Friday, April 3, 2009

The Chinese Were Suckered

The Chinese have embarrassed themselves. They believed that export-led growth was possible for a nation with a billion citizens. Export-led growth is fine for Japan or Korea, but China is so big that exports can account for only a small portion of the working population. Moreover, technological and scientific improvement limits the importance of labor-intensive industry. Export-led growth is fine to a point, but ultimately the comparative advantage of low labor costs needs to be surpassed by growth in human capital and technology, leading to competitive industry. With the largest potential market in the world, why would not China think in terms of developing the capacity to market internally? This would imply distributed growth, possibly based on the extent of export led growth that it has already experienced.

This would be accomplished through free market capitalist development whereby credit is widely distributed and entrepreneurship rewarded, free of taxation. The Chinese could accomplish this with a gold standard.

Instead, the Chinese allowed themselves to be suckered by Wall Street investment bankers and the US. The philosophical reason is likely this: the Chinese are still Marxists, and they believe that capitalism depends on exploitation. It seemed to them that in order to grow, their workers needed to be exploited. So they focused on low, exploitative labor costs. Then, they allowed Wall Street and its employees in the Fed and in Congress to convince them to invest in dollars, further reducing the cost of their exports. Thus, the Chinese have voluntarily cheated their workforce out of wages in order to subsidize American consumers and Wall Street.

Unfortunately for the United States, though, its public has been bamboozled into the same Wall Street scam: the advocacy of paper money expansion, high taxes and allocation of credit to foolish big business uses such as the Latin American debt crisis of the 1980s, Long Term Capital Management of the 1990s and the sub-prime bailout fiasco of the 2000's. This has led to a steady reduction in Americans' standard of living, a declining real hourly wage, as politically connected Wall Street opportunists make off with the cream of fresh Federal Reserve Bank reserves. The waste balloons larger as the "conservative"/"liberal" debate, better called the "Progressive"/"progressive" debate, grows ever more insipid, ever less relevant. American political debate has declined to the point where the news is communicated by bungling, drooling cretins who do not understand any of the issues.

Americans lack the intellectual curiosity or the motivation to question the Keynesian, pro-banker model. American politicians have squandered America's wealth on incompetently conceived and executed programs whose main purpose is to waste money. Americans do not raise an eyebrow that 50% of their earnings go to subsidize foolish government programs that produce value equal to 5% of their earnings. Americans are too busy watching "Entertainment Tonight" to care.

The Chinese have the potential to become the leading global power. They can achieve this by following common sense. Their call for a new currency was common sense. But they continue to be suckered by Keynesian double talk and lies. The new currency should be gold. It should be objective. It should not be subject to political manipulation as would a new paper currency. It should not be subject to the opinions of greedy bankers who do not know how to produce value.

I urge the Chinese to adopt the gold standard and the capitalist economic system. Capitalism does not mean exploitation. It means increasing wealth. When freed of the disruptions of paper money, it functions better than any other system.

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