Reidblog [The Reid Report blog]

CHINA FLOATS, AMERICA SINKS
YUAN KICKS DOLLAR BUTT BY REJECTING "FREE MARKET"
Friday Jul 22, 2005, by Greg Palast

In case you haven't the least idea what the heck it means for China to "float"its currency, let me put it in the language we economists use: China's floatdon't mean squat.

Yet our President, a guy whose marks in Economics 101 are too embarrassing topublish here, ran out to hail the fact that buying Chinese money will now costmore dollars.

The White House line to the media, swallowed whole, is that by making Chinesemoney (yuan) more expensive to buy with dollars, Americans will buy fewercomputers and toys from China -- and US employment will rise. This will happen when we find Saddam's Weapons of Mass Destruction.

Economics Lesson #1: You can't change the value of goods by changing the valueof the currency on the price tag. As my comrade Art Laffer wrote me, "If cheapcurrency makes your products more competitive, all automobiles would be made inRussia." Driven a Lada lately?

Economics Lesson #2: Don't take economics lessons from George Bush. Or MiltonFriedman. Or Thomas Friedman. What that means, class, is don't believe the big,hot pile of hype that China's zooming economy is the result of that Red nation'sadopting free market economic policies.

If China is now a capitalist free-market state, then I'm Mariah Carey. China'seconomy has soared because it stubbornly refused the Free – and Friedman-Marketmumbo-jumbo that government should stop controlling, owning and regulating theindustry.

China's announcement that it would raise the cost of the yuan covered over amore important notice: China would bar foreign control of its steel sector.China's leaders have built a powerhouse steel industry larger than ours bydirecting the funding, output, location and ownership of all factories. And rather than "freeing" the industry through opening their borders to foreigncompetition, the Chinese, for steel and every other product, have shut theirborders tight to foreigners except as it suits China’s own industries.

China won't join NAFTA or CAFTA or any of those free-trade clubs. In China,Chinese industry comes first. And it's still, Mssrs. Friedman, the Peoples’republic. Those Wal-Mart fashion designs called, chillingly, "New Order," aremade in factories owned by the PLA, the Chinese Peoples' Liberation Army.

In an interview just before he won the Nobel Prize in economics, Joe Stiglitzexplained to me that China's huge financial surge -- a stunning 9.5% jump in GDPthis year -- began with the government's funding and nurturing ruralcooperatives, fledgling agricultural and industry protected behind high, hightrade barriers.

It is true that China's growth got a boost from ending the bloodsoakedself-flagellating madness of Mao's Cultural Revolution. And China, when itchooses, makes use of markets and market pricing to distribute resources. Thetruth is, Chinese markets are as free as my kids: they can do whatever they wantunless I say they can't.

Yes, China is adopting elements of "capitalism." And that's the ugly part: realestate speculation in Shanghai making millionaires of Communist party bossrelatives and bank shenanigans worthy of a Neil Bush.

It is not the Guangdong skyscrapers and speculative bubble which allows China tosell us $162 billion more goods a year than we sell them. It is that China'sgovernment, by rejecting free-market fundamentalism, can easily conquer Americanmarkets where protection is now deemed passé.

And that is why the yuan has kicked the dollar's butt. America’s only response is to have Alan Greenspan push up real interest rates sowe can buy back our own dollars the Chinese won in the export game. The domesticresult: US wages drifting down to Mexican maquiladora levels.

Am I praising China? Forget about it. This is one evil dictatorship which jailsunion organizers and beats, shackles and tortures those who don't kowtow to thewishes of Chairman Rob -- Wal-Mart chief Robson Walton. (Funny how Mr. Bushnever mentions the D-word, Democracy, to our Chinese suppliers.)

Class dismissed.