Predicting De-globalization: Series Introduction

'There is a tide in the affairs of men. Which, taken at the flood, leads on to fortune..."

This is an introductory post to a multi-part series about thinkers who predicted de-globalization early. For links to other articles in the series, scroll to the bottom.

Making accurate predictions about the future is hard, particularly the future of systems as complex as the global economy. There are too many variables at play and they all interact with each other in different ways. It is difficult to even identify first principles, root causes, the prime movers that drive everything else. Are there even any prime movers, foundational elements, on top of which the whole complex superstructure rests and is moved by? Or is the whole thing kind of held together by the inter-connectivity of the variables themselves, like a net, with nothing being necessarily more ‘fundamental’ than anything else, and everything equally capable of influencing everything else?

These questions are important when trying to make predictions because in order to make a prediction, we must start somewhere and infer our way to some logical conclusion. To know where to start, we need a conceptual model of how things work, how different things are related to each other. And that model needs to accurately reflect reality if it is actually going to be useful.

I don’t know if a perfect model of the global economy exists. Hence, we must fall back on that old social technology called the marketplace of ideas where different people with different conceptual models hawk their wares and make their prognostications for the rest of us to choose from. Some will be better than others and the most powerful (re: accurate (re: truth-full)) models will prove themselves over time…so the story goes.

Making predictions is hard, but what we can say with some certainty is that things will change, though it is difficult to predict exactly how. The Long Now Foundation has developed a toy model of society as a meta-system with different sub-systems stacked together forming layers. Each layer communicates with other layers, but some layers change more rapidly than others. Art/Fashion represents the top-most layer and, like flaky top-soil, it is at the mercy of the elements. Constantly kicked up and flung around, always in motion, it changes in erratic patterns that are difficult to predict. The bottom-most layer is nature, or ecology, where changes are almost imperceptible in the moment and play out over centuries or millenia. But like the tectonic plates of the earth, if there is a dramatic shift at this level, everything above it is at risk.

I believe the best prognosticators deeply understand how the frequently changing interface with the unchanging to produce the dynamics that play out in reality.

President Biden’s recent visit to the TSMC manufacturing site in Arizona was a symbolic milestone in America’s path towards becoming a more significant manufacturing power in the world again. Today, the thought of a dis-integrating global order with significant re-organizing and even re-shoring of supply chains is commonplace among the intellectual, managerial, and political classes. Events like COVID-19 and the Russia-Ukraine conflict have exacerbated doubts about the sustainability of the “globalization” process, at least as it was conceived in years past.

As the U.S. appears set to embark on a multi-decade process of restoring its own industrial capacity, backed by hundreds of billions of dollars in federal stimulus, I wanted to look back at three thinkers who predicted de-globalization several years before it became a mainstream meme, to see if their ideas can help us better frame our understanding of conditions today.

I don’t claim to have an exhaustive list of such thinkers by any means. But even the shortlist of voices that I was exposed to reveal a surprising variety of intellectual backgrounds from military strategy, to economics, and geopolitics. Starting from different fields, looking at different information, and applying different models of analysis they find their way to similar conclusions about the fate of the interconnected global economy.

1. The first thinker we’ll profile is military strategist, T.X. Hammes. In an article written in 2016, Hammes begins his analysis by looking at important technological changes that are occurring across different sectors of the economy. Technology is something that is known to evolve rapidly as the smartest minds in the world work incessantly to disrupt each other and gain an edge in the marketplace…before it is arbitraged away. It is by combining his predictions about the specifics of impending technological change with an understanding of the inexorable logic of profit-loss that leads him to his conclusions about de-globalization and increasing localization of production.
2. Peter Zeihan has become a bit of an internet celebrity over the past few years for making bold predictions about the future (many of which appear to be panning out), his breadth of knowledge about the world, and his uncanny ability to have an answer for almost any question he is asked about any part of the world. It is clear that Zeihan has a powerful and clear conceptual model of the world which he is using to understand where things are going. It seems that that model places great emphasis on variables, like geography and demographics, that rarely ever change. Their stubborn-ness makes them unavoidable constraints that all societies must plan around; all change must adapt to them, not the other way around. And, in the rare moments when there is even a slight shift in these tectonic plates, they send shockwaves through the entire civilization. Zeihan believes we have entered such an era today. The Zeihan profile is broken into two parts. Part 1 lays out the historical-political framework underpinning his predictions. Part 2 delves into geography and demographics to understand how Zeihan incorporates those variables into understanding today’s state of affairs. (Part 1 | Part 2)
3. Bruce Greenwald is a professor of finance at Columbia Business School. He is considered one of the foremost experts on “value investing,” the approach to security investing pioneered by Benjamin Graham and popularized by Warren Buffet. However, unlike Buffet, Greenwald is not so coy about making bold macroeconomic predictions along with analyzing the prospects of individual companies. For close to a decade now, Greenwald has been prognosticating about the ‘death of manufacturing’ and the ‘retreat of globalization.’ Greenwald’s predictions come from a macroeconomic framework that generates a seemingly counterintuitive insight about the nature of technology — highly productive technologies can kill the industries that use them. Where T.X. Hammes dove into the specifics of which technologies will cause a reversal of globalization, Greenwald takes a step back and gives an overview of how productive technologies, per se, cause massive disruptions in economic structure. He then applies that model to the Great Depression (Part 1) and the current environment (Part 2) and finds that the trends point to an increasing re-localization of economic activity in the future. (Part 1 | Part 2)