much of the industrialized world. Russia, after all, at least has ample capacity at home to feed and fuel itself in addition to sufficient nuclear weapons to make any would-be aggressor stop and think (a few dozen times) before launching an assault. In a world of constrained trade and capital, one could be in significantly more dire straits than still having strategic depth plus reasonably reliable food, fuel, and electricity.
But the gold standard in terms of preparing for a postgrowth life is elsewhere.
JAPAN: GROWING OLD GRACEFULLY
Japan has been on the path to demographic oblivion for more than five decades. Extreme urbanization has been the norm since World War II and there simply isn’t enough space in Tokyo’s omnipresent condos to easily raise families, much less families of size. The aging process is so deeply entrenched that some thirty thousand Japanese die in their apartments every year without anyone noticing until there’s a . . . smell. Necessitating fumigation. Japan passed the point of no return in its demographic structure back in the 1990s, but rather than crawl into a hole and die, the Japanese government and corporate world have long since branched out in ways that reflect the country’s underlying demographic weaknesses—and strengths. Japanese firms realize their local demographics are wretched, but they also realize that building products en masse at home requires young workers that they no longer have, and that dumping said products on other markets is often construed as somewhat rude. So the Japanese have opted for something new: desourcing.
Japanese firms have relocated much of their industrial productive capacity to other countries, where they use more abundant local workers to produce the goods that are then sold into those same local markets. Then some of the income from those sales flows back to Japan to sustain the (ever-aging) Japanese population. Design and technical and very high-end manufacturing work—the sort of work done by high-skilled, older workers —is kept in Japan, but almost the entirety of the rest of the manufacturing supply chain is located on the other side of national borders. In essence, the Japanese read the writing on the wall in the 1980s. They saw how their American security guarantor resented product dumping and started a multidecade effort to instead manufacture goods within their target markets. In particular, this concept of “build where you sell” has become Toyota’s new corporate mantra.
This new industrial model has enabled Japan to age with a degree of grace. But there are a couple of glaring problems.
First, Japan’s economy has stalled. In inflation-adjusted terms, the Japanese economy was smaller in 2019 than it was in 1995. Part and parcel of not being able to build and sell with and to your own population is that you need to move some goalposts. Even outsized economic success in a postgrowth world just doesn’t have much, well, growth.
Second, it is exceedingly unlikely that Japan’s path is replicable. After all, the Japanese experience of 1980–2019 is in many ways unique.
Japan’s transformation to a postgrowth system occurred under ironclad American security cover. Tokyo never had to fear for its own physical protection at home. Contemporary America’s disinterest indicates such cover will not be available for most countries.
Corporate Japan faced no serious security threats abroad, in part because of the we’re-all-friends-now nature of the post–Cold War environment, and in part because the Americans prevented any security threats from arising. The American departure from the world means that most countries—most trade routes—will be bereft of the sort of ironclad protection the Japanese evolved under.
Japan’s transformation occurred when its firms had access to global consumer markets, most notably the American market. Aging demographics aside, the American political system has turned sharply insular and America simply is not going to be keeping the world open for trade. America certainly won’t keep the world open for dumping products on the American consumer market.
Japan was wildly wealthy at the beginning of its transition. In per capita terms Japan became as wealthy as America in the late 1980s.
All that industrial plant the Japanese built abroad had to be paid for, and the Japanese had to pay for it themselves, but they could pay for it themselves because while their demographics were turning, they had not turned yet. When the Japanese started desourcing in the 1990s, they still had roughly twenty years of a functional workforce to draw upon. Today there are precious few countries who can lay claim to such a positive starting point in terms of wealth, and none have a tax base or worker capacity that will last more than a decade.
Japan’s population is the world’s most homogeneous, with more than 98 percent of the population being purely ethnically Japanese. That unity enabled social and economic transformations that would have triggered mass upheaval in more diverse populations.
Japan is eminently defensible. Japan is an archipelago that has never been successfully invaded. Even the Americans were so daunted by the task of conquering the Home Islands that they opted to nuke Hiroshima and Nagasaki to force surrender, rather than sending the Marines into the grinder. Point being: Japan’s defensive needs in a world without American overwatch are manageable, and the Japanese navy is right-sized to the task of home defense.
Finally, as with everything demographic, Japan had in spades the most critical asset: time. Economic transformation doesn’t happen overnight. From the point that the old Japanese economic model broke in the 1989 stock and property market crashes, Japan had three decades to transition to what has become its new normal.
There are precious few countries who boast the skilled labor and capital to attempt desourcing like the Japanese model. Denmark, the Netherlands, the United Kingdom, Singapore, South Korea, and Taiwan come to mind.
The European states on the list might be able to look after their own security with limited American help or perhaps a partnership with a more demographically stable France. As to the Asian states, they might be able to throw themselves at none other than Japan’s mercy for their security overwatch.
But for all of them it would be a crapshoot as to where they’d desource to.
To a degree, the Western Europeans who form the original core of the European Union have tried this strategy with the Central Europeans whom they admitted to the Union in the 2000s. But on average the Central Europeans are aging even faster than the Western Europeans, so this strategy will collapse under its own weight in the 2020s. The Asian Tigers have the possibility of desourcing to the Southeast Asian nations, and indeed some of that has already occurred. But none of them have the military capacity to sustain such a relationship without extensive external assistance. With the notable exception of the United States, any country with a reasonably healthy demographic is more likely to be an economic and/or security competitor and therefore an unwise destination for their investment funds.
Shifting to a new system was always going to be painful, and most countries simply were never going to make the cut. When I started tinkering with the core ideas for this book back in 2016, I figured we’d have about fifteen years to figure things out. That’s a laughably short amount of time to upend a half millennium of history, but it was better than nothing. But then, suddenly, tragically, horribly, in the opening weeks of 2020, all hope fled.
SCREW YOU, CORONAVIRUS
The coronavirus pandemic didn’t simply rob us of lives. It robbed us of what we needed more than anything else to prepare for the coming demographic devastation. It robbed us of the one thing no one on Earth can make more of.
It robbed us of time. In November 2019, the pathogen the world would come to know as the novel coronavirus-2019—COVID-19, or simply COVID, for short—began circulating in the Chinese province of Hubei. Hyper face-conscious local authorities suppressed reporting of rising infection rates. Even to their superiors. Even to medical personnel. While many governments at many levels have shown staggering levels of creativity in mismanaging the crisis in a staggering variety of ways a staggering number of times, it was this first decision to suppress information that transformed a local health concern into a global pandemic. COVID is the most infectious disease to break into the general population since measles, and COVID’s fatality rate is five times higher. At the time of this writing (February 2022), over 300 million people globally have been diagnosed with COVID, with 6 million of them perishing.* COVID spreads almost exclusively via respiratory exhalation, which, from an economic point of view, is as bad as it gets. HIV can be stopped with condoms. Cancer isn’t communicable. Heart disease is largely a lifestyle issue. Getting tetanus requires a wrestling match with barbed wire.
But if you can spread or catch a health destroyer by breathing? We have a problem. People live indoors. Most business is done indoors. Most food is eaten indoors. Most transport modes are operated with closed windows.
COVID reached into and threatened every aspect of our existence.
The only effective means of dealing with a respiratory disease is to limit contact. Masks help, but isolation helps more. COVID mitigation efforts didn’t shut everything down, but wow, did it sucker-punch most economies over and over and over again.
The outcomes of such an easily spread pathogen are legion, but for our purposes four stand out: First, decreased and inhibited contact among people translates directly into decreased and inhibited economic activity, or, as it is known by its technical name: a recession. By August 2020 it was clear the downturn wasn’t going to be a one-off, but instead would persist until such time as the general population achieved herd immunity. By the time we reached October 2021 we learned that the immune response generated from suffering through COVID’s then-dominant delta variant varied wildly in the protection it generated, but more important, for some such protection lasted only a handful of weeks. We learned that vaccination was the only reasonable way to go.
* Luckily, a series of vaccines started hitting the market in December 2020, but between vaccine hesitancy and manufacturing limitations, the bulk of the advanced world wasn’t able to reach the 90 percent vaccination threshold necessary to prevent community transmission in 2021, and new variants kept moving the goal posts for what “success” meant.
Second, the very nature of our economic “normal” cavitated. Every one of the top thirty economies experienced lockdown and disruption. Direct recessions were bad enough, but the disruption to lifestyle changed the portfolio of goods everyone consumed: fewer services, more goods, and more of very specific sorts of goods like electronics and computing products. With every lockdown and/or opening, our consumption portfolio shifted, and with every lockdown and/or opening, manufacturers the world over attempted to shift their efforts to meet the altered demand. Each such effort required more workers, more investment, and more time. Put technically, each effort was wildly inflationary . . . at a time when more and more Baby Boomers were taking retirement and moving on to fixed incomes. At the time of this writing, in early 2022, the world’s industrialists are on their ninth COVID-related retooling.
Third, if the goal was economic stability, the parts of the world that somehow escaped COVID were . . . the wrong parts. Sub-Saharan Africa did reasonably well, but to be blunt, in most of the region life expectancy is simply too low to have many people aged over seventy. (More than half of all coronavirus deaths are in those aged seventy-five or over, so the demographic that most suffers from the disease simply doesn’t exist en masse.) The second region was East Asia, where quick and competent government responses crushed caseloads. Unfortunately for the global system, sub-Saharan Africa is a minor player, collectively generating only 1.9 percent of global gross domestic product (GDP), while all East Asian economies are export-led. It didn’t matter much to global consumption if they weren’t infected. They had lost markets to sell to.
Fourth, unrelated issues intensified during the coronavirus crisis to further fracture global connections. Specifically, the Trump administration was prosecuting a trade war with China, while China was descending into narcissistic nationalism. Both nudged all consumption-led systems—the United States included—to bring as much of their manufacturing needs inhouse as possible. Whether for reasons of nationalistic fear, populism, health, national security, politics, or jobs, the complex supply chains that had increasingly dominated the manufacturing sector for decades aggressively unwound.
At the time of this writing, COVID already has disrupted the consumption-led part of the world for over two years. The export-led part of the world was going to slide from export-led to postgrowth in the 2020s regardless, with most of said sliding occurring in the decade’s first half.
COVID weakened the connections between export-led and consumption-led economies; this hived most consumption-led economies off into their own partially sequestered worlds, while simultaneously denying the export-led economies of the export sales they needed to fuel their systems and the transition time they needed to adapt their systems to whatever comes after globalization.
The globalization game is not simply ending. It is already over. Most countries will never return to the degree of stability or growth they experienced in 2019. And now most have lost the chance to even try to shift onto a newer, more appropriate footing.
The key word in that last sentence, of course, is “most.” The Last Bits of More
There are precious few countries who against all odds have kept the demographic torch burning. Life for them will change, too, but not nearly as quickly or drastically or negatively. The one that matters more than all others combined is the United States. THE AMERICAN MORE, PART 1: GEOGRAPHY
Let’s start with all the rote geographic and strategic stuff.
The United States has more high-quality, temperate-zone, arable farmland than any other country and its entire agricultural supply chain is contained within North America. This makes the United States the world’s largest agricultural producer and exporter. Food security is a complete nonissue.
America has more land suitable for habitation—reasonable climate, relatively flat, good water access, lack of pests, etc.—than any country in the world. In terms of usable land per person, the United States could probably support a population double its current 330 million before feeling crowded.
Moving things around on water costs roughly one-twelfth that of moving them around on land. Courtesy of omnipresent internal waterways—more than the combined total of the rest of the world— the United States has lower internal transport costs than anyone else.* Courtesy of the shale revolution, not only is the United States the world’s largest oil producer, enabling it to be net oil-independent, but by-products of its shale oil production have granted it the lowest unsubsidized electricity costs in the world.
The United States is the first-world country closest to the equator, granting it more solar power potential than any other country, while the positioning of its mountains compared to its coasts gives it more wind power potential than any other country. Green- or fossil-driven, electricity supply will never be an American problem.
Cheaper inputs—whether in the form of land or energy—helped trigger a massive reindustrialization process in America as early as 2010. That’s given the United States a head start on the broad-scale industrial reshufflings that will dominate the global breakdowns of the 2020s.
The United States has not faced a security threat from within the North American continent since the 1840s. Deserts and mountains make an invasion from the south simply impossible, while lakes and forests (and a 10-to-1 demographic imbalance) limit the very concept of an invasion from the north to the realm of low-animation-quality, expletive-heavy film.* Instead of hostility, the Americans have worked with the Canadians and Mexicans to form an integrated manufacturing space and trade zone. The expanded economies of scale allow for a regional manufacturing footprint that is world-class in terms of both quality and cost.
The Atlantic and Pacific Oceans make the United States all but immune to extra-hemispheric invasion. Very few countries have any vessels that can even cross an ocean unaided. Should anyone want to take a crack at America, they’d have to first get past the U.S. Navy, which is ten times as powerful as the combined navies of the rest of the world.* America has nukes. Thousands of them. In a rock-paper-scissorslizard-Spock-nuke contest, nukes win every single time.
Bottom line: in a world without more, the United States not only still has plenty, it has the capacity to keep it.
But even better than that, to this point the Americans largely have managed to escape much of the global development and demographic trap. THE AMERICAN MORE, PART 2: THE BOOMERS AND THE MILLENNIALS
Of the 17 million American men—more than 20 percent of the American male population—who fought overseas in World War II, all but 400,000 came home. And they came home ready to get on with their lives. The GI Bill helped them get educations. The Eisenhower Interstate Act of 1956 enabled the national road systems that enabled the former soldiers to settle anywhere. New programs for home loans enabled the young veterans to purchase or build their first homes and in doing so, combined with the new Interstate Highway System, launched what we now know as the suburbs.
All these new government programs were in many ways the first of their kind for Americans. Most were launched for fear of a repeat of the economic disaster that followed the last time several million American soldiers returned from war. After World War I the soldiers’ sudden return had flooded the labor market, generating such massive oversupply that it triggered a deflationary spiral, which contributed to the Great Depression.
A core rationale for the new programs was to use government spending to alternatively mop up all that labor, or ship the now-former soldiers off to university for a few years to defer the pain. Many debated (and still debate) the pros and cons of so permanently expanding the government’s footprint, but it is undeniable that with all these pieces in place, America experienced the greatest baby boom of its history. Between war’s end and 1965, more than 70 million births occurred in a country that before the war had under 135 million souls. The horror of the Baby Boomers was unleashed upon us all.
There is no end of stories to tell about America’s Boomer generation.
They are the ones who came of age during the 1970s, creating what passes for American culture. Disco? Their fault. They are the ones who crafted the American welfare state, and from it their in-progress retirement has broken the federal budget. They are the ones who grew up in the shadow of the new manufacturing complexes that sprouted up after World War II, when the rest of the world was wrecked, and then watched bitterly as those same facilities relocated as the rest of the world recovered under the Order. From Vietnam to Afghanistan, from Johnson to Trump, from civil rights to long commutes, from the sexual revolution to technological invalidity, their collective decisions and foibles have determined precisely what America is.
Most of the rest of the world had a Boomer generation as well, and for similar formulative reasons. War’s end plus the dawning of the new (mostly war-free) age under American sponsorship enabled most governments to busy themselves with their people’s lives without needing to burden themselves with the task of national defense. European governments in particular spent a lot more time and energy trying to make their people’s lives comfortable, and a lot less trying to kill all their neighbors. Many countries the world over developed—and experienced the same reductions in mortality of the more advanced states—for the first time. Populations expanded everywhere.
But relative to prewar populations, the American Boomers were a far larger cadre than their global peers. Even 170 years after independence and with a thirty-fold expansion in population, the Americans still enjoyed a lot of open land. The Americans were still growing into the territories made vacant by the eradication of the natives. Lots of useful land meant the Boomers enjoyed lots of low-cost, high-payout opportunities. In contrast, Europe had reached its lands’ carrying capacity decades previous and there just wasn’t much in the way of internal frontiers. Even in the newly developing countries, the countryside wasn’t exactly teeming with unused territories.
But that was then, and this is now. As we enter the 2020s, the Boomers are a largely spent demographic force. Calendar years 2022 and 2023 are when the majority of the world’s Boomers will have turned sixty-five and so shifted into retirement.
This generates a double hit to labor markets. The Baby Boomers are the largest-ever generation, so their absence is hugely impactful in numerical terms. They are also the oldest economically active generation, meaning that their numbers comprise the bulk of all available skilled labor. Remove so many high-skilled workers in a short period of time and labor shortages and labor inflation are a foregone conclusion for years to come. The next generation down is Generation X, a group that watched the trials and travails of their predecessors and . . . did not like what they saw.
There were so many Baby Boomers that when they entered the market they outcompeted each other for wages, suppressing labor costs. This forced many Boomers to decide that two-income households were the only way to scrape by. That not only depressed labor costs more, but introduced considerable stress into interpersonal relationships, resulting in the Baby Boomers’ high divorce rate. Gen X has attempted to avoid this outcome, to a degree. Gen X is far more likely to have single-income households compared to their elders, as they value their time at least as much as their money.
Generation X was already a smaller generation, and was never going to be able to fill the cavernous hole caused by the Boomers’ departure, but with lower labor rate participation, the result will be a far larger labor shortage. That’s great for Gen X—those who choose to work will have the best pricing power of any workforce to date!—but it is a bit of a disaster for the labor market writ large.
At the bottom of the scale are the Zoomers. They are eager workers, but very few exist. The Zoomers are the children of Gen X. A small generation generates a small generation. All the Zoomers that will be born have already been born, and even if they all follow in the footsteps of the Baby Boomers instead of their parents and they all enter the workforce, there are nowhere near enough of them to round out the labor force. For the next two decades.
To this point—Boomers, Gen Xers, and Zoomers—the picture holds globally, but now it diverges, because America’s Boomers did one thing their global peers did not. They had kids. A lot of them. Say what you will about America’s Millennial generation—and yes, there is a lot we can say —they have something going for them that nearly no other Millennial cadre globally does.
They exist.
Overall, the American Millennial demographic group falls into two categories. The first match the stereotype of entitlement and laziness and taking an extended adolescence between college and entering the workforce. The second . . . got screwed: they attempted to be adults, but got sideswiped by the combination of Boomers squeezing them out of the workforce, and the mass unemployment triggered by the 2007–09 financial crisis. Regardless of bucket, the Millennials lost years of meaningful work experience, and today are the least skilled of any equivalent age cohort in modern American history.
But they are many. The American Millennials are already the largest demographic in the workforce by number. That’s great. That’s essential. But the real hope is with their children. The American Millennials’ numbers raise the possibility that they will have enough children to someday fill the labor gap. But the soonest that will happen is when those children enter the labor force . . . a process that will not begin until the mid-2040s. And there is still risk here: there’s the not-so-minor issue that the Millennials must first have those children. At present, birth rates for Millennials are the lowest in American history.
So for the United States, the Millennials for all their imperfections are rounding out the labor force to a degree. An insufficient degree by many measures, but the Millennials’ very existence is both a plus now and a source of hope for later.
Beyond the United States, the picture is much darker, for the simple reason that most of the world’s Boomer cohort didn’t have kids. The reasons for this lack of reproduction vary greatly from place to place. East Asia was already densely populated; mass urbanization didn’t help. Most of Europe spent its money on technical upgrades rather than making it easier to raise families. Canada is so cold everyone flocked to cities for warmth as soon it was an option, and apartments are the ultimate downsizing factor for family size no matter where they are located or why people live in them.
So, yes, American Boomers aging into mass retirement will break the bank. But between their smaller relative size as compared to global norms and their offspring’s increasing contribution to the government’s bottom line, their financial hammer blows are nothing compared to the meteor swarm of challenges that will utterly destroy the governing systems of countries as diverse as China, Korea, Japan, Thailand, Brazil, Germany, Italy, Poland, Russia, and Iran. Meanwhile, American Millennials’ very existence means the United States will at least in part recover from its financial crunch in the 2030s, and probably its labor crunch in the 2040s.
But for the rest of the world, it will never get better than it was in the 2010s.
Never.
The Americans will have a small amount of company: France, in a conscious, sustained effort to outpopulate West Germany, became one of the world’s most family-friendly nations. Sweden’s version of social democracy entails cradle-to-grave family support. New Zealand brims with elbow room, and in a (faint) shadow of Australian and American policy in eras past, deliberately reduced options for its own indigenous population in order to increase options for whites. But these three countries, plus the United States, are the exceptions that define the rule. Everyone else’s Boomers failed to procreate to anything close to replacement levels.
Six decades later, the global Millennial cadre of the advanced world is simply too small to even theoretically keep their nationalities in existence over the long haul.
Back-of-the-envelope math done by folks who live in the intersection of demographics and statistics (which looks a lot like calculus to me) suggests that places with fair-to-crappy demographics, like Spain, the United Kingdom, or Australia, will suffer a drag on their annual growth of about 2 percent of GDP annually. The truly terminal demographies of Germany, Italy, Japan, Korea, and China are looking at at least 4 percent, while the youngish populations of America and France will only suffer about a 1 percent reduction. Add that up for just a single decade and it is difficult to imagine how the “inevitable rise” of places like Germany and China can even survive, much less function, much less dominate.
Best yet, there is more to the Americans’ more. THE AMERICAN MORE, PART 3: CULTURE
The United States is one of the world’s four settler states, which is a pseudo-technical term indicating that most Americans can trace their lineage to folks who aren’t from what is currently American territory. On the front end in the 1700s and 1800s, these would-be Americans arrived young. Fogies and biddies couldn’t (and wouldn’t) put up with the sort of cramped conditions required for a multi-week sail across an ocean. That meant that upon arrival they were (a) less likely to die of old age, (b) more likely to immediately start having a lot of kids, (c) able to expand into all kinds of open land, and (d) reinforced by more young settlers in the next ship in the queue at Ellis Island. It added up to a very young, very rapidly growing demographic. Sure, this was all well over a century ago, but the echoes of demographic trends last a long time. (Contemporary Russia is only now reaping the poor demographic harvest of World War I and Stalin’s pre–World War II purges.) As a settler state, the United States tends to be far more confident in its political identity as well as friendly to immigration than other countries. To the point that the United States is one of only a very few countries that even publicly publishes data on how many of its citizens were born in another country. Everywhere else, even the process of collecting (much less reporting) such data falls somewhere between politically destabilizing and treasonous. This shouldn’t come as a shock; with the exception of the indigenous population, no Americans are actually from America. Inward migration has ebbed and flowed over the decades based on U.S. and global economic conditions and gyrations within American political culture, but as a rule it is significantly higher than nearly every country in the world as a percentage of the overall citizenry. In large part it has to do with the nature of national identities. Most countries are nation-states: their governments exist to serve the interests of a specific ethnicity (the nation) in a specific territory (the state). France for the French, Japan for the Japanese, China for the Chinese, and so on. In nation-states the central government tends to be the first and last word as to policy, because it knows whose interests it exists to serve. The technical term for such governments is unitary.
But not all governments are nation-states. Some are composed of different peoples residing in different geographies who each have their own local authorities, yet, due to the vicissitudes of history, war, necessity, and luck, have cobbled together a common administration. The result is a hybridized system with different, tiered levels of government—typically local, regional, and national—each with different rights, authorities, and responsibilities. Some, like Canada, Brazil, Switzerland, or Bosnia, are such loose associations that their national governments are really barely even governments in name: they are confederal. In others—like the United States, India, or Australia—the balances among the various levels is roughly equal: they are federal.
* The takeaway from all this political blah-blah-blah is that in the United States the federal government—that’s the one headquartered in Washington, D.C.—was expressly not designed to serve the interest of any specific ethnicity. Even adherents of critical race theory fully admit that the politically and economically dominant group in the United States—white Caucasians—are themselves a blend of peoples of English, German, Irish, Italian, French, Polish, Scottish, Dutch, Norwegian, Swedish, and Russian descent (in that order).
This relatively loose definition of what being “American” means makes it far easier for the United States in specific, the settler states in general, and in the broadest definition any federal or confederal system, to absorb rafts of new immigrants. In unitary systems, new migrants need to be invited to join the dominant culture. Failing that, they become an underclass. But in the United States, new migrants are often allowed to define themselves as members of the broader community.
In the world to come that’ll be a helluva handy characteristic. With the world’s consumption-led economies taking responsibility for more and more of their own production and becoming more and more insular, there simply won’t be many economic opportunities for working-age adults living in export-led systems, much less postgrowth systems. Even if such weakening countries survive, their workers will have a choice between steadily higher tax rates to support their aging populations, or leaving.
Expect a lot of the world’s remaining labor—especially its high-skilled labor—to soon be knocking on America’s door. With every such relocation, America’s position vis-à-vis everyone else improves.
And even beyond the mechanics of immigration, the Americans have one final trump card. THE AMERICAN MORE, PART 4: MEXICO
Part of the Mexico factor is obvious: in 2021 the average Mexican was nearly ten years younger than the average American. As a direct source of migrants, the Mexicans scratch several American itches. Mexican inmigration has held down the average age of Americans, kept semi-and unskilled labor costs under control, and filled out the broader demographic —especially in regions like the Deep South, which without Mexican inflows would suffer a demographic structure similar to that of rapidly aging Italy.
Part of the Mexico factor is a less-than-obvious reason: manufacturing integration. The Mexican system isn’t as capable at providing electricity, education, and infrastructure to its people. This pushes down not only Mexican wages, but Mexican skill sets and Mexican worker productivity.
Any multi-stage manufacturing system will have steps that are highly technical as well as those that are highly untechnical. Melting bauxite is easier than extruding aluminum. Snapping together the pieces of a computer is easier than coding software. Trenching ground is easier than manufacturing the cable laid in the aforementioned trench. Matching tasks to skill sets—aka division of labor—enables maximum production at a minimum of costs. Globalized supply chains are all about tapping different skill sets and labor cost structures to generate the most economically efficient outcomes. Few places are as lucky as the United States and Mexico in having the perfect technical complement right next door.
Part of the Mexico factor is downright counterintuitive. The dominant ethnic group in Mexico originates from Spain, while the dominant “ethnic” group in the United States is white Caucasian. In Mexican eyes, that isn’t all that different. Mexicans of Spanish descent somewhat look down on Mexicans of indigenous descent, and they feel more or less the same way about Central American migrants as Americans do. Once Mexicans migrate to the United States, they assimilate quickly. It’s fairly common for secondgeneration Mexican-Americans—and nearly reflexive for fourth-generation Mexican-Americans—to define themselves as white. Within their own social strata, Mexican-Americans have redefined “white” from an exclusive term that refers to “them” and especially “those gringos” to an inclusive term meaning not simply “us” but “all of us.” America’s assimilative capacity has proven to work on Mexicans even better than it has on previous waves of migrants. In all cases, American English tends to rub out the migrants’ language within two to three generations. In the case of Mexican-Americans, however, it rarely takes more than one. In contemporary times, Mexican-Americans are the most enthusiastic seekers of the American Dream, not just economically, but culturally.
Of course, it isn’t all sunshine and tacos.
For all the economic and financial and demographic advantages of inmigration, cultures can only absorb so many so quickly and in the 2010s and early 2020s sometimes it feels as if America has hit its limit. It is more than simply a gut feeling. A peek at the data suggests why:
In-migration to the United States hit a relative historical low in the 1970s—the decade in which America’s Boomers came of age. For Boomers —an overwhelmingly white demographic—their primary experience with interracial politics was the civil rights movement, a movement that involved people who were already here at a time when the Boomers were young and politically liberal. In-migration then rose steadily until reaching a near-historical high (again, in relative terms) in the 2010s, at which point the Boomers were nearing retirement and in doing so becoming politically . . . stodgy. In each and every decade as the Boomers aged, the largest single immigrant group was always Mexican. In the minds of many Boomers, Mexicans have long been not simply the “other,” but the “other” that has arrived in ever-larger numbers. A big reason why so many Boomers have been so supportive of nativist politicians such as Donald Trump is that their feelings of shock at the pace of change in American society is not a collective hallucination. It is firmly backed up by reality.
This is one piece of the kaleidoscope of why American politics has turned so sharply insular in the 2010s and early 2020s. But regardless of what you think about Boomers or Mexicans or race or trade or assimilation or borders, there are a couple of thoughts to keep in mind: First, the Mexicans are already in the United States. Whether you’re concerned with what American culture feels like or what the labor market looks like, the great Mexican wave has not only come, it is over. Net migration of Mexicans to the United States peaked in the early 2000s and it has been negative for twelve of the thirteen years since 2008. Just as industrialization and urbanization pushed down birth rates in the developed world, the same process has begun in Mexico, just a few decades later.
Today’s Mexican demographic structure suggests it will never again be a net large-scale contributor to American migration. Most of the big migrant flows into the United States since 2014 have instead been from the nearfailed Central American states of Honduras, El Salvador, and Guatemala.* Second, even among the most nativist strains of American political thinking, room has been found for Mexicans. In just two years, none other than Donald Trump went from openly condemning Mexican migrants as rapists and “bad hombres” to embracing Mexico in trade and security deals that took bilateral relations to their friendliest and most productive in the history of both republics. Part and parcel of Trump’s renegotiation of the NAFTA accords were clauses that expressly aim to bring manufacturing back to North America. Not to the United States specifically, but to any signatory of the accords. Team Trump added those clauses with Mexico expressly in mind.
On the other side of the equation, Mexican-Americans are turning nativist. The demographic in the United States that consistently polls the most anti-migration is not white Americans, but instead (non-firstgeneration) Mexican-Americans. They want family reunification, but only for their own families. Never forget that anti-migrant, build-the-wall Donald Trump carried nearly every county on the southern border when running for reelection in 2020.
Third, America and Mexico still have something most others don’t: more. And they certainly have more more together.
There are some clouds on the horizon. While it is aging slowly, the American population is still aging. And while Mexicans are young, they are aging faster than Americans. At some point in the mid-2050s, the average Mexican is highly likely to be older than the average American.
But even in the worst-case scenario—demographically speaking—the United States has something hardly anyone else has in the world of Disorder we’re all falling into: time.
While others must figure out how to unwind and rewire their systems, to design and implement a new -ism in just a few years, the Americans and Mexicans have decades. At least until the 2050s. There is something to be said for being a late bloomer: Americans and their Mexican partners will be able to look across the world and learn from what everyone else tried.
But perhaps the most notable takeaway isn’t that the Americans (in league with the Mexicans) face the least traumatic adjustment to the worldwhich-soon-will-be, but instead that the future of the world is American.
The math is pretty simple: America’s population is more than young enough that even without Mexico or inward migration, its population can keep growing for at least a few decades.
IT’S THE END OF THE WORLD AS WE KNOW IT . . .
Compare that to China. China’s population path turned terminal two decades ago. Based on whose statistics you’re using, the average Chinese citizen aged past the average American citizen sometime between 2017 and 2020. China’s labor force and overall population peaked in the 2010s. In the best-case scenario, the Chinese population in the year 2070 will be less than half of what it was in 2020. More recent data that’s leaked out of the Chinese census authority suggests that date may need to be pulled forward to 2050. China’s collapse has already begun.
That particular bit of arithmetic doesn’t even begin to take into account what will happen to global (and Chinese) mortality levels once globalization is firmly in the rearview mirror. Most of the world (China included) imports the vast majority of its energy as well as the inputs used to grow its food. Most of the world (China included) is dependent upon trade to keep its population not simply wealthy and healthy, but alive.
Remove that and global (and Chinese) mortality levels will rise even as baked-in demographic trends mean birth rates will continue to fall.
Between demographic collapse in much of the world and demographic stability in the United States, America’s share of the total global population is certain to increase within just the next couple of generations—probably by more than half. And America will retain control of the global oceans.
And the Americans will have time to adapt their system. And the rest of the world is likely to brawl over the shattered remnants of a collapsed economic system.
At the time of this writing in 2022, I am forty-eight. I don’t expect to be fully functional in the 2050s when this new world fully shakes out. What the world looks like over the horizon, what the world looks like when the Americans fully and finally reengage, is going to have to be a project for another time. Instead, the purpose of this book is to lay out what our transition looks like. What the world we are all going to live through is going to feel like. How do the things we know and understand about food and money and fuel and movement and widgets and the stuff we dig out of the ground change? Grow, rearrange.
Fail.
So, with that in mind, let’s talk about life after the end of the world. A Quick Note from the Author . . . and Moscow
Publishing schedules are a bit weird. Let’s assume you either recently assassinated a couple major world leaders or are Oprah. Everyone wants to hear what you have to say. Even then, from the point you finish jotting down your thoughts, the necessities of editing, copyediting, proofing, printing, and distribution mean it’ll be at least five months before your book hits the stands.
I’m no Oprah (or assassin), so there is a necessary lag between my writing of this book and your reading (or listening to me read) these words.
Our production and editorial teams have been racing nothing less than the return of history to get this book out as soon as possible, but as I’m sure you are aware, in some respects we’ve failed. We submitted the final final final version of this manuscript on February 16, 2022. Russia launched a full invasion of Ukraine less than two weeks later, and this book will not be released until June 14.
It is entirely possible there will be additional major disruptions between the writing of this note on February 28, 2022, and when you ingest these words. I’m eyeing the potential collapse of Chinese Communist Party Chairman Xi Jinping’s cult of personality very closely. But such ongoing disruptions are less a bug and more a feature of the world we are already devolving into. The delaying actions that have kept history stuck are gone, and we are all advancing—rapidly—into the next age.
Best of luck to us all. Section II: Transport The Long, Long Road
Let’s start with kimchi quesadillas.
I’m a big fan of fusion food. Hot-and-sour bacon. Breakfast pizza.
Enchilasagna. Caramel cheesecake wontons. Pineapple burgers. Crème brûlée pavlova. Butter duck poutine. Bring. It. On!
Now, this may come as a surprise, but you can’t just go to a grocery store and purchase a ready-made sushi corndog dish from the freezer section. (Very sad.) What you can do is purchase ground polenta, flour, Himalayan salt, green peppercorns, turbinado sugar, cholesterol-free eggs in a carton, sushi-grade tuna, rice vinegar, hothouse cucumbers, smoked salmon, wasabi, mayo, nori sheets, multicolor carrots, ginger, miso paste, soy sauce, sesame seeds, and safflower oil.
The average grocery store today has about forty thousand individual items, up from about two hundred at the dawn of the twentieth century. The humble grocery is a technological miracle that enables me to source nearly anything I need from anywhere, anytime I feel the need to experiment with some new wild-ass crazy cuisine combo.* Swedish? Thai? Moroccan? Out of season? No problem. The inputs are hardly ever out of stock, and are almost always available at prices that are not prohibitive. It isn’t simply availability and low cost; it’s reliable availability and reliably low cost.
Take this concept of utter availability, apply it to absolutely everything, and you now have a glimmer of the absolute connectivity that underpins the modern, globalized economy. The ingredients of today’s industrial and consumer goods are only available because they can be moved from— literally—halfway around the world at low costs and high speeds and in perfect security. Phones, fertilizers, oil, cherries, propylene, single-malt whiskey . . . you name it, it is in motion. All. The. Time. Transportation is the ultimate enabler. Most technologies do not fundamentally change us. Consider the contemporary smartphone. It’s a flashlight, a music player, a camera, a game console, a fare card, a remote control, a library, a television, a cookbook, a computer—all in one. It hasn’t enabled us to do much that’s fundamentally new, but it has combined more than a dozen preexisting devices into one, increasing efficiency and access. Important? Ridiculously.
But such improvement-based techs do not fundamentally change who we are.
Transport technologies, on the other hand, profoundly alter our relationship with our geography. Today you can jump continents in a few hours. It wasn’t always this way. In fact, it was almost never this way. Until a couple hundred years ago, it was rare for any of us to venture more than a few miles from home. The six millennia of human history has quite literally been a slow, agonizing crawl along a long, long road.
Understand the evolutions and revolutions in how we’ve traveled from A to B, understand the connectivity that has made our modern grocery stores and smartphones possible, and you can understand why our world is shaped the way it is.
And what wonders and terrors the coming decades will hold for us all.
THE AGONY OF THE PHYSICS OF TRANSPORT
The human body is a frail and ridiculously inefficient form of transporting goods.
Imagine you are any random human from the time of our first emergence as Homo sapiens to about the mid-1700s. Unfortunately for you, your legs are likely your only means of transportation. Wheelbarrows did not become a big deal until about 100 CE. Carts were too expensive for the average peasant until centuries later, even if there were roads to drag them upon. Even waiting around for something as old-school as a bicycle would have kept you twiddling your thumbs until the late eighteenth century (midnineteenth if you wanted pedals). There are good reasons traders still use camels even today.
For most people, your life, your town, and your livelihood were circumscribed by how far you were willing to walk in a day with a crushing load on your back.
That kept towns small. Before industrial techs remade the world, “urban” areas required nearly a half an acre of farmland per resident to prevent starvation—over seven times the land we use today, plus another one hundred times as much area in forestland to produce charcoal to cook and see the population through the winter. It made cities stay small. Grow too big and either a) food must come from too far away (in other words, you starve), or b) you cut down your forests to grow more food locally and the cutting-edge technology of the day—fire—is denied you (you starve while also freezing to death).
Wheels helped, but not as much as you might think. I’m sure you’ve all heard about Rome’s famous roads being one of the greatest achievements of the premodern age. A few points of perspective: Rome’s roads stretched from Glasgow to Marrakech to Baghdad to Odessa, and were roughly equivalent in total length to the roads of modernday . . . Maine. The Roman road network took six centuries—one billion labor-days—to construct, to say nothing of maintenance.
The very concept of “trade” was dubious. You couldn’t call ahead to see if the next town over actually needed what you had to sell . . . and then there’s the problem of spoilage. You simply couldn’t carry enough food to make long-distance trade viable for anything but the most valuable items.
Concrete and asphalt, chemical preservatives and refrigeration are only a few of those pesky industrial-era technologies that didn’t come around until the 1800s. Efficient, regular overland transport for bulk goods, even over relatively short distances, was not just difficult but also economically impossible for just about all of human history.
Even breadbaskets could not reliably feed themselves. Between 1500 and 1778, France suffered several national famines (and dozens of regional famines). Yes, that France—the country that has been Europe’s largest and most reliable food producer stretching back a millennium, the country that has three SEPARATE agricultural regions, the country that had, bar none, the best internal transport system of the preindustrial world.
Moving things overland sucks.
So we figured out how to move stuff a different way. We figured out how to float.
While a camel could move a quarter ton and ox-drawn carts around a ton, even the earliest bulk ships could move several hundred tons at a fraction of the price per ton. The Romans famously imported most of their capital’s food from Egypt. Remember those better-than-world-class Roman roads? In 300 CE it cost more to move grain 70 miles on those roads than it did to sail it some 1,400 miles from Egypt to Rome. The economics of water transport were so lopsided that some cultures (see: government; Dutch, Aztec, Chinese) would rearrange their entire governing systems around the capacity to mobilize labor to dig canals stretching hundreds of miles through rocky, undulating landscapes with little more than stone picks. All to float what was the pinnacle of human transport technology well into the second millennium CE: the lowly barge.
By the fourteenth century, history finally started picking up speed: Sails and nails, oars and rudders, holds and decks, guns and artillery, compasses and astrolabes. And crazy. Don’t neglect a liberal infusion of crazy. The fabled Western discovery of the great monsoon winds was made by some Greek maniac willing to sail to the middle of the ocean with no idea what would happen next. Take it all together, and newer, larger, sturdier, faster, better-armed ships brought us into the deepwater age at the end of the fifteenth century.
Of course, that’s the comfortable way to look at it from the far side of the Industrial Revolution.
TRANSPORT IN THE DEEPWATER AGE: BETTER, FASTER, CHEAPER, SAFER . . . BUT NOT GOOD, FAST, CHEAP, OR SAFE ENOUGH
Just because humanity now could ship goods long distances didn’t mean we did so very often.
Post-deepwater but preindustrial shipments of grain from the Baltic region to continental Western Europe were hardly a regular affair. Even if Anglo-Dutch disputes didn’t cut into deliveries, even if the Swedes didn’t go all Viking on your ships, even if the Polish-Lithuanian Commonwealth was having a rare good day, half of the end-product cost typically still came from transport, with another quarter being racked up as storage fees. Grains produced in the interior, no matter how productive the land, tended to stay there. By the late 1700s the American colonists–cum–independent Americans did ship some grains across the Atlantic, but it was hardly a steady flow. Few things sucked more than making the grueling, six-week trip only to discover that England had had a bumper harvest.
Yet even as ships became more efficient, the intersection of technology and geopolitics left the world divided.
Geopolitics demanded that no empire buy food from any other. Even in the rare cases when shipping was thought reliable, the moods and appetites of opposing monarchs were most assuredly not. Geopolitics demanded that food shipments were rarely worth either the cost or the risk. But jade, pepper, cinnamon, porcelain, silk, and tobacco? Totes! It helped (a lot) that most luxury goods were not perishable. Tea was about as lowbrow a product there was to reliably make the cut.* The luxuries “trade” was only considered “global” because of the distances involved. In reality, there was little trade among the empires. It was more accurately a series of closed systems sharing very few points of contact, and erratic contact at that. Cargoes were limited to the truly valuable, and to the sort of things you could ultimately do without. When you did see a transoceanic cargo vessel, it was a solid bet that disrupting its day would make yours. The Spanish called such disruptors “English.” The British called such disruptors “French.” Today we call such disruptors “pirates.”* As a result of this deliberate disconnectedness, neighbors were less for trading with and more for launching artillery shells into. The “civilized” world* existed in a state of near-permanent competition. Bringing order to such chaos was simply impossible. The superior naval power of the day— the Spanish in the seventeenth and early eighteenth centuries or the English in the late eighteenth and nineteenth centuries—would attempt to convince everyone they were large and in charge, but this was before the age of radar and cruise missiles. There was a lot of ocean to patrol. Rivals had compelling strategic and economic reasons to muck things up. Any “order” would only hold within sight of their military vessels.
The new technologies of the early industrial era—post-textiles, pre– steel ships—somewhat widened the range of goods that could be transported economically, which in turn carved out room for a new tier of country: the middlemen who brokered or ferried goods among opposing empires. It was risky business. The deals an empire categorized as “brokering” on Monday were often reclassified as “double dealing” by Thursday. The Dutch—every European’s favorite middleman—became notorious for their massive booms when they carried European trade, and massive busts when the British or French or Germans decided they had had enough of the Dutch trading with the other side.
The Americans learned this lesson early and often. Many of the early geopolitical nightmares for the young country centered on trade of the decidedly Dutch variety.
America’s first major strategic row, the Quasi War of 1798–1800, centered on French seizures of “neutral” American shipping to Britain.
The Brits made some popcorn for the coming fight and had the nerve to talk shit about France to the recently independent Americans, but they were ultimately disappointed when both sides backed down.
Just twelve years later, the Americans found themselves again in the middle of a French-British war (their third if you include the American Revolution* ). This time around, France was run by Napoleon. The British were particularly aggressive in interdicting American ships they deemed blockade breakers, even impressing crews on American flagged ships into the Royal Navy.
* Yadda yadda, stuff happened, things were said, triggers were pulled, torches were thrown, before you knew it the Brits were roasting marshmallows over the coals of the former White House, and the Canadians became forever unsure just how much they could trust the Yanks.
And yet and yet and yet, it was stunning—shocking—how much did not change.
At the close of the preindustrial era, most economies were still either self-contained or subjugated in one way or another, with the cities that enjoyed navigable rivers or safe coasts largely dominating. For while the economics and mechanics of overseas travel had improved remarkably over the centuries, overland travel had only seen occasional improvements.
It wasn’t that nothing had gotten better. There had been steady advances in horse breeding, nutrient-rich-feeding, harnessing, and so on. Every bit of reach meant more access to resources to power industry, or access to new towns that could trade with the outside world. But unlike the thousandfold improvements in movement by water, movement by land in 1820 looked an awful lot like it did for the Romans, just with, in many cases, worse roads.
Even as “recently” as the time of the Oregon Trail, you would not be happy, but instead thrilled should your ox-drawn cart manage to clock fifteen miles a day. While the technological advances in things like horseshoes and steel axles did lay important groundwork for what would come, these technologies didn’t fundamentally change how we moved either ourselves or our stuff.
And they couldn’t. And they wouldn’t. That is, until such time that a completely new technological suite boiled forth and changed everything. Breaking Free Industrializing Transport
In the early industrial era, London, like most major early industrial cities, had grown beyond its ability to harvest timber for charcoal. Deforestation drove up the price of wood, improving the economics of the alternative: coal. Ever-higher coal demand led to ever-deeper coal mines.
Those deeper mines punched below the water table, necessitating pumps to force out water. Muscle didn’t work at all to clear out the freakin’ water table, so steam engines came into being to address the problem. It worked for a bit, but the new steam engines required power and that power came from coal and that coal came from ever-deeper shafts that filled with ever-more water, so miners hadn’t really solved their problem, but instead industrialized its scale.
Faced with the cost of ever-deeper shafts and ever-more-expensive steam engines, some suppliers ventured farther afield to source coal from seams that were not directly adjacent to London. That fix required its own buildout: canals and boats to transport the black stuff back to Merry Ol’ London. Soon half of Britain’s private boats were used to move coal, generating its own inflationary price issue.
Nudged to consider other options, some enterprising coal suppliers combined the newer, more powerful steam engines with the rails used for cart transport within the mines, with a metal that only coal could smelt: steel. Bam! Railways.
Railroads were energy made animate. Getting man to the moon was cool and all, but humanity’s greatest trick to date is building machines to get grain from more than fifty miles inland to the water. And to do so while still making a profit! Moving stuff on water remained cheaper, but a rail line could be built to anywhere that was flat and transporting stuff via rail was “only” twice the cost to operate of a ship. Compared to the >20 times the cost for pre-rail land transport, only having to pay double was a true revolution. The most prolific agricultural lands in the world, the ones that we rely on to this day not simply to keep modern society in motion but to quite literally keep everybody alive, could now be opened for business. In Europe, the shift from carriage to rail reduced the cost of internal transport by a factor of eight, enabling the rapid massing of nouns of all kinds at economically sustainable prices, whether the nouns in question be foodstuffs, coal, iron ore, or soldiers.
Russia provides an excellent example of how transformative this can be.
Much of southern Russian territory is a climate zone known as steppe: hot summers, cold winters, and so very demoralizingly flat and boring.
Precipitation is fickle, but in a wet year agricultural growth can be explosive. The problem is getting the grain out. What navigable rivers Russia has don’t flow through or to useful places, with most terminating in the Arctic.
Horses and carriages dragging thousands of tons of grain over the great Russian wide-open is far too taxing to be profitable in any era. What little trade occurred fit the normal bill: high value relative to weight; think pricy cloths and precious metals. Between the steppe’s openness and the boombust economic cycle that followed the rain, it should come as no surprise that the horse-mounted Mongolians had no problem conquering the whole region and holding it for three centuries . . . while making a bang-up living taxing the northern branches of the Silk Roads.
In any case, high internal transport costs meant that any products that post-Mongol, Imperial Russia wished to export had to be sourced close to ports. As of the eighteenth century, some 70 percent of Russian grain exports were not grown in the empire’s more fertile regions, but instead in Russia’s Baltic provinces of Estonia and Livonia* by virtue of their proximity to the port of Riga. Inland Russian farmland, no matter how productive, was essentially cut off from the Russian market, never mind the world market.
Changing this required two things: First, in the mid-nineteenth century, Catherine the Great expanded Russian territory to the Black Sea, granting Russia warm-water port access for the first time. Not only was much of this land in the fertile zones of what is today Ukraine, but the Black Sea is also proximate to Russia’s own Black Earth region north of the Caucasus (a zone in that infamous steppe).
Second, in the 1853–56 Crimean War, several industrializing European countries did not simply defeat but in fact thoroughly humiliated the largely unindustrialized Russian army. In an effort to prevent such a catastrophe from reoccurring, Russia under Alexander II made its first real efforts to industrialize. Considering how physically huge Russia is and how difficult it was to transport goods even within the empire’s more populous territories, building a railroad network was at the top of the to-do list.
Suddenly Russian grain could reach international markets. And boy, did it! The Russian rail program began in earnest in 1866. In just fifteen years the Russian network roughly quadrupled to nearly 15,000 miles, adding more track than all of Europe had during the previous half century. During the same window, Russia’s grain exports increased at nearly the same rate, to 4,200 metric tons. In this case, correlation is causation.
The Industrial Revolution came for water transport as well. It just took a bit longer, for a couple of semi-obvious technical reasons.
First, the steam engine was invented well before steel became available in large quantities. The early steamships were still made of wood. Steam engines ran on coal. Coal burns at over 3,000 degrees. It doesn’t take a doctorate in chemistry to understand the complication. Second, coal burns and then it is gone, while the wind is forever (if you plan your journey correctly). Steaming by coal too far from home turns a ship into an expensive raft. Much of the early Industrial Age logistical needs of the British Empire revolved around the establishment and protection of far-flung coaling stations like Aden and Perim on the Bab elMandeb, Hong Kong and Singapore in Southeast Asia, Fanning Island and Fiji in the central Pacific, Australia and New Zealand in the southwest Pacific, Diego Garcia in the Indian Ocean, Halifax in Canada, Bermuda in the central Atlantic, and Gibraltar and Malta in the Mediterranean. The Brits were pretty fly on the waves, but building an empire still takes time and effort. Technological requirements shaped the empire as much as the other way around.
Still, the saying about necessity and mothers held true, and everyone and their female forebears felt the need for speed.
Early steamships could move about 1,000 tons at 5–8 miles per hour, a reasonable speed for a lazy bicycle ride.* The 1840s brought us turn-screw motors (think propellers instead of paddle wheels) and faster speeds. Steel hulls debuted in the 1860s, largely solving the whole don’t-burn-your-ship problem, along with a host of other speed-limiting issues, like hull fouling.
By the 1890s these technologies and more had several generations of kink workouts behind them, setting the stage for bigger, faster vessels. By 1914, some all-steel merchant ships were sailing forth at an impressive and impressively reliable 12–15 miles per hour. Add in the Suez and Panama Canals (1869 and 1914, respectively) and goods could reach more locations without having to fully circumnavigate continents. More bang, less buck.
By 1940, oil-powered internal combustion engines started replacing coal-powered steam, increasing ranges, decreasing fuel-cargo requirements, and breaking the link between merchant marines and imperial-managed coal stations. Just as coal-fueled steam power trickled from the railways to the sea-lanes, now oil-powered internal combustion trickled back. Each advance helped make both transoceanic and inland transportation more regular and predictable. Costs plummeted, cargoes soared, reliability improved, and goods were moving on a scale hitherto undreamt of.
For the first time, true international trade in bulk goods was possible.
Between 1825 and 1910, inflation-adjusted prices for freighting cotton and wheat fell by 94 percent. Between 1880 and 1910, the cost component of transport for wheat being shipped from the United States to Europe fell from 18 percent to 8 percent. Now that transport issues had gone from straitjacket to springboard, no one in Britain who had the option would keep eating local foodstuffs. Between 1850 and 1880, the proportion of British cereals in the average British diet fell from three-fifths to one-fifth.
It wasn’t just stuff, but people, too. Just as the preindustrial tech of deep-sea transport provided new opportunities for many workers, railways and steamships allowed the average person to consider a new life. The journey—now easier, faster, cheaper, and above all, safer—opened up the world. Or at least, it opened up the world’s temperate zones that white Europeans found comfortable. Thirty million Europeans—mostly British and Irish—relocated to the settler states.
For those who stayed behind, the cities fundamentally transformed.
Limitations of local food and forest evaporated, with even farmers* discovering it was often easier to import food from elsewhere. Easier food supplies, combined with more steel, enabled cities to not simply expand out, but also up. Population density increased hand in hand with urban size, city planning, and new health-related technologies, compounding population growth. Whereas preindustrial cities often relied on a constant influx of people to replace those who died of starvation or disease, industrialized cities were not synonymous with death. They could sustain their populations, and so grew rapidly.
By the 1920s, the internal combustion engines that so revolutionized first water and then rail transport had been sufficiently miniaturized to lead to yet another transport-related overhaul: trucks. Unlike water transport, which required a port, or rail transport, which is largely limited to areas with slopes less than 1 percent, trucks could go anywhere that any road could reach. Demand for energy production entered an entirely new era.
Trains retained dominance for trips over 500 miles, but trucks took over most of everything less, especially the all-important final mile of delivery.
Concrete and asphalt started to replace dirt and brick as the primary road construction materials. Fifteen centuries after the fall of Rome, we finally got better roads. Horse poo finally, miraculously, suddenly—thankfully— vanished from urban streets.
By 1945, railways, barges, and trucks were all stuffed full of manufactured goods, agricultural products, and bulks like coal and wheat that were all ever-easier to produce. The transport and logistical logjams that had held humanity back since we fell out of trees on edges of the African savanna finally dissolved into the misty memories of yesteryear.
History didn’t so much speed up as launch forward. We went from the earliest days of steam, dying of dysentery and Dr. Quinn, Medicine Woman, to get-off-my-side-car-vacation-culture on the outside edge of a single human life span.
So much for walking everywhere with a load on your back. The Americanization of Trade
Global trade before the modern era was a trickling dribble, barely a rounding error by the standards of the early twenty-first century. The East India Company traded about 50 tons of tea a year at the start of the nineteenth century and 15,000 toward the end of it. Today that same 15,000 tons is loaded or unloaded somewhere in the world every forty-five seconds or so. Don’t let the small size fool you. Colonization, great power wars, the Industrial Revolution, and the slave trade are all among the consequences of that “rounding error.” But the fact remains that in recent decades, we have ventured greatly from what once was. At the maximum extent of the imperial era in 1919, combined trade both within empires and among countries reached only 10 percent of GDP. As of the late Order era, that figure had tripled. Without empires.
Blame the Americans.
The Americans emerged from World War II financially strong and with the only remaining navy of any substance. Western Europe was weak and shaken, with Europeans feeling failed by capitalism during the Great Depression and failed by their leadership during the Great Wars. The United States agreed to rebuild the European states on the condition that trade would no longer be isolated within their imperial systems. Conversely, intercepting rivals’ ships became the ultimate no-no. Oh, and one more thing: there would no longer be empires at all.
What was granted in exchange was truly transformational. The Americans would ensure that all countries on all continents would enjoy full access to the global ocean. What had once been a highly contested strategic environment transformed into a single, global, safe, functionally internal waterway filled and supplied by diesel-powered steel behemoths.
The technologies developed during the previous couple of centuries would finally be allowed to function without the specter of war (or, more to the point, the Americans would handle said specter). No privateering. No piracy. No imperial confiscations. “Global” transport shifted from the jealous province of the empires to the unfettered circulatory system of the global economy.
While the Industrial Revolution made it much cheaper to ship products from A to B, it took the Americans’ global Order to make transport much safer. Between the changed technological base and the changed geopolitical circumstances, what constitutes a Geography of Success expanded to . . .
almost everywhere. And that marched us all in some unexpected directions.
IMPLICATION 1: SHIPS: BIGGER, BETTER . . . SLOWER
In the age of globalization, everyone could get in on global access, manufacturing, and mass consumption. No longer was value-added work sequestered to the Imperial Centers. Manufacturing elsewhere required fuel and raw materials. Expanding industrial bases and infrastructure elsewhere required the same. Expanding middle classes elsewhere demanded even more.
The world needed more ships to transport more products, but in a world where competition among the Imperial Centers was no longer the global environment’s defining feature, security was no longer the overriding concern. Competition was no longer about guns and sea-lane control, but instead about cost. This shift from security to efficiency as the predominant corporate concern meant the world didn’t simply need more ships; it also needed different kinds of ships.
Economies of scale in transport come from four factors: size, crew, fuel, and packaging. The first three are pretty straightforward.
While the capital costs to build a vessel all increase with size, it is not a linear increase. Double the size of a vessel and it probably “only” costs about 80 percent more to build.* Double the size of that ship from 75 containers to 150 to 300 to 600 to 1,200 to 2,500 to 5,000 to 10,000 to today’s maximum of 20,000 containers and you’ve racked up a percontainer savings in excess of 80 percent. Similarly, the number of crew required to babysit 10,000 immobile containers or 5,000 tons of ore is not appreciably bigger than what is required to babysit 1,000 containers or 500 tons of ore. Fuel usage rates follow the same general trend as ship size: double the ship’s size to reduce its fuel use by about 25 percent.
Then there’s speed. Fuel costs writ large account for 60 percent of the cost of a voyage, with faster trips consuming much more than slower trips.
The solution? If security isn’t an issue, ships sail more slowly. It’s rare for any modern vessel to get clocked at something faster than 18 miles per hour, * with most bulk cargo ships barely touching 14.
And of course, if all ships are moving more slowly, then there is far more cargo on the float at any given moment. The solution isn’t simply more ships or bigger ships, but more ships and bigger ships.
Consequently, contemporary cargo vessels aren’t simply bigger, but supersized. The ships that move soy from the American sector of the Gulf of Mexico to China are about eight times the size of the Liberty- and Victory-class cargo ships from World War II. By modern standards that’s not even very accomplished. Relative to 1945 standards, modern container ships are sixteen times the size while modern crude carriers are over forty times. The numbers vary greatly by ship and cargo type, but as a rule, the all-in costs—crew, fuel, ship size, everything—for today’s vessels run about one-quarter per unit of cargo compared to World War II–era vessels.* I’m sure you noticed that I’ve only discussed the first three features on the list: size, crew, and fuel. The fourth—packaging—takes us in an entirely new direction.
IMPLICATION 2: CONTAINERIZATION: BUILDING A BETTER BOX
Bretton Woods with the backdrop of the Cold War created the conditions necessary for free trade and the next round of globalization, but the reality on the ground was nothing like what we know today. Transport costs may have come down dramatically, but jagged, wild frictions existed across the entire system.
It took effort to pack goods into a truck, out of said truck into a warehouse, out of said warehouse onto a dock, packaged on said dock by a group of teamsters onto a pallet, said pallet shifted by another group of teamsters via a series of pulleys into a ship’s hold, where another another another group of teamsters would secure said pallet for sailing. Said ship would then sail the ocean blue. Upon arrival at the receiving port, another another another group of teamsters would unload the previously mentioned pallet for inspection, another another another another group of teamsters would then load said pallet onto another truck, which would take it to a railyard where another another another another another set of teamsters would load it onto a railcar, and said railcar would then ship it to an unloading facility, where said pallet would be unloaded onto another another truck. Only then—finally—would that truck be driven to the place that actually bought the thing.
One. Piece. At. A. Time.
By far the worst part—from a logistical and cost point of view—was the ports themselves. Each item needed to be separated from thousands of other items, unloaded onto the dock, physically inspected, often reloaded back onto the vessel (because it was in the way), then re-unloaded, and re-relocated to a local warehouse, before it could start making its way to the consumer. More and bigger ships required more and bigger warehouses farther and farther from the port, initiating an ever-longer, ever-morecongested slug trail of ever-more-relentless cargo reshuffling, with bottlenecks stretching back onto the vessels themselves. The typical port experience consumed five days, and multiple swarms of longshoremen on each end, not including the large and swarthy ship crew of large and swarthy deckhands. All in all it was a major pain in the ass that generated breathless opportunities for breathless levels of theft and corruption. No wonder that around the turn of the twentieth century, ports often accounted for half of total shipping costs.
Until, that is, we figured out how to . . . put things in . . . boxes.
By the 1960s, the ever-rising volumes of trade demanded an end to this packaging/repackaging agony. The solution was to debut a couple of models of shipping boxes—specifically the twenty-foot equivalent unit (or TEU) and the forty-foot equivalent unit (FEU). You probably know them by their colloquial name of “containers” and have undoubtedly seen scads of them being carted about by trains, trucks, and semis.
The containerization process transformed transport in general, and the world’s ships and ports processes in specific.
Now a manufacturer fills a standardized container with their product and seals it. The container is mated to a truck, which drives the goods to a port, where the container is de-mated and stacked with others of its kind.
When a ship is ready, the container is craned directly onto the ship (in the proper order for weight balance), moved across the ocean by a small crew that’s better with keyboards than free weights, and lowered onto a container stack portside. Since unpackaging and repackaging no longer occurs in the ports at all, ports no longer need warehouses, save for equipment and personnel purposes. All they now need is a flat parking lot to host endless container stacks. When the time comes, the container might be railed a bit before being craned directly onto a truck, and then it is simply driven off to its final destination for unpacking and processing.
In theory, and largely in practice, the container is not opened once.
Let’s make this more personally accessible. If you’ve ever moved, you know that most people can fit everything they own into the back of an eighteen-wheeler. One of those eighteen-wheeler units (that’s a FEU) is 40 feet long and about 8 feet wide and tall, equaling about 2,700 cubic feet on the inside. Imagine a move where you have to stuff your things in storage for a few days. Would you rather unpack and stack everything into a storage facility and then repack and restack everything into another container when you’re ready, or just keep everything in the original FEU in a parking lot until you get your new keys?
Now add in an ocean crossing and replay that sequence 200 million times per year and you begin to see the scale of change for the global economy. It doesn’t matter what’s in the container. Kias or kumquats.
Bauxite or bar tools. So long as the container’s total weight remains under upper limits, all containers can be handled identically.
What did it take for this standardization to occur? The Order. Global security, global commerce, global capital, global scale, and an overpowering willingness to provide reliability so the world could build its entire . . . world around a unified standard for size, weight, shape, and locks, enabling the ubiquitous container to move seamlessly through the supply chain. As early as 1966, the impact was obvious. Total port turnaround times on both ends shrank from three to five weeks to less than twenty-four hours. Port costs dipped from half the total cost of shipping to less than one-fifth. By 2019, containerships carried approximately 50 percent of total global trade by value, up from functionally zero in the early 1960s.
It isn’t just ships and cargo methodology that have been redesigned.
Ports have changed, too.
IMPLICATION 3: PORTS: BIGGER, FEWER . . . ELSEWHERE
Ports have always required easy inland access, whether to access inputs or to distribute outputs. Before the Industrial Revolution, that typically meant a river. Think Hamburg, New Orleans, or Shanghai. At worst, ports required a big chunk of ocean-adjacent flat. Think St. Petersburg, Los Angeles, or Bangkok. In the modern day, however, containers’ flexibility means all a port needs is road (and, preferably, rail) access. Instead of needing a rare— and therefore expensive—geographic alignment, ports can now be located outside cities, wherever the mix of land, labor, and electricity costs allow.
Think Tianjin, Savannah, or St. John. But while lower costs, combined with the container’s flexibility, enabled port siting to be less finicky, the ports themselves had to become more so. Now that anything and everything could be containerized and shipped, the ports had to be able to serve as way stations for absolutely colossal through-volumes. And as ships became ever larger, not every port could play host.
First to go were the medium-sized regional ports that simply couldn’t handle the new transoceanic behemoths. Cargo either went to the newer, gargantuan megacontainer ports or to the very small ports that managed local distribution. As the megaports drew more and more cargo and became more and more . . . mega, even small distribution hubs faded away. After all, rail lines could connect to the bigger ports and simply rail cargo to the small ports’ own distribution network. Ports upriver, especially smaller ones that could not handle oceangoing vessels, became redundant.
These kinds of economic rearrangements happened all over the world, setting off concurrent races to become the regional hub. Ports designed to serve a single metro region—think the ports of Paris, London, Brooklyn, St.
Louis, or Chicago—all but evaporated. Instead, locations that could contort themselves into a shape that facilitated broad-scale container distribution— think the ports of Rotterdam, Felixstowe, New Jersey, Houston, or Tacoma —exploded into being.
Larger and larger ships were sailing among fewer and fewer ports, which themselves became progressively larger and larger.
Collectively, these first three implications have made maritime shipping king.
Between 2000 and 2020, moving a container across the Atlantic or Pacific averaged out to about $700 per container. Or put another way, 11 cents per pair of shoes. Even traditional choke points aren’t very . . .
chokey. One of the world’s largest container ship classes in reasonably large-scale production—the Maersk Triple-E class—pays about $1 million to transit the Suez Canal, but that duty gets split among 18,000-odd containers. That comes out to about $55 each, or less than a cent per shoe pair. Transport has become so rote that in 2019 the Chinese recycling industry had to place restrictions on the import of low-quality recycled trash.
Combined with bigger, slower ships, containerization has reduced the total cost of transporting goods to less than 1 percent of said goods’ overall cost. Before industrialization, the figure was typically more than threequarters. Pre-deepwater, the figure was often north of 99 percent.
Leaving aside the quiet little detail that you can’t truck or rail cargo among London and Tokyo and Shanghai and Sydney and New York and Rio, even if the infrastructure were in place, cost comparisons would be utterly ridiculous. If you wanted a train that could compete in capacity with ships designed to just barely squeeze through the recently expanded Panama Canal, you’d need one more than forty miles long. Alternatively, you could go for a fleet of sixty-five hundred trucks.
With transport costs now rounding to zero, the math of everything else has changed to match.
IMPLICATION 4: CITIES: THE URBAN EXPLOSION
Before the Industrial Revolution, wind, water, and muscle were the only power sources enabling a city to gather inputs. That put a hard cap on city size.
The technologies of the Industrial Age expanded a city’s reach by orders of magnitude and enabled concentrations of resources in ways previously unheard-of. But this very expansion made cities ravenous. Bigger cities with more economic activity require more inputs to fuel that activity. It is a bit like the old adage where cities needed 100 times their land area for charcoal, but now they needed wheat for food, iron ore for steel, oil for fuel, limestone for concrete, copper for wiring, and on and on.
Cities expanded their reach to broader regions out of necessity. Regions expanded their reach to empires for the same. The Americans conquered the West and funneled its agricultural bounty and material resources to the cities of the East Coast. The Japanese did the same to Manchuria. The Europeans harvested their empires. The very nature of the new technologies ensured both imperial expansion and the conflicts over access that would contribute to the competition and mutual loathing that culminated in the world wars.
Fast-forward to after World War II and the Americans’ Order removed even theoretical limits on just how far a city could reach. Coal, food, even people could now be brought in from somewhere else. Anywhere else.
Everywhere else. Establishing control of the areas a city wanted to harvest —needed to harvest—was no longer necessary. With the world now the harvesting ground, all cities could increase in size.
IMPLICATION 5: SUPPLY CHAINS: PRODUCING LOCALLY, SELLING GLOBALLY
A central feature of the preindustrial world was the Imperial Centers. All enjoyed some magic mix of mild climate and flattish terrain and maritime and/or riverine access, which granted not simply a leg up on the local competition, but enough strength and stability to reach out and conquer lands beyond. As the Industrial Age dawned, all were able to leverage centuries of accrued wealth and knowledge to engage in mass manufacturing.
But all faced common restrictions. Not all steps of a manufacturing process require the same access to the same inputs. Some need more iron, some more labor, some more coal, some more people with doctorates. But because none of the empires would ever trust one another, it was up to each individual Imperial Center to muddle through, attempting to host all steps of the production process within their own jealously independent system.
The dawn of the American-led Order changed all that. The Americans didn’t simply outlaw conflict among their allies; the Americans guarded all global shipping as if it were their own internal commerce, ushering transport into an age of utterly inexpensive sanctity.
In a world “safe” for all, the world’s “successful” geographies could no longer lord over and/or exploit the rest. A somewhat unintended side effect of this was to demote geography from its fairly deterministic role in gauging the success or failure of a country, to something that became little more than background noise. Those geographies once left behind could now bloom in safety.
Nor did most old Imperial Centers overly mind. A process that the old Imperial Centers did not excel at, such as the relatively low-value-added process of pulling aluminum metal into wires or the cobbling of shoes, could be outsourced to another location—a newer, rising player in the nowglobalized system—that could do it more efficiently and competitively. The ever-collapsing cost of transport, combined with the American-caused sanctity of said transport, enabled work that used to be done all in one city to be hived apart into a hundred different locations across the globe.
Shipping, once restricted to “only” raw inputs and finished outputs, now serviced a seemingly endless array of intermediate products. The modern multistep manufacturing supply chain system was born. By the 1960s such supply chains had become common, in automotive and electronics in particular.
South Korea, Brazil, India, and China were simply the four biggest of several dozen powers who suddenly held real roles. Many of the “core” areas that had done so well in the decades and centuries before Bretton Woods—the American Steel Belt and canalled Britain come to mind— rusted into memory under the onslaught of these heretofore unheard-of competitors.
The Cold War and post–Cold War eras of extended global stability enabled more and more countries to join the fun. The new players didn’t only join the game in different decades: they advanced at different rates, populating the world with more and more countries at wildly different levels of technical sophistication.
As of 2022, there are advanced technocracies in Western Europe, Japan, and Anglo-America; advanced industrialized economies in Northeast Asia and Central Europe; rapidly industrializing economies in southeastern Europe, Latin America, Anatolia, and Southeast Asia; and mixed economies in China, South Asia, Latin America, and the former Soviet Union. Ever-more-complex supply chains link them together. All were made possible by more and cheaper transport, which generated greater economic development and integration, which in turn demanded more and cheaper transport.
Add in bigger ships, containerization, and a new style of port, and not only did the many, many frictions that inhibited countries trading with their neighbors get sanded down; they melted away to the point that transoceanic, truly global multistep trade could not only become possible, but the everyday norm. As of 2022, some 80 percent of global trade by volume and 70 percent by value is transported by oceangoing vessels. COMES APART
As the techs matured and the transport system thickened and diversified, two contrasting thoughts wove together to define our modern system: First, industrial techs became ever easier to apply. Forging steel is more difficult than fashioning it into rail lines, which is more difficult than laying the rail lines, which is more difficult than operating a train, which is more difficult than filling a railcar. When the imperial system ended, it wasn’t like the Dutch and Japanese could take the rail systems they had built home with them. It was pretty easy for their former colonies to appropriate and operate the assets. Unlike preindustrial technologies, which required master craftspeople, much of the Industrial Age—and especially the Digital Age— has proven to be plug-and-play.
Second, industrial techs have become ever more difficult to maintain.
The ability to diversify supply systems over any distance means it is economically advantageous to break up manufacturing into dozens, even thousands of individual steps. Workers building this or that tiny piece of widget become very good at it, but they are clueless as to the rest of the process. The workforce that purifies silicon dioxide does not and cannot create silicon wafers, does not and cannot build motherboards, and does not and cannot code.
This combination of reach and specialization takes us to a very clear, and foreboding, conclusion: no longer do the goods consumed in a place by a people reflect the goods produced in a place by a people. The geographies of consumption and production are unmoored. We no longer only need safe transport at scale to link production and consumption together; we now need safe transport at scale to support production and consumption themselves.
In many ways this is all great. Industrialization plus globalization has not only generated the fastest economic growth in history; collectively they have dramatically increased the standard of living of billions of people the world over. Unlike the shockingly unequal preindustrial world, the industrialization/globalization combo has achieved the seemingly impossible duology of enabling the utterly unskilled to live at something above an abused subsistence level while pushing the frontiers of human knowledge and education further and faster and more broadly than ever before.
But in far more ways, this is utterly awful. The Great Unmaking
Let’s focus the mind with a little cheat-sheet set of bullets.
Modern vessels are fat beasts. Container ships running full tilt max out at just under twenty-nine miles per hour. Bulkers at half that. The fastest civilian ships we have are . . . passenger cruise liners, mostly because they are mostly empty space. No joy in refitting them to ship corn.
Modern transoceanic container ships hold thousands of containers, more than half of which are packed to the gills with intermediate goods essential to the fabrication of pretty much all manufactured products.
Those intermediate products are built by a workforce who only know how to produce one specific piece of each product, particularly at the lower-quality end of the scale.
Smart countries can do less-smart work. A semiconductor fabrication facility that makes chips for server farms can also make them for automobiles or toys. The reverse is not true.
Modern ports are few, far between, absolutely massive, and typically not colocated with the populations they serve.
Modern cities are so large and their economies so specialized that they require regular access not just to a huge swath of territory, but to the entire globe.
The central defining trait in all this work is safe, cheap transport. Inhibit that and the rest of . . . everything simply falls apart.
While industrial technologies’ ease of adoption enabled them to spread easily, the reverse is also true. After all, there is very little skill capacity within the population that might enable it to maintain the contemporary world’s flavor of industrialization should today’s omnipresent transport links break apart for any reason. The workforce is alternatively hyperspecialized, nearly unskilled, or, testament to the fact that the world is nearly always stranger than you think, a combination of the two. Even worse, modern city life requires ever-present access to so many peoples and places scattered around the world and over which a city has no influence.
Put simply, regions can deindustrialize far more quickly than they industrialized, and the critical factor is what happens to transport.
Deindustrialization could happen far more quickly than you think.
Consider those big, fat, slow ships.
Quick war story, in this case, the Iran-Iraq War of the 1980s: By 1983 the conflict had reached a stalemate, inducing both countries to fling missiles at one another’s shipping in attempts to strangle their opponent economically. Altogether some three hundred vessels were struck. About fifty were disabled, and a dozen sunk. Compared to the size of global shipping at the time, it was barely a footnote.
But that handful of events nearly destroyed the global . . . insurance sector.
The American security guarantee for shipping was considered ironclad.
After all, there had been less than a handful of incidents globally for decades. There was even a period from roughly 1950 to 1975 with zero attacks on shipping. Loss provisions on maritime insurance, therefore, were, at most, minimal. Preparing for such incidents with large sums of cash would have been like setting aside billions to address earthquake claims in Illinois. But when the claims from the Iran-Iraq War rolled in, insurance firms quickly ran out of operating capital. So they filed claims with their reinsurance firms, who quickly ran dry as well. Suddenly all insurance companies discovered that their entire industry teetered on the precipice.
Fire insurance, car insurance, mortgage insurance, health insurance—it didn’t matter. And with most insurance firms being linked to most bond markets via large financial houses, catastrophe loomed.
The only thing that prevented a broad-scale, global financial breakdown was the Reagan administration’s three-part decision to (a) physically escort non-Iranian shipping in the Persian Gulf, (b) reflag all such shipping as American vessels, and (c) provide a blanket sovereign indemnity to all such shipping. A local military spat between a pair of nonmerchant powers that didn’t even have financial sectors quickly spiraled up to the point that only a superpower had the military, financial, and legal strength to prevent a global financial meltdown.
Imagine if a similar event were to occur today. From 1970 through 2008, the Americans nearly always had a carrier group in the Persian Gulf (and since the 1991 Desert Storm conflict, typically two). Escorting commercial shipping in 1983 merely required a few changes to patrol patterns. But since 2015 it has become normal for the Americans to go months at a time without ships of size in-region at all. By the end of 2021, the Americans had removed all regular ground troops from the region as a whole. Absent the United States, there are only a handful of powers— France, the United Kingdom, Japan, and China—who could even reach the Persian Gulf with military assets. Of them only Japan has the technical capacity to act in force, and none have the vessels required to establish meaningful convoys.
Imagine if the ships in question were container ships instead of bulkers.
One ship would hold thousands of containers containing tens of thousands (hundreds of thousands?) of products. In the 1980s event, even those ships sunk were in time refloated and continued on with their lives. There is no way that would happen to modern containerized cargo (besides, would you buy a computer if a piece of the motherboard had sat on the bottom of the Gulf for a few days?).
Imagine if such an event occurred in a different location. Iran and Iraq in the 1980s were the ultimate no-value-added economies. Starkly limited local consumption. No participation in manufacturing supply systems. What if shipping was struck in the Baltic Sea or the East China Sea, places central to European and Asian manufacturing. Modern container ships do not take single products from one port to another, but instead run circuits. They travel to multiple ports, picking up and dropping off containers filled with a dizzying variety of products as they go. If any single ship is unable to transport or disgorge its cargo, impacts cascade throughout hundreds to thousands of supply chains across multiple industries and multiple regions.
Even brief delays at only a handful of ports would be sufficient to force a rationalization of entire industries, to say nothing of actually losing ships.
As the saying goes, it takes 30,000 pieces to make a car. If you only have 29,999 pieces you’ve got an ambitiously sized paperweight. Imagine if such an event were not a one-off. The scale of 1983 versus 2022 is radically different. Between more differentiated supply chains, more wealth, and more countries, the total value of today’s global seaborne cargo is now six times larger. Back-of-the-envelope math using data from throughout the past quarter millennia suggests that reducing transport costs by 1 percent results in an increase of trade volumes by about 5 percent. One doesn’t need to run that in reverse for long before the trade-empowered modern world fades into a treasured memory.
Bottom line: the world we know is eminently fragile. And that’s when it is working to design. Today’s economic landscape isn’t so much dependent upon as it is eminently addicted to American strategic and tactical overwatch. Remove the Americans, and long-haul shipping degrades from being the norm to being the exception. Remove mass consumption due to demographic collapses and the entire economic argument for mass integration collapses. One way or another, our “normal” is going to end, and end soon.
THE WORLD TO COME: COURTING—AND AVOIDING—DANGER
The most miraculous and, to a degree, unexpected outcome of the American-led Order is the extent to which it transformed areas that had rarely—if ever—been participants in any large-scale, multistate trading system. Most of the world does not enjoy a geographic setup that naturally encourages economic activity, like the temperate climates or the dense river networks common to Western Europe or North America.
The Order made geography matter less. The Americans would now protect your borders as well as your external commerce. Such a structure enabled geographies that had never developed before, or that had been crushed under the boot of this or that empire, to rise up as independent players. The greatest economic growth humanity has seen in the time since 1945 has been base-effect growth within these until-recently-neglected and until-recently-economically-defunct geographies. That means as the Americans descend into a mindset of not-my-pig, not-my-farmism, the greatest propensity for disruption and the greatest impacts of those disruptions will not only be in the same locations, they will be in the same new locations.
The first of these soon-to-be-crazy geographies are the territories on and coastward of Asia’s First Island Chain, a region that includes Japan, China, Korea, and Taiwan, and to a lesser degree the Philippines, Vietnam, Indonesia, Malaysia, Thailand, and Singapore. What resources exist gradually peter out as one travels from south to north, while the value and volume of manufacturing tend to follow the opposite gradient. It is a natural area of intense competition characterized by concentrated resource demand, the longest supply lines on Earth, and massive export dependency. The result? Intermediate goods everywhere, with all of them being shipped by water.
This combination of vulnerability and integration could have only occurred in a security environment in which an external power forced everyone to play nice. Yet even with American overwatch, East Asia never developed a regional system of cooperation, or even diplomatic pressure release valves that fall short of military exchange. China hates Japan, Japan (perhaps now subconsciously) wants to colonize Korea and parts of China, Taiwan wants a nuclear deterrent, and the South Koreans trust no bitch.
Even worse, with the notable exception of Japan, none of the local powers has the ability to secure its own supply or trade lines. It is difficult to evaluate who is in a worse position: South Korea and Taiwan, who suffer a near-complete dependence upon American strategic naval overwatch, or China, who would have to punch through the waters of multiple hostile combatants (including all the countries of the Chain) as well as a half dozen more choke points to reach any market or resource access that matters . . .
using a navy that is largely only capable of coastal operations.* Chinese fascism has worked to this point, but between a collapse of domestic consumption due to demographic aging, a loss of export markets due to deglobalization, and an inability to protect the imports of energy and raw materials required to make it all work, China’s embracing of narcissistic nationalism risks spawning internal unrest that will consume the Communist Party. Or at least that’s what happened before (repeatedly) in Chinese history, when the government could no longer provide its people with the goods.
Japan would seem set to inherit the region, but the future isn’t going to be nearly that tidy. Sure, Japan’s superior naval reach means it can strangle China in a few weeks and choose the time and place of any blue-water conflicts, but even in weakness China has the ability to strike targets within a few hundred miles of its coast. That doesn’t simply include portions of the Japanese Home Islands, but also most of South Korea and all of Taiwan.
Anything short of a complete governance collapse in China (which admittedly has occurred several times throughout Chinese history) will turn the entire region into a danger zone for any sort of shipping on the water.
No region has benefited more from the Order, no region will suffer more from its end, and everything we know about modern manufacturing ends the first time anyone shoots at a single commercial ship.
The second region of concern is the Persian Gulf. Explaining why isn’t particularly difficult. Local climates range from arid to . . . desert. Normally this would keep populations not so much small, but minute. But there’s oil and that has changed everything.
Under globalization, the Americans had no choice but to patrol the Gulf in force, and involve themselves in the painful minutiae of the region’s politics. Oil powered global trade, global trade powered the American alliance, and the American alliance powered American security. Without the Gulf being relatively peaceable—and by historical standards, the Gulf since 1950 has been relatively peaceable—America’s global strategy would have been dead on arrival.
That oil, combined with the Americans’ presence, has transformed the region’s possibilities. Instead of wandering Bedouin, a cluster of coastal pearling villages, and lands long ago salt-poisoned from millennia of irrigation, the region instead boasts an erratic mix of futuristic cities, overpopulated megaplexes, war-torn cityscapes and hinterlands, and in many areas, a near-slave underclass.
The region exports oil and natural gas and . . . almost nothing else. It imports food. Technology. Electronics. White goods. Clothing. Cellular goods. Computer goods. Machinery. Planes. Automobiles. Building materials. Pretty much everything. Including labor—both skilled and unskilled. Even camels. Nearly every molecule of hydrocarbons is shipped out by water, while nearly every packet of imports travels the same way. In a world of collapsed internationalized shipping, Strait of Hormuz workarounds are ultimately of limited value. They were designed to bypass the threat of Iran, not the collapse of the Order. This does not mean the region will vanish from humanity’s collective radar. What the Gulf has—oil—is what South Asia, East Asia, and Europe will all desperately need. But all the local powers suffer from navies that cannot effectively patrol their own coastlines, much less escort local traffic, much less see ships safely in or out of Hormuz, much less guard tankers bound for end-consumers or bulk and container ships inbound from distant suppliers.
Nor can any foreign power smother the region with an American-style security blanket. In perhaps the preeminent demonstration of the undisputed fact that the U.S. military feels that overkill is underrated, the combined navies of the wider world have less than one-tenth the power projection capacity of the U.S. Navy. A global inability to impose norms on the region will guarantee a decades-long global depression as well as ensure a succession of woefully inadequate efforts by a half-dozen powers—Japan, the United Kingdom, France, India, Turkey, and China—to salvage . . .
something from the bloody chaos. It’s going to be a mess.
The third region to watch out for is Europe. We think of modern Europe as a region of culture, democracy, and peace. As having escaped history.
But that escape is largely due to the Americans’ restructuring of all things European. What lies under the historical veneer of calm is the most wartorn and strategically unstable patch of land on the planet. Modern Europe is the purest distillation of the heights and complete artifice of the Bretton Woods system.
Future Europe’s problems are many, but four stand out.
The first is energy: The Europeans are more dependent upon energy imports than the Asians, and no two major European countries think that problem can be solved the same way. The Germans fear that not having a deal with the Russians means war. The Poles want a deal with anyone but Russia. The Spanish know the only solution is in the Western Hemisphere. The Italians fear they must occupy Libya. The French want to force a deal on Algeria. The Brits are eyeing West Africa. Everyone is right. Everyone is wrong.
The second is demographic: The European countries long ago aged past the point of even theoretical repopulation, meaning that the European Union is now functionally an export union. Without the American-led Order, the Europeans lose any possibility of exporting goods, which eliminates the possibility of maintaining European society in its current form.
The third is economic preference: Perhaps it is mostly subconscious these days, but the Europeans are aware of their bloody history. A large number of conscious decisions were made by European leaders to remodel their systems with a socialist bent so their populations would be vested within their collective systems. This worked. This worked well. But only in the context of the Order with the Americans paying for the bulk of defense costs and enabling growth that the Europeans could have never fostered themselves. Deglobalize and Europe’s demographics and lack of global reach suggest that permanent recession is among the better interpretations of the geopolitical tea leaves. I do not see a path forward in which the core of the European socialist-democratic model can survive.
The fourth and final problem: Not all European states are created equal. For every British heavyweight, there is a Greek basket case. For every insulated France, there is a vulnerable Latvia. Some countries are secure or rich or have a tradition of power projection. Others are vulnerable or poor or are little more than historical doormats. Perhaps worst of all, the biggest economic player (Germany) is the one with no options but to be the center weight of everything, while the two countries with the greatest capacity to go solo (France and the United Kingdom) hedged their bets and never really integrated with the rest of Europe. There’s little reason to expect the French to use their reach to benefit Europe, and there’s no reason to expect assistance from the British, who formally seceded from the European Union in 2020.
History, unfortunately, offers us some fairly clear paths forward. As the reliability of long-haul maritime transport evaporates and the United States —by far Europe’s largest market—goes its own way, the Europeans will put a premium on protecting what they have and know: their own supply chains and their own markets. That Europe is starting as the most protectionist set of economies of the Order era doesn’t help.
The end result will be the creation of several mini-Europes as various major powers attempt to throw economic, cultural, and (in some cases) military nets over wider regions. The United Kingdom, France, Germany, Sweden, and Turkey will all go their own way and attempt to attract and/or coerce select neighbors to come along for the ride. Integration will suffer appropriately. For those of you who know your Persian, Greek, Roman, Byzantine, Ottoman, German, British, French, medieval, or early industrial histories, this will feel disturbingly familiar. After all, history has no endgame.
It will be worth the Europeans’ while to obsess particularly about the Mediterranean. Under the Order it has been a bit of a lovely internal channel for the Continent, but looking forward it is far more likely to return to its historical norm of being the world’s most contested waterway. Via the Suez Canal, the Mediterranean is Europe’s connection to Persian Gulf oil and East Asian manufactures. Egypt cannot protect the canal zone, but neither can any individual European country dominate Egypt. Via the Turkish Straits, the Med is Europe’s connection to the energy and agricultural surpluses of the former Soviet states. Turkey is absolutely certain to take over the Straits and no one has the capacity to challenge the Turks in their own front yard.
None of these competitions are new to students of history. What has been new is that the Americans have smothered them. All of them. For decades.
To believe that globalization will continue without an overarching enforcer and referee, you must believe three things: First, that all powers in a given region will agree to do what the most potent regional power demands. That the Japanese and Taiwanese will accede to Chinese efforts to redefine the structural, economic, political, and military arrangements of East Asia. That the French, Poles, Danes, Dutch, and Hungarians (among others) will actively transfer wealth and control to Germany as the Germans age into obsolescence. That Saudi Arabia, Iraq, Kuwait, Qatar, Bahrain, and the United Arab Emirates will defer to Iran on issues of regional control and oil policy. That Ukraine, Estonia, Latvia, Lithuania, Sweden, Finland, Poland, Moldovia, Romania, and Uzbekistan will not resist Russia reasserting control over all of them. That Pakistan will accede to India being large and in charge. That Iran, Iraq, Syria, Russia, and Germany will not resist Turkey muscling itself up to the big table. That the various African nations will quietly accede to a renewed colonial wave.
The Americans have held all these reckonings in abeyance since 1945.
Now remove the American security environment. Look at the map with fresh eyes. Look at any map with fresh eyes.
Second, you must believe that certain tools of statecraft will remain firmly off the table, most notably military tools. That the Germans, Russians, Iranians, and Chinese will not use military force to impress their wills upon their neighborhoods. That powers with military reach—France, the United Kingdom, Turkey, and Japan come to mind—will not use their capacity to short-circuit the actions of their less mobile competitors. History isn’t simply littered with examples to the contrary. Most of history is the contrary. Except history from 1945 to the present, of course.
Third, you must believe that the dominant regional powers will not come into conflict. That the Russians and Germans, the Chinese and Indians, the Russians and Chinese, the Turks and the Russians, the Turks and the Iranians, will always see eye to eye. Offhand I can think of ten examples of this not working out in just the single century before 1945. The world’s supply of grievances is inexhaustible. For the most part, those grievances have not been acted upon for seventy-five years. . . . but only because the Americans changed the rules of the game.
Regardless of what goes wrong, long-haul transport is an instant casualty, because long-haul transport doesn’t simply require absolute peace in this or that region; it requires absolute peace in all regions. Such longhaul disruption describes three-quarters of all shipments in energy, manufacturing, and agriculture. Harbors in the Storm
Messy stuff, yes, but it won’t quite be a world of all-against-all. What “safe zones” there are for commercial shipping will fall into one of two general categories.
First, a regional superpower establishes a regional pax to impose its preferred definition of security upon its desired geography. Japan will do this in Northeast Asia, with the probably not very hidden goal of keeping the Chinese broken. France will predominate in far Western Europe, much to the Brits’ and Germans’ disdain. Turkey will run roughshod over the Eastern Mediterranean, likely in league with the Israelis. The United States will update the Monroe Doctrine and turn the Western Hemisphere into an invitation-only American playground. Whether such zones of control are informal or ironclad, enable regional trade or block it, or are benevolent or otherwise, will be determined by a mix of cultural norms, economic demands, strategic diktats, and local needs and opportunities. No one size fits all.
Second, some clusters of countries will be able to jointly patrol their own. The United Kingdom is likely to partner with the Scandinavians to craft a regional order. Germany will do the same with the Central European states. The Southeast Asians will pool economic strength and military forces with the Australians and New Zealanders.
Conflict among the regional superpowers and blocs is a foregone conclusion, but that isn’t the same as saying such conflicts will be chronic or kinetic. The French and the Turks will surely glare at one another from opposite ends of the Mediterranean, just as the French and Germans will surely find topics to cooperate on that reach beyond Belgium. The Dutch and Danes will seek a sort of dual membership in the British- and Germanled blocs, while those two blocs themselves are likely to cooperate against Russian power. Everybody loves the Australians . . . but the Australians will merrily act as a spotter for the American hammer.
The defining characteristic of the new era is that we will no longer all be on the same side. And while many might reasonably argue such has always been the case, what made the Order work is that we all collectively agreed that there were limits as to what form intrastate competition could take. No one uses military force to confront an economic competitor. But most important, no one shoots at or hijacks commercial shipping. Period.
The end of this norm takes us down a lot of dark paths.
The days of long-haul transport are largely over. With the notable exceptions of Japan and the United States, no country can consistently project naval forces a continent away, and even for the world’s top two naval powers, patrolling sufficiently wide swaths of ocean to enable escortfree cargo trade is beyond them. The Order worked because only the United States had a global navy and everyone agreed to not target ships. That world is gone.
Long-haul transport is what brings everything from areas of high supply to high demand, regardless of participant. For any product that is concentrated in terms of supply or demand, expect market collapse.
Products particularly concentrated in terms of supply include oil, soy, lithium, and mid- and low-end microprocessors. Products particularly concentrated in terms of demand include liquefied natural gas, bauxite, high-speed train cars, and squid. Products facing a double squeeze include iron ore, helium, cocoa beans, and printer toner.
Breaking the economies of scale and supply lines that an interlinked world makes possible will impact everyone, but the unravelling will also impact everyone differently. The Western Hemisphere is fine for foodstuffs and energy but will need to build out its manufacturing capacity for products as wildly varied as laptops and shoes. The German bloc’s manufacturing capacity is largely in-house, but the raw inputs that enable it to operate are wholly absent. The Japanese and Chinese are going to have to head out to secure food and energy and raw materials and markets. It’s a good thing that Japan likes to manufacture products where it sells them, and fields a potent long-reach navy. It’s a bad thing that most of China’s navy can’t make it past Vietnam, even in an era of peace.
And it really matters what each regional bloc decides is priority shipping and so deserves priority protection on any given day. Complex manufacturing systems are most efficient when they have more players, both for a larger consumer pool and a more differentiated—and from that, more efficient—supply chain system. The bigger the bloc, the more successful and sustainable regional manufacturing is likely to be. The Russians are certain to leverage a fractured world against their oil and natural gas customers, a feature that will prompt the Germans and Turks and Brits and Japanese and Chinese to source energy from elsewhere and so initiate and inflame competition all around. Somewhat ironically, in a fractured world the slowest ships—those boring bulkers—are likely to end up being the most important. After all, should containerized shipping break down, much of the world will be economically decimated from the collapse in manufacturing. But should bulk shipping—which transports food and fuel—break down, many of the world’s people will starve. Alone. In the dark.
Inter-bloc conflict over and against shipping will be the new norm, but keep in mind that most countries lack long-arm navies. That suggests the real excitement in shipping will occur in the no-man’s-lands where no bloc holds reliable sway—and where no vessel can reliably call for assistance.
In that sort of environment, shippers will face a trifecta of security problems.
First and most obvious are the pirates.* Any zone without a reasonably potent local naval force is one that is all but certain to host Somalia-style pirate harassment. Second and less obvious are the privateers, in essence pirates sponsored by an actual country to harass their competitors, and who have been granted rights to seek succor, fuel, and crew (and sell their *ahem* booty) in allied ports. Because sponsoring privateers allows at least a veneer of deniability, and so is a step down from full-on war, expect pretty much everyone to get in on that particular game. The third security concern isn’t likely to be constrained to the no-man’slands: state piracy. We’re moving into a world where the ability to import anything—whether it be iron ore or diesel fuel or fertilizer or wire or mufflers—will be sharply circumscribed. Simply sending out your navy to take what you need from others is an age-old solution that long predates the relatively recent saga of Columbus sailing the ocean blue.
Expect state piracy to come back into vogue with particular verve in the Turkish bloc, with the Turks (and Israelis) gleefully (and relentlessly) raiding anyone desperate enough to attempt to ship crude oil through the Suez Canal and Eastern Mediterranean without first paying whatever level of protection money that Ankara and Jerusalem deem appropriate.
India is another power to watch out for, but in a slightly different way.
The Indian Navy may be, well, below awful, but within the Indian Ocean it faces no regional peer. The subcontinent is also the first stop for any shipments out of the Persian Gulf. Would-be shippers will have little choice but to pay whatever “passage” fees New Delhi insists upon. Luckily for those shippers, India is likely to be very flexible when it comes to payment. India is eminently likely to accept payment in direct crude transfers, while the country’s large and sophisticated refining operations means it could even absorb all of a shipper’s cargo while sending on refined fuels.
In a world of circumscribed shipping, the inputs needed to maintain modern manufacturing systems—a long list of materials that range from high-grade silicon to cobalt to nickel to rare earths to bauxite— are going to be top-tier targets. It’s far easier to nab those slow-moving bulk ships than to occupy a country for its mining capacity. The coasts of Africa and Southeast Asia are likely to be particularly nuts not just because many of the requisite materials are sourced in or pass through these areas, but because there are no powers indigenous to either region with the naval capacity to keep piracy—especially state piracy —at bay.
The Eastern Hemisphere as a whole is a net food importer, with the imbalance being most extreme on Asia’s eastern and southwestern fringes. Expect the Japanese to discover that the “regulation” of food shipments from the Western Hemisphere to the Asian mainland is both big business and excellent strategic leverage.
Do not forget the Americans. America’s post-Order foreign policy will be erratic, but just because the Americans have precious few global interests does not mean they have any intention of giving up their global reach. Expect the Navy and Marines both to be assigned a set of secondary tasks that include aggressive sanctions enforcement.
Perhaps the most jarring issue all countries and companies must adapt to is the Americans not simply giving up their role as the global guarantor of order, but transforming into active agents of disorder.
Everything we’ve come to expect about transport since 1946 dies in this world. Bigger, slower, more specialized vessels are little more than tasty floating buffets for whatever privateer or pirate (state or otherwise) happens to be in the area. Larger vessels might maximize efficiency in a unified, low-threat world, but in a fractured, high-threat environment they also concentrate risk.
The next generation of vessels will have far more in common with their far smaller, pre-1945 ancestors. Such ships by necessity will be shorter range and be able to carry less cargo, not simply because they are smaller, but because they will need more fuel per unit of cargo in order to sail faster.
They will also need to be designed so that cargo need not be stored on their decks. After all, if a pirate or privateer can identify ship type from a distance, the whole hijacking process can be more targeted. That feature alone shrinks the cargo capacity of container ships by two-thirds. Say goodbye to sea-dependent integrated manufacturing supply chains.
This transformation, even independent of the changes to the security environment, unravels the economic norms of the age now ending.
Modern ports—and especially modern megaports—can only function as transit and distribution hubs for megaships that will no longer be sailing.
That will decrease the popularity of containerization and necessitate a return to the structure of more, smaller ports closer to consumption points.
More secure? Certainly. But also more costly. Between the changes to ships and ports, expect what transport remains to cost at least quadruple what we’ve become used to. And that’s within the future blocs where security is more or less guaranteed. The biggest winners? Those locations that entered the Industrial Age in force because they had internal geographies brimming with navigable waterways as well as a degree of stand-off distance from threats: the United States, the United Kingdom, Japan, France, Turkey, and Argentina, in that order.
Even worse, as transport costs rise, low-margin non-energy and nonfood goods are less likely to be shipped in the first place. Not only does this further weaken what economic ties still bind; it also means that anything that is shipped is more likely to be oil or edible or otherwise valuable. The bad ol’ days of if-it’s-in-a-ship-then-it’s-worth-taking are returning. The biggest losers? Those countries at the very end of very exposed shipping routes, which lack the naval capacity to convoy their own merchant vessels: Korea, Poland, China, Germany, Taiwan, Iran, and Iraq, also in that order.
If shippers cannot count on a benign security environment, and if shippers have convinced themselves that a cargo must make it to a destination, then the only reasonable decision is to ensure that the ship has the capacity to look after itself . . . by arming it. Such decision making generated an unhealthy amount of sketch when it was the norm in the seventeenth and eighteenth centuries, when the height of ship-mobile military tech was muskets and cannon. Now add in missiles. And drones.
And missiles fired from drones. A return to the days of militarized merchant marines is not far off. You think folks the world over are nervous about some countries having no restrictions on their military exports now? Just imagine what happens when the Koreans or Israelis or French start selling idiot-proof anti-ship weaponry designed to be mounted on bulkers operated by India or Saudi Arabia or Egypt.
Modern manufacturing—and especially modern tech manufacturing— can only function in a world in which gajillions of intermediate products can frictionlessly scuttle about. Only blocs in which manufacturing supply can be colocated with manufacturing demand won’t suffer from catastrophic disruption. That’s a massive problem for German manufacturing, as many of its suppliers are from beyond the horizon and roughly half of its customers aren’t even in Europe.
It’s a much bigger problem for Asian manufacturing, where all intermediate products travel by sea (Germany can at least rail intermediate products among its supply chain partners), and most all of the raw materials and end markets are a multi-thousand-mile sail away. China, in particular, is dependent upon countries either a continent away or with which it nurses heavy historical or geopolitical grudges, for nearly all of the high-valueadded components in its manufacturing system. With transport costs rising sharply, the portion of the manufacturing supply system that will face the greatest disruption is those low-margin pieces that rely upon low costs . . .
such as cheap transport.
The sheer fluidity of the future security environment won’t help. The industrial plant required to support multi-step supply chains exists in multiple locations by definition, and takes years to build. Every time there’s a tweak to a demand profile—either for intermediate or finished goods—it typically takes a year of retooling efforts to work its way forward and back through the system. We have learned that little lesson the hard way with COVID. Every ship diverted, every shot fired disrupts some part of the supply and forces that same year-long reset. In such an environment, multistep supply chains in any region without rock-solid local security and rocksolid local consumption just don’t make much sense. Those supply chains must be concentrated into tighter and tighter geographies, with most needing to become fully internal to specific countries. Anything else spells persistent mismatches, and no end products.
Modern cities—and especially East Asia’s modern megacities—are particularly screwed. All only exist because the Order has made it easy for them both to source the building blocks of industrialized systems as well as to access end markets for their exports. Remove the global system, remove global transport, and cities will be responsible for their own food and energy and industrial inputs.
That is, in a word, impossible. Only cities that are part of a bloc with sufficient reach can hope to keep populations employed, fed, and warm. For most of the global urban population, this leads to the same place: massive deindustrialization and depopulation as people are forced to return to the countryside. The bigger the urban conglomerate, the greater the risk of catastrophic failure. At least half the global population faces the unwinding of decades of urbanization.
So, one final question for this chapter: where are the areas where cities can still tap the lands required to enable modern functionality?
The Americas are broadly okay. In part it is geographic. The two American continents have more food and energy than they have people to consume them. So, you know, solid start.
It is also economic. The Western Hemisphere’s (the world’s) most demographically stable developing country—Mexico—is already heavily integrated with the hemisphere’s (the world’s) largest economy and most demographically stable developed power—the United States. The two buttress one another in ways unparalleled in the modern world.
It is also geopolitical. The Americans have the interest and the ability to prevent Eastern Hemispheric chicanery from bleeding into the Western Hemisphere. For all intents and purposes, the Americans may be abandoning the global Order (big O), but they will still uphold a Western Hemispheric order (little o).
Honestly, that’s probably more than what the Americans actually need to do. The United States is a continental economy with robust internal commercial activity, as opposed to a global economy with robust external trade. Only half of America’s international trade and less than 3 percent of its domestic trade—which collectively accounts for just 10 percent of GDP —floats at all. Most trade with Mexico and Canada is carried out via rail, truck, or pipeline. The Americans are not dependent upon international maritime trade for their food supply, their energy supply, or their internal or even the bulk of their internationally dependent supply chains.
Even America’s single globally busy port, at Los Angeles/Long Beach, California, is unique. Unlike the Asian and European ports, which are first and foremost transshipment centers, Los Angeles/Long Beach is a destination port. It does not process scads of intermediate products, but instead serves as the final port of call for largely finished goods that are built and assembled elsewhere. Such goods are loaded onto truck and rail for distribution throughout the United States. Supply interruption certainly still has consequences, but not the sort of system-shattering ones that will become the norm throughout the bulk of Eurasia.
The second-largest piece of the globe that can be “gathered” to help cities survive is the continent of Australia plus the islands of New Zealand.
Like the Western Hemisphere, the pair of southwest Pacific nations have far more resources and foodstuffs than they could ever consume. And just as Mexico and the United States now boast a mutually reinforcing relationship, so too will the Aussies and Kiwis enjoy one with the countries of Southeast Asia.
The Southeast Asian nations run the gamut in terms of levels of wealth and technical sophistication, from hypertechnocratic Singapore, to nearly preindustrial Myanmar. From most points of view, such diversification is a feature, not a bug. It enables multi-step manufacturing systems to occur regionally, without overly needing to tap anything beyond. Add in reasonable levels of food and energy supply within the bloc, balanced out by Australian and New Zealander assistance, and this region should be able to squeak by.
The problem for this Southeast Asian bloc is that (a) no one is large and in charge, and (b) the group lacks the military capacity to look out for its varied interests. This need not end in disaster, nor is it likely to. Both the Americans and the Japanese will have reason to seek economic and strategic partnerships with the Southeast Asians (including the Aussies and Kiwis). The trick for all three sides of the relationship will be to keep Japanese and American views in rough alignment. A serious falling-out would be devastating to anyone west of the International Date Line.
After that, things get dicey pretty quick.
Russia has loads of stuff that countries need, but the Kremlin has long used its resource wealth to extract geopolitical concessions out of its customers. Russia’s economic strategic policy can best be summed up as . . . failed. In the pre–Cold War eras, the strategy oscillated between Russian subjugation of said customers and said customers flat-out invading Russia. In the Cold War and post–Cold War eras of easy global access, competition from other suppliers made this strategy a dead letter. The Russians today think that their Trans-Siberian Railway (TSR), theoretically capable of transporting massive volumes of goods between East Asia and Europe, is an excellent way to break America’s hold on the seas.
Reality disagrees: a single one of those large container ships transported more cargo than total annual TSR traffic in the entirety of calendar year 2019. Bottom line: I’ve personally long found Russian confusion amusing given their use of an 1800s playbook that has consistently failed them in the twenty-first century. Rather than the Russian strategies finally working, instead expect a reprise from the earlier periods of history, potentially with atomic complications.
The Middle East is packed with energy but imports more than twothirds of its food needs. Expect massive and rapid-fire population . . .
adjustments as global commodities trade craters along with everything else.
In the aftermath, France and Turkey will feast on the region’s bounty to fuel their own needs and ambitions, perhaps with the Japanese making the odd guest appearance. Expect all three to enjoy their time in the region as much as the Americans did.
Sub-Saharan Africa remains the world’s last frontier for trade. In many ways it faces similar constraints as the Middle East. It has partially industrialized—up to and including expansions in food production—and it cannot maintain its level of development without ongoing global engagement. In many ways it reflects the bounty of the Western Hemisphere—its low level of industrialization means it has far more industrial commodities than it could ever use . . . and that will attract outsiders.
Expect a new scramble for Africa as a result, but this is not the 1800s.
Sub-Saharan Africa may not be as industrialized as Europe, but neither is it fully unindustrialized. This time around the Europeans will not enjoy the sort of technological imbalances that enabled empires to enjoy massive advantages in weapons and troop numbers. This time the Africans can and will fight back to the degree that imperial-style conquerings or occupations are simply untenable. Instead, the Europeans (primarily the French and British) will need to partner with local authorities to access the inputs they need. How quickly the outsiders can get over themselves and come to that conclusion will determine the flavor and texture of African history for the next few decades. By far the biggest loser in this new dis-structure is China.
Everything about modern China—from its industrial structure to its food sourcing to its income streams—is a direct outcome of the Americanled Order. Remove the Americans and China loses energy access, income from manufactures sales, the ability to import the raw materials to make those manufactures in the first place, and the ability to either import or grow its own food. China absolutely faces deindustrialization and deurbanization on a scale that is nothing less than mythic. It almost certainly faces political disintegration and even de-civilization. And it does so against a backdrop of an already disintegrating demography.
The outstanding question for all things Chinese is simple: Will it collapse completely? Or will portions of China be able to hold on by its fingernails so that outside powers might treat it in the same way that they will treat . . . sub-Saharan Africa? If the latter holds true, expect a few coastal cities such as Shanghai to collaborate. After all, the cities of China’s southern coast have a far richer history of interaction—especially when it comes to little things like putting food on tables—with outsiders than they do with Beijing.
DEEP BREATH
Transportation is the connective tissue that holds the world together, and, if anything, what you’ve just absorbed is only the beginning of the transport story. For example, modern ships of all types require diesel fuel. Diesel requires oil. Supplying oil to the world requires the stability of the Order.
Think oil shipments are going to happen with the same volume and reliability in a post-Order world? What sort of impact do you think oil and diesel shortages will have on transport? It’s all very ouroboros. I have another five sections packed with minefields of surprises for you.
So take a break. Maybe a nap. Get a drink. And when you are ready, let’s tackle the other half of the global connectivity question.
Money. Section III: Finance Currencies
Navigating the Road Less Traveled
At the time of this writing, in early 2022, every country in the world has experienced financial crises and market meltdowns multiple times in the post–Cold War era. If you think this is symptomatic of deep structural issues, you are right. If you think it’s all wildly unsustainable, right again! If you cannot fathom why the Chinese are able to develop so quickly, you are once again on the right track. And if you’re worrying about the collapse of the dollar . . . you’re not thinking nearly big enough.
These gnawing questions are the story of modern finance.
Even what answers we believe we have to these questions are unsatisfactory. That feeling you have in the pit of your stomach that we’re all making up finance as we go? Listen to that feeling. It is dead-on. The rules of finance changed drastically not at the beginning of the Americanled Order, but in the years after. In the 2020s they will change again into something we have never seen before.
This is going to require a bit of unpacking.
Once again, let’s start at the beginning.
THE LONG PATH TO MONEY
Long before the world of the American greenback or British pound or even Egyptian gold, there was no real medium of exchange. When it was time to trade, you had to hope against hope that your partners wanted whatever it was you had extra of, and vice versa. But even if desires matched, there was the nagging question of worth. How much is a large plank of cedar wood worth? Is your cargo worth one basket of copper ore or two? Is it the same this year as last? Can I interest you in a roll of papyrus? The barter “market,” such as it was, moved, and there was no way to know which way it had moved until after you arrived to present your goods.
Considering the mutual isolation among the peoples of the ancient world, that was more than a major problem.
The Egyptians’ desert buffers were the best natural barriers of the Ancient Age. The Egyptians’ primary trade route was up the Nile Valley into Sudan (aka Nubia), but the Nile south of populated Egypt was cursed with rapids (no sailing) as well as canyons (no following the river). Traders had to cross the open desert . . . in an era before the domestication of camels. This all made the Egyptians secure, but it also meant they didn’t get out much to shop.
We don’t know nearly as much about the early Indus civilization as we do about our earliest forebears, but what we do know is not pretty. The best guess is that an earthquake or flood (or both) shifted the path of the Indus River a few dozen miles to the southeast at one point, leaving the mighty, independent city-states of the floodplain suddenly high and dry. Everyone contracting tuberculosis didn’t help. Regardless of how residents of the early Indus civilizations died, while they were around they were the light in the darkness. Deserts drier than the Sahara exist to their west in what is today Pakistani and Iranian Baluchistan, while peoples of the semi-adjacent Ganges Valley or the foothills of the Hindu Kush were late to emerge from hunter/gatherer economics. The Indus may not have been quite as isolated as the Nile, but it probably didn’t feel that way at the time.
This left the Mesopotamians as the men in the middle.
Unlike the Nile and Indus systems, Mesopotamia needed to trade because it only had food. Lumber, granite, and metals all required import.
Luckily, Mesopotamia wasn’t simply bracketed by the other two of the First Three founding civilizational peers, but also by its civilizational daughters: Anatolia (today’s Turkey), the Zagros Mountains (today’s Iran), the Levant (today’s Israel, Lebanon, Syria, and Jordan), and the coastal communities of the Persian Gulf. Mesopotamia was at the center of it all. And since the Mesopotamians never got into building out the sorts of sprawling urban infrastructure of the Indus cities* or the omnipresent vanity projects of the Egyptians,* they could focus on generating ever-greater barley surpluses for use in trade.
Barley? Barley was the currency of exchange for more than two millennia. Why?
Simple. Place matters. To everything.
Early irrigation systems in all of the First Three civilizations were flood-driven. Workers would divert seasonal spring flows into fields and drown everything. As all of the First Three were in those low-altitude, lowlatitude desert river valleys, evaporation effects concentrated the tiny amounts of salinity in the mountain runoff into the soil, resulting in incrementally higher soil-salt levels year on year. Barley could tolerate this salinity better than other plants.* It made barley a popular crop throughout the First Three.
Now that we have our basis for value, the problem becomes transport. A quart of barley weighs about a pound. Issues of bulk and weight limited its usefulness, especially if your plan was to schlep a few tons of it across the desert. As the people with the greatest need for and ability to trade, the Mesopotamians needed a way to square their barley circle.
The circa 2000 BCE solution was the shekel. Three one-hundredths of a shekel could be traded for one quart of barley. One shekel was equal to 11 grains of silver. Over time the shekel became synonymous with our modern concept of money. One shekel could pay a laborer for a month. Twenty shekels bought you a slave. By 1700 BCE and courtesy of Hammurabi, if someone injured you, you had the option of choosing restitution in the form of shekels rather than eyeballs. Bam! Finance was born!
Armed with a commonly agreed-upon medium of exchange, labor specialization took a leap forward. There was now far less risk for a oncefarmer to evolve into an anything-else. Income from anything-else could be swapped for barley at a known rate. After all, the shekel was literally redeemable for food.
So handy was the breakthrough, use of the shekel spread far and wide.
Good data from a hundred human lifetimes in the past can be hard to come by, but so central—literally and figuratively—were all things Mesopotamian that even the Egyptians and the people of the Indus Valley Civilization adopted the Mesopotamian shekel standard on those rare occasions when they engaged in transregional trade. It . . . took a while before things stuck. Not just currency. Civilization, too.
The First Three civilizations date back to some point in the fourth or third millennium BCE, but they were only the beginning of the story. Tribes in lands adjacent to the First Three would pick up some tricks of the civilizational trade and found their own echo civilizations. Mesopotamia inspired the Persians and Hittites. The Egyptian expansions encouraged the emergence of Nubia and Phoenicia. The Indus birthed Aryan offshoots.* None of them really lasted because none of them had that all-important crunch-coat desert shielding of their forebears. Invaders could reach them.
Precipitation for the newbies was more important than irrigation, so bad harvests happened—and bad harvests often meant everyone died. Or at least enough people died or fled to wreck any sort of civilizational progress.
The period from roughly 1600 BCE to 800 BCE in particular was an era of civilizational chaos. It wasn’t simply that these daughter civilizations rose and fell and rose and fell, but that at times all the daughter civilizations throughout an entire region would fall together. China experienced some truly epic collapses. Two of the mass civilizational falls in this time window were so severe they took Mesopotamia and the Indus with them, with Indus civilization never recovering. Even eternal Egypt teetered there for a bit.
Archaeologists refer to a subset of this timeframe as the Late Bronze Age Collapse. Christians, Jews, and Muslims know it as the era of Exodus.
Roughly around the seventh century BCE, three things changed—for both civilization and for finance.
First, when a civilization falls, it’s rare to follow the example of the Indus and have every person, product, and idea utterly vanish from the Earth. Citizens become survivors. Survivors become diasporas. Diasporas intermingle and form new communities. It isn’t just people who mix but also ideas and products and techniques. People need a medium of exchange to lubricate the increased variation. Enter currency.
Second, this post-collapse merging naturally led both to technical booms from the skill mixing of the various overlapping diasporas and the desire to reconnect with others in their fallen cultures.* The combination of more technological advancement, greater product differentiation, and a bit more outwardly focused mentality not only granted us greater heft and stability and populations, they contributed to the shift from the Bronze Age to the Iron Age. Some outcomes of this accelerated technological track were any number of new agricultural tools and techniques, culminating in the emergence of classical Greece, with its all-important water wheels.
Human civilization still had plenty of bumps and scrapes ahead of it— setbacks and horrors like the fall of Rome, the Dark Ages, twerking, the 2020 American presidential debate—but this post-collapse intermixing pushed the technical envelope sufficiently forward that humanity never again suffered a mass collapse event. And if the wolf of civilizational collapse is no longer at the door, you’re more willing to accept payment in coin as opposed to barley.
Third, with both stability and economic dynamism steadily increasing, traders had more confidence that the city or country or empire they wanted to trade with or for would be there when they got back. For the first time in history there was a geopolitical rationale for developing a currency better than barley.
All at once in multiple locations, we developed metal coinage as a method of exchange: in China, in India, in the Eastern Mediterranean. The rest, as they say, is history. Instead of surpluses or shortages of a good triggering a flurry of confusingly haphazard barter, courtesy of metal coinage the value of one side of the trade was now always known. The whims of climate and season and culture and scarcity and plenty were no longer obstacles that discouraged economic activity, but instead were its fuel.
BUILDING TRUST
Yet, historically speaking, people have had a hard time taking this or that currency seriously. As a rule it is only valued within a very specific area, ruled by a very specific government. Leave that area and foreign coin is little more than a low-quality paperweight.
There are a couple of ways around this. The first is to make your coin out of something that people want. Gold, silver, electrum, and copper are all good choices, but really, anything a culture deems valuable can be used.
Options through the ages have included barley, strips of iron, cocoa beans,* dolphin teeth, potato mashers, tulips, wheels of Parmesan, and, my personal favorite, beaver pelts.* Such systems have one far-from-minor drawback. A poor person might be able to get a few silver coins over the course of years of labor, but a wealthy person will have literally tons of the stuff. Carrying three hundred pounds of silver simply isn’t practical, not to mention it makes you a robbery target.* This brings us to the second option: make your publicly circulating currency exchangeable for something of value. Again, a metal of high worth is the obvious choice; you just keep the actual metal in a government vault instead of having the value reside in the coin itself. Wealthy merchants in the vicinity of the Sichuan Basin—home to the contemporary Chinese cities of Chengdu and Chongqing—started up a system like this in the seventh century, using a sort of promissory note that could be exchanged for silver.
So that’s the setup. See the problem? You have to be able to convince people that you really do have the stuff of value squirreled away somewhere, and it really can be exchanged on demand.
Financial collapses triggered by countries doing things unwell and unproperly and unwisely are as common as the stars in the sky. In unsuccessful systems, governments often find themselves beset with spending needs greater than their means. The temptation is to issue more currency without simultaneously securing more assets to back it. The technical term is “debasement.” That works for while . . . until people stop believing the government line.
As soon as word leaks out that you are lying about how much gold (or Parmesan) you have in that government vault, folks stop accepting payment in the official currency, or refuse services altogether if crap cash is all on offer. Currency, after all, is about trust. Such lack of trust is part of the reason why Russians have long had a habit of trading in their rubles for German marks or British pounds or U.S. dollars and stuffing such betterrespected currencies into furniture.
Once that trust is damaged, the volume of your currency in circulation soars as people dump it. Your currency’s corresponding value then plummets due to oversupply. At that point, even really important people tend to lose trust. The Quebecois once infamously paid their troops with pieces of playing cards.* Imperial Japan issued cardboard currency due to wartime metal shortages.* Folks shift to alternatives, whether it be a physical asset that is supposedly more solid, or even other countries’ currencies. Barter—with all its limitations—comes back into fashion out of necessity. At that point, governmental and civil collapse is rarely far off, with leaders finding themselves holding tickets for admission to history’s ash heap.
What most do not realize is that while bad economic management obviously culminates in currency collapses, so too does good economic management.
In a successful system, the stability a real currency provides generates economic specialization and growth. Economic specialization and growth require ever-larger volumes of currency to lubricate ever-growing volumes of economic activity. Ever-larger volumes of currency necessitate everlarger volumes of the stuff needed to back the currency.
Getting such ever-larger volumes of said “stuff” is far easier said than done.
The Roman Empire is an excellent case in point.
The empire was by far the most stable political entity humanity had yet to invent. That stability encouraged development and technological evolution and trade within the Roman system. That required more currency, and more precious metals to back the currency. That need forced the Romans to expand beyond territories within easy reach and beyond territories that could generate wealth into ever-farther-removed lands simply in order to secure mines.
Some such locales, like the Iberian Peninsula, were within arm’s reach and were pacified and integrated fairly easily. Others, like the Taurus Mountains of southern Anatolia, were much farther away and required centuries of sparring with distant and stubbornly hostile powers. Still others, such as the lands that comprise the contemporary Sahelian country of Mali, were trading hubs that could access gold sources that are part of contemporary Ghana and Nigeria (the once-famed “Gold Coast”). The Romans didn’t cross the Sahara to get a tan, but because they had to if they were to maintain domestic financial stability. Ultimately Rome expanded beyond its ability to defend the realm. Once the Romans lost their marches (where the gold came from), the imperial economy seized up, taking shortterm political stability and long-term military capacity with it.
Nor does “venturing forth” need to occur with legions assaulting geography. It can occur with bureaucrats assaulting economics. Rather than gobbling up someone else’s resources, some governments choose to gobble up their own from an adjacent sector. The Tang Dynasty followed such a perpendicular course. Rather than expanding the empire physically to source more silver, they instead expanded the list of metals that “backed” their currency to include copper. The Tang’s adoption of copper as currency succeeded at stabilizing the financial system, but at the cost of causing empire-wide metals shortages that enervated . . . everything else.
Such snatching of defeat from the jaws of victory, as it were, has been the ultimate fate of every ostensibly successful currency regime throughout human history. Including the biggest and most successful ones.
Especially the biggest and most successful ones.
RESERVE CURRENCIES: THE BIG BOYS
If you are looking for the place and the year the modern world began, that would be in the Viceroyalty of Peru in the Bolivian highlands in 1545, when one Diego Huallpa—a native doing the equivalent of contract work for a local Spanish conquistador—was literally blown over by a strong gust and tumbled down into a bit of loose soil. Huallpa stood up and brushed off dirt . . . that was quite literally sparkling with silver dust. In under a year this windfall took physical form as the mines of Potosi, the largest single deposit of silver ever discovered in the six-millennia history of humanity.
As long as I’m giving you the full treatment, let me give you the dirty first.
Silver is often co-produced with lead, making extraction toxic.
Purification methods of the sixteenth and seventeenth centuries used mercury, so there’s some more toxicity for you. Mining techniques of the time were not what we would call OSHA-approved. They included lugging a couple hundred pounds of ore on your back while climbing up out of the bowels of the earth via hundreds of feet of ladders with the only light being a candle strapped to your forehead.
No one was going to emigrate from Spain for that sort of work, so the Spanish regularly raided indigenous populations for labor. Spanish law of the time indicated that so long as you baptized your workforce, it really didn’t matter if they lived. And one final schmear on the shit sandwich: Potosi is at thirteen thousand feet of elevation. In the preindustrial era, growing food in a place with double the elevation and half the rainfall of Park City, Utah, was, shall we say, challenging. Even if you survived everything else, you very well might starve.
The Imperial Spanish weren’t very good accountants, but the best guess is that somewhere between four million and twelve million people died during the course of the Potosi silver operations. (For a point of reference, the entire population of Old Spain in 1600 was only 8.2 million.) The Spanish didn’t really care, because they were the big men.
Launching the first truly global system required two things. The first was a single economic and military structure that could span multiple continents.
The second was a large enough volume of precious metals to support a global currency. Potosi funded the first and provided the material to back the second. For several decades in the sixteenth and seventeenth centuries, Potosi produced more silver than the rest of the world combined.
Very soon the Spanish were not simply lubricating economic exchange in and around Iberia, but kicking names and taking ass the world over.
Allies, partners, neutrals, and even rivals started using the Spanish “pieces of eight” coins as their exclusive method of exchange. The Portuguese Empire—Spain’s premier contemporary rival—had no choice but to use Spanish silver currency in internal commerce.
* Even in the late Spanish period, well into the British rise, Spanish coin remained so large in volume, so far-reaching in circulation, and so reliable in purity that it was used more in British America than the British pound. Spanish currency was especially popular in the rum-sugar-slave triangle linking Britain’s American, Caribbean, and African possessions.
But all things pass in time.
For anyone else who had a metals-backed currency, the perpetual flood of Spanish coin was de facto economic war. For anyone whom the Spanish found strategically problematic, the perpetual flood of Spanish coin was actual war. Just as bad: when the Spanish used all that Peruvian silver to hoover up resources and goods and man-hours, the result was always the same: runaway inflation not only in Spain, but in any territory that could supply the Spanish with what they wanted. Considering that Spain’s empire of the time was global, that was pretty much everywhere. Holding Potosi meant the Spanish could muddle through. The rest of everywhere, less so. After two centuries of expansion and war and inflation, a mix of truly creative strategic and economic mismanagement in Old Spain, combined with Napoleon Bonaparte’s disturbing habit of invading his neighbors, resulted in both the fall of the Spanish Empire in general and of the Spanish currency in specific. The first half of the 1820s ushered in the independence of both Peru and Bolivia, ending Spanish access to Potosi and finishing off the Spanish Empire with brutal, uncaring finality.
But the possibility of global trade had been let out of the bottle, and nothing as minor as Bolivian independence was going to stuff that genie back in.
As the Spanish were falling, the British were rising. The early British “pound” was quite literally a pound-weight of silver, but the Brits didn’t have a Potosi of their own, and no matter how hard they tried they couldn’t capture anywhere near enough Spanish treasure galleons to back a sizable currency supply.
None other than Sir Isaac Newton found a workaround to this problem during his thirty years in charge of the Royal Mint. He initiated a centuryplus effort to tap the totality of the British Empire for gold—most notably the territories that today comprise Australia, Canada, South Africa, and Africa’s Gold Coast—to unofficially create a counterweight to Spain. By the mid-1800s the gold-backed pound we know had come into being.
By the late 1800s Britain’s command of the seas often translated into trade chokeholds. The rise of the Germans in Central Europe generated alternating and overlapping regions and periods of inflationary growth and strategic collapse, leading many Europeans to seek the relative stability of the decidedly non-Continental pound. To the Germans this was one of many things worth fighting over . . . that ultimately didn’t work out. By the time World War I had stretched into its third year, all the continental European countries were debasing their currencies to pay for the conflict, triggering currency collapses and runaway inflation . . . which only accelerated the pound’s de facto adoption as Europe’s only desirable currency.
It didn’t last long. In the post–World War I chaos and economic collapse, even the British Empire proved insufficiently large to support the currency that everyone in Europe needed. As with the Romans and Spanish before them, demand for the pound generated currency-based inflation on top of the general economic dislocation of the war on top of the unwinding of a half-millennium of colonial/imperial economic systems on top of a global tariff war. Add it up and the Great Depression turned out to be perhaps a bit greater than it needed to be.
Which brings us to the Americans. By 1900 the United States had already displaced the entirety of the British Empire as the world’s singlelargest economy. Furthermore, the Americans didn’t even join World War I until three years in, and so were able to serve as creditor to the Europeans rather than needing to debase their currency to keep fighting. The British pound wasn’t as debased as the franc or deutschmark or ruble, but the dollar wasn’t debased at all.* Even better, the Americans were perfectly willing to provide the World War II Allies with anything they needed—oil or fuel, steel or guns, wheat or flour—so long as they were paid in gold. By war’s end the U.S. economy wasn’t only far larger and that of Europe far smaller. The U.S. dollar wasn’t just the only reasonable medium of exchange in the entire Western Hemisphere: it had sucked the very metal out of Europe that would have enabled a long-term currency competitor anywhere in the Eastern Hemisphere. If anything, this is truer than it sounds. After all, the metalsbacked currencies of Europe were the culmination of all human civilizations of all eras stripping the entire planet of precious metals since before the dawn of recorded history.
Now it was in Fort Knox.
Between continental Europe’s woes and insufficient supplies of the British pound, pretty much everyone in Europe abandoned their preciousmetals pegs and shifted to a system where their own currencies were backed by none other than the U. S. dollar (which was in turn backed by gold . . .
that had until recently been European).
FROM SUCCESS, FAILURE
When the guns finally fell silent that second full week of August in 1945, all the major powers of the previous five centuries were smashed, impoverished, enervated, isolated from the wider world, or some combination thereof. Only the United States had the precious metals required to back an extra-national, much less global, currency. Only the United States had the military capacity to take that currency far and wide. The only even theoretical candidate for a global medium of exchange was the U.S. dollar. It did not need to be formalized in the Bretton Woods treaties for that to happen.* Gold-backed dollarization on a global scale was a certainty. It was similarly certain that gold-backed dollarization was doomed to failure.
The commencement of the Order meant that peoples who had been at each other’s throats for the entirety of their histories were not only at peace but were forced to be on the same side. All at once, local economies once hardwired to support a distant imperial sovereign could reinvent themselves on the basis of local development and expansion. All at once, anyone and everyone—and I mean anyone and everyone—could trade for anything and everything. More countries, rapid rebuilding, rapid growth, rapid modernization, rapid industrialization, rapid urbanization, burgeoning trade.
Places like Germany and Japan that had suffered infrastructure-targeting bombing raids for years proved once again that they could build anything.
Well. And quickly.
All of it took money. Most of it took hard currency, and there was only one hard currency to choose from.
Lubricating such a rapidly growing system required a lot of dollars, particularly as the trade in intermediate goods shifted from an internal to a multinational phenomenon. The Americans expanded their money supply to meet the expanding global economy’s needs, which also meant the Americans needed more and more gold to back the ever-expanding currency supply.
The numbers not only didn’t add up, they couldn’t add up. Throughout human history, humanity has probably produced no more than 6 billion troy ounces of gold (about 420 million pounds). Assuming every scrap of gold ever mined was available to the U.S. government, that would only be enough to “back” a total global currency supply of $210 billion.* From 1950 to 1971, global trade expanded by quintuple that figure, on top of the fact that the U.S. dollar was the currency of the United States itself, which already had a GDP larger than total global trade. The peace and economic growth that the Order encouraged also increased the global population from 2.5 billion to 3.8 billion, suggesting much stronger demand for U.S.-dollarenabled trade to come.
* Even if the politics had been perfect, the gold standard was doomed to fail. The Americans awkwardly and painfully discovered for themselves not only the age-old issue that asset-backed currencies were incompatible with rapid growth, but the very age-new issue that asset-backed currencies were incompatible with global peace—the sort of peace that formed the backbone of America’s anti-Soviet alliance.
The Americans found themselves hostage to their own master plan, and the politics were most assuredly not perfect.
One of the clauses of the original Bretton Woods agreements—designed to ensure confidence in the new system—was that any signatory could cash in their dollars for gold, in any volume, on demand. Throughout the 1960s the French did just that, with increasingly maniacal hwa-hwa-hwainess.
Normally such rising demand for gold would jack up its price, but the price of gold was fixed via treaty at the rate of $35 per troy ounce in order to build that all-important trust. With the “normal” avenue for price discovery eliminated, the only possible outcome was to drive up demand for the dollar itself. The result? Increasing shortages in the exchange medium—the U.S.
dollar—a process that threatened to unwind all the economic achievements of the postwar Order. The French (and others) were betting that the entire system would fail and so were hoarding gold in preparation for the aftermath.
Faced with the possibility of a global economic depression that would leave America facing down a nuclear-armed Soviet Union alone, the Americans did the only thing they could. In a series of steps in the early 1970s, the Nixon administration cut the cord and put the U.S. dollar on a full, free float.
For the first time, a major government didn’t even pretend to have anything in the vault. The only “asset” backing the dollar was the “full faith and credit” of the U.S. government. The very nature of America’s post1971 globalization-fueled alliance gambit was quite literally based upon none other than Tricky Dick Nixon saying, “Trust me.” We had zero idea what to expect as, hand in hand, we all gaily skipped down the road less traveled: the road of fiat currency. Adventures in Capital
If there was a singular rule of finance in the era before 1971, it was that there was never enough money. Currency value was directly linked to some sort of asset, while currency volume was determined by the capacity and reach of the sovereign power in question. Both characteristics generated extreme limitations, both for the governments issuing the currencies and for the people and firms (and other governments) who used them.
In this strange new world, that singular rule—that money exists in limited quantity—evaporated. Instead of money existing in a finite amount and so needing to be scrupulously managed, there was no longer any practical cap on capital availability. Limitations became a purely political question.
For the Americans that “limitation” was pretty straightforward: keep expanding the money supply until there is sufficient currency to support the overall globalized trading system. But for everyone else who used the U.S.
dollar as their currency backer, the definition of “limitation” meant whateeeeever each individual government thought it needed to mean. That broad divergence allowed the development of tools and options that could have never existed in the world of asset-backed currencies. These tools and options in turn gave birth to entire governing systems that would have had zero chances of existing in the pre-fiat age.
MONEY FOR NOTHING: THE ASIAN FINANCIAL MODEL
It all begins with Japan. Long before the world wars, even long before America’s Admiral Perry forced Japan open to the world, the Japanese had a unique view of debt. In Japan capital exists not to serve economic needs, but instead to serve political needs. To that end, debt was allowed, even encouraged . . . so long as it didn’t become inconvenient to the sovereign. Dating back to the seventh century, if widespread debt got in the way of the emperor or shogun’s goals, it was simply dissolved under the debt forgiveness doctrine of tokusei. Drought? Tokusei! Floods? Tokusei! Famine? Tokusei! Government in the red? Tokusei . . . with a 10 percent processing fee!
As such, debt tended to boom, especially when debt was already widespread. After all, the worse the overall financial situation, the better the chance the emperor would emerge onto his balcony, wave his fabulous scepter, and declare this or that class of debts null and void. It happened so often that bankers went to extraordinary lengths to protect their economic and physical well-being: they had a tendency to write tokusei riders into their loans so borrowers couldn’t count on the debt simply evaporating, and they similarly needed to live in walled compounds so when a tokusei was declared, mobs could not storm their homes, beat them to death, and burn the loan documentation to prevent such riders from being executed. Fun times.
Anyhow, the point here is that while economics and politics have always been intertwined, Japan was the trendsetter in making finance a tool of the state. Once that particular seal was broken, it became pretty common for the Japanese government to shove embarrassingly large amounts of cash at whatever project needed doing. In most cases such “cash” took the form of loans because—you guessed it—sometimes the government found it handy to simply dissolve its own debts and start from financial scratch.
Tokusei always left someone holding the bag, but in rough-and-tumble pre– World War II Japan, it was typically some faction of society that happened to be on the outs with the central government, so . . . whatever.
The end of World War II triggered another debt reset, albeit less because of imperial decree and more because everything had been leveled.
Considering the absolute devastation and humiliation the gaijin had visited upon the Japanese, it was paramount that postwar Japan move in cultural lockstep. That no one be left behind.
The solution was to apply the peculiar Japanese attitude to debt toward broad-scale rebuilding efforts, with massive volumes of capital poured into any possible development project. The specific focus was less on the repair and expansion of physical infrastructure and industrial plant than on maximizing market share and throughput as a means of achieving mass employment. Purchasing the loyalty and happiness of the population—who rightly felt betrayed by their wartime leadership—was more important than generating profits or building stuff. That a loyal and happy population was pretty good at building stuff didn’t hurt.
From a Western economic point of view, such decision making would be called “poor capital allocation,” the idea being that there were few prospects that the debt would ever be paid back in full. But that wasn’t the point. The Japanese financial model wasn’t about achieving economic stability, but instead about securing political stability.
That focus came at a cost. When the goals are market share and employment, cost management and profitability quietly fade into the background. In a debt-driven system that doesn’t care about profitability, any shortfall could simply be covered with more debt. Debt to hire staff and purchase raw materials. Debt to develop new products. Debt to market those products to new customers. Debt to help the new customers finance those new purchases.
Debt to roll over the debt.
The Japanese were hardly alone. War’s end saw a new crop of players take a page from the Japanese book. South Korea, Taiwan, Singapore, and Hong Kong had been Japanese protectorates for years (in some cases for decades) and enjoyed (or suffered) the greatest Japanese cultural imprint.
That imprint extended into Japan’s view that finance is as much about politics and state goals as it is about economics.
The four leveraged that belief, funneling scads of Western (and Japanese) capital to leapfrog entire phases of the development, industrialization, and urbanization processes. In the 1950s and 1960s they did so by borrowing massively from foreigners and applying the capital to root-and-branch overhauls of every aspect of their systems. The industrialization process that took Germans more than a century—and the Germans are no slouches when it comes to building and overhauling things quickly—took the Taiwanese, Singaporeans, and Hong Kongers less than three decades. The Koreans did it in less than two.
Enter 1971. Suddenly foreign (gold-backed) capital became less critical to the equation. If profits could not cover debt payments, then export earnings would. If earnings could not, firms could simply take out more loans. If loans were not available, the government could always expand the money supply to push everything forward. (It didn’t hurt that expanding the money supply also drove down the value of the Asians’ currencies, making their exports more competitive and therefore driving up export income.) In the first Asian wave, agriculture gave way to textiles and heavy industry. In the post-1971 wave, heavy industry gave way to ever-moreadvanced manufacturing of every imaginable sort: white goods, toys, automotive, electronics, computers, cellular products. Capital-driven growth upon capital-driven growth meant that within two generations, all four countries had transformed themselves into modern industrialized systems on par with many of the world’s most established cities.
Considering that most were among the least developed and poorest patches of the planet at the onset, their collective makeover is among history’s greatest economic success stories.
Three things helped: First, the Americans steadily outsourced their own industry to the Asian states. That provided an excellent rationale for the Asians’ debt-driven model, as well as ensuring ravenous American (and in time, global) demand for the Asians’ products.
Second, that foreign demand proved robust and stable enough to make the Asians’ exports profitable enough that all four managed to (for the most part) grow out of the debt.
Third, as the most enthusiastic of the fiat currency adopters, the Asians were willing to push the limits of what was possible to the point that Americans and Europeans got a bit skittish about the very nature of Asian finance. In addition to playing fast and loose with the math, the Asians used a mix of legal and cultural barriers to actively discourage foreign penetration into their financial world. For example, most Asian conglomerates developed banks within their own corporate structures— good luck investing in that. Such a combination of growth, profits, and control enabled the Asians to have occasional semi-planned debt crises to shake out the worst financial imbalances without risking their political or economic systems.
In time, the model spread to other Asian nations, with mixed results.
Singapore evolved into a global financial hub, applying Western capital following (mostly) Western norms to projects that made sense to Westerners, while spamming Asian money at more questionable projects throughout Southeast Asia. Malaysia and Thailand used Asian financial strategies to move successfully into semiconductors and electronics, and to (far less successfully) try their hands at automotive. Indonesia focused more on the inherent opportunities for corruption that manifest when money is, in a sense, free. Many of the poor capital allocation decisions shook out from all four (and Korea and Japan and Taiwan) when the 1997–98 Asian financial crisis forced a reckoning.
The biggest of the adherents to the Asian financial model is, of course, China. It isn’t so much that the Chinese applied the model in any fundamentally new ways, but instead that they carried the model to its absurd extremes by nearly every measure.
Part of the absurdity is simply size. When China started down its development path in 1980, it already had one billion people, more than the combined total of the rest of the East Asian nations, from Japan to Indonesia.
Part was timing. China’s entrance into the global Order did not occur until after the Nixon-Mao summit, the death of Mao, and the initiation of broad-spectrum economic reforms in the late 1970s. By the time the Chinese were ready to get down to the business of business, the gold standard was nearly a decade gone. Modern Communist China has known nothing but the era of fiat currencies and cheap money. It had no good habits to break.
Part was the nature of Beijing’s unification goals. Korea, Malaysia, and Indonesia have half their populations on a small footprint (Greater Seoul for the Koreans, the west coast of the middle Malay Peninsula for Malaysia, and the island of Java for Indonesia). Japan was the world’s most ethnically pure state before it industrialized. Singapore is a city. These Asian states began with reasonably unified populations.
Not so with China. China is messy.
Even eliminating the un- and lightly populated portions, China spans more than 1.5 million square miles, about the same size as all of Western Europe. This populated 1.5 million square miles spans climate zones from near desert to near tundra to near tropics.* Even the “simple” part of China, the North China Plain, has witnessed more wars and ethnic cleansings than any other spot on the planet. The Yangtze Valley in China’s center has ranked among the world’s most sophisticated economies for most of recorded history. Southern China’s rugged landscapes have hosted everything from the poorest and most technologically backward of Asia’s many peoples to the hypertechnocracy of Hong Kong.
Every country puts a premium on political unification. Every country has fought internal wars to achieve it. China’s own internal unification effort is one of the world’s most heinous, stretching back across four millennia and dozens of discrete conflicts. The most recent major dustup— Mao’s Cultural Revolution—killed at least 40 million people, twenty-five times the number of Americans killed in all wars. The Chinese belief in the necessity of internal political violence, repression, and propaganda didn’t manifest out of nowhere, but is instead viewed as a necessary reality to avoid nightmarish civil wars. The solution?
Spend!
The Chinese government assigns capital to everything. Infrastructure development. Industrial plant buildout. Transport systems. Educational systems. Health systems. Everything and anything that puts people in jobs.
Excruciatingly little of it would qualify as “wise capital allocation.” The goal isn’t efficiency or profitability, but instead achieving the singular political goal of overcoming regional, geographic, climatic, demographic, ethnic, and millennia of historical barriers to unity. No price is too high.
And so a price was indeed paid: Fresh new lending in calendar year 2020 was about 34.9 trillion yuan (roughly US$5.4 trillion), which, even if you use the statistics for national economic size that even Chinese state economists say are bloated, comes to just shy of 40 percent of GDP. The best guess is that as of calendar year 2022, total outstanding corporate debt in China has reached 350 percent of GDP, or some 385 trillion yuan (US$58 trillion).
The Chinese have embraced the fiat currency era just as warmly as they embraced the Asian financial model. China regularly prints currency at more than double the rate of the United States, sometimes at five times the U.S. rate. And whereas the U.S. dollar is the store of value for the world and the global medium of exchange, the Chinese yuan wasn’t even used in Hong Kong until the 2010s.* Part and parcel of the Chinese financial model is that there is no top.
Because the system throws a bottomless supply of money at issues, it is hongry. Nothing—and I mean nothing—is allowed to stand in the way of development. Price is no issue because the volume of credit is no issue. One result among many is insane bidding wars for any product that exists in limited quantity. If ravenous demand for cement or copper or oil drives product prices up, then the system simply deploys more capital to secure them.
Something similar occurred in Japan in the 1980s with real estate, when for a brief and bizarre moment a square mile of downtown Tokyo was supposedly worth more than the entire U.S. western seaboard. The Japanese immediately recognized that this was not a sign that things had gone radically right, but instead that something had gone radically wrong. The Chinese have yet to register such a dark eureka. In particular the Chinese boom stressed global commodities markets between 2003 and 2007, with oil prices reaching historical, inflation-adjusted highs in 2007 of approximately $150 a barrel.
Another result is massive overproduction. China is worried about idle hands, not bottom lines. China is by far the world’s largest exporter of steel and aluminum and cement because it produces more of all three than even hyper-ravenous China can use. China’s much-discussed One Belt One Road global infrastructure program—which many non-Chinese fear is part influence peddling, part strategic gambit—is in many ways little more than a means of disposing of the surpluses.
Perhaps the most significant result of the Chinese derivation of the Asian financial model is that there is no end. All the other Asian states ultimately came to terms with the massive-debt-eventually-leads-todumpster-fires nature of the model. Japan crashed in 1989 and took thirty years to emerge from under the debt. The recovery took so long that Japan lost the entirety of its demographic dividend and is unlikely to ever have meaningful economic growth again. Indonesia crashed in 1998, which destroyed its government. Twice. The country’s political system remains a chaotic mess. Korea and Thailand also crashed in 1998 and used the pain to solidify transition to civilian rule (a process that bore more durable results in Korea than Thailand).
None of these options can be considered in Beijing. The Chinese Communist Party’s only source of legitimacy is economic growth, and China’s only economic growth comes from egregious volumes of financing.
Every time the Chinese government attempts to dial back the credit and make the country’s economy more healthy or sustainable, growth crashes, the natives start talking about making lengthy strolls in large groups, and the government turns the credit spigot back to full. In the CCP’s mind, moving away from debt-as-all is synonymous with the end of modern China, unified China, and the CCP. In that, the Party is probably correct. It’s no surprise then that the CCP’s preferred method of storing their wealth is in U.S. currency . . . outside of China.
THE GREAT CONFLATION: THE EURO MODEL
The Europeans are far more reserved than the Asians when it comes to finance, but that’s a bit like saying Joan Rivers didn’t like plastic surgery as much as Cher.
The profit motive is alive and well in Europe, with everything from home ownership to industrial expansion constrained by capital availability.
Yet Europeans demand higher levels of service, stability, and support from their governments, and most European governments secure that service, stability, and support by tinkering with financial systems, most notably via banks.
The most common tinkerings? Directing “private” banks to expend capital to support state financing, either via direct loans to state-approved projects or firms, or via bond purchases to support government budgets.
This partial state capture of the financial world has a wide variety of sometimes-not-very-subtle outcomes. An obvious one is that European stock markets aren’t nearly as large as America’s, in part because there isn’t as much free private cash available to fill out that particular method of capital generation. A less obvious one is the existence of the European common currency, the euro, itself.
According to traditional (and certainly non-Asian) financial norms, issues such as collateral requirements, credit access, and borrowing costs are based on a combination of factors ranging from personal or corporate history, preexisting debt loads, and straight-up believability. It isn’t too complicated: if you want to borrow, it behooves you to prove that you have paid off your debts in the past, that you can afford the loan servicing that will come from new borrowing, and that you aren’t planning to do anything stupid with the money. Add in some decision-making brackets based on the health of the broader economy, and color everything for current government policy as regards finance in general, and voila! Lending policy.
An obvious characteristic that comes from this is that no two economies are the same. Credit at the national level is also colored by a combination of size and diversity. Germans tend to enjoy easy access to credit not simply because they are frugal and borrow little and so are good credit bets, but also because the German economy is first-rate, highly diversified, macroeconomically stable, and highly productive, and German firms and governments tend to be run by . . . frugal Germans. Borrowing in Italy costs more because the Italian government and population are as laid-back about debt repayments as they are about everything else. The Greek economy is a one-horse tourism show manned by a people with relatively loose understanding of what makes places like Germany tick. Everyone’s a bit different. Europe has thirty different countries with thirty different credit traditions.
Somewhere along the line, the Europeans misplaced this basic understanding. They conflated the idea that having a unified currency would deepen economic regional integration as well as push Europe along toward the goal of becoming globally powerful.
For reasons that only made sense at the time, in the 1990s and early 2000s it became Europe’s conventional wisdom that everyone in Europe should be able to borrow at terms that previously had only been offered to the most scrupulous of Europeans. Furthermore, such borrowing should be green-lighted in any volume for any project by any government or corporation at any level. Austrian banks gorged on the near-free capital and lent it on to Hungary’s own version of subprime. Spanish banks started up flat-out slush funds for their local political influencers. Italian banks started lending en masse not simply to their own mob, but to organized crime syndicates in the Balkans. The Greek government took out massive loans, which it disbursed to pretty much everyone. Construction of entire towns where no one wanted to live. Workers received thirteenth- and fourteenthmonth salary bonuses. Citizens received direct payments simply for being citizens. Greece hosted an Olympics entirely on credit. Massive graft.
Everyone could (and did) play.
Greece became the poster child of the ensuing financial calamity.
Despite only adopting the euro in 2001, Greece by 2012 sported a national debt in excess of 175 percent of GDP, in addition to busted loans within its private banking system, which contributed another 20 percent of GDP to the stack. Greece was hardly alone. Before all was said and done, nine EU member states required bailouts. Nor did the Brits, who didn’t even join the eurozone, escape unscathed. Between euro borrowing and a certain keeping-up-with-the-Joneses mindset when it came to lending, the European financial crisis ultimately pushed two of the United Kingdom’s five biggest banks into outright receivership.
The truly scary thing is Europe never recovered from the popping of the euro bubble. It was not until 2018 that the Europeans finally managed to committee their banking sector into the same degree of crisis mitigation that the Americans pulled off in the first week of the financial crisis that started in 2007. At the dawn of the coronavirus crisis in 2019, debt as a percentage of GDP was higher across the board as compared to 2007. The bulk of the eurozone had been in and out of recession multiple times before the 2020– 21 COVID pandemic pushed everyone underwater at the same time. The countries that experienced credit breakdowns—most notably Greece— remain in receivership in 2022.
The only way to recover from COVID required even more debt—to the tune of another 6.5 percent of GDP.
* It is debt that will never be repaid, because not only is today’s Europe long past the point of demographic no return, but also, most of the core European countries have already aged into obsolescence, absolutely precluding any of them returning to the economic status of 2006. Europe faces hordes of problems, but if they hadn’t mucked up their financial world, the Europeans would have at least had some powerful tools to cope. No more. The entire European system is now doing little more than going through the motions until the common currency inevitably shatters.
Before you get all judgy about the Asians or Europeans, please understand that they are hardly the only ones taking advantage of the cashfor-everyone world we currently live in. The Americans are no exception.
BOOM TO BUST AND BACK AGAIN: THE AMERICAN MODEL In the pre-1971 world, the scarcity of capital meant most work in the energy sphere was managed top-down, with as few players as possible, in order to manage risk. Exxon produced the crude oil in foreign countries. Exxon shipped the crude home via tankers. Exxon refined the crude into fuel at refineries it owned. Exxon distributed that fuel to retail stations. Exxon’s network of franchises sold the fuel to consumers.
Post-1971, however, the laws of capital were, if not repealed, then certainly loosened. The new structure of capital supported risk taking almost by default. New firms popped up to handle discrete tasks such as prospecting or transport or refining rather than the full well-to-customer chain. These new firms swam alongside—or even within—the internal systems of the major energy players.
Enter Enron. In the late 1980s, Enron began its expansion with an eye to becoming the quintessential middleman throughout the American energy complex. It created natural gas “banks” that enabled it to be the connective tissue between producer and consumer. In a pre-1971 world, the cost of inventorying a product as squirrelly as natural gas anywhere but at the point of consumption would have been silly.
* But post-1971, the capital was available to try out all kinds of new ideas. Enron’s original business in natural gas expanded into oil expanded into electricity expanded into pulp and paper expanded into telecommunications expanded into data transfer.
* But Enron owned practically nothing, not even the means of transmission in most cases. Instead, Enron earned its income by buying and selling promises for the future taking and delivering of various products.
The futures market is a real thing—it provides reliability to both producers and consumers by linking them with partners before the instant delivery is required—but playing in the middle space requires some pretty sacrosanct bookkeeping.
Enron was great at bookkeeping. The sacrosanct part? Not so much. It turns out that when you don’t actually own anything or move anything or add value to anything, your sole income comes from what is in your ledger.
Enron got really good at moving things on paper, “adding value” on paper to simulate income. They were so good that many believed Enron was the wave of the future, and so bought in. At its peak, Enron was the United States’ seventh most valuable publicly traded company.
The word for what Enron did is “fraud.” When Enron introduced weather futures and changed its motto to “the world’s best company,” even the firm’s biggest cheerleaders picked up on the Danish stench. Within five months of the first leaks, Enron’s highflying stock plunged to the single digits of cents and the firm was undeniably in bankruptcy. Since the firm held so few assets, its creditors didn’t have many bones to gnaw on.
A more searing example: As the United States’ 2000–01, Enron-tinged recession gave way to a long, robust, low-inflation expansion, the American housing market grew in leaps and bounds.
Part and parcel of the American Dream is that you will enjoy a better economic life than the preceding generation. From the 1950s through the 1980s, middle-class white Americans codefined “American Dream” with “home ownership.” Via a mix of evolving cultural norms and government prodding, this aspect of the dream threw a wider net in the 1990s and 2000s. Banks played a bigger role in housing markets. Home-building firms expanded in number and reach. Government institutions more directly intervened to reduce transaction and interest costs for home purchasers.
Backed by broad-scale government, financial, and cultural forces, an entirely new sort of firm manifested. These new “mortgage origination companies” identified would-be homebuyers, provided the financing to get them into homes, and then sold the resulting mortgages on to investors.
Those investors bundled the mortgages together into packages and then sliced them into pieces for circulation on bond markets. The idea was that mortgages were the safest of investments (people will do whatever they can to not lose their home and the money they’ve sunk into it). By turning mortgages into bonds (specifically “mortgage-backed securities”), more investors of more types could put more money into the market, driving financing costs down for everyone.
With capital no longer being the restrictive factor it once was, credit terms gradually got easier. Long gone were the days when a would-be homebuyer would have to put half down. Half became a quarter. A quarter became a fifth. A fifth became a tenth. A tenth became a twentieth. A twentieth became nothing. Nothing became . . . 5 percent cash back. Credit checks became less strict. Eventually they disappeared altogether. Now issuing mortgages to clients they knew could not service payments on their new homes, the mortgage origination companies started selling their mortgages within days, even hours, of arranging home sales, for fear someone would discover the jig was up. The mortgage-backed securities quickly degraded from the safest of all investments to something even Enron would have balked at. New homeowners started defaulting on their mortgages before they had even made a single payment. It all went belly-up.
We know the subsequent economic carnage as the 2007–09 financial crisis.
An example with longer reach: The United States in the 2000s was far and away the world’s largest oil consumer and importer, making it sensitive to the ebb and flow of global oil markets. Starting in 2004, oil markets got a serious flow on. Prices quadrupled in under four years. Such a crushing increase was more than enough motivation to drive a spate of new innovations in America to generate higher levels of domestic energy supplies.
Some of these new innovations you’ve undoubtedly heard of: horizontal drilling provided access to new sources of crude that conventional production techniques could not, pressurized water injection fractured the source rock, enabling trillions of packets of crude oil to flow to the well shaft, better recycling techniques reduced the volume of water required by more than 90 percent, better fluid management removed toxicity from the system, and improved data management enabled drillers to fine-tune their operations to strike only the very specific spots that held hydrocarbons. The world knows these collective advances as either “fracking” or the “shale revolution” and collectively they made the United States the world’s largest oil and natural gas producer.
But there’s an aspect to shale most have overlooked: finance.
Developing new technologies isn’t cheap. Drilling down a vertical mile isn’t cheap. Turning that vertical drill shaft and then drilling two horizontal miles isn’t cheap. Pressurizing liquids on the surface to crack apart rock three miles down the drill shaft isn’t cheap. Getting server time to interpret the seismic backscatter in order to optimize the fracking process isn’t cheap.
Training crews to do work that has never been done before isn’t cheap. And then all the “normal” parts of the oil industry—most notably building webworks of gathering and distribution pipe and rail infrastructure—isn’t exactly free, either. All in, as recently as 2012 producing a barrel of oil from shale formations cost around $90 a barrel.
As is normal in the United States, most technological innovations in rapidly evolving industries—like shale—are made by the smaller players. If there is one thing smaller companies have in common, it is that they need help accessing capital. But combine the overwhelming American strategic and economic need for more domestic oil production in a high-price environment with the financial possibilities of the fiat currency era and this issue simply melted away. Wall Street spammed the shale patch with money: commercial loans, direct loans, bonds, stock purchases, direct cash infusions from financial groups in the form of drilling joint ventures, production hedging contracts. All these and more funneled capital into the growing industry.
In retrospect, not all of it made a great deal of sense. Shale wells tend to kick out the majority of their production in just the first several months of their twentyish-year life cycle. That tends to suggest that the capital will either be repaid quickly . . . or never. In many cases, it definitely proved to be never. Yet for more than a decade, few firms were called to the carpet.
Instead, those same small firms were able to go back to the market again and again to secure more financing to enable more drilling. The treadmill of production, production, production—but not necessarily profit—had an eerily familiar Chinese quality to it. Such repeatedly questionable financing decisions would have never been made in the world before 1971, but because they could be made in the world of fiat currencies, the United States experienced the greatest expansion in oil output in absolute terms of any oil patch, ever.
Don’t think for a moment that such profligacy in the United States is limited to finance, real estate, and energy. The last American president to even pretend to care about fiscal prudence was Bill Clinton, a dude not known for . . . prudence. On his watch, the U.S. government did indeed balance the federal budget. Then along came George W. Bush, who ran some of the largest budget deficits since World War II. His successor, Barack Obama, doubled those deficits. The next guy, Donald Trump, doubled them again. At the time of this writing, in early 2022, the next dude in line, Joe Biden, has bet his political life on multiple spending plans that if enacted would double those deficits again.
None of this—Enron, subprime, shale, or the federal fiscal deficit, to say nothing of the European common currency or modern China as a country—would have been possible without the near-limitless capital of the fiat age. Disaster Is Relative
The point of this not-so-little, historically heavy diatribe into the foibles of the fiat age is threefold: First, the fiat age has enabled economies large and small, countries near and far, to paper over their problems with cash. The factors that enable this or that place to do well in any given age—the Geography of Success—pale in comparison to a bottomless supply of low-cost capital. Sure, we’ve seen plenty of financial bubbles under fiat, but the most important takeaway is that all that money has put economic history on hold. Under fiat, everyone everywhere can be successful. So long as the money keeps coming.
Second, everyone—and I mean everyone—is doing it. The only systems in existence today that are not expanding their money supply are those that have consciously chosen to forgo economic growth in favor of price stability. Typically, these are locations that have experienced recent economic shocks and are attempting to find their footing. In the latecapitalism era, such exceptions are very few, very far between, and insignificant to the broader picture.
Third, no one—and I mean no one—is printing currency at the same rate.
Yes, the Americans have probably expanded their money supply more than is entirely reasonable, but try to maintain some perspective:
America had a record number of homes available when the subprime bubble popped (roughly 3.5 million), but that was then. The United States still has positive population growth, so people want those homes. They are not stranded assets. The generation moving into single-family homes in the 2010s and early 2020s are the Millennials —the second-largest generation in U.S. history. And about 1 percent of the housing stock is destroyed every year simply due to obsolescence, fire, and tear-downs. By 2021 the number of homes available had plunged to below 700,000, a record low. I’m not attempting to wave away poor capital allocation decisions from the 2000s, but without the subprime pulse, America’s housing issues in the 2020s would be far, far worse.
A similar balancing occurred with the shale sector. Credit terms tightened in chunks, because banks wised up, because Wall Street turned dubious, because of price shocks in the energy market that no financially strapped firm could survive. By 2022 the number of shale operators had dropped by two-thirds compared to 2016. Yes, a lot of small companies lasted far too long on the cheap credit, but their collective efforts developed an entire new generation of technologies the Americans will coast on for decades.
The American monetary expansion during the 2007–9 financial crisis was about preventing financial Armageddon. It was strictly necessary, and in part because of the crisis-related reforms, American banks are now by far the healthiest on the planet. Nor was the financial crisis expansion all that big, relatively speaking. Total monetary expansion for the entire period was “only” about $1 trillion—less than 15 percent of the money supply.
Compare that to Europe, where monetary expansion since 2006 has occurred as a matter of course in order to keep alive a banking sector that is among the world’s least stable and healthy. In under two years, the European banking crisis expansion increased the euro money supply by 80 percent. And it isn’t just about crisis mitigation. The Europeans and Japanese regularly expand their money supply whenever they have a political goal to meet, a decision-making process that encourages most people who are not European and Japanese from holding or transacting in their currencies at all. As such, their money supplies have often surpassed that of the United States, despite the fact that both the European euro and especially the Japanese yen are no longer true global currencies.
But it is China, where monetary expansion is the standard operating procedure for everything, that has truly broken the bank. Since 2007—the year everyone started talking about the Chinese taking over the planet—the supply of yuan has increased by more than eight hundred percent. Outside the mainland, the Chinese yuan is only popular in Hong Kong, and only because Hong Kong serves as the financial intersection between China proper and the rest of the world. Anywhere else, the yuan is nearly nonexistent. The Chinese economy, even by the boasts of the most ultranationalist of Chinese, is still significantly smaller than the American economy, and yet the Chinese money supply has been larger than America’s for a decade—often twice as big. So of course the yuan is a store of value for no one. Capital flight out of China to the U.S. dollar network regularly tops $1 trillion annually.
China’s financial system, paired with its terminal demographics, condemns it to not being consumption-led, or even export-led, but lendingled. That makes China vulnerable to any development anywhere in the world that might impinge raw material supply, energy supply, or export routes—developments Beijing cannot influence, much less control. China has been on this path to destruction for nearly a half century. This is not the sort of iceberg-on-the-horizon disaster that any tightly controlled, forwardthinking, competently led government should fall prey to.
So, have the Americans played a bit fast and loose with their monetary policy? Perhaps. Will that have consequences down the line? Probably. Will those consequences be comfortable? Probably not. But it is the Europeans and Japanese who have gone off the deep end, while the Chinese have swum out to sea during a hurricane and dived headfirst into the Texas-sized whirlpool that serves as Godzilla’s front door. Scale matters.
Particularly when the rules change.
At issue is that the general surge of capital availability of the fiat age is only half the problem. There is a second, more traditional factor that has amped up capital supplies and smothered capital costs in recent years. And it is in the process of imploding. The End of More, Redux Demographics and Capital
It is a simple issue of age.
From the dawn of civilization right up through the mid–Industrial Age, the various age groups—children, young workers, advanced workers, and retirees—existed in a rough balance that only changed at the margin. That made for a very stable, if very limited, capital supply. Young people borrow to fuel their spending, and there are a lot of them demanding that capital.
Mature workers tend to spend less, while simultaneously being the rich people of their societies. They have accrued wealth over their life spans, while simultaneously spending less than they did when they were young.
Their financial output—whether in the form of investments made or taxes paid—forms the backbone of every society. But simple mortality means they don’t exist in large numbers. Few savers, many spenders. Supply and demand. Borrowing costs stay high.
Industrialization changed the game. The early industrializers experienced longer life spans and lower child mortality, leading to a rough tripling of their populations. At the same time, industrialization triggered mass urbanization, which in time led to smaller families and aging populations. The key phrase there is “in time.” Not everyone started at the same time or saw changes to population structures at the same rate. As a rule, the early industrializers proceeded the most slowly.
Then the Americans used the Order to extend globalization and stability to the entire human family, China included. Every country started down the path toward industrialization and urbanization. The latecomers were able to jump over entire phases of the industrialization process, progressing directly from iron to steel, from aluminum to fiberglass, from copper pipes to PVC to flexible tubing, from landlines to cell phones to smartphones.
The later a country began the urbanization process, the faster that urbanization process unfolded and the faster that birth rates crashed.
Since the Cold War’s end, nearly all peoples have gotten richer, but more important for the world of finance, the time-compressed nature of the modernization process means all peoples have gotten older. In the world of 1990 through 2020, this has been just peachy because it meant all the richest and most upwardly mobile countries of the world were in the capital-rich stage of their aging process more or less at the same time.
Throughout that three-decade period there have been a lot of countries with a lot of late-forty- through early-sixty-somethings, the age group that generates the most capital. Their investment dollars and euros and yen and yuan have flooded out into the system, often ignoring international borders.
Collectively, their savings has pushed the supply of capital up while pushing the cost of capital down. For everything. Everywhere. Between 1990 and 2020 this broad convergence of factors brought us the cheapest capital supplies and fastest economic growth in the history of our species.
On top of the general craziness of the fiat age. On top of the hypergrowth of the Order era.
Mortgage rates have been the lowest in history and advanced governments have on occasion been able to borrow at negative rates, while the major stock markets continue to explore higher and higher ground.
Omnipresent, historically cheap capital has also pushed down financing costs for anyone who wants to start a new production line or clear new agricultural land or write new software or build a new ship. The explosion in industrial output and technological advances of the past decade or so are largely due to the combination of the lingering Bretton Woods system and this demographic moment of a huge oversupply of mature workers. And their money.
The same capital is also responsible for recent explosions of stupid. In early 2021 a bunch of gamers hurled so much capital into the video game platform GameStop that it briefly became one of America’s most valuable firms, despite being about to file for bankruptcy. Cyptocurrencies like Bitcoin are not backed by a government, are not readily exchangeable, are not useful in making payments, have no intrinsic value, and are primarily generated by Chinese magnates seeking an end run around sanctions, yet the combined value of all cryptos is in excess of $2 trillion. My personal favorite is something called Dogecoin, which was literally formed as a joke to highlight how idiotic crypto investors could be. At times the total value of dogecoins has topped $50 billion. All of this and more is textbook overcapitalization of a nearly Chinese scale. When capital is cheap enough, even pigs can fly.
Once.
Back to demographics. People don’t stop aging just because times are good. The slowly aging demography of the United States and the moderately aging demographies of Japan and the Europeans and the quickly aging demographies of the advanced developing world all converge on mass retirement in the 2020s and 2030s. And when they retire—when all of them retire at once—they will stop providing the capital that has fueled our world. At about the same time the United States stops holding up the ceiling.
Two big things come from this.
First, much of this new development generates greater production and higher consumption regardless of the underpinning realities of an economy.
This encourages government bingeing (think Obamacare or the Trump administration’s federal budget or the Greek debt crisis). This encourages consumer bingeing (think Italian bank debt or American subprime real estate). This encourages overproduction of an endless variety of products that might have questionable economics (think Chinese manufacturing or the dot-com boom/bust). Cheap credit grants people and firms who normally couldn’t be in the game the illusion of undefeatability. But what feels natural and heady and sustainable during good times does not—cannot —last forever. When the money stops flowing and financing costs increase, the whole thing comes crashing down.
Second, it is so coming crashing down. There’s no geopolitical forecast here. It is basic math. The majority of the men and women in the world’s mature worker bulge—those all-important Baby Boomers—will hit retirement in the first half of the 2020s. Retirees no longer have new income to invest.
That’s worse than it sounds for the world of finance.
Not only is there nothing new to be invested, but what investments they do have tend to be reapportioned from high-earning stocks, corporate bonds, and foreign assets to investments that are inflation-proof, stock market crash-proof, and currency crash-proof. Out with the Chinese tech start-up fund, Rwandan infrastructure bonds, and Bolivian lithium projects, and in with T-bills, money markets, and cash. Otherwise a single market correction could wipe out decades of savings and the now-retiree could lose everything. This is smart and logical for the individual, but not so hot for the broader system, for two reasons.
The first is pretty obvious. Credit is the lifeblood of a modern economy.
If you’re a company, borrowing helps you meet payroll, fund expansions, purchase machinery, and build new facilities. Every Jane or Joe uses credit every day: college loans, car loans, mortgage loans, home equity loans, credit cards. It is the lubrication that makes pretty much everything possible. Without credit, one of the few methods of purchasing goods is with cash, up front and in full. How long would it take you to earn enough to pay for your car, your college education, or your house—up front and in full?
Raise the costs of that credit and everything slows down, assuming it doesn’t simply grind to a stop. In the 2021 fiscal year, the United States government paid about $550 billion in interest. Raise government borrowing costs by a single percentage point and those payments double.
The United States government can swing that sort of increase. But what about Brazil? Or Russia? Or India? Let’s make this more personal. Raise the interest rate on a standard mortgage loan by 2.5 percent—which would make mortgage rates still well below the half-century average—and your monthly payment increases by half. That’s more than enough to put home purchases out of reach of most people.
The second is less obvious, but equally as noticeable. Mature workers don’t only generate a lot of income and capital; they pay a lot of taxes. The world in general and the advanced world in particular has had loads of mature workers in recent decades, making government coffers the flushest they have ever been. That’s great! It pays for things like education and law enforcement and health care and infrastructure and disaster relief.
Or at least it’s great until those mature workers retire. Instead of paying into the system, retirees draw from the system in the form of pensions and health care costs. Replace a tax-heavy, mature-worker-heavy demographic of the 2000s and 2010s with the tax-poor, retiree-heavy demographic of the 2020s and 2030s and the governing models of the post–World War II era do not simply go broke, they become societal suicide pacts. Once again, recent decades have been the best time in human history, and we are never going back. Even worse, we’re not looking down the maw of a return to 1950s-style government services—at that point there was relative balance between young workers, mature workers, and retirees. For much of the world, we’re looking down the maw of 1850s-style government services before most governments even offered services, but without the attendant economic growth that would allow populations a chance to take care of themselves. A Credit Compendium
Add the extravagances and exaggerations of the fiat era to the excesses and eruptions of the demographic moment and we have experienced the largest credit surges in human history. In the United States we know the biggest chunk of those surges as the subprime era. From 2000, when the subprime industry was birthed, to 2007, when it ended, total credit in the United States roughly doubled. The ensuing crash from such irrational exuberance knocked roughly 5 percent off of U.S. GDP in the two years before the economy found its footing.
Doubling of credit. Five percent economic drop. That’s a good baseline.
Now let’s look at everyone else . . .
Everyone has heard about the mess that is Greece. The Greeks were admitted into the eurozone despite not meeting . . . well . . . any of the requirements in regard to debts and deficits. They then proceeded to act like a college dropout wielding a distant stepparent’s platinum credit card. Total credit expanded by a factor of seven in just seven years. The bill eventually came due, the country crashed, and during the following three years the Greek economy proceeded to implode by twice as much in relative terms as the United States did during the Great Depression. By 2019 things were looking . . . if not better, then at least not quite as bad. Enter COVID. As a tourism-dependent economy, Greece once again dropped into free fall. If the country continues to exist at all, it will be as a ward of someone else.
Germany, unsurprisingly, is the polar opposite. The Germans are remarkably conservative in their financial dealings, both as a people and a government. Qualifying for a mortgage first requires making regular mortgage-like payments into a sequestered bank account for several years to prove attitude and bona fides. As such, the Germans avoided the sort of catastrophic financial collapses that bedeviled much of Europe in the 2007–9 financial crisis. One result among many was that the German economy bounced back first and fastest, leading firms across the Continent to put their eggs in the German basket while the rest of Europe withered. Two cheers for the Germans! But only two. The establishment of all things German at Europe’s center bred resentment throughout Europe.
A far from insignificant amount of that resentment put down roots in the United Kingdom, where the 2007–9 financial crisis emboldened economic and ethnic nationalists to push for separating the kingdom from the European Union. As part of the ensuing struggle, Britain’s political right and left both imploded. Populists ultimately took control of the British political right and led the kingdom through the haphazard process we know today as Brexit, while the left fell under the control of barely whitewashed neofascists for a time.
The credit build in Hungary in the 2000s was among Europe’s biggest, expanding by a factor of eight. Much of that capital flooded into the housing market in a way that would make American subprime financiers blush, putting people with minimal income or credit histories into homes they could not pretend to afford. Making matters worse, most of the loans were in foreign currencies, so when the inevitable currency swings occurred, even Hungarians who were able to afford their homes under normal circumstances suddenly saw their mortgage payments double. The ensuing economic and financial chaos hardened the political landscape against outsiders of all flavors, enabling Prime Minister Viktor Orban to seize control of the country’s entire financial and political space. For all intents and purposes, as of 2022 Hungary is no longer a democracy.
Singapore has a big credit signature, with a fivefold increase in credit since 2000. But Singapore is a financial center and so is constantly investing in places outside of itself. Much of its “private credit” is wrapped up in foreign economies. Additionally, Singapore has a government investment agency—Temasek—that is responsible for funneling a lot of the city-state’s money into projects abroad. Factor those items out and the picture doesn’t look all that bubbly. That said, Singapore sits on the Strait of Malacca—the world’s busiest trade route—and serves as the world’s largest transshipment center, to such a degree that its fuel tanks hold and manage the distribution of so much petroleum that they constitute a global price standard. Should anything happen to the velocity of global trade, Singapore’s trade-centric economy could not help but suffer in the short term regardless of how well managed the city-state’s finances happen to be.
With the combination of a fairly diversified economy, government policies welcoming immigration, and a bevy of mineral reserves big enough to feed insatiable Chinese demand, Australia has avoided recession for a generation. Others noticed, and foreign money has spammed into the country to take advantage of the longest continuous period of economic growth in human history. That has turned the Great Down Under into the most overcredited of the Western countries to not yet experience a credit collapse. Credit has increased sixfold since 2000. Housing and household debt are of course the expected bugaboos, but the credit inflows have pushed the Australian dollar up to uncomfortably unsustainable highs, eroding the competitiveness of every economic sector outside of mining. Any effort the government has taken to decrease demand with regulatory hammers has been overwhelmed by a tax code that not only encourages property ownership, but in fact encourages those already owning residential property to purchase more. This would be a problem anywhere, but in Australia it is particularly acute. Oz might seem like a place with a lot of land, but the Outback is beyond useless to residential real estate.
The vast bulk of the Aussie population lives in fewer than ten largely disconnected metro regions, sharply limiting availability and driving up the cost of building new housing inventory. This will blow. The question is when?
In Colombia credit expanded by a factor of five in a single ten-year period beginning in 2003, but everything about Colombia is a special case. Enmeshed in the Western Hemisphere’s worst civil war for the better part of the past century, a particularly violent period pushed the economy (credit availability included) off the cliff in the late 1990s.
Much of the 2003–14 credit expansion went hand in hand with progress in the war: as the Colombians reformulated and consolidated their political space and military strategy, the government succeeded in boxing their military opponents into smaller and smaller enclaves, until securing an ultimate peace deal and de facto surrender in 2015. This political and military recovery was mirrored by an economic recovery. Colombia’s credit “binge” was, if anything, about regaining lost ground. The challenge moving forward will be to win the peace by demonstrating to those on both sides of the war that not shooting at one another is good for business. The most likely path? Easy credit for all, to spark infrastructure development and consumer activity.
Colombia’s credit binge isn’t in its past. It is in its future.
Indonesia is a country I tend to be bullish about for a mix of reasons: a large, young, upwardly mobile population; a government that by design focuses on the densely (over)populated island of Java, enabling it to concentrate its efforts on a fairly specific and politically unified geography; broad-scale energy security; an excellent location astride the world’s most prolific trade routes; and proximity to the massive mineral and agricultural exporters of Australia and New Zealand on one hand, and to the complementary industrial and financial partners of Singapore, Thailand, and Malaysia on the other. To this I add a surprisingly conservative credit profile. Yes, overall credit in the Southeast Asian country has risen by a factor of more than seven, but economic growth has outpaced it. Back in 2000 overall credit was equal to GDP—something that would normally be more than a little worrying for a poor, sprawling country like Indonesia. But despite year-on-year rises in absolute credit for the next seventeen years, the ratio of credit to the overall economy has actually fallen by a third.
Indonesia still faces a bevy of significant challenges—insufficient skilled labor, rickety infrastructure, corruption (which sits either near the top or at the top of the list)—but the country’s overcrediting is far less concerning than the headline figure would suggest.
The credit picture of Brazil is a reasonable echo of Greece: a sixfold increase, peaking in 2014. In that year investor sentiment and the Brazilian political system broke at the same time, triggering a political crisis and deep recession that at the time of this writing shows no sign of abating. Making matters worse, Brazil’s constitution and currency only date back to the 1990s. Not only is this modern Brazil’s first true political and economic crisis, but it is a full-blown constitutional crisis that hits at the very bedrock of everything that makes Brazil Brazil.
Assuming for the moment that the Brazilian political system regenerates in short order (and there is no sign of that) and that Brazil’s governing institutions suffer no additional damage (and that seems sheer fantasy), Brazil faces years of severe recession simply to recover from their credit overexpansion. Brazil isn’t looking down the maw of a lost decade, but instead at two. At least.
Given that it has been the world’s largest oil exporter for the past fifty straight years, the word “credit” isn’t what normally comes to mind when one thinks of Saudi Arabia. Yet the Saudis have quite successfully leveraged their oil income stream to acquire rafts of credit for all portions of their system, generating a credit boom of 750 percent since 2000. As this credit is backed by unrelenting income, it probably is not as problematic as the situation in Brazil or Australia— and certainly not as bad as Greece. But most of the credit has gone either to vanity projects in the desert, or to subsidies for the population in order to purchase citizen loyalty. When the flow breaks—and it will —that loyalty will crumble. Luckily for the Saudi leadership, the country’s internal security services are among the world’s most effective . . . at quelling dissent.
Credit in India is up by a cool factor of ten since 2000, with barely a dip along the way. The steady drumbeat of economic expansion has made India a far calmer place politically than its constant bouts of famine and religious and racial churn would suggest. When the correction inevitably arrives, it will be epic. I’m perfectly capable of being bullish on India for reasons geopolitical and demographic, while simultaneously warning of a helluva financial crisis.
In Turkey the picture is getting complicated. Between 2000 and 2013, total credit increased by more than a factor of twelve—one of the sharpest and most sustained increases in the world. The boom granted Prime Minister (and now President) Recep Tayyip Erdogan the political capital required to consolidate control over an often-fractious system, ending decades of uncomfortable cohabitation between his own Anatolian religious conservatives, the pro-Western modernizers of the Greater Istanbul region, and a secularized military that saw itself as the guardian of the state. Now there is only Erdogan. But in 2013 the credit expansion stopped in its tracks. The loss of economic legitimacy, the pressure of 3 million refugees from the Syrian civil war, and rising geopolitical hostility from and toward Europe, Russia, Iraq, and the United States mean Erdogan’s rule has become brittle, harsh, and increasingly authoritarian. And all that before Turkey suffers the inevitable credit correction.
At the time of this paragraph’s addition on February 28, 2022, Russia is being melon-scooped out of global finance as punishment for the Ukraine War, the Russian Central Bank included. By the time you read this, the world will have a fascinating, horrific case study of true financial disintegration. Nor is Russia done. Beset with a population aging into decrepitude and a system that has given up educating the next generation, Russia’s credit collapse is but one of a phalanx of factors capable of ending the Russian state. The question isn’t will the Russians go out swinging—Russia’s invasion of Ukraine is testament to that—but instead, who else will they swing at? Over-credited countries beware. Credit collapses can be caused by any number of actions or inactions. They do not require a war. Or sanctions.
Not to belabor the point, but the absolute financial blowout that is China has generated the largest and most unsustainable credit boom in human history both in absolute and relative measures. The Chinese will exit the modern world just as they entered it: with a big splash.
The only question is when. If I had the answer to that you wouldn’t be reading this book, because instead of struggling through edits I’d be idling away my days on the Peter Virgin Islands. Finagling Future Financing Failures
Between fiat failures and the demographic crunch, the days of cheap, easy, omnipresent finance are ending. Impacts and outcomes will vary not only in nature, but also in application.
We of course need to begin with changed Geographies of Success. In any capital-constrained world, more money tends to be applied to locations and populations that have a lot of low-hanging fruit. Infrastructure is easier and cheaper to construct and maintain in flat, temperate zones than in mountains or tropics. Similarly, it is easier and cheaper to maintain skill sets for populations that are already educated than to boost low skill levels.
Under the high-capital environment of the late Order, these sorts of simple rules blurred because there was just So. Much. Money! That is ending. In the 2020s and 2030s and beyond, the more familiar patterns we’ve seen throughout history will reassert themselves with a vengeance, with some regions better able to generate and apply capital than others. Northern Europe over southern Europe over India over Russia over Brazil over the Middle East over sub-Saharan Africa.
Technology is going to be a mess. Server farms, smartphones, and software don’t just magically manifest. They are the end results of thousands of concurrent and often unrelated trends. Most broadly, a healthy and growing technology sector requires a massive market to generate revenues and fuel development, gobs of skilled labor to do the brain and implementation work, and a near-bottomless supply of financing to fuel research, operationalization, and mass application.
All three of these broad categories face evaporation. Deglobalization will shrink the global whole and shatter what remains into segregated markets. Global aging is collapsing the skilled labor supply. And financial shrinkage will make everything more expensive and more difficult. Perhaps the worst aspect will be that as capital and labor supplies shrink, the projects that get funding will be those that can slim down their employment profile the most—particularly when it comes to the sort of manufacturing that would normally be outsourced to low-labor-cost locations.
We are going to reach a new e-quilibrium, but it is not going to be a techtopia that raises all boats. Countries that have not yet been able to get involved with the technology sector at all now can’t even try. Others that had a foot in the door are going to lose their feet. It will be less a story of developed countries’ richness and the developing world’s poverty, and more a story of a handful of developed countries’ richness and everyone else’s nothing.
Expect to hear a lot about capital flight and capital controls. In the more or less unified world of the Order, capital can fly back and forth across borders with few limitations. Very few countries have meaningful restrictions, because of a general realization that any steps taken to slow the flow of capital in or out will starve the country of investment, and that has costs: in economic growth, employment, tourism, technological transfer, and opportunities to participate in the modern world in general. Historically, such openness is as abnormal as everything else in the world of the Order, and for the same reasons. “Normally” the world is a bit of a rat race, and capital is something to be hoarded.
The bad ol’ days of such capital shortages are coming back. Add in a dozen or so fat dollops of insecurity and instability and you can expect people in much of the world to attempt to relocate their money—and in many cases, themselves—to greener and safer pastures.
Capital flight is already a feature of the late Order. The United States’ mostly well-earned reputation for having a hands-off approach to private capital has made it the undeniable global financial hub. The Chinese hyperfinancialization model (and to a lesser degree, similar financial systems throughout East Asia) has sent irregular bursts of cash into the United States. European wobbles since 2000 provided even more. Data on this is extraordinarily hard to come by and even more difficult to vet, but a good guesstimate is that since 2000 somewhere between $1 trillion and $2.5 trillion of foreign money has flowed into the United States each and every year. As the gap between American growth and stability and global depression and instability widens, expect that figure to inflate. A lot. That’s great for the Americans, and promises to take a bit of the heat out of rising capital costs, but it is a potential disaster for the countries the money will be coming from. Rapidly retiring populations increase demands for state spending, while shrinking working-age populations simultaneously gut government capacity to raise funds. Anyone looking to ship their money out will be viewed as borderline traitorous. Restrictions on such flight—aka capital controls—are the solution.
Outcomes manifest quickly. When firms don’t think they will be able to get their profits out of a foreign country, they are far less likely to have any interest in operations in that country in the first place. The biggest risks to capital will be in the places with the fastest-aging populations as well as those with the most rapidly retiring workforces: Russia, China, Korea, Japan, and Germany, in that order.
Inflation will be all over the place. A quick economics lesson: Inflation occurs when costs rise, and can be caused by any sort of disconnect in supply and demand: supply chain disruptions when someone hijacks a container ship, a young and/or hungry population that needs more housing and food, fads where everyone must have a Cabbage Patch doll, or when a monetary authority expands the money supply to deliberately increase demand. Inflation levels below 2 percent are generally considered okay, but anything above that becomes less and less enjoyable.
Disinflation is a very specific sort of price drop. When your smartphone or computer gets an update that enables you to do something better and quicker, that’s disinflationary. It’s the same when a new oil field or car plant or copper smelter comes online and increases supply. Prices drop, but the relationships that make up the market are not unduly tweaked. Most folks love a bit of disinflation. I know I sure do.
Then there is deflation. Prices drop, but it’s because something is very, very wrong. Perhaps your population has aged faster than your housing market or industrial plant can adjust. Cratering demand generates an oversupply in something basic, like electricity or condos or electronics.
Markets cannot adjust without amputating part of the production side, which hurts workers, which reduces demand even more. Some version of deflation has been plaguing Japan ever since its economic crash in the 1990s, and the European Union ever since the 2007–09 financial crisis, and it is probably already endemic in China, where increasing-production-at-allcosts is the state mantra. So, with that under your belt, let’s talk about the future.
Monetary expansion is inflationary. Endemic capital shortages inject inflation directly into finance. The falling consumption of an aging population is deflationary, while breaking supply chains are inflationary.
Building new industrial plant to replace international supply chains is inflationary while the process is under way, and disinflationary once the work is completed. New digital technologies tend to be disinflationary, unless international supply chains are needed to keep them running, in which case they are inflationary. Currency collapses are inflationary in the countries that suffer them as everyone shifts from cash to goods they can hoard, but such collapses are disinflationary in the countries where fleeing capital seeks succor. Commodity shortages are pretty much always inflationary, but if the shortage is caused by a supply chain break, then they can be deflationary near the commodity’s source, which means lower prices, which leads to lower production, which leads to higher prices, which are once again inflationary.
* My bottom line here is a total cop-out: the future of the . . . -flations* will be different in every region, every country, every sector, every product, and will change wildly, based on a wide variety of factors that can barely be influenced, much less predicted. I would hate to be a bond trader.
Expect a lot more populism. The global demographic is aging rapidly, and most older folks are rather . . . set in their ways. But more than that, retirees are dependent upon their pensions. Most pension schemes are funded either by tax revenues or by dividends provided by large-scale bond holdings. Bond-related income tends to be low and stable. That means retirees need stable prices. Bond-related income streams tend to break down in prolonged recessions. For many (most?) countries, a depression lasting a decade or two is pretty much baked in at this point. Between deglobalization, demographic collapse, and the coronavirus, most countries will never recover to where they were in 2019. Most pensions are going to fly apart in a world of rising and variable inflation levels.
As a voting bloc, retirees don’t so much fear change as endlessly bitch about it, resulting in cultures both reactionary and brittle. One outcome is governments that increasingly cater to populist demands, walling themselves off from others economically and taking more aggressive stances on military matters. Did you wince at your parents’ and grandparents’ voting patterns before? Just imagine the sorts of loons they’ll support should their pension income fail.
There will be American exceptions. The world’s best geography will keep development costs low. The rich world’s best demography will make America’s capital cost increases less onerous. The rise of the American Millennials suggests that by the 2040s—when the Millennials finally age into that capital-rich age bracket—capital supply will once again rise, taking the heat out of capital costs. The relative conservatism of American monetary policy combined with the U.S. dollar’s status as the sole reserve currency grants the Americans more wiggle room in compensating for capital loss and guarantees the Americans the largest proportion of capital flight from a troubled world.
And, oddity of oddities, America’s ongoing inequality issues might actually provide some help.
Remember how people’s income increases with work experience, and how the proportion of income that is invested similarly increases? That happens with the rich just as it does with “normal” people. Where the two groups diverge is at retirement. “Normal” retirees have to shift their holdings into low-risk investments because they cannot tolerate volatility, but rich folks have so much stored up that they do two things differently.
First, the ultra-rich only need to preserve a fraction of their holdings to maintain their lifestyle. They can tolerate a much higher risk level and so keep much of their investment portfolio—typically well over half—fully engaged in stock and bond markets. Second, the rich are far more likely to realize they can’t take it with them, and there’s no reason to die with $100 million in the bank. They tend to start transferring assets to the next generation or charities long before they pass on. In most countries these differences do not move the needle very much, but in the United States the top 1 percent controls upwards of half of all financial assets. If just half of the 1 percent’s capital in the American stock and bond markets is not liquidated and remains engaged (or is transferred to younger people, who will deploy the capital following more normal patterns), then the general shift to a capital-constrained environment won’t be quite so jarring. But this only holds true in advanced countries with large capital markets and screaming inequality. That is a list of exactly one. A large volume of mobile capital cannot fix everything, but in a world of constrained capital? Solid start.
If none of this sounds particularly capitalistic, that’s because it is not.
The environment that allowed capitalism to exist is part of the “more” we’ve all become used to, and it is highly questionable whether capitalism can exist without ongoing economic growth.
My point isn’t that capitalism is dead, but instead that even the Americans, the youngest and richest advanced population in the world—the people with the most “more” of all—are already eyeball-deep into the transition from a capitalist, globalized system to . . . whatever comes next.
On top of that, if what we know, or at least what we think we know, is already fading away in America in the here and now, then what hope does the rest of the world have for figuring out the future? Now that everyone is cheered up, let’s talk about what happens when the lights go out.