Andy Stern, President of the powerful Service Employees International Union (SEIU) and close Obama ally, has caused a stir with his op-ed in the Wall Street Journal “China’s Superior Economic Model.” Although Stern’s opinion is not controversial within left-wing or even mainstream economic circles, there is a grave and irreconcilable fallacy at the heart of his argument: China’s economy is growing because it is becoming more like the United States, while the U.S. economy is declining because it is becoming more like China.
The chief scapegoat for the left is what Stern refers to as “free market fundamentalism,” a term coined by and publicized by noted anti-capitalist George Soros. Andy Grove, the Intel head who was on Rolodex at a left-wing NGO that I worked for, made a similar argument that free market fundamentalism was holding America back in a Bloomberg piece last year. The New York Times‘ trademarked brainiac Thomas Friedman lamented that if America could only be “China for a day,” the left-wing could whip the economy into the shape in no time.
Wait, there’s more. Eugene Robinson, the inconsequential but unintentionally amusing columnist, recently penned a column touting his presumed intellectual superiority for admiring aspects of the Chinese regime. Infamously, White House political strategist Anita Dunn once called Mao Zedong her “favorite philosopher.” And no less than Obama’s unappointed manufacturing czar Ron Bloom stated bluntly that “the free market is nonsense” and the whole point of economy is to “game the system.”
Explains a lot of the Obama regime’s corruption, crony capitalism, and endless meddling, doesn’t it?
In addition to the left’s economic voyeurism, there is also the cultural idolatry. President Obama himself once admitted to envying Chinese president Hu Jintao, because the latter doesn’t have to deal with such media scrutiny (ironic given the fawning coverage Obama already gets from the mainstream media). This suggests New Media threatens the Democrat Party, just like it threatens the Communist Party of China and the Russians.
There are a few problems with these economic and intellectual titans’ claims. The first is that the United States has been decidedly and demonstrably non-free market for nearly a hundred years, since it adopted the the progressive income tax and de facto central banking. In addition, the track record of the century shows the economy struggling in tandem with more government intervention and domination of the economy. The second is that all of the people above-quoted stand to gain in terms of money or power from the state garnering more control of the economy. The third is that the impressive upshot in economic activity in post-war Europe and its defender and supplier America followed upon massive war devastation, and we shouldn’t adopt the “broken window fallacy” that ergo, war is good for the economy. The situation is similar for Maoist China, where an economic war upon the peasantry and capitalism led to similarly disastrous results. It took the economic reforms of the late 1970s to boost China’s flatlined economy, and that meant introducing more capitalism.
Prominent conservative British MP Daniel Hannan puts some of this into perspective:
Between 1945 and 1974, Western Europe did outperform the U.S. Europe happened to enjoy perfect conditions for rapid growth. Infrastructure had been destroyed during the war, but an educated, industrious and disciplined work force remained.
Human nature being what it is, few European leaders attributed their success to the fact that they were recovering from an artificial low. They convinced themselves, rather, that they were responsible for their countries’ growth rates. Their genius, they thought, lay in having hit upon a European “third way” between the excesses of American capitalism and the totalitarianism of Soviet communism.
We can now see where that road leads: to burgeoning bureaucracy, more spending, higher taxes, slower growth and rising unemployment. But an entire political class has grown up believing not just in the economic superiority of euro-corporatism but in its moral superiority. After all, if the American system were better—if people could thrive without government supervision—there would be less need for politicians. As Upton Sinclair once observed, “It is difficult to get a man to understand something when his job depends on not understanding it.”
But there is no reason to belabor the point. The graphs provided below tell much of the story.
The following is a graph of U.S. government spending:
One sees the big boom after World War II, which we alluded to earlier was driven by huge demand and a lack of manufacturing capability in war-torn Europe. The government spearheaded the way with huge programs like the Marshall Plan, and America footed the bill for much of Europe’s defense by forming NATO. There should also be a caveat made on the supposed “European miracle.” The intense planning of post-war Western Germany, including price controls, led to people actually stopping using marks for a period of time and switching to cigarette currency. When the economy was liberalized, the currency stabilized, and the situation improved.
Let’s follow that with this chart on American manufacturing, to reinforce the initial point.
As can be seen, manufacturing has increased fairly steadily since the Second World War, despite the green movement’s best efforts, except in the mid-1970s stagflation era and again under the Obama administration. This suggests two things in the more recent case: more intensive efforts by the EPA to stifle industrial production, and grave uncertainty regarding the future economic environment, due to such massive government interventions as stimulus, bailouts, and Obamacare.
Now we should look at U.S. unemployment, which shows much more variability and unpredictability. This chart requires more discussion, since it is a key sticking point between free market advocates and Keynesian state planners.
The post-war rise can be easily explained by a return of U.S. soldiers from the war, and the decrease by increased European import demand. The sharp shaky increase up to 1961 shows the effect of insanely high marginal tax rates, as high as 90%, which Kennedy slashed. This led to a long steady decline in unemployment. In 1970, after the Great Society debacle, high unemployment rates returned with a vengeance. A downturn from 1975 would reach a trough of 6% before climbing to above 10% by the time Reagan was elected. Again, Reagan lowered taxes and lower-inflation growth occurred by the end of the second year of his first term.
Those who despise Reagan for his trickle down economics must have loved the Carter era; that is the only explanation for their hatred of a president whose policies helped get more Americans back to work. George Bush Sr., no political conservative, would break his no new taxes pledge and helped usher in higher unemployment, while Bill Clinton would become the unwitting benefactor of a decade-long dot-com boom, but he even managed to screw that up by the time he left office. George Bush Jr. the demonic president of left-wing imagination, would preside over lower interest rates, feeding a period of short-lived economic growth and lower unemployment. That would implode come the end of his term, and the ruins doused with gasoline and lit on fire with big government Obamanomics.
Now let’s compare Chinese growth in its proper context. Denominated in yuan, the chart shows that the economy was practically dead, along with millions of Chinese workers, until about 1978 and such reforms as farm privatization. The ridiculously named “Great Leap Forward” led to about twenty million deaths, and the supposed “Cultural Revolution” was but a spin of a hamster’s treadmill – a flurry of motion, but nothing going forward.
But imagine if you will a peasant-agrarian society that wants to industrialize and open the economy. Of course, it will be impressive at first. If you build a factory in a village with nothing but rice farmers, you’ve quadrupled the output value of that community, especially if you are utilizing largely untapped resources to produce goods.
And let’s say that country wants to use its labor advantage to cater to a largely decadent and debt hungry West. What happens is a glut of cheap goods sent over to a country whose people are fine moving into service sector occupations, paid for in government Chinese debt-backed dollars, buying up cheap Chinese-made goods. This is the tale of the tape, as our debt has exploded along with the gap between service sector workers and goods manufacturers, now over a 5-to-1 spread.
The Chinese economy is largely predicated on the American economy. It parallels U.S. economic growth, which is largely based on debt and consumption. If the American economy should fail, along with European economies, much of China’s spectacular growth will go too, unless the regime would allow much more intensive capitalistic reforms.
What the economic trends and the above-provided quotes suggest is a deliberate strategy by both the Chinese and leftist Americans to scratch each other’s backs in a move that has been dubbed “convergence.” The Communist Chinese get a high degree of economic growth and money by developing and trading their goods onto the U.S. market, fueled significantly by Chinese held debt, and the U.S. government gets to expand and shift production to China. This makes Americans more dependent on China for cheap goods, and on the U.S. government for economic livelihood or even survival.
Suffice to say, that not only America but the whole of Europe is declining and even threatened with economic implosion because the politicians have self-servingly adopted much of the socialist party line that everything good must come from the state. But there was an era when men provided largely for themselves, and America thrived. The state’s share of the economy was small, freedom was expansive, and big citizens made for a big economy.
We should return to the era of freer markets, so despised by today’s statists, before America becomes more like China, and China becomes more like we were.