Economic man vs Political man

My blog of yesterday is really about the disconnect between on the one side "the man is an economic individual" theory of the world, shared by neo-classical economics and the humanitarianism lobby, and the "man is a political animal" theory of Aristotle. The "man is a political animal" theory was dominant of most of western history and is pretty much obvious to everyone apart from liberals.

From the economic individualism perspective, the fact that China with its billion-strong population and ever-more dominant production-based economy, is simply a relatively poor country, because individual incomes are lower than in the West. From the political animal perspective, China is simply a very powerful country, possibly more powerful than the United States in the economic arena due to its holding of American reserves and very real status as factory to the world. It is a little like the United States saying to Scandinavians, who have a higher per-capita income than Americans, that the US should be treated as a relatively poor country rather than a superpower.

China, bank manager for the US

The Chinese ambassador to the UK has appeared yesterday on the Andrew Marr show (20/3/08) and today (29/03/08) on Channel 4 news, interviewed by John Snow. She was at pains to say that China was still a developing country, that China's dollar reserves are not very much given the number of Chinese people - $1000 or £1000 (I forget which, but it didn't sound like much) per person. No need to worry: China is still poor and is just trying to make its way in the world.

Yet I have blogged recently on the Chinese monopolising of raw materials for industrial production and remarked on the obvious fact that with industrial capacity and trade surpluses comes economic and military power as well as influence. More important than China's increasing strength is our increasing weakness: the lack of ability to pay our way, the lack of a production-based economy leading to impoverishment and a loss of independence, even basic security. In my inexperience as a political blogger, I thought the new phase of China's influence over the US was new, given America's immense debts and financial troubles.

Not so. Paul Craig Roberts, and others no doubt, made this clear two years ago in August 2007. He argued even then that China's holding of American reserves meant that the US had no influence on China, that the Chinese could precipitate a dollar crisis; that offshoring has eroded American living standards and pushed up deficits, and that America is as dependent on Chinese imports as it is for imported oil. The media don't discuss it; economists adhere blindly to Free Trade orthodoxy.

How can the West have been so stupid? Well, a drunkard will justify his drinking binges by various rationalisations. We cling to the notion that there is a privileged developed world and a (formerly oppressed) less privileged developing world, including China, that Free Trade leads people out of poverty, that trade reduces tensions, helps to create a better, more unified future. The West, by leading on trade liberalisation, is helping to save the needy. They rationalise our indebtedness as a kind of post-imperial largesse for the world's poor.

The weakness of the US and most of Europe should be apparent; an aging population, a debt-based economy and no signs of addiction to consumption abating; social decay; an inability to protect our borders; the military capacity of many European countries is laughable; those countries with a military budget are struggling to pay for it. Yet white guilt and one-world ideology has led us to a belief that our liberal trade policies are helping save the world. Why not save ourselves?

We are in denial. the US and Europe are in terminal decline. Maybe Africa is still poor enough for us to continuing patronising that resource-rich and demographically vital continent, although I wouldn't be suprised if Africans were richer than Europeans in 30 or 40 years. But the Chinese have already surpassed us; by raising the idea of a new reserve currency, they are telling the US that they veto US decision making, even while the Chinese ambassador in London, on being asked about trade imbalances, tells us that China is still a developing country. She is just passing the drunk another drink.

Daniel Larisson on Free Trade complacency

A useful article over at The American Conservative from Daniel Larisson.

G20 dreams: Free Trade and Facile internationalism from the CBI

Richard Lambert, director general the CBI, wrote an article for the Business section of the Times on 5/3/09 with recommendations for leaders at the forthcoming G20 conference. On first read, I dismissed it as pie in the sky; but the defenders of the old economic system are taking this agenda seriously. In fact it is more or less the consensus, supported by the BBC, Financial Times and other pillars of the liberal ascendency. Lambert has argued cogently and honestly, albeit for something which is unrealistic.

I shall leave aside that financial liberalisation led to the E. Europe debt crisis, and trade imbalances are the underlying reasons for the world crisis - let's say the past is the past. But here I gloss what he is really saying or omits to say.:

1. There is no mention of debt and solvency. If you don't have the money, you can't spend it, except by incurring more debt, which leads to paying more for credit, due to low credit-worthiness.
   
2. He thinks that “confidence” can help us out of recession; yes, psychological factors may have some impact, but ultimately confidence has to be based on something real. When you know you are exposed financially, it is unlikely you will feel confident enough to spend more. Nor should you: from the outset, the argument starts to look grossly immoral, because it encourages us to keep piling on debt indefinitely.


3. No mention of trade imbalances. According to free Trade orthodoxy, every country must benefit from unrestricted free trade, based on the principle of comparative advantage, which unfortunately for the West, no longer applies. And the de-industrialisation of the west means generally lower wages to pay for those cheaper Chinese goods
   
4. Lambert is calling for strengthened world governance; more mechanisms to make governments unaccountable to their own peoples, it is time for the economic guardians to rule - in order to soothe populist tendencies and curb the protectionist spirit. Free Trade in the end relies on a loss of democratic Freedom.
   
5. There is a touching faith in the ability of government summits to successfully implement top-down solutions to the world. Lambert sounds like an internationally minded socialist
   
6. There is the usual mantra about free trade pulling people out of poverty in the world; nothing about how it damages western interests and impoverishes us. Again this ambassador of economic liberalism sounds like a member of Socialist International. But I don't buy this free trade helps poverty argument, even though I believe that Capitalism and some trade help alleviate poverty. For example, if China were less export-driven, it might produce more for its own consumers and allow its currency to appreciate, increasing the purchasing power of its people. China’s export drive is encouraged by the unlimited free trade system. [There are also social and environmental externalities.] .
   
   
7. Most important of all: there is no mention of the political realities, namely that the world is made up of nation states and ethnic units: some of these will benefit more from the free trade system than others and consequently be more powerful in relative terms, the obvious case being China, whose surplus- and-production-based economy has increased its wealth, bargaining power, military capacity relative to the debtor-consumer nations. Lambert talks as if the world is one homogenous entity where the interests of all countries coincide.
   

To me, Lambert’s position is an example of how economic liberalism and free-trade, after 1989 became the new vehicle for the internationalism of the liberal-left. They believe in one world, that nationalism, nation states, and ethnic rivalries should, and can, be made to disappear. Implicit in Lambert's argument is the belief that we are merely individual economic units with no national affiliations.

In the real world, powers will be powers; it is sensible for each nation to co-operate where possible, but be prepared to defend its interests when necessary. Unlike Lambert, I am not arguing for Utopia, but for a strategy to survive in the real world.

Summary of Lambert's article.
The G20 countries comprise 85% of world output. Their problem is the pernicious feedback loop between the real economy and financial markets, which:

1. causes asset prices to fall and cost of capital to rise; which


2. impacts consumer and business confidence; which


3. reduces demand for consumer and capital goods; which


4. slows economy, increases credit risks; which


5. lead to uncertainty in financial system

Leaders have talked free trade and walked protectionist policies (tariffs, industry subsidies, exchange rate interventions and bailouts to favour home market); nor has there been progress on Doha. The task of the G20 is to DO WHATEVER IT TAKES to restore world's financial system.

1. Governments must agree on common approaches, so that actions of one country (e.g., Ireland propping up banks) does not undermine other countries;


2. Governments must reverse collapse in demand for goods and services. Fiscal stimulus can do this ( e.g., US committed to stimulus = 5.5% of GDP; surplus countries have need and responsibility to do the same: china is on the way, while Germany and japan must do more; )


3. a) a growing number of countries need international help e.g., central/eastern europe;

b) it is in the interest of international community to do this to avoid serious economic and political strains to europe and beyond;

4. urgent priorityis reform of IMF, in order to:
   a) to increase resources and therefore lending capacity to deal with multiplying problems;
   b) to give greater prominence to the emerging economies in its governance structures
5. To counter protectionism we need transparent mechanisms that will monitor commitments and highlight abuses [sc: world government]

Globalisation is good because it has helped lift 500 people out of poverty in 15 years; crisis will put 90 million back to extreme poverty. This is economically damaging and socially damaging. therefore West must increase devleopment assistence and intend Millenium goals on poverty

Tactically, London should adjust the Washington programme, not get bogged down into details of financial regulation.

In conclusion, transparency and independences are necessary: IMF needs greater responsibility to identify stress points in global economy and be free to criticise US; as are co-ordinated efforts to rebuild financial stability and to check the fall in global demand

1. support for increased resources and governance reforms for multilateral institutions;


2. practical steps to push back protectionism and complete the trade round;


3. start a process to reform financial markets.

This is a "big ask" and needs political leadership but, if G20 does this, it will help restore confidence for business and consumers everywhere.
END.

Or to summarise more succintly: pass me that slice of apple pie. Make sure it is laced with opium, because I can't face reality yet.

Collapse of the US car industry - don't mention Free Trade policies

A short piece on the possible collapse of the American automotive industry on the Today programme failed to mention America’s suicidal Free Trade policy. It mentioned globalisation, possible bad decision-making from the big three manufacturers on the issue of fuel consumption; but it failed to mention that the tariffs of Asian manufacturers are consistently higher than those of the United States. With a lack of a level playing field, then one by one American – and European – industries will die away leaving the Western World de-industrialised, impoverished and militarily unable to defend ourselves. But hooray! maybe we’ll achieve our climate change targets? Think of the plaudits from all those EU and UN agencies, not to mention global climate change campaigners like George Monbiot.

This is an area where the West must think strategically about its long-term interests. The all-pervasive ideology of global internationalism, the baleful influence of which can be seen in climate change targets, mass immigration, free trade and outsourcing, even the War on Terror, is the great distraction: it prevents us seeing clearly and safeguarding our own interests. This crosses left and right boundaries because the internationalist left has made an alliance with a big business sector, which recognises no loyalty to any country, only its own profits.

Defenders of Free Trade said that only low-tech industries like textiles would go abroad, the West would keep high-tech industries; now we see computers and sophisticated electronics are manufactured in China, the US Car industry is collapsing. Our competitors have high tariffs while ours are low; unless the West raises its tariffs in response, the Asian countries will continue to ignore our protestations about Free Trade and the Global Good, and keep trading with an unfair advantage. Why should they do otherwise, if we don’t take reasonable measures to defend our interests? The reason we keep our tariffs low is due confusion between our interests and the supposed interests of the global community, a misplaced belief that a lack of trade barriers leads to greater security and long-term prosperity. Note how free traders, when pressed about the benefits or lack of benefits to the West, end up saying that it lifts millions of people in the third world out of poverty – i.e. it is good for the world (they say), if not for us. This is at best only partially true. The fact that China keeps targeting its industrial output towards export to the West rather than their own consumers is detrimental to their own people, but good for the country’s long-term quest for hegemony over the United States. Moreover, the dependence of China on our debt-fuelled consumption means that their people are now losing their jobs because of our lack of finance; if they had been less export-dependent, the pain for Chinese workers would be less than it is going to be. Limited trade is good, too much trade will lead to greater volatility.