Wednesday, January 26, 2011

Your Free Market at Work

So let me get this straight: One of the great triumphs of Milton Friedman-style American capitalist economics is monetarism, wherein the currency is manipulated to achieve a couple of macroeconomic and/or social goals. China also manipulates its currency to achieve a couple of macroeconomic and/or social goals. The opinion of this practice isn't as salutory when foreigners do it, but that's to be expected, just garden-variety hypocrisy.

If I understand things correctly, the economic do-si-do between these two countries relies on extremely cheap credit provided to American consumers and extremely cheap wages (and inexpensive social programs, regulations, etc.) provided to Chinese workers, neither of which valuations are especially well connected to what either group actually produces. Although this situation generates tension (at least so far as macroeconomics properly describes international relations), it's currently very lucrative to people who facilitate lending to American consumers, hiring Chinese workers, or selling their low-overhead products. While fear of instability may be real (and hence the occasional mild pokes against exchange rate manipulation), it's unlikely to change before the feces actually makes contact with the whirling blades (and if the finance crisis has taught us anything, probably not even then). Presumably this will happen if Chinese workers can command some more compensation for their effort, if Americans' consumer debt becomes too hopeless, if they can find a new population to do technical work on the cheap, or something like that. Pessimistically, China will prefer to open up its markets to consumer credit, American wage and job growth will still be held in check, and the mechanisms of wealth consolidation will be maintained as global resource limitations finally begin to resist the edges of growth. I think I understand the gist of all that. As practiced, at large enough scales, capitalism and communism concentrate power, just like everything else. Check. Free trade ain't no such thing. Got it.

I don't keep up well with the blogosphere when it comes to making this entertaining or intellectual, and this story's already a week old, but it's noteworthy when these relationships condense into such a powerful and relatively open meeting. (What do you suppose goes on at those things? I imagine it's a bunch of dull yay-rah powerpoint speeches full of mission statements and global visions, followed by a dinner that breaks down, as usual, to jostling over where the cool kids sit, or which are the power tables, and after that there are a hundred informal breakout discussions, filled with harrumphing, agreeing to talk to your people or theirs, awkward cross-cultural affection: what, no cocktail? ha ha do we shake hands or bow first?) This is expression of political power at its more outward and banal, and it's hard to see them agreeing to any arrangement that makes them less rich. I'll give Obama the benefit of the doubt and assume that he really does want to see clean energy products exported to China (whose environmental concerns are probably real), and maybe we'll even do better than the usual tactic of exporting clean energy jobs there. Well, at least GE is a surviving American non-defense company that actually makes stuff, so there's that, even if society can't seem to rid itself of Lloyd Blankfein.

Worth noting, however, that this inner party arrangement is our leader's preferred mileu, none of that weenie Carter-style public incentivizing that worked so poorly for, say, Germany. Meeting with business interests to orchestrate the economic push and pull is probably inevitable to the process of governance, and the moral balance comes down to which parties Obama or Hu feel they represent, and to achieve what ends. If the presidents are representatives of their populations, then they sure are outweighed by business interests in meetings like this. Personally, I think that Barack Obama (or any other president in memory) represents the people about as much, and in a similar capacity, as Jeff Immelt (or any other CEO of a gigantic multinational corporate empire) represents his employees, which is to say that the minions are an inevitable component to their power, a necessary evil, probably not hated, but of secondary and sometimes contradictory concern to the governing idea of the organization, as voiced by those who get rich by owning or administering pieces of it. I'm sure they'd rather not and all, but fucking the lower-downs is certainly on the table, while fucking themselves is not. And I don't think it's necessarily a question of evil so much that representation has inherent limitations—when the problem becomes the entrenchment of an elite group that is insulated from the concerns of everyone else, then the process of elevating someone to the elite makes it hard to accomplish things.

Has conservative economics disowned Milt Friedman yet? I know that the Fed is a pariah among the freedumb wing, not that they slow it down, but even so, it still has to be difficult to advocate for the idea of "competitiveness" when so much of the economy is the flow-down of executive decisions rather than market forces or other cost optimization. Mostly, I kind of wish the usual assortment of advocates would just shut up for a while.


Aaron said...


Michael said...

I think Greenspan kinda tossed him under the bus indirectly when he testified to Congress last year(?) Now, if we can just find someone to toss Greenspan and his mentor Rand under the bus, we can move on.

Michael said...

(He, being Friedman)

Keifus said...

Hell, Greenspan has even kinda sorta repudiated Ayn Rand, and he was among the original freakish cult members. Not like the damage hasn't been done though, and not quite so sorry as to go about his life differently.

Keifus said...

(Oops, see you were already going there.)