#Chinazi Should be #Chiser

(China+Kaiser … ChiKai?)

John Maynard Keynes was a great economist, and by great I mean he got almost nothing right. He referred to the Versailles Treaty that ended WW1 as a Carthaginian Peace: a peace whose terms were so harsh that they only forestalled further war.

Nice theory (and it’s probably what you learned in school), but there’s no evidence to support it. As critics of the theory point out, Versailles was less harsh than many other treaties (including the ones that ended the Franco-Prussian War and WW2). As far as harshness goes, Versailles is fairly average. The British and Americans did not go full-Roman and salt the fields of Saxony so the land would never feed Germans again.

Why do people promote this Keynesian-Carthaginian nonsense? Probably because the alternate explanations for WW1, Germany’s debauched 1920s, and WW2 are less savory. The Keynesian-Carthage theory allows pusillanimous diplomats to weasel their way through negotiations and cash their paychecks without doing any heavy lifting all-the-while elevating the importance of diplomacy. If only we’d gotten that treaty right, then we could have avoided all of WW2. Of course, under that theory, we also never would have gotten Casablanca. But make no mistake, elevating Versailles is State Departments everywhere just trying to steal some budget from Defense Departments.

Critics usually offer another theory: Germany had attacked, pestered, and otherwise annexed its neighbors for years, so why would they assume that there would be much of a negative response to another kerfuffle at their borders? This theory isn’t the −273.15° C of absurdity as the Keynesian-Carthage theory; after all, Saddam Hussein invaded Kuwait because he largely thought the West would approve or, at least, do nothing. Hussein and Kaiser Wilhelm both never thought that America would get involved in their geopolitical escapades. And this theory is the primary support for America’s ceaseless invasions: if we don’t put our foot down across the planet, things can get crazy rather quickly. QED: neo-cons.

The theory isn’t entirely false; it’s just not the correct explanation for why Germany marched into WW1 like they had the gayest float in a Pride parade. And if you think that the America-has-to-keep-theatening-everyone-or-else-global-horseshit-breaks-out theory is bleak, the truth is bleaker.

Germany’s economy was but a corpse by 1922. But here’s a plot twist: it would have crashed regardless of the Versailles Treaty. To repeat: the Versailles Treaty was entirely irrelevant. In fact, WW1 isn’t even relevant to Germany’s collapse.

A few facts:

Germany was a young country. While the region had a deep history going back 3,000 years, Germany was born in 1871. It was the last (hence youngest) of European nations.

In the years of Germany’s gestation, it was a backward country, which is to say that Germany was mostly turnip farmers and cow ranchers, not bankers and engineers. And yet, by 1900 — just 30 years — Germany was the second largest economy in the world (and largest in Europe). (Yes, your brain should ping China at this point.)

Germany’s economy was a massive export economy. [ping -t China]

This massive export economy had grown through coordinated government investments. [ping -t China]

The economy was juiced with debt and devalued currency. [ping -t China]

As the economy grew, Germany invested heavily in its military, engaging in a global arms race (mostly with Britain but also with the U.S.). Arms races are expensive, hence, more debt.

Expanding an economy through debt and devaluation, together with the cultural shift that leads a new generation — born into new and ever-expanding wealth — to assume that they always deserve more wealth, was fused with a new potent German nationalism that created an unsustainable fiscal structure.

And so, Germany required (and firmly believed) that WW1 would be short, hence cheap, and financially (not to mention culturally) profitable. Germany could acquire rich coal and iron fields, a port on the Atlantic, and vast fertile farmland. Bonus: they would humiliate Belgium.

Most people know that, but here’s what they miss. By late 1918 (after the war but before the treaty), the German economy was entirely broke and broken. The government had debts that it could never repay, even under the most optimistic circumstances. Corporations, generally tethered to the government, were likewise holding debts far beyond the ability to pay, particularly if the economy wasn’t rapidly expanding. The government’s only “option” to make payments on debts was to print money, and this miasma of fiscal blunders lead to the insolvent Germany of 1922.

But here’s the Luke-I-Am-Your-Father plot twist: while Germany ended the war an economic basketcase, they also began the war a fiscal basketcase. By 1914, the German economy had been exhausted, so much so that they’d spent the previous few years begging for foreign investment. When the U.S. and the U.K wouldn’t bail Germany out, it did what many nations do: throw a tantrum.

Germany needed the war to be quick (inexpensive) and lucrative. They couldn’t afford a longer war or an unprofitable war. But WW1 was a hail Mary, a final low-probability attempt to salvage an otherwise dire situation. But in 1914, Germany was already losing the game.

Diplomats view all problems as diplomatic problems (better treaties = no war). They are always wrong. (Literally.)

But humans (as opposed to diplomats) generally also view problems as solvable, avoidable, non-repeatable. If we study the past, we can avoid mistakes. This is why WW1 is often labeled “the avoidable war.”

The worst conclusion (yet the right one in this case) is that WW1 was a century in the making (since the years leading up to Greek independence from Turkey in 1821) and entirely reasonable. One could argue that the U.S. and the U.K. should have financially bailed out Germany in 1914 (by throwing money at bad German debt or investing in financially-weak German businesses), but Germany had spent the previous few decades bullying its neighbors (really, just about all of them), threatening to invade, actually invading sometimes, demanding respect and superior bi-lateral agreements, etc. Germany didn’t really have many friends and particularly no friends who wanted to throw billions into the sinkhole that was the German economy.

So the ingredients for The Great War include: new-found wealth and economic regional dominance (#2 globally!), new-found metastasizing nationalism, unsustainable growth (over 30 years!), increasing debt, lack of regional friends, and a bullying posture birthed from perceived superiority. Well, sounds a bit like China.

We could go deeper down that rabbit-hole, but you’ll just keep finding similarities (e.g. Germany was effectively a one-party state that required economic growth to maintain stability and state power, etc.). The problem with all these similarities is obvious: what else should nations have done with Germany in 1914? Germany viewed much of Europe’s center and center-east as ‘break-away’ provinces (Taiwan), they viewed the U.K. as successful but inferior (Japan), and they thought the U.S. would never get involved (U.S.). If you wanted to know what is said in the White House to explain why the U.S. protects Taiwan and sails USN ships through the China sea, then that’s the argument — ensure China knows that the U.S. will be involved. And in terms of China’s economy, consider their bank assets-to-GDP is probably about 4.5x (we really don’t know, and frankly, I’m not sure Beijing even knows), and Hong Kong’s bank assets-to-GDP is 8.5x (that’s death-level .. there’s no recovering from that kind of leverage). And consider that just five years ago, China had less than $200B in USD-denominated debt, while today it’s close to $1T (e.g. real money). Consider that China’s auto industry has crashed, about 50% of their pork supply will be wiped out by December, and when they opened their financial markets to direct foreign investment, the world responded with a collective “wtf?” — the same response the world gave Germany in the years before WW1 when Germany did the same. And consider that China has admitted that they need to create almost a million new jobs per month or, in the words of Premiere Li, “we’re totally fucked.” (Seriously.) That’s almost 5x the job growth of the U.S. in an economy that won’t grow 3x the U.S. this year, which either means (1) it won’t happen or (2) they’ll be horribly low-paying jobs. Either way, you get unhappy campers.

So sure, Beijing throwing four million Uyghurs into concentration camps smacks of Nazi Germany (the Kaiser never did that). And Beijing has gone full-Goebbels on its propaganda (the Chancellor had his race-nationalism but wasn’t a Goebbels-level propagandist). But the recipe for disaster has many more 1914 ingredients than 1939 ingredients.

Of course, it can’t be ignored that Germany — in both world wars — thoroughly enjoyed trampling over Belgium because Belgium just annoyed Germany (as Belgium does everyone). So here’s my solution: give Belgium to China and call it a day. It’s not like Belgium is even a real country anyway.

Or, we could have a war.

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