Every once in awhile I’ll pull up something from the mainstream and try to make sense of it. Here’s an example courtesy of Agency Presse France and Microsoft:
US economic decline forges new world order
The crisis is redrawing the world map of economic power as the influence of US consumer spending declines and major emerging markets like China and India take the lead, finance chiefs said.
Questions already; does this mean the Indian and Chinese consumers are going to substitute themselves for Americans? What does, “take the lead” mean?
India and China are third- world countries! According to the United Nations Development Programme, China ranks 94th (out of 179 countries) on their Human Development Index, which measures life expectancy, education levels and standard of living. India measures 132nd. India ranks better than Laos but worse than Congo in overall HDI index, Indians share a lower life expectancy than Pakistanis, are less literate than Angolans.
Fair enough, these figures are months out of date, (2008) but gains here are incremental, these and other countries are falling behind on efforts due to effects of the finance crunch. If Congo and Angola are declining, it is safe to say that India and China are declining along with them. Regardless of what government statisticians and economists want the rest of the world to believe.
Consumer spending accounts for around two-thirds of economic activity in the United States — by far the world’s biggest economy — and experts say lower spending could have radical effects on the US’s world standing.
The IMF on Thursday forecast emerging and developing economies would grow 5.1 percent in 2010 — in contrast with just 1.3 percent in advanced economies.
China’s economy was projected to grow by 9.0 percent next year and India’s by 6.4 percent — far ahead of 1.5 percent expansion in the US economy.
Let’s take spending at face value; it expresses the end of an economic chain of circumstance beginning with materials, adds debt and wage labor and ends up making some of the participants in the cycle ‘money rich’. With America shrinking to a measly 1.5 percent, seventy percent of which represents consumption, who is going to take up the slack? What exactly, will replace US consumption?
Leaving aside the fact that the gaudy growth rates in China, India (as well as Brazil) are from a much lower base, large percentages of that growth is a reflection of investments in production. Much of this production has been shifted from the US to developing countries to incorporate lower wages. Who is going to buy the resulting production? If 9% growth represents the difference between US wages and China wages – all else excluding much higher US energy costs relative to China being equal – how can the loss of US wages cause the China growth to be useful … or accurate? How can China ‘pull the world out of recession’ if the Chinese wage earners cannot afford the products they themselves make?
In a BBC World debate on the crisis held in Istanbul, Niall Ferguson, a professor of business administration at Harvard Business School in the United States, said: “The crisis has accelerated a shift from west to east.”
“That means rebalancing not only economically… but rebalancing geopolitically, which I think makes some people nervous,” Ferguson said.
“For the foreseeable future the US will be growing at a much lower rate while China is in fact growing at a much faster rate,” he added.
According to Niall, the fact that China has built a lot of ugly buildings, freeways and automobiles and has copied a failed US model is a reason for a geopolitical shift from West to East. How can this be? If the originator of a model is a failure, how can the derivative not fail as well and for the same reasons? Here is the thinking of the neo– liberal, establishment in action. The fixation on ‘growth’, the absence of analysis and a reliance on bromides. The idea is that growth exists somewhere, eventually it will spill over into America, somehow. If not, America will be ‘eclipsed’; it will ‘fail’ and do so because other countries will consume more than Americans do! This will result in a ‘geopolitical shift’ … I guess as more McDonalds franchises mean fatter, heavier Chinese and Indians to spin the world off its current axis.
In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the United States or, like Brazil, they have more links with China.
“If it was not for China we wouldn’t have seen positive growth in the second quarter in Brazil,” Ilan Goldfajn, chief economist at Brazilian bank Itau Unibanco, said at an IMF-organised conference in Istanbul.
Goldfajn said the world would now start to “rebalance towards Asia.”
China’s production demands raw materials; consider it America’s 51st state. What (used to) flow toward the US for landfilling first travels to China. The proxy here bankrupts the source countries more effectively than the US consumers can do by themselves; there is another layer of rapacious finance in China that duplicates that in the US.
That the ‘owners’ of resources can profit when their end users have stopped buying suggests the game has little more to run. At the same time, Brazil’s burgeoning auto fleet means its most interesting resource, its newly discovered offshore oil fields will be depleted as soon as they can be produced. Even if the Brazilians do not produce for the export market.
The IMF has bailed out countries around the world in recent months and its members have tripled its lending resources to 750 billion dollars (515 billion euros).
Strauss-Kahn has more ambitious plans yet and is seeking more funding to strengthen the IMF’s role as a global lender of last resort.
“Our ultimate goal is financial and economic stability,” he said in a speech in Istanbul at which he outlined plans to even out global economic imbalances.
The sun may not shine tomorrow, after all. The 3/4 trillion dollar IMF fund is far from adequate to address currency, foreign exchange and debt imbalances, that the IMF itself has estimated to be 3+ trillion dollars. At the same time, the IMF’s apparent expansion of responsibilities puts them on the same track as the Federal Reserve, on that takes them to the ‘too big to fail’ category with similar solvency questions.
Taken away from this is the observation that policy making is in a bubble of its own design. A ship of fools floats on a sea of denial. Policy makers pay close attention to what their echo chambers reflect back to them. The entire world is in an energy straitjacket. Finance follows energy prices which have unbalanced production, making the postwar detente between companies and their workers unworkably expensive. As oil prices continue to rise, the effects on business profits become more corrosive. The oil industry itself is facing long term financing issues; the increase in price is insufficient to manage production costs which increase as easy- to- produce petroleum is exhausted and replacements are found only in hostile production environments.
Of course, there is never a mention of energy or energy constraints on capital or business activities or capital. Some of this goes with the territory. These are remarks from economist Steve Keen:
Other reflections on the conference
I usually don’t go to the Economists Conference, because it is dominated by neoclassical economists, and I know neoclassical economics far too well to take it seriously. Conversely, neoclassical economists are virtually unaware that there is any other way of thinking about the economy, take their own fallacious methodology far too seriously, and ignore papers written by mavericks like me.
If I had presented this paper at a conference in, say, 2006, there would have been virtually no attendees at the session, while any neoclassicals who did show up would have vigorously objected to the fact that I didn’t assume optimising behaviour, or efficient finance markets, or the like.
Here’s another remark that fits the zeitgeist:
We (for the most part) don’t really have the skills, aptitude or connections to reach out to “movers and shakers” (nor the desire to acquire them, I suspect).
People will believe the lies as long as they feel they are able to. It’s human nature. When the lies exhaust their currency, they will pass from view and new (lies) will take their place. This is also human nature.