Technology Rules

By John Mauldin 

Macroeconomic forecasting is too politicized. 

I don’t mean that in a partisan sense, though it may be so. 

The bigger problem is that forecasters spend most of their time thinking about central bank decisions and government policies. 

In the long run, those aren’t the most important factors. 

Not even close.

What really drives economic progress is human ingenuity and the innovation it produces. 

In other words, technology

I use that term in its broadest sense: applying knowledge to make life better. 

Nowadays we associate technology with electronic devices, but it’s much older. 

The wheel was an early technology. 

We progressed to steam engines, automobiles, telegraphs, radios, airplanes, computers, and more.

Each (and a million others) boosted economic growth. 

Their combined effect brought us to where we are today.

Other forms of innovation improve life just as well. 

Something as mundane as pizza delivery has morphed into delivery of all types of foods “Fast food” was an innovation. 

Home Depot, Walmart, Schwab, and a thousand businesses focus on making life a little easier in small ways, but they multiply to create a society that people living 100 years ago or even 50 years ago couldn’t imagine.

Governments and central bankers don’t generally invent technologies. 

At their best, they establish conditions that unleash human talents. 

At their worst, they suppress those talents. 

It is no coincidence China began its rise when Deng Xiaoping decided that “getting rich is glorious” and unleashed the population’s entrepreneurial bent. 

(That the country used it to create a panopticon surveillance state is a different matter. A century from now we’ll see how that works.)

At the same time, not every human welcomes every technology. 

The 19th-century Luddites had serious issues with automated looms taking their jobs. 

This is a classic quandary. 

Someone’s livelihood probably depends on the work your new technology will replace. 

It may (and should) enable growth that creates new jobs, but that takes time. 

The transitions can be uncomfortable, and more so when the pace quickens, as it is now

We always discuss these issues at the Strategic Investment Conference, and the dialogue goes deeper every year. 

I consider this a critically important part of our mission. 

Technology develops in the background, often unnoticed amid the more headline-generating policy debates. 

But I really believe it is far more important.

This week we’ll review some of the SIC technology sessions and think about where the latest innovations will take us. 

(You can still get a Virtual Pass and view the full event, by the way.) 

It wasn’t just pie in the sky, either. 

We talked about real investment opportunities available right now.

Disruptive Innovation

We will start with Cathie Wood, founder and CIO of ARK Invest. 

I first brought Cathie to SIC in 2020, when she was already quite famous, but in the last year her fame went exponential along with (and not coincidentally) some of the stocks in her portfolio.

Cathie has come under severe criticism in recent weeks because her ARK Innovation ETF (ARKK) shares dropped about 33% from their February peak. 

The momentum players say she made bad decisions and has lost her touch I think that opinion is misplaced, misguided, and pretty stupid (to be blunt about it). 

They simply do not understand her mission and purpose in the investing ecology.

Most of this criticism is from momentum players who got caught offsides, or people simply jealous of her success. 

Full disclosure: I have a great deal of my portfolio with managers who trade ETF’s. 

A perfectly rational strategy. 

But don’t complain when you’re not good at it. 

(Further full disclosure: I suck at trading ETF’s but I know managers who excel, and give them my money.)

Further, Cathie Wood is an active ETF manager—a very rare breed. 

Most ETFs are passive indexes. 

The criticism comes from people who don’t understand her process. 

Bluntly, how many of her critics have taken the time to interview individually each of the members of her investment committee? 

We have. 

All 10 portfolio managers, the head of research, and Cathie Wood herself three times. 

A total of 13 people. 

Have you done your homework? 

If not, go sit back on the porch.

Cathie, and each of her portfolio managers, will say the same thing—that they have no idea how well the company will do pricewise over the next 2 to 3 years but they believe within 5 years they will see a 15% compound return. 

Every one of them. 

So let’s hold her to her own standard. 

Here is her flagship fund going back five years:

Source: Yahoo! Finance

Five years ago, ARKK shares were $19.57. 

Now, even after recent losses, they are around $107. 

That’s ~40% annualized growth, and actually a little more if you include dividends. 

Making those kind of returns means you will endure some drawdowns. 

She clearly made her five-year 15% annual compound return goal, even after 33% drawdown.

Even more impressive, she is doing this in a fully visible, fully liquid public fund. 

These aren’t early-stage venture capital investments, but the returns would rank it among the best VC funds. 

Cathie has done this by having a disciplined process and outlook.

Last week I shared some of Cathie’s thoughts on deflation. 

That snippet, while enlightening, was just part of the deeply researched viewpoint that guides her investments. 

She looks for “disruptive innovation,” which is another way of saying “automation.” 

In her view, the labor shortage is a good thing because it accelerates these helpful innovations. 

Here’s a little more from the SIC transcript.

We think we're going back into a labor shortage, broadly defined. 

Not having to do with a pandemic, but a labor shortage, given demographics and growth in the economy. 

I think what we're going to see is the productivity that we're talking about, which is another way of expressing what I did with Wright's Law, is going to accelerate. 

It already has started to accelerate. 

I think, on a year-over-year basis, it was 4.2% in the first quarter, and at an annualized rate of change, it was 5.2%. 

We're already seeing that. 

That's a powerful antidote to any inflationary pressures that are evolving out there.

We think productivity is going to skyrocket. 

We did an analysis, just to give you a sense of how much technology-enabled platforms, how many jobs they can create. 

That was answering the robotics question. 

We did a study based on University of Oxford, which, when we started the firm, had just been published. 

It was about the United States and the labor force. Basically, the headline read, "47% of all the jobs in the United States are going to be lost to automation, including artificial intelligence, during the next 20 years." 

We took the same study. 

They left it there, and that's why the robots-are-going-to-kill-jobs worries really developed some momentum.

We took the same study with the 700 job classifications they used, and given our cost curve declines, figured out when these various job categories would (succumb) to robotics or automation. 

There's going to be (a lot of) displacement. 

We need to re-educate, we need to retrain. 

But at the end of the day, in 2035, we believe that because of automation, GDP in the United States will not be $28 trillion, which was the linear expectation, but it will be $40 trillion. 

Our job as an investor in innovation, focused only on innovation, is to find out where that $12 trillion is going to be.

It's going to be in jobs that we cannot even imagine now. 

In the early '90s, we could not imagine the gig economy, Uber, Lyft, Airbnb. 

Wouldn't have happened without the internet, and that's going to move into overdrive during the next 15–20 years.

As Cathie notes, we have to do better in helping people retrain and adapt when their occupations disappear. 

But we shouldn’t fear innovation. (Karen Harris of Bain listed job automation as one of her biggest trends as well!)

Cathie has a strict adherence to process. 

Every stock in her portfolio has a percentage allocated for the fund. 

If it gets too big, she will sell shares of a company she believes in, in order to maintain balance in her portfolio. 

She will buy on drawdowns for the same reason. 

She will replace companies in her portfolio with companies they think have more potential.

She commented that she used the recent drawdown to increase her investments in companies like Palantir, which they thought was expensive. 

She saw the drop in price as a gift.

Further, I am privately aware of a portfolio of her 11 highest-conviction stock picks. 

That portfolio is down only 11%, last I looked a week or so ago. 

Her process works.

The bulk of my personal technology plays are in the private arena hopefully (!) on their way to becoming public. 

Ironically, I see Cathie as a hedge against me being wrong. 

I appreciate that she has created multiple innovation ETF’s, allowing investors to focus on industries where we have a particularly strong belief.

Frankly, a 30% drawdown is a gift to technology investors, not momentum traders. 

My bet is five years from now Cathie and her process will be big winners from today, leaving the passive S&P 500 in the dust. 

I will gladly wager serious money on that statement.

Smart Enterprises

One of my personal SIC highlights was the chance to interview Joe Lonsdale, a very successful venture capitalist who co-founded Palantir with Peter Thiel. 

He’s now running his own firm called 8VC, and also leads tech companies Addepar and OpenGov.

In 1984, Stewart Brand coined the now-common phrase, “Information wants to be free.” 

That’s absolutely right but there’s a corollary: Information also wants to connect. 

Its value multiplies when it finds other information. 

Yet even now, information often exists in segregated siloes that greatly limit its usefulness, often purposely so, as people in government make money keeping that information private and unconnected.

Joe Lonsdale’s great genius is in recognizing the massive opportunities in unleashing and combining information. 

He did it with Palantir, Addepar, and OpenGov.

He started at PayPal, where one of their problems was that bad guys were using the platform to facilitate illegal transactions. 

PayPal’s genius was getting enough information to limit or eliminate the bad guys, while keeping the process simple enough for the rest of us. 

Here’s a great quote on the impetus behind launching Palantir:

…we saw the government, frankly, wasting billions of dollars on things that were 20, 30, 40 years behind what we had done at PayPal. 

Because at PayPal, when we started arresting the bad guys, we got to know these guys in the government. 

They started asking for our advice. 

Then after 9/11, they were spending so much money on these wasteful systems that we said, wow, this is a huge opportunity. 

We have to take the lessons from Silicon Valley and go bring them to the East Coast, where they don't have the same technology culture, and we can help them out.

Now he’s doing the same thing in the financial services industry.

Here is a snippet of our SIC conversation:

A theme we came up with, John, is a theme we've been talking about now for a decade. 

It's called the smart enterprise theme, which is basically that, if you look at the waves of technology in Silicon Valley, what happens is certain things become possible all at once, and you get a bunch of companies, so we're calling it a wave.

What was happening right around '08, '09, '10 is we realized there's just a lot of new things that were possible. 

It was clear the cloud was just getting going, and so there's all this software that runs the processes of global finance, that runs how family offices, RIAs, wealth managers work. 

It's really clear that data's not all connected to apps. 

It's not at all connected. 

It's not allowed to flow freely. 

If Morgan Stanley wants to spend money using machine learning to figure out what to offer to their clients, that's very hard to do. 

There's no platform, there's no data, and so we realized there were going to be these new platforms that came in and made that industry run in much better ways. 

This is true of different parts of logistics. 

It's true of different parts of healthcare. 

It's true of almost every one of these industries. 

There's systems running these industries from 20, 30, 40 years ago that have to get replaced in order to allow innovation into these industries.

Mapping out all of these, we realized this area of finance is not only very broken right now, compared to what's possible, but it's also very valuable if you can own a big platform in that industry because of what you can do if you own a platform that these people are using to make decisions. 

You can have trillions of dollars on it, you can build apps on top of it, you can have an ecosystem, and so we realized that's a great thing to go after.

When you dig into this, it’s remarkable how many industries and government agencies are still operating on ancient (as in 1990s) technology platforms. 

The Y2K challenge compelled many to upgrade, but others just patched up the date functions and muddled through. Some are just now joining the 21st century.

Quoting Joe:

...It's funny. If you talk to the guys in the intel world, they're so frustrated. 

They're like, ‘Oh, in the business world, everything must be smart and logical, and not dumb like the government.’ 

If you talk to the people in the RIA world, they say, ‘Oh, well, the intel world must have all the coolest stuff.’ 

Both of them have a lot of problems, but there are a lot of good lessons about how to handle data, and data integration, and all the workflows. 

To make a long story short, Addepar's now the leading private software company in that space.

This is obviously good for technology providers, but the real consequence is what happens when those organizations take off their old-tech handcuffs. 

They will run better and develop new capabilities they never had before. 

Customers, workers, and investors will all benefit. 

Here’s Joe again:

Humans have a comparative advantage at higher levels of abstraction: creativity, intuition, and holistic judgements. 

Each is necessary. 

The best technologies do not automate complex problems, as many assume; they equip people to solve them faster and more effectively.

Ron Baron’s Two Biggest Mistakes

The surprise interview (by David Bahnsen) was Ron Baron. 

I simply don’t have the space to give him his due. 

I think we will cover him for a full letter later, but I will tease out what he said were his two worst mistakes.

First, he made a major investment in Sotheby’s. 

It went up and down but it was going basically nowhere. 

He spent a year and multiple times pitching Sotheby’s to Jeff Bezos. 


So I always regarded (Sotheby’s) as my biggest error, but a much bigger error than that was sitting next to Bezos for an entire year in that corner conference room where he was all glassed out and hearing his crazy laugh, and not investing in Amazon, trying instead to sell him on my junky stock in Sotheby's, and ignoring the fact that here's this guy changing the world and I wasn't investing in him.

The rest of the story is that he didn’t make that mistake when he sat next to Elon Musk. 

Like Cathie Wood, he and his investors are up big time. 

He is one of the greatest innovative business investors of all time. 

Not just in tech. 

We will unpack that.

Transformed Energy

Louis Gave noted at the SIC that most economic activity is simply “transformed energy.” 

Doing it better generates growth. 

A few centuries ago, if you wanted to move some book-length information a thousand miles, you needed paper, which meant trees. 

You needed to carry the paper to its destination, which meant you needed a rider and a horse, who both needed food. 

And if you had all that, the ride still took weeks.


It takes a fraction of a second. 

The technologies that let us do that aren’t free, and they have their own sometimes-problematic footprints. 

But we can do things we never could before.

A time will come when even today’s technology, impressive though it may be, seems as antiquated as that horse and rider. 

That time may come sooner than you think, too. 

Figure out what the next horse will look like and you can make a lot of money.

New York and Writing Frustrations

Later this month I will be in New York for a few days. 

I’m setting up meetings with friends and partners. 

I’ll meet with the chairman of my largest and favorite personal investment, what I think of as a major technological innovation and disruptive breakthrough. 

It is private now but will soon be public and I will mention it when it is. 

(It is available as a private company if you talk to your Team Mauldin representative.) 

I look forward to traveling again, even if I don’t do 200,000 miles a year.

This letter was particularly frustrating in that I couldn’t do justice to either Cathie Wood or Joe Lonsdale. 

I didn’t even get around to Karen Harris and barely gave a hat tip to Louis Gave. 

My current fantasy dinner would be Cathie Wood, Joe Lonsdale, Ron Baron and a few friends, three hours, fabulous food and a great Chardonnay. 

Or BBQ and margaritas in Austin. 

Plus cameras so you can join in. 

I guess we could invite Elon to round it out.

And I didn’t even get to mention the juxtaposition between the drag on growth of massive and growing government debt and inflation versus the boost to growth from technology and innovation. 

Basically the long-humanity versus short-government trade. 

Which is critical and should have its own letter or two.

And with that I will hit the send button. 

I am preparing for Shane’s birthday and our fourth wedding anniversary. 

I cleverly arranged them to be on the same day—still two presents but only one day to remember. 

I asked her to marry me on her birthday in an outdoor Austin barbecue mecca with George and Meredith Friedman watching. 

We married exactly one year later.

You have a great week! 

Think about seeing more friends and being less socially distanced!

Your believing in the positive disruptive power of innovation analyst,

John Mauldin
Co-Founder, Mauldin Economics

US-China rivalry drives the retreat of market economics

Industrial policy is back in fashion as geopolitical tensions increase

Gideon Rachman 

© James Ferguson

Old ideas are like old clothes — wait long enough and they will come back into fashion. 

Thirty years ago, “industrial policy” was about as fashionable as a bowler hat. 

But now governments all over the world, from Washington to Beijing and New Delhi to London, are rediscovering the joy of subsidies and singing the praises of economic self-reliance and “strategic” investment.

The significance of this development goes well beyond economics. 

The international embrace of free markets and globalisation in the 1990s went hand in hand with declining geopolitical tension. 

The cold war was over and governments were competing to attract investment rather than to dominate territory.

Now the resurgence of geopolitical rivalry is driving the new fashion for state intervention in the economy. 

As trust declines between the US and China, so each has begun to see reliance on the other for any vital commodity — whether semiconductors or rare-earth minerals — as a dangerous vulnerability. 

Domestic production and security of supply are the new watchwords.

As the economic and industrial struggle intensifies, the US has banned the exports of key technologies to China and pushed to repatriate supply chains. 

It is also moving towards direct state-funding of semiconductor manufacturing. 

For its part, China has adopted a “dual circulation” economy policy that emphasises domestic demand and the achievement of “major breakthroughs in key technologies”. 

The government of Xi Jinping is also tightening state control over the tech sector.

The logic of an arms race is setting in, as each side justifies its moves towards protectionism as a response to actions by the other side. 

In Washington, the US-China Strategic Competition Act, currently wending its way through Congress, accuses China of pursuing “state-led mercantilist economic policies” and industrial espionage. 

The announcement in 2015 of Beijing’s “Made in China 2025” industrial strategy is often cited as a turning point. 

In Beijing, by contrast, it is argued that a fading America has turned against globalisation in an effort to block China’s rise. 

President Xi has said the backlash against globalisation in the west means China must become more self-reliant.

The new emphasis on industrial strategy is not confined to the US and China. 

In India, Narendra Modi’s government is promoting a policy of Atmanirbhar Bharat (self-reliant India), which encourages domestic production of key commodities. 

The EU published a paper on industrial strategy last year, which is seen as part of a drive towards strategic autonomy and less reliance on the outside world. 

Ursula von der Leyen, European Commission president, has called for Europe to have “mastery and ownership of key technologies”.

Even a Conservative administration in Britain is turning away from the laissez-faire economics championed by former prime minister Margaret Thatcher, and seeking to protect strategic industries. 

The government is reviewing whether to block the sale of Arm, a UK chipmaker, to Nvidia, a US company. 

The UK government has also bought a controlling stake in a failing satellite business, OneWeb.

Covid-19 has strengthened the fashion for industrial policy. 

The domestic production of vaccines is increasingly seen as a vital national interest. 

Even as they decry “vaccine nationalism” elsewhere, many governments have moved to restrict exports and to build up domestic suppliers. 

The lessons about national resilience learnt from the pandemic may now be applied to other areas, from energy to food supplies.

In the US, national security arguments for industrial policy are meshing with the wider backlash against globalisation and free trade. 

Joe Biden’s rhetoric is frankly protectionist. 

The president proclaimed to Congress: “All the investments in the American jobs plan will be guided by one principle: Buy American.”

In an article last year, Jake Sullivan, Mr Biden’s national security adviser, urged the security establishment to “move beyond the prevailing neoliberal economic philosophy of the past 40 years” and to accept that “industrial policy is deeply American”. 

The US, he argued, will continue to lose ground to China on key technologies such as 5G and solar panels, “if Washington continues to rely so heavily on private sector research and development”.

Many of these arguments will sound like common sense to voters. 

Protectionism and state intervention often does. 

But free-market economists are aghast. 

Swaminathan Aiyar, a prominent commentator in India, laments the return of the failed ideas of the past, arguing that: “Self sufficiency was what Nehru and Indira Gandhi tried in the 1960s and 1970s. 

It was a horrible and terrible flop.” Adam Posen, president of the Peterson Institute for International Economics in Washington, recently decried “America’s self-defeating economic retreat”, arguing that policies aimed at propping up chosen industries or regions usually end in costly failure.

As tensions rise between China, the US and other major powers, it is understandable that these countries will look at the security implications of key technologies. 

But claims by politicians that industrial policy will also produce better-paying jobs and a more productive economy deserve to be treated with deep scepticism. 

Sometimes ideas go out of fashion for a reason.

The pandemic

How well will vaccines work?

Covid-19 may become endemic. Governments need to start thinking about how to cope

Even miracles have their limits. 

Vaccines against the coronavirus have arrived sooner and worked better than many people dared hope. 

Without them, the pandemic threatened to take more than 150m lives. 

And yet, while the world rolls up a sleeve, it has become clear that expecting vaccines to see off covid-19 is mistaken. 

Instead the disease will circulate for years, and seems likely to become endemic. 

When covid-19 first struck, governments were caught by surprise. 

Now they need to think ahead.

To call vaccination a miracle is no exaggeration. 

A little more than a year after the virus was first recognised, medics have already administered 148m doses. 

In Israel, the world’s champion inoculator, hospital admissions among those aged below 60, who have not received a jab, are higher than ever. 

By contrast, among the largely inoculated over-60s they are already nearly 40% below their mid-January peak and they will fall further. 

Although vaccines fail to prevent all mild and asymptomatic cases of covid-19, they mostly seem to spare patients from death and the severest infections that require hospital admission, which is what really matters. 

Early evidence suggests that some vaccines stop the virus spreading, too. 

This would greatly slow the pandemic and thus make it easier to alleviate lockdowns without causing a surge of cases that overwhelms intensive-care units. 

Those findings, and many more, will harden up over the next few months as more data emerge.

However, despite all this good news, the coronavirus is not finished with humanity yet. 

Covid-19 will continue to circulate widely. 

There is a growing realisation that the virus is likely to find a permanent home in humans, as “The Jab”, our new podcast, which launches on February 15th, will explore. 

That has profound implications for how governments need to respond.

One reason the coronavirus will persist is that making and distributing enough vaccine to protect the world’s 7.8bn people is a Herculean task. 

Even Britain, which is vaccinating the population at a faster rate than any other big country, will not finish with the over-50s until May. 

To add to the burden, the potency of a jab may fade, making boosters necessary. 

Outside the rich world, 85% of countries have yet to start their vaccination programmes. 

Until the billions of people who live in them have felt the prick of a needle, which may not bebefore 2023, they will remain fuel for the virus.

Another reason for covid-19’s persistence is that, even as vaccines are making sars-cov-2 less infectious and protecting people against death, new viral variants are undoing some of their good work. 

For one thing, successful variants are more infectious—anything from 25-40% in the case of b.1.1.7 which was first found in Britain. 

Infection is governed by the dizzying mathematics of exponential growth, so cases and deaths accumulate rapidly even if the variant is no more deadly. 

To get a given level of viral suppression, more onerous social distancing is needed.

In addition, new variants may withstand current vaccines. 

The ones found in Brazil and South Africa may also be defeating the immunity acquired from a previous covid-19 infection. 

The hope is that such cases will be milder, because the immune system has been primed by the first encounter with the disease. 

Even if that is true, the virus will continue to circulate, finding unprotected people and—because that is what viruses do—evolving new strains, some of which will be better at evading the defences that societies have mounted against them.

And the third reason sars-cov-2 will persist is that lots of people will choose to remain a target by refusing vaccination. 

A total of 10m Britons are vulnerable to the disease, because of their age or underlying conditions. 

Modelling suggests that if just 10% of them declined to be vaccinated and if social distancing were abandoned while the virus was still liable to circulate at high levels, then a tremendous spike in infections and deaths would result.

In reality, the share of the overall population that remains unvaccinated is likely to be much higher than in that thought-experiment. 

Vaccines are not yet licensed for children. 

Minority communities in many countries, which are most vulnerable to infection, tend to have less trust in the government and the medical establishment. 

Even among some care workers, as many as half refuse vaccination, despite having seen the ravages of covid-19 at first hand. 

With the new variants, about 80% of the overall population needs to be immune for an infected person, on average, to pass on the disease to less than one contact, the threshold at which the epidemic subsides. 

That will be a tall order.

For all these reasons, governments need to start planning for covid-19 as an endemic disease. 

Today they treat it as an emergency that will pass. 

To see how those ways of thinking differ, consider New Zealand, which has sought to be covid-free by bolting its doors against the world. 

In this way it has kept registered deaths down to just 25, but such a draconian policy makes no sense as a permanent defence: New Zealand is not North Korea. 

As vulnerable Kiwis are vaccinated, their country will come under growing pressure to open its borders—and hence to start to tolerate endemic covid-19 infections and deaths.

Across the world governments will have to work out when and how to switch from emergency measures to policies that are economically and socially sustainable indefinitely. 

The transition will be politically hard in places that have invested a lot in being covid-free. 

Nowhere more so than China, where vaccination is slow. 

The Communist Party has defined every case of covid-19 as unacceptable and wide circulation of the disease as a sign of the decadence of Western democracies.

The new coronormal

The adjustment to living with covid-19 begins with medical science. 

Work has already started on tweaking vaccines to confer protection against variants. 

That should go along with more surveillance of mutations that are spreading and accelerated regulatory approval for booster shots. 

Meanwhile treatments will be required to save more of those who contract the disease from death or serious illness. 

The best outcome would be for a combination of acquired immunity, regular booster jabs of tweaked vaccines and a menu of therapies to ensure that covid-19 need rarely be life-threatening. 

But that outcome is not guaranteed.

To the extent that medicine alone cannot prevent lethal outbreaks of covid-19, the burden will also fall on behaviour, just as it has in most of the pandemic. 

But rather than national lockdowns and months-long school closures, which come at a huge price, the responsibility should fall more heavily on individuals. 

Habits like mask-wearing may become part of everyday life. 

Vaccine passports and restrictions in crowded spaces could become mandatory. 

Vulnerable people will have to maintain great vigilance. 

Those who refuse vaccination can expect health-education and encouragement, but limited protection. 

As our special report on the travel industry makes clear, people’s desire to live their lives will ultimately be hard to resist, even in autocracies like China that may be reluctant to leave zero-tolerance behind.

The persistence of acute infections and chronic, debilitating “long covid” means that the next stage of the pandemic sounds grim. 

But even if covid-19 has not been completely put to rest, the situation is immeasurably better than what might have been. 

The credit for that goes to medical science. 

Reengaging the Northern Triangle

Washington can’t ignore the overtures China is making in El Salvador, Honduras and Guatemala.

By: Allison Fedirka

In recent years, there’s been a periodic and predictable exchange between the United States and the Northern Triangle countries – Honduras, El Salvador and Guatemala. 

A group of immigrants heads north to the U.S. to escape poverty and insecurity, whereupon U.S. policymakers argue either that the immigrants should be stopped in their tracks or that conditions should be improved in their home countries so that they don’t need to migrate in the first place. 

This rote episode inevitably falls into the background of international affairs, only to resurface a few months later when another “caravan” forms. 

Occasionally, some security assistance or added consular support would be introduced, but nothing really happens that alters the relationship between the U.S. and the Northern Triangle or that upsets the regional balance of power.

But the status quo is beginning to change, however slowly. 

Honduras, El Salvador and Guatemala certainly continue to call for greater cooperation and funding from Washington, but they are also entertaining overtures from China, a tactic Washington will be unable to ignore.


The United States has a long-standing obsession with Central America. 

Presidents since the mid-1800s have prioritized having a strong U.S. presence there. 

It’s why the U.S. spearheaded the construction of the Panama Canal and why it paid so much attention to the region during the Cold War. 

The obsession, of course, stems from Central America’s geostrategic value. 

The countries form the western flank of the Caribbean basin. 

They occupy a place where the North American landmass narrows, greatly reducing the distance between the Pacific and Atlantic coasts.

(Most of the countries here are bicoastal.) 

Control and influence over this region and its maritime approach remain critical to U.S. strategy for securing its maritime borders.

Consequently, rivals seeking to unnerve or agitate the United States look to Central America as a point of vulnerability. 

The Soviets certainly did so during the Cold War, which was a much hotter conflict for the region than the name implies. 

Indeed, Central America served as a brutal front for fighting between the two global powers. 

The U.S. kicked things off in 1954 by supporting a coup in Guatemala, though the primary years of action did not occur until the 1980s when domestic political unrest created an opening for the Soviets. 

What followed was 36 years of civil unrest in Guatemala, 12 years of civil war in El Salvador and the U.S. using Honduras as a staging ground for troops that participated in 12 years of fighting during Nicaragua’s revolution. 

The details vary by country, but the results were the same: structural economic damages, a poor security atmosphere that rewarded illegal behavior and weak political institutions monopolized by elites

This is precisely why so many migrants are so eager to flee to the United States, and it’s precisely why China is uniquely able to capitalize. 

The U.S. and the Northern Triangle broadly understand that investment and aid are necessary to improve socio-economic conditions, but they don’t agree on how much or where it should go, and there are often strings attached. 

For example, Northern Triangle countries are currently seeking as much as $30 billion in financing, yet Washington’s most recent offer was just $4 billion and was accompanied by calls for political and economic reforms. 

Washington believes it cannot trust that the funds will be used effectively. (Its concern isn’t entirely misplaced. 

The U.S. has open court cases against top Guatemalan officials for corruption and top Honduran officials for drug trafficking, and lawmakers are debating how to respond to the El Salvadorian legislature’s vote to replace five supreme court judges and the attorney general. 

This makes it hard for both sides to engage in good faith.)

A Few Grand Gestures

The U.S. has had little reason to change its approach to the Northern Triangle – that is, until China began to court the region more earnestly and vice versa. 

Washington has been particularly worried about El Salvador. 

In 2018, the government decided to recognize China over Taiwan, when Beijing expressed an interest in developing La Union port. 

More recently, when the president removed the supreme court judges, Washington sent an envoy to San Salvador who was ignored by the president. 

More, a week later, the legislature ratified an agreement with China for the construction of a stadium, library and water treatment facility. 

Vaccine diplomacy has also been put in play with several shipments of China's Sinopharm delivered to El Salvador.

Washington has fewer options to manage the situation now than it did during the Cold War, when the specter of communism “justified” all sorts of sordid behavior. 

(Indeed, over the years, details of U.S. actions and operations in the Americas during the Cold War have come to light and clearly show its role in the violence and instability in the region.) 

Being too heavy-handed will only alienate the region and likely push it further into China’s sphere of influence. 

Even using clandestine approaches through civil society groups and nongovernmental organizations is difficult. 

Previous attempts to leverage aid programs as a solution have been pursued by U.S. presidents from John F. Kennedy to Barack Obama, and all of them failed.

Constraints such as these have led many to propose that the U.S. increase trade, near-shoring and general economic engagement with the Northern Triangle. 

Crucially, these proposals intersect with the broader U.S.-China trade war. 

The U.S. already has the upper hand in trade with these countries, all of which have moderate to high dependencies on exports. 

They’re attractive candidates for near-shoring activities, especially given their close proximity and relatively cheap labor, but security is a strong impediment. 

Additional financial firepower could also be acquired by leveraging relationships with Taiwan, which values the diplomatic recognition it has received from Guatemala and Honduras.


It’s a bit of a double-edged sword. 

But putting trade and economic projects at the fore plays directly into the broader U.S.-China trade and economic wars. 

There’s been lots of hype about increased Chinese presence in Latin America, but the degree and type of influence vary drastically by location. 

Northern Triangle countries have few natural resources that would be attractive to China. 

And Beijing’s push for shifting manufacturing production to higher-tech, value-added goods would not find many buyers in the region. 

Even so, China is a giant market that could offer preferable terms to increase its share of trade, which is relatively small in these countries, and gain space in their economies.

Notably, China has become a bit more judicious with the types of infrastructure projects it invests in. 

But given the strategic value of these countries to the U.S., the geopolitical gains could well make up for any financial losses. 

There is, of course, the traditional danger of a country getting caught in a debt trap, but tomorrow’s problems would not be enough to discourage the Northern Triangle from today’s gains. 

China’s ability to conduct business in legal gray areas is compatible with the patronage systems still employed by Northern Triangle countries, thereby allowing them another source through which to funnel money to support networks. 

There also exists the longer-term potential threat of China introducing a digital footprint in these countries by helping develop surveillance technology or telecommunications systems.

The U.S. faces a pressing need to consider how it wants to reengage the Northern Triangle in light of this competition. 

Right now, Washington holds the upper hand on the economic front and is the dominant hemispheric security power. 

However, China is more than capable of undermining Washington’s position with just a few grand gestures. 

Beijing’s foothold in the region is small for now, but it’s too strategically valuable not to be at least targeted, especially considering that the U.S. threshold for tolerating risk there is so low.

Republicans Are Still Waging War on Workers

By Paul Krugman

     Credit...Matt Black/Magnum Photos

Has the Republican Party, which has championed the interests of big business and sought to keep wages low since the late 19th century, suddenly become populist? 

Some of its rising stars would have you believe so. 

For example, after the 2020 election Senator Josh Hawley declared that “we must be a working-class party, not a Wall Street party.”

But while Republicans have lately attacked selected businesses, their beef with big companies seems to be over noneconomic issues. 

It bothers them a lot that some of corporate America has taken a mild stand in favor of social equality and against voter suppression.

What doesn’t bother them is the fact that many corporations pay little or nothing in taxes and pay their workers poorly. 

On such matters the G.O.P. is the same as it ever was: It’s for tax cuts that favor corporations and the wealthy, against anything that might improve the lives of ordinary workers.

The latest example: the Republican push to end enhanced unemployment benefits that have sustained millions of American families through the pandemic, even though unemployment remains very high. 

Multiple Republican-controlled states have moved to cut off the $300-a-month supplement provided under the American Rescue Plan, even though this means states turning away free money that helps boost their economies — the supplement is entirely paid for by the federal government.

And who has been pushing for a drastic cut in aid to the unemployed?

Why, the U.S. Chamber of Commerce. 

Tell me again how the G.O.P. has become an anti-corporate party of the working class?

Before I get into the substantive issues here, it’s important to be aware of the historical context — namely, that Republicans have always opposed helping the unemployed, no matter what the state of the economy may be.

In 2011, with the economy still deeply depressed in the aftermath of the 2008 financial crisis, leading Republicans attacked unemployment benefits that, they claimed, were encouraging people to “just stay home and watch television.”

And last summer, as a renewed surge in the coronavirus forced much of the country back into lockdown, Senator Lindsey Graham declared that enhanced unemployment benefits would be extended “over our dead bodies.”

I mention these previous episodes to disabuse readers of any notion that the current assault on the unemployed is a good-faith response to anything actually happening in the economy.

The G.O.P. has always been determined to make the lives of the jobless miserable, regardless of economic conditions.

That said, is there actually a case that relatively generous benefits are hurting the economic recovery, because they are discouraging Americans from taking available jobs?

Until last week’s employment report, there was fairly broad agreement among economic researchers that the expanded benefits introduced during the pandemic weren’t significantly reducing employment. 

Notably, the expiration of the $600-a week-benefit introduced in March 2020 didn’t lead to any visible rise in overall employment; in particular, states with low wages, for whom the benefit should have created a big incentive to turn down job offers, didn’t see more employment than higher-wage states when it was removed.

On Friday, however, the Bureau of Labor Statistics announced that the U.S. economy added only 266,000 jobs in April, far short of consensus expectations that we’d gain around a million new jobs. 

Was this evidence that the economy really is being held back because we’re “paying people not to work”?


For one thing, you should never make much of one month’s numbers, especially in an economy still distorted by the pandemic. 

For example, that low reported number was “seasonally adjusted.” 

The economy actually added more than a million jobs; however, the bureau marked that down because the economy normally adds a lot of jobs in the spring. 

That’s standard and appropriate practice — but are we having a normal spring?

Also, if unemployment benefits were holding job growth back, you’d expect the worst performance in low-wage industries, where benefits are large relative to wages. 

The actual pattern was the reverse: big job gains in low-wage sectors like leisure and hospitality, job losses in high-wage sectors like professional services.

I don’t want to make too much of this, since other things have been going on as life gradually returns to normal — although the job number actually reports the situation in mid-April, too soon to reflect the sharp recent progress against the spread of the coronavirus. 

But on the face of it the data don’t support an unemployment-benefits story.

So what actually happened?

We don’t know. 

Maybe it was a statistical aberration, maybe a variety of factors ranging from computer chip shortages to lack of child care were holding the economy back. 

The sensible thing is to wait a few months for more evidence, not rush to cut off a crucial financial lifeline for millions of families.

But punishing the unemployed is what Republicans do, whenever they can, whatever the economic circumstances. 

The G.O.P., posturing aside, is still a corporatist party.

Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman