A new article by Naomi Klein at Rolling Stone magazine describes how the Chinese government, with the aid of U.S. defense contractors, is using high technology to advance its version of a sweeping, all-seeing police state. The following is an expanded version of my comment on this story at the Weblog BlondeSense.

As a foreword, I trust that many readers recall the numerous occasions upon which I have described the apparachiks of the Chinese government as nothing other than "communist mercantilist thugs." On several occasions, I have added the adjective "murderous" to that description. I have also written previously, extensively, and in detail about foreign trade with China: my May 2005 article, "Seven Principles of Macroeconomics," is a good primer for those who are relatively more recent readers.

For years, we as a nation allowed the monstrosity that is the People's Republic of China (what we used to call "Red China") to hold the dollar-yuan exchange rate at the ridiculously non-market ratio of 1:8.28, thereby causing Chinese imports to the United States to cost perhaps a third or so of what they otherwise would have under purchasing power parity. The effect was to induce a massive, year-over-year flow of U.S. dollars into the central bank of China as we bought those cheap imports. This is the so-called "current account": we trade American dollars for the cheap imports.

The backflow of the current account, matching in size the trade deficits we run from year to year, is the so-called "capital account": that is where those American greenbacks return to the United States as investment by the Chinese in American assets. In this capital account, which is the long-term mirror image of the current account, we are getting Chinese investment in exchange for claims on our future expected cash flows. The Chinese buy U.S. government debt securities, secondary mortgage market paper, commercial real estate interests, corporate debt instruments, municipal bonds, and other lending and ownership claims; we get the investment, and they get claim to future money that is earned by those assets we are selling to them.

No free market exists when one component of the overall market is cheating; and that is exactly what the Chinese have been doing for years and years, all while our politicians, economists, big-business apparachiks, and other assorted fools stood around all misty-eyed about the lies the communist mercantilists were telling about "market reforms."

In summary, there has been no "free market" in the rush to "globalization," especially in the Sino-American quarter. Not only have the Chinese all along been rigging the game while we looked the other way, but it finally became so ridiculously, pervasively obvious that, years into the affair, the Bush Administration felt it had to buttress the myth in writing, declaring with a straight face that the Chinese were not manipulating the dollar-yuan exchange rate. The President's apologists in the U.S. Treasury Department made this ludicrous assertion for no reason other than that the Bush Administration, itself, with the aid of its Republican-controlled Congresses, has been generating staggering, year-over-year federal budget deficits, thereby desperately needing the Chinese (and other foreign central banks) to keep lending dollars to the United States Treasury. Those dollars being lent by the foreigners are, of course, the very same dollars Americans had previously traded in the current account for cheap foreign goods and services.

Again, the "free market" claim in global trading relationships was, is, and always will be a disingenuous, corrosive delusion because it is attended by a destructive lack of firm, resolute, punitive actions by the country being harmed by a cheater, which is what China was, is, and always will be.

The paradigm of some nearly mystical, natural tendency toward free markets is a myth cuddled to the breast bone of childish, simplistic idiots, most of them conservatives, Right-wingers, and Libertarians. Asymmetric information, imperfect allocation of physical resources, and concentration of capital, influence, and power all ensure that no market is free; and, as such, no policy that assumes the benefit of a free market will lead to other than defeat when the opponents know very well that the paradigm is a myth. The Right-wing/conservative fantasy of China moving toward free markets has been every bit as delusional as the old Leftist/liberal myths about the wonders of socialism in countries like Cuba under the fist of a repressive tyrant like Castro. (But, of course, Cuba has universal healthcare, so that makes everything all better, doesn't it?)

China is ascendant, which means its brutal, repressive version of authoritarianism is, as well. As the aforementioned article in Rolling Stone illustrates, this is all to the benefit of the corporate engines of war-making, law enforcement, and punishment: they sell the instruments of repression to those who must rule by oppression. No longer is authoritarianism about politics; it's business, and the business is booming.

On the global stage, the Chinese have beaten us; in fact, they have trounced us at our own game, and they have done so by having a clarity of purpose that has perpetually eluded us in the game of world control. How they did it certainly wasn't "fair and square"; but, then again, no one other than misty-eyed American politicians and their fellow idiots in business and academia thought fairness was part of the game.

And, no, the American capability for violent military force does not make up for intelligence in the game of global domination; but even there, if our wondrously astute thinkers in government and the military had the common sense to correct for the undervaluation of the Chinese currency, the revelation about the level and growth of military expenditures in China would scare the Hell out of anyone.

Oh, yes, one more thing: the Chinese accumulation of foreign reserves of America dollars was not a good thing during the 1990s, but the capital account backflow was going only to credit-hungry consumers and hyper-growth-obsessed corporate debt jockeys. The "credit crisis" we now face happened after the U.S. government, which had finally gotten into budget surpluses during the Clinton Administration, went hog wild under spend-spend-spend Republican rule led by "conservative" President George W. Bush. Starting in 2002, the U.S. Treasury was stepping up to the hog trough of foreign lenders, thereby shoving aside ("crowding out," to use an old economics term) both business and consumer credit opportunities. Few people know this, but before consumers recently started seeing the credit crunch, private investment had already been dropping as a percentage of GDP for several years. (In a few days, I shall publish an article wherein I show the numbers.)

The bottom line is obvious. The world is full of bad people; most can do little harm beyond their immediate families, their communities, and their circles of close acquaintances. It is only through the machinations of those who are like-minded in their evil or weak in their resolve that the bad people of the world can do extensive damage. If we want to see why the Chinese thugs will become a globally dominant force, vicious in its internal controls and appalling in its hegemony in the years to come, we need look no further than to the mirror on the wall, wherein lies the image of a foolish nation ruled by free-market advocates who cannot seem to comprehend that globalism is the clarion call of those ready, willing, and able to do anything whatsoever to ensure that they come out the winners, even if that 'anything whatsoever' wrecks the world, the sovereign nations of it, and the right to freedom of its inhabitants.

Welcome to the 21st Century; it's sort of like the 20th Century, except that it's going to suck even more.

Just be sure to vote for one of those unprepared morons running for President: you'll all get just what you deserve.

Unfortunately, so will the rest of us.


The Dark Wraith has spoken.