Will the Center Hold? - EconVue Spotlight February 2021

The outlines of a 21st century paradigm are becoming clear: a dialectic between centralization and decentralization. Although technology enables both, it makes large scale post-modern decentralization possible. Trust in institutions built over centuries allows centralization, but lack of trust, especially in media and information flows fosters an environment politically favorable to decentralization.

Trust but verify is a signpost along the road of this transformation. Will citizens in democracies accept verification requirements such as vaccine certificates in order to attend concerts, enjoy a meal at a restaurant, and board an airplane? Vaccine certificates aren't new incidentally. I still have my dog-eared health carnet, issued under the auspices of the WHO when I went to live in Iran as a child in the 60's.

Many developing countries lack both trusted institutions and identity systems that are necessary to any vaccine rollout. The third world just might leapfrog the second requirement. In developed economies our identities have been granted to us by government authorities. However there are ventures such as Verus based on decentralized technologies (blockchain) which create self-sovereign identities that ironically allow true global citizenship. I don't think we understand how fast, far-reaching, and transformative these changes will be, just as in the mid-90's we could not imagine how our lives would be changed forever by the Internet. 

Cryptocurrencies are currently the clearest example of next-stage decentralization, especially since they have a market price and are a direct challenge to central banks. Supply chains, which are about the decentralization of the manufacturing process, are another good illustration; they are proving stubbornly resistant to proposed decoupling and are in fact responsible for much of the world's prosperity today.

On the other hand, the decentralization of news has not worked out so well, now that everyone thinks they are a journalist. Centralization of other types of information such as medical records (EHR) could prove lifesaving, but will patients trust Google Care Studio to protect their most personal information?

Covid-19 created a vortex of geographic decentralization, with travel curtailed and working from home, and entertainment, education and even health care taking place remotely. Once living at work loses its charm, and we see the destructive consequences of a year-long school boycott on young people, I believe those trends will reverse far more quickly that most people imagine, and certain aspects of centralization that are now artificially suppressed will rebound. That is unless the vaccine is less effective or less widely adopted than we now predict. 

Centralization of wealth is demonstrably destructive to our social fabric and overall prosperity. Last week I recorded a podcast with Karen Petrou, head of Federal Financial Analytics, and someone I have often quoted in this newsletter. I'll be posting the podcast next week to coincide with the release of her new book  Engine of Inequality. She puts the onus squarely on the Federal Reserve for fostering the rise in economic inequality since the Great Financial Crisis. Which brings me full circle back to the issue of central banking and decentralized finance. And my question, can the center hold? 

The US is about to embark upon what Martin Wolf of the Financial Times calls "a risky experiment" to spend 13% of GDP on Covid stimulus. "Some analysts seem to view a big upsurge in inflation as inconceivable, because it has not happened in a long time. That is a bad argument." The worst fear is that inflation will take hold, central banks will need to increase interest rates, and based on astronomical new debt levels, governments will no longer pay their debts. That too has happened many times in the past, as these defaulted sovereign bonds prove. 

By the way, it is not simply the case that China is the bastion of centralization, and the US of decentralization. Dialectics are about contradictions. I do think however that it is a highly useful lens to understand where both politics and technology are leading us,

Research from EconVue Friends & Experts

January 11, 2021/ Toyo Keizai
On Digitization, Think Bigger, Mr. Prime Minister
Richard Katz 

The digitization campaign announced by Prime Minister Yoshihide Suga will both save money and improve performance. Now, as the details of the plan are being worked out, PM Suga needs to think much bigger. His plan should be expanded in three ways.

February 20, 2021 / National Interest
Japan's Olympic Challenge Could be a Great Comeback Story for Tokyo

Amid growing calls for a boycott of the 2022 Winter Olympics, despite setbacks the Suga government seems more determined than ever to stage the postponed Summer Olympics this year. 

January 21, 2021/ Callaway Climate Insights
George Shultz, 100, gives 'young' Biden advice on climate change: carbon pricing
Marsha Vande Berg 

George Shultz, the late Secretary of State and a free marketer par excellence, advocated a gradually rising carbon tax that is levied at the point of production and economy-wide; the distribution of all proceeds to any American with a Social Security number; and a border adjustment mechanism on imports to preserve U.S. competitiveness.

February 11, 2021/ Global Americans
New directions in the deepening Chinese-Argentine engagement
R. Evan Ellis

This article documents the impressive, growing, and multi-dimensional character of the relationship between China and Argentina, from vaccines and other Covid-19 diplomacy to rapidly expanding agricultural exports and agro-logstics activities, to important lithium and other mining, petroleum, telecommunications and surveillance architectures, military law enforcement and space collaboration. 

January 25, 2021/ Washington Monthly
Biden Opts for Growth and Equity While Republicans Whine
Robert Shapiro 

Congressional Republicans who eagerly supported massive increases in the budget deficit under Donald Trump have been quick to resuscitate their deficit concerns so they can denounce President Joseph Biden’s $1.9 trillion “American Rescue Plan.” In the words of Florida Senator Rick Scott, the plan is just “massive spending … with no accountability.”

Decentralization

December 11, 2019 / Springer
Differential effects of decentralization on income inequality: evidence from developed and developing countries
Antonio N. Bojanic & LaPorchia A. Collins

Using a panel data set of OECD and non-OECD countries spanning from 1980 to 2016, this report investigates the effects of decentralization on income inequality. 

 June 20, 2020 / Forbes
‘Largest Distributed Peer-To-Peer Grid’ On The Planet Laying Foundation For A Decentralized Internet
John Koetsier

A project to decentralize the internet that you’ve never heard of has more capacity than all other blockchain projects put together: 5-10X more, according to its founder.

Global Supply Chains

February 10, 2021 / Nikkei Asia
Decoupling denied: Japan Inc. lays its bets on China
Mitsuru Obe

While Tokyo has tried to wean its companies off China, even offering subsidies to Japanese companies to exit the China market, it is clear that leaving China is easier said than done. Just 7.2% of them said they were moving or considering moving.

February 10, 2021 / ACCSC
2021 White Paper: US Businesses In China
American Chamber of Commerce of Southern China

The 2021 Special Report points out that an overwhelming majority of companies will not decouple from China despite US-China trade friction...most expect an amelioration of business conditions this year. 

January 24, 2021 /  Washington Post
Pandemic aftershocks overwhelm global supply lines
David J. Lynch

Rising shipping costs/delays could be chokepoints on the road to economic recovery. And a harbinger of inflation.

February 16, 2021 / Supply Chain Dive
4 charts show the effects of West Coast port congestion and supply chain delays
Matt Leonard

We know that demand is up. Are we headed towards more supply disruptions, and will that affect price levels in the usual way? Four charts tell the story.

January 18, 2021 / Bloomberg
Why the Cost of Shipping Goods From China Is Suddenly Soaring
Joe Weisenthal and Tracy Alloway

On this episode, we speak to economist, historian, and author Marc Levinson. He talks about where all this transport disruption is coming from, what it means for global trade, and whether it will lead to a big rethink of the shipping industry.

Fintech

January 28 2021 / Bridgewater
What I Think of Bitcoin
Ray Dalio  

I am writing this to clarify what I think of Bitcoin. Please pay attention to what I am saying here and not what those in the media are saying I said because this is reliable. I am finding that those who want to promote Bitcoin (which is most people) are characterizing it one way while those who are against it (which are a few scared souls cowering in a corner) are characterizing it another way. 

February 21, 2021  / Quillette
Can Governments Stop Bitcoin?
Alex Gladstein 

The author is the chief strategist for the Human Rights Foundation.  Great primer for people who are trying to get their arms around the cryptocurrency boom and possible risks for investors. 

January 2019 / Wash. U. Global Stud. L. Rev.
Why China had to “Ban” Cryptocurrency but the U.S. did not: A Comparative Analysis of Regulations on Crypto-Markets Between the U.S. and China.
Rain Xie

In the cryptocurrency Olympics, the US has clear advantages, if the model of the US Internet rollout is followed. 

January 22, 2021 / Bloomberg
Five Reasons the SEC Should Approve Bitcoin ETFs
Eric Balchunas

There are already more than 20 cryptocurrency ETF's outside the US mostly in Europe, but now Canada as well. Given worldwide investor interest, the US shouldn't fall behind.

February 5, 2021 / Federal Reserve Bank of St. Louis
Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets
Fabian Schär

The term decentralized finance (DeFi) refers to an alternative financial infrastructure built on top of the Ethereum blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. This article highlights opportunities and potential risks of the DeFi ecosystem.

February 14, 2021  / Brave New Coin
What is an NTF and Why Are They Trending?
David Freuden

A non-fungible token (NFT) is a type of cryptographic token which represents something unique in order to establish provenance. Now used for collectibles in gaming and digital art, they could also be used for event tickets, real estate, and shares.

February 16, 2021 / Financial Times
Virtual control: the agenda behind China’s new digital currency
James Kynge and Sun Yu

China’s digital renminbi is a “central bank digital currency”, making it in some ways the opposite of cryptocurrencies such as bitcoin.” In fact the E-CNY is the exact opposite of a cryptocurrency; it represents increased centralization rather than decentralization.

China 

February 16, 2021 /  Wall Street Journal
China Blocked Jack Ma’s Ant IPO After Investigation Revealed Likely Beneficiaries
Lingling Wei

When China’s leader Xi Jinping late last year quashed Ant Group’s initial public offering, his motives appeared clear: he was worried that Ant was adding risk to the financial system, and was furious at its founder, Jack Ma, for criticizing his signature campaign to strengthen financial oversight. Or is this new policy direction more about central control than risk?

February 16, 2021 / Chinese Academy of Social Sciences
International Affairs Report of the Chinese Academy of Social Sciences 2021
Xie Fuzhan

"Global governance will be strengthened at bilateral and regional levels. On the whole, the world is becoming more multi-polar, more competitive, more securitized and more collectivized" @ChenDingding 

January 18, 2021 / Nikkei Asia
Biden point man Kurt Campbell returns to an Asia that has pivoted
Francesca Regalado

January 20, 2021 / Fortune
When it comes to China, Team Biden Sounds a Lot like Team Trump
Clay Chandler

December 22 2020 / Princeton University
The Economic Impact of COVID-19 in China: Evidence from City-to-City Truck Flows
Jingjing Chen , Wei Chen , Ernest Liu , Jie Luo , and Zheng (Michael) Song

Shocks to Wuhan and Beijing had the greatest economic impact, lowering national real income by 1.7% and 1.6%. If all Chinese cities had containment policies that responded to local pandemic severity as those in Hubei did, China’s first-quarter real income would have declined by 47%.

February 6, 2021 / Tablet
The Thirty Tyrants
Lee Smith

The deal that the American elite chose to make with China has a precedent in the history of Athens and Sparta and the Thirty Tyrants.  

To discuss all of these issues and many more in a civilized and contextual manner, I have enjoyed the new invitation-only social platform, Clubhouse. It is audio, no video, requires an iPhone; you can speak or just listen. Mostly it feels like the conversations we used to have at a good dinner party. Let me know if you'd like an invite. And coming sooner than you think: decentralized, uncensorable social networks where users own and retain their followers and content across multiple platforms.

So my recommendations (not investment advice) on this last day of meteorological winter in order to experience what decentralization is all about, is to get a Coinbase (or Kraken) account, create an identity that you own directly on Verus, and join Clubhouse. 

If you missed my interview with Bill Overholt earlier this month you can find it here:  Hale Podcast Episode 11: Dr. William Overholt on US-China Relations (with transcript). As always, we welcome your comments and suggestions, and hope you will follow us on Twitter and support us on Patreon. If you would like to contribute commentary to EconVue, please contact Managing Editor Ying Zhan: ying@econvue.com