Yesterday I got my new iPad.
Yeah, I bought one like millions of other suckers. Apple can take my dollars and recycle them buying treasury bills and so partially fund, at least for a short while, America’s debt.
But really, I bought one to enjoy the twilight of the miraculous system of global trade. An iPad is the cumulative culmination of millions of hours of work, as well as resources and manufacturing processes across the globe. It incorporates tellurium, indium, cobalt, gallium, and manganese mined in Africa. Neodymium mined in China. Plastics forged out of Saudi Crude. Aluminium mined in Brazil. Memory manufactured in Korea, semiconductors forged in Germany, glass made in the United States. And gallons and gallons of oil to ship all the resources and components around the world, ’til they are finally assembled in China, and shipped once again around the world to the consumer. And of course, that manufacturing process stands upon the shoulders of centuries of scientific research, and years of product development, testing, and marketing. It is a huge mesh of processes.
The iPad is an extreme example of the miracle of civilisation. There are less extreme ones. Take, for example, the hamburger. Hamburgers did not exist until the age of regional trade, and refrigeration. The ingredients in a hamburger were not in season at the same time. Cows were not slaughtered at the time when lettuce was harvested. Lettuce was not harvested at the same time tomatoes or onions were typically harvested. For thousands of years previous to this we ate seasonal concoctions, like turkey, yams and cranberries at thanksgiving, as well as smoked and cured foods all year round. In modernity, we have been able to use modern technology to bring about any combination of produce: from greenhouses, to air freighting, to refrigeration, and so on.
I look at the global trade system — which we here in the West rely upon for goods, resources, consumption, etc — and I see something akin to the problem with the financial system in 2006. We abandoned robust and aged local systems, local knowledge, artisanship, etc, in favour of a huge interconnected mesh of trade where all counter-parties are interdependent, and where one failure can break the entire system.
This is a beautiful age. We have truly allowed our imaginations to run wild.
But is it sustainable?
Paul Krugman notes:
The world economy was, to an extent never seen before, truly global. It was linked together by new technologies that made it possible to ship products cheaply from one side of the globe to the other, to communicate virtually instantaneously over huge distances. But it was also, more importantly, linked together by the almost universal, if sometimes grudging, acceptance of a common economic ideology: the belief that free markets, with secure property rights, were the only way to achieve economic progress; and in particular that a nation hoping to make its way forward needed to welcome foreign trade and foreign investors with open arms. And this shared ideology did indeed lead to unprecedented transfers of Western capital and technology to emerging economies – transfers facilitated by the fact that everyone knew that any country that strayed from the path would be punished by financial crisis, and would soon be obliged to accept the harsh austerity prescribed by teams of Western technocrats.
The year, of course, was 1913.
So a truly global trade system has come crashing down before, and we bounced back pretty well from that. But it was a painful time. That particular collapse seems to have arisen from the complex and internecine system of warfare pacts binding great powers to the whims of smaller ones. When small powers went to war, the great powers were dragged in alongside. It was a hyper-fragile system where one small breakdown could trigger a much larger one, just like the problem that led to the present system of financial derivatives. If one counter-party fails, the whole system can be brought down.
Great powers are once again aligning themselves around smaller allies. China and Pakistan and perhaps Russia seem willing to back Iran, while the United States is reluctantly backing Israel.
But there is a new factor at play today: the service economy. While nations in 1913 were freely trading, and while the concept of comparative was widely known, no nation took interdependence to quite the extreme that so many nations have today. And many nations have taken this idea so far that without imported goods and energy, their internal economies might completely collapse, or at very best struggle with the adjustment from supranational back to local.
Here’s the situation in the United States:
And for the United States, this hasn’t been a two-way street. America is importing a lot more than she is exporting. In other words, America is now dependent on international trade.
Here’s the United States’ current account balance as a percentage of GDP, (in other words exports – imports as a percentage of GDP):
Simply international trade has become too big to fail.
The problem is, we know from history that the system of international trade can fail, and as we move deeper into the ’10s, there are a number of obvious threats emerging. The boneheaded answer from certain tenured professors and high-flying MBAs might be that the incentives to keeping the international trade system wide open (and cheap) are enough to force countries to co-operate. Tell that to Binyamin Netanyahu, who seems increasingly fixated on striking Iran, and forcing Iran to retaliate with a closure of the Strait of Hormuz. Tell that to Mitt Romney who seems ever-more intent on starting a trade war with China. Tell that to Barack Obama who — instead of pushing for the United States to mine its own deposits of rare earth minerals has run squealing to the WTO complaining of Chinese price manipulation.
This post is not a prediction. I am not necessarily predicting a breakdown in the global trade system, although there are surely many obvious dangers as well as hidden black swans. I am merely forecasting that the world is extremely fragile to one, and that the consequences to certain countries with a negative current account balance could be, shall we say, painful.
Governments are advised to go out of their way to make sure that back-up systems in terms of medium-to-long-term food supply, fuel supply and medicine supply are in place so that the consequences of a breakdown in the system of global trade can be minimised.
This is an example of a process that the philosopher Nassim Taleb has called robustification.
Nations ignore figures like Taleb — surely the Nietzsche of our homogenised and manufactured age — at their peril.
azizonomics 
seems like the perfect time to tap into the oil strategic reserve…right, obama? ..
It’s more of an inflation problem than a supply problem. Dumping the entire strategic reserve into the supply will not change that.
Resource security is not related to inflation. Prices, on the other hand, are.
I wish Obama would authorise more drilling, and more of all kinds of resource extraction in America. Reopening Mountain Pass seems an obvious move.
The crack-up boom will result in a contraction of the division of labor and the iPad certainly speaks to the idea that that is not the case… yet.
Watching the strengthening of the Indochina, ASEAN, region is very important b/c as that area’s regional trade improves it will have serious negative feedback to the U.S. as they are less dependent on exporting items lower in the production chain to us.
Yes. As ZH have reported, the development of bilateral and (soon) multi-lateral non-dollar currency agreements is key here. Simply I believe Putin and Wen and Ahmadinejad have agreed to dump the dollar and end America’s free lunch.
I know it’s not your job to give financial advice aziz, but I’d be very interested to hear about the sort of things you are doing to protect yourself from possible upcoming financial events.
Epic hamburger btw ^
I think people should think like nations.
Where are you getting your food, fuel and water from? If the national supply chains were to fail, would you be secure in your supplies? Solar panels, a well, and food supplies and medicine supplies would sensible a sensible decision for all families. So too would be getting to know your neighbours. During the cold war, we all had plans of action in case of national or global disaster. I think the dangers are just as big today as they were back then (if not bigger), but preparation is much, much less.
Yes global trade and modernity has given us hamburgers and Ipads but are these really as virtuous as they appear? Personally I like the modern convenience of indoor plumbing and instant warm water from the tap without starting a fire and warming it.
Processed foods, especially meats and white flour are known to cause bad health and are nutritionally inferior to ‘organic’ foods. Its the triumph of marketing and big corporations from factory farms, to giant food processors to big supermarkets all creating a standard mass produced product for a mass of employed ‘wage slaves’ who are largely in debt. In short it appears that the technology and techniques (of finance, social organization, the firm, etc.) have trapped human beings instead of liberated them. Of course technology can help to de-centralize but it does not seem to be doing that at the moment.
I heard a podcast at http://www.gnosticmedia.com/triviumstudy, with John Taylor Gatto, yesterday in which he claimed that the American family farm was deliberately destroyed by the corporate elite so that all these independent self reliant families could be made into a mass of consumers like everyone else. Self reliant, independent people are difficult to manage for the elite, they prefer dumbed down and pliant masses.
The Finance system is the root cause for this system and it is the source of power of the elites, if it continues we shall see greater destruction of ‘traditional’ forms.
I’m not sure it’s really a question of which is more virtuous. Certainly, in the long run I think more people would hurt from the loss of indoor plumbing, etc. But the iPad and the hamburger are two obvious highly globalised examples that sprung to mine.
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It is way past the time that we should have recognized the inherent flaws in globalization, NAFTA and WTO legislation, and subsequent finacial deregulation passed in the 1990s, is undermining the social and economic foundations of America. For all the short term pain that a return to nationally-oriented economic policies would necessarily entail, the long term gains would be exponentially greater. We must garner the populist support for a 50%+ tariff tax on all imported goods and services. If imposed and diligently enforced, our labor utilization rates and our distribution of wealth and opportunity to the vast majority of Americans would soar. Real median incomes would more than double in less than 10 years. Medicare, social security would be fully funded; and the tax revunues would be great enough to allow for a reduction in income tax rates and the national debt.
My personal view is that rather than raising taxes on imports, America could instead drastically slash military spending. This would have essentially the same effect (i.e. prices on imports would significantly rise, due to insurance costs) while at the same time addressing America’s debt problem.
Good point. All the Tin Pot Dictators and their Mandarins supporting them would flee to the USA, buy up their excess housing stock, and support the dollar.
With the brain drain and collapse into babarity, it would cost too much to manufacturein the ASEAN.
Instead we have Jim Rogers moving to Singapore.
But wait now China Russia have assumed the role of Policeman in troubled regions. So this is not possible now.
I think Protectionism is on the horizon. Depression 2.0!
“When small powers went to war, the great powers were dragged in alongside. It was a hyper-fragile system where one small breakdown could trigger a much larger one, just like the problem that led to the present system of financial derivatives. If one counter-party fails, the whole system can be brought down.”
That’s why globalization without the One World Government seems not working, just like the Euro situation now that different small countries circulating using the same money instead of of One “The United States of Europe.”
The One World Government seems a good idea for the big picture of a harmonious coordinated and war free one big global human society. This is more and more likely the goal and the trend of the future. Nothing can stop it’s coming. As long as the modern younger generation accept it the future will belong to the One Big Global Community. Old people have to understand that the future belongs to the young ones. Human never stop from expanding their living horizon. Only after the earth become s a one big country, human can start to expend to other planet……
Why globalization is the trend and? There must be reason(s). Mostly is because local regional economies all going to their dead ends or go nowhere. The products of globalizations are: the broadband high speed internet and mobil phones, TV, Airplanes, cars etc etec.. Just image you are going to live without all that and you are going to eat dinner every night with all your families in a dark room without electricity and take a bath without hot shower like your grandparents’ and grad grandparents’ generation did. You won’t be able to sit there reading this blog and writing comment.
But of course you’ll be fine if you are born into poverty in a very underdeveloped country/village to live without out all the above.
Is One World Government a bad idea? This the question for the young and future genertaions. Not our generation.
As the world’s natural resource is getting scarcer and scarcer one world government is a must if humans want to continue their legacy a bit longer.
We shall see. A one world government may cause more problems than it solves.
Problems is in ratio with how much you have. The more you have the more problem you have. When you have the whole world you have the whole world’s problems. If you have nothing, you have only one problem that you have nothing. (Well 2nd thought may be not only one problem but one problem of many problems because you have nothing.)
Has a totalitarian empire ever been “good” for its subjects? Absolute power my friend.
Good points, but will Asians be lead by Judaeo Christions or the other way around? We have 2 Philosophies East West, then we have African Tribalism. One World Philosophy : How would it Look?
What religion to believe? Will be decide by the people of the future. One thing for sure from now on babies are growing up with their little electronic gadget once they pop out from their mom’s womb. They are become less and less religious as their parents. Their religion can even be their little computers chip devices. Who knows. But just imagine what our ancestors 500 hundred years ago would thought about us and world now. It would blow their minds off.
It already exists, its the “green” Enviro cult. They started it in the 90’s with movies like pocahontas. It was recently re-made but instead of indians and europeans it was big blue aliens on a eco-paradise planet. People don’t see those movies as religious, but watch them again with a critical eye and you will see.
Might take a while to dislodge the current faith based systems – actually I think only a war could blue the lines enough for a global change of dogma, but I strongly believe the new religion will be environmentally-based.
Worship nature.
As something of a pantheist myself, I am quite sceptical of such beliefs becoming widespread or globalised or commoditised.
As regards securing resources in the event of war or other supply disruptions, Obama’s March 16 Executive Order poses a solution: simply seize the domestic resources necessary to ‘national defense’, and let the civilian population eat shit.
Yeah, another example of Obama doing something for “national security” which actually damages national security. Seizures won’t do anything for national security. We need resource security, not the possibility of central government enacting seizures that take resources from the private sector, and redistribute them to gov’t or the military.
Wow, you really know how to dissect an issue. Great work. I have learnt something today.
You’re welcome Buddy. It’s a pleasure having intelligent and open minded readers like you.
Thanks mate. You give me confidence in the next Generation.
If you have this intelligence at 24, wait till your 70. May I wish you a long and healthy life. The world needs you, like it needed Socrates.
Socrates may not be the best example!
He was killed by the Athenians for corrupting the youth.
I know, but you have history to learn from 🙂
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I still can’t believe you bought an IPAD.
It’s a pretty good computer, and the second one I’ve had. I like the touch interface for the music software I can run on it.
I marvel at how people will willingly give up their privacy and freedoms for things like “touch interfaces for music software”. Not saying i’m in any position to tell you what is good or wrong (people do what they want and that’s how life goes), but I can still wonder at the lack of desire to defend and protect what allows us to live somewhat freely.
I am referring of course to IPAD’s and IPHONE’s tracking of all your travel/calls, etc which I am sure you’ve heard about.
It was fascinating to see that Zerohedge’s articleon the database this weekend got over 50,000 views… certainly the most read article in the last 12 months and that people are outraged in the thread – but then again (like the zerohedge article says) people don’t do anything about it because of their little Igadgets.
Personally, I would rather encourage and purchase a product that isnt as flashy or popular if it means I retain a little more of my freedoms. I use a sony e-reader that was rooted to Android. I can then surf/listen to music/read books/use apps on a device that does not have GPS or 3G. To me that makes sense – plus I get about ONE MONTH per battery charge because of the black and white screen.
But technology asside, I find there’s a big portion of the population that is completely oblivious to their erroding rights and freedoms. I’m not a gun-toting redneck with chickens in my back yard – I just value things like privacy. Most people don’t see it my way and they don’t mind using google for searches, or Ipads to listen to music.
There is a emergency Bylaw in my town basically instituting martial law in case a state of emergency was declared. They can force you out of your home, take anything, and even conscript you.. yet when I brought this up with my neighbor, all he could say was “It doesn’t matter because it will never be used”. Heh, what can I say to that.
Tell me more about this tracking feature? I know Facebook is a no no for privacy. Hey it takes a lot of work to scrub your history off the server. I am sure they take a copy. It is perfect for Law enforcement agencies. Can you imagine kids on it now. A whole life history under the spotlight of a Neo Stasi bureacracy.
I am a Political Activist anyway and I don’t care about Government, they are in my spotlight, so my footprint is all over the internet, when people search my name and views. You have to be remembered for your principles right? I just need funding from the Central banks and I can win an election by promising welfare. This won’t happen so I have to be elected because people want to believe in leaders again.
There are tons of articles out there with regards to I-products tracking you. I think even south Korea did a class lawsuit against apple because of that. you can STARTPAGE-search (see? no google!) at http://www.startpage.com and find the related information.
I don’t care who you are or what you do – why would you want any superfluous data to be recorded about you? How is that to your advantage? I am posting this on a public site of my own volition, so I don’t mind if this is made public – I choose to make this public. But my own private life? I would rather that stay private.
My own 2 cents.
As far as I am aware my wi-fi only iPad 3 does not contain a GPS, so for me it’s basically the same as another computer. I don’t take it out of the house. And I don’t own an iPhone or similar 3G/4G device that could be used to track and trace me. I live in the deep countryside. I’m fairly sure that like most people online today, especially as a person with a libertarian-leaning blog that often talks about controversial issues that I have a file with certain alphabet soup agencies, but I don’t really care. I have .gov email address subscribers. I am careful to not engage in illegal activities. Certainly, I think that even with all the surveillance there is not really the manpower to crack down on people like me who are guilty of expressing their opinions. As Buddy said “You have to be remembered for your principles right?” And, as this post suggests, my work is not anti-government. I make suggestions for governments to improve and robustify themselves. Frankly, I believe the greatest danger to government is failed government. And all that money and effort spent on warrantless wiretapping, tracking, tracing, is money and effort that is not spent on infrastructure and food/energy security, which is where the real fragility is. Governments are only acting in fear of terrorism because that is the last threat that got through. After a food and energy crisis, governments will act against it, and all the worry will be about that instead of terrorism.
I remember before 9/11, when I was a young kid. Airport security in the US was lax. People could walk up to the gate without a ticket. All they needed to do was install proper (Israeli-style) locks on the cockpit in airplanes, and make all passengers and carry-on luggage go through metal detectors. But nope, post-9/11 they concern themselves only with the last great threat, and put huge resources into crazy things like the TSA and body scanners, etc, and completely ignore new threats, e.g. food and energy security, fragility in the global trade infrastructure.
“Wi-Fi
All six models of Apple’s iPad can use the built-in Wi-Fi capability to provide your approximate location. The location is determined by the nearest Wi-Fi hotspot. The hotspot needs to be in a location service database to provide accurate information. The closer you are to the hotspot, the more accurately it will pinpoint your location. If Wi-Fi is turned off, however, your iPad cannot determine your location.”
http://techtips.salon.com/ipad-wi-fi-gps-3932.html
But fair enough, since you do nothing wrong, nothing illegal, you have no reason to fear the tracking, right? Next time an officer wants to search your premises or your property, you should allow them simply because you have nothing to hide, right?
No, I don’t think I should be open to unreasonable searches and seizures. It gives me the option of allowing/disallowing location services, which I disallow, because it seems completely unnecessary, and is in a way an unreasonable search. Furthermore, even if I turned it on they can only determine my location, based on my IP address, which is actually quite fuzzy, because I don’t have a static IP at home.
There are some very strong anonymizers (e.g. TOR) that those genuinely concerned about their identity can use to hide it. I don’t really feel the need to. People need to keep in mind that the internet is a more or less a public place. It was set up with that intent. Unless you’re using TOR everything you do and say is ultimately trackable and traceable. That’s a disadvantage of using a service developed by DARPA.
We can’t live forever but we can be honest and hold people accountable. That is a virtuous life.
I don’t lie, cheat or steal. I have no criminal records. I have perfect health. If anybody called me crazy I would slam a libel case on them. If the Government locked me up I would sue.
If they put me in a FEMA camp because I am, like Socrates, a threat to their rule, then I would take my place among noble men. That would make tremendous peace with me.
I hear Julian Assange is running for the Australian Senate. As an Australian I am proud of his actions. It is like our Eureka stockade Rebels (http://australia.gov.au/about-australia/australian-story/eureka-stockade). Defiant. I wil vote for him. He has outed the hippocrates. What can they do . Put him on a cross?
BTW Aziz, are you happy with the Ipad? I may upgrade from the original. Can it read PDF web links?
Yeah, it’s a reasonable upgrade. Voice dictation works well. The screen is lovely. Feels faster and more responsive. For me (given that I mainly use it for music software) it is definitely worth the upgrade, especially from the iPad 1, which only has 256Mb of RAM.
If you like music software download “Infected Mushroom” Albums, I hear it is great for sythesised music. Very Computer Age.
Yeah I was introduced to Infected Mushroom a while ago by an ex-Israeli dude I met at an open mic. Cool band, though I prefer Shpongle.
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