(Germany is to Greece) as (China is to the U.S.)

2015-07-05

The news now is of Greek voters rejecting the demands of Greece's creditors,
leading to a strong likelihood that Greece will be cut off from
the loans that it has relied upon for its economic well-being.
Greece has been running large, for the size of its economy, and unsustainable deficits
in government spending and in its balance of trade.
Sound familiar?

In the case of Greece and the European Union,
it is Germany that is both Greece's principal creditor and supplier of goods.
Germany, led by her chancellor Angela Merkel,
has shown unwillingness to keep funding Greece's deficits,
demanding that Greece improve its productivity, restrain its consumption,
or some combination of both.
The Greek citizenry has responded negatively,
seeming to think it has some leverage with the Germans.
It is hard for me to see exactly what realistic leverage they have.
Cut off German tourists from seeing the Acropolis?

Exactly the same underlying dynamic is at play between China and the U.S.
The U.S. runs large and growing deficits in the budgets of
practically all of its component governments,
and also in its balance of trade and current account balance.
The U.S. balance of trade is of course especially negative with respect to many countries in Asia,
notably China (but also with Japan).
Thus far, the Chinese have been willing to recycle their growing stock of dollars
into financing the U.S. economy, in particular various U.S. governments.
In other words,
China takes our dollars (in return for products) and then loans them back to us.
This is great for those Americans who love consumption,
but terrible for those Americans who hate to see the ability to produce goods
moved to Asia.
Some of us (maybe only old fogies such as myself) believe
a strong America is a productive America,
not one that leads the world in consumption.

Anyhow, one certainly should wonder
how long the Chinese, and other Asian nations,
will keep selling us goods at such low prices and financing our deficits.
Only a fool would think that they will do this indefinitely.
Only a scoundrel would refrain from warning Americans about
the threat to America's future inherent in
the loss of America's productive capacity.
The day when China does to the U.S.
what German-led Europe is doing to Greece
cannot be put off forever.

Deceit from the "elite"

The "elite", when arguing for a particular course of action (COA),
generally makes claims as to what the benefits of adopting that COA will be.
They should, but all too often do not,
point out what the potential down sides of that COA will or might be.
And they should offer some sort of assessment of
the probabilities of the various possible outcomes,
sort of a "risk/benefit" or "risk/reward" assessment.

But in one critical example after the other,
the promised or asserted rewards to not materialize,
while risks or problems that were not mentioned when the COA was sold to the general public materialize.

Here are several examples:

• The selling of the 2003 invasion of Iraq.
• The selling of the Immigration and Nationality Act of 1965.
• The selling of Medicare in 1965.
  (Actually, in this case,
  much of the insolvency problem of this program has been caused by
  post-1965 expansion of Medicare benefits
  without proper regard to their affordability.)
• The selling of the various post-WWII free trade agreements.

Do such sales practices qualify as "deceit"?
It depends on what the salesmen actually knew.
In the case of, say, the invasion of Iraq,
I can well believe George W. Bush and Condoleeza Rice believed
the rosy scenarios they spun for the American people,
but I cannot help but believe that many others in the media and academic elites
who could and should have raised red flags about what they were advocating
did have qualms, but chose to not wave those red flags.

---

Here is an example of oversalesmanship, and the gruesome result.

2016-03-22-Prestowitz-Boston-Globe-oped-trading-up-and-down

Trading up or down
by Clyde Prestowitz
Boston Globe Op-ed, 2016-03-22

...

While economists argue endlessly over the impact of the trade deficit,
one incontrovertible conclusion stands out.
None of the trade agreements have eliminated it, or even reduced it, as promised,
and none of them have come close to achieving other promised benefits.

Take the 2000-01 deal to include China as a member of the World Trade Organization.
At the time, the US trade deficit with China was about $80 billion.
The US trade representative and the secretary of commerce
told Congress and the public that
getting China into the WTO would dramatically reduce that deficit
because China had more and higher barriers to US exports
than the United States had to Chinese exports.
Ergo, in the wake of a deal,
US exports to China would soar far faster than Chinese exports to America.
Well, 15 years later the US deficit with China is almost $370 billion.

Or, consider the US-Korea Free Trade Agreement of 2012.
In 2011, the US trade deficit with Korea was $13 billion.
Top US trade officials again told Congress and the public that
this deal would dramatically open the Korean market to US exports
and sharply cut the bilateral trade deficit.
But by 2015, the deficit had climbed to $28 billion
as Korean exports to America exploded,
while US exports to Korea remained about the same.
The growth in this deficit,
contrary to the forecasts of the government
and most of the leading economic think tanks,
represents the elimination of about 90,000 US jobs,
if we apply the Commerce Department’s calculation of
6,000 jobs for every billion dollars of exports or imports.

...