Noah Smith Analyzes Economies: USA, China, Japan, Russia, India, Korea, & More

This week on Upstream, we're releasing an episode from my podcast Econ 102 with Noah Smith. We compare the economies of several nations, including America, China, Japan, and more. If you like this and want more, We have another episode covering even more countries, which you can find linked in the description.

Hello.

Hey, bud. How you doing?

Doing all right. About to head out to Japan.

Oh, exciting.

Great.

What's, what's your hope for your visit?

Oh, I mean, I'm just going to do a hanami party. Yes. Flower picnic. Anyway. Yes. So let's get started.

Today we're going to do a bit of a different kind of episode, a little bit of a grab bag episode. And we're going to talk about some of the bigger economies in the world, or bigger sort of countries, and talk about where their economy is, and Noah's advice for what they should do to get in a better place.

We, you know, we can talk about small countries too.

Oh, yeah. Yeah.

Let's shoot.

Awesome.

Let's go.

Let's, let's start with the US.

All right. So the US economy, you know, I've said it a million times, it's doing really well. Inflation has come down, hasn't come down all the way to 2%, but it's come down to, I don't know, 3%-ish. And yeah, so then, so we're doing well on that front. Everybody still has a job. At this point, to the economic doomsayers, they're pulling ever more esoteric manipulations of the data to say we're doing bad, but they're wrong and we're doing good. And it's just like, what else do I say? But consumer confidence is starting to rise, you know, and so like it's rising fairly steadily. And so that's good, you know. So people are starting to realize that the US economy is good. You know, we're still in the middle of this experiment with industrial policy and it's not clear how that's going yet. There's a lot of bottlenecks and, you know, companies are investing a ton, but the federal government has not actually managed to dole out that much money. So, like, if you look at the number of electric vehicle charging stations that's being built, it's like enormous. And if you look at the number that the US government has built, it's like 6. And so, you know, but something got these people's rear in gear, you know, to the degree that it was government or private incentives, it's not really clear, but something has gotten their rear in gear here in terms of investment. And that's great. You know, we want companies to invest for this. For all these years, we were like, why do these companies, you know, just buy back their stock or return money to the shareholders? Why are they not investing? Why don't they see any profitable opportunities to invest? Well, now they are. So they're investing a lot. And it's not just AI. Obviously, people are investing in AI, and everybody in the tech world is very excited about AI, but people are really excited about physical technologies. A lot of the investment is concentrated in the sectors that the government has pledged to support, even though the government support hasn't necessarily materialized yet. Except today, the CHIPS Act did dole out a very big subsidy to Intel. But by and large, that you know that that's that's new. That's the exception. The subsidies haven't arrived yet. It's like it's like this coordinating signal. Companies are just like, okay, let's build some factories, and now they're building a whole bunch of factories. So so that's that's good. You know consumption is strong blah blah blah. The one thing I'm worried about in the U.S. economy right now is the debt, the federal debt. This is something that we told people not to worry about for ten years because interest rates were really low and because you know the economy was doing crappy back in the early 2010s, and some people got into this. this mode of thinking, like, we should never ever worry about debt, but we should because now interest rates are higher. And, you know, we should, we should be thinking now about how to, you know, tighten the government's belt. I don't expect that to happen until after the election, but I do expect that conversation to begin the day after the election.

Right. And what do you think are the biggest levers there? Like, what do you think is the right way to handle it?

Well, we need to restrain growth on healthcare spending, for one thing. You know, we spend a lot on healthcare. You know, our government spends more on healthcare per person than other rich country governments, even though we supposedly don't have a government healthcare system. But actually, we spend more. And so we need to start, you know, looking at serious cost savings on healthcare. And yeah, that's the main one. And we're going to need to raise taxes. So taxes are going to have to go up even as spending on healthcare goes down. There's not a lot of other stuff that's really larding up the budget. There's a lot of small things that could be curbed and a lot of other small things people try to curb that we shouldn't curb. So science spending, Republicans are going to try to restrain it and we shouldn't restrain it. We should be spending more on science right now.

Right.

Then there's just some other, some other random stuff. You know, Brian Riedl at the Manhattan Institute is really good about this, and he has a list of things. And there's a little Washington Post tool that you can use to figure out what you'd cut to balance the budget. We don't need to necessarily balance the budget. We just need to bring the rate of growth of debt below the rate of growth of GDP. Inflation has eroded our debt-to-GDP ratio, so that's helpful. Actually, inflation helped. You know, inflation is like a tiny little Partial default, right? So then, so that happened. And then, yeah, so we need to get the deficit down, but not— we don't need to balance the budget. We just need to get it below the growth rate of GDP, which is now running at about, you know, 2.5%. So if we— anyway.

And would you be surprised if inflation over the next decade was around 3% average as a way to contribute, or a bit higher than usual to contribute to, you know, sort of the debt-to-GDP I would, I would not be surprised.

I think that, that, you know, there's going to be some positive supply shocks from technology, but I think we're going to face some negative supply shocks from the decoupling from China. I think we're going to face some negative supply shocks from disruption of trade by people like the Houthis. And I think that that is going to keep inflationary pressures up. And that's going to mean interest rates are not going to go back down to the like zero or whatever that they were like. That era is over for now. And, and so we can't just rely on low interest rates to bail us out. So I think that we're going to, you know, we're going to be forced into an era of austerity much as we were in the '90s. You know, and we successfully— we navigated that era of austerity by doing austerity and we did it. And then we balanced the budget and growth in the '90s was fine and we balanced the budget and everybody was like, yeah, we balanced the budget and then just forgot about the need to balance the budget forever, just assuming we could do it again. Well, Now comes the day when we're gonna have to do it again.

And last question to you, Erik, for the audience. Why can't we count on interest rates going back to where they were the past decade? Was it that they were artificially propped up or?

Well, so interest rates were low because demand was structurally low, because companies weren't investing, because, you know, basically we— yeah. And there was no real supply-side pressure on inflation either. Like right now, we have— so basically, we were still getting massive flood of cheap Chinese stuff, even as people were still rebuilding their balance sheet and going into savings mode left over from the Great Recession. Now, people are now spending more. They're more confident. They're spending more. Incomes are up. That's inflationary. There's also some demographic factors, but I shouldn't go into that because it's not that big one way or another. But basically, decoupling from China plus the disruption of global trade, I think, is going to put a continuously upward pressure on inflation. And then to fight that, to contain that, the Fed's going to have to keep interest rates— it's not going to keep interest rates at the current level. It's going to cut from that level.

Yeah.

But we're not going to see zero again. Right. I wouldn't be surprised if interest rates settled around like, you know, 3%.

Right, right.

Okay, let's transition to China.

All right. So China has this massive property bust. People still do not understand, even Chinese people do not still understand the magnitude of this bust. It was, it's like America's 2008, but bigger. And it is still filtering through the entire economy. And they're playing this basically this giant game of hot potato to determine who takes the losses from this. So, you know, there have been a bunch of articles about this. So basically, like upper middle class Chinese people are getting hosed. You know that well-connected people are getting are they're trying to make those people whole even though they won't be able to. Everything in China is insolvent. The banks are insolvent. The developers are insolvent. The local governments are insolvent, and local governments are one of the biggest problems, by the way, because these Chinese local governments had relied on. you know, land sales to developers and being basically in bed with real estate to fund their public services because China does not have property tax. And now everyone wants to— all the economists are like, pass a property tax. And everyone's like, no, well, we can't pass property tax now. That's going to tank housing values even more. So the local governments are really in trouble. So the central government's going to have to bail them out. The central government's going to bail the banks out. And the central government may also bail some big developers out, but it's really just an indirect way of bailing out the banks. So, so I think they'll pretty much just bail out the banks and local governments. That's going to be massive, massive, massive amounts of central government debt for China. You will see China basically become like, like take on Japan levels of debt. That's happening.

Wow.

I mean, it already exists. That debt already exists, right? It's like you can default on it and then, then just that, that hurts economic activity more. So that actually is the best response of them to to do all these bailouts. If they don't, if they let some of these debts default, that's gonna actually hurt their economy worse. So the question is, what is the government trying to do to get out of this hole? Well, at the same time, Xi Jinping decided that IT and finance and education and things like, and services are not real growth. Like, that's not real GDP, he decided. And that's not real technological progress, right? So he, did you just make a sound effect? Like a, did you just punch some sound effect?

No, there's an ambulance or something running outside, but it was good timing.

Okay, 'cause we should have sounded, We should add like little Snapchat-type sound effects or whatever. Or anyway, so basically, so services are going to really struggle to take up some of the growth because they've been structurally discouraged by the Chinese economy. Well, when you— and infrastructure, China's starting to realize that it's wasteful. It's going to build a lot more infrastructure. A lot of that will be waste, but it's all— a lot of people are realizing that they've already built a lot of bridges to nowhere and a lot of giant highway interchanges that no one uses. And so, and a lot of high-speed trains, you know, the top, the best high-speed trains get used a lot and all the other high-speed trains, no one's really riding them. So anyway, they realize that. So what are they going to do? They're going to manufacture a lot of stuff. So the whole idea is, okay, we're going to support everything else with manufacturing, right? We're just going to manufacture our way out of this. And who's going to buy that manufacturing stuff? You, the people of the good people of the world. We are going to absolutely just flood the world with cheap manufactured stuff. Cars, solar panels, batteries, electronics, whatever Xi Jinping thinks is like a real worthwhile product, low-end semiconductors. You know, there's these export controls on high-end semiconductors, but then low-end semiconductors, they're, you know, like we can't export control them. So they're just continuing to just like make the massive amounts of this and sell it very, very, very, very cheap. Right. And of course, all this is not great for productivity, right? Because you're, you're making too much stuff. You're making too much stuff, guys. Like steel factories, you know, you don't need more steel. Steel's piling up and the cars are piling up. Like, and all these Chinese companies are now hurting because they, they're being told to manufacture all this stuff. They're manufacturing like below cost. A lot of these cases, they're just, you know, and even there's the government's going to dish out massive subsidies. All these things are bad for Chinese per capita GDP. All right. This is going to— we're going to look and we're going to see that China is still like a third of our living standards. And we're going to say, oh, I guess their system's worse. Yes. But also at the same time, it will be massively overproducing a whole bunch of stuff that will then get attempted to be sold to us, to America, to Europe, to India, to Brazil, to all the Middle East, all these people. And they're going to do this. And then what's going to happen? Well, so I'm about to write a post about this today, actually. This is the second China shock, right? The first China shock was when the people of the world, the companies of the world, of the rich world, moved their production to China because it was a lot cheaper in the 2000s, right? And then this put a lot of manufacturing workers in America, Europe, wherever, out of a job. Now, the production is owned all by Chinese companies, and the parts are made by Chinese companies. So that's different. Yeah. Too. Because, you know, it used to be that, that, you know, China would do cheap assembly and the parts would come from Japan, Korea, Taiwan. That's over. Like, China has really, you know, they still have to import some top-end stuff, but China has really made a massive effort to buy Chinese in terms of their intermediate inputs and sourcing. They're trying to, you know, and if you think, oh, does this look like building up an integrated supply chain for war production? Well, some people have theorized that it does. And That, you know, some people are scared of this. Other people say, no, that's just hawkish nonsense. Why would you think building a bunch of cars and solar panels is somehow preparing for war? So without taking a stand on which side of that debate I fall on, I'm not sure. I will say that China has decided that manufacturing a whole bunch of physical stuff— cars, solar panels, batteries, trailing-edge semiconductors, electronics, and machinery, you know, machine tools, things like that, transportation equipment— basically a whole bunch of manufactured stuff. Primarily electronics and transportation. This is going. This is what is going to be is going to you know restore quote unquote high quality growth. So when Xi Jinping says high quality growth, this is exactly what he means. Now, if everybody starts putting up a bunch of tariffs and blocking this flood of Chinese goods, then the overcapacity in China will be worse, and then these Chinese companies will just go bust en masse, and it will hurt the Chinese economy, and it will protect the auto industries in Europe and America and blah blah blah. And, you know, Donald Trump is now promising 100% tariff on Chinese cars. I think that Biden will probably have to follow suit with a pretty large tariff on Chinese cars. There will be other non-tariff barriers. So Europe, if you, by the way, if you really want to stop inputs in your country, the way to do it is actually to use non-tariff barriers. So you, you make a bunch of environmental and safety standards that like your own companies happen to all already pass and that other companies would have to retool all their production lines just to, you know, pass. And they're like, oh God. And so like sometimes they do it, but, but, you know, Turkey has blocked, basically blocked all Chinese cars. Um, Chinese cars can't get into Turkey now because there's insane non-tariff barriers. There's no tariffs, but we're going to put up tariffs and non-tariff barriers. The US is really bad at non-tariff barriers because they involve, um, we're just bad at it, but we'll, we'll learn. And so, and, and, you know, Brazil is, is levying panel, like, uh, dump, anti-dumping tariffs against Chinese solar panels and And Brazil is like in BRICS, right? BRICS, the alternative to the West.

No.

So then that's not going to happen. Like, you know, Brazil is blocking Chinese stuff. India will block Chinese stuff. Some countries like Vietnam will be like, okay, yes, cheap Chinese stuff, thank you. But like, they don't have much purchasing power. The countries that desperately want cheap Chinese stuff are poor countries where they are raising standard of living is job number one. And which also, like, you know, India is a poor country, but it has a nationalistic objection to letting China make all the stuff. And so really, yeah. So the big question now is just how big and how fast the trade war against the great Chinese goods dump will happen.

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Zooming out a little bit on China going forward, Peter Zeihan is a huge China bear, and he thinks that because of the demographic stuff, because of US retrenchment more broadly, that he thinks that China's population will have to like decrease maybe even in half over the next decade or two, the abuse of this massive implosion. Do you think that is extremely unlikely?

Population decrease? Yeah. Hmm. Well, so population is decreasing in China, like it's going down. Yeah, but we already know how much it will. Like, you know, unless there's like a Great Leap Forward type famine, which I doubt there will be, you know, China can produce enough food to feed itself. That's fine. It imports some food, but it doesn't have to.

So you don't think China will implode, basically? You think—

No, no, it won't implode. But in terms of demographics, we are going to see population shrink. I mean, population is shrinking right now. Like, population is projected to shrink quite a bit by the end of the century. If you look at the demographic pyramid, which I could pull up right now if I wanted, maybe we should do that in Econ 102. We should just have me pull up charts in the future. But so there's a giant spike of people that's about to retire, which is like China's Generation X, basically. The generations don't quite line up, but it's China's Generation X, and they're about to retire. And when they do, that's going to be huge. The other big Chinese generation is roughly the millennial generation, so roughly people who are in their late 30s now, mid to late 30s right now. As those people get old, they become— they'll become less productive, less dynamic, and they'll hog the spots in top management. Um, that's going to be a problem for China. And then the young workers just aren't, aren't replacing them. There's like a small bump in Chinese, um, Gen Alpha equivalent, right, who are now 10 years old. Those people will start entering the workforce a decade from now, and there'll be like a slight demographic bump that China gets, but it's very small. And like basically once this big millennial generation, you know, advances into age, like there's, you know, there's no workforce growth left. And so now that doesn't mean you're totally screwed because— oh, and also the idea that China can urbanize more, can pull more rural people into the cities, that's— some people say this, it's wrong. China's already more urbanized than America by most, you know, by satellite measures. So that's not going to happen. The rural surplus labor is gone. That's that's done, and that was done a while ago, actually. The one thing that China can do to sort of improve things, it can do a couple things. It can have people work longer. That's you know they're old, like you know sixty-seven-year-olds are not as productive as as you know twenty-five-year-olds or thirty-five-year-olds, but like they add something. So China will You know, China in its age of overpopulation made a retirement age of 60 because it just wanted to push people out to make room for young workers, right? Because old people don't rebel, young people do. That's going to change. They're going to get all the old people to work. And so that's going to be a thing. Chinese women already work. So that's not a— that's not a big source of stuff. But then the other thing they can do is college graduation rates. China's college graduation rate is actually really low. And so they're going to raise the college graduation rate. send more people to college, and that will improve human capital to some degree. Right. And so, so it's not like they're— I don't think they're going to implode. It's going to be a drag. Obviously, automation, you know, will slow the impact of demographic decline. And we've seen that in a lot of countries like Japan. And so, yeah, so China is going to shrink, but that's not going to make it go poof. Right. It's going to exert like a small, consistent drag on its economy. We'll see, you know, one and a half to two percent growth growth lower for like a decade, and then like after that it'll be like a little lower. But like yeah, we're not gonna it's not gonna be any sort of implosion.

Yeah, the sorry, Zayhan. Well, as a segue to Japan, talk about maybe where what happened to Japan is you know instructive for what could happen in China versus where it's totally different and not going to. Play out like that.

Right. So, so what happened? So China already had the big real estate bust, and Japan had the big real estate bust too, and, um, for different, completely different reasons. Like, China's real estate bust was much more like America's, although there were big differences as well, but then it was more like America in 2008 than Japan. But, um, what Japan did after the bust was it, it, uh, kept zombie companies alive. Basically, companies had you know it didn't let companies go bust, right? It you know banks would give insanely cheap loans, you know to to companies, and the government would support this basically so you wouldn't have mass unemployment. You wouldn't have companies, you know you wouldn't have people getting mad in the streets because companies were going out of business, right? China could do the same thing. So so there are signs that China is evergreening loans to shitty property developers. And of course, in the name of industrial policy, manufacturing, all this stuff, a lot of crappy manufacturing companies are getting supported. How long that will continue is not clear. So in Japan, that continued for over a decade, like a little over a decade. You know, really, I guess, I guess mostly for one decade, they really, really strongly supported the zombie companies. And that was a big part of why they had this lost decade, but also didn't have a giant rise in unemployment. So they avoided social unrest. And, you know, but they at the cost of lower productivity growth and evergreening these loans to these zombie companies. And so I think that we could see China do something somewhere.

That's well said. Let's segue to Japan. Oh yeah.

So Japan right now, Japan of course has its longstanding demographic problems, which everybody knows about. Although I will say that Japan's fertility rate is now higher than any other in East Asia. Japan's fertility rate is significantly higher than China, significantly higher than South Korea and Taiwan.

Did they do anything or it just organically?

It's not clear. It didn't really rise. It just sort of bottomed out around the same level as Europe. And they are trying to do things. They're trying to encourage men to go home and help take care of kids more. They're encouraging, you know, flexible work-life balance kind of things, larger homes so people can have more space, blah, blah, blah. But it's not clear what is actually working because it's one thing we know about pronatal policies is that nothing really works. So, so yeah, it's not, it's not really clear what's going on there. And it's not, I mean, their fertility rate's not great. Like it's, it's Germany level. Yeah. Right? It's like, yeah, it's kind of low. It's— it could be higher. It could— it could rise to the level of, you know, America or France or something like that, which is like a little bit higher, though still under replacement anyway. What we're seeing now in Japan is the opportunity for Japan to do industrial policy and to reclaim its place as a major electronics manufacturer. What you saw in the 2000s and 2010s was Japan getting chopped out of its traditional role as a key hub of the electronics manufacturing supply chain. And one reason for this, there were a number of reasons for this. One is that Japanese corporate culture is absolutely broken. It's a bunch of old guys in charge who don't know how to do anything. And they have a lot of trouble promoting dynamic young people. They have few young people, but they also have problems promoting the young people they have into management positions because of deference to age and whatever, and desire for social stability. through guaranteed promotions and blah, blah, blah, which works fine when you're just like just starting out as an economy, right? And have all these young, have a ton of young people and you have like not many companies that are legacy companies yet and you're just starting to build stuff. Well, it's fine to like promote people as they go, but then like you get this massive mass of like old dudes who don't know what the hell's going on. And that's where Japan is now. So that's a problem. They're trying to fix that. It's very hard, very slow going. The Ministry of Finance and the bureaucrats know they need to fix this, but the bureaucrats have somewhat disempowered since the 1980s. And, you know, and the sort of the crash of the '90s discredited them a bit. And actually, honestly, they need to like come back and be more powerful now. Japan needs to basically become more of the stereotypical Japan we used to know from the '80s. Like they need to go back to '80s stuff to some degree and just, you know, manufacture some electronics and like have some powerful bureaucracies and please do those things because for so long we relied on China to basically do all that stuff. And now we're decoupling from China, right? We're trying to get our supply chains out of China. We need someone who can— we need as many countries as possible who can do this stuff. Obviously, we're going to try to go to India, but India is still very poor technologically. You know, it's not there yet. It will get there, but it's not for a while. And it's growing slower than China did. So we'll talk about that in a second. But Japan is really important. You know, it's still a fairly large country. It's going It's got like 120 million people and it has a lot of like people who know how to make semiconductors and stuff like that. So now TSMC and Samsung and to some degree American technology companies as well are investing in Japan and they're building fabs in Japan because guess where we don't have these insane permitting problems? Japan. Guess where you don't have all these— where subsidies aren't larded with all these massive contracting requirements? Japan. And so, you know, it's very, very easy and quick for Japan to dish out a bunch of subsidies. It's very, very easy and quick for Japan to allow permitting, to allow things to be built. So TSMC announced one factory, announced a factory in Japan after it announced the factory in Arizona. The factory in Arizona, like construction has just been pushed back by several years. The factory in Japan is cranking out computer chips now. It is working. It is up and running. It's, it's going. You know, now it took like, you know, a year and a half. They just threw it together. Now it's building shit. And because Japan just works for this stuff, you know, and it still works for this stuff. And, you know, it helps that everyone in Taiwan is a gigantic weeb and would love to go live and work in Japan. So that helps. But, you know, obviously if Taiwan gets invaded, that'll be cut off. But then American companies ought to be investing in Japan too, because Japan for so long discouraged foreign direct investment. Now it is starting to encourage it. So IBM is actually doing a chip thing in Japan. Does IBM know how to make chips? No. Does IBM know how to partner with Japanese companies that do know how to make chips? Yes. So we'll see if that works. In the meantime, Samsung, like go back 10 years, Japan, 12 years, 13 years, Japan and Korea were fighting over these stupid little islands no one cares about. And like, you know, Japanese people were really upset that like K-pop was more popular than J-pop in Japan. Japan, and there were like these racist anti-Korean marches, and the government cracked down on those, right? There were— Shinzo Abe took all the— took the racists and he like tossed them in jail. Like, they're— those guys are in jail now. He's like, oh, hate speech law. It's like Japan passes first ever hate speech law. That happened. No one noticed. Then the woke people— then the woke people are like, well, this law is toothless. Nothing's going to happen. And the police are like, like we need, you know, a law to make things happen. So the police threw the racists in jail. And so that's where they are now. Anyway, Japan— I just wanted to go on that rant.

Yeah, that's the rant of the week. You got it.

That's right. Japan and Korea are now friends. That's weird. You know, we're used to thinking like, oh God, they're so mad about like colonization, comfort women, and all this stuff like that. Well, they never— they papered over those historical things, but they never really like, you know, they didn't have like some truth and reconciliation commission that made everything fine and okay. Or whatever. Like there was no, you know, they issued Japan issued a bunch of official apologies, paid a little bit of reparations, and that was pretty much it.

Right?

And so then so that happened. And and and young people, young Korean people like Japan. Young Korean people are not mad at Japan. It's all the old people who are dying off who are mad at Japan. So Korea and Japan are friends now. Also, I mean, the main thing is just China, right? Like they've both got China breathing down their necks. This gigantic country. These little countries have to band together against the big one, and that the big one is China.

Let's, um, let's stay here, actually stay in Asia. Let's segue to Korea.

All right. Korea's fertility is catastrophically low. Like, when you're talking about countries where just nobody has any kids, like, that's Korea. And it's not clear why that's happening. People just work a hell of a lot in Korea. Like, Korea— Japan actually did get rid of the insane, you know, sort of like the insane East Asian work schedule. And China's trying to get rid of it, and Korea never did. Like Korea, like is still you know everybody just works themselves to death, and it sucks. And the suicide rate. So one thing people don't know about Japan, Bob, by the way, is that the suicide rate in Japan plunged by over two thirds, and is now down to below America's suicide rate, which has also risen a bit. But Korea's suicide rate is sky high. It's so high. Everyone's just like killing themselves, and no one's having any kids because. You know, people just work, work, work, and it's it's very cultural. You know, it's like um uh and I don't actually know as much about the corporate culture of Korea as Japan, but I do know that it was somewhat modeled after Japanese corporate culture back in like the eighties, and that was not a thing you necessarily want to model yourself after. And so there's a lot of like excess work that's getting done. People could afford to go home and be with their families more and stuff like that. Korea also has this massive gender. problem. And that, like, honestly, I don't know about, you know, like, um, my, my perception of Korean gender relations is it comes entirely from K-dramas, right? And so, yeah, gender relations are mostly based on, like, you know, tragic lost loves from dying from cancer and getting hit by a car. That— but anyway, there's this giant gender divide in Korean politics, and no one's having any kids, no one's getting married. Um, and so that's, you know, that's like manifesting in the the devastation of family life, Korea also has a lot of consumer debt. People have just gone into a lot of debt. And this is, of course, this is what Gangnam Style, the song, was about. Nobody knew. They thought it was just about a funny dance. But also, it was about the fact that everyone wants to stunt, right? It's the fact that everyone just wants to splash, consume a bunch of stuff instead of save, save, save. Koreans are like, consume. And so they've gone into a bunch of debt, consumer debt. Because of this. And so this is a big problem for Korea. It's also a problem that China is now attempting to— for a long time, China would use Korean suppliers and then just sort of deprecate Japanese suppliers. So if stuff was being assembled in China, phones are being assembled from China, the Chinese companies could buy screens from South Korea, Japan, they'd always pick South Korea. And this is just because they didn't like Japan. This is one reason why Japan got cut out of the electronic supply chains. Because of China, basically. And yeah, people don't talk about this, but it happened. Now China's cutting out South Korea too. And so China's making a big push to basically get South Korean stuff out of their supply chains. And this is a big problem for South Korean manufacturers and for Germans, by the way, also. So South Korea and Germany did great selling all the complex manufactured stuff to China during the 2010s. And now that boom is basically over. So South Korea is kind of in trouble. But it, you know, South Korea has massive technological capabilities, and now demand is going to shift. So, so, you know, Indian suppliers will buy stuff from South Korea. Vietnamese suppliers will buy stuff from South Korea. America will just buy stuff directly from South Korea because of friendshoring, unless we get Trump in power, who'll want to cut out everybody from you know. So Trump is the chaos agent that will upend everything I'm saying now. But but you know, assuming that you know if if Trump doesn't win. Then we're, we're going to buy stuff from South Korea because they're our friend. Um, you know, we don't want to buy stuff from China, and they make some of the same stuff China makes. And so, you know, like, we're going to want to buy from, from Korea instead. So that's actually good for Korea. And so, and they're going to be more tightly integrated with the other non-China East Asian economies like Japan and Taiwan, and that's going to be good for them as well. So they've got a lot of good things going on, and they probably will pump up immigration. Um, you know, whether or not you think that's a good idea They probably will. And so if I were South Korea, I would just be trying to transfer the entire population of Vietnam to South Korea anyway. So, yeah.

Is it worth going deeper on Taiwan?

Yeah. So Taiwan is— what people don't understand about Taiwan is that most of its businesses are small. We hear about TSMC and Foxconn, which are these gigantic behemoth businesses. Right? We maybe we occasionally hear about another Taiwanese business like Acer or something. Most Taiwan is very, very, very centered on small business, and in this sense it's like Germany. Taiwan is doing is is in trouble because it's it's going to have to decouple from China as well. And it's it's not you know a lot of this is just because of the risk of of war. So like it's not even war. So China has a lot of steps short of war that it can use to try to pressure Taiwan to surrender and to let itself be taken over by China. One of those is by appropriating all the businesses and real estate holdings of all the rich Taiwanese people in Taiwan. Taiwan is a very unequal society. The rich people who, by and large, this distinction is disappearing in Taiwan, but there's still a little bit of it left, which is that the rich people traditionally were the KMT people and the nationalist people who came over from China, who who were a business elite, right? They were capitalist business elite, and they came over from China and they set up in Taiwan. And then, but they still did a lot of business in China, and they bought real estate holdings in China, and they built factories in China for their small businesses and stuff like this. And these people are all kind of in trouble, whereas domestically focused businesses or businesses focused on selling to the US or Japan or whatever are going to be a lot better. Better off, and so you're going to see TSMC is not typical of Taiwan, but it is maybe a bellwether of what Taiwan will be doing. So Taiwan rich Taiwanese people are going to suffer, and and China hopes that this will cause them to put pressure on the Taiwanese government to surrender basically to China. It will not be sufficient pressure, but it will cause divisions in Taiwanese society. Obviously, for Taiwan, the most important thing is war. Will there be a war? I don't know.

So. How about Indonesia?

Indonesia is a very interesting case because Indonesia became a manufacturing-centered development story in the 1970s and '80s and then in the early '90s under Suharto, who was a bad dude but an effective modernizer. And then the Asian financial crisis happened and China really took off. And then those 2 things meant that Indonesia is like, okay, never mind, we're going to switch back to mining and, you know, Like, like forestry and farming and things like that. So, so they actually did pretty well with that. They, like Indonesia, actually managed to keep growing its GDP, and that's pretty cool. But then, so now they're trying to switch back to manufacturing. So they just elected another guy who's sort of Suharto Jr., and he's, you know, he's a general. He has a history of brutality. He, you know. Wants to do manufacturing, um, and he doesn't just want to dig up rocks and, uh, you know, like plant crops. And so we'll see whether or not, uh, he can actually do that. But, you know, doing that will require building better relations with Japan and South Korea and taking advantage of decoupling. If Indonesia just opens itself to Chinese goods and then ignores selling stuff to the American market and to other rich, you know, Europe and whatever, they will, they will continue to be a mineral arm of China and all hope of transitioning to a manufacturing economy will be lost. Instead, Indonesia should hop on the decoupling train, do what India is doing, and basically become an alternative to China for production. Let's see if they do that. Yeah.

Before going to India, are there any other bordering countries with China, the smaller ones that are worth getting into, whether it's Thailand or Vietnam or Vietnam? Let's do Vietnam.

Vietnam. So Vietnam has, you know, basically copied China, tried to copy China for a long time. They tried to become like this, this make-everything platform for, for cheap assembly stuff like China did in the 2000s. And they did pretty well at that. Vietnam makes all the phones for Samsung. That's where the phones are made, not in China. So Vietnam's done very well at coupling with the South Korean economy and benefiting from FDI from there. Vietnam actually benefits from FDI from China. Chinese companies, you know, in order to circumvent tariffs or just to get lower labor costs or whatever, or avoid the watchful evil eye of Xi Jinping, they will go to Vietnam, set up shop, and start making stuff there, you know. And of course, there's a lot of, you know, animosity toward China in Vietnam. The last war that China fought was 1979. They invaded Vietnam. And Vietnam won, as they typically do. But they But, but there's still, you know, you have this giant country breathing down your neck that has invaded you 17 times and, you know, and continues to claim little bits of your island territory and bully you around. There's going to be a lot of animosity there. So Vietnam, Vietnam needs to do a couple of things. Vietnam needs to upgrade its higher education, send a lot more people to college. That's really important. And Vietnam needs to Vietnam needs to, um, uh, build up large businesses. So basically, uh, you know, bigger businesses in Vietnam. So the, the quote-unquote communist government of Vietnam has been unwilling to like let large businesses develop because it's afraid that they'll form alternative power centers to the state, whereas China was not afraid. So you have giant businesses like Huawei or whoever in China, um, and that has various means by which they bind their interests to the interests of the state. Vietnam has not done this. So Vietnam needs big businesses and it needs higher education. So if it solves the higher education problem, Vietnam will be the next Malaysia or Poland. Vietnam will reach near-developed status and then it'll be nice. Right now, Vietnam still looks like a developing country. If you like, it still is like one-story buildings with karaoke shacks and stuff like that and people riding around scooters and bicycles. Like, it still looks and feels like a developing country despite all the growth that's happening. It needs to level up and it needs, you know, college education and bigger business.

Yeah. Let's segue to India.

India. All right. So India, new numbers came out improving the methods for measuring poverty in terms of subsistence-level poverty. Like, you're just like literally a starving peasant in the, you know, village. India has basically eliminated that. That's no longer a thing. The incredible desperate poverty that people go to India and see in like the '70s, '80s, '90s, like India, like that's done.

How'd they do that? Just capitalism?

How'd they do that? So fast growth is part of it. They didn't grow as fast as China, but they grew a lot. So that's part of it. But then also India did massive, massive transfers to support rural places. So rural poverty was the big problem. And that's what's— that's the desperate peasant poverty that's been basically eliminated. And so urban poverty is still there en masse, but it's going down. It is going down at a substantial rate, but you still see massive slums. Remember that everything is relative. First, you get people enough food, then you get people a house to live in, right? So like, you can think physically, there's these stages of like Maslow's hierarchy with poverty, right? And India basically now has food.

Yay.

But now they need shelter. And so then they'll need transportation. So India is doing massive infrastructure investments— highways, trains. You can get around the country by highway and train now. It's still hazardous, but like you can do it without spending like, you know, many days like sleeping on the roof of some train that breaks down every few miles. And so that's happening as well. Modi has been really, really good about rural water sanitation infrastructure and about transportation infrastructure. Really, really good. In terms of business climate for foreign direct investment, Modi has not been as good. There have been signs that he wants to get better, but then, you know, it's not clear yet whether or not he'll get better. So, and in terms of education, Modi has tried a little bit, but one problem is girls are still not going to school. And one problem with So, so one problem with India being a center of labor-intensive manufacturing is that in the early days of manufacturing, of labor-intensive manufacturing, the workers in the factories are all women. And we don't imagine that. We imagine men factory workers because it— when, you know, there's this flip that happens, right? Um, when you stop, like, at first it's all women in the factories, then later it becomes all men, and then later it becomes more equal at the very end. But then, um, You know, there's this stage that we all remember when it was mostly men in the factories, but go back earlier and in the sweatshops, they're all like— my grandmother worked in a sweatshop when she was a kid, right? She worked in some like, you know, stinking, fetid, uh, you know, bench-built like warehouse, brick warehouse in Chicago, you know, making clothes for like, you know, pennies an hour, like, right? And so, um, that's what you did. as a teenager. She was 14, 15. That's what early industrialization looks like. And that's what India has not done. The women are not mass migrating from the villages to the cities, and they need to. If you ever get a chance to read a book called Factory Girls, you should read it. It's about China in the 2000s when they had this mass migration and what the lives of these factory girls were like. And it so closely parallels what happened in Britain, in America, in every country that industrializes. India needs to do that. It needs to have the women, you know, graduate at least junior high, preferably high school. And it needs to have the women move to the cities and start making a bunch of clothes and electronics and toys and stuff. It needs to do that in addition to the other— the chip factories and the car factories and the advanced stuff. It needs to do the mass stuff. And it needs, you know, So, so that's where India is really falling, still falling short, is in terms of women and the role of women. So that's what it needs.

How about Pakistan?

Pakistan is fucked. They are the biggest basket case in the world except for Nigeria. Um, Pakistan is just so bad, I don't even know how to describe it. Um, Pakistan is a poor country, but it is not a fast-growing country. It doesn't invest any of its money. It consumes everything. It doesn't invest. Pakistani businesses are not building any factories. They're not building offices. They're not investing for the future. Pakistan just, you know, consumes whatever it, it gets, consumes its whole income. And it supports this consumption by borrowing and borrowing and borrowing from the IMF, from China, blah blah blah, and then defaulting and defaulting and defaulting. So the, the basically people keep paying Pakistan. Pakistan has some nuclear weapons and a bunch of terrorists And so people are like, well, we can't let Pakistan collapse, so we better keep just putting it on life support. It's— Pakistan is a, a low-income, poor, consumption-based, you know, society on international life support from China and the IMF. And in meanwhile, the military and the, you know, civilian populist gov— you know, people keep like switching back and forth who has power. Um, the military didn't officially coup Imran Khan, but it did Force them out of power and put its friends in there. And so, like these these power struggles are just constantly happening in Pakistan. The country is unstable. It's you know it has two of its its like four main provinces. There's Kashmir, but there's four main provinces. Two of the four main provinces, Balochistan and and KP, are basically like in constant revolt. You know the the the other two the two most populous provinces, Punjab and Sindh. don't really like each other, and the crime rates are off the charts. It is hard to describe what a massive basket case Pakistan is, and its fertility rate is still pretty high. And a lot of intellectual Pakistanis deal with this by becoming Nazis. If you look at a lot of the most extreme Islamism in Britain, it is driven by ideas, stuff from Pakistan, ideas from Pakistan. If you look at a lot of the stuff online, Like a lot of the most anti-Semitic stuff online is coming out of Pakistan. So it's this basket case, you know, but you know, Pakistan is with trying not to be an ally of China, right? The people in charge do not want China to drag it into its like global conflicts because that would make things even worse. The people in charge are in this perilous balancing act of like teetering atop this rickety structure of crap. Bangladesh has passed up Pakistan. India has passed up Pakistan in terms of GDP. and still growing. You know, they started out poorer. Pakistan started out richer, um, than these, and it's just going nowhere. Um, Pakistan's in trouble and it needs to get serious. The elites of Pakistan need to realize that they can't just keep on going, you know, being on life support from the international system. Like, you can't do it, guys. That game's done. The, the time limit has expired, and now you need to be a real country, invest some things, actually collect some taxes. Control crime, and you know focus on development. You're not going to ever beat India in a war. All right, Pakistan's fought India four times, got its ass kicked four times. I know they'll say like, "Oh, we did." Yes, you did. You got your butt kicked by India. India is like five times your size. It's going to kick your butt. They're also better technologically and richer. They're just there. You're going to lose. And so, like, do not focus on fighting India. Do not focus on like you know, like getting in military alliance with China. Just focus on development. Focus on investing and stabilizing the country and having people get a little bit rich. Okay, do that, Pakistan, please. Otherwise, you're just going to collapse.

Fighting fighting words. They need to they need to listen.

Before segueing to Russia.

And this is such a fun concept. Maybe we'll do multiple episodes on this so we can get to every, every, every country.

Yeah, let's do another one.

Let's do every country that matters. Before getting to Russia, any other countries in Asia do you think we should, or somewhat related to the countries we talked about, you think we should get into?

Well, I'd note that Philippines is underrated as an investment destination.

Oh, say more.

Yeah. So Philippines, if you can do light manufacturing, cheap stuff, Philippines is actually better for that than people realize. And it's actually— it's growing decently robustly and it has a lot more security. Like, it's not— there were Muslim and communist rebellions in the Philippines that have now been largely quelled. And the leadership in the Philippines is less nuts. Like, they had sort of a wild man, a Bolsonaro-type figure named Duterte, who was in power for a while. He's out. They had an incredibly corrupt guy, you know, in power for a long time who just stole all the government's money. Most corrupt leader in history. He left, and his son's now in power, and his son is much less corrupt, and his son actually is a much more serious leader than his his dad. You know, and actually, so far, is doing a pretty good job. So so Philippines is underrated as an investment place.

I would say the what about Australia?

Australia? Well, as you know, I have bigotry against Australia. Because they kill rabbits and I don't like that.

Yeah.

So then Australia is a large mining outpost that also does some consulting. And Australia is an absolute masterclass in how to create a very nice society based on mining and natural resource extraction. They proved that the resource curse is not absolute. You can just dig up a bunch of bauxite or whatever and then, and and coal even. And you can dig up all this stuff and, you know, have your economy based on that. But you can also supplement it with high-end services. You can have a well-educated population. You can have a high minimum wage. Australia is the— Australia is the progressive utopia that you're looking for. It's not Canada. It's Australia. Canada is far more dysfunctional. Australia, you know, is just far, far doing far better in many ways and has many institutions that could copy. In fact, that we are copying. They have— they did the income-based repayment of student loans, which we're trying— which Biden has copied. They had wage boards for, you know, for fast food workers, which like California is now copying. So Australia has gotten a lot of things right. That said, if you are a mining outpost, demand for— international demand for minerals will control your economy a lot. And now China's still buying stuff from them, but they are at risk of that stop— of reducing, right? Because China's economy is slowing down. So that's the risk for Australia. But otherwise, Australia, despite the fact that I don't like them, is doing extremely well and is probably a model that not just America, but Canada and other Anglosphere societies should all look to. Much as it pains me to say that.

Yes. Well, we will— I will share the boycott here. And bad Australia. Don't kill— don't kill bunnies.

Don't kill rabbits.

Okay. Okay, let's let's get into Russia.

All right, so Russia is at war. They're spending eight percent of their GDP. That's not actually that large. They could actually spend more of their GDP. The problem is they're sending a lot of their like manufacturing workers to the front, while a lot of their you know smart tech workers who could be engineers have decamped for Uzbekistan or God knows where. No Armenia. They've decamped for Indonesia. Like they're hanging out there. And and and making a general nuisance of themselves, according to reports. So so you know Russia's on a wartime footing. It is surviving its war economy is thriving based on two things. Number one, Germany is still massively selling stuff to Russia through third countries through Kazakhstan and Armenia, but mostly Kazakhstan. And so number two, China is selling Russia a shit ton of cheap stuff and buying Russian oil. Now, if oil prices continue to drop, Russia's screwed because China doesn't love Russia that much. China's not going to give Russia stuff the way we give Ukraine stuff. They're going to sell Russia stuff in exchange for oil. And if the price that China has to pay for that oil goes down and down, China will drive a hard bargain and they will continue to get the oil. You know, and they'll give Russia less and less stuff in exchange for that oil, and India will pay a lower and lower price for oil. India like officially likes Russia, but doesn't really. Like they realize that Russia—they need like spare parts from Russia for a lot of their military equipment they need to defend against China. And there's still this idea in in India that like they could use Russia as like another hedge against China, like because Russia could help protect them with all its nukes against a Chinese attack and invasion. That idea was. Very prevalent in the Cold War. And it was true in the Cold War, and it goes away hard. But anyway, so Russia is surviving because Germany and China keep selling it stuff, right? Um, that said, Russia is, you know, Russia's interest rates are sky high, and its inflation is also sky high. Despite super high interest rates, Russia has not managed to contain inflation. And also, the high interest rates are hurting private business a lot. It's because of wartime production that the, you know, everything's shifting to wartime production, Right? Everything's shifting to war. It's the government keeping the economy afloat. And this happened in World War I as well, and eventually became the basis of the Soviet economy, which was famously shitty. So Russia is trying to go back to the Soviet model, except it's still very import dependent, but it's trying to go back to a thing where government spending basically controls everything. So what Russia is doing now is less— the Soviets tried to make everything for themselves in-house, right? What Russia is doing instead is it, um, it's trying to, um, uh, import everything from, from Germany illicitly and from, and from China while paying for that with oil and having the government coordinate war production instead of like, you know, with imported components. If oil prices go down, that's screwed. And also Russia has been, um, maintaining its currency level by, by spending a bunch of reserves. Russia's reserves are going down and will be out at current rates by, you know, like the end of this year or 2020, sometime in 2025, maybe a year and a half. So Russia is in trouble. It needs its MAGA friends in America to cut off aid to Ukraine and sort of somehow force an end to the war, or else its economy will really go bust. If Ukraine keeps fighting and keeps getting external support, all the external support it needs, Russia will probably be forced to ask for peace, whereas if Ukraine, you know, loses international support and, you know, starts crumbling from lack of ammunition, then Russia will continue to try to take more and more territory before it sues for peace. But that's really the question. The question is, how much support can Ukraine get? Right now, America, you know, the MAGA faction has basically won in blocking Ukraine aid. So America is no longer supporting Ukraine. You know, people thought we're in the war. We never were. But now, if we were, we're out now because because it's all blocked. Europe has stepped up a lot. The Czech Republic has found like 1.5 million artillery shells to give to Ukraine. That's equivalent to about a year of Russian production. So that's very helpful for Ukraine. France. Has stepped up, and suddenly Macron has just decided to sort of put on his like Gallic Superman suit, and he's like, you know, America steps back. I will step into the breach. You know, la France. That's a cold open. We're back. Yeah. And so, you know, so so he's really stepping up, and and he and and Poland is just like is just like we're gonna fight those Russians. It's like it's Red Dawn over in Poland. Like that's what's going on. It's just. You know, so they're— they've boosted military spending to like 4% of GDP, which is a lot.

Wow.

And like, you know, they're arming to the teeth. They're like, oh, look at those HIMARS systems that worked out well. Remember when we gave like 2 dozen HIMARS systems? They just bought like hundreds of HIMARS systems from us. They're like, HIMARS! And so they're like, they're building up a whole bunch of drones. They're just building up like crazy. And they're, of course, they're allied with, you know, Finland and Czech Republic, and Romania is doing the same thing. And To a lesser extent, the little Baltic countries—Estonia, Latvia, Lithuania—all these countries are like prepping for war with Russia because they know they're next on the menu after Ukraine, right? And so now France is backing them. And so France and the presidents of France and Poland went and sort of jawboned Olaf Scholz, the sort of weird-looking, kind of sort of half-assed president of Germany, who is beholden to the Green Party and other people who are more focused on shutting down nuclear power, you know, than than actually doing anything for German industry. Anyway, so Scholz is, you know, he needs to go, but he's been jawboned and basically they're dragging him along. And look, I understand why Germany doesn't want to fight Russia because it went badly when they did that before. But they need— Germany needs to really step up too. And so hopefully France will push them into doing that. And so that's what's going on there.

Is there anything else you'd say just while we're on the topic of Ukraine's economy or anything worth mentioning?

I mean, Ukraine's economy is basically just totally wartime driven and supported by foreign support. And Ukraine's facing a manpower crunch. You basically have to decide— Russia is too, but Ukraine's is worse because you basically have to decide, send guys to the front or have them work in the factories and the drone factories. And so that's a difficult allocation problem for Ukraine. Ukraine, remember, has A quarter of the population of Russia, so they're like much smaller, and they you know they're more fired up. They're much more patriotic and want to fight than the Russians, who are sort of you know just like oh I saw something on TV and I'm so poor maybe I should sign up for the army. And Ukraine is like Slava Ukraini or whatever right? So they're very fired up, but they had they don't have that many guys, and they were an aging society to begin with worse than Russia. They had the worst aging problem in Russia. They, you know, they have got a lot of 40-year-olds and they don't have as many 20-year-olds. And so Ukraine is— continues to be in big trouble, but is going more all out than Russia in the war effort. And, you know, obviously, if Poland entered the war directly, everything would change overnight. Poland has an aging problem, too, but Poland is approximately the same size as Ukraine and would just double Ukrainian power overnight. Also, Poland is much more technologically advanced and has a lot, you know, or not more technologically advanced, but has better manufacturing capacity. And so, but at that point, you talk about direct war between Russia and NATO, which is going to scare a lot of people. And, you know, David Sacks is going to tear his hair out on Twitter and no one will care, like ever. You know, maybe Elon will freak out. I don't know. But like, that could happen. And so, So if Ukraine is in danger of collapse, I would look for the possibility that Poland might jump into the war, in which case that might be a serious escalation, or it might sort of force Russia to say, okay, we're going to stop with what we've taken right now and sue for peace. So who knows? That could be scary anyway.

Yeah. Well, we're, we're at time. It was fun to, fun to get into a bunch of countries, mostly centered around Asia. Next week we'll do We'll do Europe, Middle East, rest of North America and see what—

We should do Latin America, Africa.

Yeah, of course.

North America. We've got more than half the world left to go.

Yes. Amazing. So maybe we'll do a couple episodes. Noah, as always, great conversation. And next time, our next conversation will be when you're in Japan. So to be continued.

Yes, it will be.

Okay.

Until next time. Perfect.

Yep. Upstream with Erik Torenberg is a show from Turpentine, the podcast network behind Moment of Zen and Cognitive Revolution. If you like the episode, please leave a review in the Apple Store. Hey everyone, Erik here. At Turpentine, we're building the first media outlet for tech people by tech people. We're the network behind the show you're listening to right now. We have a slate of hit shows across a range of topics and industries, from our AI and investing cluster of podcasts to shows that drive the conversation in tech with the most interesting thinkers, founders, investors, and influencers, like Econ 102 with Noah Smith. We're launching new shows every week, and we're looking for industry-leading sponsors. If you think that might be you and your company, email me at erik@turpentine.co. That's E-R-I-K at turpentine.co, and let's partner together.