China and the Deficit

We are responsible for the low standard of living in China, but not in the way you might expect.  We buy cheap goods from China while their workers barely see any of the resulting profits.  Our government and the government of China have a tacit understanding that facilitates this state of affairs.  Rather than distributing profits via increased wages, the Chinese government uses this money to finance US government debt, keeping the currency exchange rate low and keeping their goods monetarily cheap.

This would not be possible but for the US government requiring foreign financing to continue functioning on a day to day basis.  While this arrangement benefits US politicians by allowing them to fiscally have their cake and eat it too, it has also led to a steady flow of manufacturing jobs from America to China.  Without this government manipulation, and the compliance of American politicians, China would not have been able to build their industrial base as rapidly as they have; thus why the Chinese government continues to plow billions of dollars into depreciating American debt.

We really only have three possible exits from this cycle.  One is to hope that growing domestic discontent in China will lead to wage increases from their artificially depressed levels.  Two is to hope that American politicians (or American voters) will lose their appetite for irresponsible spending and refuse to play their part in perpetuating the cycle.  The last option is the endgame where the Chinese government realizes their goals; a strong industrial base at home and America a hollowed our shell of the competitor it previously was.  China inherits the best of both worlds with increased domestic demand and a strong trade balance.

In simple terms, the Chinese are saving and investing for a higher standard of living in the future, while America is living it up on the credit card but, unless we change, will ultimately face decline and poverty.

Marx vs. Smith

Key to Marxism is the argument that the laborer has always been forced to work for the bourgeoisie. Although true in the days of slavery and serfdom, when those in power used violence to extract labor, it is a stretch to believe this is true today. The “force” supposedly compelling today’s laborer is the threat of unemployment. However, as Adam Smith points out in Wealth of Nations, man in his natural state works only for himself. Therefore, the alternative to employment is not death by starvation as the Marxists claim, but rather that which man naturally possesses: self-employment. Ironically, those in power are willing to raise taxes on the self-employed Americans that make up 70% of the “businesses” in the United States. At least they have generously offered to return some of those tax dollars, for a small fee; in the form of small business loans.

Regulators: Insiders or Incompetents

Federal agencies regulating private businesses are inherently prone to abuse.  Ostensibly these agencies will root out corruption in the private sector, defending the little guy from the depredations of large corporations.  But to paraphrase Thomas Jefferson, where are we going to find these angels to watch over us?  The men appointed to these posts either come from the industries they are supposed to regulate, leading to conflicts of interest, or they have no background in the industry and are therefore incompetent.  In either case, while regulatory agencies are a convenient tool for politicians to change the rules of the game, they are unlikely to secure the public good.

The best candidate for a regulatory agent would have an extensive background in the field to be regulated.  To understand practical applications, his knowledge would have to be far more than academic.  Thus not only would he hold an appropriate degree but also have considerable experience practicing his trade.  Once appointed to public post and given the power to help or hinder his former colleagues, we expect him to suddenly sever all ties of affection and be an impartial arbiter.  Although in a perfect world the agent would be a neutral paragon of virtue, the reality is that most men will use their newfound power to reward friends and punish foes.

It might be tempting to choose an agent who had never formed such emotional ties in the field he is to be appointed over.  Armed perhaps with a basic degree in the field (if at all), his knowledge would be superficial at best.  Empowered and unguided, he would be like a child with a chainsaw; lacking mean intention but terribly dangerous nonetheless.  Alternatively, in seeking guidance from another he would place the powers of his office at the disposal of a stranger’s ambition.  The result: the agent’s power is either misguided or misused and fails to secure the public good as originally intended.

All acts of government carry with them the implicit use of force to fine or imprison.  Government’s acts are most proper when used as Rousseau describes in “defending and protecting with the total common force, the person and the property of each.”  However this power is abused when it is directed at furthering personal goals at the expense of the property of others.  Creating Federal agencies to interfere in business virtually ensures that agents will actively help or harm the industry they are to regulate; clearly an abuse of Government power.  We should not create agencies hoping to maximize the good if the office is held by a perfect man but rather to minimize the evil when the office is held by a flawed man.