Wednesday, July 24, 2013

Stratfor: The End of The Economic Miracle In The East

There have been some posts that I have had sitting in the docket either unfinished or are simply nothing more than a tag line with a few links, this has been due to my work and personal schedule being completely overloading these last few weeks.  Fortunately, will I wouldn't say normalcy has returned, the load has returned to manageable levels.

Now, I have a link to an article from Stratfor that doesn't require a subscription to review title 'Recognizing the End of The Chinese Economic Miracle.' The article goes at length about the growing realization by many academic and business elites realizing the problems that China now faces.  Statements about an impending economic crisis have been going on for quiet some time, I believe Gordon Chang has been predicting an economic crisis in China for over a decade, but those arguments have always been postulations or possibilities rather than something that is happening.  For the first time we are seeing acknowledgement that China is having trouble. A quote from Paul Krugman below:
"The signs are now unmistakable: China is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

The monumental nature of the quote shouldn't be lost on us, after all China engaged in a 2008 stimulus that was larger in terms of GDP than our own. While I doubt that this will cause Krugman to admit that neo-Keynesian economic policy, which he championed, failed, the admission that China is in trouble is big news in itself.  Mr. Friedman himself briefly basks in this fact that what he has been predicting since at least 2009 with the release of his book The Next 100 Years, if you are interested in geopolitics then I recommend the book, before going on with his article detailing why exactly he, and by extension Stratfor, were skeptical about China when others were talking about the country moving beyond the United states.

As I have said before numerous times, the reason why Stratfor realized what major news and banking companies are just now realizing has a lot to do with how they view the world.  Of all the things that I find intolerable about major conventional news, and I have a pretty long list, the reporting on geopolitics has to be the worst.  In fact, I would extend this generalization beyond major American news networks and include foreign news agencies as well.  It isn't necessarily the reporting of what is happening and how but more the reason.  No consideration is ever given to the geographic, historical, cultural reasons for why a nation is doing what it does; all things that Stratfor does.

This isn't to say that I do not find fault with Stratfor. I think they have a particular blind spot when it comes to the United States, glossing over the economical and governmental problems that they see in other nations. But I don't expect perfection from my informational sources just attempts analyze things in a rationale manner.  Back to China.

One item that I find particularly important, that Stratfor has identified, is the major bind that China is in.  China has to choose either full employment and increased inflation risk, which fosters unrest, or lower inflation risk but higher unemployment, which also creates unrest.  The fact that China has copied Japans previous economy policy, only differing from Japan in terms of scale, and proceeding with attempts at economically modernizing their nation at breakneck speeds only heightens this risk. 

Lastly, the biggest impediment to China being able to mitigate their risk was once considered their greatest asset not to long ago, their leadership. For many years individuals, academia and newspapers have lamented America's government inability to act decisively like the Chinese government in terms of economic policy.  It is only now that people are realizing that this never was the case.  China's government was never acting quickly to the problems that they encountered they acted according to a predetermined policy set by the Politburo under Chairman Deng Xiaoping; the plan was always to build skyscrapers, trains, and low skilled export factories. 

This plan now no longer yields high levels of GDP growth, and for the record I don't think that China is even growing at 5%, and the structural imbalances are beginning to show. So, now that individuals like Krugman have now realized that China's economic crisis is not a matter of if but when, will our leaders be able to connect the dots and realize that the same is true of our own economy?  More importantly, even if they do realize this, will our leaders repeat the same mistakes that China's leaders have.  Unfortunately for us, I think our leaders will not learn, and even if they do, fail to do act any differently than their Chinese counterparts.

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Seattle resident whose real name is Kevin Daniels. This blog covers the following topics, libertarian philosophy, realpolitik, western culture, history and the pursuit of truth from the perspective of a libertarian traditionalist.