It was Mao Zedong's favorite thing to say about the United States as he led the Communist revolution in China. "The United States," he would say, "is very powerful in appearance, but in reality it is nothing to be afraid of. It is merely a paper tiger."
The irony.
Now, nearly 70 years later, China's Potemkin Village, complete with empty office buildings, brand new unrented condos, and vacant pre-planned cities, is on the verge of collapse. The Chinese government (ever optimistic) has revised its growth projections from 10% down to 5%. By comparison, the United States has been growing at about 2% since 2008. The Chinese stock market has dropped 42% since June. Again, to put that in perspective, the Chinese stock bubble of 2007 only led to a 9% correction in the Shanghai market. In the United States, the stock market crashes of 1929 and the financial crisis of 2007 saw drops of approximately 54% over a 15 month period. Unless there is a substantial turn around in the Chinese market, it is not at all out of the realm of possibility that we could see another 12% in losses.
China's economy is centrally planned by its government. In other words, rather than allowing market forces to dictate the outcome of events, the government micromanages all sectors of the economy. They order buildings to be built, factories to be built, condos to be built. They directly invest in the their own stock market and are heavily invested in state run companies. And while many books have been written about the migration of global manufacturing to China, they can mostly be summed up by this: Large western companies, trying to avoid higher labor costs and unnavigable labor laws, decided to leave. The Chinese government, playing the long game, was more than willing to accept the gift, even if they never would be able to effectively manage it. This migration then confirmed Mao's observation, although not in the way he intended. The West has now joined China as paper tigers.
One obvious question is where the wealth went. China has the second largest economy in the world yet it is not a rich country. The obvious answer is that the wealth created by its new manufacturing base has been spent. It was spent building vacant offices and condos. It was siphoned off by corrupt government officials. It was spent on the largest military buildup of any nation since World War II. While the plight of the working class Chinese has no doubt improved, that improvement is limited, and the massive loss of revenue to the United States and Europe cannot be understated. We still manufacture things, but not on the same scale as we did 20 years ago. Instead we finance manufacturing that takes place in other nations. Our wealth is quickly being reduced to paper rather than tangible goods and, since most Americans don't participate in the paper economy, most do not profit from it.
Even conservatives agree that, in this country, wealth has become concentrated in the hands of a very few. Bankers, financiers, intuitional investors, money managers, and venture capitalists make much, much more than small or even medium sized manufacturing operations. The days of Andrew Carnegie building a new steel mill so that he could increase his already enormous wealth are over. So too are the days where a man could go to work in that steel mill and earn enough money to support a family, buy a car, and enjoy a new TV. Creating paper does not create jobs for Americans. It creates jobs for Chinese and Mexicans, and it creates enormous wealth for the paper holder.
Since 2008, the American economy has been propped up by artificially low interest rates, "quantitative easing" (which means money printing), and blind faith in a global economy it no longer owns. There are solutions. There are things that can be done, but there is no political will to do them. We could reform the tax code, but most people don't want to see the rich get richer without also seeing a direct benefit. We could reform our labor and employment laws to restore some balance to the employment relationship, but the labor unions, government sector employees, and self-proclaimed champions of the working-class would block it. We could reform our trade policies, to punish trading partners that devalue their currency, effectively taxing American imports. And, yes, we could tax the paper-makers at the same rate the rest of us pay.
America's greatness is not valued in dollars, but rather in the values of its people. America is great because of the fundamental principles upon which is was founded - limited, Constitutional government, individual liberty, and a basic respect for the dignity of all humanity. Even though we have managed to stand by and allow those principles to erode as of late, the trend is not irreversible. There is still time to shred the paper tigers and breathe new life into that old, ferocious animal that used to be our economy. Until then, however, we will continue to be at the mercy of every whim conjured by a foreign government. I, for one, find that unacceptable.
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