By Michael Every of Rabobank
I presume most readers will have watched or are familiar with ‘Squid Game’ on Netflix. It is excellent: the kind of high-quality, realistic-yet-fantastic drama Hollywood used to make before it focused solely on underpants-and-politics-on-the-outside productions: and wait until its scripts are run through the Gina Davis AI, which can “identify character representation and percentage of dialogue by gender, race, sexual orientation, disability, age and body type.” If only there were an AI for good/original script ideas too. Anyway, I mention Squid Game today for several reasons.
One is that while Netflix is American, much of the best content on it is not, underlining what we argued in “The World in 2030” last year - that US cultural hegemony would decline (and it would turn away from neoliberal orthodoxy, as in USTR Tai’s argument for managed trade, for example.)
Another is that Squid Game is perceived to about inequality. (A little, perhaps, but it has far larger doses of well-acted character-driven narrative - and buckets of shocking ultra-violence.) Inequality comes to mind when Fed data show 89% of US stocks are now owned by the top 10%, and 54% are owned by the top 1%: so why do the rest of us care what these indices do or don’t do?
Likewise, given rising inflation *and* taxes, and labor militancy, is the Bank of England really sure it wants the market to price for future rate hikes so aggressively? Curve flattening is a trend all over, and not one that suggests a happy ending for many players. The RBA minutes today certainly stuck to their script – no rate hikes until 2024. What, apart from a love of unaffordable housing (which they admit higher rates would slow, at the cost of fewer jobs) do they see that the RBNZ and BOE don’t?
Another Squid Game analogy is the battle for position within one’s own team. As alluded to before, someone is gunning for the Fed Chair, and yesterday saw news Powell sold up to $5m worth of stock options just before the Dow Jones tanked last year. His on-line betting odds on getting the Chair again keep slipping, and Brainard’s keep rising.
That internecine struggle surely also runs through a host of other US media stories of late: “China is ahead of the US in AI”; “China has new hypersonic weapons”; “John Kerry has $1m holdings in a Chinese firm tied to alleged forced labour in China”; “Uighur forced labor is being used outside Xinjiang”; and “US troops are in Taiwan”, etc. The New York Times, both venue and player, has a good summary in an article about why Hollywood never has Chinese villains (‘James Bond Has No Time For China’), noting that within the US:
“On the left now you see several impulses. There is an irrelevant but fascinating fringe of very online ‘tankies’ --a reference to the Communists who justified the USSR sending in the tanks to Hungary-- actively championing the Beijing regime. There is a Bernie Sanders left that wants to critique the Chinese regime on trade and human rights, but fears anything that seems like warmongering. And there is a left that thinks the existential stakes of climate change require deep cooperation with Beijing.
The center, meanwhile, has lost its optimism about China turning into a democracy. But it’s not sure whether to pivot to confrontation and try to disentangle our economies, or whether globalization makes that disentanglement impossible and so we need, with whatever nose-holding, to deepen ties instead. (This divide runs through President Biden’s cabinet.)
The right includes several tendencies as well. There’s a Cold War 2.0 mentality, which fears China as a sweeping ideological threat, a fusion of old-model Communism with 21st-century surveillance technology that promises to make totalitarianism great again. There’s a realist perspective that regards China as a traditional great-power rival and focuses on military containment. And there’s a view that sees China and the US as actually converging in decadence - with similar problems, from declining birth-rates to social inequalities to internet-mediated unhappiness.
But for some on the right, that last view comes with a wrinkle, where the Chinese state is almost admired for trying to act against this decadence --as in its attempt to wean young people off the ‘spiritual opium’ of video gaming-- in a way that liberal societies cannot.”
The latest New York Times story on this front --'Washington Hears Echoes of the '50s and Worries: Is This a Cold War With China?’-- underlines the views of the hold-the-nose camp, who argue the US and China must not view their struggle as military, and must “compartmentalize”, e.g., co-operate on climate while “jousting for advantage” in the South China Sea. This geostrategic illogic astounds many international relations observers, as does the lack of recognition of what relative defense spending is doing.
It’s not the trade logic espoused by USTR Tai either, if she gets a say: a recent Asia Times article argues the recent pattern of US-China trade resembles “the sort of import dependency economists associate with Third World countries dependent on former colonial powers.” (As US industrial production fell 1.3% in September.) But that does not mean the hold-your-nose crowd won’t push more co-operation, as Beijing is already flagging. Meanwhile, Congress is walking a different path, this time pushing a bipartisan bill to counter Chinese economic coercion.
That your partner can suddenly become your opponent is another key theme in Squid Game: and it is worth considering given the strain in global supply chains, and the pains over Northern Ireland, where EU olive sausages were perhaps not enough, and now everything needs to be imperial rather than metric just to muddy the waters. The Northern Ireland Protocol is problematic, says BoJo, but “we’ll fix that.” How – via a game of marbles, perhaps?
Lastly, Goldman Sachs has now taken 100% ownership of its China securities venture, following JP Morgan’s lead. Goldman is notoriously the firm Matt Taibbi described as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” It certainly knows how to swim: e.g., in the Global Financial Crisis suddenly becoming a bank holding company so the Fed could stand behind it. However, it is now in new waters, and just as China’s GDP growth is slowing: everything that hit Q3 will be worse in Q4, and well into 2022, while the China Beige Book is talking about 2% GDP growth rates in future years, and are not alone.
Moreover, common prosperity, which will officially last until 2050, means “coordinating finance with the real economy”, rebalancing between rich and poor regions *and* rich and poor people, while “adjusting high incomes” via floated consumption, income, capital gains, and property taxes. The US this is not. Plus, of course, the Chinese capital account is largely closed, and underlying pressure on the none-shall-pass CNY exchange rate continue to build as structural debt and demographic problems loom.
So, back to the Squid Game and market “Red light, green light…”