China, the United States, and 20 million zombies
The relationship between these two big guns of global market has been covered by many writers, and, inevitably, their examination boils down to one of two classes of observations:
- Buyer and Seller: This is a simple, straightforward relation: China sells us 42 inch high definition wide screen plasma televisions; we sell them Boeing 757s. The only thing remarkable about the relationship is that the total value of plasma televisions seem to be consistently greater than that of 757s, which is to say, the US runs a persistent trade deficit.
- Creditor versus Debtor: This relationship is based on the above relationship: because the US runs a persistent trade deficit with China, China accumulates IOUs, in the form of US treasuries and other financial instruments.
Everything economics has to say about this relationship seems to rest on these two facts. However, as we have seen in the case of our prodigy Raj Chetty, assumptions regarding these two facts can miss much of reality.
In your case, if you are unemployed, economic models assume it would be better off for the economy if you were left to starve and die. Chetty has countered with the obvious objection: “But, who would pay their bills?”
(We’re talking Nobel Prize stuff here, people.)
Taking into account that you are an indebted loser with obligations to proper society, Chetty has proposed some conceit or other to bring economics to accept the idea that dead people can’t pay their bills. Thus, you keep eating because Wall Street needs the money.
Pay people nothing when they are unemployed – as economic models suggest – and they starve and die. Pay them too little, and they eat, but don’t pay the gangsters on Wall Street duty for access to the means of life. If you want sheeple to produce the debt service, you must feed them hay, however much it contradicts your stupid little models.
Let us not act surprised by this: This exact logic was on display in Timothy Geithner’s AIG bailout. The company was kept alive precisely to be used as a conduit for treasury dollars to Goldman Sachs and other giant banks.
THE ZOMBIE CONSUMER
Yes. You too are a zombie. Economically dead, but still acting like a consumer.
The point is not that you should begin eating Raj Chetty’s brain, but that the most interesting things taking place in an economic relationship are not what is visible, but what occurs out of sight.
Economists are, like cats, totally focused on the string wiggling in front of them, while completely ignoring the hand doing the wiggling. There is no cure for this. It is how the minds of cats and economists work.
So, the two main themes covered in economic discussion of China and the United States are:
- My God! China is eating our lunch!
- My God! China owns us!
What we are concerned with, however, is the relationship produced by the first two facts: At some point, the United States and China likely entered into an agreement, the terms of which which we can only surmise, that the United States would transfer its manufacturing sector to China, and, in return, China will use the resulting trade imbalance to purchase US treasuries.
(We have no evidence whatsoever that this agreement exists – it is pure conjecture. In fact, it need not be true at all – it’s just what a refurbished Krugman model suggests. Washington has people every bit as smart as Krugman – and, of course, they have Krugman, as well.)
The transfer of US manufacturing to China defies logic: The United States is far more productive than China in every way. There was clearly no sector of Chinese industry that was capable of competing with US manufacturers when this process began.
Take an an American automobile manufacturer and compare it to its Chinese counterpart; a textile manufacturer in North Carolina to its counterpart; Mattel to its Chinese counterpart. Add in the delays, complications and shipping costs of sourcing products from China, and no reasonable model could get you from Ohio to Shanghai in one step.
We have heard that Paul Krugman actually won a Noble Prize for describing how this process, which makes absolutely no sense on its surface, managed to become the determining one in global trade.
We haven’t read his work on this subject, because it is wrong, and, in any case, beside the point. Just as we haven’t read any of the remarkable insights of Raj Chetty on why you should be paid decent unemployment benefits.
In Raj’s case, the real point is that when you are unemployed, you are dead – and it is only matter of time before your physical body acknowledges that fact – but your still animate body can continue to be used as a conduit to keep debt service flowing to Wall Street.
China’s trade surplus with the United States, despite its relatively primitive productive capacity, shows that even if it makes no sense from the technical standpoint for China to export goods to the far more productive United States, the former must become a platform for the production and export of goods to the latter.
This has nothing to do with China. They have no secret recipe for economic development, despite what you have heard. And, we can almost completely guarantee that whatever silly reason Krugman advanced for why China became an exporter to the US is wrong.
Not only wrong, but stupid – senseless, bizarre, and unspeakably dumb.
And, yes. They do give out Nobel Prizes for stupid ideas, just as they give peace prizes to well dressed murdering technocrats.
ATTACK OF THE KILLER SISSIES
We can almost hear you say: Even if we assume that Wall Street was looking for a deep pool of cheap docile labor, China was the last place on the planet that might come to mind. It’s communist, for god’s sake! With a history of internal violence, and conflict with the three major nations on its border – Russia (then, the Soviet Union), India and Vietnam. Its internal political dynamics were murky, at best, and, at worst, murderously capricious.
We do understand your objection: Wall Street faints when interest rates fluctuate, so how does this pack of spineless sissies end up transferring the bulk of its productive capacity to an avowed communist dictatorship which has been regularly convulsed by the political crises for the previous thirty years?
Well, we can’t tell you the terms of the agreement, but we can state when it occurs: About the same time Great Britain agrees to return Hong Kong to mainland control.
All the above is not important, however, since what we really want to know is why? Why move American manufacturing to China, when there was nothing about China that made it a likely competitor to US manufacturing. And, we don’t even have to look at any statistics beyond one simple data point to realize why this is true: In 2003, the labor of 43 percent of the working population of China was still required simply to put on the table.
That number is a big improvement from 1978, when it took 70 percent of the population to do the same thing. But, when compared to the United States, where less than one half of one percent of the working population engages in agriculture, China might still be better characterized as a late-19th Century economy – with cell phones.
Nineteenth Century economies simply do not export to 21st Century economies, unless, the 21st Century economy exports its jobs there first. The former spend relatively too much time putting food on the table, and, by every measure, it is easier and cheaper to import more complex products from the 21st Century economy than export them to the 21st Century economy.
So, if you are an economic zombie, China did not steal your jobs. China is simply the passive recipient of the divisions within your own society.
CREATING THE WORLD’S LARGEST INDUSTRIAL PARK
Simply put: You were fired and replaced with cheap foreign labor, the terms of which, including favorable tax treatment, technology transfers, repatriation of profits, and generally lax import standards, had been painstakingly negotiated between Washington and Beijing over a period of time. Add to it, the promise of, say, stable wage levels for a couple of decades, government-run unions, lax environmental oversight, little to no interference from local corrupt officials, and the like.
The assurance of stable wage levels is particularly important, since, first, despite its mostly primitive and backward production base, the wages of a Chinese factory worker can take, on average, no longer to produce than yours. And, if you were unionized, that means medical coverage, a mortgage, two cars, kids in college, and food on the table, has to be squeezed into the same amount work time in China as it is in the United States.
And, since, in China, it take about eighty times as much effort to put food on the table as it does in the United States, a lot of that other stuff … well, it sort of falls by the wayside.
Factory-owned dormitories replace homes…
No medical care…
You get the picture.
A social safety net that makes Dickens’ England look like modern day Sweden, and an environmental catastrophe that make day look like a romantic moon lit night.
There was no malice in this process. Wall Street just needed the money. They would have been happy to put you up in one of those factory-owned dormitories as well, but you wanted cable.
If you think off-shoring the productive infrastructure of an entire nation is simple, listen to a friend of ours who is currently doing business development in Mozambique:
I would tell about these things if I had the time.
I would tell about how the water supplied to all of the staff houses took on a smell, faint at first then more and more putrid by the day. Crystal clear save the occasional indiscernible chunk of something. My domestic worker tells me, “Bees are coming out of the water faucet out back.” “Right,” I say, and continue on to the office.
The next morning, frustrated with the complacence of our maintenance crew, I climb the water tower myself and find the source of the foulness: thousands of drowned bees, floating atop our water supply, the unfortunate victims of a collective decision to build community bee housing inside our water tower when the level was low.
I would tell about buying two hundred tons of cotton (out of two thousand) that didn’t exist, defrauded at every turn by the community leaders and smallholders. The universal desire among Mozambicans to get ahead, to get ahead and screw your neighbor and the man and walk away. How my chief mechanic buys parts, sells them and installs stolen second-hand parts instead; how our truck drivers drop off cotton seed in the bush, pick up corn and take it into Malawi to sell, taking the opportunity to sell the new tires off their trucks into Blantyre and come back complaining of how the rough roads wear down the treads.
I would tell about how the best of intentions and deepest pockets can eat an American company alive in a place like this. And I would tell everyone that would listen that if your investment here does not pay directly into important Mozambicans’ pockets, be it through salaries or shareholdings, then you will leave here embarrassed.
HANDCUFFED TO A ZOMBIE
The relationship between the wages of the Chinese worker and those of the American worker is thus:
The owners of your factory will not move it to China unless they have some reasonable assurance that, after deducting the costs of producing at such a distance – shipping costs, mostly obviously – and risk – political turmoil, government corruption, etc. – and assorted aggravations as mentioned in the above item by a friend engaged in just such an attempt, the profits realized will be some definite amount in excess of what could be realized by employing you.
It is not the Chinese worker whose wages pull down the wages of the American worker, but, to the contrary, it is the wages of the American worker that forms the upper limit on both – relentlessly squeezing the conditions of existence of Chinese labor, reducing it to the absolute minimum consistent with capitalist production.
It is only on condition that the wages of the Chinese worker, negligible as they are, are constrained still further to generate additional profits of American corporations, that Chinese output ends up on the shelves of Wal-Mart. Yet, still even this assault on the physical survival of the Chinese worker is no more than a lever by which the conditions of the American worker is still further undermined, and her wages suffer; thereby becoming the basis for a new assault on the conditions of both.
With each new level of the volume of exports of Chinese made goods the collapse of the immiseration of the American worker advances – dragging her handcuffed compatriot along with her. The division of the Chinese economy – 55 percent devoted to fixed investment and government, versus about 36 percent for non-government consumption – is a ratio determined in the United States, not China.
As you may have noticed, Washington is deliberately allowing the dollar to depreciate. The aim of this is to further lower wages and prices in China, which will accelerate the loss of manufacturing capacity in the United States. The resulting increase in the loss of jobs will be blamed on China even though it begins here as a deliberate policy of the Messiah’s economic team.
And, not simply China – recall from Krugman’s notes, Crises:
Suppose that the underlying problem is a level of prices and wages that makes your production uncompetitive – typically the consequence of an earlier period of excessive capital inflows. Then what must happen, sooner or later, is a decline in prices and wages relative to those in your trading partners – a real depreciation.
Krugman is either being dense, or deliberately misleading – the underlying problem is always wage levels. Thus when a country cannot devalue its currency against the dollar, it experiences a shocking rise in unemployment: Latvia has an unemployment catastrophe, as does Spain, and Greece is in dire fiscal straits. To avoid such a problem, Brazil has imposed a tax to prevent the appreciation of its currency and Venezuela has been forced to devalue its currency. The deliberate policy of depreciation of the dollar is forcing every other country to reduce wages either by devaluation or tolerating unprecedented high rates of unemployment.
In a way that may be historically unique, Washington appears to have captured control of the economic policy of nearly every government on the planet – literally dictating wages and employment policy in every country.