With No Obstructionists Sabotaging Its Stimulus Program, China Takes Advantage Of The Worldwide Economic Slowdown

With Obama contending with obstructionists like Palin, DeMint & Bayh, China poses grave threats to the country

When Robyn Meredith wrote her NY Times best selling The Elephant and the Dragon about the rise of India and China, Bush was still playing at being president and the catastrophic results of years and years of ideological Republican governance hadn't yet manifested as the economic meltdown Obama inherited. In fact, when Meredith was writing, anyone who talked about an impending economic meltdown was ignored or derided as a kook. But her book was about China and India and how their developing roles would impact America and the rest of the world, so no one paid much attention to her prescience when it came to our current financial crisis. Her crystal ball sure was working:

With the brisk growth the global economy has enjoyed since 2002, these should be the best of times. As in past expansions, the U.S. unemployment rate was expected to fall-- and it did. American workers have become more productive each year, which normally leads to widespread raises. But the swelling economy has not led to fat paychecks this time; instead median hourly wages after inflation declined 2 percent from 2004 to mid-2006. For Americans, the missing link in a suddenly internationalized economy is improved pay. Much factory work has already moved overseas or has been automated, and America's blue-collar workers are earning less than they did in 1973. The migration of white-collar jobs [to India] has begun. Those who have lost jobs frequently must accept pay cuts when they find new work. Most of those who have kept their jobs aren't getting raises that run ahead of inflation, much less ahead of productivity increases. The reality is that many workforce changes have already begun and are likely to accelerate in coming years as more and more companies move jobs offshore and otherwise adjust to the rise of India and China.

Unfortunately, most households are unprepared for the turmoil: during the 1990s, the American savings rate began its plunge from over 8 percent to negative 1 percent in 2006. Americans didn't register much of the pain of smaller savings, first because stock prices soared in the 1990s, then because house prices began to zoom upward about the time the stock bubble burst. Housing prices have halted their powerful run-up, so many Americans may soon feel the weight of their unprecedented, credit-fueled spending binge.

Those looking closely see that American standards of living are already being pinched for all but the richest Americans. Middle-class expenses are way up, largely because of increased health care and college costs. Unless Americans make big changes, keeping up with the Joneses may mean going backward and downsizing the American standard of living. Some indicators show that Americans have in the past decade already begun to slide, but many haven't yet begun to feel it.

When all the pieces of the global economy work together smoothly, all the players involved benefit. In this decade a clear pattern has emerged: China became factory to the world, the United States became buyer to the world, and India began to become back office to the world.

But there are risks to both East and West as the strands of the global economy intertwine. As the world economy interconnects, the United States, China and India become more vulnerable to local disruptions in each other's economies. For instance, if the U.S. housing bubble bursts as quickly as the American stock rally ended in 2001, home prices in the country could plunge. Many Americans who had been feeling flush would suddenly feel poor, and many would be saddled with payments for home loans worth more than their houses. If that happened, a broad economic slowdown would follow, and many Americans would be forced to tighten their belts drastically, spending less on everything-- including made-in-China goods stacked on store shelves. A U.S. recession could force Chinese factories to shut down or lay off workers, most for the first time ever. Indeed, worries about a U.S. slowdown push stories about the U.S. housing market to the front page of newspapers half a world away in China. At the same time, India's army of computer programmers and call-center employees could also feel the ripple of a downturn in the U.S. economy. Indians wouldn't be answering so many 800-number calls from shoppers buying plane tickets or other goods. On the other hand, because service jobs can move across the globe quickly, American companies fighting to stay afloat might accelerate their movement of white-collar jobs overseas in a downturn that desperately crimps their profits.

China is a partner in capitalism but not in democracy, not by any stretch of the imagination. A rare upside to their authoritarian government is that their is no formal obstructionism permitted to hamper the government in a crisis. They have no Grand Obstructionist Party in China. They have plenty of corruption on all levels, including at the highest U.S.-like levels, but without a political party actively working to see the government fail-- regardless of how that hurts the nation-- China has been able to act with far greater speed, agility and purpose to take defensive action against the global depression. While partisan hacks of dubious patriotism-- like Jim DeMint (R-SC), John Cornyn (R-TX), Mitch McConnell (R-KY), Evan Bayh (D-IN), Richard Burr (R-NC), David Vitter (R-LA), John Boehner (R-OH), Eric Cantor (R-VA), Paul Ryan (R-WI) and Jeb Hensarling (R-TX)-- act with single-minded intensity to sabotage President Obama and prevent his program to rescue the country's economy from being enacted, China's government has acted with requisite haste to head the worst of the effects of the downturn off at the pass. This augers poorly for the United States, although not for China's unofficial chief American lobbyist, Mitch McConnell.

The global economic downturn, and efforts to reverse it, will probably make China an even stronger economic competitor than it was before the crisis... China’s leaders are turning economic crisis to competitive advantage, said economic analysts.

The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development.

Construction has already begun on new highways and rail lines that are likely to permanently reduce transportation costs.
And while American leaders struggle to revive lending — in the latest effort with a $15 billion program to help small businesses-- Chinese banks lent more in the last three months than in the preceding 12 months.

“The recent tweaks to the stimulus package indicate a sharper focus on the long-term competitiveness of Chinese industry,” said Eswar S. Prasad, a former China division chief at the International Monetary Fund. “Higher expenditures on education and research and development, along with amounts already committed to infrastructure investment, will boost the economy’s productivity.”

The international economic slowdown is also doing some things that Chinese authorities had tried and failed to do for four years: slow inflation, reverse what had been an ever-growing dependence on exports and pop a real estate bubble before it could grow even bigger.

The recession in most of the large economies in the world is inflicting real pain here-- causing a record plunge in Chinese exports, putting 20 million migrant workers from within China out of their jobs and raising the potential for increased and sustained social unrest. But as President Hu Jintao told the National People’s Congress last week, “Challenge and opportunity always come together-- under certain conditions, one could be transformed into the other.”

To that end, Chinese companies are shopping for foreign businesses to acquire. The commerce ministry announced late Monday that it was greatly easing the government approval process for Chinese companies seeking permission to make foreign acquisitions.

Over the past two weeks we've seen blatantly partisan, self-serving moves made by ambitious Republican governors Mark Sanford (SC), Rick Perry (TX) and Bobby Jindal (LA) to stand in the way of Obama's Stimulus package. Yesterday a cold wind blew down from Alaska: "Gov. Sarah Palin is refusing to accept over 30 percent of the federal economic stimulus money being offered to Alaska, including dollars for schools, energy assistance and social services."

The news Thursday drew anger from those who accused Palin of putting her national political aspirations ahead of the state's interests, and admiration from others who say she has courage to turn down money that would expand government. The state Legislature will have an opportunity to override her decision.

...Palin first told the news media that she's turning down nearly half the federal stimulus money -- but later conceded that does not count the Medicaid money she is accepting. That brings down what she's refusing to 31 percent of what the state government could get. Local governments and nonprofits could still compete for stimulus grants.

The biggest single chunk of money that Palin is turning down is about $170 million for education, including money that would go for programs to help economically disadvantaged and special needs students. Anchorage School Superintendent Carol Comeau said she is "shocked and very disappointed" that Palin would reject the schools money. She said it could be used for job preservation, teacher training, and helping kids who need it.

The clueless soccer-mom is feeling intense anger from both sides of the aisle and it is likely that the Republican-dominated state legislature will override her with Democratic help. But why should she care about special needs students when she is far more qualified to parrot negative attacks on the president's humanity than on accomplishing anything for the poor residents of her state. At least she'll have two Senate allies in undermining Obama now that Begich has declared himself a member of Bayh's anti-Obama bloc. I wonder if Palin can see China from her front porch too. The DNC will launch a nationwide campaign today to combat Republicans and their right-wing Democratic allies who are trying to destroy Obama's program by sabotaging his budget. Lets hope it works-- and that we don't wind up with Sarah Palin and Evan Bayh stumbling around trying to figure out which way is up... for all of us.

"What we're really saying," said a Democratic strategist involved in the campaign, "is that this is a budget here, but all of these pieces...they're so central to function the economy, and this budget is a downpayment on any substantive reform that the president seeks on those - in those areas. If President Obama doesn't get a significant placeholder for health care reform, what are the prospects that you're going to get that going forward?" 

The same is true, the strategist said, of Obama's energy and education reform proposals.

And if the obstructionists keep up their partisan warfare against the president and he's unable to contend with the biggest threat we're now facing as a nation-- the world ditching the dollar as its reserve currency, which is a distinct possibility-- the game's over for us in terms of living beyond our means. This country will be barely recognizable a decade from now. DeMint, Cornyn, Burr, Palin, Bayh, Sanford, Boehner... the whole lot of them couldn't hurt America more if they opened the front gates to bin-Laden.