Economist David Goldman recently spoke at the Freedom Center’s annual Restoration Weekend, held November 10-13, 2022 at the Biltmore Hotel in Phoenix, AZ. He discussed ‘The Great Reset’ — led by two revolutionary, disruptive, global entities intent on transforming our lives, and not for the good.
Don’t miss this fascinating talk.
David Goldman: Thank you. I’m enormously grateful to the Horowitz Freedom Center, to David Horowitz and Michael Finch personally, for the kind invitation. It’s great to be here and great to see so many old friends.
The title of my presentation in your program was The Great Reset. We should be talking about two great resets, because we have two revolutionary, disruptive, global entities intent on transforming our lives. One is what lies behind the World Economic Forum, which is big tech and the global elite, and the second is the Chinese Communist party. As you would expect, neither of them means us any good.
I had the honor to contribute to a volume edited by my friend Michael Walsh, Against the Great Reset; Victor Davis Hanson is in there, many other speakers in this conference, and I urge you get hold of it. I think it’s — apart from my stuff, it’s got great stuff in it.
We have had the next worst thing to a global communist revolution since 2020. By that I mean, if you just look at the raw numbers, the debt of the industrial nations has gone from 100% of gross domestic product to 122% of gross domestic product in a little over two years. So governments have taken over, in effect, 20% of the world economy, which is about as much as any communist government could achieve as a violent coups d’etat. What do they do with it? They created massive subsidies to corrupt populations, buy votes and establish total control.
Now, I agree with my friend Lee Smith; the World Economic Forum, as such, is overrated. It’s simply the public relations office of the global liberals and big tech. But in 2020, its director, Klaus Schwab, said, this is a great opportunity we have with coronavirus. We’re going to do three things. One is we’re going to impose environmental standards on all investment in the interest of stopping climate change. [Third], we’re going to redistribute income by tax and other means to create equity. And third, we’re going to use what we call the fourth industrial revolution to digitize everyone’s lives: control your medical records, vaccinations, spy on you, and so forth. The ultimate dream of big tech as a totalitarian surveillance force.
This was not empty verbiage. If you are a corporate manager today, and you’re talking to investors, you have an ESG, environmental/social/governance score. If you don’t meet that, BlackRock and the other big investment entities will not put money into you. This shut down a great part of the American energy industry. That’s why we have such high oil prices. Of course, that doesn’t bother big oil; Exxon stock prices doubled in the last year or so. If you’re a monopoly, scarcity is good for you because it allows you to gouge prices.
But it has played hob with investment in basic industry. That’s why we have global inflation. You vastly increase spending. Transfer payments as part of the U.S. federal budget went from 60% in 2020 to 75% in 2021. It’s the biggest handout ever given to populations. So we created a massive demand; at the same time, we paid people not to work. I know my friend Steve Moore talks about this, and makes budget cuts to rectify this problem a top priority, and I agree with him completely.
Now, those of us who consider ourselves national or patriotic conservatives and worry about the hollowing out of American industry are stunned to see that there are 1 million industrial jobs now advertised that we can’t fill, plus 400,000 construction jobs. That’s — nothing like this has ever happened. That’s three, four times the highest level we ever had in the past. Those of us who said, we need more industrial jobs because that was the core of American communities and the basis of family life, now find we can’t find workers for the industrial jobs that are now open, and that’s because we gave out the largest bribe to a population that’s ever been done. That’s the de Tocqueville trap, right? Alexis de Tocqueville, who wrote Democracy in America, said: There’s one big weakness you have to worry about it in American democracy. The people can vote themselves rich. And that, with malice aforethought, is what our elites did. So that’s what why we’ve got inflation, scarcity, high energy prices, stagnated economy.
Over in Beijing, they look at things a bit differently. There’s another great reset involved. Now, you can make a very long list of things that China does wrong — it would take me three days to go through it — and a very, very short list of things that China does right. I want to concentrate on that short list, because I’ve only got half an hour, so I can tell you that in about two or three minutes. But personally, I’m much more worried about what China does right than what it does wrong. China figured out, with the Deng Xiaoping reforms starting in 1979, how to take subsistence farmers making an average of $200 a year and turn them into semiskilled industrial workers making $13,000, $14,000 a year. That’s why China had the fastest growth of any country, really, on record. What happened in China, and what’s going to happen now?
A lot of people will tell you China is in crisis. You’ve got a demographic crisis, a property market crisis, problems with COVID lockdowns. Yes, China’s in crisis. China has been in crisis for 5,000 years. It’s always in crisis. The question is, how do they come out of this? And the Communist party’s plan is to come out of it as the leader of what it calls the fourth industrial revolution, by which it means the digitization of manufacturing, transport, logistics, services, everything from autonomous driving to drone-delivered packages to warehouses where robots empty packages and resend them — basically, the application of information technology, to every walk of life.
Now, one of the great paradoxes that economists have been trying to figure out — an economist, you’re not very good at solving puzzles, so it’s not surprising they’re baffled — is, why has it been that we have this explosion of productivity in information technology, but stagnating productivity in manufacturing and services? America’s productivity numbers the last 10 years are just terrible. That’s one reason incomes are stagnating. Now, just to give you one example, the cost of memory between 2020, 2020, has come down 70 times.
And there’s a simple reason for it. We have used information technology for bread and circuses, for entertainment, for addicting kids to their smartphones, for playing games, and we have not applied it to industry. It’s been in a bubble. And big tech, in 2020, after the dot com crash, made a decision. They looked at their businesses and said, the high return on equity businesses are software, the low return on equity businesses are manufacturing, so let’s let the Chinese have the low return on equity businesses and we’ll take the high return on equity businesses. So we got a devil’s bargain. We got stock market valuations which nobody could imagine. Half a dozen companies with trillion-dollar, some multi-trillion-dollar valuations. More wealth than any one created on paper ever before, while China became the world’s dominant manufacturing power with 30% of world manufacturing.
Now, China has moved 700,000 million people from countryside to city in a generation. Biggest migration in industry. That’s more than the whole population of Europe from the Ural Mountains to the Atlantic Ocean. To do that, they built the equivalent of every city in Europe to house them. And now they have a population of mainly semi-schooled industrial workers and service people, as opposed to subsistence farmers. They have a stagnating population, stagnated work force that will become a declining population. It won’t decline as fast as Japan or Taiwan or South Korea; about the level of Germany.
So what does China do for an encore after having become the dominant industrial power? Two things, and I’ve said it’s a short list. There are two things they do right. One is, if you don’t have people at home, you’re not making enough babies, there are two things you can do, apart from getting really poor. One is, you can get immigrants; China’s not going to do that. The second is, you can bring your capital to where there are young people.
China’s Belt and Road Initiative is a plan to expand China’s economic sphere to control all of the available semiskilled labor in the world, starting with Southeast Asia, but including Latin America, parts of Africa. So China already has Southeast Asia in its pocket. That’s 600 million people. Half of that is Indonesia. Indonesia brought Huawei in to build out their 5G, but it’s not just build it out; Huawei is training the whole Indonesia government in cybersecurity. That’s like foxes training chickens. Indonesia has decided to allow itself to be integrated into the Sinosphere.
Brazil is another 300 million people. I talked to people in the Brazilian economic elite; they said, we’re fine with Lula. Communist, schommunist. He’s the Chinese connection. China’s going to make us rich. China’s not only building out 5G telecommunications, Huawei is installing 5G networks in soybean farms that puts sensors at the base of every plant, that can tell how much water, fertilizer and pesticide they need and how ripe the beans are, and then sends drones to deliver the inputs and autonomous tractors to do the harvesting. Brazil has ambitions to surpass the United States as the world’s top soybean producer.
So that’s 600 million people right there. Throw in Thailand, Vietnam, 110 million people, is now China’s workshop. Vietnam’s exports to China are now as big as America’s. You can hardly find an open factory there because the Chinese have really taken up all the labor. Philippines, another 120 million people, fast-growing country. So Africa, a bit less so. They’re really mainly interested in extraction as opposed to hiring people, but China has already invested more in Africa than the European powers did in all of history.
So China’s exports to Asia are now four times its exports to the United States. In 2008, China’s exports to the U.S. were 9% of its GDP. It was totally dependent on our market. Now it’s 2% of GDP. I was just talking with my friend Lee Smith about the issue of Chinese students in the U.S. Applications are down by half. I know Chinese tech companies that won’t hire Chinese graduates of American universities because they assume if you’re Chinese and you to go to an American university, you must be the stupid kid of a rich family. Because China now has, according to U.S. news, 20 of the world’s 50 top engineering programs. How’d they get that? They trained doctoral students of the United States and brought them back to China as faculty. But that’s been done. That ship has sailed. They don’t need our universities.
So America, China is just not that into us; get over it. Their target is the 5.7 billion people in the global south whom they intend to assimilate. We think China are the Romulans; they’re not. The Russians are the Romulans. The Chinese are the Borg. We will give you an economy with Chinese characteristics. It doesn’t mean, necessarily, they want to govern anybody. The Chinese, from what I can tell, are completely incurious about how we barbarians govern ourselves. You talk to the Chinese, they say, we don’t understand you. You let stupid people get elected to high office. In China, if you’re not in the top 1% in terms of exams, you’re not going to get a good university spot. You won’t even be considered for Communist party membership. I mean, I’m exaggerating slightly. China gets 10 million kids to take their college entrance exam every year. Believe — I’m not bad at math, and I would fail it without a year of study. It’s really tough. Half of them get a university place. They graduate six times as many engineers per year as we do. They used to be crappy diploma mills; now they’re pretty good. China’s engineers are actually pretty much up to par.
And they have this vast element of human capital. They stole technology with both hands for years, but the danger now is not just stealing technology; they’re developing a lot of their own technology. They’re way ahead of us in hypersonic live vehicles, hypersonic missiles. That’s a technology against which there is no antimissile defense. They’re ahead of us in quantum telecommunications. They put the first spaceship on the dark side of the moon. They do a lot of new stuff. So the danger with China is not that they steal. That, we can do something about. The risk to us is a strategic rival that has learned how to innovate and increasingly, they’re doing that.
So from the Chinese standpoint, Xi Jinping ran roughshod over Chinese big tech. A company like Tencent, a big gaming company, stock price totally crashed because the Chinese created a rule that kids can only play video games online 90 minutes a day. You’ve got to log on with facial recognition; you can’t hack it. That’s big brother. We’ve heard people tell us, tell your kids to study instead of playing video games; the Chinese state said, you will play 90 minutes of video games and no more. That’s it.
And the Chinese government is telling its big tech companies, do not think of the internet and high-tech and all of these things as consumer business. It’s not about entertainment. It’s about digitization. So what does that mean practically? Go on YouTube. Just type in China 5G port automation. What you’ll see is that the big Chinese ports, Shanghai and elsewhere, have six guys sitting in a bubble playing with joysticks, checking that the containers that they’re unloading from ships are being matched correctly. They’re put on autonomous trucks, taken to warehouses, where robots unpack them, sort the goods, repack them and send them out.
Our biggest port, Long Beach, California, is numbered at the very bottom of the World Bank’s ranking of port efficiency, number 330. China’s ports are all in the top 10. China’s already building automated factories where industrial robots communicate with each other over 5G networks. Huawei tells me that’s now their biggest business. We wiped them out of the handset business; I’m sure you know we denied them access to chips and other technology, so Huawei is the biggest producer of mobile handsets in the world. Now they’re a third-rate company because they can’t get the chips to do 5G phones. I think they’re trying to work around it. I don’t know how far they’ve gotten, but they’re concentrating on 5G to enterprise. The digitization of factories, mines and so forth. You can see videos in YouTube where one guy sitting in an air-conditioned trailer at an open-pit mine is — with a joystick, controlling 20 autonomous vehicles.
Now, what does that mean practically? Single largest job classification in the world is driver. More people drive than do anything else. That’s drudge work. You turn that into autonomous vehicles, which the Chinese are barreling ahead to do. You free up huge amounts of labor. So China’s idea is a great leap in productivity at home and the incorporation into the Sinosphere of essentially all the available young labor in the rest of the world. That’s what the multipolar world you’ve heard such talk about means. It means, a Chinese economic zone owning most of the global south and controlling most of world trade and leaving the United States as something of a rump of a fallen empire, kind of like Great Britain.
Now, in military terms, this is not good news for us. China spends, in dollar terms, according to the official numbers, about a third of what we spend, but they spend it very differently than we do. We spend most of our military budget in personnel. China spends massively in technology. A PLA soldier costs about $1,800 to equip; ours costs about $20,000. Their land army is very poor. But they have 2,000 land-based missiles aimed at our bases or our ships. How good are they? Well, the Ukrainians sank the Russian flagship in the Black Sea, the Moskva; I don’t think we should assume that the Chinese will have any more difficulty sinking American ships.
When I worked as a consultant for the defense department for Andrew Marshall, head of office of net assessment, seven or eight years ago, he told me, Chinese could definitely sink American carriers. They have 1,000 interceptors on their coast. We’re cutting back our Air Force in the Pacific, and most of the planes that we’re flying are older than the pilots flying them. So could we beat the Chinese in a war on their home turf over Taiwan? I don’t know. Very possible we’d get clobbered. My friend Elbridge Colby just Tweeted that flag officers are now saying that we’re on a trajectory toward a catastrophic loss to China in the Western Pacific. I can’t evaluate that; I don’t think anyone has the answer. But it’s not something I want to find out. So my view of the Taiwan situation is that the best thing is to maintain the status quo. We want to avoid a war.
China, it has to be remembered, is not a nation state. It’s not a country, it’s an empire. It has 200 dialects. Most Chinese don’t converse in Mandarin, or they kind of get along with it. They converse in a local dialect, and a Cantonese can’t talk to a Shanghaiese and can’t talk to a Sichuanese. It’s as if Europe had been unified under the Holy Roman Empire under one absolute government but kept all its languages. It always in crisis, always in danger of flying apart. From the standpoint of the government in Beijing, the nightmare is a rebel province that leaves and sets a precedent for other provinces to leave. And that’s why Beijing will go to war to prevent the independence of Taiwan, so my view is that that can be allayed.
Now, China is — certainly has a huge advantage in people and human capital. It’s not 1.4 billion people that worry me; it’s six times as many engineers graduated every year. So can we beat them? Well, that’s like asking Rich Little if he can do an impression of Ronald Reagan. It’s not like he hasn’t done it before.
Back when I was a kid — I’m in my 70s — I had the privilege to play a marginal and peripheral role in the great defense buildup, strategic defense initiative, the victory of the Cold War that we accomplished under the administration of Ronald Reagan, a blessed memory. But the thing — and we beat the Russians in the space race. We got to the moon first. That’s the good news. But you have to remember, back when John F. Kennedy was president, the federal development budget — building prototypes, testing stuff and so forth, basically supporting high-tech — was more than 2% of GDP. That’s like half a trillion dollars a year now. Under Reagan, it was over 1% of GDP, you know, $250 billion a year in today’s money. The Biden Administration is offering, what, an $8-billion-a-year subsidy for the chip industry, while it’s costing us $30 billion a year to forgive student loans and pay off younger voters to vote for them?
We have done it before, but we did it with a massive national effort at great cost. Back in ’57, after Sputnik, we passed the National Defense Education Act. We gave subsidies for engineers and scientists. By the time we launched Apollo 11 and got to the moon, we had the peak number of engineers we’ve ever had in the United States. Now, only 7% of our kids study engineering. And we need a lot of foreign students to fill those engineering programs because the math education that we give kids in K through 12 doesn’t train enough people up to qualify for an engineering program.
So we have our work cut out for us. We can definitely beat the Chinese, but it means casting off the yoke of global utopian, big-tech, great-reset thinking, which has, as I said, been the next worst thing to a communist revolution, transforming our educational system, rebuilding industry and redirecting the federal budget toward high-tech defense, aerospace, industrial productivity and the kind of things that we did before. And my frustration is, being an old guy, having seen it before, knowing we can do it, I wonder, why can’t we just do what we used to do that made us great? So when Donald Trump says make America great again, I say, hallelujah, but it’s going to cost.
Donald Trump, whom I supported and defended against the deep state’s attacks on him in print countless times, thought we could deal with the China problem with tariffs. I respect his intent, but it didn’t work. Thanks to the COVID epidemic and our response to it, we’re now importing more from China than we did before the tariffs; by the Chinese count, 50% more. And the Chinese count stuff they sneak in through Singapore and Vietnam and so forth to avoid tariffs. So we’re more dependent on China than we were before while China is less dependent on us. That’s a bad trade. We need an inspirational president who can go — who can do what John F. Kennedy did when he went to Rice University, pointed at the moon and said, we’re going to be there by 1970. That’s the kind of leadership we need. And that’s what’ll get us out of this hole. We’ve done it before in my lifetime; now, hopefully we can do it again, but the hour’s getting late.
With that, I thank you for your attention. It’s been a privilege to be here.
Unidentified Speaker: We do have about — we have time for maybe two questions, so I’ll go to [John] and then we’ll go to — I’ll go to [Bram] first and then we’re coming back to [John].
Audience Member: That was a great talk. Really enjoyed it, and a lot of food for thought. I believe the way U.S. can overcome the challenges with China is, number one, through factory automation. Elon Musk has shown us how they can produce cars at a rate that nobody else has done before. And that mentality has to be pushed into all our manufacturing plants. There’s a challenge with that because it does displace jobs, and how you deal with that, and there will be a lot of pushback against that.
Number two challenge that we have is getting the universities to innovate in those automations and capabilities. The challenge there is that you have a very hostile student environment against United States. When I went through UC-Berkeley and I got a job offer from Lockheed, I was pushed back by many students, and this is in 1981. Everybody mocked me for going and working for a defense contractor, and now it’s 100 times worse. So getting the students to come on board and do that is another challenge there. Those are the two key challenges. But I fully agree with you, we can do it if we put our mind to it.
David Goldman: Thank you. Thank you for that. I agree with you completely.
Unidentified Speaker: I think the last question here, and then we’re going to break for lunch. [John], have at it.
Audience Member: What would you say to my idea — I’m part of the brain trust that was established in a wonderful age of the Baby Boomers, showered with benefits of education. We’re dying; that brain trust will be gone. I think we need a tutorial program manned by people with great education to tutor the children that were lost in the pandemic and bring them into the world that we’re going to need them to come into, of high-tech engineering and math-intensive modern world.
David Goldman: I think it’s a fabulous idea. In Germany, to teach math in a high school, you need a hard math degree. In the United States, you need an education degree. So we just don’t have enough people who know math teaching math, because thanks to the teachers’ unions, who are run by gym teachers who take the view that a gym teacher ought to be paid the same as a math teacher because they’re both teachers, and teaching is a profession. So no matter what we do, starting now, it’ll take us too long to get enough math teachers, so absolutely, a mentorship, tutoring program is a fantastic idea.
Thank you. Thank you all.