Canada stepping up

The Wall Street Journal had an excellent two-parter on Mark Carney's handling of a rather difficult situation: a century-long ally and decades-long free-trade partner threatening to invade and annex your territory, and threatening to nullify the treaty that settled the border. 

Part One (ungated) goes through Europe's slow realisation of the nature of the Trump administration.

Part Two (ungated) explains how Carney helped Europe realise the situation that we are all now in. 

His prescription in large part would lay in Europe, where Carney, a former Bank of England governor, had made his past and now saw Canada’s future. The Canadian banker who never before held elected office would emerge as an unexpected central figure in a high-stakes project to reshape the economic and military community known as the West.

Since World War II the alliance had worked like a wheel: The U.S. as the indispensable hub and the rest as spokes. Carney argued that Canada and Europe would have to build an alternative model, a “dense web of connections” that wouldn’t overly depend on any single country. His approach contrasted to that of another influential leader, NATO Secretary-General Mark Rutte, who was encouraging Europe to double down on its relationship with Trump—whatever it took to keep America from abandoning the alliance.  

They represented opposing poles of a years-old debate coming to a boil in Europe, with the U.K., like Rutte, betting heavily on its special relationship with Washington. France, conversely, was eager to build up Europe’s own sovereign defense base and technology, from quantum computing to AI systems held outside America. Carney would try to sway the outcome, without provoking the superpower that imports three-quarters of Canada’s goods.

In effect, a push to make Canada America’s 51st state had lighted a fuse of unintended consequences that would play out far beyond North America, as overseas allies asked themselves whether the U.S.-led alliance could truly last.

The Wall Street Journal spoke to heads of government, their ministers and top aides to reconstruct the closed-door meetings where the alliance began to splinter. The Journal was able to review detailed notes taken by some participants. This is the second in a two-part series revealing the contents of deliberations among America’s allies over how they might salvage their alliance—or prepare for its unraveling.

Matt Gurney and Jen Gerson's discussion at The Line is also worthwhile. 

It does make me a bit nervous about this, from the Politik newsletter:

Last year’s ASEAN Summit underscored the enduring limitations of ASEAN’s collective approach to the South China Sea.

Most member states issued cautious statements and avoided directly addressing recent developments, including China’s declaration of a nature reserve at the Philippine-claimed Scarborough Shoal, its deployment of buoys, and its continued ramming and use of water cannons against Philippine vessels.

As the 2025 chair, Malaysian Prime Minister Anwar Ibrahim reiterated that disputes should be resolved within ASEAN and warned that the involvement of “outside forces” would only heighten tensions.

While Philippine President Marcos publicly agreed with this, his administration continues to pursue partnerships beyond the bloc to deter further Chinese escalation at sea.

Those partnerships are led by the United States.

Thus, New Zealand had a choice: did it side with ASEAN or the US? Clearly, it sided with the US.

The move appears to be part of an orchestrated effort by New Zealand to strengthen its alliances with countries that are seeking to build up their resistance to China.

 

Australian defence

It's weird that NATO and others benchmark defence adequacy by spending as a fraction of GDP.

Surely treating inputs as targets rather than outcomes has been known to be a mistake for at least forty years.

Lifting defence spending, as fraction of GDP, to very high levels - but spending it on kit that can be easily destroyed by low-cost drones - seems like a bad idea. "It sounds like you're feeding multimillion-dollar tanks to thousand-dollar drones" kind of bad. 

Casey Handmer works through some obvious implications for Australia. 

The core technical fact that Australian defence planning has not absorbed is what Packy McCormick and Sam D’Amico call the Electric Slide: the five foundational technologies of the electric stack — motors, batteries, power electronics, sensors, and edge compute — have each decosted by roughly 100× over the past 30 years. The guidance electronics that in 1990 required a government munitions program now ship as the cheapest component in a disposable toy.

The practical result, demonstrated across Ukraine, Nagorno-Karabakh, the Red Sea, the cartel conflicts in northern Mexico, and now the Persian Gulf, is a cost-exchange regime in which a $500–$5,000 drone can plausibly destroy a $1M–$100M asset. Ukraine produced more than 2 million drones in 2024, and doubled that in 2025. Russia’s Black Sea Fleet, which in 2021 was significantly larger than the Royal Australian Navy, has been reduced by approximately 45% by an adversary with no navy at all. The dominant ships were destroyed by autonomous surface vessels and anti-ship missiles at a cost-exchange ratio on the order of 1:1000. Houthi operations have forced US carrier strike groups into standoff. Cartel drones routinely contest Mexican state control in Michoacán and Sinaloa.

...

Australia’s capability posture is built around high-unit-cost, low-count, foreign-sourced exquisite platforms — a force structure appropriate to a world where precision strike was a US/USSR duopoly and tactical mass was a minor consideration. That world is gone. In the world NDS 26 claims to operate in — the post-Ukraine, post-Red Sea, post-Nagorno-Karabakh world — tactical mass is everything, and the cost-exchange regime rewards the side that can produce cheap guided munitions in volume.

I'm less convinced of some of Handmer's arguments for a fully independent stack. Some insurance is too costly to be worth it. 

But the piece is interesting. 

As ANZAC Day approaches, imagine Australia and NZ taking these lessons seriously and taking a joint approach. Rocket Lab can launch small satellites. New Zealand has drone manufacturing. And maintaining ability to ship across the Tasman would seem a core objective for both. 

Free trade for free countries

Matthew Yglesias at Slow Boring reiterates the case for American free trade with likeminded countries. 

What we ought to be doing is trying to minimize the total amount of trade barriers, and thus the economic cost of pursuing competition with China, by reducing as many trade barriers as we can. We should stop complaining about cheap Canadian lumber. We should stop blocking imports of Latin American sugar. We should let Toyota sell cheap small trucks to Americans who want them. We should, frankly, probably start buying (or leasing2) warships from Japan and Korea, where they actually know how to build ships. America is toast in a conflict with China if we can’t count on cooperation with our friends, so we may as well optimize on maximum economic efficiency and the freest possible trade within the free world. This also applies to quasi-trade in professional services — we should make it easier for foreign doctors to practice here, and have the FDA and European drug regulators work together so approval by one agency will let you sell on either side of the Atlantic. There’s a lot we can do to work together internationally and increase prosperity.

It seems obviously crazy that the US wants countries to reduce trade links with China while setting tariffs on countries that it calls friends and allies that encourage them to trade with China instead. 

That was my column over in the Post on Monday. 

I think it's a bit crazy that New Zealand has been talking about tighter defence arrangements with the US without having a secure trade deal with the US already in hand. China is our largest trading partner. We have a free trade agreement with them. And while there have been occasional bits of weirdness facing goods entering, they don't stick giant tariffs on our exports. 

Easy to check this for yourself, even though MFAT in general seems to prefer not making a big deal about how protectionist America is (contrast MFAT's correct and explicit views on the evils of Canadian trade practices, with softpeddling on America's). 

MFAT has a Tariff FinderMFAT has a Tariff Finder. Click the Exporting button; you're pretending to be a NZ-based exporter. Then compare tariffs on your exports if you're exporting to China, and if you're exporting to America. You can find China among the FTA partner countries on the drop-down list; the United States is on the non-FTA partner list. 

When NZ got its FTA with the UK, people made a big deal about onions now getting tariff-free access to the UK. So let's check onions. The US charges 0.83 cents/kg; no tariffs for entry into China. 

Is the Chinese ambassador wrong when he says that China has been a more reliable trade partner for New Zealand than the US has been? 

NZ trade with China can be subject to holdups at the ports if the Chinese government is mad at us - and what happened with Australian wine is concerning. 

But NZ trade with the US depends on madness in American farm states and whatever populism Congress wishes to appease [and trade with Canada is even worse - America at least tries to do its protectionism within the rules; Canada signs agreements it knows full well it will immediately break]. 

Anyway. 

If US trade policy really were about global geostrategic stuff, rather than mainly being protectionism, they would be opening trade as Yglesias suggests. 

And while neither the Republicans nor the Democrats show much interest in being reliable trade partners for anyone, I'd be a bit nervous about AUKUS. 

Afternoon roundup

More bits as I clear through the tabs. 

• Kevin Rudd's view on south Pacific security.
• 20,000 hard refusals on the 2023 census, up from 6000 in 2018.
• Andrew Heaton talks with Zach Weinersmith about space settlements.
• General Practitioners really ought to be allowed to prescribe for ADD/ADHD. 
• TVNZ in financial trouble, but still doesn't offer a subscription-version of its streaming offering for those who can't abide the ads. 
• The demographics of Parliament
• Climate Commission recognising potential for carbon sequestration through reinjection in geothermal wells. Excellent. 
• The Gods of the Copybook Headings always slouch up to explain it once more. They've been explaining it in education system results. Good that we're starting to recognise it. 
• If there's a right to be protected from the effects of climate change...
• Infrastructure Commission doesn't mince words on Auckland light rail. 

Afternoon roundup

Sure doesn't take long for the tabs to pile up after summer break.

Some worthies:

• CPI y/y now at 4.7%, q/q 0.5%. Remember that the y/y figures will be comparing current CPI, where fuel has full excise, with Dec quarter 2022, when fuel had a substantial excise discount. Treasury had figured that removing excise had meant something like a half percentage point effect on y/y CPI figures when Labour put in the discount; should be roughly the same in reverse currently. So y/y is overstated relative to actual inflation. It's still over the top of the target band. But the quarterly result is encouraging: annualising 0.5% gets you a titch over 2%. 
• While talking about CPI, remember that normal drill has annual inflation adjustments to tobacco excise from the accumulated prior-year inflation. And that would feed through into the subsequent year CPI figures. RNZ says the government may pause the CPI increases to tobacco excise. If you think that tobacco excise is set at a level commensurate with social cost, then you'd want the real value of excise to not be affected by inflation. If you, like me, think that excise is multiples of actual social cost while incredibly punitive for lower-income smoking households, then you'd be happy with holding it and happier with reducing it explicitly. 
• The Government Economics Network is surveying government-employed economists and non-economists about what training they might be needing. I think they need a lot more background in what the mainstream consensus actually is, rather than a pile of heterodox conference keynotes. There's an important place for heterodox thinking: in the academic economics departments, which then sort out which bits have to be incorporated into the academic mainstream. 
• GEN's survey of Ministry chief economists was interesting though. They note difficulty in matching market rates for economists, which can't be good for the quality of economic policy advice. I liked this bit: "Economics is not the only area where the prize for being good at something is to be promoted to another job with less of the thing one was promoted for and more meetings. Nevertheless, respondents said that this seemed to be more apparent in economics than general policy roles."
• Farmers Weekly on some of the issues for NZ with the pirates/terrorists having closed the Red Sea. BusinessDesk notes a $1600/container surcharge because of it. That NZ has sent six (6) NZDF staff to help reopen that route has melted some peoples' brains. 
• Walking around town, I notice a whole lot of leaks that were around before we left on summer holiday are still there, some worsening. The one on Tinakore Road outside the daycare is going to wreck the road where it's been bubbling out for months. Wellington Water is also not proving itself particularly competent: a pressure valve installation led to a new leak, repeatedly reported by residents, culminating in an explosion with trees knocked over and footpath wrecked. Wellington's power lines are owned by a private company; they're fine....
• I hadn't seen this before. App that traces out how people commute to and from various suburbs, from Census 2018. 
• We live in an age of wonders.
• I endorse every one of the City for People's recommendations for the Wellington district plan. Would go further, but each of these is good. 

Afternoon roundup

Some of the worthies as I attempt to get the tabs down to a more manageable level...

• Michael Reddell keeps documenting the problems at RBNZ. They make stuff up when reporting to the Finance and Expenditure Committee. "But it gets harder to believe such a pro-incumbent bias is playing no part (consciously or unconsciously) in their words and actions."
• Most polled restaurant owners would make covid-infectious employees show up to work. Great advertisement for restaurants. 
• If a rezoning increases your property value by more than 7 times, then either council's supplying free-to-users infrastructure that ought to be covered by charges on users over time, or it isn't zoning anywhere near enough land, or both. 
• One reason for crypto-regulation: add a large fixed cost to a low marginal cost service to protect incumbents. 
• A link tax won't save the newspaper industry. 
• Helen Clark chats Ukraine war with Australian defence expert Mick Ryan. 
• NZ's alcohol licensing authorities still are J-Curve deniers.

Nights - the recommencement of history?

For this week's chat on RNZ Nights, Bryan wanted to talk about Ukraine and revisiting the End of History. Not my specialty - it's rather Oliver's, but I'm always game. 

I'll usually put together a short set of notes before the chat, just to sort out my own thinking and to provide a bit of a heads-up about how I'm seeing things. 

These were this week's notes. I've tidied things slightly and added a few links. 

1. Libertarianism has always had less to say about foreign policy than about domestic policy. The main bottom lines have been:
1. Foreign adventurism is bad, and makes its way back home (see for example US police departments kitted out with army surplus stuff like armored personnel carriers);
2. Free trade is good in its own right, and also fosters friendlier relationships;
3. Open borders, or as close to it as possible, are also good – though there is a reasonably-sized cohort of anti-immigration libertarians;
4. Be sceptical about government calls to go out on foreign adventures. War is the health of the State, and the State will go looking for reasons for having wars.
2. It’s also an area where you’d have one of the more major splits between libertarians and, for want of a better term, neoliberals.
1. Libertarians will often try to start from a principle of non-aggression: that initiating the use of force is always wrong. You can hit back, but you can’t hit first. And what holds for people holds also for governments. There is a deep pacifism built into libertarianism. If it’s wrong for me to go out and hit somebody, it’s also wrong for the state to do it.
2. That leads to arguments that foreign intervention that isn’t requested has to be wrong, that regime-change and nation-building programmes are wrong per se rather than that they just are prone to going badly and too risky to be a good idea. Free trade with all and entangling alliances with none as general principle. They warned that US bases in Europe and elsewhere did more to provoke harm by annoying locals and discouraging them from building up their own defences.
3. ‘Neoliberals’ have been happier to support the web of institutions that make up the global international liberal order, including alliances like NATO.
3. End of end of history?
1. I am not a Fukuyama scholar; I’ve only had a passing reading. But he pretty clearly meant something different than how he’s popularly portrayed. He wasn’t saying that events would stop happening. Rather, that there was no successor ideology – a broad view saying how a polity and its economy should be structured - offering competition to broad western liberalism at the end of the 1980s. There could be particularistic ones, but nothing with the claims to global applicability that each of Marxism, Fascism, and Liberalism pretended. Marxism had obviously collapsed from within; the Soviet Union was still there but nobody living there believed in it and, more importantly, they all knew that none of them believed in it. Fascism had failed. Nationalisms are particularistic: you don’t get a global Canadian nationalism. And Islamism held little appeal for non-adherents.
2. Fukuyama did argue against Krauthammer’s suggestion that Russsia could revert to a nineteenth century imperial version of itself – which it’s now looking like. But again, is it a competing ideology? There are a few fans of Putin internationally, but it’s not really an ideological system that says how a state and economy should organise itself. And it’s manifestly unclear at this point whether Russians at large are Putinists. It seems rather a failed gamble by a personalistic despot whose domestic support was waning under a weak economy. I really don’t think Russia provides any aspirational model for others. They’ve a hollowed out economy, largely reliant on natural resource extraction that’s easy for the state to dole out as favours. And they’re so rife with corruption that their army’s a mess.
4. Libertarian and neoliberal prescriptions?
1. First big caveat that this ain’t my field. I’ve got reckons. In economics, I know what I’m talking about. Here, I’ve got reckons. But at least the things I'm suggesting won't do any harm.
2. If we start with nervousness about interventionism, worries about militarism, and we don’t want to provoke a nuclear exchange, a few things seem to follow from that.
1. Libertarian Bryan Caplan has suggested payingfor defection. Offer $100,000 plus EU Citizenship to any Russian deserter. Surrender to Ukrainian forces, get a ride to the border, get your money, start a new life.
2. Even if you paid off 200,000 Russian troops, that’s only $20 billion. Less than a fifth of what Germany’s now planning on spending on defence in 2022 alone.
3. The Cato Institute has echoed that suggestion, urging that America take in every possible refugee not only from Ukraine but also from Russia. The UK’s Adam Smith Institute has argued the same point: waive all visa requirements for all Ukranians for at least 5 years, with paths for asylum, longer term visas and citizenships. Let them live, work and study in the UK. And they argued for making it dead simple for highly skilled emigrants to flee countries suffering from conflict or oppressive regimes, including Ukraine, Russia and Belarus. That exodus would weaken the Russian state as much as anything. Remember that the Soviets had to put up walls to keep people from fleeing, because they knew the damage that would do.
4. One story last week showed how Ireland was making part of it work. Ukrainian refugee teachers were being hired into Irish schools to help teach Ukrainian refugee children. I love it. Here they’d be tied up in arguments about professional certification and licensing for a decade before they’d be allowed to do anything.
5. NZ has done some good on this front. Ukranian family members of Kiwis can come in. But could we do more? Could we expand the trial refugee sponsorship regime to let those without families in Ukraine also sponsor people to join us? We would want to ask Poland whether we do more to help by bringing people here or by sending them money to help accommodate refugees there, but we should consider those options.
6. Part of the overall problem has been European and western reliance on Russian oil, and Europe’s shuttering of nuclear plants in response to environmental activism that now seems to have been at least part-funded by Russia. New Zealand’s oil and gas exploration ban: does it do more to reduce global net emissions, or to increase the world’s relative reliance on places like Russia and Saudi Arabia?
5. Finally, it has been encouraging to see the West as West reasserting itself – and again West as ideal rather than geography. Japan is West. European Belarus is not.

Pacifism

Bryan Caplan advocates pacifism.

He lives in Fairfax County, which has one of the more militarized and non-pacifistic police forces in the United States. Fairfax SWAT teams murder dentists who wager on sports; best I'm aware, Sal Culosi's murderer is still on the police force. Here is the list of people officially killed under authority of the State of Virginia since 1982. I'm not going to make a guess as to the Caplan household tax burden, but about a fifth of his federal taxes go to the military.

How much weight does pacifism have in Bryan's overall utility function? He almost certainly rightly concludes that the total amount of pacifism in the world is unaffected by his marginal tax contribution to Virginian and American anti-pacifism, and that he probably does more to further pacifism where he is now as compared to moving to a place like New Zealand where less than a twentieth of his taxes would go to pay for a military whose main function is assisting in civil defence, emergencies, and enforcing property rights in fishing quotas in New Zealand's territorial waters.* But if Bryan's pacifism includes an unwillingness to pay for a war machine as well as a refusal to serve in one, I'd be very happy to have Bryan as a neighbour some day.

* Here's the appropriation summary for Vote.Defence 2010. Total NZ military spending of some $2.85 billion includes only some $79 million on "operational deployments"; I'd have to guess most of that is the Afghanistan deployment. If I'm one of two million or so taxpayers, my share is about $40. I doubt that the overall Afghanistan mission passes cost benefit, but at least the NZ involvement is relatively minor. New Zealand has no air combat wing (Kiwis are flightless). This has far less to do with New Zealanders being inherently pacifistic than with that we face such tiny external threat, and such low odds of repelling any country with sufficient blue water forces to actually get out here, that the optimal level of national defence is near zero.