The Roly-Poly Empire

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We mentioned last week that our small ideas had been getting together behind our back. We turned around yesterday to discover such a huge, awkward monster of an idea that we didn’t know what to make of it. It was a moment in which we recalled that not everything under heaven and earth is contained in our philosophy — and gave a sigh of relief.

No one else seems to have noticed…but something fundamental has changed. Whether it is meaningful or not, we don’t know. But we thought we ought to mention it, just in case.

We must give credit to our favorite columnist, Thomas L. Friedman, for the insight. Of course, he did not think of it. But he had an idea so preposterously simpleminded, it triggered a thought in us.

We are not going to criticize Friedman. There is no sport in it. The man is evidently handicapped. He only sees things in two dimensions, like a drawing by a five-year-old with only one eye. There is no depth to it…no historical perceptive…no trace of irony or subtlety. When he describes something, it is like a child coming back from the playground, with traces of dark chocolate around his mouth and a tale on his lips.

“A big white thing came out of the sky,” says the boy. “It had blue fairies in it who handed out ice cream.”

You don’t know what really happened, but you’re tempted to go out and have a look.

Thus, when Friedman writes: “What’s wrong with Kansas?” we can’t help but wonder what is really going on.

What Friedman is worried about is “the disappearance of an internationalist, pro-American business elite.” He wonders why business leaders are not out in front on issues such as free trade agreements and federal deficits. Predictably, he comes to the wrong conclusions. Business has “its head in the clouds,” he writes.

“If we Americans don’t get our act together, this will affect not just our economy, but also our power,” he goes on. Thus does the New York Times thinker reduce the entire mad world of political economy to a matter of collective will. If we want to be winners in the 21st century as we were in the 20th, he implies, we just have to get off our duffs and do something.

Looking at the issue with two eyes…and rounding on it a bit to get a better view…we see that things are not nearly as simple as Friedman must imagine. And here, we think we see something no else has noticed.

What we see is America’s roly-poly empire — of consumer capitalism, “Pax Dollarum,” Airborne diplomacy and debt. It has established order throughout most of the world. That order was immensely helpful to Americans in the first 60 years of the U.S. imperium. We made things that we could sell throughout the world — at a profit. But since the trade balance went negative, and since the United States now owes the rest of the world — net — an amount equivalent to nearly a third of its GDP, order no longer pays. Our industries cannot compete with those on the periphery. Neither our citizens, nor our government, can pay its debts to foreigners. And every day that the present system continues, the homeland gets poorer, relative to the rest of the world, by about $2 billion. To look at it another way, the entire economy produces about $12 trillion worth of output — in goods and services — each year. Yet, it consumes about $12.6 trillion…. each and every day that the present order remains…the U.S. goes further in the hole.

There is no question that order — especially order imposed by a civilized country — benefits “everyone.” People are able to trade freely. The division of labor expands. People, generally, are better off.

But there is a dark side to the human character. After they have enough to eat and a roof over their heads, people care more about their relative wealth than their absolute wealth; they care more about their status than their souls. In absolute terms, a continuation of the present imperial order will benefit Americans, most likely. But it benefits foreigners more. Real wages are rising in Asia. In the United States, they are stagnant. In relative terms, Americans will continue to get poorer, again most likely, even if they eliminate their trade deficit.

The logic of human jealousy…and imperial finance…has now shifted. The United States should not be willing to continue providing a public good — order — for no other return than the opportunity to compete on a level playing field. U.S. industries are now losing that competition. Americans, too, gain nothing from it. Either we retire from the empire business; or we take it up in way that impedes globalized economic progress.

Looked at this way, the Bush Administration’s actions make more sense. Why invade Iraq? Because it creates disorder. Military adventures are risky and destabilizing. And they are a shift from civilized means of getting what you want to political means, which are not only inherently disorderly, but also favor America’s military strengths while minimizing her commercial weaknesses. Why pressure China to revalue the yuan? Because not does it create disorder, it puts the Chinese in a worse position commercially. The yuan has been stable for 10 years — pegged to the U.S. imperial dollar at a fixed rate. The United States now insists that the yuan move up. Why impose tariffs and trade barriers? Because they directly interfere with the orderly give and take of commerce…and slow our competitors’ growth. Why run up huge federal deficits? Why keep giving away money rate the cost of consumer price inflation? All these things are deeply disturbing to the world financial system; they breed disorder.

We are not quite sure what to make of this…so we will say no more…until we’ve had an opportunity to think about it more…

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.

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