The West and China: A Rabbit That Has Been Hypnotized by a Snake

Twain famously observed how history doesn’t repeat, but that it tends to rhyme.  America and the West learned a hard lesson during the Cold War when the preeminent communist power of the day attempted to sedate the free world into a geopolitical slumber using an ingenious approach.

Today, we are making an uncannily similar mistake, this time with the modern-day communist power of China. If we don’t heed the historical rhyming and lessons that come with it, troubled times are certain.

The 1950s and the Geopolitical Sedative of ‘Peaceful Coexistence’

In early 1956 Soviet ruler Nikita Khrushchev delivered a secret speech to the Twentieth Party Congress.  In it he unveiled the new official state policy of ‘peaceful coexistence,’ which the Soviet Union would apply when dealing with its rival, the West.

Peaceful coexistence was packaged to be appealing to western Europe and the United States.  The concept advertised a future where communist nations in the Soviet sphere could live alongside western democracies, without fear of constant strife and with an eye toward reducing tensions.

Of course, the Soviet Union’s and Khrushchev’s true intentions with the application of peaceful coexistence were quite different than what was promoted to the West.  Behind the rhetoric of détente sat the long-term twin objectives of lulling the West into a false sense of security and of laying the groundwork to decisively vanquish democracy.  Peaceful coexistence was in many ways a marketing campaign to produce the opposite result of its name.

The Soviet propaganda machine got fully behind the promotion of peaceful coexistence.

Countless influential individuals in the West, including the powerful in European and American governments, took the bait hook, line, and sinker.   Peaceful coexistence was quickly embraced by the elite and expert classes.

The few who early on saw peaceful coexistence as a sham were initially labeled as narrow-minded and backward thinking.  Until the Soviets brutally invaded Hungary later in 1956.  Russian tanks in the streets of Budapest immediately clarified that peaceful coexistence was nothing but a ruse to buy time, gain advantage, and outmaneuver the West.

Peaceful Coexistence Redux: Modern China and the West

China has been promoting its own brand of peaceful coexistence for decades.  It is masterfully good at it; China today is much more persuasive, effective, and patient than the Soviets ever were in the 1950s.

China’s version of peaceful coexistence has successfully permeated just about every institutional pillar of modern western society.

Academia, having a seemingly incurable ideological soft spot for communism and its cousin socialism, needed little coaxing to jump on the peaceful coexistence bandwagon.  Colleges have been eagerly pocketing Chinese money to fund a broad spectrum of research and programs.  Universities compete to take on as many full-tuition-paying Chinese nationals as possible in undergraduate, graduate, and postdoctoral slots.  Individual professors, departments, and universities across higher education are hopelessly conflicted and financially indentured to China.

The capital markets have behaved badly under the influence of peaceful coexistence.  The largest investment houses, banks, and private equity firms assessed the growth prospects of China, and happily poured trillions of dollars into the communist economy.  Much of that economy is designed to pilfer technology from the West, further militarize the communist nation to better prepare for conflict with the West, and to build strategic industries that aim to destroy competition in the West. Ironically, the biggest capitalists in the free world have willingly funded a regime that exists to destroy capitalism.

Big business, specifically global corporations, saw over a billion potential new Chinese customers for products. They quickly became transfixed with peaceful coexistence, to where companies began acting illogically.

Major US airlines refuse to acknowledge the nation of Taiwan on their global maps resting in the seat pockets of their planes, for fear of upsetting China.

Tech firms grant Chinese state security access to user personal data that they would never dream of providing to US authorities.

Peaceful coexistence coupled with over a billion potential viewers have hypnotized western media and entertainment.  The Chinese Communist Party acts as director, editor, and producer of most major Hollywood films these days.  And marquee athletes and professional sports franchises are much more comfortable deriding their home nations and ticket-buying customers than they are speaking truth to the power that is China.

The western environmental movement fully embraced peaceful coexistence and commits the most egregious acts of aiding and abetting China.  Much of this knowing collusion falls under the flaw and folly of ‘tackling climate change.’

Environmentalism used anti-science ideology and nonsensical concepts of zero-carbon and renewable energy to drive policy mandates, subsidies, and protections for products with supply chains controlled by China.

Environmentalism is proving to be a geopolitical trump card for China:  eradicating American energy independence brought on by the shale revolution and replacing it with a certain energy dependence on China.

Politicians, not always the sturdiest of moral fortitude and discipline, were often easy marks for China’s brand of peaceful coexistence.  Outwitted and outmaneuvered presidents, popes, and climate czars engage China with visions of world peace/détente, new members of the religious flock, and climate accords.  These western leaders bring back nothing of substantive value from the negotiating table, yet they readily cede value on the most vital of issues.

The biggest error politicians and state bureaucrats make when dealing with China is assuming discrete issues can be segregated from China’s grand strategy residing under its umbrella of peaceful coexistence.  Our self-anointed climate czar pretends we can put fundamental differences aside in a winner-take-all competition, so that we can agree on setting targets for future atmospheric concentrations of carbon dioxide.  China sees that miscalculation and happily utilizes it to secure more advantage and advance its strategic objectives.  That gives Code Red a new meaning.

A Wake Up Call from Sun Tzu

Communism remains the gravest threat to individual rights and human quality of life.  It desires to destroy the free world, bring what is left into its orbit, and grow its power.  The approach attempting to achieve these aims is insidious and steadfast.  It follows the ancient strategic teachings of Sun Tzu and the principles of Choho No Jutsu.

There is no art higher than that of destroying the enemy’s resistance without a fight on the battlefield.

Subvert anything of value in the enemy’s country.  Implicate the emissaries of the major powers in criminal undertakings; undermine their position and destroy their reputation in other ways as well, and expose them to the public ridicule of their fellow citizens. 

Do not shun the aid of even the lowest and most despicable people. Disrupt the work of their government with every means you can.

Spread disunity and dispute among the citizens of the enemy’s country.  Turn the young against the old.  Use every means to destroy their arms, their supplies, and the discipline of the enemy’s forces. 

Debase the old traditions and accepted gods.  Be generous with promises and rewards to purchase intelligence and accomplices.  Send out your secret agents in all directions. Do not skimp with money or with promises, for they yield a high return.

Act with Moral Superiority to draw the trust of the enemy’s people, in this way you gain the enemy’s own people as an ally against him.

Does reading that send a chill down your spine?

Global leaders of the communist ideology do not intend compromise, reform, or peaceful coexistence.  That was the reality during the Cold War with the Soviets, and it remains the reality today with China.

China understands that the elite in the free world desperately want to believe communism desires compromise and reform.  That desperate want is our biggest weakness.

The phrase ‘a rabbit that has been hypnotized by a snake’ is taken from the memoirs of German World War II and Cold War legendary spy chief Reinhard Gehlen, The Service.

Mis“LEED”ing: Fact Versus Fiction for Green Buildings

How many times have we heard those worn-out taglines of ‘sustainability,’ ‘green is good,’ ‘triple bottom line,’ and ‘doing well by doing good?’  Study after study, report after report, and headline after headline.  All used to help justify products like electric vehicles and solar panels, as well as to defend related policy mandates, market protection, and subsidies.

Many of today’s largest markets and industries rely entirely on the ability of the expert class to continue to hoodwink consumers, taxpayers, and investors on the false need and an altered reality of certain products and standards.

Consider the case of green building design, specifically LEED-certified buildings.

For those unfamiliar with LEED, it stands for ‘leadership in energy and environmental design.’  It’s become all the rage in real estate these days, particularly for commercial and office space.  LEED-certified buildings enjoy an unchallenged reputation for better performance, accretive economics, and societal benefit.

That’s due in large part to an ocean of studies that posit LEED-certified buildings as superior to non-LEED-certified buildings in every imaginable way.

Creating the Need for LEED

A recent example is the October 2022 research report from real estate firm CBRE titled Green Is Good: The Enduring Rent Premium of LEED-Certified U.S. Office Buildings.

The title is an eco-marketing thing of beauty; a rich, concentrated trove of all the gimmicky tricks.  Employ an obligatory worn-out tagline (‘green is good’)?  Check.  Inject an aura of economic legitimacy (‘rent premium’)?  Check.  Infer a longevity that exceeds the half-life of CO2 in the atmosphere (‘enduring’)?  Check.

The executive summary doesn’t disappoint. It begins by boldly stating that an analysis of 20,000 office buildings in America found that the average rent of those with LEED certification was 31% higher than those of non-LEED-certified buildings.

The impressive finding indicates that renovating existing or building new spaces that have high energy efficiencies and meet LEED certification standards are well worth the effort and investment.

Except, when digging a little deeper into the study’s details and data, that’s not exactly the case. In fact, that’s not at all the case.

The Devil in the Data

As with many studies, reports, and news articles surrounding the vaunted energy transition, reading beyond the title and executive summary is vital.  Doing so for this study of the economics of LEED-certified buildings betrays a very different set of conclusions than the popular consensus and the report’s title.

The golden rules of real estate, including the ultimate of location-location-location being the three most important factors determining value, apparently still matter today, even with Code Red for humanity and approaching climate doom.

When the study’s data are adjusted under regression analysis for building location, building age, and renovation history, the premium that LEED-certified buildings enjoy shrinks from the advertised 31% down to just under 4% before COVID and only 3% after COVID. 

That’s a massive drop to a paltry, low single-digit premium that may be within the statistical noise and uncertainty of the study.  Meaning when an apples-to-apples comparison is performed, LEED certification doesn’t amount to much of any appreciable rent premium.

Building age is far more impactful than LEED certification.  The regression analysis found that office assets built after 2012 commanded a 14% rent premium over those that were built between 2002 and 2011. Each additional decade in age decreased rent by approximately 5%.

Data prove age affects rent much more than LEED certification.

What’s intriguing is that the complete report disclosed these findings and how they evaporated the trumpeted rent premium for LEED certification.  It’s all in the body of the report, which very few people take the time to read.

By the way, LEED-certified office buildings tend to be larger and higher quality assets concentrated in downtowns of expensive cities, compared to non-LEED-certified buildings. Which means LEED-certified spaces should enjoy higher rent premiums than buildings that are smaller, lower quality, and not located in the most exclusive of zip codes.

The report cites that a third of Manhattan’s office inventory is LEED-certified while only a tenth of Louisville’s office inventory is LEED-certified.  And Manhattan office space is pricier than Louisville’s.  Yet rent premiums of Manhattan offices versus Louisville offices have very little to do with whether the buildings are LEED-certified.  It’s because it’s Manhattan and Louisville!

Voodoo Economics

What you don’t find discussed in the study, which harms its credibility, is recognition that constructing a LEED-certified building is a more expensive proposition in up-front capital investment than constructing or renovating a non-LEED certified building.  If there is only a miniscule, or nonexistent, rent premium for the LEED-certified office, the rate of return will indicate a losing investment proposition, not a winning one. That is the opposite conclusion that the study’s title warrants.

The study also argues green buildings offer lower mortgage default risk for investors.  That may not be the case looking forward into the coming years, when considering LEED-certified buildings are disproportionately concentrated in at-risk real estate bubble markets of Manhattan, San Francisco, and so on.

Further, LEED certified buildings are a favorite of the tech industry. And the tech industry right now is on the verge of a major correction, with job losses piling up and with office buildings, many LEED-certified, being vacant and leases being abandoned.  LEED-certified buildings may post higher default rates than traditional offices as we experience the grips of a recession or slowdown, or certainly if another tech bubble bursts.

Unaddressed in the study and regression analysis is what impact government leasing of LEED-certified buildings has on rent spreads.  One of the largest tenants of metropolitan office space is often government.  If bureaucrats favor LEED-certified space and aren’t afraid to pay up with taxpayer dollars to rent it, rent spreads for LEED-certified buildings are likely to skew.  Without government subsidy, there may be no rent premium for LEED certification.  Perhaps, there might even be a ‘green discount’.

Communal Paradise Lost?

There are other flaws in the study.

It wrongly assumes de facto ‘increased productivity’ associated with LEED-certified buildings.  That’s not obvious or necessarily true for the workers who inhabit them.  Ledger entries of debits and credits by accountants working in a LEED-certified building don’t magically happen quicker or more accurately than they would when the accountant is working in a non-LEED-certified building.

There’s another false premise about LEED-certified buildings, particularly in the era of pandemic: the health and wellness benefits associated with LEED-certified buildings.  Today, there are health risks found in LEED design features.

For example, are low-flow water faucets in restrooms of LEED-certified buildings a health risk when it comes to hygiene and germ spread?  A similar question pertains to HVAC systems in LEED-certified buildings that try to balance energy efficiency targets with fresh air-to-recirculation air ratios.

These days, most office occupants do not relish the thought of breathing air all day that has longer average indoor residence time.  Or using faucets that trickle to wash hands.  The safer office building environment would employ higher water flows in restroom faucets to minimize germ transfer and HVAC systems using as much fresh air feed as practical.

And those celebrated common areas for collaboration, meeting, and eating utilized in LEED-certified buildings? Just another venue for potential disease transmission.

Pandemic necessitated a re-think of all facets of life and business.  Yet LEED-certified design has largely escaped such a re-think.  Why?  Aspects common in, or mandated by, LEED certification need an objective reassessment as to whether they are beneficial in the era of Covid.

Too Much of a Green Thing

A key conclusion buried in the study escaped mention in the executive summary and title.  The regression analysis found no statistically significant rent premium associated with higher levels of LEED certification.

Attaining a higher level of LEED certification requires more investment to achieve the target level of points. If there is not a statistically significant rent premium associated with higher LEED certification, then being greener is not better.  Being greener is a poor investment decision; investors lose money when spending to attain a higher level of LEED certification.

The Echo Chamber at Work

How one stumbles upon this report is emblematic of how the echo chamber works in media, the expert class, and environmentalism today.

A headline on a major business website mentioned the study title, specifically the ‘green is good’ hook.  The website article exclusively highlighted the report’s title and the opening statement of the executive summary that advertised the massive 31% rent premium for LEED-certified buildings. Only until tracking down the study and reading the body of the report will the regression analysis come to light.

That’s how the environmental racket operates these days. The green formula:

  • Perform a study to skew in the desired direction by applying favorable assumptions.
  • Push the desired findings in the executive summary.
  • Come up with a creative and eye-catching title (use those eco-taglines we called out in the beginning), then post or publish the report.
  • Collaborate with major media to rebroadcast and further amplify the desired sound bite or headline.

It’s not greenwashing. It’s worse. Most would consider it misleading and unethical.

Nick Discusses Global and U.S. Energy Demand with CNBC

Nick joined CNBC on Friday, Oct. 29, to discuss global energy demand and resulting price increases. “It’s supply and demand with a new twist,” says Nick. He points to deferred and deterred investment in pipeline infrastructure as a major factor in gas supply not being able to meet demand.

Hilton Head Island Reflections and Observations

Our family recently wrapped-up that American summertime ritual of the week-long gathering at a coastal sandbar by the ocean. For my clan, the location of choice for some time has been Hilton Head Island, specifically on the southern end in the Sea Pines community.

In the interests of fair disclosure: I am not a golfer, I spend my days in places like these trying to avoid direct sun, and I will tire of a pool or beach within half an hour. So, in many respects, the week of summer seaside fun is not the place for me. But if the kids are happy, everyone is together, and the food is good, I am all in.

Plus, as a bonus, a week at Hilton Head offers enjoyable and entertaining pursuits for me; they are just unconventional to most beach vacationers. I enjoy observing, contemplating what I see, and then expressing my thoughts through writing. The summer of 2021 and Hilton Head combined to offer up a bevy of observations.

Observation #1: Humans Taming Nature Brings Good Tidings

The first thing that always strikes me about the island is how unforgiving and unusable the place would be without human ingenuity unleashing technology to tame the environment. The place in its natural state is a humid, hot, swampy, stormy, insect-infested ecosystem that makes quick work of the weak, structures, and order. But you walk Hilton Head’s streets and ride its trails, and all you see is beauty: in the manicured lawns, impressive homes, sculpted trees, and carefully designed water features.

The irony that strikes the observer is that those who are drawn to Hilton Head Island view the natural beauty of the place as the primary attraction. Yet a simple and superficial examination betrays a carefully created and cultivated environment that retained the best that nature had to offer (local horticulture), removed the problematic aspects of nature (standing, putrid water), and insulated from the uncontrollable aspects (weather).

Looking around the island, you see the human condition rising above what nature dealt and creating something superior. That makes people happy, and me smile.

Observation #2: Without Carbon, No One Would Be Here
Hilton Head Island’s existence, and that of all tropical locales, depends on carbon. It’s a simple truth: no carbon, no Hilton Head Island.

Why? Well, first off, one could not travel from whatever northern or midwestern city serves as home. And consider the fact that just about everything consumed on the island must be grown, processed, and manufactured somewhere else. All of that requires carbon-based energy, including what it takes to transport the goods to the island.

The electricity that powers the air conditioners 24 hours a day in the summer is largely carbon-based and natural gas-fired. You would not want a wind- or solar-based power grid running climate control in the Carolina Low Country. It would mean stifling indoor temperatures, to the point where you’d be better off staying home up north.

If there is a zero-carbon world awaiting us, the last place you’d want to own real estate or spend a summer week is at a place like Hilton Head. I suspect many northeasterners who vacation down south are oblivious to such realities. Let’s hope they don’t awaken to the reality the hard way, via nonsensical policies.

Observation #3: How to Differentiate Between the 10%, the 1%, and the 0.1%

A place like Sea Pines on Hilton Head provides a quick and easy way to instantly differentiate between the 10% well to do, the 1% rich, and 0.1% ultra-wealthy. Just look at the real estate and who is there. Here is a quick breakdown:

  • If someone is renting a house in Sea Pines during peak summer season, chances are they are doing well and fall within the upper 10% of the economic crust. Weekly rates on the southern end of the island can run as high as $14,000 per week, depending on the size of the home and its proximity to the ocean. Demand is high; if you want to secure your house for your week, you better commit early (in many instances you need to commit the prior year).
  • Now, if someone owns the home in Sea Pines and rents it out during peak season, you are likely dealing with someone in the upper 1% of the wealth spectrum. Basically, the top 1% is the landlord for the top 10% weekly tenants in places like Hilton Head. Surprisingly, many homeowners in this group don’t seem to care much about the physical condition of the home; for some the home is nothing more than a revenue generator that can be enjoyed for free in offseason.
  • Then there is the 0.1% at the tippy-top of the money ladder who own the impressive estate down that is unoccupied most of summer. These are the super wealthy that don’t rent their residences out because, well, they don’t need to. Undoubtedly, the estate here is one of a number they own. So instead of heading down here in summer when its peak season, hot, and busy, they come down in the offseason to escape New York, Boston, or some other large northern city winter.

Observation #4: The Weekly Collision of Doers and Slackers

Hilton Head is typical of many seaside resort communities by offering a stark contrast when it comes to the those on the island any weekday in the summer. There are two distinct groups: those who are on vacation and do nothing but engage in various forms of relaxation and those who are intensely working to maintain, serve, or build the economic ecosystem that is the resort.

It’s always been weird for me when vacationing at these types of locales. Families on bikes, eating out, laying on the beach, and sleeping late. Versus dedicated workers building houses, maintaining lawns, running restaurants, and working 50+ hours per week. One group riding bikes and driving SUVs. The other driving pickups and vans. Both groups going about their day as if the other group is invisible.

I like the vibe of economic activity; doers showing up every day and getting it done. Earning income, providing for their families, and building a life. The local economy in the Low Country is the free market working to create value across the economic spectrum. The free exchanging of value between those who desire leisure and those who provide it. At least for the week, until the vacationers return to their jobs; creating, enabling, and serving to create value.

Observation #5: How the Drive Down and Back Covers the Spectrum of Government

The drive from Pennsylvania to South Carolina offers the opportunity to see how different states approach the role of government and the taxpayer. Toll roads serve as a great illustration.

In Pennsylvania, once a toll road is created, it lives on in eternity. And the cost of the toll continues to go up. It doesn’t matter if the initial justification was to pay for a discrete infrastructure project and now the project is paid off. It doesn’t matter if the tolls are egregious. It doesn’t matter if the road is poorly maintained. The tolls in Pennsylvania live on year after year, dollar after dollar, and mile after mile.

This is not cheap. A round trip on the Pennsylvania Turnpike between Pittsburgh and Harrisburg (spanning about 2/3 of the state’s length) will run you just under $100. Drivers were hit with yet another rate increase in 2021. And the PA Turnpike had the dubious distinction of being rated the most expensive toll road in the world. One may wonder where all that toll money ends up.

The bureaucrat’s justification for the driver extortion is to fund statewide road maintenance, yet the Keystone State’s road system remains in overall poor condition year after year. Instead, the answer, of course, is to primarily feed the bureaucracy of government and its affiliates like the public unions. In Pennsylvania, government only grows, which means tolls only rise while the condition of the roads degrade. And the number of roads that will require toll payment within the Keystone State is increasing.

North Carolina’s abuse of taxpayers and drivers is not as bad as Pennsylvania, but it is getting there. The major highways into and out of Charlotte are now split between toll express lanes and normal lanes. That means traffic congestion is self-inflicted by government on those drivers not willing to be extorted; the toll lanes are wide open and the normal lanes are clogged in traffic jams most hours of the day. Government creates the congestion to grow its revenue base, drivers pay the price directly (through the toll or longer commute times) and the economy pays the price indirectly through lost productivity.

South Carolina is a different story. The Palmetto State has a law that states once a toll road pays off its project financing, the toll booths must come down and the road becomes free and open access. That’s exactly what happened recently on Hilton Head with the Cross Island Parkway: once its final bond payment was paid, access became free and the toll booths will come down.

The drive to and from this year’s vacation illustrates the difference between government serving the people and the people serving government. The former makes you feel relevant while the latter makes you feel used.

Observation #6: Doesn’t Look Like Climate Change is a Top Concern

Up and down the island, you see a building boom. The few remaining vacant lots being staked out for massive, new homes. Older homes are being bought, torn down, and replaced with new houses having three times as much square footage as the predecessors. The closer to the water, the better.

Island real estate values seem to go only in one direction: up. The Fed’s free money policy inflates and pumps real estate values to bubble levels. Buy it, build it, remodel it, rent it, flip it. Repeat over and over (at least until the music stops).

The building boom and dizzying real estate property price increases tell you that no one believes the island is about to be submerged under rising ocean levels. Yes, hurricanes will inevitably hit the island periodically. But building codes and a few rational design features on the homes will make them quite resilient to withstand all but the most severe of storms.

The community of Hilton Head, along with so many other coastal destinations, figured out that increasing atmospheric CO2 levels made its tourism economy possible. Whatever challenges climate may serve up should be manageable over time. Permanent evacuation of the island and resettling to higher ground is not going to be necessary anytime soon. Perhaps the UN’s IPCC bureaucrats should take note.

Conclusion

Human ingenuity, technological innovation, and the free market economy make places like Hilton Head Island possible. These wonderous drivers make the useless and inhospitable valuable and inviting. The more we do to protect these quality of life catalysts, the better chance our kids and grandchildren will enjoy their fruits for decades to come.

Deiuliis Addresses 2021 PIOGA Spring Meeting

On Wednesday, May 19, Nick Deiuliis served as the Pennsylvania Independent Oil & Gas Association’s (PIOGA) keynote speaker for its annual spring meeting.

The Pittsburgh Post-Gazette covered the meeting and Nick’s remarks, writing, “They [attendees] knew what to expect when CNX Resources’ CEO Nick DeIuliis took the podium for his keynote address. He would be the one to speak for them, unapologetically…A self-styled advocate for capitalism, the middle class and for developing nations — which he says will be hurt most by a move away from fossil fuels — Mr. DeIuliis predictably went after the ‘elites’ and ‘academia’ in his speech and said the pursuit of renewable energy gives power to the Chinese Communist Party…”