Friday, February 1, 2008

Wake Up, America!

Living in Michigan, we haven't been able to ignore the financial distress caused by lack of financing for government services. This includes education at all levels, law enforcement and safety, road and bridge maintenance, parks. We've been watching our standard of living slowly crumbling, while political "wisdom" degenerates into dog-and-cat fights between opposing parties. I could say a lot about this, but why? It would simply be viewed as another spat in the ongoing scrimmage, and I would be dismissed as either a "cat" or a "dog", depending on dismisser's affiliation.

This state-wide pain is unknown at the federal level. Oh yes, there is something that looks very similar, but is only a shadow of the pain Michigan and similar states are facing. Why?

Because Michigan is constitutionally prohibited from spending more than it takes in. The federal government has no such prohibition. It can spend all the money it likes, regardless of income. And it does. This is called the "national debt". We all know it's there, but we shy away from thinking about it, from discussing it. I know I could look it up in 2 minutes and find out its precise level, but I'm scared to do it. Besides, what I learn in two minutes will be out of date two minutes later as the federal government borrows yet more.

Somehow, we tolerate a national debt far better than a national surplus. I mean, if word were to get out that the government was actually taking in more money than it's spending, what would happen? There would be loud shouts of foul play, and demands that the government instantly give back in tax rebates what it had "robbed" from its hard-working citizens. It would be political suicide for any legislator (whether cat or dog) to propose actually continuing to take in tax money and save it, invest it, build a rainy-day fund, or increase our investment in infrastructure. It's a sure-fire one-way ticket back home to ignominy - or at best, obscurity.

Parenthetically, why doesn't Michigan simply change its constitution and learn to borrow its way back to prosperity? Politically, that would be difficult. Financially it wouldn't work. The great state of Michigan has a credit rating no investor would touch. Might as well ask for spare change at Campus Martius on a cold winter night.

So I'm lamenting the national debt. What else is new?

What's new is a realization of what - or who - is keeping the government of the United States of America running. It's the People's Republic of China.

Yes. Our fair democracy is largely financed by the communist bosses of the People's Republic of China (PRC). According to James Fallows, in a well-researched and documented article in the January-February 2008 issue of Atlantic Monthly, the PRC is pumping about one billion dollars every day into the US economy, largely through purchases of treasury bills.

You see, the state-controlled economy of the PRC is only partially capitalist. The Chinese companies that make our shoes, hats, and electronic gizmos, don't get to keep the dollars they earn. They are required by law to exchange them for Chinese yuan, at a rate dictated by the government - not a free-market rate. By keeping the rate artificially low, the Chinese government effectively taxes all its capitalists at a very, very high rate. China exports roughly 50% more in dollar value than it consumes internally. Much of the difference is due to the low wages that keep its goods artificially cheap on the world market - because of the artificially low value of the Chinese currency, dictated by its government.

So the Communist Party of China, through its instrument, the government of the PRC, gets to decide what to do with this money. Some it invests in improving Chinese infrastructure, but not much compared to what it socks away in savings. Somehow, unlike us, they don't seem to mind having a little rainy-day fund. Of course, they don't have to stand for election. How much is in their little piggy bank? Well, that's considered a state secret. They never announce how much money they actually have in savings. But it's pretty easy to add it all up through financial institutions in the west: it's about 1.4 trillion dollars. It's our national debt. We actually owe more than that, but we owe the rest to the Saudis, the Russians, and other generous benefactors.

And this seems good both to us, and to them. The money the PRC invests in T-bills is quickly spent, much of it on Chinese goods. That wonderful business stimulus package that's being crafted right now in Washington does not rely on our tax money. No, it's being provided mainly by the kind, thoughtful communist leadership of China.

Well, not really kind. But very thoughtful.

Will you indulge me in a moment of reverie? Historical reverie, about China's past. In the early 1800s, when Britain was the undisputed commercial and imperial leader of the globe, China fought - and lost - two wars with England. The wars were about opium. England wanted to be able to export opium from its holdings in south Asia (India and Afghanistan) to China, in exchange for Chinese tea, silk, and other goods. The Chinese government at that time did not believe opium was a good import, so they refused to allow it in. Kind of like our own government's ideas about cocaine. So the British sent in their navy and marines, and forced the Chinese to legalize opium. It happened twice. Kind of like Colombia sending troops to force their cocaine to be legalized in the US. We would resent it a bit, but of course Colombia could never do that to us. The British could do it, and the Chinese did resent it. But they also learned from it. They learned the foreign policy of forcing addiction on another nation.

We are the addicted nation. We are addicted to low taxes. We are on the needle, and the needle that infuses pleasure into our veins is Chinese cash. And Arab cash, and Russian cash, and Japanese cash.

Like many addicts, we deny that we have a problem. "Oh, I can handle that," we say, "in another few years, I'll recover naturally from my need for this substance." Yeah, right.

Wake up, America.

One of these days, the PRC will start to call in its debt. They will foreclose on us. They don't want to now, because it's too profitable for them to sell us their stuff. Same with the oil-rich nations that invest in our economy. But when economic conditions change, they will want their money back. Just like the drug dealers, there will be an end to the free ride. The free ride is to get you hooked, you know. If the US goes cold turkey, it will make Michigan's current economic woes look like a romp in the park.

Wake up, America.

Right now, the US still has the biggest economy in the world. In spite of the attention China gets, we still manufacture about 30% of the world's goods, more than any other country. So we should be able to get ourselves out of this addiction. We should be able to pay off our debts. Not all at once, cold turkey, but in a controlled, responsible way. Economic rehab.

So I think we should have the courage to raise our own taxes, both on the national and the state level. Tax-and-spend doesn't sound so bad when you compare it to the current alternative: borrow from the Chinese, spend anyway, and let our children deal with the Chinese when payback time comes.

Consider that our tax dollars are almost all spent within the United States. Michigan taxes are spent almost entirely within Michigan. Plus, they provide an infrastructure on which businesses can build and rely. They provide an educated, healthy workforce within Michigan. Some in Michigan resent the idea of paying taxes to provide health care for fellow Michigan residents who aren't paying for it. Instead, they want to lower taxes, so people who earn money can spend it the way they like. This is good for business, they say.

Yes, it's good for business - especially business in communist China and oil-rich dictatorships like Venezuela, Sudan, Iran, and Arabia.

Wake up, America.

Let's put our money where it does the most good. Let's fix our own bridges. Let's educate our own children. Let's provide affordable health care for our own citizens. And let's pay off our debt. Kicking the habit isn't easy. But the alternative is worse. Much worse.


  1. This is a good time to get in touch with representatives about the national debt- they're talking about a federal budget surplus. Incredibly, some people are looking for ways to spend it or want to reduce taxes. Let's see if we can put a little pressure on them to do the right thing...

    By the way, I noticed your Greenfield layout was very similar to medieval city plans. Must be eminently practical, especially considering that a lot of modern European cities are still using the original layout (maybe minus the fields directly outside), and are very efficient.

  2. Budget surplus? I've heard of lots of different "spins" politicians try to put on bad situations, but calling a trillion-dollar debt a "surplus" is beyond belief. Who are the rascals responsible for that?

  3. Yes, the transit-oriented village is remarkably "medieval" and eminently practical. There's one important difference that was pointed out to me by an Israeli city planner: where the medieval city centered around its church, this centers around its transportation. Our culture has certainly shifted in emphasis, hasn't it?!