Headed Toward Conflict?

Year-to-date prices demonstrate the uncertain effects of possible war in Ukraine

This connection between political events and financial markets was important to my early work as a historian. Despite my best efforts, I continue to believe that most historians, particularly those writing about the modern age after the birth of bond and stock markets, undervalue the significance of the "cash nexus": the critical interface between power and money.

This is most likely due to the fact that professional historians seldom have the finances (or the desire) to speculate on their own. (My childhood idol, the great English diplomatic historian A.J.P. Taylor, was a financial moron who did horribly during the 1970s inflation.) They also choose to study emperors, kings and queens, presidents and prime ministers over bankers and brokers. Writing the histories of two of the greatest German-Jewish banking houses, the Rothschilds and the Warburgs, taught me to understand history from a new perspective.

The narrative of how the Rothschild brothers benefitted on early news of the Battle of Waterloo's result is legendary, including the toxic mythology of Nazi propaganda. The fact is that Napoleon's downfall, which occurred just 100 days after his return from exile on the island of Elba, was not at all what Nathan Rothschild had predicted. He and his four brothers had grown their father's firm from a tiny coin store in the Frankfurt ghetto to an international trading enterprise by capitalizing on two revolutions: the British Industrial Upheaval and the French political revolution. Nathan started by selling Lancashire fabric to the continent, but quickly realized that providing Britain's war effort with gold was a better way to make money.

By the time Napoleon was defeated for the first time in 1814, the Rothschild brothers had learnt two critical truths. Since of the economic upheaval created by war, the price of gold in sterling terms tended to rise because the gold-standard norm that permitted pounds to be converted into gold at a set price had been suspended for the length of the hostilities. Moreover, the conflict pushed up both short- and long-term interest rates. The lower the price of "consols" — the near-perpetual bonds that the British government had been using to cover its massive national debt since the mid-18th century — and hence the greater the return on those bonds, the worse things went for Britain and her allies. The lower the price, and hence the greater the return, of rentes, the French counterpart of consols, the worse things went for Napoleon.

When Napoleon returned to France and restored his imperial throne in March 1815, the Rothschilds expected another lengthy era of struggle. They positioned themselves properly, obtaining gold wherever it was available via their huge credit network. They misjudged the allied military reaction, which resulted in triumph at Waterloo on June 18.

When word of Bonaparte's defeat arrived at the Rothschild headquarters in St Swithin's Lane in London — carried by a messenger, not the legendary carrier pigeon — the brothers were shocked. If the war ended, the gold they had amassed would be useless and would quickly devalue in terms of sterling. Nathan saved the situation with a stunningly audacious deal that more than deserved his reputation as "the Napoleon of finance": he purchased consols on a big scale and profited handsomely when they surged on the news of peace.

We now know that Napoleon's decisive and irreversible loss at Waterloo signaled the beginning of a century of relative peace in Europe. There had been no significant conflict involving all of the big countries until August 1914, when World War I started. However, there were countless minor disputes that may have evolved into a full-fledged war. And, having acquired their money, the Rothschilds had every motivation not to lose it again by getting caught up in such a situation.

As I discovered while looking through their astonishing communication — the sometimes daily exchanges between London, Paris, Frankfurt, Vienna, and Naples — the Rothschilds' most essential issue was: Is the likelihood of another major conflict increasing or decreasing? Every piece of news let them answer that question more precisely and position themselves properly. They feared year after year, for example, that another French revolution would set in motion a rerun of the events of the 1790s, when a revolutionary state ended itself at war with Europe for the greater part of two decades. Revolutions in Paris in 1830, 1848, and 1871 raised the fear, but history did not repeat itself.

Of course, the Rothschilds and their contemporaries had to deal with a slew of additional issues. The variations of the business and credit cycle, which caused at least one large panic in the City of London every decade, were equally important in the 19th century financial markets. The ebbs and flows of liquidity were linked to a number of other occurrences, including the vagaries of European crops. Economic and political risk coexisted and interacted in the mid-1840s. Harvest failures, which caused food prices to skyrocket in 1847, were closely linked to the political uprisings that swept the Continent, particularly France, the following year. For the Rothschilds, 1848 was the most terrible year of the century, the point at which they peered into an abyss as markets and governments collapsed.

War and Peace in the Bond and Bills Markets

With the advantage of hindsight, we may consider the era from 1815 to 1914 as one in which economic and political risks decreased while financial markets expanded, deepened, and grew more robust. There were powerful forces at work. The Industrial Revolution gained momentum and extended over the Atlantic and Channel. Between 1789 and 1848, revolutionary principles transformed into nonrevolutionary political movements — liberalism and social democracy — while conservatism learnt to win elections.

Almost as important, finance became more stable. The gold standard expanded, and London panics became less common. Joint-stock banking resulted in larger, better-capitalized financial organizations with larger, more well-structured balance sheets. Savings institutions raised significant sums of money by collecting millions of tiny donations. For all of these causes (explained in further detail here), financial markets became less volatile, and the margins between risky and safe assets shrank.

Contemporaries, on the other hand, were less conscious of such long-term tendencies. The Rothschilds could not be certain that the world had fundamentally altered since their formative years, nor could they be certain that all of Europe's conflicts between Waterloo and 1914 would be relatively minor and brief. Just as we cannot be certain whether or not war would break out in Ukraine, the Rothschilds could never be positive that Europe would avoid a catastrophic conflict for a century.

For example, in 1875, German Chancellor Otto von Bismarck's mouthpieces in the German press wondered, "Is war on the horizon?" – causing panic in French markets The warning proved to be unfounded; maybe Bismarck's intentions were never more than to beat the militarist drum for domestic political purposes.

The news that their buddy, British Prime Minister Benjamin Disraeli, had pushed aside Anglo-Russian tensions over Central Asia in the sake of maintaining European peace provided comfort to the Rothschilds. "Last evening," Charlotte de Rothschild reported to her son Lionel, "[Dizzy] made a flying visit to your father, and informed him of his enormous success in negotiating for the preservation of peace on the continent."

The difficulty with extended periods of calm interspersed by little battles is that you get used to the tranquil existence. Even the Rothschilds, who were now two or three generations removed from the Frankfurt ghetto, struggled to envisage a global war by the summer of 1914. When the cannons of August began fire, they were taken off guard, as were the majority of investors.

We've all forgotten about it now, but the 1914 financial crisis — which started in July, before the war began — was the worst in history, much worse than the 1929 disaster. As the diplomatic situation worsened, the liquidity crisis became so severe that trading on all of the world's major stock exchanges had to be halted. From July 31, 1914, to Nov. 28 (when bond trading began) until Dec. 12, 1914, the New York Stock Exchange was closed (when stocks could be bought and sold again). That day, the Dow fell 24.4 percent.

There was a stark difference between the attitude to war in 1914 and the approach to war in 1939. Already in the summer of 1938, markets were bracing for war. Although British Prime Minister Neville Chamberlain's tactic of appeasing Adolf Hitler at Munich seemed to escape disaster, more savvy financial pundits (particularly the Economist) saw that he had only postponed it, perhaps allowing Hitler to strengthen his position.

Today's thinking is more like to 1914 than 1938. True, for most of the time between 1945 and 1991, the world was threatened by a nuclear war between the United States and the Soviet Union. However, as their arsenals of warheads got stronger, it became more difficult to envisage such a conflict, even when it came dangerously near to occurring over Cuba in 1962 and the Able Archer false alarm in 1983. Instead of Armageddon, the Cold War witnessed a series of smaller-scale proxy battles. The most serious hostilities were in Korea and Vietnam, although there were countless minor conflicts from Central America to southern Africa.

Markets mostly overlooked the danger of Armageddon as well as the proxy conflicts. After all, what form of commerce would benefit from mutually guaranteed destruction? It's impossible to be short on humanity and lengthy on disaster.

The most important Cold War transaction was the purchase of gold in anticipation of inflation. This paid off handsomely, particularly when President Richard Nixon severed the Bretton Woods relationship between the currency and gold. As inflation expectations rose in the late 1960s, particularly following the commencement of the Yom Kippur War in October 1973, being long gold was the winning strategy at a time when investors in bills, bonds, and equities were losing money. A second period of geopolitical unrest in 1979, which witnessed the Islamic revolution in Iran and the Soviet invasion of Afghanistan, rewarded gold bugs even more. However, then was the moment to sell, with the price exceeding $675 USD per troy ounce, approximately 20 times greater than when Nixon was elected president in 1968.

Gold-Plated Armor

A very precious metal in times of geopolitical risk

With Paul Volcker at the helm of the Fed, the big inflation ended, as did the gold trade. War risk vanished from investors' perceptions as the Cold War ended without a missile being launched in the late 1980s and the dot-com bubble gained traction. The financial consequences of subsequent geopolitical crises — the Gulf War, Balkan conflicts, 9/11, the Afghan War, the Iraq War, and the 2014 Ukraine crisis — were completely obscured by the massive monetary expansions that followed the Lehman Brothers collapse in 2008 and the Covid-19 epidemic.

If nothing else, Putin has reminded us that investors — even bottom-up, value investors who claim to be unconcerned about geopolitics or macroeconomics — cannot afford to overlook the unforeseen dynamics that lead to catastrophic conflicts. A Russian invasion of Ukraine would be nothing like 1914, since no one now is obligated to protect Ukraine in the same way that Britain and France were obligated to maintain Belgian neutrality. However, a conflict in Ukraine would be more significant than either the Afghan or Iraqi wars for two reasons.

First, even if Putin's plan worked and the Russians quickly overran the Ukrainian military, the rest of Europe would be forced to confront Russia as a major power capable of threatening Ukraine's neighbors and near-neighbors, rather than just a convenient source of natural gas, caviar, and rubles in need of laundering.

Second, and more importantly, the economic and financial sanctions imposed on Russia by the US and its allies would severely damage not just the Russian economy but also the economies of each of Russia's main trade partners. The impact would be exacerbated if the Russians enforced counter-sanctions. This scenario implies some career-making gains for anybody who began the month shorting Russia's currency, bonds, and equities and long gold, oil, and gas, as well as all the rarer commodities (e.g., titanium and palladium) that Russia sells. Only the concurrent diplomatic campaign to save the Iranian nuclear agreement, which would reintroduce Iranian oil into the official global market, has kept oil prices under control in the last week.

You may not be interested in war as an investment, but war is interested in you. One in Eastern Europe would greatly complicate matters for the world's central bankers, who are already dealing with the inflationary effects of the pandemic-induced fiscal and monetary measures of 2020-21. War would exacerbate inflationary pressures while also tightening financial conditions and perhaps harming European business and consumer confidence.

But it isn't all. If Russia is successful in decisively terminating Ukraine's attempt to become a Westward-looking democracy on a route toward European Union, if not North Atlantic Treaty Organization, membership, China's authorities may be persuaded to believe that violently eliminating Taiwan's autonomy and democracy may be possible. If they are correct, we may find ourselves in a post-American world — one in which China is No. 1 in the Indo-Pacific region and beyond — much sooner than most of us anticipated, with far-reaching implications for the world's willingness to regard dollars as the world's reserve currency and U.S. government debt as the safest of financial assets.

But if the Chinese get it wrong — if the United States decides to stick to its long-standing commitment to oppose a non-peaceful change in Taiwan's status — we could find ourselves in an even bigger war than what is currently being considered, with financial consequences that even Nathan Rothschild would have found daunting.

The appeasement policy of the 1930s, for example, was predicated in part on an inflated concern that the Luftwaffe could destroy London in the same way that H.G. Wells' Martians did. Nightmarish images, on the other hand, have frequently failed to persuade governments to take action. Science fiction, on the other hand, has served as a source of inspiration. When Silicon Valley was considering how to use the internet, they looked to authors like William Gibson and Neal Stephenson for advice. Today, no discussion of artificial intelligence is complete without mentioning 2001: A Space Odyssey, and virtually every discussion of robotics includes a mention of Philip K. Dick's Do Androids Dream of Electric Sheep? or Blade Runner, the film that was inspired by it.

Now that the long-awaited pandemic has arrived, along with rising sea levels, virtual reality, flying car prototypes, and levels of governmental monitoring never imagined by George Orwell, we may return to science fiction and ask: who got the future most right? Because the fact is that dystopia is now, not somewhere in the future. The history of the future is worth studying, partially because it may help us think more critically about the shape of the future. For all types of forecasting, historical data remains the foundation. Models based on theory may function, but we can't validate them without prior data. Future technological advances, on the other hand, are difficult to predict based on the past. If we simply looked backwards, we wouldn't see many imagined discontinuities, but science fiction presents us with a big sample of them.

Mary Shelley is best known for Frankenstein (1818), but The Last Man (1826) was equally revolutionary. With its vision of mass extinction following a plague and a depopulated world, it was the first truly dystopian novel. By the 1890s, dystopia was a popular genre, thanks to H.G. Wells. In The War of the Worlds (1898), the Martians annihilate Londoners with weaponry reminiscent of the intra-terrestrial world wars that lay ahead. Humanity is saved by a pathogen against which the invaders have no immunity.

In our time, anxieties about man-made climate change have made environmental disaster a subject for dystopian fiction. Works like Margaret Atwood’s Oryx and Crake (2003), Cormac McCarthy’s The Road (2006) and Paolo Bacigalupi’s The Windup Girl (2009) project humanity’s worst fears with apocalyptic dread.

As Submission shows, science fiction is as much concerned with political catastrophe as with natural and technological disasters. A recurrent dystopia since the 1930s has been a fascist America. This fear has persisted, from Sinclair Lewis’s It Can’t Happen Here (1935) to Margaret Atwood’s The Handmaid’s Tale (1985), Philip Roth’s The Plot Against America (2004) and Suzanne Collins’s The Hunger Games (2008). The nightmare here is Stalin-like totalitarianism. Fahrenheit 451 (published in 1953 but set in 1999) describes an illiberal America where books are banned and the job of firemen is to burn them. (Though the novel is sometimes interpreted as a critique of McCarthyism, Bradbury’s real message was that the preference of ordinary people for the vacuous entertainment of TV and the willingness of religious minorities to demand censorship together posed a creeping threat to the book as a form for serious content.) But of all these dystopian visions, none has surpassed Orwell’s Nineteen Eighty-Four (1949).

None of these authors, however, could have predicted our networked world, which has seen increased technological acceleration accompanied with a slowing of growth in other fields, such as nuclear energy, as well as a decline in governance. The true prophets are lesser-known authors such as John Brunner, whose novel Stand on Zanzibar (1968) is set in a period – 2010 — when population pressure has resulted in societal fragmentation and political radicalism. Despite the fear of terrorism, owing to a supercomputer, US firms are thriving. China has emerged as America's new adversary. Europe has come together. Affirmative action, genetic engineering, Viagra, the demise of Detroit, satellite TV, in-flight video, gay marriage, laser printing, electric automobiles, marijuana decriminalization, and the fall of cigarettes were all predicted by Brunner. There's even a progressive president named 'Obomi' (albeit he's from Benin, not America).

William Gibson's Neuromancer (1984) foreshadows the internet and artificial intelligence with similar foresight. It begins in the dystopian Japanese underworld of Chiba City and imagines the'matrix,' a worldwide computer network in cyberspace. Snow Crash (1992), a novel by Neal Stephenson that was particularly popular among Facebook employees in its early years, predicted corporate overreach and virtual reality in an almost anarchic America. California's state has shriveled away, and everything has been privatized. The majority of individuals spend half of their waking hours in virtual reality, where their avatars have more fun than they do in real life. Meanwhile, refugee flotillas are making their way across the Pacific. These cyberpunk Americas are significantly closer to the United States in 2021 than Lewis, Atwood, or Roth's fascist dystopias.

Similarly, when it comes to making sense of today's authoritarian regimes, the most prominent prophets of surveillance states — Orwell and Huxley — have been outflanked. Consider China, which is more akin to Yevgeny Zamyatin's We, a work published in 1921 but repressed by the Bolsheviks. It takes place in a future 'One State' headed by 'the Benefactor,' in which the 'ciphers,' who have numbers instead of names and wear uniformed 'unifs,' are constantly monitored. All of the apartments have glass walls and curtains that may only be pulled while having state-licensed sex. When faced with rebellion, the omnipotent Benefactor orders the mass lobotomization of ciphers, believing that the only way to maintain universal bliss is to eliminate the imagination.

Then there's Chan Koonchung's The Fat Years (2009), which isn't allowed to be shown in China. The tap water in this narrative is loaded with medications that make people docile, but at a cost. The month of February 2011 is no longer remembered in official records or popular memory. This was the time when China's economy was stabilized and its hegemony in east Asia was asserted through harsh emergency measures. Chan is one of a growing number of Chinese authors who see America's collapse as a consequence of China's ascent. The Fat Years is set in an alternate 2013 in which China has overtaken the United States as the world's largest economy as a result of a second Western financial crisis. A terrorist strike destroys the World Trade Center in Han Song's 2066: Red Star over America (2000), and the rising ocean rushes across Manhattan. And in Liu Cixin’s The Three-Body Problem (2006), a Chinese nanotechnology expert and a Beijing cop lead the global defence against an alien invasion that’s the fault of a misanthropic Chinese physicist.

Yet even mainland-based Chinese authors are conscious of the country’s deeply illiberal nature and recurrent instability. The ‘problem’ of The Three-Body Problem is a virtual-reality game, set in Trisolaris, a distant world with three suns rather than one. The gravitational attractions of the suns prevent this planet from settling into an orbit with regular days, nights and seasons. It has occasional ‘Stable Eras’, during which civilisation can advance but, with minimal warning, these give way to ‘Chaotic Eras’ of intense heat or cold that render it uninhabitable. The central conceit of Liu’s novel is that China’s history has the same pattern as the three-body problem: periods of stability always end with periods of chaos. The three bodies in contention are not suns but classes: rulers, intellectuals, masses. The Tri-solarans, like good totalitarians, are omniscient. Their invisible ‘sophons’ provide them with complete surveillance of humanity, enabling them to prevent further scientific progress on Earth. But these approaching invaders turn out to have a weakness. Their culture of complete transparency — communication via unfiltered thought — precludes cheating or lying, so they cannot ‘pursue complicated strategic thinking’.

Is it too much to consider this as an analogy for China's shifting position in the globe, or perhaps a new Cold War between America and the People's Republic? If not, it's an unsettling metaphor — a fascinating foreshadowing of a future global calamity.

If stock market falls properly forecast nine of the previous five American recessions, science fiction has successfully predicted nine of the last five technical advancements, as Paul Samuelson joked. Time machines are nowhere to be seen, while flying automobiles are still in the prototype stage. (Of course, science fiction has anticipated a lot more than nine world-ending events.) Nonetheless, the genre has the potential to assist us in thinking properly about the future. Because I spent 2019 reading the books mentioned above, I was one of the first to notice that a pandemic had started in January 2020. I can't promise that reading Neal Stephenson's latest book, Termination Shock, will get you ready for the next metaverse. There are, however, worse locations to start planning for the next crisis.

He did not click “Like.” I wasn’t surprised. He hadn’t taken any of my classes when he was at Harvard, either. Though he recently professed an admiration for Augustus Caesar, the Facebook founder has never struck me as seriously interested in history.

Here’s the history that’s relevant to Facebook. Standard Oil was originally cheered for raising industrial efficiency and lowering the price of kerosene as its share of the U.S. oil market rose to 90%. But muckraking investigative journalism, especially Ida Tarbell’s “History of the Standard Oil Company,” stirred up public outrage.

Antitrust actions were a response to what Supreme Court Justice Louis D. Brandeis termed “the curse of bigness.” Outsized firms, Brandeis argued, were bound to treat employees and business competitors unfairly. This was the basis for the 1911 landmark judgment in Standard Oil Co. of New Jersey v. U.S., which broke Standard Oil up into 34 separate companies.

Hearst’s newspaper group suffered a worse fate. A Harvard dropout like Zuckerberg, Hearst was given the San Francisco Examiner in 1887 as a gift from his wealthy father. Hearst invested in superior printing technology and hired star writers such as Mark Twain to transform the paper into “The Monarch of the Dailies.” In all, he founded or acquired 42 newspapers, including at least one in every major American city. At their peak in the mid-1930s, Hearst’s papers reached 20 million readers a day — one in four Americans.

Hearst papers appealed to the urban working class, mixing populist and progressive politics with nationalism, xenophobia and later isolationism. In the 1890s, Hearst backed the populist Democratic presidential candidate William Jennings Bryan. But his methods in pressing for the Spanish-American War (“the Journal’s War”) were unscrupulous: Yellow journalism was the fake news of those days. Orson Welles’s film “Citizen Kane,” released in 1941, immortalized Hearst’s rise and fall. (Welles’s screenwriter, Herman J. Mankiewicz, had fallen out with Hearst earlier in his career.)

Contrary to popular belief, Mark Twain never said: “History doesn’t repeat itself, but it does rhyme.” What he wrote was: “History never repeats itself, but the Kaleidoscopic combinations of the pictured present often seem to be constructed out of the broken fragments of antique legends.” Zuckerberg today is Rockefeller plus Hearst seen through Twain’s kaleidoscope.

Facebook Inc. is very, very big and it makes a ton of money. According to a Pew Research poll of U.S. adults in February, 69% are Facebook users. Worldwide, Facebook has 2.8 billion users, 60% of all people on Earth with an internet connection. Counting Instagram, WhatsApp and Messenger — all Facebook apps — a staggering 3.14 billion people use Facebook, close to half of humanity.

Small wonder its market capitalization is just short of a trillion dollars. It offers the biggest reach and highest precision in the history of advertising. (As Mark Zuckerberg once had to explain to Senator Orrin Hatch, Facebook’s service is free because “We sell ads.”)

Economies of scale are a key feature of capitalism. These are especially powerful in the case of network-based businesses. Perhaps the real curse of bigness is the negative press that “scaling” inevitably attracts.

For the past five years, raking Facebook’s muck has been a path to prominence for many an ambitious journalist, for the obvious reason that traditional media companies loathe Facebook for eating their lunches. (Once upon a time, all those ad dollars went to them.) The Guardian’s Carole Cadwalladr made her name by revealing that Facebook had released data on tens of millions of users to the political consultancy Cambridge Analytica. Last month, it was the turn of Jeff Horwitz of the Wall Street Journal.

In a series of stories billed as “The Facebook Files,” Horwitz and his colleagues revealed, first, that Facebook had a secret, two-tier system of enforcing its rules, cutting slack to celebrities like the Brazilian soccer star Neymar and Trump, who were just two of 5.8 million users who were granted “XCheck” status. “Unlike the rest of our community,” an internal review stated, “these people can violate our standards without any consequences.” This appears to have been concealed from Facebook’s internal oversight board.

Second, Facebook knew Instagram was worsening "body image issues" among teenagers. According to the company’s research in March 2020, 32% percent of teenage girls “said that when they felt bad about their bodies, Instagram made them feel worse.” Among teens who reported suicidal thoughts, 13% of British users and 6% of American users traced the desire to kill themselves back to Instagram.

Third, Facebook’s decision in 2018 to change its News Feed algorithm to emphasize “meaningful social interactions,” or MSI, had the perverse effect of driving a spike in online outrage and anger. Zuckerberg had claimed it was a sacrifice to shift from helping people find relevant content to helping them interact with friends and family, but the company soon realized that “publishers and political parties were reorienting their posts toward outrage and sensationalism” — and not only in the U.S. However, the company pressed on because — according to Kevin Roose of the New York Times, another raker of Facemuck — MSI was all along “an attempt to reverse a yearslong decline in user engagement.”

The Journal’s fourth installment looked at the company’s role in organized crime and human rights abuses in the developing world, which revealed that a Mexican drug cartel was using Facebook to recruit, train and pay hit men; that human traffickers in the Middle East used it to lure women into abusive employment situations; and that armed groups in Ethiopia used it to incite violence against ethnic minorities.

Finally, Facebook turned out to be playing a key part in spreading misinformation about Covid-19 vaccines. More than two-fifths of comments on English-language vaccine-related posts risked discouraging vaccinations. One post that had 53,000 reshares and three million views said vaccines “are all experimental & you are in the experiment.”

For all this, it turns out that the Journal had a single source: Frances Haugen, a Facebook product manager who left the company in May after working on democracy, misinformation and counterespionage issues. Whereas Ida Tarbell was an outsider — her father had been a victim of Standard Oil’s rapacious expansion — Haugen is an insider, whose position gave her access to tens of thousands of pages of internal documents. Not content with passing them to the Journal, she also gave “60 Minutes” an interview (Sunday), testified before a Senate Commerce subcommittee (Tuesday), and fired off a succession of letters to the Securities and Exchange Commission’s whistleblower office.

In her own words, Haugen is saying nothing new. As she told Scott Pelley of “60 Minutes”:

Facebook makes more money when you consume more content. People enjoy engaging with things that elicit an emotional reaction. And the more anger that they get exposed to, the more they interact and the more they consume … Mark has never set out to make a hateful platform. But he has allowed choices to be made where the side-effects of those choices are that hateful, polarizing content gets more distribution and more reach.

If you read Antonio Garcia Martinez’s seminal “Chaos Monkeys,” you’ve known this for five years.

But the letters to the SEC go further, because they explicitly accuse Zuckerberg of “misrepresenting” Facebook’s research on the platform’s impact on teenagers in his sworn testimony before Congress; misrepresenting “core metrics to investors and advertisers”; “materially misstating” the extent to which it “proactively removes … hate speech”; and — though this isn’t really a matter for the SEC  — overstating its efforts “to combat misinformation and violent extremism relating to the 2020 election” and the Jan. 6 Capitol insurrection.

Money quote: “Facebook knew its algorithms and platforms promoted this type of harmful content, and it failed to deploy internally recommended or lasting countermeasures.” These are serious charges, and some of them must be giving Facebook’s lawyers sleepless nights.

Well, I never. On Monday, at 11:39 a.m. EDT, just as this great tsunami of muck was breaking over Hacker Way — what a coincidence! — Facebook suddenly crashed and stayed down for six hours. And not just Facebook. Instagram, Messenger and WhatsApp services were also down, as was the virtual reality service Oculus.

“It was as if someone had ‘pulled the cables’ from their data centers all at once and disconnected them from the internet,” according to the website security company Cloudflare. The disruption also hit the company’s internal tools and systems, including Workplace, hampering recovery efforts.

Facebook blamed a “faulty configuration change” that had interrupted traffic flowing between its data centers and caused a “cascading effect.” (For incomprehensible details see here and here.) According to one respected internet security analyst, “someone at Facebook [had] caused an update to be made to the company’s Border Gateway Protocol (BGP) records,” the mechanism by which internet service providers share information about routing traffic. Evidently this update went a wee bit wrong.

There are two possible interpretations. Either this illustrates the extreme folly of centralizing a large part of the internet in the hands of a single company that has inadequate operating procedures, or it illustrates the extreme folly of centralizing a large part of the internet in the hands of a single company that tells fibs.

Consider the facts. On Sunday, Nick Clegg, Facebook’s vice president for policy and global affairs, appeared on CNN to defend the company, saying the platform reflected “the good, the bad and ugly of humanity” and that it was trying to “mitigate the bad, reduce it and amplify the good.” To call his defense feeble would be an understatement. Clegg was an ineffectual politician who almost destroyed Britain’s Liberal Democrats by taking them into coalition with the Conservatives. Was this his attempt to destroy Facebook?

Then, on Tuesday, came a more combative defense from Zuckerberg himself. The massive outage, he said, was “a reminder of how much our work matters to people. The deeper concern … isn’t how many people switch to competitive services or how much money we lose, but what it means for the people who rely on our services to communicate with loved ones, run their businesses, or support their communities.”

Did it not occur to him that this was like a line from Marlon Brando’s Don Corleone? “A reminder of how much our work matters to people”? Shows our importance to “the people who rely on our services to communicate with loved ones”? And you wouldn’t want that to happen to your loved ones again, would you? Remind me: What’s “Move fast and break things” in Italian?

The contrarian position, to which I am often attracted, is to side with Facebook. I have a certain admiration for those who have taken Zuckerberg’s side in the last week, notably Robby Soave, author of “Tech Panic: Why We Shouldn’t Fear Facebook and the Future.” He writes: “We’ve been here before, a thousand times over, with video games, pinball machines, the television, the radio, the telephone, the printing press, and even the written word. Each of these technologies forced society to confront some very real problems, but they also dramatically improved the lives of the average human being.”

The problem is that not one of the innovations on this list achieved the kind of central warehousing and mining of personal data that Facebook has. And not one of them sought to monetize data by selling ads targeted on the basis of that data. And, consequently, not one of them had Facebook’s incentive to maximize user engagement, regardless of the adverse social consequences.

In his brilliant and influential book, “The Revolt of the Public,” which I missed when it was first published by Amazon in 2014, Martin Gurri argued that Facebook was a key vehicle for populist uprisings against the old elites of the world, from the Arab Spring to the Ukrainian “Euromaidan” revolution. We were witnessing, he argued, the “collision of two modes of organizing life: one hierarchical, industrial, and top-down, the other networked, egalitarian, bottom-up.”

The best historical analogy was with the impact of the printing press on Europe after the 15th century. Unbeknown to him, I was making the same argument at that time, too. and it became the basis of “The Square and the Tower.”

As Antonio Garcia Martinez noted on Substack last week:

The printing press analogy (unlike lots of these big-picture analogies) actually gets better the more you dig into the history of 15th and 16th century Europe. There are so many parallels with that time in history, it’s almost like there’s a one-to-one mapping from Gutenberg to Zuckerberg, the monks in the scriptoria to the New York Times, and the Church to the US Congress …  If you’d asked a Bohemian burgher in 1618 — the first year of the Thirty Years’ War, and the bloodiest European conflict until WWII — if the printing press was a good idea, what would he have said? Very likely, he’d have replied with a thundering “no!” Before the Enlightenment, science, liberal democracy, human rights, antibiotics, and all the rest of it, that invention seemed as big a threat to the social order then as Facebook seems now.

Yet Gurri and I both missed a fundamental difference between the printing press and the internet. The former stayed, to a remarkable extent, decentralized; the latter did not. Even the likes of Hearst never had a share of the global public sphere remotely comparable to the one that Zuckerberg has achieved, much less a knowledge of his readers’ every reaction.

Here are some more examples of why Facebook is so different from the printing press, from sources other than Haugen and from this year alone:

According to the Washington Post, Facebook “disproportionately amplified vaccine-hesitant voices over experts,” and then, in a quarterly report about its most-viewed posts in the U.S., sought to conceal that its most popular link had been an article from the Chicago Tribute on the death of a doctor who had been vaccinated.

According to MIT Technology Review, Facebook’s most popular pages for Christian and African American content in the run-up to the 2020 election were run by Eastern European “troll farms.” To quote Facebook’s internal report, troll-farmed “content was reaching 140 million U.S. users per month — 75% of whom had never followed any of the pages. They were seeing the content because Facebook’s content-recommendation system had pushed it into their news feeds. In October 2019, all 15 of the top pages targeting Christian Americans and ten of the top 15 Facebook pages targeting African Americans were being run by troll farms.”

According to Brian Boland, who left Facebook last November after 11 years, “the most senior leadership in the company does not want to invest in understanding the impact of its core products.” Moreover, he told the Times’s Roose, “it doesn’t want to make the data available for others to do the hard work and hold them accountable.” His role had been at CrowdTangle, a Facebook-owned search engine that allowed users to analyze Facebook user engagement. Facebook management rapidly soured on CrowdTangle when its results showed that conservative commentators like Ben Shapiro and Dan Bongino were getting much more engagement on their Facebook pages than mainstream news outlets. (Last week, according to The Verge, CrowdTangle CEO Brandon Silverman announced that he was leaving Facebook.)

According to Cody Buntain, an assistant professor at the New Jersey Institute of Technology interviewed by the New York Times, Facebook “undermined trust researchers may have” in the company by omitting the interactions of about half of Facebook’s U.S. users in the dataset it made available to him and his colleagues.

According to the Wall Street Journal, Mark Weinstein, the founder of the ad-free social network MeWe, has “changed his mind” and is now prepared to tell the Federal Trade Commission — which is leading a 46-state antitrust investigation of Facebook — that the company is a monopoly.

I could go on and on, because (as you may have guessed) I collect this stuff. To my mind, the most shocking of all the recent Facebook stories has been the evidence of its role in amplifying the malign influence of the antivaccine conspiracy theorists — in particular, members of the so-called Disinformation Dozen (such as Robert F. Kennedy Jr.), who have accounted for a staggering proportion of the antivax content shared online. By the time NPR caught up with this story in May, Facebook had removed 16 accounts from Facebook or Instagram and placed restrictions on 22 others. But we have known about Facebook’s antivax problem since before Covid. In May of last year, Neil Johnson and Rhys Leahy published a study in Nature showing that, during the 2019 measles outbreak, the antivax communities on Facebook outnumbered the pro-vaxers three to one. h

That same month, the Wall Street Journal revealed that in January 2017 Facebook  had hired Carlos Gomez Uribe, the former head of Netflix’s recommendation system, to lead its news feed integrity team. One proposal Uribe’s group came up with, “Sparing Sharing,” was designed to reduce the influence of hyperactive Facebook users — super spreaders of viral content, analogous to the super spreaders who disproportionately passed on the Covid virus. However, Facebook policy chief Joel Kaplan opposed the idea, which was internally nicknamed “Eat Your Veggies.” Zuckerberg’s decision was, according to the Journal, “Do it, but cut the weighting by 80%” — and don’t bring me any more ideas like that. Uribe left Facebook within a year. 

See what happens when a virus gets an assist from viral content arguing against vaccines against the virus? How many Americans have died prematurely this year because they believed the magical thinking promoted on one of Facebook’s apps? As nearly all the Covid deaths that have occurred since vaccines became generally available were of unvaccinated people, the number could be in the tens of thousands.

So it’s not quite enough to say, as Ben Thompson tweeted last week, that “the menace comes from frictionlessly connecting all of humanity,” or that Facebook simply “refracts our entire view of the world and provides a warped look at ourselves” (Garcia Martinez again). Johannes Gutenberg didn’t connect all the printing presses, harvest readers’ likes and dislikes, and then monetize them in a way that incentivized him to spread the theory that bubonic plague was airborne or that Europe was full of witches.

Yet in one important respect I agree with Facebook’s defenders. The company’s critics have got no credible reform proposal. Clearly, the FTC aspires to break up Facebook, and I can well imagine that, many months from now, Zuckerberg will be ordered to restore the independence of Instagram and WhatsApp (and that he’ll say it’s technically impossible). For the other big tech companies, Facebook would perform a valuable service as the sacrificial victim of the “antitrust hipsters” led by FTC chairwoman Lina Khan, just as Standard Oil took the hit for an entire class of robber barons in 1911.

But there is a reason that Haugen did not send her documents to the FTC. In a video posted last Sunday, she said she did not believe breaking up Facebook would solve the problems her leaked documents revealed. This is also the view of Mark Weinstein. And, as I have argued elsewhere, I agree.

So what’s the alternative? Those, like Haugen, who argue that Facebook needs to be more tightly regulated appear not to have noticed that investing ever-more power in federal regulators has rarely had the intended outcome. Turning Facebook into a utility, with federally mandated powers to censor hate speech, sounds like a disaster. You either end up with Orwell’s Ministry of Truth or with the social media equivalent of Amtrak or, best case, regulatory capture and the status quo (see banking, Big Pharma).

The third option, which I’ve proposed in this column before, is to repeal or significantly edit section 230 of the 1934 Communications Act, as amended by the 1996 Telecommunications Act, which is the Catch-22 of internet regulation, allowing Facebook to be a mere platform when it’s caught hosting harmful content and a publisher when it’s limiting free speech. The catch is that, unless you simultaneously created some kind of First Amendment for (non-curated) cyberspace, you would simply increase censorship if you scrapped 230, because the tech companies would suddenly face the same liabilities for their content as traditional media companies.

In short: We know there’s a problem with Facebook, but we really haven’t figured out how to fix it. The twist in the tale is that maybe the market takes care of this problem for us. After all, as former Alphabet Inc. chairman Eric Schmidt used to say when defending Google’s near-monopoly on search, “competition is just a click away.”

The irony of Haugen’s charge-sheet against Facebook is that one half alleges excessive power, while the other half alleges concealed decline. As Roose noted in September, “Facebook is in trouble.” It is in fact suffering the “kind of slow, steady decline that anyone who has ever seen a dying company up close can recognize.” Facebook use among teenagers in the U.S. has been declining for years. Now Instagram is losing market share to faster-growing rivals. “Facebook is for old people,” as one 11-year-old put it.

Trailing Big in Big Tech

Stock prices normalized (October 10, 2016=100)

The problem is that the company eating Facebook is none other than ByteDance Ltd.’s TikTok, which last year surpassed Facebook Messenger to become the most downloaded social media app in the U.S., according to data from App Annie. TikTok also overtook Facebook as the most downloaded social app worldwide. I explained last year why the triumph of a data-harvesting Chinese app is a bad thing.

The other piece of advice I gave Mark Zuckerberg in 2017 was to give up portraying Facebook as a “global community” and instead to make a virtue out of being an American company. When they come after you, I suggested, you want to be able to tell them to be careful, as you’re Big Tech USA, and you’ve got your work cut out competing with Big Tech PRC. To date, however, Zuckerberg has made this argument only half-heartedly. “Break Up FB?” read one of his talking points when he was testifying in Congress in April 2018. “U.S. tech companies’ key asset for America; breakup strengthens Chinese companies.”

“We still need to make it so that American companies can innovate,” he told senators at that time, “or else we’re going to fall behind Chinese competitors.” And: “Chinese Internet companies [are] … a real strategic and competitive threat that, in American technology policy we … should be thinking about.” In July last year, he described Facebook as “a proudly American company” that believes in “values — democracy, competition, inclusion and free expression.”

Yet somehow, “What’s good for Facebook is good for America” doesn’t have the same ring as it did for General Motors. Right now, U.S. legislators and a rising proportion of American voters think, with some justification, that “What’s bad for Facebook is good for America.” If the ultimate beneficiary of that disenchantment with the world’s biggest social network turns out to be China, the blame will lie squarely with Mark Zuckerberg. And he can’t say I didn’t warn him.

To contact the author of this story:
Niall Ferguson at nferguson23@bloomberg.net

All four had their ups and downs, but all were re-elected. If you take over at a dark time — especially if it’s just before the dawn — the chances are you’ll be able to play “Happy Days Are Here Again” when you run for a second term.

In a similar way, Joe Biden took the oath of office last Wednesday as the third and biggest wave of the Covid-19 pandemic appeared to be nearing its crest, a year after the Chinese government belatedly acknowledged the seriousness of the disaster that had begun in Wuhan. Like many new administrations since Roosevelt’s in 1933, the Biden administration now seeks to impress us with a hundred days of hyperactivity, beginning with 17 executive actions on Inauguration Day. Coming soon: a $1.9 trillion stimulus bill.

In truth, the vaccination program already underway, combined with the naturally acquired immunity of people previously infected with the virus, would probably get the U.S. close to herd immunity by the summer, even if Joe Biden spent the next six months just riding his Peloton. And the economy would roar back to something like normal service as the pandemic ended even if Republicans had retained control of the Senate and blocked further fiscal support.

In short, Joe Biden, who starts out with a 68% approval rating, according to Gallup, ought to be even more popular by Memorial Day — not just twice as popular as Trump was throughout his term, but up there with the most popular presidents since polling began: Truman on VJ Day, John F. Kennedy in his first 100 days, George H.W. Bush after the Gulf War, George W. Bush after 9/11 — the exclusive 80%-plus Approval Club.

I suspect it won’t happen. Why? According to legend, the British Prime Minister Harold Macmillan once replied to a journalist who had asked what his biggest problem was: “Events, dear boy, events.” (The phrase Macmillan really used, according to the historian David Dilks, was “the opposition of events.”) The Donald Rumsfeld equivalent was “stuff happens” — stuff like the chaos into which Iraq descended in 2003, dragging his boss’s popularity down with it.

Sometimes events are beyond a new president’s control. Sometimes they are unforced errors of his own making. But presidents don’t simply make history. Often, history comes at them fast.

So enthusiastic are most journalists about the new administration that much coverage of last week’s inauguration recalled late Soviet Pravda. Indeed, I have never been more persuaded by the historian Harold James’s mischievous suggestion last year that the U.S. has entered its “late Soviet” phase. (The young Oxford philosopher Jacob Reynolds nailed it.) Example:

Reporter: Will [Biden] keep Donald Trump’s Air Force One color scheme change?

Biden Press Secretary Jen Psaki: This is such a good question!

In the hope that it won’t get me banned from Twitter and Facebook for sedition, I am going to suggest some of the events that could plausibly blow the Biden administration off course in the coming months.

First, a few past examples. No sooner had Truman achieved victory over Japan than the U.S. was gripped by a wave of strikes by everyone from oil workers to elevator operators, as the unions seized the opportunity of peacetime to flex their muscles. Workers at General Motors downed tools for three months. “The Congress are balking, labor has gone crazy and management isn’t far from insane in selfishness,” Truman complained to his mother. Speaking at a Gridiron Club dinner in December 1945, Truman half-joked that William Tecumseh Sherman had been wrong: “I’m telling you I find peace is hell.”

Not long after turning the White House into Camelot with one of the great inaugural addresses, Kennedy was persuaded by the director of central intelligence, Allen Dulles, to launch Operation Zapata, an attempt to overthrow Fidel Castro in Cuba. The venture ended in abject failure at the Bay of Pigs on April 20. “We really blew this one,” fumed Kennedy. “How could that crowd at CIA and the Pentagon be this wrong?” The administration had been “revealed as if no more than a continuation of the Eisenhower-​Dulles Past,” lamented Kennedy’s court historian, Arthur Schlesinger Jr. “We not only look like imperialists, we look like ineffectual imperialists, which is worse; and we look like stupid, ineffectual imperialists, which is worst of all.”

Having succeeded to the presidency following Kennedy’s assassination, Johnson soon embarked on an escalation of the U.S. involvement in Vietnam. The authorization Johnson sought from Congress after the Gulf of Tonkin “incident” in August 1964 — to take “all necessary measures to repel any armed attack against the forces of the United States and to prevent further aggression” — was a crucial step down the path that would destroy his presidency.

Exaggerating the evidence that the Navy destroyer Maddox had come under attack, Johnson seized the opportunity to outflank his Republican rival Barry Goldwater. “I’ll tell you what I want,” he snapped at a breakfast with congressional leaders. “I not only want those patrol boats that attacked the Maddox destroyed, I want everything at that harbor destroyed; I want the whole works destroyed. I want to give them a real dose.”

Escalation in Vietnam was one the greatest unforced errors in American history. It might not have happened if Kennedy had lived. Conversely, think how different history might have been if Ronald Reagan had not survived the assassination attempt by John Hinckley Jr., which occurred just over two months after Reagan’s inauguration. Events, dear boy.

Often the first year of an administration is marred by turf wars and infighting. In Bill Clinton’s case, there was a turbulent contest for influence between those, such as the Democratic strategist Paul Begala, who had been close to Clinton on the campaign trail the previous year, and those, such as the former Republican David Gergen, who were brought in to provide some administrative experience midway through the first year in office.

The great unforced error of Clinton’s first year, vividly described by Bob Woodward in “The Agenda,” was the decision to let First Lady Hillary Clinton drive health-care reform, which she proceeded to do — into a brick wall of congressional opposition. Barack Obama arguably made a similar mistake in his first term  when he opted to prioritize health-care reform instead of focusing exclusively on economic recovery.

Joe Biden has one advantage over all his predecessors: No one has come to the highest office in the land with more experience than the man who was first elected to the Senate in 1972, at the age of 29. Re-elected six times to represent Delaware, Biden also served two terms as vice president.

It therefore seems reasonable to assume that he will know to avoid at least some of these pitfalls — especially as he must be keenly aware of how historically slim his party’s control of Congress is. Naive analogies between Biden and Roosevelt or Johnson overlook the stark reality that the Democrats had 59 Senate seats and 313 House seats in 1933, and 68 Senate seats and 295 House seats in 1965 — compared with just 50 Senate seats and 222 House seats today.

Given these narrow majorities, and after an inaugural address that featured the words “unity” or “uniting” no fewer than 11 times, you may be looking forward to a glad, confident morning of bipartisan cooperation. I am sorry to disappoint you, but that’s not going to happen, either. Not only do the Republican Senate and House minority leaders, Mitch McConnell and Kevin McCarthy, almost certainly intend to rerun the successful Obama-era strategy of opposing every move the Democratic administration makes. Team Biden has also lost no time in providing them with ammunition.

Some of Biden’s executive actions on Day 1 were unobjectionable, but the fact that six out of 17 were essentially measures to liberalize the immigration system was telling, as were the remarks on that subject made last week by Biden and Vice President Kamala Harris. Announcing a plan to give all illegal immigrants a pathway to citizenship seems like one easy way to reunite an opposition party that Donald Trump seemed to have divided irreparably by his reckless rabble-rousing just two weeks ago.

Two steps in the same direction are the “woke” executive orders announced last Wednesday. The one “On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government” tells all federal institutions and agencies “affirmatively [to] advance equity, civil rights, racial justice, and equal opportunity … [by] embedding fairness in decision-making processes.” The other, “On Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation,” will (according to some conservative commentary) require federally funded schools to allow transgender athletes who were born male but identify as female to compete in women’s sports and for women’s scholarships.

For the people who hate Trumpism and wokeism in equal measure, last Wednesday was pure whiplash.

These are not so much forced errors as conscious choices born of the Biden administration’s central policy dilemma. The fiscal and monetary policies favored by its economics team — deficits and quantitative easing as far as the eye can see — will widen the country’s already wide inequalities by cranking up further the prices of real estate and financial assets. Conveniently for Biden, the left wing of the Democratic Party cares more about identity politics than working-class living standards, so they will be fed a steady diet of green new dealing, critical race theory and transgender rights. Welcome to the ESG administration, where environmental and social virtue-signaling will provide a smokescreen for the inexorable growth of shareholder value.

That Republicans will oppose all this is a predictable “gray rhino,” something Team Biden must see coming. The same applies to another impending Harold Macmillan event, namely the deterioration of the public-health crisis in the coming weeks as new strains of SARS-CoV-2 spread across the U.S. The B.1.1.7 variant, first detected in England late last year, has already been found in 12 states. It is between 50% and 70% more infectious as earlier strains of the virus. On Friday, U.K. Prime Minister Boris Johnson suggested it may also be more deadly.

Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, and a member of the Biden transition team, spoke last week of “a perfect storm,” telling Bloomberg: “When this B.1.1.7 takes off, it’s going to be hell. That’s what they’re walking into right now. I hope I’m wrong. God, I hope I’m wrong.”

Biden’s public health team will be scanning anxiously the data from the U.K. and from Israel, where races are currently underway between high-speed vaccination programs and the rapidly spreading new strain of the virus. They will be watching even more nervously the news from South Africa, where another new strain has been re-infecting people who had previously had Covid.

According to a sobering report published on Jan. 18 by the South African National Institute for Communicable Diseases: “People who have recovered from SARS-CoV-2 infection are usually protected from being infected a second time … because they develop neutralizing antibodies that remain in their blood for at least 5-6 months … These antibodies bind to specific parts of the spike protein that have mutated in the new variant (K417N and E484K). We now know that these mutations have allowed the virus to become resistant to antibody neutralization. The blood samples from half the people we tested showed that all neutralizing activity was lost.”

It is too early to tell just how bad this news is. What is clear, however, is that SARS-CoV-2 is evolving in ways that threaten our current strategy of vaccination, and that it will continue to do so for as long as the southern hemisphere countries lag behind the developed northern countries in the quantity and quality of vaccines available.

One president, Trump, has already caught Covid-19. Even under normal circumstances, Joe Biden’s health would be a concern. At 78, he is older than Ronald Reagan was at the end of his presidency. The most recent Social Security Actuarial Life Table (for 2017) states that a man Biden’s age has a 4.8% probability of dying within a year. Around two-fifths of his contemporaries are dead already. Now add Covid into the mix. Thus far, according to the Centers for Disease Control and Prevention, 59% of U.S. deaths from the pandemic  have been of people older than 74.

Events, dear boy, events. What happens when you announce your plan to relax immigration restrictions and give illegal immigrants a pathway to citizenship? The answer is that the flow of would-be migrants increases. The number of detentions on the Arizona-Mexico border was already rising last fall. A “caravan” of 9,000 Hondurans is currently making its way northward through Guatemala.  

What happens when you come to power after a wave of protest in support of Black Lives Matters that was marred by violence, vandalism and looting, and when at least some members of your party expressed sympathy with slogans such as “Defund the Police”? The answer is that you inherit a wave of violent crime that has seen homicide numbers jump by more than 50% in six major cities: Atlanta, Boston, Chicago, New Orleans, Portland and Seattle.

Finally, and perhaps most importantly, what happens when, despite your obvious contempt for your predecessor, you largely adopt the single most important part of his foreign policy? For all his manifest defects of character, Trump was right to change the direction of U.S. policy toward China — to abandon the fantasy that integration into the global economy was going to liberalize the Chinese Communist Party, and to mount a multifaceted challenge to Xi Jinping’s bid for world power.

On this issue, the Biden administration intends to continue where Trump left off. Incoming secretary of state Antony Blinken told senators at his confirmation hearing last week, “There is no doubt that [China] poses the most significant challenge of any nation-state in the world to the United States.”

Asked if he agreed with his predecessor Mike Pompeo that China was committing genocide against its Uighur population, Blinken replied: “That would be my judgment as well. I think we’re very much in agreement.” Was he open to imposing trade sanctions in connection with that genocidal policy? Yes. Did he support the move by Pompeo to relax restrictions on official dealings with Taiwan? “I want to see that process through to conclusion if it hasn’t been completed,” replied Blinken.

Even more remarkable was the article published by Kurt Campbell in Foreign Affairs on the eve of the announcement that he would be the “Asia czar” on the National Security Council. “The United States needs to make a conscious effort to deter Chinese adventurism,” wrote Campbell and his co-author, Rush Doshi, who is also contending for an NSC job:

This means investing in long-range conventional cruise and ballistic missiles, unmanned carrier-based strike aircraft and underwater vehicles, guided-missile submarines, and high-speed strike weapons. … [The U.S.] also needs to work with other states to disperse U.S. forces across Southeast Asia and the Indian Ocean … [and] to reshore sensitive industries and pursue a “managed decoupling” from China. … Washington will have to work with others to … collectively design penalties if China decides to take steps that threaten the larger order.

Having argued since 2019 that we are waging Cold War II against China, I naturally welcome this tough language. But it is worth reminding ourselves that China is not a passive object of American foreign policy. Within minutes of Biden’s swearing-in as president, the government in Beijing announced personal sanctions against 28 Americans who served in the Trump administration, including Pompeo — not only barring them and their families from entering China, but prohibiting any “companies and institutions associated with them … from doing business with China.” Blinken’s former colleagues at his consulting firm, WestExec Advisors, may be nervously wondering what this might one day mean for them.

The first Cold War was not the stable equilibrium of mutually assured destruction it now appears with the benefit of hindsight. It was one damned crisis after another, with the worst over Korea in 1950, Berlin in 1961 and Cuba in 1962. Something similar will be true of Cold War II. Even when Chinese-American relations were good — back in the days of “win-win” economic interdependence — there were crises.

On April 1, 2001, when George W. Bush was just 10 weeks into his presidency, a U.S. Navy signals intelligence aircraft collided with a Chinese fighter jet about 70 miles off the island of Hainan, where the American spy-plane was forced to land. The 24 crew members were detained for 10 days, during which they were interrogated. The Chinese fighter pilot was killed in the collision.

Twenty years ago, both sides had strong incentives to defuse the crisis, and American expressions of “sorrow,” interpreted by Beijing as “sorry,” sufficed. But would the same be true today in the event of a comparable collision in the air or at sea? I think not. In 2001, the Chinese economy was 13% the size of the American in current dollar terms, compared with 75% today. And unlike Cold War I, which was fundamentally a transatlantic conflict, with Europe as its major battleground and the Caribbean as a sideshow, Cold War II is transpacific, with East Asia as the major battleground.

At some point in the Biden presidency, I expect, there will be a crisis over Taiwan, North Korea or the South China Sea. And that will be the main event — the moment when we discover if the strange pageant we saw last week was morning in Joe Biden’s America, or the twilight of the late-Soviet United States.