"The Absent Superpower" (book review) Part II

This is part II of a three part review of Peter Zeihan's "The Absent Superpower." It is so filled with revelations and predictions that it is worth a "deep dive."

In part I, Zeihan discussed the shale revolution---now in its third phase---in which he argued that with the end of the World War II order and the essential end of the Bretton Woods system, by which America guaranteed the world's free trade with our military and trade deficits, we have moved into a brave new world. An energy independent America, awash with shale, changes everything.

In part II, by far the longest of the three sections, Zeihan looks at the end of the "old" world and revisits America's incredible national advantages. The US has 12,000 miles of interconnected waterways, more than the rest of the world put together. The Nile, for example, is about 4,000 miles, but only runs down one side of Africa. The Amazon---about the same length---has massive tributaries, but all in inaccessible jungle. The significance is that the US can move goods, food, and (for a while) people internally at incredibly cheap prices. This endowed America with a lower cost of almost everything from the get-go.

However, here I think Zeihan simply assumes the US "had" this river system. It only came at a cost: wars with the British, purchase from the French, and much taming by settlers. Moreover, once we "had" the rivers, it took a unique and incredibly innovative system of banking to make those waterways commercially useful.

Indeed, it was the banks that turned the railroads from minor point-to-point transport into regional and national networks that to this day Russia does not have. (And we had this by the late 1800s). Along the way---another point Zeihan misses---the US ALONE developed the "managerial hierarchies" that permitted thousands of stockholders to invest in companies, then exported this model back to Europe.

Zeihan argues that the end of the worldwide boom was based on one overlooked factor: that America did not create the Bretton Woods system to become rich ourselves, and that the US Navy dominated the seas and protected free trade for 60 years.

He then shifts to an analysis of demography, especially the American Boomers whose money went global and flowed into Rwandan municipal bonds and Kazakh energy. This spurred unnatural growth rates that would not have been there absent the Americans. Now comes the really bad news: Gen X will "never be able to vote away the benefits the Boomers have voted for themselves."

Nearly every advanced economy in the world has a top-heavy population structure . . . but ONLY THE AMERICAN BOOMERS HAD KIDS! There is no equivalent German Ys or Canadian Ys or Korean Ys or Italian Ys. Between 1980 and 1985, virtually every country stopped repopulating. Barring a miracle medical breakthrough that allows people in the 50s to have kids (let alone to WANT to have kids) the scope of the coming population collapse will be bigger than effects the Black Plague. As of 2016, the average American is already YOUNGER than the average citizen of every first world country except New Zealand, Australia, Ireland, Cyprus, and Iceland. Japan, Korea, Taiwan, and Canada are the four countries aging most quickly into retirement.

In just three years, Germany, Belgium, Greece, Austria, and Italy will be past the point of demographic recovery.

And China? Their one-child policy meant that China gutted its next generation of workers AND consumers. Chinese labor costs have increased by a factor of 10 since 2000 and now are twice as high and LESS SKILLED than Mexico's!

Zeihan constantly moves back to energy: in 2015, one of the clearest signs that the US was no longer concerned about energy came when the US lifted the export ban on crude oil in effect since 1974.

By 2016, the US was the only advanced economy generating any meaningful economic growth . . . and doing it off activity based within its own borders! This, the realities of American energy dominance, and the demographic collapse, Zeihan predicts, will set off three major regional conflicts.

The first involves Russia, which has a horrible geographic hand to be played. Moscow gets 20 hours of sunlight for the entire MONTH of December, has only one navigable river that is frozen 1/3 of the year, and has its only geographic barriers in the wrong places (Siberia). Indeed, Russia is open to its enemies and divided from itself. With a population half that of the US, Russia has 12,000 miles of borders. This forces the Russians to maintain a large land army with a heavy dose of intel operations. Worse still, the Russkie birth rate has plummeted, while HIV and other diseases are rampant. This, in turn, seriously affects Russia's ability to put a large army into the field.

The Soviet solution was to seize neighboring countries as cushions, but Russia's new borders actually are slightly BIGGER than its Soviet-era border! Putin has attempted to slowly expand those borders back to the Soviet map, and, according to Zeihan, were aided when Britain withdrew from the EU (leaving Ukraine on its own). That's debatable. I don't see an EU with England any stronger than without because it's all about will, and ANY version of the EU was not going to fight for Ukraine.

Zeihan lays out a war scenario in which, after neutralizing Ukraine, Russia moves on the Baltic Republics and is contested by the Scandinavian states (which possess small, but highly trained and very well-equipped militaries). He argues that how that war would progress depends heavily on what happens to the south, with Turkey. Should Turkey see an opportunity to move on Crimea while the Russians are tied up,things could get dicey. Moreover, Russia is on a timetable because of its ongoing demographic decline. As it is, Russia as a state "will likely break down within 20 years."

America, he predicts, would ride out such a war. Possibly the US would ship arms and $$ to the Scandinavians (whom he thinks would eventually be joined by England and Germany and Poland for a long war of attrition that the Russians cannot afford).

The second trouble spot/war would come between Iran and Saudi Arabia, who have b en fighting each other for years via proxies. The Saudis have the money and mercenaries, the Iranians the traditional military forces. Saudi Arabia had tons of oil money, but no jobs, and young men left at home with money began to make lots of other young men and young women. But Zeihan points out the entire Saudi culture was based on raiding, jihad, and extraction, not invention or creation.

Zeihan sees the war playing out as follows: The Iranians will try immediately to close the Gulf, and that will fail. It will fail in large part because the Iranians do not yet understand that with the Americans energy independent, they are MORE dependent than ever on exporting. There will be an oil crisis almost immediately---everywhere but energy-rich America. Next the Iranians will invade. Zeihan argues Yemen was not a war. It was "practice" for the Saudis. In most scenarios, this invasion will stall in the desert due to SA's superior air and allies' superior air. Iran may take and hold Iraq and even Kuwait, but will find it impossible to advance much further. Regardless, Zeihan sees a scenario in which there are 60m people who are refugees in Iran, Turkey, or Europe or who will just die outright of famine or thirst. Internationally an oil price of $150 a barrel would not be unreasonable.

The third scenario American withdrawal would likely have is the "tanker war" from the Far East There, Japan has already aged past any hope of demographic recovery. Meanwhile, in the 1990s, Japan became the world's #2 navy. It has already retrenched for 20 years, developed alternative energy potential (i.e., nuke plants) and has source flexibility no other Asian nation has. Ironically, the Japanese are only vulnerable to another major naval power, and the only power that exists is . . . the USA.

China, meanwhile, is far weaker than someone like Steve Bannon suggests. Although relatively Japan is more dependent on oil imports, in terms of sheer numbers, China is far more dependent on oil imports. Zeihan argues that China is in a box consisting of Japan, Taiwan, the Philippines, Malaysia, and Singapore. "Even if the Chinese navy were a match for the Japanese navy---and even if the Japanese navy were stupid enough to engage the Chinese within range of the Chinese mainland's air support---locking the Chinese within the first island chain isn't that hard." Zeihan argues that China cannot just "break out" through one lane, because that risks the US or someone else slamming the door shut behind their fleet, trapping them at sea without oil. Essentially, China must neutralize EVERY member of the "ring" that boxes them in.

"Success" for China would "require a commitment to foreign military occupation far in excess of what the Germans and Japanese combined achieved during World War II at a reach in excess of what the Americans achieved during the Cold War." And this doesn't even begin to address their internal problems.

The paradox of China is that the southern Chinese cities need a partnership with foreign powers if they are to be successful while the northern core needs hostility with those same powers to maintain Chinese unity. When the balloon goes up, China loses the ability to reliably import or export anything; aircraft from nearby Taiwan can reach shipping in the Strait and as far south as Hong Kong; and Taiwan has both intel and linguistic access to the belt of China's southern coast.

Korea is another player, which, if in alliance with the Japanese (not a given) would be a serious thorn in the Chinese side; but Japan is far from Korea's best friend. At any rate, China's coastal ports are exposed, while Japan can import American crude while preventing China from doing the same. This brings Zeihan to his conclusion of all conclusions:

"China is finished." It's maritime periphery is surrounded by hostile powers and it will grudgingly shift from a "proud juggernaut" to a desperate has-been, and this won't come without pain. Japan will emerge after some rough and tumble as the dominant regional naval power, and Southeast Asia will be left as the guarantor of China's security.

Finally, Zeihan discusses the "California exception." Because of whacky environmental regulations, California is "nearly separate from the American energy complex." There are no pipelines that cross the Rockies, nor even smallish pipelines from Canada. California imports crude from Alaska or the rest of the world . . . that is, until the price skyrockets amidst these tensions. But a quirk in American law allows Alaska to sell to the highest-paying world market, not CA, which will have to replace these supplies. CA may well import more Persian Gulf crude than the rest of the USA combined.

However, CA has the oil. Its regulations just don't allow the state to do anything with it. Most of this is in Kern Co. Zeihan argues that when the price of oil doubles worldwide (but not in the US), CA may have to accept a shale boom of its own and finally drop its onerous regulations. We'll see on that one.

Interesting. Except for:

"Russia moves on the Baltic Republics and is contested by the Scandinavian states (which possess small, but highly trained and very well-equipped militaries)."

Norway and Denmark are NATO members, but Sweden is not. Their tiny military is focused on international UN-style peacekeeping and relief. Their arms industry is top-notch but produces eveything for export. Their defense ministers are all women.

They could fight Russia for a day or two at most.

Thanks for posting this and the part one analysis. Both were top-notch.

What needs to be emphasized more, particularly in our schools and in our media, is that America has achieved the immense prosperity and power that has had over the past 75 years because of our combined legal and economic system. That system fosters creativity and hardwork by rewarding it. It also provides for immense stability, because certain aspects of the law regarding property rights (including, perhaps most importantly, intellectual property) are very stable and allow our scientists and businesses to plan for the long term. That is why, in my opinion, we are the single most inventive nation in the history of mankind. Israel is a close second, mainly because their Prime Minister was educated in the United States and saw our system at work, and when he achieved power he took apart the old socialist system put in place by Israel’s founders. But, and this is the most important thing, we don’t have any magic dirt. You could put the Russians or the Chinese or just about any other culture here in this country and give it identical natural resources over an identical period of time, and they would not be the power that this country is. The reason is because of our combination of liberty and freedom. Anyone wanting a compelling look at the necessity of both should read Milton Friedman’s book of the same title.

Of course, anyone reading this will note that I said this information should be emphasized in our schools and in the media. “Should” being the operative word here. I am realistic enough to understand that the message being put forth in the reviewed book is anathema to the Left and, as we all know, the Left controls those institutions, meaning that most people will never understand these concepts (or be actively opposed because they’ve been brainwashed into hating this country. That is not merely a shame, not merely aggravating for those of us who know better and knew a much better America, but it is a direct threat to our future as a wealthy and powerful nation.

Re: “The shale revolution...An energy independent America, awash with shale, changes everything.”

The USA is not energy independent.

Our petroleum “net” import is more than 4 million barrels each day.

Our domestic production is about 12.4 million barrels per day.

http://ir.eia.gov/wpsr/overview.pdf

Yes. I say this in my on-line classes, but I’m beginning to doubt that you could just pluck up anyone and “put it” in this system and thrive. I’m wondering how much of the Protestant/Common law TRADITION that only Americans had from the beginning was essential.

In other words, if, say, France or Spain immediately converted to Protestantism with bottom-up church governance; and if each adopted common law (bottom up), would their heritage and tradition of “top down” still be too much to overcome?

For example I wonder if based on Russia’s horrible geography if it could ever become a true representative government?

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