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Wednesday, January 19, 2011

The Chinese Dragon and the American Eagle

Countries most often destroy themselves by refusing to gauge the consequences of their actions. That blind spot creates a weakness. The bigger it gets, the more vulnerable the country becomes. America's blind spot has been an unwillingness to recognize the economic cost of its social programs.

American prosperity was built on the combination of vast resources, cheap labor, class mobility and few regulations creating a society with the shortest line possible between innovation and production. But as liberalism's regulatory culture made everything from mining to manufacturing to employment more expensive, the old American economic miracles were no longer possible. America went from a nation that could construct the Empire State Building and a force of warplanes outnumbering the entire present day air force in a single year-- to a country where the World Trade Center has not been rebuilt despite an abundance of capital after a decade and there are still hardly any Fifth Generation jet planes in service.

The United States has not run out of money (even if it's imaginary money at this point), but the line between innovation and production has become ridiculously elongated and convoluted. About the only place where it's still possible to come up with a product and quickly get it to market is the internet-- which is why it's about the only healthy sector in the economy. And that's because the internet sidelines many of the regulatory real world obstacles, because their revenue stream doesn't require months or years of testing by government laboratories, union contacts, environmental safety reviews and can be done by a collaboration of individuals often without the need for pages of regulations and external oversight.

America still has vast resources, a large population and a huge pool of talent-- but its overregulation made companies think of it as a market, rather than a source of industry. Their solution was to move the industry and the jobs overseas, and then export the products manufactured there back to the United States. That way prices could stay low, while maintaining the illusion of a healthy economy. Cutting production costs meant a flood of cheap products which gave the illusion of prosperity, without the substance. The Wal-Mart effect. From a distance it almost looked as if the Carter era price inflation hadn't happened.

Outsourcing brought in cheap products, while further damaging America's economy and destroying the ability of its workers to be able to afford to buy anything but those cheap products. And the cheap products were built on an economic disparity between America and China that was being tilted with each shipment of those same products. American companies began by outsourcing production, but China was not just a source of cheap labor. It was also a growing economic superpower. Outsourcing production meant that China now controlled the product lines of American companies, a point that was brought home by everything from the toy lead scare to its rare earths monopoly. And once it controlled production, all it had to do was copy those same products and begin selling them directly to American consumers, sidelining the companies that had turned to them for cheap labor. (For example IBM computers and laptops are now owned as well as manufactured by a Chinese company.)

By outsourcing their production, America's biggest corporations had become nothing more than middle-men between their Chinese suppliers and the retailers who stocked their products. The internet made it easy for customers to cut out the retailer as the middle-man, and as the Chinese suppliers become manufacturers, they can and are developing their own brand names and cutting American companies completely out of the picture. Unlike American companies, Chinese companies don't compromise their own country's interests. That's in part a collectivist code, but it's also because Chinese industry answers to the People's Republic of China government, and the goal of the Chinese authorities is to use their manufacturing as leverage to consolidate as much of the world's industries as possible. American companies whose manufacturing facilities are located in China, will be unable to compete, because their designs will go directly to their Chinese competitors, and their manufacturing costs can be manipulated so that their Chinese competitors will be able to sell the same products for less.

China is not willing to be used as only a source of cheap labor or raw materials. Instead it insists that companies who buy raw materials from it also move their manufacturing there, which touched off the recent Rare Earths crisis. And sooner or later, those companies that manufacture products in China will either become Chinese owned, or kneecapped by a manufacturing system whose goal is to help Chinese companies gain a global hold.

Like a predator that devours its prey in stages, the Chinese economy is consuming the American economy. The lure of cheap labor and cheap goods will vanish with growing prosperity and the weakening of the dollar. As China's economy moves into a dominant position, the formerly cheap products and cheap labor will become expensive due to the power shift. China has deliberately undervalued its currency in order to attract foreign companies and export its products abroad, but the undervalued Yuan is a Venus fly trap which attracts insects only to stick them in place and gobble them up. When China is ready, its currency will cease to be undervalued and the dollar will be trampled underfoot.

China has been America's economic vampire, exploiting weakness and lassitude to replace the economy from the bottom up. Instead of going to war, it instead learned the lesson of capitalism, seducing and destroying American companies and consumers, beginning at the bottom and going all the way to the top. But its bottom up strategy was still dictated from the top by the PRC leadership. Chinese industry is not innovative, it's parasitic. It does not create, so much as imitate. The Chinese government is far more totalitarian than our own, yet it understood what our own government does not, that economic power is the ultimate power. That if Chinese companies could dominate global trade, than the century of China could finally begin.

Liberal ideas of a post-national order led America to build up international organizations such as the WTO that have actually undermined America's economic power. And the foreign policy has been geared not toward strengthening America as a global economic power, but toward maintaining global stability by dispensing the rewards of the American economy to the rest of the world. And so Nixon went to China and Bush Sr and Clinton went to Mexico, and America went bankrupt. The American economy was used to leverage a post-American foreign policy. And now we are headed toward a post-American political and economic order. Not an international one, for the UN and the liberal dream of global government are dead ends, but the reassertion of power by China, Russia and Islam.

China and Russia are both post-Communist nations that turned into capitalist oligarchies. But while doing business in Russia is ridiculously expensive due to its kleptocratic regime which demands massive amounts of bribes from foreign companies, the PRC officials collect their bribes but understood that ultimate prosperity for them and everyone else will come about from economic growth. America has its own kleptocracy, the bribes are more subtle, but paying out union officials through a formally negotiated contract or donating to your local congressman in order to qualify for subsidies and tax breaks is also part of the cost of doing business in the kleptocracy that America's formerly vital economy has been transformed into. And from the perspective of a foreign company, there is very little difference between being told that they have to slip an envelope with money under the table to Boris, or being told that they have to comply with six hundred different regulations just to do business here. Either way the money gets extracted to feed a massive parasitic government bureaucracy. The difference is that the American way is more formal and legalistic, but also much more difficult to navigate.

The American economy was built on opportunity. Today its politicians speak about opportunity as if it were something doled out by the government, but actually opportunity is what happens when the government gets out of the way. We can try competing with China by becoming like China, jettisoning our labor laws and worker's rights, killing the dollar and polluting everything in sight-- all under the oversight of a corrupt oligarchy that takes a percentage off the top. We still wouldn't beat China that way, but we might hold our own. And the lobbying groups for the business organizations that have made China what it is today would love nothing more than for us to go that way. But on the other hand, we can go back to what made America work as an open society where innovation was rewarded, where anyone can take a shot at their dreams, where class mobility is a reality, where the line from innovation to production was short because it didn't have to run through multiple levels of government oversight and political organizations such as unions taking a cut from everything.

"I am going to go back to Washington tomorrow and meet with the president of China. He is a dictator. He can do a lot of things through the form of government they have," said a doubtlessly envious Harry Reid. And who can blame him. Reid and Obama wish they had the power that the Paramount Leader of the People's Republic of China does. And if things go as they are, then they will have it. Poverty inevitably leads to tyranny. Which is yet one more reason why the power of government has increased during each recession.

The American Republic and then American democracy were built on a rising middle class. If the left succeeds in expunging that middle class, then America will become a straightforward tyranny. It may be a tyranny wrapped up in the old titles. There will still be presidents and a flag full of stars. There will even be mentions of the Constitution, though as a historical document with little relevance to the affairs of the present day. It will not be a country ruled by the poor, or for their benefit, no matter what the propaganda says, because no such country has ever existed or can exist. The only thing keeping the political elite from seizing power is the redistribution of power through elections and inherited laws. And such a system cannot be maintained for long unless the electorate is economically independent of the political elite. Serfs and slaves don't vote. Dole liners and bureaucrats can only vote for whoever keeps giving them money. And it only takes a few generations to turn that relationship into slavery and serfdom. A dependent electorate is a slave electorate.

The political elite promised, in response to the damage that their bureaucracy was doing to the American economy, that the old kind of jobs weren't needed anymore. From now on everyone would go to college, and there would be new and better jobs. We saw how that worked out already with piles of student debt for dubious degrees. Free education doesn't create jobs. Today the mantra is green jobs, which we will attain when we succeed in killing all the old jobs. This grand scale version of Cash for Clunkers aims to wipe out what's less of American business and replace it with an even more convoluted line from innovation to production, another few layers of middle-men collecting their share from everyone and everything. Another greener layer of the liberal kleptocracy.

Bureaucracy was a parasite on the back of American prosperity, growing all out of proportion until the mosquito was bigger than the man. But when the parasite is bigger than what it feeds off, both begin to die. Since American bureaucracy is tethered to social welfare and to otherwise "protecting" the public from various things, it has a constant moral impetus for growth that is not only detached from the available capital created by the economy, but at times its growth is actually in inverse proportion to the success of the economy. The Great Depression, the Carter recession and the current recession have seen huge bursts in the size and spending of government, even though the economy that they needed for taxable revenue was actually in decline. And that makes its growth strategy dangerously malignant. A parasite that feeds more when the host has less to eat is the most dangerous kind.

Rather than gauging the consequences of a growing bureaucracy contrasted with a diminishing industrial and manufacturing sector, the political elite instead allowed the jobs and the production to go overseas in order to maintain the system of regulations that they derived wealth, power and influence from. The parallels with the Russian kleptocracy are unfortunately all too relevant and real. Economic decline was filled in with more social welfare spending. And the social welfare spending was financed by borrowing money from China. With one hand the political elite delivered American jobs and industry to China, and with the other they borrowed enough money to be able to fulfill all their social welfare pledges to the people who were now out of work.

Obviously this couldn't go on forever. With more and more people working for the government, there were only two ways to raise enough money to pay all of them. Either through domestic taxes or Chinese money. Domestic taxes were wildly unpopular and killed even more jobs, which meant that more money had to be borrowed from China. It didn't matter which choice was made, the end result was the same. More and more of the American economy, from its production to its currency to its credit ratings was in the hands of the People's Republic of China.

While American politicians kept pretending that there was a free lunch, the People's Republic of China knew there were no free lunches. Trendy Krugmanite economics might cater to a generation of Western liberal politicians who refused to believe in absolutes when it came to ideas and numbers, but the PRC was pursuing an older and harder approach. It saw wealth as an absolute and economics as a zero sum game. The game was complicated and tricky, full of moves that concealed as much as they revealed, but they were playing it to win. While American corporations played an extended game of checkers, hopping around the board to dodge the taxman and the regulator, Chinese corporations were playing chess, their cheap pawns moving forward, while their knights and bishops stayed out of sight behind them. And now checkmate is approaching.

The eagle and the dragon both take to the skies. They are both magnificent and capable of a glorious flight through the air. But they cannot both dominate the sky at the same time. China's leaders want to be dominant. America's leaders don't want to be. They want a post-American world, yet they imagine it will come in the form of some global government. But no superpower outside the West actually wants a global government. Organizations such as the UN are a way for them to wield power in their own interest. That's all. Lecturing China about their compliance with global human rights standards is a waste of everyone's time. These standards mostly don't even exist outside the West except as ceremonial signatures on pieces of paper. China, Russia and the Muslim world want a post-American order, but not a global one. Their order.

To survive, America must dramatically reform. If it needs added incentive, all it has to do is look toward Europe to see the poverty and inertia that is headed its way. Within a generation, the American auto industry has gone the way of the British auto industry. Given another generation, we will have nothing but subsidized companies and a vast bureaucracy administering the dole lines. There will be free higher education, free health care, free everything-- and it will be worth about as much. And America will be nothing more than another market for Chinese products made and sold by Chinese companies that will not be cheap anymore. Products turned out in China's new African colonies by slave labor.


  1. The Eagle has landed , and not too well either. Tail feathers are not in good shape either.
    The dragon is a big mouth with little real clout.
    The US has become effeminate despite having major clout!
    The pride of our power is broken as tanakh says (bible).
    It will take a real deep repentance on the part of the western nations to grow backbone again.
    Once you kick God out of your life , out of your nation, you are through.

  2. mindRider20/1/11

    Yes and no, is what I would say on this article Sultan. Without any regulation one gets "Unsafe at any speed"cars (made in America) or lead paint containing toys (made in China). Without any organized labour you get sweat shops and exploitation with 18 hour work days (both formerly in America and now in China). Like always it's the seemingly unstoppable momentum in the growth of any regulating bureaucracy that at a certain point starts to cause the problems. An only exception I know here is Switzerland with it's regulated society but with a small and extremely efficient bureaucracy and lot's of individual freedom yet with a fairly present amount of "social control" and amongst unique in Europe, large numbers of privately owned guns yet extremely low crime numbers! That America is still an "out of the box"thinker entrepreneurial society with a potential to re-invent itself and China a copy-cat society, is derived from their history with complete individual freedom in the starting time of the USA and almost complete serfdom in China's past and still hardly any liberty today. The main point for America is: stop expansion of government and stop curbing individual's freedom under the guise of National security.

  3. " And the lobbying groups for the business organizations that have made China what it is today would love nothing more than for us to go that way."

    Neither Harry Reid nor Thomas Friedman own a business or represent business interests. It may be that business organizations would love for the USA to turn into China, but all your examples are of the elite of the Democrat Party and its sympathizers, who are anti-business.

  4. It was worth reading every word of this post.

    The Chinese, Russians, even muslims, are predictable - tyrannies have predictable goals, and every move they make can be understood in the context of those goals.

    How depressing, then, that those who are supposed to be leaders of free countries, either turn a blind eye to those goals, allow themselves to be bribed into fulfilling them, or worse altogether - imagine them to not exist.

    Yes, everybody seems to want a post-American world for some reason. They never pause to think about what this world would look like... or have the courage to realize that power is not constant - it shifts and moves, like liquid. Squandering America's years of advantage over its competitors was an indulgent sin.

    What can possibly be done now, save for praying that the dragon, the bear, and the goat-camel start tearing into each other?

  5. mindrider, I actually address that in the 10th to last paragraph.

    Eris, I was talking about business lobbies who oppose immigration restrictions, import cheap labor and want to avoid being accountable in any way.

  6. HermitLion, China does have weaknesses, unfortunately as you've said, we lack the leaders who could be aware of them and exploit them.

    America has to recreate itself, build a system that's open enough for innovation to succeed, a freedom based system, instead of a bureaucracy based system. And the rest will follow. When government ceases to maintain a separate agenda from the public, then it will follow the public's interest.

  7. American labor since before the Revolution has always been ( able ) to be higher. Do to demand, do to quick capital/investment payoffs, high return. Not all the time, everywhere, but in general. Now the US is a slow pay, low return in anything the government has its hands in. Those industries that are government free, software, computers, high tech, pay above world labor costs and innovate faster, pay off better

  8. Anonymous20/1/11

    It feels to me like 'The Govt' is almost a nation apart, an entity unto itself, that has no interest in the rest of us, except as the providers of funding. If It thinks of us at all, it is with derision.

  9. Anonymous--exactly. When did they cease from their status as public servants to self-serving politicians?

    We're a government of the politicians, by the politicians, for the politicians.

    Lemon--so true. But with the US the ethnic and religious melting pot the "in G-d we trust" could refer to just about any "god"

  10. Anonymous24/1/11

    I thought you might want to know that your blog has been copied and published here: http://www.sodahead.com/united-states/the-chinese-dragon-and-the-american-eagle/question-1462385/



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