Hello and welcome to another episode of the Silk and Steel
podcast. I'm your host, Carl Zaa.
Today I have back on the show Mr. Warwick Powell extinguished
Professor from Australia. Professor Warwick, you are very
much requested on my show. Many people love the appearance.
There's a couple things I want to talk to you about today at
first. First, let's talk about the
recent news that the Trump she call.
What do you think that is about and what do you think he
actually portains any change in the US China relationship?
I think that there's a few things.
Well, it's good to be with you so well, it's nice that that
your community, our viewers, you know, thought that I was worth
listening to. So that's, it's very flattering.
And in fact, you know, if, if people don't think flattery
works, it's because they've never been flattered in their
lives. So, so, so thank you again.
What can we say? The the first thing I think of
interest, and perhaps it's a bit of passing interest before
getting into the substance of it, is that there was a lot of
excitement yesterday on the news of the, the phone call.
Not so much it's because there was a phone call, but because
the media in the mainstream at least broke that.
The call was initiated by the China side and and a whole bunch
of people jumped on that and got very excited by all of this, you
know, waxing on about them, how it's the first time since 1991,
etcetera, etcetera, etcetera. Well, 24 hours later and having
allowed the dust to settle, both sides actually acknowledged that
the call was initiated by Washington, not by Beijing.
So in some respects, all of that excitement was for naughty.
I guess the lesson out of all of that is before folk jump to any
of these sorts of grand conclusions that perhaps they
should just take half a step back, take a take a few deep
breaths, go for a walk, and then have a look at what actually
happened in the, in the coolness of of of day.
Let let time pass a little bit. The IT probably also says
something about how the mainstream Western media is
chronic, is perpetually looking for some angle on something
right? And to a point where they're
making so much stuff up these days, it's hard to keep up with
what's going on. The substance of the call I
think clearly dealt with probably 2 main things.
One was in some respects a follow up operational call post
Busan and the agreements reached in relation to the, the, the,
the trade related issues. And, and clearly those issues
were primary of concern in so far as President Trump's own
social media readout was concerned on the China side.
It touched on those issues. But it also was quite specific
that the question of Taiwan was raised.
And it was raised in the context of an an historical dynamic.
And that is that the United States and China were actually
allies in the war against Japanese fascism and aggression.
And that the resolution of the Taiwan question, particularly in
the context of the Japanese Prime Minister's recent comments
about Taiwan, that the resolution of the Taiwan
question is actually a finalization of the post Second
World War settlement. And therefore, President Xi was
drawing a very strong thread of continuity between the AL
alliance in the Second World War against Japanese aggression and
the finalization of China's reunification.
Now, I don't think that that necessary changes anything in a
daily sense, but quite clearly the the the the Chinese framing
of the Taiwan question vis A vis the United States and Japan
within that broader historical arc, I think is is worth noting.
I don't seem to recall that particular framing ever been
emphasized, certainly not for a long, long time.
If in fact it had been funnily enough, and perhaps not so
funny, perhaps predictably enough, a whole bunch of folk,
you know, who are hostile to the idea of Chinese urine
unification and who are mainly Westerners in favour of, of
Taiwanese independence leapt on this and saying, you know, this
is outrageous. You know, the, the allies during
the Second World War was, was actually the, the Roc and, and,
and the KMT and the United States, not, not the Communists,
you know, I mean, that's a, that's, that's a pretty cheap
trick to play really. Because at the end of the day,
the war was actually between countries.
And, and if you wanted to follow the logic of those folk, you'd
actually say that the Americans were never involved in the war
either. But it was actually a war
engaged in by the Democratic Party.
So, so China was an ally of the United States during the Second
World War. And, and, and that's the end of
the story, right? It continues all the way through
because guess what? Regardless of which side of the
civil war you landed on, you both think that you're fighting
over the one China and, and you both still think that there is
only one China. And you both actually still have
the view officially that the civil war hasn't concluded.
So, you know, I think we are moving inexorably towards a
resolution of the, of this question, this historical
question and, and perhaps the call between XI and Trump and
the way that it was framed from the Chinese side was in many
regards laying the groundwork for this next chapter that to
bring, to bring to bring to an end this, this loose thread.
Yeah. And I think, I think you're
right. This is the first time China
bring up the historical settlement of World War 2 and US
and China should be upholder of the post war global framework.
But we more recent years China had used similar language with
Russia, for example, that that is more in reference to, you
know, kind of the historical revisionism that's going on in
Europe about Soviet Union's role in defeating Nazism.
And, and, and, and this is first I seen this has been kind of
applied to East Asia and also what China want to emphasize.
What's that? Taiwan was returned to China at
the end of War 2. You know, people should not
forget that. And you know, a lot of people
try to ask you skate around the issue like you mentioned.
They, they, they say, oh, Roc was, was a victor of the war,
not the Communist. So, so this has nothing to do
with the communist. But as far as the government in
Beijing concerned, you know, it's all China.
China was Taiwan was returned to China.
That is the end of the story. Now what what we have right now
is a is a a, a, a issue that's from from from from history
that's to be resolved between Chinese people on both side of
the Taiwan Strait. This has nobody else should be
butting in and and interfering a Chinese internal matter.
And and this in particular is a reference to recent statement
made by the Japanese Prime Minister Takaichi and and it
looks like he immediately follow the Xi Jinping Trump call.
Trump actually made a call to Takaichi and, and according to
the Japanese read out only thing they said was that the talk was
friendly, but they release no details other than that.
So I, I, I, it almost seems like Trump made a call to Japan and
telling them, OK, you got to calm down.
We don't need to stir up another big flash spot in East Asia at
this particular point, which seems to give credence to the
the view that right now US is doing a tactical pivot, you
know, not a strategic pivot, but a tactical pivot from East Asia
to to elsewhere, maybe to Venezuela or to Nigeria and
Africa. Do you think this pertains to a
a, a, a a possible day, Tom, between US and China at this
point, at this juncture? And I suspect not the what what
what I think we're saying is a recalibration of means and
method rather than strategic objectives.
So the United States has for a long time had a strategic view,
its national security doctrine, which in essence says that the
security of the United States is contingent upon American
dominance of the world. And that includes, of course,
its position in in East Asia just as much as it included its
position in Eastern Europe. So if you looked at the map, you
do see the United States bookending the Eurasian
continent and ensuring that the peripheries on those on those
bookends were fragmented and divided in ways that would
destabilize the the other great powers in this landmass.
So I don't think the United States has actually shifted its
strategic objectives, which is global hegemony and in in the
name of American National security.
What it has had to do is confront reality.
And it's reality is defined by the fact that it is not now in a
world where it no longer is the unquestioned unipolar hegemon.
That's the first thing we have seen on the European end, the re
emergence of Russia as a great power.
I mean, Russia's always been a nuclear power.
Let's never forget that. But in so far being a an
economic power, a cultural power, a diplomatic power and
arguably A civilizational power, this has been a relatively
recent turn of events. It's certainly far north and a
gas station masquerading as a country.
The second thing is, is that China's emergence over the
course of the last 80 years to a point today where it is in many
respects a peer of the United States and in other respects is
more than a peer of the United States, I think has reshaped the
the question of the balance of power.
So the United States is seeking to modulate how it pursues its
strategic objectives. And it's doing that in large
part by cultivating proxies to carry on the burden, to take the
brunt of any of the of the pressures that come from being
at the front line and to carry some of the financial costs as
well. And we've seen how that's played
out tragically in Ukraine. And clearly, in terms of how
it's mobilizing Japan, the Philippines and Australia, it's
seeking to do similar things. So I don't think the United
States has fundamentally at this point in time, come to a view
that it's in the business of reframing coexistence with
China. It does still seek, particularly
if you spend time reading through the think tank reports
as well as the testimony given to congressional committees, the
the American body politic remains hot and bothered about
China's development and its growth, and it will seek to do
whatever it can to contain it at best, or, if it can possibly do
so, retarded. That's where I think things are
at. Now I now that I want to ask you
that, well, it's obviously America's interest to shift the
burden to its vassal states like Japan and Europe.
What, what is it in it for the vassals?
What's in it for Japan, for example, to stir up the latest
tension with China over prime Japanese prime minister's remark
over how Japan might deploy military to a situation in
Taiwan? Like, why?
What does Japan gain? Or, or I should say, what does
these Japanese politicians gain from picking up fight with China
at this particular juncture? Yeah, look, I think that there's
a few layers to all of this, of course.
So at an individual level, the new Japanese Prime Minister, who
came to office through an internal party ballot, needs to
consolidate her position. She comes from the right wing
end of the political spectrum. She has a history of being an
advocate for historical revisionism both around the
Second World War, broadly speaking, but also in terms of
Japanese atrocities in China. So she comes from that part of
the political spectrum and in the processes of assuming the
prime ministership needs to consolidate that.
In part. I think that this is part of the
calculus, right? The second thing, of course, is
that there's always muscle memory, institutional and
political muscle memory. And we see this in in many
vassal or or quasi vassal countries where political elite
ultimately internalize a particular way of thinking about
their interests, meaning their country's national interests in
ways that subordinate that to the interests of the United
States. So the basic sub imperial
reaction is that what's good for the United States by definition
is good for us. So I think in part this is a a
muscle, a memory or a reflex manoeuvre.
The third thing though is that I think the Japanese strategic and
security and even economic institutions are concerned that
in fact Japan is quite vulnerable both economically and
in a security sense within the region.
And this is this, this recent intervention is, is an attempt
to gain attention, you know, don't forget us, and to Curry
favour, which is to reinforce the idea of don't forget us.
Let's not forget the United States still has something like
55,000 troops in Japan under extraterritorial provisions.
And, and so in some respects, the Japanese remain very
dependent upon the United States for for the provision of
security. In broader regional terms, the
Japanese economy is facing some, you know, significant headwinds.
It's not in a particularly healthy state and and it really
needs to find a way of improving its economic performance.
And from a prime minister's point of view, part of the
political problem is if the economy doesn't improve, you
tend not to last too long anyway.
The second issue I think, which I think is kind of counter
intuitive in so far as these recent interventions go, is that
Japan also faces big issues with regional security, particularly
the the Korean Peninsula and the DPRK.
You know, ruffling China's feathers and undermining the
collaboration that you might have with China as a good office
does not actually help the Japanese stabilize its
relationships in the area or stabilize the region more
generally. And I think that there's a
longer term set of problems too, which I'm not sure the Japanese
political elite have really thought hard about.
Perhaps they're a bit too long term.
And that goes to food and energy security.
Japan is a major importer of energy.
Over 90% of its energy needs are imported.
It imports the majority of its food as well.
And it needs to find a way of stabilizing these critical
inputs. Otherwise it's social stability
will progressively diminish to a point where its economy and
society will cease to function properly.
And all of that, I think places incredible pressure on Japanese
policy makers because in many regards, the things that have
given Japan comfort for, you know, 60-70 years are things
that are stopping its ability to resolve its future problems,
right? So it's right in the middle of a
contradiction at the moment. I, I mean, I, I, I, I'm in
complete agreement about the, the, the, the pending implosion
of the Japanese economy, but wouldn't stirring up trouble
with China worsen that situation?
You know, like for example, the the Japanese tourist tourism
industry is immediately hit in the aftermath of this, this,
this, this, this rising of tensions and, and tourism of
composable 7% of the Japanese GDP.
And how is that going to help to have this rising tension with
China when a lot of Japanese firm, you know, still depending
on the Chinese market for example?
Well, it's not right. So this is the classic
contradiction that Japan finds itself in now and it's being
squeezed economically by Washington through the
imposition of tariffs, demands on Japanese investing surplus
dollars into the American economy under the the guidance
of President Trump. So the Japanese policy makers,
if you will, and politicians of course, as a consequence, I
think are actually in a very, very difficult historical
position. And as I said, the legacy of
what gave Japan its comfort for the past seven decades or so
since the end of the Second World War are actually the
reasons that inhibits the ability of of Japan to navigate
a pathway through its challenges into the future.
Japan's long term economic interests are fundamentally tied
to the region. And, and what that really means
is that it needs to find a way of existing within a region
where it benefits from regional stability whilst contributing to
regional stability. At the moment it can't do any of
that. And and so it is trapped by
these muscle memory reactions coupled with I think that's very
immediate political dynamics, which goes to the revitalization
of nationalism, the sort of political inclinations of the
current Prime Minister given her political pedigree and those
sorts of things. But none of this helps Japan in
the long run. Let let me see if I understand
you correctly by so you're saying Japan's success is this
post war in large part depending on its partnership with United
States, you know, access to the US market in particular.
And but now with with the the the power balance is shifting to
the east with Asia Pacific becoming the most important
dynamic region economically. Japan is having difficulty
making that transition from depending on United States to to
reorient itself to Asia. Is that is that what you're
trying? To say that's right and, and
look, the, the, the, the big issue is it needs to reorient
itself to Asia is around energy and food mixing with, of course,
regional stability and security. When it, when it imports 90 plus
percent of its energy resources, it needs to find access to cheap
energy, right? Cheap and stable energy.
Surprise, surprise, it actually has dispensation from its
Western allies to to continue with getting its gas from the
Sakalin project with the Russians.
But that's but that's just a symptom of its problems, right?
You know, with the United States at the moment pushing its
European allies to essentially become a an American gas client.
It, it, the last thing Japan needs is to be trapped into that
environment as well, because that's just going to be
expensive energy And, and it needs to find a way to having
more independent, cheaper, more reliable energy.
And there's only one. Well, there's a couple of
pathways, right. One of them is of course through
upgrading nuclear capabilities. In the event that it could do
that, it would also need to look at the, the role of renewable
energy Allah, China. And of course it needs to
access, you know, gas and, and it's best source of gas is
actually from, from the Far East of, of Russia.
You know, that that's actually where Japan's future should be.
If Japan had a blank slate to work from, I would think it
would be working at ways of deepening its connectivity into
northern China, into Siberia, because those parts of the world
are actually rich in food and and food capabilities,
agricultural capabilities and of course, energy.
With with the warming of the Arctic, you'll also find that
that that part of the world will become even more accessible as
time goes by, particularly for agriculture and also for energy
as well. But Japan's trapped.
It's trapped by post war arrangements.
It's trapped by the fact that it can't see its way out of its
military alliances with the United States and consequently
is being pulled. Hit her and thither.
That is a very, very incisive insight.
So now I want to pivot to your recent articles that you have
written for your sub stack. I know you are very prolific
writer. You know, you have, I saw you
have many new articles now posted on your sub stack.
Maybe, maybe you can give us my audience just a general rundown
of your thoughts. Yeah.
Yeah, look, well, I'll start actually with with, with the
fact that I learned to touch type when I was 16.
And and that's been incredibly helpful.
At the time when my father made me go and learn to touch type on
a computer, I thought that it was a stupid thing to do.
But, but I guess that's just another example of where those
older than you are often wiser than you.
I also was fortunate enough to benefit from a working
environment where I was forced to initially, but ultimately
developed an ability to dictate, which allows you to be quite
productive. OK, so so in that sense, it
helps me take all the crazy ideas that are racing through my
head and turn them on to words on a screen reasonably quickly.
The body of work really focuses on a series of interrelated
themes, and the themes really are anchored by something that
I've come to call either a systemic exchange value
framework of thinking about economic systems or probably in,
you know, more interesting or more marketable terms, this idea
of thermoeconomics. And that's the idea that human
societies, economic systems are fundamentally material in
nature, and they involve energy transformations, right?
We are natural. This is how nature works, and
the substrate of our societies and our economic systems is
actually how we harness energy from nature, mobilize that
through work, and create new forms of energy that are
actually useful for human societies, both in short term
terms and also in terms of the institutions and the resources
that we make available for things that go beyond
reproduction. So there's a very materialist
view, if you will, around our economic systems.
Intersecting all of this is the idea that we have monetary
considerations. And I guess my starting point on
questions around money really derives from very early on
thinking from the the 1800s and even into the 1900s, which views
money in some respects as an endogenous feature of economic
systems and is in large part a claim on the future, right.
So I don't sort of view money as a thing that people have, let
alone a thing that's that we have scarcity about because we
have to find that in nature. But money is really a, a promise
that we make that enables us to exchange for things in the
future. So it's, it's a claim into the
future. And the third part of all of
this, which is the bit that actually always interested me
far more than the other elements, is the role of
information. So information systems actually
hold all of this together because without that, these
different circuits, if you will, of monetary autonomy, of
material and energetic transformations in the world
don't coordinate properly. And, and when they don't
coordinate properly, by the way, and we have major problems,
right? So we saw that in the global
financial crisis, when the monetary circuits essentially
spun off into orbit, they became totally detached from the
ability of the real world to to keep up.
And, and once there were more claims being made on the future
than the future could deliver, we started to get crises.
But we also have other kinds of crises too.
And the fundamental crisis that we constantly face is this
tension between this idea of entropy, right, which is the,
the, the complexity of systems and the breaking up of, of
systems with, and that's part of the natural world with human
efforts to counteract that right, which is to bring order,
bring shape, bring consistency and stability.
And this dialectic at work between the natural dynamics of
energetic systems, which is towards entropy, and human
efforts to control that, I think are fundamentally key drivers to
the challenges and opportunities that we have.
And one way of thinking about that, I'm rushing through a bit
of this, Carl, but I hope your viewers will bear with it, is
this idea that because we're interested in how energy
underpins everything, what makes modern societies work is our
ability to continually improve the energy return on energy
invested. So when humans go out there and,
and mobilize resources in the world and then convert those
resources into energy forms that we find useful, whether by
burning things or, or making things move and, and stuff, the
amount of energy that we have to use to get access to this next
batch of energy, that's the energy return on energy
invested. And the higher that is, the more
surplus energy there is beyond what we need to reproduce that
activity. So think of it like an A hunting
animal, right? That the tiger that has to hunt
for its food to be able to sustain itself.
So when a tiger happens to catch an animal and consumes it, the
energy that it gets from that animal through nutrition and all
of that must be enough for that tiger not only to be able to
catch the next animal, but it actually must be enough for that
tiger to chase and fail to catch six other animals and also lie
around and also breed and spend time protecting, you know, young
tigers from threats. So the surplus energy that comes
from what has been caught and consumed must actually enable
all these other things to happen.
One of the areas that I do a lot of work in as a result of all of
this is actually telling alternative stories about the
Chinese economy. So I, I tend to use the Chinese
economy, if you will, as my sounding board.
And that draws on my sort of long standing academic interests
and eventually professional interests in what's happening in
China, not to mention personal interests.
And so I try to bring all these. Threads together, right?
It's usually my way of thinking about the world, Kyle, trying to
figure it out for myself first and foremost, right?
And, and perhaps because I'm a glutton for punishment, perhaps
because if there's one thing I'm OK at, I'm able to at least
communicate some of these ideas. I find it's a it's a nice way
firstly to get all this stuff together, sort it all out in my
own mind and by sharing it maybe help other people think about
the world as well. Just to piggyback on some of
your ideas, I mean, I, I find this, this energy based thinking
quite fascinating because this kind of corresponds to, you
know, our more recent history with the industrial revolution
was essentially we human beings start to unlock the power of
fossil fuels and suddenly they get access to this new source of
a band founded energy. And then later they move from
coal to even more efficient fossil fuel like oil and gas.
And, and, and, and now, now it looks like we are in the next
phase. You know, China is leading the
way in many in many aspects, for example, in exploring the
renewable and China has made this the solar panels price fall
98% in the past two decades, for example.
But go go along those along those veins.
I'm thinking, I'm now I'm actually thinking about United
States because US actually do have abundant hydrocarbon
resources, particularly after the shell, the, the, the
fracking shell revolution and United States also have employed
a lot of capital in the information space.
So you know, US is actually in many aspects leading in for
example, in AI and, and, and information technology.
Then why is why the overall sense even inside the US is that
the US is in trouble somehow like like you should have
everything going for it, right? It has abundant energy.
You have all the the the information tech technology at
its proposal and it was you have the ability to brain drain on
the rest of the world to get the suck the human capital to US.
Why is it seems things are falling apart?
Well, I think we can look at the three threads, right, which is
this energetic transformation thread, the financial thread and
the information thread. So these are the three sort of
core elements that I guess constitute the the critical
parameters of my own theoretical thinking about social and
economic systems. And in fact, information itself
is an energetic thing, right? Which we don't normally think
about that way, you know, we often just trade information as
a, as a, as a free something or another, right?
But information itself is deeply energetic because it requires
certain amounts of energy to collect information, to store
information, to disseminate information, to process
information, etcetera, etcetera. And AI actually is a great way
of understanding how energetically embodied
information can be. But one of the challenges in
thinking about, I think, places like the United States, but not
only the US, but generally countries and civilizations
around the world, is to understand the ebbs and flows of
this issue of the energy return on energy invested.
So EROEII think is the key that helps us unlock some of these
mysteries. The United States did have
abundant and high EROEI energy resources.
It was, you know, the oil was more or less floating to the
surface right back in the day. So it was actually very easy to
extract and relatively straightforward to move from
point A to point B. As time went by, Of course, as
you take away the easy stuff, you end up having to commit more
and more energy to get the next, next hit, so to speak.
And eventually it reached a point where, with some of the
fracking now, it is increasingly difficult.
It requires more energetic effort to get the next Joule of
energy available for humans to put to work.
It certainly hasn't reached negative territory by any
stretch of the imagination, but it is.
But what it means as your EROEI gets smaller is that those
surpluses available for other social and economic things
diminishes. So think about that animal that
that tiger cord we're having to spend more money that tigers
having to spend more energy running after a faster but
scrawnier animal. So when it does catch something,
it's actually getting less energy, having spent more energy
getting it. That's the dilemma that I think
the US is in now. It can change that equation
through a number of things. One is through technological
advancements, which of course have uncertainty attached to
them. It may or may not work.
We may discover new ways of tapping hydrocarbons that
weren't available before, and that makes it more energy
efficient. Another way, of course, is to
shift the things like nuclear. And the third way is, of course,
moving into these this sort of renewable space.
The challenge in the US is that energy has been heavily
politicized through vested interests and ideology, whereas
China literally doesn't have that level of politicization
over energy. Yeah, sure.
You know, there are parts of a country that are more abundant
in coal, for example. And coal will, whilst it's been
growing, plays a proportionately lesser role in the in the
growth, but but it doesn't have the same sort of political pool
as oil interests do in the United States, for example.
So I think that's your first problem that the United States
confronts. The second one is this AI issue
and how that intersects with energy.
And because energy's actually increasingly more expensive to
make available and the delivery infrastructure is not up to
scratch to be able to get electricity to where it needs to
go. Given the proliferation of new
uses, namely AI data centers, you run into a few challenges. 1
is that AI data centers start to compete with other demands for
electricity. And the one thing that that
always does is that it drives up prices.
And we're seeing that The second thing that that's doing is that
it also means that that the energetic cost of information
processing rises as well. So suddenly something that in
theory should have been incredibly low cost energy wise,
not just financially, but energy wise actually becomes higher
cost than we ever thought. And if we actually understand
information as embodied energy as well, then we do actually
have to confront the fact that not all information is good
information. If that information costs more
energy to make available than the energetic benefits of that
information. In other words, does that
information help us deal with entropy?
Does it help us coordinate things better?
Does it help us create new technologies, etcetera,
etcetera. And if you end up with and AI
infrastructure that focuses on adults only, only fan style
staff or you know what, what whatever else Sam Altman's
talked about, then that arguably is actually not energy
productive fraud as a way of that that kind of information is
actually not, not not an energy productive information use of
information. So I think that they're the
challenges the US faces. Whereas when you go to a place
like China, there's a lot less of that stuff.
There's also much less effort put into pursuing, you know,
human or or Western humanities aspirations to replace God.
So there's very little sense that AI is about artificial
general intelligence. You know, when I talk to
colleagues in China, in the AI space in particular, no one ever
talks to me about artificial intelligence.
It just doesn't seem to be the driver.
What seems to be the driver, of course, is things like how do we
embed this so that calculations can be done quicker, smarter,
more accurately, so that something else can happen
quickly. So it's all about creating
abundance again, constantly about speed, abundance, making
surplus energy available for other things.
I saw on on X recently an American Chinese scholar visited
China and came back saying oh you know, didn't see AI anywhere
explicitly being used by Chinese consumers.
Well that's the point. Most of the AI is actually
embedded in the back engine. There's no button that says AI.
It literally is happening in the back engine, enabling things
like drones to deliver things quicker, cheaper, transport
systems to work quicker, cheaper, more efficiently, ports
to unload container ships in 40 minutes instead of eight hours.
That's where this is all happening now.
So I think the US actually, in terms of the USI think the part
of the the challenge is the accumulated surplus energies
over historical time is a lot. We've also got a financial
circuit that has literally spun out of control, which means that
there is actually a lot of financial capability, meaning
that the claims that could be made on the future are huge.
The problem for America at the moment is that the future really
isn't in a position to deliver on all those claims.
But but you know, you talk about the role of money and US is
actually in control of the money supply, right?
I mean like. Kinda part of the difficulty
with this idea of controlling money supply is that the vast
majority of money capital floating through the the
economic system in America actually comes from bank credit.
No one directly controls that. That comes from borrowers
seeking credit and commercial banks are taking the view that
the borrowers are credit worthy. So it's all this.
So credit actually comes that way.
Which enters into the system obviously there's also
government spending, but government spending is a
proportion of the of these two line items, so to speak is
actually in the minority. So there is no authority that
can actually control money supply.
What they try to do is manage system liquidity, right, which
is what taxes is all about. And and so when when taxes are
imposed. Oh, and temporary system
liquidity management tools as well, which is what financial
products is all about, right. You know, give me your U.S.
dollars in exchange, I'll give you something which allows you
to make a claim on something or other down the track, whether
it's shares, whether it's options, whether it's a contract
for difference, whether it's it's a debt instrument like a
well federal government back bond.
It can be any of these things, but they're trying to drain
dollars out of the system at the same time.
So if you imagine an economic system has a bunch of buckets
and pipes, you've got all these taps everywhere pouring in, and
then you've got to drain it because the buckets are, the
buckets do grow, but they can only grow at a certain rate.
And if you've got too much flowing, eventually things
overflow. So they're creating new buckets
as well, right? So this, so you know, finance is
fantastic for this because it actually doesn't take much
effort all time to create a financial instrument regulated
as it is. Suddenly you've got a new
financial instrument, a whole bunch of institutional liquidity
gets poured into it and so it drains money capital out of the
system again in exchange for an interest rate.
So this is what they're constantly trying to do, trying
to at an aggregate level manage liquidity levels, not always
successfully. But the other feature of this
circulation system is that most of this circulation literally
circulates to the top and, and, and that in and of itself
depletes the real economy of, you know, the, the, the money
capital that could be used to mobilize real resources.
So because those who accumulate money, capital and actually end
up accumulating masses of fictitious capital assets, you
know, the, you know, claims on the future rights, not that much
of it goes in relatively speaking, goes into significant
renewable renewing of fixed capital, you know, factories,
machines and all that sort of stuff.
But professor, what about trickle down economy?
I mean, doesn't the wealth start trickle down from the top to the
bottom? That's a great theory, you know,
for those, for those who have the wealth.
And it's a very bad reality for those who have to suffer.
Yeah, that, that, that, that's fair.
What, what? How would let's say, let's say
how you know, the Trump reaction is apparently attempt to try to
fix the mess the US is in, and it's so far not very successful.
What would is it possible at this point to fix the structural
problems that US faces, you know, with a highly
financialized economy, lots of vested interest and almost great
lot lot political system? Is there is there any hope for
for reform? Look, it's very hard for softly,
softly reforms and even I think the efforts by this
administration, you probably wouldn't call them traditional
softly, softly reforms. But even that is really not
shaking the system structurally, right?
So in part it's premised on a misdiagnosis of the problem.
It sees symptoms, but it has misdiagnosed causes.
And so, for instance, it sees trade and trade imbalances as as
a problem to be solved, and it thinks you solve that by dealing
with relative prices via tariffs that will affect the flows at a
trade level. The problem is, is that trade is
really just a function of production distribution.
And you've got to go to the heart of the question, which is
if we're not, if we're buying lots of stuff, it's because
we're not making that stuff. Stopping this stuff coming isn't
the answer. We've got to figure out why it
is that we don't make this stuff and then figure out how it is
that we can make this stuff in a way that is comparable to the
stuff that we buy. And you've got to always come
back to fixing production systems.
And if and what are production systems, as we were discussing
earlier, they're just energetic transformation systems in large
part. So, so you've got to solve that.
You've got to, you've got to tackle this question of energy
systems in the long run. Once you can solve energy
systems in the long run, you've got a chance of solving
information systems that are energetic in part, but are
necessary to releasing the productive forces, so to speak.
None of that is part of the the agenda at the moment.
Now we can go into all sorts of things that make viable
production economies actually work.
You know, you need a workforce that has the right skills.
You need people with reasonably high levels of literacy and
numeracy. That's actually not what the
contemporary United States delivers.
It actually does the reverse, which means it has to pull
people in from around the world, which then exacerbates a bunch
of social problems because there are sections of the American
community that hate that idea. And so then you've got finance,
you know, given their druthers, finance capital will happily
trade for profit through financial instruments, then take
the punt on investing in a three to five year fixed capital
project where the returns are uncertain.
And so unless you can bring finance to heel and cause
finance to actually be committed to not just buying more capital
equipment and building a box around it, but committing to
investing in the people and the systems and the processes, none
of that's going to matter either, right.
So the accumulated problems that exist, the symptoms that people
are concerned about this, this has resulted from, you know, 40
to 50 years. You don't, you don't fix that in
four to five days. You don't even fix that in four
years. And you certainly don't fix it
by, in a sense, creating fights for yourself all around the
world, right? That actually doesn't fix your
problems. It might create some nice optics
politically. It in some respects mobilizes
this idea of a politics of nostalgia, right, as well as the
politics of cultural grievance. And, you know, it's either
equity this or it's woke that or what, what have you.
But it doesn't go to the heart of the problem, which is why
does finance capital have limited relative interest in
fixed capital formation and high end manufacturing and high end
industry as opposed to hiring financial engineers on Wall
Street, right? Unless you tackle that, how are
you going to fix this? You know, Besson talks about
Wall Street and Main Street rising together.
The reason why Main Street's in the hole that it's in is because
Wall Street has risen so much. You don't fix it by by thinking
you can leave Wall Street alone. The heart of the heart of the
American political economy today is that it's overly
financialized. There's lots of vested interests
attached to that. And now you've got the next
batch of rent seekers, basically, and they are your,
your technology oligarchs, right, who have very little
interest in commodifying their platforms, but they have a lot
of vested interest in building moats around them.
And I'm unlocking people in at high prices.
Well, Speaking of energy based, you know, there are countries
like China, but also previously like Japan and South Korea that
was energy poor, yet they were able to build a successful
modern economy Despite that. I mean which like USI mean
comparatively US is actually in a better problem in a better
position resource wise than either Korea, Japan or until
very recently China, right? I mean like like so.
So it doesn't seem like the energy is is all determinative
on how the the path of development of a of a state,
right, Because, you know, it's our example of Japan, Korea,
China, despite inner being energy poor and somehow was able
to build a modern industrial economy.
Well, it harnessed energy from elsewhere, right?
So it solved it solved its energy, its, its local energy
challenges. And of course, China's moving to
a point where it is solving them in a sovereign way as well.
So it's reducing the dependence on imported energy sources.
And look, if anybody if, if if people were given their druthers
and you, you know, you're playing the the world game and
you said, look, you know, there's all these places that
you could get. Where would?
Where would you? Choose well, I'll tell you,
North America would be one of those places that would be
chosen, you know, one of the first few.
What an amazing gift of nature. And and unsurprisingly, with
those gifts of nature, the United States as a population
grew. Obviously it as it moved W would
have killed a whole bunch of well, you know, it actually
engaged in what some historians have called the world's largest
genocide in terms of the American Indians.
But in so far as let's call it just economic wealth creation is
concerned, put it put everything else aside.
It's just one of the most amazing gifts of nature to to
have the opportunity to do something with certainly
compared to a bunch of other countries, You know, Japan's a
great example. It's energy poor.
It's it's food poor, it's topographically very difficult.
It's on earthquake fault line. You know, it's, it's one of the
last places you would choose if you wanted to have an easy
pathway to, to, you know, improving material conditions.
Yeah. Look, United States, look, I've
been accused actually of being a little bit more optimistic about
the US than some of my friends, which is a bit surprising to me
because I've never really been particularly optimistic.
But I just think that there are incredible raw materials.
Look, you, you yourself studied there.
You've spent time there. There is no doubt that it's a
country of 350 million people or so.
It's education systems are actually not, they're not in the
bucket yet. They're not, You know, there are
problems with literacy and numeracy.
There are problems with the economics of education.
But it's not like there aren't bright people.
There's lots of bright people. There's lots of raw materials.
There's lots of legacy infrastructure.
Some of it desperately needs upgrading, whether it's rail
lines or electricity systems or some of it's Rd. networks or
some of it's ports for that matter, that look like ports
from the 1970s. But, you know, compared to many
other countries in the world, this is still amazing stuff.
You know, a lot can be done. And I think the United States,
once it can become a normal country and be less obsessed
with being a global hegemon and less paranoid about the idea
that everyone else wants to do harm to the to to the United
States. If it can do all of those things
and focus a lot more on distributional issues and
institution building domestically, there's no reason
why it can't actually have an incredibly prosperous future.
I agree, unfortunately at the current, it's the current
political landscape, I don't see, I don't see any kind of
changes possible in the immediate future.
Maybe, maybe in a generations time, maybe in 20 years, 30
years, things might change, but I just don't see a path to
improvement within next two to five years.
Yeah, it's yeah, which is a. Portion economy with deep seated
vested interests with a political system that is that is
designed around the flow of money.
You know, 2 year electoral cycles, lobbyists coming through
the doors, revolving doors, the, the, the need for campaign
finance to actually play the game.
None of that is conducive to being able to tackle the issues,
you know, in, in essence, in a dispassionate way.
And that means that as times get more difficult, and I'm actually
quite certain that they will, the anxiety levels and the
public anger will rise and the short term political response
will be to raise more and more money to run the campaigns.
But the mandates are incredibly thin as a result.
And there isn't a politician that then is able to do
anything. You know, the, the electoral
system in the United States is, was designed 250 years ago
principally to favour small agrarian states, principally to
ensure that systems were largely gridlocked so that they couldn't
be radical change. And, and, and, and it also meant
because of the college system that these days a president is
elected with what is in effect about 30%, give or take of the
eligible voter base. That's it, right?
So that's a very, very thin mandate, if you can even call it
that. They might get a massive
winner's bonus at the college right?
Which makes it look like they've.
Romped it in. But when you actually look at
the votes across the country, you realize that a whole bunch
of folk didn't bother voting at all.
A whole bunch of voters didn't vote for the whoever became
president. And then you've got the rest.
And it literally is about, you know, a third that's not really
a base to do much with. And I think institutionally, the
United States is, you know, trapped again, You know, like we
were talking about with Japan, it's sort of tracked by its own
historical legacy. In ways that prohibits it from
tackling the problems of the 21st century.
Wow. OK.
I think that with that, we can wrap it up For people who would
like to follow you, Professor or Powell, where would they go?
If if if they're so inclined, go to Substack is probably the the
quickest and easiest 1. So that's my name.
Just look for me on sub stack, I think it's Warwick
power.substack.com or something like that.
And there's plenty of stuff there.
It's, it's all free of charge though.
I have been again, flattered by a bunch of people who've pledged
and I'm not really sure what to do about any of that at the
moment. Because I think information is
something that wherever possible, you know, I should at
least share it even if people think I'm mad or don't agree
with it, but at least it provokes conversations and, and
provokes thought processes and conversations like this.
So, so for the foreseeable future, it'll just be there for
those who are inclined to, you know, maybe spend, you know, 15
to 25 minutes reading the materials when I push them out.
I tried to do something once a week.
Lately I've published 2 things a week, but it's largely been a
response to immediate events which I don't want people
thinking that that's going to be the norm.
Well, for people who want to follow Professor Powell, go to
warwickpowell.substack.com and highly recommend, give him a
follow. Thank you again for making your
time and energy to come to our our podcast.
And this is I think we are, we are in a fast changing world.
And I do look forward to have you again on my show to speak to
us on on any upcoming events because many, many things have
to do your with your field of study actually.
And so this is very fascinating topic.
I could geek out on this for hours.
And I I look forward to our future conversations.
Me too. Well, thanks guys.
And thanks for listening to another episode of Silk and
steel podcast. Until next time, Bye bye.