Globubblization: The Creation of East and West Economic?Spheres

This is a fascinating time to be alive, especially if you’re an economist. The modern economic world of living memory is reaching a tectonic shear point between East and West. Globalization and the recent hemispheric decoupling we’re witnessing now have dominated the post-Vietnam War era. Competing economic theories and visions have transformed our monolithic conception of global peace through dollars into a pluralist spectrum of competing super-spheres.

Part I: The Beginning of Globalization

Since Bretton Woods set the dollar as the standard for international equity and Western dominance, the unalienable economic laws of nature have slowly but surely teased out competition in the marketplace that has allowed China’s rise to dominance on the other side of the world.

Now, we are at a crossroads. With the Four Horsemen of pestilence, war, famine, and death showing up (in order, no less), the world seems primed for an apocalyptic uncoupling on the back of geographic, political, and economic forces. How we got here is a study of humanity’s attempt to formulate a theory of peace and stability between nations, and the lessons of the past have much light to shine on the twilight of tomorrow.

In the Beginning

Since the advent of the city, societies have been searching for ways to maintain stability between concentrated power centers while promoting peace among the nations of the world. Over the last 75 years, the best answer has been economic globalization punctuated by the strength of the dollar.

This Pax Americana has worked better than any previously known system for minimizing international conflict. For most of human history, economic strength was tied to land control which inevitably resulted in war. European feudalism is archetypical, and until the advent of modern economic products, trade was fundamentally a question of geography. The First Peloponnesian War in the 5th century BC only lasted more than a week because Athens had gerrymandered a wall from the Parthenon to its port. Petra — an otherwise unlivable place — existed solely because traders had to walk through it to get incensed to Gaza.

Unfortunately, systems of prosperity and stability that are shackled to the place you live and grow your food are bound to collapse into violence when times get tough. Every crisis becomes existential, and when building wealth inherently means taking someone’s home, you’re never going to have lasting peace.

A Possible Political Solution

At times, humankind has dabbled with the idea that political ideology contains the capacity to keep world order in balance, or at least in better balance than land. The concept was formalized in the 18th century by Immanuel Kant with his thesis on the aversion of democracies to war, but the principle is much older.

Any good translation of Aeschylus’ Orestian trilogy articulates a gorgeous and timeless relationship between democratic law and peaceful resolution of conflict that was known at least as early as classical Athens. The obvious problem is that democracies are almost always the exception rather than the rule on the big stage, and when it comes to power, the capacity of competing political ideologies for balancing global tension was largely ignored as long as armies had to march on their stomachs.

Entangled Economies is the?Answer

It finally dawned on our ancestors that there’s a much better system for maintaining international stability. As is typical of the human animal, it was far older than any of the aforementioned ideas, and had, in fact, been commonly known to everyone from dishwashers to diplomats the whole time. As it turns out, if you have a decent business relationship with someone, you’re less likely to burn down their factory and enslave their children when you disagree about the color of god’s hat.

The modern conduit for this ancient truth was Nobel Prize-winning English economist Norman Angell, who published an outline for globalization in his 1909 book, The Great Illusion. In brief, it is the idea that war will be a truly last resort in international affairs if economies are entangled. It seemed like a credible vision at the time given that there hadn’t been a major European war since the 1870s. It had the misfortune of being ridiculed when the world descended into the greatest conflict ever seen a mere five years later.

It was clear to everyone by 1918 that those trenches were going to keep filling up with bodies as long as they were dug in the dirt, and something had to be done. The new world order seemed to prove that Kant had been right: competing political ideologies of the 20th century became the philosophy for preserving peaceful tension in our system, despite instantly failing in first Spain, then the rest of Europe, and finally everywhere.

However, after that little hiccup, the Cold War lent a sweater to the idea that perhaps at least the more stylish nations could remain civil to one another with proper ideological tension. Sadly, this was an illusion even greater than the one Angell pointed out. The truth is, comparative stability was never about ideologies. The Nazis came to power not because they were fascists, but because the allies razed their economy at Versailles by saddling them with everyone’s war debt. Spoiler alert: the Soviet Union didn’t collapse because our music was better; it collapsed because we bankrupted them.

The big, dirty secret is that everyone at the top knew it was about the money and not the politics since 1944 when world leaders and economists met in Bretton Woods, New Hampshire.

Bretton Woods and the Globalized World

The Bretton Woods System set forth a Western economic model whereby all currencies would be tied to within 1% value fluctuation relative to the dollar. The dollar was, in turn, set at a fixed $35 per oz of gold. The subsequent stability of Western economic systems that resulted catapulted the US and its allies into financial dominance for the next quarter of a century. It also produced the IMF, which provided a system of finance and leverage to fuel its economic growth. The Soviet bloc obviously abstained from all this as they had ideas about economics and power of their own, and the narrative of the Cold War was born.?

In 1971, following America’s first trade deficit of the 20th century, Nixon took the US off the gold standard to expand the money supply. This led to a truly speculative landscape among nations. Now that our ships were untethered, it became an international imperative to get everyone’s goods to port. Bretton Woods was dissolved in 1976, and relative peace and prosperity between Western and many Eastern nations blossomed through the 80s and 90s in the ecosystem of economic globalism.

The China Bubble?Inflates

Around the time Bretton Woods was buried in Jamaica, China began digging its way out of the economic casket it had been languishing in. However, it would take two major developments to get the air into its lungs. First, it had to divest itself of traditional communism which was killing all possibilities of a better financial future. Second, it was admitted to the WTO — a 1995 grandbaby of Bretton Woods — in 2001.

The effect was profound. With new access to finances, better interest rates, and wealthy trading partners, its billion blue-clad impoverished communist citizens became middle-class pseudo-capitalists nearly overnight. China’s economy is more than ten times larger today than when it joined the WTO, and its economic and physical engineering of the Asian continent has been breathtaking.?

While this was happening, the US was mired in unhelpful post-9/11 politics of immigration and trade conflicts rather than health and education. John Adams’ wonderful opera Nixon In China about the famous 1972 visit to Beijing concludes with Nixon bemoaning that “the Pacific Theater is not much to write home about.” That embarrassing sentiment seems to have continued into this century, far longer than it should have. The result: China has grabbed the reins of its economic destiny without feeling obliged to work within Western ideals or philosophy, and this has been both good and bad.

On the one hand, the Chinese people are leading far better lives than their parents could have ever conjured. On the other hand, the Western checks on health, economic, and environmental concerns don’t apply as strongly as we might hope now that their ship has drifted away and they launched their own flotilla of allies. When Russia invaded Ukraine, for example, China took its own tack and it wasn’t in the direction of Western influence.

The Beginning of Globubblization

Even as they are decoupling, the Eastern and Western economic spheres are still highly interdependent from decades of globalist strategies and Beijing’s participation in global financial systems. As their debt bubble implodes, COVID lockdowns continue to depress China’s economy while the war in Ukraine drags on with all its economic pitfalls and thorns.

The outlook for the upcoming decade is increasingly becoming one of hard times and tension. As Rudyard Kipling wrote of East and West: “and never the twain shall meet.” Stagflation will deepen, and as East and West go their separate ways, economic pressures at home and abroad will intensify. It will quickly become clear that, despite our mid-century peace-through-dollars strategy, there are still some things money can’t buy.

It’s been a long ride to get the world to this point, and although there have been many bumps along the way and the future is uncertain, one thing is sure: economics contains the equations that will determine the shape of the world we are moving toward.

Next up: A deep dive into the forces that have driven the gradual economic mitosis of our economic bubbles, and the strategies both East and West are adopting to leverage control of the new landscape.