By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute
Is today’s trade conflict with China beginning to broaden into something bigger and more long-lasting? It would appear so. Much of the current backlash is a product of the West’s longstanding, but misplaced, fawning and awe over Beijing’s historically unprecedented economic advancement over the past 30 years: the naïve assumption that its growing prosperity would inevitably lead to a more open, politically liberalized country whose interests would more closely align with those of the West. As those expectations have been dashed, so too the backlash has arisen accordingly: Many now view China as both a trade cheat and a mounting global security threat, as it approaches economic parity and strategic rivalry with the West. And China’s leadership appears less well-equipped both politically and economically than its Western counterparts to deal with this rising conflict, as it metastasizes into a fully-fledged Cold War 2.0.
By any standard measure, it has not been a good few weeks for China. In November alone, retail sales slumped to a 15-year low; the country’s exports rose 5.4 percent from a year earlier, the weakest performance registered since a 3 percent contraction in March, and well short of the originally forecasted rise of 10 percent; car sales fell to levels not seen since the 1990s; the vast majority of companies directly impacted by U.S. tariffs (around 86 percent) have reported a decline in orders, “according to a survey of 200 chief financial officers in manufacturing firms with significant export business”; and the default risk (a gauge of financial stress) for Chinese companies has climbed to the highest level in 13 years, according to the Moody’s rating agency.
Most ominously, a senior executive from country’s largest telecom equipment manufacturer, Huawei (also the daughter of the CEO), was arrested in Canada, following a U.S. extradition request on the grounds of suspected money laundering designed to mask evading American trade sanctions imposed on Iran. This arrest took place against a backdrop in which Beijing has increasingly been viewed as a security threat. In addition to the longstanding charges of intellectual property theft, China is now being accused of conducting hacking attackson the home-country servers of big Western companies, and using Huawei’s new 5G network as a platform for this cyber espionage.
This national security angle is adding to the traditional complaints about Chinese trade practices. In echoes of the old Cold War, the so-called “Five Eyes” (an organization that was originally established among the U.S., UK, Canada, Australia, and New Zealand after World War II to counter Soviet influence) are now actively exchanging sensitive intelligence on China’s foreign activities. In aggregate, this is triggering concerns that we’re entering into new and more dangerous terrain between the West and China.
Oddly, this rising hostility has sprung from exactly the opposite set of circumstances that created the foundations for the original Cold War. In contrast to George Kennan’s famous telegram about the old Soviet Union(which correctly rebutted President Franklin D. Roosevelt’s naïve assumptions about Joseph Stalin and provided the diplomaticunderpinnings for a sustained policy of Western containment after World War II), today’s Cold War 2.0 is typified by what author James Mann calls the West’s “China fantasy,” a notion encapsulated by former President George W. Bush’s remark: “Trade freely with China, and time is on our side.” The main idea being that Beijing would ultimately internalize Western norms and values as it integrated and prospered via an increasingly globalized world economy. It is worth recalling that similarly optimistic assessments about trade and globalization were made about the world on the threshold of World War I.
But much as the assassination of Archduke Franz Ferdinand quickly dispelled early 20th-century optimism, a similarly rapid, albeit less dramatic, reassessment of China is now underway today, especially given the increasingly autocratic nature of the current regime under President Xi. Most striking is that even longstanding China doves are now echoing the language of old guard hawks, who have long viewed trade with China as a zero-sum game. The Huawei extradition request is also symptomatic of this reassessment, which is increasing the Western assault against Beijing, and taking it well beyond Donald Trump’s earlier tariff tantrums.
Certainly, the historic tendency to see China’s economic rise through rose-tinted glasses is not a charge one can make about the Trump administration, which came into power viewing Beijing as a major strategic threat. When President Trump first introduced his tariffs, the perception was that China’s wise policy mandarins would play the long game, and simply wait out the president’s tariffs, which, it was argued, would affect the U.S. more adversely than China. Beijing itself proclaimed that the government would refuse to negotiate “with a gun pointed to its head,” and pointedly threatened countermeasures.
Since the trade war was launched, however, the U.S. economy has not shown any significant signs of weakness, even allowing for the recent stock market jitters. The official unemployment rate is at a near 50-year low, and labor force participation is rising; wage rates are picking up, yet there are few signs that inflation is about to take off. By contrast, China is slumping badly and appears eager to negotiate despite (or, perhaps, because of) mounting American pressure. If anything, by demanding the extradition of Meng Wanzhou, the daughter of Huawei’s CEO, Ren Zhengfei, the Trump administration has upped the ante further.
Beijing’s response to the pressure has been to offer up one concession after another: substantially cutting tariffs on U.S. auto imports into China, upping purchases of U.S. soybeans and other crops, and even offering substantial amendments to the country’s “China 2025” industrial policy (hitherto savaged by U.S. trade negotiator Robert Lighthizer, among others, as protectionist), by promising greater access for foreign companies. That was once considered a red line by China’s negotiating team. Retaliation for the extradition of Meng has been directed at Canada, rather than the U.S. itself. By any objective standard, these are not the signs of a country negotiating from a position of strength.
Why did so many get this calculation about China so wrong? Part of it, of course, is a product of an intense, albeit understandable, animus toward Donald Trump himself. Another aspect reflects a visceral attachment to free trade. China’s president, Xi Jinping, has exploited this sentiment, positioning his country as the new champion of globalization and free trade, even though recent trade pacts have had far less to do with a free exchange of traded goods, more an entrenchment of existing multinational corporate privileges designed to subvert domestic regulation. And China itself hardly qualifies as a paragon of free trade.
But in a broader sense, China has not conformed to the expected Western script. In spite of integrating itself into the global economy under the auspices of the World Trade Organization, World Bank and International Monetary Fund, Beijing has not internalized liberal rule-based norms implicit in these organizations. In fact, under President Xi, the Communist Party’s political strength and “purity” have become an end in itself, to which economic reforms have become subordinate (“purity” being a term with strong Leninist connotations). Not only is this adversely affecting China’s economic performance, but it is contributing to changing Western perceptions of Xi’s government and provoking countermeasures: restricting Chinese investment in sensitive high tech industries, limiting academic exchanges at Western universities, and more closely scrutinizing Beijing’s diplomatic overtures around the globe. The latter is occurring (in the words of the Economist), because of concerns that “China is co-opting institutions such as the UN and the WTO to make them safe for authoritarianism, state-backed capitalism and other threats to a rules-based order.” As the magazine notes, the Western figures leading this charge are not just anti-China trade hawks, but “ex-doves [who] agree that 20 years of patiently cajoling China to change has not worked.”
In other words, the relationship is unlikely to revert to the status quo ante. Globalization is dead; the world will likely fragment into regional trading blocs as a result. The “Chimerica nexus,” which married China’s massive labor force and savings surplus to the American consumer and housing market, has been shattered. Global supply chains are likely to be re-domiciled closer to home (the newly concluded USMCA trade pact being the first illustration of that phenomenon). “Reciprocity,” once a code word associated with trade protectionism, is now seen as a vital national security quid pro quo, a safeguard that will govern future negotiations with Beijing.
This is already posing grave economic difficulties for China. Likewise politically, as the country is poorly equipped to deal with these mounting challenges. Unlike the U.S. (where constitutional safeguards can mitigate the capriciousness of a volatile leader like Trump), the increasing concentration of power and control around President Xi means that there are fewer checks or constraints to balance his government in the event that it makes errors and miscalculates in its dealings with the rest of the world.
Modern China has never been a liberal democracy, but the earlier introduction of term limits for Communist Party political posts (now scrapped) provided a check or, at the very least, introduced a degree of limited accountability, had Xi been forced to hand over the presidency to some new leader in 2022. On the other hand, as the economist George Magnus argues in Red Flags:
Unbridled power, the disincentives to argue with or reason against the leader, the heavy hand of state censorship and limitations on learning… are not ideal, hand-maidens of dynamic reform and high economic aspiration.
This is especially true given the mounting challenges for China’s leadership as it faces new, potentially hostile economic and political terrain vis a vis the West. The fundamental tension between modernity, markets and a rules-based order on the one hand, and the maintenance of an arbitrary one-party state on the other, is for now being resolved in favor of increased authoritarianism, occurring in the context of deteriorating economic growth. The problem is that the whole basis of the Chinese Communist Party’s national legitimacy has been predicated on its continuing ability to deliver growth and prosperity to its people. Minus the prosperity, the party’s political position becomes more tenuous, especially as it is increasingly identified as a proximate source for Cold War 2.0.
Historically, the reflexive response of the party has been more repression (often under the guise of anti-corruption probes), more politically driven economic projects (which actually detract from growth in the long term), fabricated targets, more debt-fueled “white elephants” via the State Owned Enterprises, less transparency, and more overall financial fragility. But if the West continues to perceive China as a security threat to be managed, rather than a friend in need, it is hard not to imagine yet more tension (trade and otherwise) or, indeed, outright conflict, breaking out in the years ahead from the resultant fallout.
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I think this is a pretty good overview – or at least as good as anyone can provide, given that it seems fated for all China watchers to be profoundly wrong on a regular basis.
I think we are seeing an historic inflection point globally, but its easier to see this that to know what direction its taking us. China’s uncertainty in the face of Trumps belligerance is surprising, but it also reflects what I think is a deeply felt ambiguity among the Chinese themselves about their new place in the world. The country is simultaneously proud of its huge growth and importance, while also acutely aware of the fragility of growth and an awareness that it would not take much for the country to take equally gigantic steps backwards (this is, afterall, the story of Chinas long history). Its also important I think not to overlook the widespread awareness in China that the country has become much more authoritatian since Xi has taken control. There is a lot of self-censorship going on online now which was never a feature previously. My Chinese friends in the west now continuously complain about how much harder it is now to deal with issues at home, whether its transfering money, or just getting ‘real’ news.
As Michael Pettis has repeatdly been pointing out, China’s growth is not sustainable in its current form. There are ways out, but its questionable as to whether there is the deep down willingness to take the needed steps. It may be that Trumps behaviour may focus minds within China and they will finally tackle the problem of a stagnant domestic sector and overdependence on infrastructual spending. But its also pretty clear that Xi’s focus is initially political, not economic. Its possible he doesn’t even fully understand the issues (although there is little doubt that many senior government figures understand all too well).
The feeling of China’s ‘place in the world,’ often is associated with the proud moments in Chinese history. For example, it is recalled fondly that there were numerous foreingners in Xian during the heydays of the Tang dynasty. It was very cosmopolitan, and students from many countries studied at the capital, tuition plus room and board free, provided by the government (but not domestic Chinese – no free college tuitioin for them, sadly). They came from Samarkand, Vietnam, Korea, Japan, Sogdia, Persia, and other places.
Today, it is more likely Chinese feel safer or they have more opportunies abroad
The kindom in the middle should, in their ideal world, attract people to the land, instead. And Confucian sons (and daughters) piously stay home (one reason the Treasure Boat voyages were stopped, after the new emperor took the throne when Yongle died).
You are right that China-Watchers are fated to be profoundly wrong. Auerback says “Unlike the U.S. (where constitutional safeguards can mitigate the capriciousness of a volatile leader like Trump)”……. I would say that constitutional safeguards actually operate on the population and hardly at all on the political classes who disdain any restraint on their freedom of action. I fear the author is adopting the recent policy of the west to ignore the culture and social preferences of other nations and interpret everything in terms of what we would do ourselves in similar circumstances. I suppose as an economist that is tempting but it should be understood to arise agains a backdrop of different values.
Is a cold war 2.0 really going to make the rest of the world safer and more prosperous? In my opinion not, so what is the path forward?
One might argue that many citizens of the west care little about making the “rest of the world safer and more prosperous”.
Their immediate concern of many is that they and their families are “safer and more prosperous”.
Many could view cold war 2.0 as quite good for their lives and could well be the path forward.
A great many people profited from Cold War 1.0, if one assumes that covers the period from end of WWII to fall of the Soviet Union.
A Cold War will make it impossible to prevent a 4C rise in average temperatures by 2090. It will devastate the planet. But the middle-aged gotta have their nationalism and their nation-state rivalries.
China’s growth is over as presided by late 20th century methods. They know it and Mattis blew the lid off why Trump is doing what he is. It also explains the oil selloff, Chindia is also changing eras. Maybe Trump should just appoint Russian and Chinese politicians to his cabinet. Just be honest……
> Maybe Trump should just appoint Russian and Chinese politicians to his cabinet. Just be honest
What on earth does this even mean?
So China is villainous for undertaking the same, exploitative, one-sided trade behaviours that the west has undertaken, and continues to foist upon, many countries in the global south? Or should we accept that these behaviours are problematic only when they’re targeted at the west?
Is the ire of the west stoked by China not remodelling itself in the image and likeness of the west, politically, economically, socially and culturally. More to the point, must China become a corporate oligarchy with the unbridled corporate totalitarianism that we see increasing evidence of in the west for Western elites to be placated and see China as a good trading partner?
This is not to suggest that China is angelic in its intentions, and, as an African, I continue to view with suspicion its long-term ambitions on our continent. That said, the author seems to be attempting a whitewash of the rapacious trade behaviours the west itself has undertaken towards lesser countries for decades (calling these behaviours “rules-based” doesn’t mean their effects on global south countries has been any less pernicious). Francophone West Africa, as one of many examples, has been pillaged by France for decades, and continues to suffer this fate today under a “rules-based” system that we are supposed to, if the tone of this post is anything to go by, accept as sacrosanct.
Global south countries, or more precisely, their political and financial elites, were complicit in sealing their fate vis a vis entrenched assymetrical trade relations with the west, whereas China and Russia are placing their own national interests above those of unfettered access for Western and/or Western backed MNCs, and for this they’re demonized. Call their methods oppresive, but that’s really the pot calling the kettle black because working and middle class people in the west are under increasing oppression from the oligarchs, said oppression covered as it is by a veneer of “free markets, democracy and meritocracy” under which “anyone can rise to the top”. While the author may believe that he’s arguing for the protection of the interests of his country (and the west at large), from their perspective, China (and Russia) are doing the same and in truth, why shouldn’t they. I will end of by saying what I said in comment to Marshall’s previous China article, when reading his posts on China, I can’t help but sense a bit of triumphalism in his writings.
thanks for this perspective. it’s good to hear voices from africa.
You are correct. Their ambitions are Neo-imoperialist, because they want the same things the European imperialists wanted, mineral resources and land for growing food.
I’d also point out that Africa Leaders have appear to be constrained only to enable this greed, and have no latitude to do otherwise. To understand this thesis, look nor further to the Monroe Doctrine of the US, which imposes imperialism on South America.
I totally agree! I consider it very naive to think any rising empire would “play by the rules”, as I consider world trade to be a blood sport.
I recall in the early 2000s, during the Great American De-industrialization, when a friend of mine from the telecom industry told me that the requirement to set up a factory in China was that the Americans had to provide the Chinese with all of their manufacturing techniques and have Chinese managers on hand at all times, including meetings. I was surprised, and asked what good could possibly come of this? He assured me that everything would be fine as we would control their banking system within a couple of years. From his perspective we would become one great global market and the West would control China’s economy.
As an aside, the fretting about telecom security issues from the Chinese telecom equipment is a bit hilarious in light of the Snowden revelations, regarding the NSA’s embedding their surveillance software and malware in American exported servers.
The latest consternation are similar to the revelations to those in “Casablanca” by Captain Renault: “I’m shocked, shocked to find that gambling is going on in here!”
My sentiments, exactly.
Not for that (quoted) reason, it seems to me.
In fact, China is a hybrid coporate oligarchy, with unbridled state-corporate totaliarianism.
And reading various comments here, over time, by people who work, not elites, also suggests that is not the sole or primary reason.
Africa was not pillaged due to a “rules based” system. Local elites were fully on board and profited handsomely. Formerly French Africa is a hotbed of corruption, the antithesis of a “rules based system”. There has also been plenty of money laundering,
You idealization of China is naive. This is a country where prisoners have their organs harvested while they are still alive. The elites don’t want to live there, are having their children educated abroad, and are moving their money out of the country as fast as they can. The Chinese elites have destroyed their own country via horrific pollution. And now they have the most extensive and punitive surveillance state in the world.
The US is an ugly hegemon, but you are deranged to praise China as an alternative.
China has stopped harvesting organs from executed prisoners without consent, despite Falun Gong wants you to believe otherwise. Harvesting organs from living person sounds like illegal organ trade. Such tragedies do occur in relatively poor countries such as China and in poor countries such as India, where healthcare and organ transplant system are inadequate. However, it’s not sanctioned by Chinese government, although such illegal organ trade may be abated by corrupt local officials. These are two different things. It’s Falun Gong that tries to confuse the two.
Chinese elites send their kids overseas because the Chinese society is hyper-competitive and it’s very hard to get ahead over there. Western elites also send their ill-gotten gains to overseas tax heaven as soon as possible.
Every developed nations industrialized by polluting their environment first. They only started to clean up when their per capita income reached a certain level. China actually started to clean up their mess at a lower per capita income level compared to their Western counterparts, after having pulled hundreds of millions of Chinese out of poverty.
It’s not that they’re villainous. I think most nations are villainous (if one wants to express it thusly) toward other nations’ interests, their own populations, or both. As documented everywhere, the US is as bad as any have ever been in many ways. No, it’s that we’ve been fools to put up with China’s predatory practices while we still had the power to do something about it.
So . . . Europe colonized Africa, therefor China gets to colonize America. I understand.
Well, alrighty then!
The memories/scars of European colonialism run deep. Then throw in Western indifference to Japanese invasion in the 1930’s.
Then throw in the late stage imperialism of US-neocon hubris
China was never the most stable country from a currency standpoint, but after the long hyperinflation leading up to the repudiation in 1949, left many financially scarred for life.
I’d guess those long memories within the purview of their elders, still holds sway in those from the PRC buying overseas boltholes.
My Mom’s neighbors in the SGV were a Chinese movie star agent on one side and a family of 4 ex-Beijinger’s on the other, both having paid cash for their crash pads.
When I was a kid, I was admonished to eat all of the food on my plate-as people were starving in China, and it was true…
There are few if any scars from European colonialism as most Chinese don’t consider themselves to have been colonised, which indeed apart from a few coastal ports, they were not. They remember that period as one of shameful domestic weakness and decay, not as one of colonisation. And there was no indifference at all to the Japanese invasion, in fact the US in particular gave an enormous amount of covert aid, including an entire volunteer air force. Most Chinese consider the role of the Europeans during that war to have been quite honorable, including of course the attempts to shelter civilians during the Rape of Nanjing and other massacres – even the Nazis get credit for that.
The US even had quite good relationships with the Communists during the war, and in the immediate aftermath even attempted a sort of national reconciliation government. It was only after Truman started to overtly favour the Nationalists that Mao adopted explicit anti-American and anti-western rhetoric, prior to that he looked on the US quite favourably, as did many Chinese radicals.
The Chinese were historically, and are today, far more concerned about their neighbours and traditional rivals and enemies, the Japanese and Vietnamese and the Russians than they are about the ‘west’ and they certainly don’t waste time thinking about colonialism, as they are too busy doing the best to build up their own power bases around the region.
Far from the West being indifferent to the Japanese occupation, it was the (US-organised) oil sanctions against Japan, because of the invasion of Manchuria, that sparked off Pearl Harbour and the Pacific War.
I found Forgotten Ally to be an interesting read about the US’ support for China during WWII. By and large, we used China as a useful tool to pin down the Japanese in China. We never considered them a full partner in the war effort.
My understanding of the way the war went was that there was a desire to shore up and defend China, but it was decided that it was logistically too difficult. Essentially there were those advocating a land war to push the Japanese out of mainland Asia first, and the alternative naval strategy of island hopping. The latter won, but more for straightforward military logistical reasons than anything to do with politics, it was decided that it simply wasn’t possible to land and maintain an army in China big enough to take on Japan without securing the Pacific sea routes first.
It does seem likely though that modern Asian history would be very different had it been decided that an attack on the Japanese through the Chinese mainland was the best option.
Well, they would have had to defeat the Kwantung Army, for a start, which was around one million strong (much larger than the forces that overran SE Asia). And even then there was the small matter of crossing the notoriously rough seas between there and Japan and fighting their way onshore.
I think the Kwangtung army was badly whipped by the soviets, before 1945, in the 30’s, I believed, and that was why Tokyo decided on the ‘south strategy,’ instead of going north to take on the USSR.
And I am not sure how the Allies could have landed an army in mainland Asia. Where? Through India or Burma? With Honshu, Taiwan and the Phillipines in front, it couldn’t have been on the eastern coast of China.
Yes, the original Japanese strategy was to go north and grab the mineral reserves of Siberia. But the Soviets gave them a hell of a beating when the Japanese provoked a fight at the Battle of Khalkin Gol. Thats when the Japanese realised they’d fallen far behind other nations in land warfare. That arguably led to the swing in favour of the Imperial Navy and a strategy of Pacific expansion – so they avoided a war with the Russian Bear and ended up against the US instead.
The Kwantung Army collapsed when the Soviets attacked it, and had earlier done poorly against them at Khalkhin-Gol (before WW2). The Japanese had poor tanks and miserable antitank weapons, weak artillery, etc., all severe disadvantages when not fighting from fortifications.In an open field battle, the Japanese had little chance against the allies.
The closest to my knowledge to a proposal to go through China was to invade Formosa rather than landing in the Philippines. What is the starting point for a poath through China? Until 1944, the Japanese controled Burma and all points east of there. Logistics to India require far longer paths than did passing West Coast-Hawaii-various islands. In addition, going north from India or Burma there is a huge mountain range, crossed by few roads.
That support also included “flying the Hump” which was a massive aerial supply corridor over pretty bad conditions to supply China from India. Nearly 600 aircraft were lost or written off and about 1,700 men were dead or missing. One pilot that arrived for duty there was listening to reports at headquarters and that morning several aircraft were lost and a coupla dozen men dead. And not one was shot down by the Japanese. I think that his laconic comment was “The Hump. Not to be confused with a wartime operation.” More on this epic feat at-
https://en.wikipedia.org/wiki/The_Hump
Read Barbara Tuchman “Stilwell and the American Experience in China”. The bipartisan American “China Lobby” pumped up KMT-‘ruled’ (lol) China as far more capable and committed “full partner ine war effort” than it actually was, abetted by the charming Madame Chiang.
As more pragmatic Americans arrived in the “CBI Theater” after 1941 they quickly realized the military limitations of their ally, as well as the logistical nightmare of ‘the Hump’, which wasn’t overcome (Ledo Road) until 1945 when the Pacific War had already been decided on other fronts.
That’s a great book…
Stilwell called Chiang Kai-Shek “The little dummy” or “Peanut” in his reports back to DC.
…he had much contempt for the man
It is easy for Beijing to remind Chinse of European colonialism.
They only have to show on TV all the treasures in Fountainbleu, other wester museums and palaces, and various high end auctions.
I’m old enough to remember the lip-smacking relish with which the economic polices of Deng Xiao-Ping were greeted in the late 1970s, as though the Chinese (in the 1960s an ant-like society of robot fanatics) had realised they were wrong and embraced capitalism. When you consider Chinese history and society, no conceivable evolution in that country after 1976 could have lived up to the hype. And that hype was itself made worse by the widespread assumption after 1989 that there was only one way forward, economically and culturally, and that the Chinese would necessarily adopt it. Dissatisfaction guaranteed.
And I wouldn’t quote policy towards the Soviet Union as a success either. Kennan and co catastrophically misjudged the paranoid defensiveness of the Soviets after their terrible experiences between 1941 and 1945. Fortunately the world didn’t come to an end, though it could have. In the end the West (and especially the US) is simply not very good at understanding other civilisations.
Yes, that bit about Kennan’s ‘famous telegram’ caught my attention too.
That telegram constitutes one of the foundations of the cold-war, and the MIC, and gives me reason to doubt the rest of the ‘analysis‘.
There was a lot of money made in building the “Chimerica Nexus“, and it looks like a lot of money will be made in defending the West’s interests now that the relationship has ‘evolved‘.
If you actually read Kennan’s analysis, he most certainly did NOT misjudge the paranoid defensiveness of the Soviets. In fact, he specifically called attention to it. I think many of the imperialist adventures of the post-WWII era that have been wrongly ascribed to Kennan came from more aggressive American attempts to roll back Communist influence, via proxy wars, covert warfare, CIA-engineered coups, etc. Kennan’s aims by contrast, were CONTAINMENT, not overthrow. He was not a Kissinger or even a modern-day John Bolton and in fact he decried many of the actions undertaken in his name by the end of his life.
I don’t think you’ll find me blaming Kennan for the way his analysis was put to use, but it was put to use, and that by the architects of the cold war, the security state, and the MIC.
My guess is that he thought he was communicating with rational actors, when in fact he ended up enabling people who already had an agenda far different than his.
The fact that Kennan didn’t intend, by writing the telegram, and then his ‘X’ article, to advocate for an aggressive, militarized posture towards Russia, that is what his efforts ended up being used for.
My real argument is with this part of your analysis;
IMHO, the real proximate source for Cold War 2.0 is the MIC’s insistence on business as usual, and, on a related front, our waning ability to deliver a fair share of our nation’s prosperity to ‘our’ people.
> The problem is that the whole basis of the Chinese Communist Party’s national legitimacy has been predicated on its continuing ability to deliver growth and prosperity to its people.
I don’t see any issue with this. IMNSHO, Xi is riding the tiger of needing to deliver for the working class and the still-massive and still-poor peasantry. If he doesn’t know it, the hive mind of the Chinese elite knows it. A “decline in orders” translates directly and instantly to factory workers not being able to send money back to their families in the village. That’s very bad for Xi. (I don’t think Americans, who don’t have this practice and don’t stress filial piety much, understand this at all.)
> the real proximate source for Cold War 2.0 is the MIC’s insistence on business as usual, and, on a related front, our waning ability to deliver a fair share of our nation’s prosperity to ‘our’ people.
The two dynamics surely complement each other.
I don’t think we have an argument, although after some thought I would have stated our side of the complementary dynamics a bit differently;
The real proximate source for Cold War 2.0 is the MIC’s insistence on business as usual, and, on a related front, our elites refusal to deliver a fair share of our nation’s prosperity to ‘our’ people.
And my quibble with the author’s analysis that the Chinese domestic problems are;
“increasingly identified as a proximate source for Cold War 2.0.”
Increasingly identified by whom?
This perspective is obviously lacking in that it ignores the part played by America’s commitment to neoliberal economic theory/practice, and bellicose neoconservative militarism.
That’s a gigantic flaw, especially considering that our telling of the story starts with Nixon and Kissinger creating an “opening to China“.
It takes two to tango, and it takes a lot of effort to avoid mention of America’s insistence that it lead the dance.
Where has Watt4Bob stated (or even David) that Kennan called for overthrow? That’s constructing a straw-man, if memory serves me right.
If Kennan regretted the Vietnam & Iraq wars, then it’s also true his position on overthrowing governments through funding internal subversion in the Americas, Africa, Asia, the Middle East, and even in Canada, Greece, and Italy were subdued at best, at least according to an (after the facts/dust settled/Henry Kissinger approved) hagiography.
As Chomsky noted about the press, Kennan would never have gotten to where he was if he had acted different to the neo-liberal herds’ instinct.
US Corporations, especially tech, are reaping what they have sewn in the 90’s, thinking they could take advantage of cheap labor plus billions of new customers in China. Too bad China outsmarted them by requiring a physical presence (factory or distribution house with a value add) in order to do business there. In Telecom, the belief was that the Western corporate employees could control the technology and intellectual property and simply use China for cheap labor. In the long run this strategy resulted in China understanding the technology and how to improve future product generations better than the western overlords (upper Management). In the US, short term thinking and concern for the stock price over long term results has cost this country in so many ways.
“The 100 million oil lamps of China” syndrome, also the business model of Walmart. Greed overcoming common sense.
Why would your biggest customer not start to keep more of the profits? China seeks control of energy sources, Walmart beguiles suppliers with large orders and then squeezes the profit margin.
I think that I might have a few disagreements with this article because of course I do. My idea is that China was left alone to develop into a capitalistic powerhouse over the past 30 years because the assumption was that a class of billionaires would arise that would push aside the Communist Party to take real control and who would be prepared to sell China down the Yangtze river. This did not happen of course which explains the frantic attacks that we are seeing lately such is in today’s links. Internalizing Western norms and values sounds good as an idea but you are talking about a culture that goes back thousands of years and that is a lot of cultural baggage to change. Not gunna happen in one generation.
When the article mentioned the “Five Eyes” I would prefer to name it as the Anglo-Saxon Alliance instead by the way. Globalization may be dead and maybe the world will likely fragment into regional trading blocs as a result but the truth of the matter is that this type of globalization arose in a unipolar world which is a historical aberration. It was a freak of history and not the “end of history”. Now that the world is reverting to its normal state of a multipolar world of course you will see trading blocks arise. It just means that if globalization is to continue, it must be in a different form. There is a bigger concern.
Back in 1999 the CIA had the Chinese embassy in Belgrade attacked killing a number of Chinese. I read an article once that stated that the Chinese raged over this deliberate attack but did not have the power to stop this happening again. It went on to say that the massive increase and modernization of the Chinese military date back to this incident so call it blowback. China is again under attack and thought they may negotiate this or that, you can bet that they are thinking long term. And as they say – beware the anger of a patient man.
sorry to **really** nit-pick…leave the Anglo-Saxons out of this :)
….as it was the Normans/Normano-Vikings elites who got the ball rolling with 900 years of colonialization and subjection—starting with their repression of the pre-1066 Anglo-Saxon-Celts.
https://en.wikipedia.org/wiki/Norman_invasion_of_Ireland
https://en.wikipedia.org/wiki/Norman_invasion_of_Wales
https://en.wikipedia.org/wiki/Harrying_of_the_North
Anglo-Saxon as a synonym for English is a misdirection by historians who I guess wanted to downplay the French roots of the English elites?
(Arguably) the world would’ve been a much different place had the Normans lost in 1066.
Yes, William coming to England certainly shaped England going forward.
I blame the stirrup, an Asian import BTW, not only for the success of the Norman invasion but it is also credited by some as an essential element in the development of feudalism.
https://en.wikipedia.org/wiki/Stirrup
It is interesting that the most direct descendants of the vikings are now among the least bellicose of developed nations with social safety nets that are better than most.
Perhaps that is b/c they are the calmer sorts who stayed home, while sending their over-active young’uns a-viking.
I don’t blame the Chinese and before them others such as Castro for their unwillingness to adopt the model of an “open democratic society”, given the U.S. penchant for overthrowing regimes who tried to, while at the same time following a more leftist and/or more benignly nationalistic course, and favoring the interests of their own citizens over those of foreign capital.
I do like the notion that “globalization is dead” and that this will bring about a geographical contraction toward regionalization of trade relationships. It would be good for the near neighbors to get to know each other better instead of focusing on the far flung outposts of empire. Quit flying off to Davos and have more block parties.
“My idea is that China was left alone to develop into a capitalistic powerhouse over the past 30 years because the assumption was that a class of billionaires would arise that would push aside the Communist Party to take real control and who would be prepared to sell China down the Yangtze river. This did not happen of course which explains the frantic attacks that we are seeing lately such is in today’s links.”
Just thought this needs to be highlighted and emphasized! It may not apply to all liberal hand-wringers who are concerned about “democracy” and Chinese concentration camps. But the PTB have never been concerned about that. For those who think they are, I have a bridge over the Yangtze I’d like to sell them.
This article is frustrating in a way similar to many of the better CFR publications. It is informative and factual at one level, but there is definitely a particular lens through which this information is filtered. What is the source of this frustration for a reader who is not a China “expert”? Here are a couple of quotes that jumped out at me:
“In contrast to George Kennan’s famous telegram about the old Soviet Union (which correctly rebutted President Franklin D. Roosevelt’s naïve assumptions about Joseph Stalin and provided the diplomatic underpinnings for a sustained policy of Western containment after World War II)…”
“The fundamental tension between modernity, markets and a rules-based order on the one hand, and the maintenance of an arbitrary one-party state on the other, is for now being resolved in favor of increased authoritarianism, occurring in the context of deteriorating economic growth.”
The first quote implies some assumptions about the past; the second seems to set up the type of dichotomy often informing CFR-type analyses (whenever I see the phrase “rules-based order” a red flag goes up). So… what is it the author would *like* to see happen? Is he expressing a concern for the democratic rights of Chinese citizens? A concern for the Chinese financial system? How should China more effectively promote a “rules-based economic order”? Hmm. Something seems to be missing, or unstated here. Perhaps those here with better insight can enlighten me.
Kennan can not have been actin alone. He must have been reflecting the “convention wisdom” pf many in Washington, and was preaching to the choir.
Telling a group of people what the wanted to hear, in an echo chamber.
The US may turn inward. However, any turn will only benefit the rich and powerful, as it always appears to do in “Western” economies. I do wonder how Russia would have fared if it had not become the US #1 enemy immediately after Hitler’s war.
The US appears to want to have enemies to function, and willing to create them if they do not exist.
I think the general consensus of historians now is that Kennan was influential precisely because he represented the consensus at the time. he just put down in words what was becoming the conventional wisdom.
The fundamental tension between modernity, markets and a rules-based order on the one hand, and the maintenance of an arbitrary two-party state on the other, is for now being resolved in favor of increased authoritarianism, occurring in the context of deteriorating economic growth.
Changed one word and seemed to fit US perfectly.
He was not unswerving in repeating conventional wisdom. He went against conventional wisdom in 1967 and strongly advised not to expand the Vietnam War and to wind down US military presence in Southeast Asia (Indochina, as it was then called).
If a US turn-inward involves Secession from the International Free Trade Order and the restoration of Hard Protectionism to permit the restoration of Domestic Production for Domestic Consumption, then a US turn-inward could benefit the poor and the powerless.
Including the millions of “engineered poor” who were engineered into their poverty through the multi-million mass jobicide which was a primary goal of the Free Trade Agreements to begin with.
> whenever I see the phrase “rules-based order” a red flag goes up
Me too. The combination of a “rules-based order” and a lawless and impunity-endowed elite with global reach is certainly an interesting one to contemplate.
A bit off topic, but it’s interesting to see that the “Five Eyes” emerged into the open as a trans-national institution, expressing opinions on policy, after the ISDS system was wounded by the nobbling of TPP, TTiP going on to the back burner, and so on. It’s almost like they’re filling a power vacuum of some sort….
Blather? Nah! Though if it ever wanted to it could indulge in prattle, babble, chatter, twitter, prate, gabble, jabber, yap, jibber-jabber, patter, blether, blither, maunder, ramble, drivel, informalyak, yackety-yak, yabber, yatter, informalwitter, rabbit, chunter, natter, waffle, informalslabber, informalmag, archaictwaddle, clack and twattle. Answer your question?
Marshall lost me at “correctly rebutted President Franklin D. Roosevelt’s naïve assumptions about Joseph Stalin.”
Auerback is a conservative elitist. Stop publishing him.
Your demands to “Stop publishing him” because he “is a conservative elitist “do not make sense. Please define your terms if you want us to take you seriously.
I agree that we should be careful about throwing labels around, especially at guest authors who are hosted here. And calls to “stop publishing” just about anyone make me uncomfortable. Further, there have been some good progressive economists at the Roosevelt Institute and at EPS.
That said, you could make an argument that the author’s bio cited above does suggest a likely worldview that could be characterized as an “elite” perspective, perhaps a certain type of “progressive” neoliberalism. This is bolstered by the contents of articles like the one above. And as is obvious today, affiliation with “liberal” or “progressive” institutions (or publications) certainly does not preclude defense of establishment policy or ideology. That seems to be the concern of a number of critical comments here by those who question those policies. It doesn’t mean we can’t debate these issues. And I’m happy to be persuaded that I am wrong.
Go to hell. You have no business dictating what we publish here.
It’s foolish to silence someone because we disagree with them. Auerback is a right-social democrat and a statist; but even when we hate what he’s writing we should still listen.
And Kennan was wrong. Stalin didn’t give a shit about exporting revolution. He wanted to preserve his control of the Soviet dungeon he’d created and would have willingly worked with the West to accomplish this.
“… the naïve assumption that its growing prosperity would inevitably lead to a more open, politically liberalized country whose interests would more closely align with those of the West.”
Wrong.
The assumption was that allowing American-based companies to move their manufacturing to China and take advantage of all that (at the time) cheap labor would make the elites on the Untied States a whole boatload of cash. As it has. Everything else was a smokescreen.
But the rich, as powerful as they are, as a class are only concerned with short-term profits. Now the long term is coming around, and they don’t like what they see.
The big issue for China is that its wages are no longer rock-bottom – they are now significantly higher than in Mexico! So how to transition from an economy based on attracting foreign investment via cheap labor, to one based on internal consumption and high wages? That’s the trick, and easier said than done. Commercial systems are notoriously ‘sticky.’
Would someone explain how the Chinese economy works please? I don’t buy the idea that the Marxist-Leninists have become closet capitalists. I worry that they are giving us enough rope to hang ourselves.
Mark Blythe, the Political-economist at Brown University, was asked how the Chinese banking system would be fixed if it failed. He replied ” Oh it would be fixed, I don’t know how, but it would be fixed “. This suggests that the Chinese system is outwith anything that we know in the west.
Help please.
A good start is Michael Pettis’s blog at the Carnegie Endowment – he’s been writing for years on the particular nature of Chinese capitalism. There are plenty of books on the topic, but they all tend to have an ideological slant of one form or another, so you can only really get a big picture by reading a variety of them.
There is nothing particularly unique about the Chinese model of capitalism – the Chinese have adopted a very centralised export and infrastructure heavy model (suppressing household spending in particular) to go for rapid growth – its the same system the Japanese and South Koreans and Taiwanese used with success, which in turn can be traced back to the 19th Century German model of rapid catch up capitalism. The key difference is that the Chinese party maintains a very tight hold over finance and manufacturing, with many companies in a sort of hazy zone between been run by private owners or various levels of state authorities. The reason they say the Chinese banking system can be fixed is simply that the main Chinese banks are under the very firm control of the government. Financial holes will be filled – the problem is what sort of damage will be done to the rest of the economy by the rescue proposals.
The big concern for China is not the potential for the banks to collapse, its for the banks to be zombified and so drag the country into long term deflation and poor growth, a bit like Japan. There is the related issue that a focus on investment at all costs has led to an enormous amount of malinvestment – i.e. loans on infrastructure that will never, ever be paid back, but will be rolled over forever.
Many thanks
> as asked how the Chinese banking system would be fixed if it failed. He replied ” Oh it would be fixed, I don’t know how, but it would be fixed “
China is sovereign in its own currency, so I imagine they would print money. Just as we did.
Great read, Marshall! I laughed out loud on the train when I read the excerpt from The Economist, though:
“China is co-opting institutions such as the UN and the WTO to make them safe for authoritarianism, state-backed capitalism and other threats to a rules-based order.”
Meanwhile in the US:
Authoritarian President
State-backed Capitalism via #Kleptocracy
Unilateral foreign policy (skirting the rules based order of international agencies)
… and none of those (save possibly the visibly authoritarian president) is new.
The article seems to be written from an American ruling class point of view, but not in the mode of the ruling class talking to itself, but rather talking to its more faithful and privileged servants, and thus has a New York Times feel to it. From my point of view, it seems laced with propagandistic elements, but to the author it might not seem like propaganda at all because he is probably a true believer in liberal-imperial ideology. So in a sense it is factual, although the facts have been closely filtered. One species of fact which seems to have been omitted or lightly considered is the ambivalence of the American r.c. with regard to China. Perhaps some established-order mandarins and traders have been starry-eyed about China, but many others have been eager to warn the folk or call for military and diplomatic intervention against China over the last 20 or 30 years. Hence Obama’s ‘pivot toward Asia’, for example, which was not to be benevolent but antagonistic (or so I assume since it involved positioning American military forces in such a way as to contain China, accompanied by the clearly anti-Chinese TPP.) My guess, going only from the vague outlines which are all that is available to me, is that the American r.c. would like to see the world gathered into one vast America, controlled cleverly by people like themselves in the way they do it, whereas the Chinese (and the Russians and so on) often seem to prefer other methods of sorting out their internal class wars. The article is far from Kennan’s coming down from the mountain with the Cold War inscribed on tablets of stone; it’s more a description of what’s already going on and has been for some time, and the way our lords and masters would like us to think about it — if we must think at all.
I’ve been thinking that, for reasons of crowd control, both we and China need to create political drama in order to deal with climate change. China tells itself that the Americans are the bad guys; we tell ourselves that China is the bad guy. When in fact there is an agreement to cut emissions. What better way than to shrink trade? Shrink both giant economies down to size? That alone takes care of billions of tons of CO2 by not creating it in the first place. You can’t tell me that global warming is not changing politics. It is. But it is the reason that cannot be spoken. I almost suspect Marshall Auerbach of tossing that incoherent blurb about Kennan out there as a red herring so we would all get confused and distracted. Probably the best thing we ever did to bring global warming into our grasp was crash the global finance in 2008. Yes. Conspiracies, I know.
Plus the many millions of more tons of carbon not burned by stopping the physical moving of all the goods not-made-anymore in order to be not-traded-anymore.
Solving the International Crime of Free Trade would solve a lot of the international threat of global warming.
> I almost suspect Marshall Auerbach of tossing that incoherent blurb about Kennan out there as a red herring so we would all get confused and distracted.
1) If you’re going to claim a post is incoherent — or a quote within a post — you need to explain why, not just make the assertion
2) Do you really think it’s a good idea to assault the good faith of Naked Capitalism authors, and, by extension, of the site itself?
You’re right Lambert. I did say “almost” because I have always liked Auerbach – but 2 things, one about Kennan and one about FDR: Kennan was very knowledgeable about Russia and he looked with sympathy at their progress. His big point from my reading was that we should not push them over the edge but be patient and they will develop into liberals. But what was the reality? We (after FDR) went the opposite direction and engaged in a cold war which bankrupted Russia first. We survived only because we had the gift of fiat and we didn’t hesitate to use it for that purpose – now, of course, it is suddenly a different story – can’t spend that money on our society, “wouldn’t be prudent.” So to say that FDR was starry eyed about Stalin is an exaggeration – he just didn’t want to crush Russia and neither did Kennan. One of Kennan’s late life laments was that he couldn’t stop the neoliberals from being so militant and agressive against Russia (actual TV interview but can’t cite, sorry). And the other point about FDR is that it was FDR who was almost romantic about China. He wanted China to come into the fold and said it would take 50 years for China to achieve this. Close, because after Nixon it took about 40 years. But one thing to always consider is that time moves on even tho’ romantic fantasies about capitalism do not. Capitalism itself has been on the ropes to prove itself as the engine for the future and it is failing miserably. So China is as caught up in this mess as we are. And etc. I probably sound pretty incoherent as well.
Just last week our organization endured being unable to reach an important vendor online due to a ‘Man-In-The-Middle’ attack with origins in China.
A Chinese group was using packet-injection to re-route traffic to our vendor’s web-site, through multiple hops, through multiple countries, (so as to disguise the source of the attack) and eventually to Beijing, where all the info in the data stream could be read as it was traveling on, to our vendor’s site.
All of this most likely by way of a back-door in a piece of internet hardware.
This is sort of like putting up phony ‘Detour’ signs to fool travelers.
I know this because I have blocked all traffic to China on our firewall, and watched it refuse access when users tried to reach this vendor.
The attack was not typical, in that it lasted somewhere around 6 hours, and most of these last only an hour or so, so as to avoid discovery.
I had to explain to users that if I had allowed this traffic to proceed, their user credentials would have been harvested by the Chinese hacker team, who would have used them to access our vendor’s systems and allow them to steal our customer’s information, and maybe launch further attacks on systems our vendors are connected to.
I tell everyone that they should be happy because I’m keeping them from becoming famous for losing control of customer data.
“You don’t want to end up on TV do you?”
I blame all of this on America’s technocratic elites, who thought it was smart to cede the internet hardware realm to the Chinese, I suppose to save money, and I would remind people that for a time not so long ago, the only 5G routers available were manufactured in China.
That being the case, what’s to stop “all your base are belong to us”
I believe you can thank the NSA and 5eyes for all those hardware issues that made this possible, to the extent that Huawei even put these backdoors into their copies. It seems Huawei became a problem when they started fixing these issues.
https://www.youtube.com/watch?feature=player_embedded&v=b0w36GAyZIA
https://theintercept.com/2014/10/02/the-nsa-and-me/
If you were able to detect the attack originated in China, then it was pretty damn crude.
Not a fan of autocratic regimes or violent suppression of peaceful dissent anywhere at any time, but I do think more attention should be paid to carefully parsing Xi’s speech on Dec 18th. Based on an interpreter’s language of that speech, I question whether Xi’s views relate as much to a perceived conflict between those who control large banks and transnational corporations, their influence over other governments, and the sovereignty of the nation-state of China, versus a conflict between nations. Although it is unlikely to be a high priority for him or China, I don’ think he is unsympathetic to the plight of US family farmers and US labor, as was demonstrated by his quick concessions on agricultural commodities and U.S. autos. Just a sense, and I could be wrong. Not condoning IP theft, but I do think we need to be careful about the lens through which we view this relationship, particularly projection of their own norms by special interests regarding China’s motivations.
Thanks for posting Marshall Auerback’s article.
“President George W. Bush’s remark: “Trade freely with China, and time is on our side.” The main idea being that Beijing would ultimately internalize Western norms and values as it integrated and prospered via an increasingly globalized world economy.”
In 2008, the West demonstrated it had no idea what it was doing.
What had seemed like a good idea in China before 2008; didn’t look so good after.
The Chinese had been thinking about democracy, but now they are worried the Russians will interfere in any elections.
I generally like reading Auerback. My objection is he is repeating the neoliberal slogan/rationale of “bringing China into the fold” peddled to citizens of the West whose livelihoods were actively sold out in the process.
The use of China as our manufacturing base had nothing to do with lofty ideas of making China a Western-like nation. Simply, the corporations saw a way to suppress wages; keep the illusion that US economy is as stong as it once was; move all the more regulatorily troubling exploitation of workers offshore; and use overseas operations in order to have deniable tax avoidance.
Now, China’s failure to conform to the West and US hegemony is being used as the excuse to sell everyone on turning way. Could it be that now 1) ‘trade’ is less profitable and 2) the dependence on China is becoming as much more of an economic issue.
> The use of China as our manufacturing base had nothing to do with lofty ideas of making China a Western-like nation. Simply, the corporations saw a way to suppress wages; keep the illusion that US economy is as stong as it once was; move all the more regulatorily troubling exploitation of workers offshore; and use overseas operations in order to have deniable tax avoidance.
This is simplistic. Both can be true. I think the elite genuinely believes all the neoliberal bullshit they peddle (and that very much goes for the neoliberal bullshit peddled by Pelosi, Schumer, Harris, Beto….). The elite also genuinely believes in suppressing wages, etc.
Analysis like this (“Simply…”) is even more over-simplified than the typical vulgar Marxist base/superstructure formulation, where ideology is taken as a direct read-out from class interests. If the elites were completely cynical, and could turn on a dime and change their ideas as soon as their material interests changed, life would be a lot easier. The fact that they genuinely believe bad ideas (a sort of mental hysteresis) makes change much more difficult (“one funeral at a time”). That’s not to say that material interests do not inform and structure the various elite ideologies; of course they do. But to say “nothing to do with” is just dumb. And disempowering. It’s like saying religion had “nothing to do with” the Crusades. Know your enemy and know yourself…
That’s really good, and deserves some expanded discussion, maybe its own post.
A really good summation. Thank the Heavens that someone has the intestinal fortitude and overarching intelligence to state the naked truth without feeling the need to apologise to the cringing fringe dwellers clutching their entrails – aka the elites.
The globalists convinced the west to tug the tiger’s tail, by assuring us that it would be so happy, it would never eat the hand that awoke it’s appetite. The reality is that the tiger is always hungry. This old China fable has held true over so many centuries, the west can only hold itself to account for their arrogance. I remember the seventies and was sadly involved in a few of the various soirees of trade fairs and ministerial visits, where China displayed their smiling faces. Such nice people, whatever could go wrong? The reality was that we all ignored the fact that dealing with a totalitarian state without a rule book would always end in tears when things go pear shaped.
So now the west will have to be weaned off those cheap China goods as manufacturers gather their wares and find some other low labour cost country to exploit. Unless of course, we finally elect to a true progressive government who just may have the brains to return our country to a reliable mixed economy. Unfortunately the west have enabled the rise of China with the bait of technology transfers, which will not be easy to resolve. That horse has well and truly bolted. This will be no cold war as we had with Russia who withdrew behind the iron curtain. China has embedded itself into so many economies around the globe that nothing short of regional conflict will resolve the impasse. I think this is what the article implies and most thinking individuals would agree.
While we may dislike Trump’s clumsy behaviour, perhaps he is the leader we need to deal with the smiling Chinaman,
> The main idea being that Beijing would ultimately internalize Western norms and values as it integrated and prospered via an increasingly globalized world economy.
If we wanted that to happen, we should have encouraged China to unionize as it industrialized but that would be anathema to neoliberals. So, forty years on, after the policy debacle, “We de-industrialized the heartland, and all we got was this lousy T-shirt.”
In 2008, the West demonstrated it had no idea what it was doing.
What had seemed like a good idea in China before 2008; didn’t look so good after.
The Chinese have actually worked out where the West went wrong in 2008 and found they have made exactly the same mistake themselves by following in the West’s footsteps.
Unfortunately, it took them a long time to work out where the West had gone in 2008 and by that time it was nearly too late, the Minsky Moment was almost upon them.
Maggie was the first Western leader to make the mistake of listening to Milton Freidman and taking on board the stuff and nonsense they had been developing in the University of Chicago.
It all started going wrong immediately.
https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.53.09.png
The trouble is that it looked like it worked, but it wasn’t really. It was just bringing future prosperity forwards with debt. Policymakers, like Ben Bernanke, thought banks were financial intermediaries and so they couldn’t see what was actually happening and they thought everything was working.
In 2014 the central banks started revealing the truth about how banks really work, starting with the BoE.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
Bank loans create money and debt repayments to banks destroy money.
Once you know this, you can see how debt effectively moves money forward in time. Today’s prosperity is coming from an impoverished future.
As it appeared to work for so long, and policymakers didn’t know what was really happening, everyone has made the same mistakes.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
China has reached the end of the line and the Minsky Moment awaits if they try and add more debt.
China is not going to follow the West because they know what we are doing wrong.
Davos 2018
The Chinese take the opportunity to let the world know they have worked out the cause of the “black swan” in 2008.
https://www.youtube.com/watch?v=1WOs6S0VrlA
Once you know, they are easy to spot.
https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png
The West’s “black swan” is a Chinese “Minsky Moment”.