Whither the West?
A jolt is necessary. Europe must reaffirm its values of freedom, solidarity, peace. The EU must be understood and controlled by its citizens. I will do everything to secure profound change rather than decline – Francois Hollande
We’ve been hearing about the decline of the West for a few decades and the implicit assumption of the rise of the East. In this analysis, the US is considered part of the decline, perhaps the biggest part, but I disagree. Instead, I believe we are seeing the rapid decline of the UK, France, and to a lesser degree, Germany.
The UK and France are declining militarily, economically, politically, and socially. Where both were the preeminent colonizers in the world, both are being invaded by those who were once considered subjects of their respective empires. For hundreds of years, these two countries were the major military powers on earth. Britain controlled the seas with the Royal Navy and France once had the most powerful land army in Europe and a population larger than that of Russia.
While the US will need to atone for 50 years of self-destructive economic policies, it retains the necessary ingredients to ultimately grow out of past mistakes. Neither the UK nor France has such advantages combined with economic policies far worse than those made in the US. The result is that the world no longer needs the UK nor France in meetings that determine the great questions of the day.
When we discuss the decline of the West in five years, we’ll be discussing the decline of the UK, France, Germany, Spain, and Italy. Eastern Europe, the Baltic nations, and Scandinavia have the potential to thrive in the future apart from the stifling policies of the un-elected bureaucrats of the EU – assuming the yoke is ultimately cast-off.
The stink of failure hangs over Britain and France thanks to their unwillingness to restructure following WWII. Both nations were decimated and badly needed to turn inward to recapture global competitiveness. Instead, both attempted to maintain the vestiges of their imperial pasts while embracing a stultifying form of socialism. The result is that neither is globally competitive and rapidly losing their influence in global matters.
Iran Conflict
The proof of the pudding is in the eating – William Camden
We can see how far Europe has fallen by their inability to participate in keeping the Strait of Hormuz open. Only France and Italy have the necessary surface assets to join a coalition to patrol the Strait of Hormuz; both nations have invested in the necessary destroyers and frigates for the job. Britain’s navy is old and broken; Scandinavian navies are needed in the Baltic Sea to counter Russia. Spain and Germany could contribute some frigates.
One thing all the European nations possess are minesweeping vessels that could be invaluable around the Strait but none have offered their services to date. Oil is the life blood of modern economies yet none of the above are willing to act to ensure their economic survival.
Energy
The great hope for a quick and sweeping transition to renewable energy is wishful thinking – Vaclav Smil
The Green Energy movement started off as a Soviet operation to create pushback to Germany’s adoption of nuclear energy in the 1970’s – it was a KGB operation. Back then, the Soviets feared that nuclear energy would replace their exports of natural gas to Germany. The movement ultimately turned on the Russians…
The Club of Rome was formed in 1968 by scientists and wealthy Italian and British industrialists to address exponential economic and population growth. Members of this so-called think-tank are merely Malthusians with an implicit goal of creating a form of neo-serfdom to limit human potential. The Club of Rome has worked closely with the World Economic Forum since Klaus Schwab formed the WEF in the early 1970’s.
When you boil away the shiny PR, these groups are selling a form Neo-Marxism, which is the only way they can create the control mechanisms to meet their goals. Since they have been VERY influential in Europe, particularly among the bureaucrats of Brussels, they have been able to slowly morph Europe from a quasi-capitalist continent to the current authoritarian system it has become.
Today, Germans pay over $9.00 per gallon of gas with half the price made up of taxes. British drivers pay roughly $7.50 per gallon, the French pay over $8.00 per gallon, and Italians over $7.50 per gallon. Gasoline is heavily taxed to make internal combustion engine vehicles more competitive with electric vehicles to force the adoption of EV’s.
The price of electricity makes Europe extremely uncompetitive in global markets. Germans pay $0.40 per kilowatt hour, Brits pay $0.37 per kWh, French pay $0.28 per kWh, and Italians pay $0.40 per kWh. Compared to the US at $0.175 per kWh, Norway at $0.194 and Poland at $0.20 per kWh, there is no way Germany, Britain, France, and Italy can compete in industrial operations. Re-charging EV’s is brutally expensive.
Worse still, the German government is planning to flood an open-cast lignite mine in Hamburg with rain water diversion to create a 300-meter-deep lake that permanently destroys this energy asset. In effect, the Greens are “salting the fields” to ensure that subsequent generations don’t reverse course on carbon-based energy. The result will be perpetual energy disadvantages in Europe’s industrial powerhouse.
Royal Navy
Every existing thing is born without reason, prolongs itself out of weakness, and dies by chance – Jean-Paul Sartre
The Royal Navy has been a global naval power since the 16th century and the pre-eminent naval power at the outset of WWII. More than anything, it was the fighting force that established Britain’s empire that lasted until the 1960’s.
World War II ended with the US Navy replacing the Royal Navy as the most powerful global navy. By the end of the conflict, the USN had more than 100 aircraft carriers in service, including the powerful Essex class and the newly commissioned Midway class.
Since that time, the Royal Navy has collapsed in size and scope. Today, they have more admirals than warships – 134 versus 63 commissioned ships. There are two Queen Elizabeth-class aircraft carriers and the QE is already in long-term drydock to fix propulsion issues, leaving only the Prince of Wales in active service.
The Royal Navy has four Vanguard-class ballistic missile submarines capable of carrying Trident nuclear weapons, although most are in dry dock for repair. Similarly, they have six Astute-class nuclear-powered attack submarines, similar to the US Los Angeles class, most of which are being repaired.
Their primary surface combatants consist of six Type 45 guided missile destroyers and seven Type 23 frigates. And you guessed it; most are being repaired. They have twenty-six patrol vessels that are responsible for most of coastal protection. In short, they are but a remnant of the once mighty force that controlled the world’s oceans for hundreds of years.
Japan has replaced the Royal Navy as the world’s second most powerful navy, followed by India. Russia still has a large fleet but it’s spread out and old. China has a very large fleet but the vessels are substandard while training and logistics are poor. None of their aircraft carriers are operational by US standards. It’s a navy designed for show, not blue water operations.
Liberal Democratic Order
Marxism is essentially a product of the bourgeois mind – Joseph A. Schumpeter
The winds of global change are approaching hurricane speeds and those winds are lifting the curtains that influential organizations hide behind, revealing their motives. Liberal democracy has morphed from being a system that protects individual rights and liberties to an authoritarian system that favors collectivism over the individual. The change has been gradual over the last 80 years – evolutionary not revolutionary.
The Western Europe that we see today resembles a softer version of Marxism than the revolutionaries of the early 20th century but like those early states, they share a lack of competitiveness in common. Socialism, in general, and Marxism, in particular, are re-distribution systems, not systems designed for growth and change.
We can see this clearly in China where the CCP had been somewhat dormant during the reigns of Jiang Zemin and Hu Jintao which unleashed latent economic potential. With the ascendancy of Xi Jinping, a Maoist, the economy lost all its dynamism and is presently in a state of economic collapse.
This is the future of Britain, France, and Germany and it’s going to be extra painful because growth is the only way to attack the excess systemic debt without mass write-downs with losses and/or hyperinflation. None of the three are capable of economic growth with their present stultifying political systems, crushing debt and their fervent embrace of high-cost energy. All three are headed to the economic dumpster along with China.
Men often oppose a thing merely because they have no agency in planning it, or because it may have been planned by those whom they dislike – Alexander Hamilton
There is only one path open to the United States that doesn’t involve a wholesale devaluation of the US dollar relative to our debts and that is real economic growth. The American System is built on national independence, high tariffs to protect American industry, and a national bank that fosters commerce (not financialization).
The American System died with President McKinley in 1901; twelve years later the Federal Reserve was created and the financialization era began. One hundred and twenty-five years later, US industry has been hollowed out, and the welfare state has grown into an institution, not a helping hand during difficult times. Self-sufficiency has been replaced by being wards of the state.
The architects of the system implicitly sought to create distance between the US economy and influence from Europe; it worked extremely well for one hundred and twenty-five years. With Western Europe on the cusp of a sharp decline, it’s critical to separate ourselves from the wreckage. It’s also the best option for maintaining life, liberty, and the pursuit of happiness.
The best-case scenario is a slow-motion shift from consumption-based assets to production-based assets on our national balance sheet but I don’t believe in fairy tales. Instead, I expect financial losses to force an economic retrenchment even as embryonic industrial investments begin to take shape. Remember that IBM was founded during the Great Depression of the 1930’s.
The US is a blank canvas, perfect for re-industrialization but this will depend on the will of the people. Most of the current members of Congress are representatives of the old system and are beholden to those special interests. We won’t know until after the mid-terms whether a return to the American System is the will of the people.
Conclusion
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide – Abraham Lincoln
Western Europe has destroyed itself from within. It follows previous great civilizations from the past such as the Indus Valley, Persia, Egypt, Mesopotamia, Inca, Khmer, Kush, Tang, and others. There is no coming back from the mistakes of the past 100 years.
The US is part of Western Civilization but not entirely because we are an amalgamation of the entire world. In this way, the history books can’t close the chapter on the US like they will on Western Europe. The US is a hybrid off-shoot of the European powers but with an entirely different future.
The US has energy, food, water, intellectual property, human capital, and a potential off-ramp from the destructive Marxist path of our European progenitors. The excess debt is a problem that can ultimately be managed with 0% interest rates and real economic growth – if allowed to return to a market economy.
The financialization cycle is over after 125 years. The future is about re-building a destroyed industrial base, not about trading crypto and Mag 7 stocks. If you’re interested in learning more, visit us at https://geovestadvisors.com/ and contact Paul Hurley.
Philip M. Byrne, CFA