Red moon rising

How China could dominate science

Should the world worry?

A HUNDRED YEARS ago a wave of student protests broke over China’s great cities. Desperate to reverse a century of decline, the leaders of the May Fourth Movement wanted to jettison Confucianism and import the dynamism of the West. The creation of a modern China would come about, they argued, by recruiting “Mr Science” and “Mr Democracy”.

Today the country that the May Fourth students helped shape is more than ever consumed by the pursuit of national greatness. China’s landing of a spacecraft on the far side of the Moon on January 3rd, a first for any country, was a mark of its soaring ambition. But today’s leaders reject the idea that Mr Science belongs in the company of Mr Democracy. On the contrary, President Xi Jinping is counting on being able to harness leading-edge research even as the Communist Party tightens its stranglehold on politics. Amid the growing rivalry between China and America, many in the West fear that he will succeed.

There is no doubting Mr Xi’s determination. Modern science depends on money, institutions and oodles of brainpower. Partly because its government can marshal all three, China is hurtling up the rankings of scientific achievement, as our investigations show. It has spent many billions of dollars on machines to detect dark matter and neutrinos, and on institutes galore that delve into everything from genomics and quantum communications to renewable energy and advanced materials. An analysis of 17.2m papers in 2013-18, by Nikkei, a Japanese publisher, and Elsevier, a scientific publisher, found that more came from China than from any other country in 23 of the 30 busiest fields, such as sodium-ion batteries and neuron-activation analysis. The quality of American research has remained higher, but China has been catching up, accounting for 11% of the most influential papers in 2014-16.

Such is the pressure on Chinese scientists to make breakthroughs that some put ends before means. Last year He Jiankui, an academic from Shenzhen, edited the genomes of embryos without proper regard for their post-partum welfare—or that of any children they might go on to have. Chinese artificial-intelligence (AI) researchers are thought to train their algorithms on data harvested from Chinese citizens with little oversight. In 2007 China tested a space-weapon on one of its weather satellites, littering orbits with lethal space debris. Intellectual-property theft is rampant.

The looming prospect of a dominant, rule-breaking, high-tech China alarms Western politicians, and not just because of the new weaponry it will develop. Authoritarian governments have a history of using science to oppress their own people. China already deploys AI techniques like facial recognition to monitor its population in real time. The outside world might find a China dabbling in genetic enhancement, autonomous AIs or geoengineering extremely frightening.

These fears are justified. A scientific superpower wrapped up in a one-party dictatorship is indeed intimidating. But the effects of China’s growing scientific clout do not all point one way.

For a start, Chinese science is about much more than weapons and oppression. From better batteries and new treatments for disease to fundamental discoveries about, say, dark matter, the world has much to gain from China’s efforts.

Moreover, it is unclear whether Mr Xi is right. If Chinese research really is to lead the field, then science may end up changing China in ways he is not expecting.

Mr Xi talks of science and technology as a national project. However, in most scientific research, chauvinism is a handicap. Expertise, good ideas and creativity do not respect national frontiers. Research takes place in teams, which may involve dozens of scientists. Published papers get you only so far: conferences and face-to-face encounters are essential to grasp the subtleties of what everyone else is up to. There is competition, to be sure; military and commercial research must remain secret. But pure science thrives on collaboration and exchange.

This gives Chinese scientists an incentive to observe international rules—because that is what will win its researchers access to the best conferences, laboratories and journals, and because unethical science diminishes China’s soft power. Mr He’s gene-editing may well be remembered not just for his ethical breach, but also for the furious condemnation he received from his Chinese colleagues and the threat of punishment from the authorities. The satellite destruction in 2007 caused outrage in China. It has not been repeated.

The tantalising question is how this bears on Mr Democracy. Nothing says the best scientists have to believe in political freedom. And yet critical thinking, scepticism, empiricism and frequent contact with foreign colleagues threaten authoritarians, who survive by controlling what people say and think. Soviet Russia sought to resolve that contradiction by giving its scientists privileges, but isolating many of them in closed cities.

China will not be able to corral its rapidly growing scientific elite in that way. Although many researchers will be satisfied with just their academic freedom, only a small number need seek broader self-expression to cause problems for the Communist Party. Think of Andrei Sakharov, who developed the Russian hydrogen bomb, and later became a chief Soviet dissident; or Fang Lizhi, an astrophysicist who inspired the students leading the Tiananmen Square protests in 1989. When the official version of reality was tired and stilted, both stood out as seekers of the truth. That gave them immense moral authority.

Some in the West may feel threatened by China’s advances in science, and therefore aim to keep its researchers at arm’s length. That would be wise for weapons science and commercial research, where elaborate mechanisms to preserve secrecy already exist and could be strengthened. But to extend an arm’s-length approach to ordinary research would be self-defeating. Collaboration is the best way of ensuring that Chinese science is responsible and transparent. It might even foster the next Fang.

Hard as it is to imagine, Mr Xi could end up facing a much tougher choice: to be content with lagging behind, or to give his scientists the freedom they need and risk the consequences. In that sense, he is running the biggest experiment of all.

The U.S. Economy Is Flying Blind With a Sputtering Engine

Federal data shortage makes it harder to assess shutdown’s current damage, let alone chart an informed path forward

By Justin Lahart

 President Trump flew aboard Marine One on Monday. This week a White House economist estimated the shutdown’s dent to the GDP at about $6.7 billion a week.
President Trump flew aboard Marine One on Monday. This week a White House economist estimated the shutdown’s dent to the GDP at about $6.7 billion a week. Photo: Andrew Harrer/Bloomberg News

The partial shutdown of the U.S. government is simultaneously hitting the economy and constricting the flow of data by which to gauge how big the hit actually is. Think of it as the forecasting equivalent of flying through a storm without instruments. Flying by sight will be tricky for both investors and Federal Reserve policy makers.

First, one has to assess how much government spending will be curtailed by the furloughing of about 380,000 federal workers and the direct effects of those curbed costs. Next, take a stab at how much consumer spending might cool as those furloughed workers along with about 420,000 workers on the job without pay strain to keep up with bills.

Then there are contractors who do work for the government and are at risk of running out of money to pay employees. That isn’t all. Fewer government workers and contractors are flying, for example, and other travelers might be forgoing trips rather than deal with checkpoint delays stemming from Transportation Security Administration staffing woes. The Small Business Administration has stopped approving routine small-business loans, choking off an important source of funding for many entrepreneurs.

All of these things are happening during a period when worries over the U.S. economy were already growing. How lower confidence might be affecting business is hard to know.

Still, economists have been trying to come up with estimates. White House Council of Economic Advisers Chairman Kevin Hassett initially said the shutdown was shaving 0.1 percentage points off gross domestic product every two weeks, but on Tuesday he doubled that estimate. The damage now amounts to about $6.7 billion a week—more than what President Trump is demanding for border-wall funding.

Unfortunately, the furloughing of Commerce Department employees means a lot of the reports that would help gauge the shutdown’s effects have been postponed. December retail sales figures, which include the first week of the shutdown, were supposed to come out this Tuesday, for example. Even when the government does reopen, it will take time for reports—including fourth-quarter gross domestic product—to be compiled.

So investors must rely on the government reports that are coming out (the Labor Department’s Bureau of Labor Statistics and the Fed are open for business) as well as privately produced reports. This less-complete picture is complicated by the fact that the economy already appeared be slowing as the shutdown began. Whatever faith investors had in their forecasting abilities should be lower now.

The same goes for Fed officials, who as a result of the shutdown have even more reason to delay further rate increases. Mr. Trump’s arguments that the central bank should hold off on monetary-policy tightening may have fallen on deaf ears. The shutdown threatening his economic legacy is another matter.

Italy’s Writing on the Wall

It is often said that Italy’s divergence from the rest of Europe, in terms of per capita income, started either with the ratification of the Maastricht Treaty in 1993 or with the adoption of the euro in 1999. But this chronology masks a more profound transformation in modern Italy.

Harold James

soldiers nuns italy 1970s

PRINCETON – As the home of both the Roman Empire and the Renaissance, Italy has long been at the forefront of cultural developments in Europe and Western Eurasia. But it has also long served as an example of political decline. Edward Gibbon’s classic The History of the Decline and Fall of the Roman Empire, after all, was meant as a warning to the author’s empire-building contemporaries.

Italy’s economic stagnation after the early seventeenth century was also held up as a cautionary tale. The nineteenth-century English critic John Ruskin implored members of Britain’s mercantile society to ponder the tragedies of Tyre and Venice. Describing Venice in “the final period of her decline,” he wrote of “a ghost upon the sands of the sea, so weak – so quiet – so bereft of all but her loveliness, that we might well doubt, as we watched her faint reflection in the mirage of the lagoon, which was the City, and which the Shadow.”

Then came the post-World War II period, when Italy was the poster child for fruitful European integration. The country developed a cultural style that is still uniquely influential to this day, particularly in the domain of fashion, where it is a global trendsetter. Around the world, upmarket shopping malls, high streets, and airports are lined with boutiques featuring Italian designs (if not Italian products).

But now Italy has become a cautionary tale once again. Since its general election last March, the country’s political scene has fascinated and horrified international observers. The formation of a left-right populist government has led many to wonder if such a coalition is a fluke, or a symptom of the political and intellectual bankruptcy of neoliberal globalization.

It is often said that Italy’s divergence from the rest of Europe (in terms of per capita income) started either with the ratification of the Maastricht Treaty in 1993 or with the adoption of the euro in 1999. But this chronology masks a more profound transformation in modern Italy. The early 1990s, after all, is also when the old Italian two-party system disintegrated, with both the center-right Christian Democrats and the center-left Socialists succumbing to the Tangentopoli (Kickback City) corruption scandal.

Behind the headlines about corruption was the fact that older ideas about shared responsibility no longer applied. Thus, the dissolution of Italy’s two main parties led to even more – and more institutionalized – corruption, embodied by former Prime Minister Silvio Berlusconi. A real-estate developer cum entertainment and media tycoon, Berlusconi combined the spectacle of serial infidelity and glamorous young women with a populist politics based on tax cuts and sympathy toward autocratic petro-states like Russia. Berlusconi’s political style – a combination of buffoonish narcissism and unbridled venality – was Trumpism avant la lettre.

Italy’s political revolution was due not to chance, but to specific social developments dating back to what Italians call the “Years of Lead” of the 1970s. That period and its implications for the present are the subjects of Edoardo Albinati’s long, meandering, but stunningly successful novel La scuola cattolica, which will be published in English this year.

Albinati combines pointillist description with far-reaching social analysis. As a former prison teacher in Rome, he is able to draw on a wealth of first-hand encounters with a wide cross-section of Italian society. In fact, the novel is semi-autobiographical, because it revolves around the 1975 “Circeo Massacre,” a brutal rape and murder that involved some of the author’s upper-middle-class schoolmates.

Albinati uses this shocking historical episode to analyze the disintegration of the Italian bourgeoisie and the decline of traditional religion. His is a story about the uselessness of men in modern society. For most of human history, men’s superior physical strength, aggression, and prowess in combat translated into unchallenged social and political dominance. But in the new world of office politics, those with creativity and the ability to navigate complex social relations have the upper hand.

This profound social transformation left men feeling constantly under attack, as well as desperate to demonstrate their masculinity. Having grown up with the social privileges of the post-war era, they found themselves suddenly condemned to irrelevance – a useless gender, comparable, in Albinati’s telling, to a lizard’s tail that twitches for some time after being severed. Many reacted with rage and violence. Some sought the community of neo-fascist movements channeling an aggressive form of masculinity, while others joined far-left groups with their own cults of violence.

In the world Albinati describes, money assumes a special importance. The extension of new freedoms to a wider class of people suggests that anything is possible, but only if one has the means. Albinati admits, grudgingly, that the “spores of Marxism” have led him to this conclusion. But it is nonetheless inescapable: money creates the illusion of more freedom, and thus increasingly has come to define the modern world. Though Albinati’s novel is set in Italy, that world is its subject, leaving open the question of whether there can be any escape from the unchecked pursuit of personal gain that underlies today’s prevailing social and political malaise.

The Roman Empire was unsalvageable after its fall, and it took the Italian Peninsula almost a thousand years to rediscover its classical heritage. Albinati’s message, which deserves to be taken seriously, is that to bring about a new Renaissance today will require demystifying the cult of freedom and strengthening norms of shared responsibility in politics, economics, and social life.

Harold James is Professor of History and International Affairs at Princeton University and a senior fellow at the Center for International Governance Innovation. A specialist on German economic history and on globalization, he is a co-author of the new book The Euro and The Battle of Ideas, and the author of The Creation and Destruction of Value: The Globalization Cycle, Krupp: A History of the Legendary German Firm, and Making the European Monetary Union.

Doug Casey on the 3rd Amendment – Part I

A conversation with Doug Casey and Joel Bowman

Joel: G’day, Doug. Read anything in the past week that made you laugh or cry… or both?

Doug: I try to limit my exposure to current events, Joel. But if you’re going to be active in the financial markets—which I am—you have no choice but to expose yourself to what journalists write. I find it mildly entertaining sometimes. But mostly just try to sort out the facts from the half-truths and lies.

Joel: Ok, let’s get back to our REAL State of the Union project, whereby we examine the present day United States of America in light of the ideals enumerated in the first ten amendments to the American Constitution, also known as the Bill of Rights.

[Ed. Note: Readers just joining us can catch up on past installments here: Freedom of Religion, Freedom of Speech, Freedom of the Press, Freedom of Assembly, The Second Amendment, Part I and The Second Amendment, Part II]

Today we look at the 3rd such amendment, worded as follows:

“No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.”

Before we delve into the historical context and what it means today, it’s interesting to note the conspicuous dangling caveat “to be prescribed by law.” In other words, “the state must refrain from allowing its military to trespass on private property… unless it chooses to make a law allowing such an action.”

It goes to show how even the noblest of statist experiments is ultimately – perhaps even inevitably – susceptible to corruption…

Doug: That’s exactly right. Although the Constitution itself, and the Bill of Rights in particular, were admirable for their time, they’ve largely been interpreted out of existence today. They—at least the Bill of Rights— are supposed to protect the individual from the State, but they’re now effectively dead letters. The US Government does pretty much as it likes.

Of course, rights don’t magically arise from pieces of paper signed by long-dead men, however noble their intentions may have been. And anyone who relies on a government to uphold his individual rights will likely find he’s in direct opposition to the State’s own agenda. Which means he’s probably wasting his time—or, more likely, painting a target on himself.

Governments look after their own interests. It’s up to individuals to look after themselves and their associates.

Still, the Bill is a useful framework for a discussion….

Joel: An excellent reminder, Doug. Bearing that in mind, let’s talk the 3rd.

At the time this amendment was written, in the late 18th century, both the English and the Americans harbored a preternatural fear of standing armies. They worried that groups of armed men barracked together might get “trigger-happy” and so pose a threat to the peace. And yet, each recognized the need for some form of cooperative, security-cum-protection.

The English, for their part, sought to resolve this conundrum by dispersing their troops among the general populace, billeting them in private quarters. The Americans, as outlined in the Second Amendment (which we covered here and here), favored a well-armed militia.

Can you talk about the difference between those two ideas for a second and why it’s important?

Doug: Yes, the Third Amendment really touches on the nature of the military itself and how it relates to the citizenry at large. As I remarked when we discussed the 2nd Amendment, the best type of a military for a free country is actually a militia, not a draft army or a mercenary army—which are the two alternatives.

That’s because the militia are boarded in their own houses, a bit like the way the Swiss do it today. This isn't a problem for the Swiss because most men are actually citizen soldiers. They don't have to live in barracks, except for brief periods in training.

Frankly, when a country’s citizens are unwilling to defend themselves, and they have to either be forced to do it with a draft, or hire mercenaries to do it—then they don’t deserve either freedom or safety.

A bit of historical background might be in order. Under the Quartering Act, which the British parliament passed in 1765, the colonists were required to furnish provisions and assorted other necessaries for billeting troops, the redcoats. That included shelter and bedding, but also food, firewood and even beer. It’s not hard to imagine why the Americans might have felt imposed upon. And why they eventually rebelled against their unwanted guests, as was the case in Massachusetts during the Boston Tea Party, among other examples.

In any case, the people were right to distrust the soldiers stationed among them. Standing armies are always not just very expensive but very dangerous too.

It’s a pity, as well as very dangerous, that the military is the only institution in the United States that anybody loves and trusts anymore. That’s possibly because it's the least corrupt, at least once you get outside of the Pentagon— which is extremely corrupt.
Joel: That’s a drastic cultural shift, from an inherent distrust of the military to the current socio-political climate, where it’s considered not merely impolite but potentially traitorous to even so much as question “our men and women in uniform.”

People who suffered under military dictatorships elsewhere might find this era of compulsory reverence troublesome to say the least. What’s your take?

Doug: Apotheosizing the military, as Americans now do, is a big mistake. Throughout all of history soldiers have always been the bottom of the barrel. Throughout Western history, professional soldiers were people that couldn't do anything else but could be trained to be killers, and were willing to be used as cannon fodder.

Gibbon, in his Decline and Fall of the Roman Empire said, "Any order of men who are accustomed to slavery and violence make for very poor guardians of a civil constitution."
And it's not just in the Western world, either. The Chinese have an expression, "Good steel is not used to make nails and good men are not used to make soldiers."

That attitude has changed recently, and it's not a change for the better. Although in the military you learn to say “yes sir” and “no sir”, shine your shoes, make your bed, and things of that nature, you also learn to follow orders blindly and you pick up lots of bad habits. Because the military in essence is all about destroying other people’s property and killing them.

Chinese Retail Apocalypse, Now?

Panicky sentiment is being amplified by misleading numbers

By Nathaniel Taplin

It used to be that U.S. consumers were the world economy’s main engine. Recently, several hundred million new spenders across the Pacific have become a major force too—huge profit drivers for Detroit, Hollywood and nearly every type of consumer-good vendor.

Little wonder that markets have been spooked by the recent worrying signals from Chinese consumers. Appleblamed last week’s revenue-guidance cut on weak Chinese demand. Retail sales in November were up just 8.1% from a year earlier, the weakest growth since 2003. Auto sales have suffered five straight down months. And Chinese consumption-tax revenue has collapsed, down 71% in November.

Luckily, the weak data most likely stem not from a structural collapse, but from a cyclical downturn related to the housing and automobile markets.

The two most frightening numbers—auto sales and consumption-tax revenue—reflect specific policies that have hit demand for cars. Beijing raised automobile taxes at the start of 2018 and has crimped financing for vehicle purchases with a campaign against peer-to-peer lending platforms.

Falling auto sales, in turn, have taken about 2 percentage points off retail-sales growth in recent months, according to analysts at Gavekal Dragonomics. As for consumption-tax revenue, around 95% comes from autos, fuel, tobacco and alcohol, according to Merrill Lynch—which adds that liquor sales remain generally healthy.

For sure, Chinese consumers are in for a rough ride in 2019. The labor market is weakening, with falling new export orders particularly worrying. Lower profits for property-related industries will pressure wages. Weak property sales are damaging demand for white goods like refrigerators.

Those are cyclical trends, however, related to slowing global growth and China’s volatile property market. Beijing has already enacted a big income-tax cut for 2019, and more policy support is likely coming. As long as President Xi Jinping can reach a trade deal with the U.S., a floor for growth in late 2019 or early 2020 seems likely.

Global growth engine at idle.
Global growth engine at idle. Photo: Gilles Sabrie/Bloomberg News 

The real danger is that Beijing fails to make the overhaul necessary to keep incomes growing over the long run. The “reform” agenda of the past three years has handed power, and financial resources, back to inefficient state companies, starving innovative private-sector companies that drive income growth.

Chinese consumers will keep spending as they grow richer in the years ahead—unless Beijing wrecks the private-sector growth engine. That, not the trade conflict or slumping auto sales, is the real danger on which investors should focus.