Weekend reading links

1. Lawrence Freedman has a good history of recent years of the Middle East.  

2. The US equity markets are a seven-trick pony.

See also this.

This is a good graphic of circular deals in the US AI ecosystem.

3. Greek PM Kyriakos Mitsotakis urges caution on the green transition.

The green transition cannot be an end in itself. For many years, Europe elevated decarbonisation above everything else. Other goals — employment, industrial production, strategic autonomy — these lost when they went up against decarbonisation. We cannot afford to stay on this path. Decarbonisation is vital but it is not the only objective. If we must accept some emissions for a bit longer to save our industries or to maintain social cohesion, so be it. We must have these debates honestly. We cannot begin with climate neutrality and hope everything else falls into place.

4. Friedrich Merz and Germany facts of the day

According to pollster Insa, two-thirds of Germans now say they are dissatisfied with the ruling coalition — a 20 point increase from June. Merz, never especially popular, is bearing the brunt: he has slipped to 18th place in Bild’s ranking of preferred politicians, trailing six of his coalition ministers and AfD co-leader Alice Weidel... Core German industries are shrinking, he laments. German steel output declined 12 per cent in the first half of this year compared with last year. And car manufacturing plants, which produced nearly 6mn vehicles in 2017, three-quarters of which were for export, now produce 4mn.

Germans don't seem to like Gerhard Schroeder and his acclaimed (outside the country) Harz reforms.

Schröder’s reputation has been tarnished by his Kremlin ties; he joined the board of Russian state-owned oil group Rosneft and lobbied for the building of Nord Stream’s second gas pipeline between Russia and Germany. Within the SPD, his so-called Hartz labour reforms, which spawned low-paid minijobs and triggered high-profile party defections that helped to create the leftist Die Linke party, remain a toxic legacy. “In DC at an IMF meeting, in Paris at the OECD or in Singapore you mention the ‘Hartz’ reforms, everyone applauds,” says a former SPD government official. “At any local SPD convention, the room temperature drops five degrees.” The SPD — which in February recorded its worst election result since the late 19th century, with a 16 per cent share of the vote — has spent the past two decades seeking to roll them back. These efforts led to a minimum wage in 2015 and culminated with the Bürgergeld, the latest version of a tax-funded basic income for the jobless or underemployed, introduced in 2023.

5, Tesla's third quarter profits fell by a quarter and operating margin dived from 10.8% to 5.8%. Similar trends in income from regulatory credits,

Income from regulatory credits trading plunged 44 per cent to $417mn in the quarter after the US government reduced fines for non-compliance on car emissions standards to zero, in effect killing the trading schemes. Tesla made $2.8bn in profit from trading programmes last year, with about three-quarters of that coming from the US.

6. Janan Ganesh is perhaps the most brilliant FT columnist. Highlighting the gushing and alarmist commentary about AI, he makes the point that history is made through politics and not technology.

Well, Earthlings, here are some entirely realistic scenarios in politics over a shorter time range. France elects a hard-right president who, without leaving the EU, impedes it from within until it ceases to function. Russia does something to a Nato member state that appears to constitute an “armed attack” under Articles 5 and 6 of the Treaty. The Sahel — where more than half politiof all terrorism-related deaths on Earth now take place, compared to hardly any in 2007 — becomes a base for attacks on the west. (Think turn-of-the-millennium Afghanistan, but much closer to Europe and America.) Britain or France or both suffer a bond crisis that triggers, at best, a necessary change in economic policy, and at worst civic unrest. These subjects don’t go undiscussed, of course, but the amount of oxygen they receive compared to tech talk is out of line. 

As a rule of thumb, be sceptical of any “futurologist” who doesn’t major overwhelmingly on politics. The grandest visions for AI — huge consumer surplus, huge job losses too — could happen. The departures of Xi Jinping (72) and Vladimir Putin (73) are going to happen, with implications for multitudes even outside their own two countries. The spread of possible outcomes is wide: from a détente between the west and the Eurasian autocracies under a new generation of leaders to an even higher pitch of conflict that is harrowing to think about. So, by all means, speculate about the potential of tech. But understand that one or two completely plausible political developments would drown out any effect that tech is likely to have on daily life. Even a modest trend, such as Europe’s projected increase in defence spending, has implications for taxes and therefore private consumption that it would take a major innovation to equal or cancel out. 

Consider the very recent past. Nothing has affected businesses and consumers since the pandemic as much as the surge of inflation. Whatever you choose to cite as the culprit — the Ukraine war, monetary looseness, lockdown-induced damage to supply chains — it was political. That experience should have reminded us of the primacy of the public realm. Instead, the fascination with technology as the shaper of realities has only increased over the period.

7. From a CAG performance audit report on the state of ULBs in 18 states of India.

According to the audit, on average, only 4 out of the 18 powers under the 12th schedule are fully under the autonomous control of ULBs, with most functions being performed with regular interference from the state government or parastatals, often without any representation from local bodies. In addition, ULBs are being deprived of making their own recruitment decisions, as the staff assessments are conducted by the state government, leading to frequent underestimation of personnel requirements... This lack of autonomy has not only resulted in fewer sanctioned positions but has also left one out of three posts vacant across the 18 states, depriving ULBs of the human resources necessary to carry out their functions properly... According to the report, 61 per cent, or 1,600 of the 2,625 ULBs in 17 states assessed, didn’t have an elected council, with only five states appointing a mayor through a direct election.

8. Amidst all the alarm about public debt, Martin Sandbu points out that borrowing costs are high only compared to the 15 years or so of after the GFC of very low interest rates. He points out that the US government now devotes the same share of GDP to interest paymens as it did in the late nineties, just under 4%.  

9. Kai Wu has the graphic that sums up the dilemma facing AI companies. 

10. China's scale of excess capacity is staggering.

China now makes 55 per cent of the world’s steel, 57 per cent of commercial vessels, 76 per cent of lithium-ion batteries, more than 60 per cent of EVs, and 80 per cent of photovoltaic products, despite chronic involution gripping these sectors... The country now has 58 satellite makers and 30 rocket companies and more than 60 humanoid robot manufacturers. Domestic commentators already warn of capacity outstripping demand and of companies needing to “go out” to foreign markets to survive. The pattern repeats itself: what begins as glut at home could end as supremacy abroad.

Chinese firms in these sectors with such levels of excess capacity must aggressively pursue export markets. They must also slash costs relentlessly and surive on razor-thin margins, or increasingly assume losses. But the limits to such export-led growth are now evident. 

11. As rare earths become one of the hottest commodities, Australia has emerged as the global leader in spending on the exploration of these minerals.

Interesting that India has the third largest reserves.

12. Edward Luce on Trump's America that is gripped by fear.

Revenge is one of Trump’s three recurring impulses. The others are making money and dominating the airwaves. Dissenters hinder each of these aims. Presidents of universities, chief executives of Fortune 500 companies, partners at law firms and senior military privately despair at Trump’s methods. But each has sound stakeholder reasons for keeping their concerns private. Universities stand to lose billions of dollars of federal research funds; chief executives and their workforces face regulatory reprisal; law firms end up on federal blacklists; soldiers are trained to uphold the chain of command... people are scared of crossing Trump this time. In researching this piece, I interviewed dozens of figures, including lawmakers, private sector executives, retired senior military figures and intelligence chiefs, current and former Trump officials, Washington lawyers and foreign government officials. Such is the fear of jail, bankruptcy or professional reprisal, that most of these people insisted on anonymity. This was in spite of the fact that many of the same people also wanted to emphasise that Trump would only be restrained by powerful voices opposing him publicly. At times, it has felt like trying to report on politics in Turkey or Hungary...

As a rule of thumb, the more an organisation has to lose, the likelier it is to submit to Trump’s demands... Under threat of being debarred from the federal government, and thus losing corporate clients, many big law firms have declined to hire or represent people on Trump’s enemies list. “It’s not a list but I think there will be others,” said Trump after Comey was indicted. The universe of lawyers who would represent his targets has shrunk dramatically. None of the team who worked for Jack Smith, Biden’s special counsel who indicted Trump for allegedly attempting to overthrow the 2020 election and hoarding classified documents in Mar-a-Lago, has since found a job. Family members are not spared. Maurene Comey, the former FBI chief’s daughter, was fired as a federal prosecutor in July. The pleas of staff to FBI director Kash Patel not to fire a senior official whose wife was dying of cancer fell on deaf ears.