A different perspective on the US and China, seen by an Frenchman living in Russia

One way to compensate for America’s broken connection to reality — our defective observation-orientation-decision-action loop (OODA loop) is to seek our different perspectives.  In that light I recommend reading this excerpt from “The Wheels of Heaven Stop“, Eric Kraus, Truth and Beauty, 12 March 2009.  For more information about these things see the links at the end.  {Correction:  the title originally described Kraus as an America; he is French}

The Twilight of The Neocons — Rush, we hardly knew ya…

The backlash against the Neocon power-grab is just beginning. The “Reagan revolution” is bankrupt. The United States is a democracy – and democracies do well to create at least the illusion of an equitable distribution of wealth. US government statistics show that earnings of the middle-classes actually regressed over the past “decade of prosperity” – whilst the richest segment of society indeed prospered as never before. As policy goes, this was both short-sighted and foolish. No matter how uneducated, manipulated or obtuse it may be, the populace will eventually realize what is being done to it and – when it has the means to rebel – will do so.

For the record, the failure was not of Capitalism, but with its abuse. Since the beginning of the 19th century, the advanced, industrialized countries have been moving towards some form of moderate Social Democracy, intended to combine the incentives of free market capitalism with some measure of social equity. Sharp deviations in either direction tend eventually to result in compensatory swings back in the other.

If T&B may venture a wild guess, it is that, by the beginning of Mr. Obama’s second term – i.e. well into Great Depression II, the body politic will be ready for some fairly radical policy measures. There is historic precedent – Roosevelt’s New Deal.

Flat Earth gets Rounder

The decline of the Post-War global political structure – which was based upon the overwhelming preponderance of the sole major power to exit the Second War not devastated but relatively strengthened – began not with a defeat but with a victory: the collapse of the Soviet Union. What was not clearly apprehended at the time was that history has no patience with monopolar political systems, and thus, that the collapse of the Communist Bloc signified the atomization of the erstwhile bi-polar world into a constellation of partially antagonistic powers and regions.

The post-war political system went hand in hand with a financial montage which, following the unilateral abrogation of the Bretton Woods system by Richard Nixon, ultimately allowed a single country to issue virtually unlimited quantities of the global reserve currency – scrip which could then be swapped for valuable goods and resources.

This system obviously represented the sort of temptation to which no man should be subject; abuse was certain – and abused it was. The end result was classical credit bubble terminating in an equally classic Minsky moment, although one of truly unprecedented proportions. The game is over. It is not coming back. …

Dragon Rising

The New Chinese Century is upon us far sooner than predicted; whilst such tectonic shifts begin almost imperceptibly, they are prone to sudden, terminal accelerations. Although the rate of increase in Chinese growth has decreased, the essential fact remains that China is the only major economy to be growing at all – and whilst their 8% growth target for 2009 may seem overly ambitious, before laughing it off the sceptics should ask themselves how they would have responded to a prediction that Chinese automobile sale would exceed American sales by 2009 (ed. they just did…).

Predictably, the Western media are replete with stories of how the Chinese model is set to fail – succumbing to social unrest, democratic deficits, bank failures, or the Chinese’ genetic inability to consume. Meanwhile, China remains the sole major economy to still enjoy substantial economic growth; similarly, having heard constant warnings of the impending failure of the Chinese banking system over the past decade, we would note that it is currently one of the precious few banking systems not threatened with implosion.

Likewise, the warnings of “social unrest”; T&B is no expert on Chinese sociology (in this, we are in very good company – including the vast majority of commentators who so recently reinvented themselves as China specialists…) and thus prefer not to issue terrible warnings regarding matters beyond our ken.

Our frequent travels in China suggest that the mechanisms for social control are particularly well honed, and that any popular protests tend to be quashed quite effectively. An uprising by the population of an entire province, Tibet, was brutally crushed in a matter of days. Despite the massive layoffs in the coastal manufacturing cities, as far as we can determine matters have remained remarkably quiet. Perhaps our scepticism may have something to do with the memory of how comically misguided proved to be the equally terrible warnings of the coming chaos in Russia in 1998.

The Dragon Resumes Smoking

… However painful it may be to our Western- (or alas, our Russian-) pride, if we are to be saved from the consequences of a generation of folly, it will be by China. The price to pay – and it will likely prove a painful one – will be the emergence of a new global hegemon.

Those who would still laugh off our views, continuing to assert the eternal ascendency of the West, must be somewhat uncomfortable with the spectre of America’s China-policy largely reduced to a heart-rending plea to the Chinese to continue buying US treasuries. China is the world’s number one creditor – the US the largest debtor. One would have to be delusional to imagine that this simple fact will be without influence upon the relative positions of the two countries. Cry Tibet.

 Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For information about this site see the About page, at the top of the right-side menu bar.

For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest are:

Other posts with excerpts from Truth and Beauty:

  1. Truth and Beauty: on the collapse of the world’s other monetary zone, 28 July 2008
  2. Big changes loom before us; why are they invisible to most experts?, 29 July 2008
  3. Rumors of financial war: Russia vs. US, 22 September 2008
  4. The evil of socialism approaches!, 22 October 2008
  5. A free lesson from Russia: how to manage a banking crisis, 6 February 2009

Posts about China:

  1. Power shifts from West to East: the end of the post-WWII regime in the news, 20 December 2007
  2. What you probably do not know about China’s food crisis, 21 April 2008
  3. China becomes a super-power (geopolitical analysis need not be war-mongering), 9 July 2008
  4. Words to fear in the 21st century: Lǎo hǔ, lǎo hǔ, Lǎo hǔ, 14 July 2008
  5. “The changing balance of global financial power”, by Brad Setser, 22 August 2008
  6. The most important news of the month. Perhaps the year., 29 September 2008 — A warning from our #1 creditor. 

Posts about America’s broken OODA loop:

  1. News from the Front: America’s military has mastered 4GW!, 2 September 2007
  2. The two tracks of discussion about the Iraq War, never intersecting, 10 November 2007
  3. Diagnosing the eagle, chapter I — the housing bust, 6 December 2007
  4. Another cycle down the Defense Death Spiral, 30 January 2008
  5. Quote of the day: this is America’s geopolitical strategy in action, 26 February 2008
  6. What do blogs do for America?, 26 February 2008
  7. Everything written about the economic crisis overlooks its true nature, 24 February 2009
  8. The housing crisis allows America to look in the mirror. What do we see?, 9 March 2009
  9. Globalization and free trade – wonders of a past era, now enemies of America, 16 March 2009
  10. A note on the green religion, one of the growth industries in America, 17 March 2009

15 thoughts on “A different perspective on the US and China, seen by an Frenchman living in Russia

  1. senecal

    “Those who would still laugh off our views, continuing to assert the eternal ascendency of the West. . .”

    This is a sly observation, noting the tendency of human beings to imagine there could be no higher form of life on earth than their own. It especially affects the thinking classes, those who are paid to justify the status quo.

    There is one questionable point in an otherwise convincing argument: the writer claims the current collapse is not a “failure of Capitalism, but its abuse.” Presumably he means that capitalism will survive, along the more rational social democratic lines of the European democracies. At the same time he sees China emerging as the dominant global power, begging the question of what social and economic institutions China will thus offer for the world’s imitation. It’s tempting to think, but difficult to demonstrate, that China’s form of state managed economy is or will be more enlightened, more attractive to the rest of the world, than western capitalism. Perhaps China will simply borrow what it needs from us (after buying our industries), much as ancient Rome did with Greece.
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    Fabius Maximus replies: To forecast that the center of global economic activity will shift to China does not imply that “China’s form of state managed economy is or will be more enlightened, more attractive to the rest of the world, than western capitalism.” Where does Kraus state or imply such a thing?

    Perhaps you are assuming change is always for the better. If so, that’s a difficult theory to argue, given that much of history consists of counter-examples.

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  2. Cam Hui

    China has a number of long term demographic and social headwinds to overcome. See my past comments here.

    This is not to say that China’s influence won’t increase over the next 5-10 years but to talk about the 21st Century being China’s century is a bit premature.

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  3. bc

    In the 80’s it was Japan that was going to prevail. They would own everything, dominate everything. Didn’t happen. They hit the wall when they had to surpass us in innovation. Turns out, they suck at innovation. Next at bat, China. Here comes the first pitch, and…

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  4. Tom Grey

    India is almost as large as China in population, and while it has been growing more slowly, it has been steady and also relatively rapid. China at 1.2 billion (?), India at 1.1 billion (?), the USA at 0.3 million in people — no other country is over 300 million; the EU is about 450 million. With a free market, and lots of education allowing the copying of good ideas (if not quite legal music), the wages of workers in these four huge economies will be slowly, or quickly, converging. Most of the convergence will come from Chinese and Indian growth. Some will come from periods of negative growth in the US and EU.

    The US can be ‘saved’ fairly quickly, still, with a shift towards individuals paying for the benefits they receive, rather than expecting a gov’t entitlement to Other People’s Money — but this political shift may still require more pain before it dominates. Or, it may never again dominate, and the US will continue relatively sinking.

    With Americans overpaid, but not wanting to admit it, I fear for increased ‘protectionism’ to ‘save our jobs’ — which will more rapidly cause the relative position of the US to sink. As China makes deals with Iran, Sudan, and all other countries, I imagine them preparing a de facto reduction in US$ reserves.

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  5. Duncan Kinder

    Does this mean we all will be forced to eat Mu Shu Pork? Also, why is it so difficult to get good information about Peking Opera?

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  6. senecal

    Tom: Every country practices protectionism, as much to save its industries as to save its jobs. (See NYT article today on the subject.) In a time of depression and social instability it’s highly unlikely that any government would propose making people pay “for the benefits they receive.” That way lies revolution.

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  7. urthshu

    I think we’ll see a good deal of the Taiwanese emigrate away from China’s emerging dominance, but I’m wondering whether they’d find a declining America a desirable place to settle. Especially if the Government continues to harass the wealthy.

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  8. Hu Bin Xiou

    Thank you for a most excellent laugh, Mr. Fabius. The absurd viewpoint expressed by your guest columnist will bring a smile to my face for the next several hours. If your voters have not learned from four years of President Obama and his brutally dysfunctional congress, then your country is doomed.

    Not to say that China or Russia will survive in one piece, either. Probably not. The forces of dissolution are very strong. History suggests that both Russia and China will fragment into competing fiefdoms, with brutal warfare breaking out between the fragmented states. China’s problem is competition at the top, not insurrection from below.

    Perhaps India will triumph, unburdened by western style self-condemnation or by the despotic centrality of Russia and China. Perhaps but not likely. The demographically prolific anarchy of the third world appears to be the future of the globe.

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  9. AMac

    “…democracies do well to create at least the illusion of an equitable distribution of wealth. US government statistics show that earnings of the middle-classes actually regressed over the past “decade of prosperity” – whilst the richest segment of society indeed prospered as never before. As policy goes, this was both short-sighted and foolish.”

    FM challenges Americans to visualize “As the Post-WW2 Order ends, what sort of country do you want America to become?” The quoted observation on declining economic equality in America is of crucial importance to our future. It is (properly) at the front-and-center of many leftist critiques of U.S. society. Disappointingly, it is largely dismissed or ignored by non-leftists.

    I am dismayed that the connections between the long-term rise in economic inequality and the initiation (re-initiation) in 1965 of a policy of mass immigration go mostly unexplored. (Wikipedia, “Immigration doubled between 1965 and 1970 and doubled again between 1970 and 1990.” [legal immigration only, AFAICT])

    * Did the bottom quintiles become relatively poorer because these ranks were filled with low-skill, low-human-capital immigrants and their offspring?

    * Was inequality aggravated because the scarcity of labor that would have otherwise developed in the U.S. was overcome by large numbers of low-wage illegal and legal immigrants? If so, the owners and managers of capital (roughly, the top decile by income) benefitted. At least in purely economic terms, in the short run.

    I would guess that the specialist literature contains some answers, but mostly I am struck by the inattention to these questions by the mainstream and alternative media. Perhaps nobody likes what the data have to say.

    If we understood the decisions of the recent past and their intended and unintended consequences, then we would be better able to evaluate the difficult and bitter policy choices that are looming.

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  10. Penny

    To the last point you made, commenter Tom Grey: “China inoculates itself against dollar collapse“, W Joseph Stroupe, Asia Times, 18 March 2009 — “There is mounting evidence that China’s central bank is undertaking the process of divesting itself of longer-dated US Treasuries in favor of shorter-dated ones.”

    It seems that both the United States AND China are experienced ballroom dancers, and that neither shy away from a good game of chess either.
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    Fabius Maximus replies: Did anyone doubt it? That’s how the great power game is played. Also — unlike chess, the real world is not a zero-sum game.

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  11. Penny

    “Did anyone doubt it?” asks FM. Further he says, “That’s how the great power game is played. Also — unlike chess, the real world is not a zero-sum game.”

    I have to admit I get a little nervous when President Obama and the his lady start talking about, PIE. ONE PIE! That ONE pie we all need to share. That seems zero-sum to me, FM? I thought I grew up in a land where the number of pie-makers was pretty much determined by how many of us were pie-eaters.

    Don’t mess with American Pie. We get cranky when you do.
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    Fabius Maximus replies: I remember this book, with the refrain “and One Pie to Rule Them All.”

    This just in: President Obama might (repeat might) be a competent politico, but is not the definitive souce of insight about the nature of the universe.

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  12. Erasmus

    First, thanks FM for both this thread’s material and the Rolling Stone article. I logged in today to link the latter to your site because it is so excellent. Why am I not surprised that you were already all over it!?

    Re: “For the record, the failure was not of Capitalism, but with its abuse” from above.

    Although I agree with the sentiment within the polemic of the article viz. there being a potential backlash against capitalism due to the current crisis, I am not yet convinced that this argument is correct. Consider from the RS article:

    “The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron – a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers. …”

    Now also from Bichler and Nitzan’s seminal ‘The Global Political Economy of Israel’ (which is a study of how global capitalism works internationally not just in that country) from p 21:

    To begin with, emphasising an average necessarily de-emphasises its distribution. For instance, if the standard of living of the poor fell, but that of the rich rose by much more (as was the case in both the United States and Israel over the past decade), the overall average could well go higher. Focusing on that average would clearly distort the picture of what actually happened to the vast majority of the population. The more fundamental problem, however, is the implicit assumption that well-being is the main engine of capitalism.

    The standard of living is of course very important to most people, but then capitalism isn’t run by ‘most people’, but by a relatively small number of very large capitalists. For them, the main goal is not well-being, but power. What they are after is neither the size of the pie, nor the ‘absolute’ magnitude of their own income, but rather their distributive share. The latter can of course be augmented through overall growth, but it doesn’t have too. Sometimes, a shrinking pie works much better, for example, when the large capitalists gain much of what the rest of society loses. In short, differential accumulation for dominant capital neither requires nor implies prosperity for all. During breadth periods, when dominant capital accumulates differentially through overall growth, the two appear mutually reinforcing. But during depth, when differential accumulation thrives on crisis and overall contraction, the aggregate myth breaks down.

    The second misconception concerns the issue of ‘instability’…. In other words, this ‘crisis’ might just be a typical feeding frenzy during which weaker players are driven under or bought out leaving a smaller group of relatively more dominant players standing after the bloodletting is over. And according to B&N this is not unusual activity viz. ‘capitalism’ rather how it basically works.

    This is something we are all going to have to get to the bottom of sooner or later one way or another.

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  13. Penny

    Erasmus says, “In other words, this ‘crisis’ might just be a typical feeding frenzy during which weaker players are driven under or bought out leaving a smaller group of relatively more dominant players standing after the bloodletting is over.”

    Except that it is the largest players who appear to be the weaker players, and the Government is determining that they are “too large to fail”, and therefore need to come under the Governement’s charge because failure cannot be tolerated. I assume the absent words are, “cannot be tolerated for the greater good”. We are on an unacceptable slippery slope when our Government decides to reward those who failed, simply because they have a big footprint. To my mind that sends an unacceptable message to other large, not-so-well-run corporations. Do two things to survive on your way down, one, risk more, and two, get as big as you can in whichever way makes the most sense for your company. Look for more acquisitions. Look for more quarterly “misses to target”, which will have lesser and lesser impact on shareholders’ response because, well damn it, it will be the same all over in a horse race to risk more and more when there is no FAIL.

    THIS is not capitalism. THIS is sheer folly. Bless those financial institutions who want to give back their TARP, because…well…it seems like the Government is showing all those Wall Street types just what BIG FEET can do to YOU.

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  14. Erasmus

    Penny: is it yr opinion that the Treasury Dept (for example) whose head usually comes from Goldman Sachs is ‘Government’ versus Goldman Sachs (for example)is now under the ‘Government’s’ charge? My feeling is that such distinctions are more illusions than reality-based at this point.

    It appears that we have the so-called ‘revolving door’ in effect (for many decades now) and it is mainly only dogma that helps preserve the illusion that there is substantive difference between the large corporate ‘private’ sectors and so-called ‘public’ government sectors.

    The root equation to probe into here is how power is channeled, power being the degree to which one can influence and control policy, law, & the general perception/cultural context especially including generally accepted – or received – narratives including nationalistic, scientific, academic, media-based narratives etc.).

    In other words, if the ‘government’ takes over the major banking sector, who has taken over whom? Seems to me ‘they’ are propping up the Big Boys right now and thus making it almost impossible for the ‘Little/Regional’ players to compete on level playing field thereby increasing odds the latter will be soon gobbled up.
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    Fabius Maximus replies: The Treasury Secretary does not “usually come from Goldman Sachs”, nor is Goldman Sacs “now under the government’s charge.” Unfortunately the rest of this seems too true.

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