Free-Floating Hostility

Wednesday, December 31, 2008

Maybe Deng Xiaoping was a Trotskyist After All

This seems to have turned into an economics blog, which was never at all my intent. One of the great mistakes of my college career was choosing to take Principles of Economics for a grade. It's not that I wasn't interested. But my professor was dull and had already been denied tenure, so he had checked out. In the meantime, it was a large lecture that met at 10:30 a.m. when I was spending most nights up until 3 or 4 on the school newspaper. Needless to say, it didn't work out that well. So for me economics is a hobby, and it's a hobby in the way watching the NFL is a hobby for a Detroit Lions fan. It's everywhere and for obvious reasons, I'm pessimistic about the whole enterprise. Unlike football, I only understand econ in crude, broad macroeconomic terms. I can't seem to stop writing about it though.

Tom Friedman is not pessimistic. He loves global capitalism, and not in the holding-his-nose way that he loved the invasion of Iraq. I think he honestly believes it is going to save the world, which is a less nuanced position than he used to have. The funny thing is that most true-believer capitalists don't really say that in public anymore. In fact, I think that link is a pretty good summary of the state of capitalism defense -- argue that markets are actually not free and then say capitalism is clearly not perfect and wasn't designed that way. Those are both reasonable arguments. I like capitalism. I mean you probably can't buy a remote control farting bear in a centrally planned economy. But I do believe that the burden of proof for justifying the success and continued use of an economic system always rests with the most well off. If there is going to be economic inequality built into a system, the richest people ought to find a way to have some real social utility.

Mao Zedong is someone who hated capitalism so much he took over a country to prove how much he hated it. A couple of weeks ago, Friedman argued that one of the guys who followed Mao, Deng Xioping, saved Communist Party in China by opening the country up to free markets. I am unable to truly evaluate this claim -- both the freedom of China's markets and the actual health of the country or the Communist Party. But given that we're in a world recession and the U.S. government is far beyond broke while the Chinese run a surplus, it appears that combining foreign investment with a state-run economy and repression of dissidents has proven to be a massively successful strategy. I mean, for the government. In fact, The Nation reports the following:

China has embraced what amounts to a beggar-thy-neighbor strategy that supports its growth by taking a larger share of a shrinking global pie. And that is what global depressions are made of. [snip] Over the past decade, investment and savings there have grown much faster than consumption. Consequently, China has an unusually high savings rate of nearly 50 percent, while consumption constitutes only 35 percent of the economy. A world economy simply cannot function when the second-largest economy (measured by purchasing-power parity) has such a lopsided imbalance between savings and consumption.

And yet, the article goes on to say, China refuses to do anything about that. It outlines issues Obama should press the Chinese on. I hope he uses his global popularity to broach these topics. But mostly I wonder why on earth would anyone take economic advice from the President of the United States? His government is $11 trillion in debt. Listening to an American (even one I support) tell you how to run your economy is like inviting Matt Millen into your front office to rebuild your football team.

What if China is actually the negation of 50 years of free market theory. One overarching argument for economic freedom is that it leads to political freedom. But it hasn't done that in China. How many political parties are there? How are the Tibetans and the Falun Gong faring? What concessions do Internet companies make to operate in China?

And who would be better at studying the negation of capitalism than a nominally Communist country? Maybe the Chinese government was just slowplaying us all along. After 20 years of picking and choosing its approach to globalization, China's government wealth is largely predicated on the deindustrialization of the U.S., which wiped out large numbers of jobs that paid demand-stimulating wages. Then it bought our debt to continue subsidizing consumption. Now the nation owns massive amounts of U.S. debt. I don't know what that means in practice, but I know the hoops my credit card company and Ford Credit can put me through if I fail to pay my bills, then I'm not particularly excited about the future.

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