Demographics Is Destiny

The Daily Escape:

Avila Beach, CA – March 2024 photo by Slocoastpix

Wrongo’s back! What did he miss? Nothing? Let’s take a look at global demographics. You’re saying, what, no discussion of Trump’s latest falsehood, or about Biden’s age? Nope, not today.

The facts are that the nation (and the world) need on average, a total fertility rate of 2.1 live births per woman to maintain its population at any given level. This is called the replacement rate. The additional .1 accounts for children who die before they reach reproductive age, or who never reproduce.

Live Science reports:

“Population growth could grind to a halt by 2050, before decreasing to as little as 6 billion humans on Earth in 2100, a new analysis of birth trends has revealed. The study…predicts that if current trends continue, the world’s population, which is currently 7.96 billion, will peak at 8.6 billion in the middle of the century before declining by nearly 2 billion before the century’s end. “

In 1970 the world’s total fertility rate was well above 5 live births per woman; now, it’s about 2.3 and is continuing to fall. Africa’s total fertility rate is 4.1, down nearly half that in the mid-20th century, while Asia and Latin America both have fertility rates of 2.0. North America (including Mexico) is at 1.8, and Europe is down to 1.6 live births per woman.

India, the world’s most populous nation, is at 2.0; China, second most populous, is at a stunningly low 1.1 despite efforts by its government to encourage births. Last year, China reported that its population was 2 million people lower than the year before. The US, third most populous, is at 1.7, and Indonesia, fourth, is at 2.1.

Only when you get to the fifth most populous, Pakistan, does the fertility rate sustain population growth (3.3). The sixth, Nigeria, has a fertility rate similar to what the entire world had half a century ago, 5.1. Only six countries on the planet have higher fertility rates than Nigeria does, while 187 have a lower rate.  At the very bottom is South Korea, with a 0.8 fertility rate; if that stays unchanged, it will leave each Korean generation at a little more than a third the size of the generation before it.

Demographers say that sometime in the next two decades, the world will reach its all-time peak human population and begin to see sustained year-over-year contractions.

This will raise serious political issues. First, it means that economic growth will slow in any country experiencing a population decline. Lower growth means incomes will fall. Second, we’re already seeing the effects of illegal mass migration from high-growth/low income countries to the lower growth/high income countries in the developed world. Third, falling populations and better healthcare will make humanity older as a whole and lower the proportion of working-age people, placing an even greater burden on the young to finance health care and pensions.

But this isn’t all bad. Many authors have written about how continued population growth would strain, and if unchecked, ultimately damage the environment and reduce resources required to sustain human life as we know it today. Whenever the dwindling resources discussion takes place, (e.g. America is using up its ground water) or similar, someone says not to worry. They insist that technological progress would soon eliminate our reliance on oil, water (or oxygen). That an even cheaper and more abundant resource will be found to replace the ones we’re wasting. But there isn’t much evidence for that viewpoint.

Think about the equation: In most years the economy grows. Why does the economy grow?  Ultimately, because population increases. With every passing year, there are more people joining the workforce, buying assets, making investments, and purchasing goods and services. Population growth is the engine behind economic growth. The smaller the population, the smaller the economy.

To see this more clearly, imagine that a population contraction was happening in the US. There are fewer people who need to buy or rent a home this year than last year; there are fewer people shopping at the neighborhood stores, or working at the shops and factories, and so on. From Nature Magazine:

“Using population projections, we found that, by 2100, close to half of the nearly 30,000 cities in the United States will face some sort of population decline, representing 12–23% of the population of these 30,000 cities…”

What happens to housing prices, rents, business profits, local tax revenues, in that scenario? They go down. And if it weren’t for immigration, western Europe, the US, and other countries would fall into population contraction. And the entire structure of business, power and wealth that depends on economic growth would slowly come apart.

The most potent issue is that birth rates are falling in some countries that until now have produced most of the immigrants. Mexico’s fertility rate right now is around 2.0 per woman, below replacement level. As a result, these days, Mexico sends fewer migrants to the US. Most are migrants that are passing through Mexico from countries that still have a population surplus.

These consequences are already being felt in some countries. And when the world transitions from an economy based on growth to a new economy based on contraction, expect to see rapid political change.

From Scientific American:

“We’re at a crossroads—and we decide what happens next. We can maintain the economic status quo and continue to pursue infinite growth on a finite planet. Or we can heed the warning signs of a planet pushed to its limits, put the brakes on environmental catastrophe, and choose a different way to define prosperity that’s grounded in equity and a thriving natural world.”

The Right-wing nativist movement in the US rallies around an anti-immigration platform. At the same time, they attack women’s reproductive rights. But we’re not going to reproduce our way out of the coming depopulation trend.

The canary in the coal mine is birth rates.

We’re entering an unfamiliar world, one that Wrongo certainly won’t be around long enough to see. But since demographics is destiny, we can be pretty sure depopulation is in our future.

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Wake Up To Monday’s Hot Links

The Daily Escape:

Cypress trees, Lake Verritt, LA – November 2023 photo by Rick Berk Photography. Note the egret in the background.

For today’s Wake Up Call, we return to a staple of yesteryear, some hot links that caught Wrongo’s eye over the past few days.

Wrongo isn’t happy with how the Ukraine War has slipped from the consciousness of America’s media and thereby, from our view. Saturday’s WSJ offered an intriguing idea with its column, “Does the West Have a Double Standard for Ukraine and Gaza? (free link). The article makes two excellent points. First, how these two wars have divided the world. Here’s a view of the division:

From the WSJ: (emphasis by Wrongo)

“Outrage and political mobilization have become subordinated to geopolitical allegiances—a selective empathy that often treats ordinary Ukrainians, Palestinians and Israelis as pawns in a larger ideological battle within Western societies and between the West and rivals such as China and Russia.”

Second, the article concludes by saying that the main difference between the two wars is that the Israeli-Palestinian conflict, with all its complexities, lacks the moral clarity of the Ukrainian resistance to Russia. They quote British lawmaker Alex Sobel:

“There is no moral justification for the Russian invasion. Zero. It’s just about Russian imperialism….But in Israel and Palestine, it’s about the fact that there are two peoples on a very small amount of land, and political and military elites on both sides are unwilling to settle for what’s on offer.”

Yes, America may have the moral high ground in both cases, and views can differ on how both wars are being waged. But as the article says in its second paragraph:

“The Russian invasion of Ukraine in February 2022 was unprovoked, while Israel sent troops into Gaza because of a mass slaughter of Israeli civilians…”.

Make of the article what you will, but it’s important to think through why you (like Biden) think both wars are morally equivalent.

Link #2 is apropos of the COP28 conference now underway in Dubai. Grist Magazine has an article: “Where could millions of EV batteries retire? Solar farms.” As solar energy expands, it’s becoming more common to use batteries to store the power as it’s generated and transmit it through the grid later. One new idea is to source that battery back up at least in part from used electric vehicle batteries:

“Electric vehicle batteries are typically replaced when they reach 70 to 80% of their capacity, largely because the range they provide at that point begins to dwindle. Almost all of the critical materials inside them, including lithium, nickel, and cobalt, are reusable. A growing domestic recycling industry, supported by billions of dollars in loans from the Energy Department and incentives in the Inflation Reduction Act, is being built to prepare for what will one day be tens of millions of retired EV battery packs.”

More:

“Before they are disassembled…studies show that around three quarters of decommissioned packs are suitable for a second life as stationary storage.”

Apparently there are already at least 3 gigawatt-hours of decommissioned EV battery packs sitting around in the US that could be deployed, and that the volume of them being removed from cars is doubling every two years.

Link #3 also shows the impact of the Inflation Reduction Act. Wolf Richter writes that:

“In October, $18.5 billion were plowed into construction of manufacturing plants in the US ($246 billion annualized), up by 73% from a year ago, by 136% from two years ago, and by 166% from October 2019.”

More:

“The US is the second largest manufacturing country by output, behind China and has a greater share of global production than the next three countries combined, Germany, Japan, and India.”

All of this construction spending will take time to turn into production. When these new plants are up and running and producing at scale, manufacturing’s share of US GDP will rise. And much of the new construction is happening in fly-over America, which can use the help.

Finding factory workers in sufficient numbers to support the new capacity will be a key. America has energy in abundance and has robotic manufacturing. So pulling production from overseas with fewer workers needed will be a giant plus for the US.

Link #4 is a downer. Civic Science says in this week’s 3 things to know column, that “Nearly 3 in 10 Americans say they have had to forgo seeing a doctor in the past year due to costs.” Here’s their chart”:

Civic Science says that 12% of US adults have had to miss or make a late payment on medical bills in the last 90 days, a two percentage point increase over September 2022.

A far larger percentage of Americans – 27% of the general population and about 30% of respondents under 55 years old or with an annual household income under $100,000 – report they could not go to a doctor in the past 12 months because they could not afford the cost. Gen Z adults and households making between $25K-$50K are more likely to have held off seeing a doctor due to cost (34% and 31% respectively).

We all know that medical costs have continued to rise and that medical debt is the leading cause of personal bankruptcy in the US. If Congress was really interested in helping provide for the general welfare, they would deal with this out of control problem.

Time to wake up America! There’s plenty going on that isn’t getting visibility in the mainstream media or on social media. You have to cast your net widely to be on top of the good and bad happening in the US.

To help you wake up, we turn to Shane MacGowan, frontman for the Irish group the Pogues who died last week. He left behind a body of work that merged traditional Irish music and punk rock. He wrote many songs that could easily be mistaken for traditional Irish tunes including this one, which was also used as the music for wakes by the Baltimore Police Department in the great, great HBO series, “The Wire“. Here’s “The Body Of An American” from their 1986 album, “Poguetry in Motion”:

RIP Shane.

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When Perception Isn’t Fact

The Daily Escape:

View of fall colors and Linn Cove Viaduct, Banner Elk, NC – October 2023 photo by David Peak

Polls continue to show that people think the economy is terrible and that it’s Biden’s fault. Biden supporters chalk it up to the general unreliability of surveys: Asking people questions and then assuming their answers are accurate or honest. But often, they are not because people find it difficult to say, “I don’t know.”

A second issue is the astounding changes in polling data over the past decade: People’s self-reported emotional state in 2022 was worse than the very worst events of the past few decades. But are things as bad as people seem to think? From Barry Ritholtz:

“From an economic standpoint, things are much better than people seem to be willing to admit: The rate of inflation has plummeted by two-thirds from 9% to a little over 3%, but 60% of respondents believe inflation is “continuing to increase.” The economy is not on the right track, even as Americans’ Net Worth Surged by Most in Decades During Pandemic.”

And the political fallout may be worse than you think. Bloomberg’s recent poll reveals some significant danger for Biden:

“Donald Trump is leading President Joe Biden in several key swing states as voters reject the economic message that is central to Biden’s reelection bid….Trump…leads Biden 47% to 43% among voters in Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin. The results across those seven states had a margin of error of 1 percentage point.”

Thirteen months before the election, Biden lags Trump in head-to-head matchups in five of the seven swing states. These states will be particularly important in delivering the electoral votes that decide who will be the next president. More from Bloomberg:

“A 51% majority of swing-state voters said the national economy was better off during the Trump administration, and similar numbers said they would trust Trump over Biden on the economy going forward, 49% to 35%. Among independent voters, the chasm on trust to handle the economy is even wider, with a 22-point advantage for Trump.”

Seems like a problem. This is despite the fact that, since 2019, households invested more, home values have jumped, and savings levels have risen. Here’s more from Bloomberg’s polling partner Morning Consult’s Caroline Bye:

“Right now, Biden is not getting any credit for work he’s done on the economy….Almost twice as many voters in the swing states are saying that Bidenomics is bad for the economy, as opposed to good for the economy, which is a really startling fact if you’re the Biden campaign.”

Why is it that people’s perception doesn’t match the data? Back to Ritholtz, who thinks the fault may lie with the media:

“…the 2010s seems to be when they shifted their online presence to a much more aggressive stance. Perhaps most significant is in the way coverage became increasingly “click-bait” oriented via headlines filled with emotionally loaded language….Words that conveyed “Disgust” rose 29% and “Sadness” was 54% higher; words that reflected “Anger” were up 104%. The biggest gain was from perhaps the most emotionally loaded word: “Fear” skyrocketed by a huge 150%. And the words expressing “Joy” or “Neutral?” Down 14% and 30% respectively.”

But it isn’t just the media’s headlines that are hurting people’s perceptions; it’s also the choice of what the media covers that can lead us astray. Ritholtz provides us with a fantastic chart about the causes of death in the US from Our World in Data comparing actual causes of death with what was reported in the NYT:

This shows that the way the media covers deaths this is totally inverted: The things least likely to kill you get the most coverage: The bar chart on the right shows Terrorism, Homicide, and Suicide capture about 70% of the column inches. This is despite the odds that you are most likely to die from heart disease (30.2%), cancer (29.5%), or a car accident or fall (7.6%). The very bottom of the list are suicide at 1.8%, homicide at 0.9%, and terrorism at 0.01%.

So do negatively-laden headlines matched with wildly disproportionate coverage combine to send sentiment readings to places that do not match the reality of the economy or more broadly, the real world around us?

We’ve always had sensationalist journalism. The media’s response to social media is to approach news coverage in a similar manner to social media. Apparently the business plan is: If you can’t beat ’em, join ’em. It’s important to remember that we are what we eat, including our media diet. It’s making us unhappy, and increasingly detached from reality.

There are a few economic realities that may help explain where the public is right now:

  • Gas prices are both very volatile, and something that annoys an enormous percentage of Americans, because of the need to spend large amounts of money on a weekly basis to fuel their gas guzzling vehicles.
  • The housing market is a mess. The median sale price of a house in the USA went from $313,000 in 2019 to $480,000 in 2022. Since then the massive spike in interest rates has reduced median price to $416,000, but coupled with high mortgage rates, this is bad news for people wanting to buy homes in this market.

From a behavioral economics viewpoint, the extent of peoples’ reaction to price inflation may reflect the concept that people are loss averse: that is, they dislike what they perceive as losses more than they like what they perceive as gains.

This means if prices and wages were to increase at the same rate, politicians might assume that people would be indifferent to the nominal changes in prices, since they would be offset by wage increases. But if Americans are loss averse, when prices and wages both go up by a significant amount, (as they have over the past three years), people feel worse, because the “loss” incurred through higher prices feels worse than the “gain” of higher wages.

Time to wake up America! Perception isn’t fact until it is. How Dems fight this will determine the outcome of the 2024 election. To help you wake up, watch and listen to Bruce Springsteen perform “How Can a Poor Man Stand Such Times and Live”, live at the New Orleans Jazz & Heritage Festival in 2006. This is one year after Katrina, which Bruce focuses on at the start of the song:

Sample Lyrics:

Well, the doctor comes ’round here with his face all bright
And he says, “In a little while you’ll be all right”
All he gives is a humbug pill, a dose of dope and a great big bill
Tell me, how can a poor man stand such times and live?

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Are Drones Replacing Artillery As “The King Of Battle”?

The Daily Escape:

First Snow, Cedar Breaks NM, UT – October 2023 photo by Dawn A. Flesher

America is all a-twitter over whether we are going to continue to fund Ukraine. The basic argument NOT to fund them going forward is how expensive it is, and how the money could be better used at home. Paul Krugman disputes this:

“In the 18 months after the Russian invasion, US aid totaled $77 billion. That may sound like a lot. It is a lot compared with the tiny sums we usually allocate to foreign aid. But total federal outlays are currently running at more than $6 trillion a year, or more than $9 trillion every 18 months, so Ukraine aid accounts for less than 1% of federal spending (and less than 0.3% of GDP. The military portion of that spending is equal to less than 5% of America’s defense budget.”

Wrongo isn’t saying that $77 billion is chump change. But if the MAGA types making the argument to spend it at home instead of in Ukraine would actually agree to increasing social spending with it, they’d have a solid argument. But that’s doubtful. It’s difficult to see them agreeing to spending anywhere near that level to improve the economic distress of America’s middle class and poor.

One thing that thinking about this expense highlights is just how expensive our military hardware has become. Take the F-35 fighter jet, which cost about $80,000,000 each. Air and Cosmos International reports that the maintenance costs for the F-35 are $42,000 per flight hour. And it’s reported that only about 26% of all F-35s are “available” at any point in time, according to the Congressional Budget Office.

It’s maybe an unfair comparison but think about how many drones Ukraine could purchase with one hour’s operating expense of one F-35, or with one of the bombs it carries, which cost about $500,000 each. One hour of F-35 operating expense equals about seven switchblade drones. The smallest Switchblade model fits in a backpack and flies directly into targets to detonate its small warhead. Each F-35 bomb’s cost is equivalent to around 90 drones.

America’s military strategy is based on air superiority, followed by massive bombing sorties and artillery fire. The big lesson in Ukraine is that piloted aircraft have been mostly irrelevant. Russia has many more and newer aircraft, and although they’ve bombed much of Ukraine, they haven’t gained an advantage as a result. Basically they’re using jets to launch missiles from positions beyond the range of Ukraine’s Stinger and Patriot missile systems.

Similarly, Russia’s navy hasn’t been decisive vs. Ukraine. Russia has the advantage at sea, while Ukraine’s ancient fleet is bottled up. But Ukraine is managing to ship (some) grain because the Russian navy is hiding from Ukraine’s cheap naval drones.

Ukraine isn’t breaking through Russia’s lines because its military, like Russia’s military, isn’t fit for the purpose. The artillery-based stalemate on the ground would favor Ukraine if it wasn’t for the in-depth layering of land mines by the Russians in the Ukrainian territory that the Ukies are trying to retake.

The days when Russia could advance into Ukraine under a screen of artillery fire, as they did during the first summer of the war, are over. Ukraine is the one advancing now. From Mark Sumner:

“Over the past several months, Russia tried to make advances at Svatove, quickly capturing a series of villages. That attack fizzled within days, and a week later Ukraine recaptured all the territory it had lost. Something similar happened at Kupyansk, where Russia was reportedly massing over 100,000 troops to drive Ukraine back across the Oskil River. Ukraine is still on the east side of the Oskil, and still in Kupyansk.”

At the moment, Ukraine appears capable of successfully capturing areas it targets and holding them against subsequent Russian assaults.

That’s not to say that the militaries built by the US, NATO, China and Russia are useless. Obviously, they have great value. But it’s clear how capital intensive warfare has become. Ukraine is showing us that there is an evolution in military tactics underway right in front of us.

In Ukraine, drones—both aerial and aquatic—have reached a critical mass. They are demonstrating widespread capabilities that make some traditional weapons systems take on more limited roles. And the immediate future in the Ukraine/Russian war will be drone warfare.

Any military in the world will become somewhat obsolete particularly in a land war, without a robust drone and anti-drone program. All are working feverishly to get there. Except perhaps for Turkey, who’s Bayraktar drones are already exported to both sides in the Russia-Ukraine war.

In Ukraine, drones have redefined the front lines. Before, we generally regarded the front line as the area where the infantry of both sides were engaged. But if soldiers with drones and a smart phone can project force sufficient to stop a tank 4-5 miles away, and then pick up another $1,000± drone and do it again a few minutes later, where’s the real front line?

This and more can be done with precision weapons like HIMARS at even greater ranges. But that requires more expense, more setup, and greater levels of support. There’s a vast logistical train behind a weapon like a mobile HIMARS launcher.

Going back to Napoleonic times, artillery has always been called “the king of battle”, because there’s no real defense against it once it’s firing. But this old artillery officer can tell you that it comes with those pesky logistics problems and much more expense and training.

In contrast, what’s needed to support a DJI quadcopter is in the hands of the operator. Early in the war, drones were performing roles that formerly were played by traditional aircraft. Now they’re also performing the roles of artillery and mortars. They are precision systems that deliver value at not just a lower price, but with fewer burdens of transport, maintenance, and training.

Like Ukraine, Russia has a lot to gain from drones since they bypass the two things that Russia does badly: logistics and training. You don’t need to get a million shells to the front lines if you can get a hundred thousand drones—and better than half of them will hit their target.

Drones can’t replace much more of the military equipment in the field, because the legacy equipment still has a big edge in both range and destructive power. But the cost-benefit ratio of drones is incredibly favorable. As battery technology continues to improve, the destructive power of drones will go up without significant incremental development cost.

What we’re seeing in Ukraine is the 2020s version of the asymmetric warfare that killed us in Vietnam and Afghanistan. Guerilla tactics on their home turf were more valuable than all of our expensive weapons systems.

And Russia is getting their ass kicked by the same kind of asymmetry in Ukraine today.

 

(Many thanks to Brendan K. for his input to this column)

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Ukraine War Reveals Our Broken Military Supply Chain

The Daily Escape:

Archangel Falls, Zion NP, UT – August 2023 photo by Torsten Hartmann Photography

The most important thing we’ve learned from the Ukraine War is that the US isn’t ready for a protracted war. One of the big reasons why, as The Insider says, America no longer builds weapons the way it used to. And we need to start building weapons again at tempo.

The Center for Strategic and International Studies (CSIS) has drawn a similar conclusion about US weapons manufacturing: There is no surge capacity and it will take years to revive it. According to their study, replacing the inventory of the critical items used in Ukraine, like 155 millimeter artillery shells, will take 4-7 years; Javelin missiles will take 8 years to replace; Stinger missiles 18 years. Before the Ukraine War broke out, the US was producing only about 14,000 155mm shells per year, enough for two days of fighting in Ukraine at current usage rates.

This scramble for ammunition reflects how ill-prepared the US and its allies are to sustain an intense and/or protracted land war.

Think back to America’s weapons building capabilities during World War II. We became an industrial powerhouse, cranking out warships and aircraft at a breakneck pace. One example: The Navy built ships in just weeks — its fleet grew from just 700 to over 6,000 over the course of the war.

The US maintained this capacity for decades but, as The Insider reports:

“Nowadays, it might take years to build a US Navy ship. The reasons for this are complex — shifted priorities, increased technology on board…labor costs — but the effect is clear: In a high-intensity conflict, the US would face challenges in not only producing vessels but also repairing any ships damaged in battle.”

These aren’t the only weapons that are in short supply. The Pentagon issued a study in April on the contraction of our Defense Contracting industry, which went from 52 primary contractors in the 1990s down to just six today. (full disclosure: Wrongo owns what is for him, a substantial number of shares in one of the six companies.)

During Clinton’s presidency, following the fall of the Soviet Union, Defense Secretary Bill Perry convened defense industry CEOs (known in the industry as the “last supper”) and told them that they should not assume production contracts would be maintained at Cold War levels, and they needed to diversify to survive. Many of the companies got out of defense production, and those that remained merged to secure market share of what became dwindling orders from the Pentagon.

This insured that US weapons suppliers wouldn’t be ready for a future that included China’s defense spending surge, the Russia-China strategic partnership, or today’s war in Ukraine.

Now, the Pentagon is revisiting whether industry consolidation has gone too far.

The WSJ reports that today, the industrial base of defense vendors is about 55,000 companies, down from 69,000 in 2016, and many of them are small firms. This smaller base has become a choke point as shortages of labor, chips, rocket motors and other components are stymieing efforts to boost arms production. The WSJ quotes Halimah Najieb-Locke, the Pentagon’s deputy assistant secretary of defense in charge of industrial-base issues, that the Pentagon:

“…is increasingly reliant on a smaller number of contractors for these critical capabilities….That impacts everybody’s ability to ramp production.”

These supply chain issues also dog the global arms manufacturing industry. US companies hold the first five spots in the top 10 ranking of arms sales, with China taking another four. The consolidated sales of the top five have fallen since the start of the Ukraine War.

Having this paradoxical slowdown in sales amid an increase in demand speaks to the larger challenges of a defense contractor base that is geared to peacetime production. The Defense Department has a role in this failure, since they rarely award contracts for multiyear procurements beyond current requirements. Air Force Chief of Staff Gen. CQ Brown said that the military hasn’t focused enough on keeping a steady flow of munitions production and procurement:

“In some cases, because you don’t have a threat on your doorstep, munitions aren’t…high on our priority list…”

Making the age-old point that sometimes, “just in time” isn’t. More from the WSJ: (emphasis by Wrongo)

“Lockheed and second-ranked Raytheon Technologies Corp. jointly produce…Javelin antitank missiles, but they expect it will take two years to double output that is now at around 400 a month.”

More:

“Greg Hayes, chief executive at Raytheon, said that Ukraine has burned through five years of Javelin production since February and 13 years’ worth of Stinger antiaircraft missiles.”

Aerojet Rocketdyne is an example of a small but crucial cog in the defense industry. It builds the rocket motors used in the Javelin and Stinger missiles deployed in Ukraine. Labor and supplier issues have delayed its deliveries of rocket motors. Raytheon, who makes the Javelin along with Lockheed, said it will be 2024 before Aerojet catches up with engine orders.

The US is also facing a nearly $19 billion backlog in arms sales to Taiwan. Control of the Pacific would be a crucial part of any war with China, and Beijing has the world’s largest navy. According to a 2022 Pentagon report, the country has about 340 ships and submarines. The US, meanwhile, has fewer than 300 warships. Despite that, the US is committed to growing its fleet. Its number of ships is expected to increase to 350 by the 2040s.

To keep up with China, the US will need to build more ships and submarines more quickly. But it has a smaller number of shipyards and a skilled-labor shortage.

All of this will take money, billions of it. But we’re already first in the world’s defense spending. The worst military equipment is equipment that isn’t unavailable when it’s needed. That is not to say that the Defense Contractors should be given a blank check, but we are in dangerous times.

The US spends more on national defense than the next ten countries combined. Defense spending accounts for 12% of all federal spending and nearly half of US discretionary spending. The Defense Contractors are floating on a sea of profits from their captured Pentagon customer.

But is it better to spend extra dollars to have weapons inventory on hand than pay the much higher political cost of a military failure? Can those dollars be found within the existing defense budget rather than by adding to it? From a strategic viewpoint, shouldn’t we build capacity in peacetime when we don’t yet need it (while hoping never to), so that if the US does need it, the capital assets are in place?

The real issue is the stop/start government procurement process. We saw this in N95 mask sourcing, where domestic suppliers downsized over the years to a point where they couldn’t meet the surge in demand when Covid hit. After they ramped up, the government walked away from them when mask mandates ended.

This is also true in defense. Over the last 25 years, Congress has passed more than 120 Continuing Resolutions to fund the Pentagon instead of annual appropriations bills. With Continuing Resolutions comes chronic uncertainty for companies about when they’ll get paid, or when they can proceed to a new phase of weapons development or production.

Nothing is forcing the DOD to only do business with a small group of contractors (other than no one else bids on the contracts because the DOD won’t award to them). The issue is a shrinking domestic manufacturing base, and a lack of sustained business in the defense sector to support a larger field of competitors.

Market forces require efficiency. Sadly, efficiency comes at the cost of resiliency. National security priorities should deal with the stop/start issues that face our defense industry. In 2020, the National Defense Industrial Association’s report on the readiness of the Defense Industrial Base said 27% of critical defense supplier industries would likely experience shortages in the event of a surge in demand for combat-essential products.

And two years later, it happened in Ukraine.

Over the longer term, the US should develop an industrial reserve policy that pays companies to maintain excess capacity, such as warehousing critical, long lead-time parts. Much of today’s production challenges could be easily resolved by giving selected weapons or weapons systems a “protected” status, making them outside of the usual DOD acquisition and contracting rules that limit the flexibility and commitment needed to ensure a continuous production line.

This strategy would be expensive. But Russia’s war in Ukraine has reinforced the necessity of maintaining a deep inventory of weapons which we no longer have today. And it’s no longer a question of whether the US industrial base is prepared to rapidly surge production. It’s clear that we are not, because the necessary investments have not been made.

(hat tip to Brendan K. for his useful insights for this article)

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How To Think Differently About Housing

The Daily Escape:

Sunrise, Outer Banks, NC – June 2023 photo by Stephen P. Szymanski

Wrongo and Ms. Right have 12 grandchildren, only one of which is still in high school. The other 11 are out of school and pursuing their careers or are finishing their education. Only one of the 12 owns a home. Their experience with real estate is representative of what most younger Americans face in today’s real estate market. Ben Carlson uses data from Redfin to show us that mortgage payments are way up over prior years:

The median mortgage payment was up by more than $1,000 over four years. Carlson reminds us that this is just the monthly mortgage payment, it doesn’t include insurance, property taxes or upkeep. This is part of the reason that housing affordability is more excruciating — the pace of the increases has happened so quickly. We’ve simply never seen prices and rates rise this fast in such a short period of time. And asking prices are up as well:

Note that at the end of May 2023, the median asking price was $397k, up from $300k in May 2020, a 32% increase in four years.

But high mortgage rates and rising home prices aren’t deterring all buyers. John Burns Research shows buyers still outnumber sellers by a wide margin in today’s market. They report that as of April, even with 7% mortgage rates, 78% of all real estate agents say that buyers outnumber sellers in their markets.

And for rentals, the national median rent for a one-bedroom apartment has climbed to $1,504, according to research from Zumper. That’s significant: It’s only the second time in history that it has risen past $1,500. But the median doesn’t represent what you’ll pay in big cities:

In America, buying an investment property near work is more lucrative than actually working. The growth of asset values has outstripped returns on labor for four decades. Last year, one in four home sales was to someone who had no intention of living in it. Investors are incentivized to buy the type of homes most needed by first-time buyers: Inexpensive properties generate the highest rental-income cash flows.

Harvard’s Joint Center for Housing Studies found that in 2019, the median net worth of US renters was just 2.5% of the median net worth of homeowners: $6,270 versus $254,900. There’s no better example than the economic challenges to America’s young persons than trying to find (relatively) affordable housing near where they work.

A very interesting article in the May 23 NYT Magazine suggests a possible solution to housing inflation. Vienna, Austria began planning it’s now world-famous municipal housing in 1919. Prior to that, Vienna had some of the worst housing conditions in Europe. Vienna’s housing program is known as “social housing” (Gemeindebauten), a phrase that captures how the city’s public housing and other limited-profit housing are a widely-shared social benefit:

“The Gemeindebauten welcomes the middle class, not just the poor. In Vienna, a whopping 80% of residents qualify for public housing, and once you have a contract, it never expires, even if you get richer.”

Vienna isn’t a small town. Its population is just under 2 million, and if it were in the US it would be our fifth largest city, between Houston and Phoenix.

The availability of Vienna’s social housing also helps to keep costs down even for private housing:

“In 2021, Viennese living in private housing spent 26% of their after-tax income on rent and energy costs on average, which is…slightly more than the figure for social-housing residents overall (22%).”

One of the reasons Vienna’s social housing works is that it is not means-tested; it is open to middle class people. And as a result, the residents care more about whether their grounds stay clean and beautiful. In the US we restrict public housing to the poorest of the poor, making public housing something to escape from, not to enjoy.

Meanwhile, 49% of American renters are paying landlords more than 30% of their pretax income, In New York City, the median renter household spends 36% of its pretax income on rent.

The key difference is that Vienna prioritizes subsidizing construction, while the US prioritizes subsidizing people, like with housing vouchers. One model focuses on supply, the other on demand. Vienna’s choice illustrates a fundamental economic reality, which is that a large-enough supply of social housing offers a market alternative that improves housing for all.

Calls for a federal social-housing plan in America might sound far-fetched but the US government is already deeply involved in the housing market. There’s generous support for homeowners and deliberately insufficient support for the lowest-income households. In 2017, the US gave $155 billion on tax breaks to homeowners and to investors in rental housing and mortgage-revenue bonds, more than three times the $50 billion spent on affordable housing.

For many, housing expense can be an economic burden. And it’s hard to even contemplate what it would mean to have it not be a problem. What’s mind-boggling is how social housing gives the economic lives of Viennese an entirely different shape.

Imagine where the rest of America’s young adults’ income might go if they were able to spend much less of it on housing. Vienna’s program is a look into a world in which homeownership isn’t the only way to secure a financial future.

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The Two-Edged Sword Of Federalism

The Daily Escape:

Mount Evans Road, 14,100′, Idaho Springs, CO – May 26, 2023 photo by Reid Neureiter

Here at the Wrongologist, we often talk about Constitutional rights, but we rarely talk about Federalism. So today, let’s lean into federal vs. states’ rights. We’ll start with the recent Supreme Court decision in Sackett vs. EPA, which concerned the power of the EPA to regulate wetlands. Last week, the Supreme Court concluded that the Clean Water Act only applies to wetlands with “a continuous surface connection” to bodies of water.

This defined what waterbodies are considered waters of the United States (WOTUS), an issue that has been in the courts for years. The ruling narrowed the scope of the Clean Water Act, and severely limits the federal government’s ability to regulate wetlands.

Justice Samuel Alito’s opinion affirmed the principle that bureaucrats cannot broadly define statutory language. Alito’s opinion struck a blow for federalism. Federalism is a system of government in which the same territory is controlled by two levels of government. The US Constitution originally divided the exercise of political power between one national and many state governments. The national government is given control over matters affecting the whole nation. All other issues were reserved to the states.

  • Article VI of the Constitution contains the Supremacy Clause, which says that when the laws of the federal government are in conflict with the laws of a state’s government, the federal law supersedes the state law.
  • Article I, Section 8 of the Constitution describes specific powers which belong to the federal government. These powers are referred to as enumerated powers.
  • The Tenth Amendment reserves to the states those powers that are not delegated to the federal government.

The Sackett vs. EPA decision is another step in the Right-wing program to move as much federal government rule-making authority as possible to the states. This is the continuation of Nixon’s efforts to shrink the federal government’s power by devolving decisions to state and local governments. The best recent example of this is the Supreme Court’s Dobbs decision on abortion that wiped out the precedent set in Roe v. Wade that guaranteed a national right to abortion and passed that responsibility back to the states.

At the same time, the Right is moving to nationalize policy on social issues, from what books to allow on library shelves to limits on transgender rights, a rollback of state environmental actions, and an attack on anything that can be labeled as “woke.”

So we’ve got Red states pushing to centralize decisions about social and cultural issues in Washington, while the Right-wing Supreme Court pushes devolution of voting rights, abortion rights, and indeed national agency rule-making (EPA) to the states.

This 2023 brand of two-way Republican federalism is upending the delicate balance of power between the federal government and state governments. It raises questions about the allocation of authority, cooperation, and the ability of the national government even to define what is a pressing national issue.

Today’s Washington gridlock makes policymaking nearly impossible. That has shifted much of today’s policymaking to the states, where the Parties often have comfortable majorities. Many states (39) have government trifectas, with one Party controlling the governorship while holding majorities in the legislature, making policymaking simpler than in a divided and polarized US Congress.

Interest group activists have followed this trend and focused their efforts on these 39 states. Much of a state’s policies – abortion, voting rights, gun control, immigration, LGBT rights, healthcare, or taxation – are on widely divergent paths. For example:

  • In Democratic states it is easy to vote; in Republican states there are many barriers to voting.
  • In Democratic states fewer people are medically uninsured; in Republican states there are more uninsured people.
  • In Democratic states access to abortion is easier; in Republican states it is harder, if not criminalized.

Although federalism (for now) seems to protect the country from presidents amassing power in dictatorial ways, anti-democratic figures (think DeSantis and Abbott) are able, because of the resurgence of state-level policymaking, to transform Republican states into laboratories against democracy.

The Covid pandemic also put federalism to the test. The response to the pandemic highlighted the tension between national coordination and state autonomy. While the federal government provided guidance and resources, the implementation of measures like lockdowns, mask mandates, and vaccination campaigns, was largely left to individual states. This decentralized approach led to significant variations in pandemic response across the country, creating challenges in coordinating efforts and potentially exacerbating the spread of the virus.

Federalism properly implemented, brings government closer to the people and holds it accountable. But when badly implemented, you get the USA in 2023: A country trending toward autocracy.

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Saturday Soother – May 27, 2023

The Daily Escape:

Milky Way, Monument Valley Navajo Tribal Park – May 2023 photo by Hasanur Khan

The WaPo’s Paul Farhi writes about “The looming existential crisis for cable news”:

“As recently as 2016, when Trump was narrowly elected president, just over 70% of all households with a TV had cable or satellite TV subscriptions. Today the figure is just under 40%, according to S&P Global Market Intelligence, a research firm.”

And it’s dropping fast:

“During the first quarter of 2023, another 2.3 million customers (or 7% of the total) cut the cord to traditional cable…the number of homes receiving TV via cable is now about the same as it was in 1992, when the industry was still on the rise.”

So, what does this mean for the Cable TV industry? Last year, the licensing fees collected by the six biggest cable news networks (Fox, CNN, MSNBC, CNBC, Fox Business and HLN) amounted to just over $4 billion. Advertisers added another $2.6 billion.

Farhi quotes Alan Wolk, a veteran advertising executive and media consultant:

“Cable news is dying….Not because it’s become irrelevant, but because the medium it lives on, cable TV, is dying.”

He predicts that cable could:

“…for all intents and purposes, disappear within a decade”.

The popular cable networks are profitable, largely because of how pricing works in the cable industry. The financial foundation of cable news isn’t advertising but the license fees that cable-system operators pay for the right to carry them. Regardless of whether a cable subscriber watches Fox, CNN or MSNBC, their monthly cable payments fund those companies.

The day could soon come when the exodus of cable subscribers leaves cable operators unable to pay the hefty license fees that those cable companies now command.

The cable industry sees what’s coming. They have all tried to distribute programming via streaming apps, YouTube channels, podcasts, and social media platforms in an effort to meet the cord-cutters where they are.

Yet so far, no news app comes close to matching cable in popularity and profitability.

Alan Wolk thinks cable news will have a particular problem in crossing the bridge to streaming: The median cable-news viewer is in their 60s and is resistant to new technologies.

The trouble signs are there. Viewers of the cable lineup other than news has sagged over the past decade as younger viewers have deserted cable. USA Network, once the most popular cable channel, has lost 75% of its nightly audience over the past 10 years. FX is down 68%, while the History Channel is off by 65%.

So what does this mean for US politics? Kyle Tharp posts weekly political advertising statistics on new media:

“…political advertisers spent just over $6.6 million on Facebook and Instagram ads last week…. For the fourth week in a row, the Biden campaign was the top-spending political advertiser nationwide on Facebook and Instagram. Their team continues to lean heavily on the platforms for growing their network of grassroots donors…..Political advertisers in the US have spent around $800,000 on Snapchat advertising in 2023.”

Tharp reports that DeSantis’ campaign launch video was heavily watched across all social media:

“On Twitter, the video received 23.8 million impressions…. compared to 2.9 million impressions for Tim Scott’s…launch video, and 9.1 million impressions on Nikki Haley’s…launch video…..Joe Biden’s launch video received 44.8 million impressions. The [DeSantis] video also received 125,000 views on Facebook, 1.9 million views on Instagram, and 236,000 views on Rumble. It’s a strong showing by any measure.”

(An “impression” is how many times it was displayed or had potential “eyeballs” on it.)

When you learn that Trump’s CNN town hall attracted an audience of just 3.3 million viewers, It’s clear that social media is already a major competitor to cable for the political class.

OTOH, if cable news goes away, how will Wrongo get his daily diet of pharmaceutical commercials?

That’s enough for this week. It’s time to forget about the “groundhog day” feeling that you get with the news bunnies constantly talking about the Debt Ceiling. It’s time for our Saturday Soother.

Here on the fields of Wrong, the baby bluebirds have fledged, and you can see them flying from tree to tree. We seem to be in for about 10 days of warmth and sun, with no rain in sight. People around here will soon need to choose between watering their plants and having a full well.

So grab a chair outside in the shade and put on your sunglasses. Now watch and listen to Dvořák’s “Piano Trio No. 4 in E minor, Op. 90 (the “Dumky”)”. Dvořák completed the trio in February 1891, and it is among the composer’s best-known works. The term Dumky is Ukrainian. It refers to epic ballads.

Here the Dumky is performed in the Herbst Theater, San Francisco in 2008 by the Beaux Arts Trio, with Daniel Hope on violin, Antonio Meneses on cello and Menahem Pressler on piano:

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Saturday Soother – April 22, 2023

The Daily Escape:

Rainbow, Blue Ridge Parkway, VA – April 2023 photo by Tim Lewis

American carnage is real, my friend. Just not in the way that Trump stated in his inaugural rant. The American carnage Wrongo speaks of is the gun attacks made on others by angry or fearful lone American gunmen. From Charlie Sykes at The Bulwark:

“Ringing the wrong doorbell, making a wrong turn, getting in the wrong car, and an errant basketball. A wounded teenager, a dead young woman, cheerleaders in critical condition, and a 6-year-old girl and her father shot.”

The Indiana man who shot a 16-year-old boy for knocking on his door is described by his grandson as a conspiracy theorist and avid consumer of right-wing media: (emphasis by Wrongo)

“I feel like a lot of people of that generation are caught up in this 24 hour news cycle of fear and paranoia perpetuated by some…news stations. And he was fully into that, sitting and watching Fox News all day, every day blaring in his living room…..that doesn’t necessarily lead people to be racist, but it reinforces and galvanizes racist people. And their beliefs.”

Right wing propaganda is about fear. And some people bathe in it for hours a day. So, while the rest of us enjoy walks in the park or a trip to the market, they’re terrified of every swarthy stranger at the Publix or Home Depot.

Add this level of fear to the implicit permission given gun owners by “stand your ground” laws, and you have the elements of an environment of violence.  Vox provides background:

“Some of these shootings took place in states with so-called “stand your ground” laws, which offer expansive legal protections for people who use deadly force against others out of self-defense….and experts have noted that the laws can bolster a “shoot first, ask later” mentality.”

More: (emphasis by Wrongo)

“Under such laws — which exist in some form in 38 states — people can use lethal force if they reasonably believe their life is under threat, and they don’t have to take steps to retreat or avoid the confrontation first. That’s a stark change from prior laws….In the past, the “castle doctrine,” which has been adopted by most states, allowed people to use deadly force if a person entered their home.

Stand your ground laws take that idea one step further, with some making such allowances no matter where a person is, whether that’s a public place, their vehicle or their office.”

Add pervasive fear and permission to stand your ground to the proliferation of guns in America (aided by the Supreme Court’s expansive reading of the Second Amendment) and the US has come undone. From Umair Haque: (emphasis by Haque)

“Did you know that America isn’t just the most violent nation in the industrialized world — but an off the charts extreme outlier? Iceland is the world’s most peaceful society. Canada is the world’s 12th most peaceful society. America is the… 129th.”

That’s 129 out of 163 countries tracked. Further evidence is in the recent TSA statistics about intercepting guns about to be carried on to planes:

“Officers with the Transportation Security Administration confiscated more than 1,500 guns at airport security checkpoints in the US during the first quarter of the year, more than 93% of which were loaded. The 1,508 firearms equate to an average of 16.8 intercepted each day during the first three months of the year…”

The gun gives its owner the power of life and death. No training needed. The power of God right there in your hand. It’s very attractive to a certain type of person. And we cultivate that type of personality in America.

We have no safety nets, no social bonds, no norms of decency. That means we ask each other to bear the unbearable.

We don’t invest enough in safety nets, insurance, public goods, healthcare, education, and, in most states, gun laws. According to Haque, it’s all justified by politicians saying, “I can bear the unbearable — why can’t they?” But we can’t do that forever. Someone will snap, and the frustration of bearing the unbearable pours out as rage that’s visited on whomever is nearest, or easiest to hurt. That’s American Exceptionalism at work. America’s extreme violence, caused in large part by the twisted ideology that asks Americans to bear unbearable things.

Enough about guns and people snapping. It’s time for our Saturday Soother! Here on the Fields of Wrong, our crabapple trees are in bloom. They’re being visited by both birds and bees, each looking for high calorie snacks. The bees for the flowers, the birds for the buds. Our spring clean-up is lagging, so there’s still much to do.

But first, let’s relax for a few minutes. Grab a comfy chair near a big window and watch and listen to Valentina Lisitsa, a Ukrainian-American pianist, play “Rustle of Spring”, a solo piano piece written by Norwegian composer Christian Sinding in 1896:

If you are interested in amazing piano technique, watch Lisitsa perform Liszt’s Hungarian Rhapsody No. 2.

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Nuclear Power vs. Solar And Wind

The Daily Escape:

Bright Angel Trail, Grand Canyon NP – February 26, 2023 photo by Adam Schallau Photography. The Grand Canyon NP was created on 2/26/1919.

There’s lots of talk about America’s need to move away from traditional sources of energy to renewable energy. Wolf Richter gives us some perspective: (brackets by Wrongo)

“Electricity generation, as measured in gigawatt-hours, [faced] near-stagnation in demand since 2007, as efforts to make everything more efficient…produced results…[but]…These upfront costs by electricity users…reduced electricity consumption. For electric utilities, it meant that they were stuck in a demand quagmire….But…in 2022…electricity generation rose by 3.5% from 2021, to a new record of 4,297,000 gigawatt-hours…”

Wolf helpfully provides a chart of electricity generated by type:

The decline in coal and the remarkable increases in natural gas and renewables are easy to see. The renewables category includes wind, hydro, solar, geothermal, and biomass.

The green line above is for nuclear power, which very few people think of as a “green” source of power generation. Wrongo believes we need to reconsider nuclear power if we are to hit our ambitious targets for lowering greenhouse gas emissions in the next few decades.

Jonathan Rauch in The Atlantic has a long and well-reasoned article about how, after a decade of regulatory and financial uncertainty, small modular light-water nuclear reactors are getting closer than ever to commercialization. Rauch describes the vision is for small nuclear reactors:

“Forget about those airport-scale compounds…and 40-story cooling towers belching steam. This reactor will sit in an ordinary building the size of…a suburban self-storage facility. It will be mass-produced in factories for easy shipping and rapid assembly. Customers will be able to buy just one, to power a chemical or steel plant, or a few, linked like batteries, to power a city.”

Given new technologies currently in advanced testing, even if a local disaster cuts the power to the reactor cooling system, this new type of reactor will not melt down, spew radioactive material, or become too hot and dangerous to approach. It will remain stable until normal conditions are restored.

But for decades, nuclear has flopped as a commercial proposition. It has broken its promises to deliver new plants on budget and on time. And despite an enviable safety record, the public still fears catastrophic accidents. The Three Mile Island plant’s partial meltdown in 1979 was the US nuclear industry’s worst accident. Although no one died or was injured, it hardened the public and environmentalists against increasing the use of nuclear power in the US. In fact, the plant’s second reactor operated without problems until 2019 when it was decommissioned. Today legacy nuclear power supplies about 18% of American electricity, and the US has fired up only one new nuclear power reactor since 1996.

It seems perverse to avoid nuclear, since it’s carbon-free, and as few realize, very safe. Only the 1986 accident at Chernobyl has caused mass fatalities from radioactivity. Remember, that plant was subpar and mismanaged by Western standards.

Excluding Chernobyl, the total number of deaths attributed to a radiation accident at a commercial nuclear power plant is zero or one, depending on your interpretation of Japan’s 2011 Fukushima accident. Yes, more than 2,000 people may have died in Fukushima, but most of that happened during the evacuation.

Solar and wind have huge problems because of how much land they require. According to Armond Cohen of the Clean Air Task Force, meeting all of the eastern US’s energy needs requires 100,000 square miles of solar panels, an area larger than New England. Wind is worse: It requires more than 800,000 square miles of onshore windmills to meet the eastern US power needs, an area the size of Alaska plus California. NIMBY opposition will prevent the building of sufficient power generation from wind and solar.

Contrast this with the space required by small nuclear reactors: They would take up about 500 square miles of nuclear plants, equal to the size of Phoenix, Arizona to power the eastern US.

Dozens of companies and labs in the US and abroad are pursuing small nuclear plants. GE Hitachi Nuclear Energy has a signed agreement to build the first grid-connected small modular reactor (SMR) for Ontario Power Generation. It will be a 300-megawatt light-water SMR in Ontario, Canada.

NuScale Power, a pioneer in small reactors, cleared the ultimate US regulatory hurdle when the US Nuclear Regulatory Commission certified the design of NuScale’s 50-megawatt power module. It’s the first design ever approved for use in the US. The US Department of Energy is helping to fund NuScale’s project at the Idaho National Laboratory, including $1.35 billion in funding. The first of six clustered SMRs at the site is expected to go online in 2029, with the rest expected to follow in 2030.

Biden’s Inflation Reduction Act also provides a tax credit for advanced nuclear reactors and microreactors.

Ultimately, choice of energy generation will come down to cost. Solar is widely deployed today because it’s the lowest-cost generation source. But how can it scale?

If SMRs can demonstrate a cost advantage in real-life operation, orders will follow. And the long-promised nuclear renaissance might actually arrive.

Along with a better shot at a low carbon future.

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