If We Don’t Do Something About This Imbalance, Our Lives Are Going To Get Worse

The View From My Porch

In the 80s, as a child, I lived in an small Appalachian town. Small as it was it had a fairly sturdy downtown economy with local clothes and shoe stores, some higher end, some low. You could buy a serviceable suit that was made no more than three hours away by people you could actually call on the phone and speak with. There were also factories in that town that produced inexpensive goods, one made pencils. While it wasn’t wealthy by any means it had things going on and you could get work. If you worked hard and were willing to cultivate skills you could even build something for yourself with only a high school diploma.

That might seem quaint. It might also seem romanticized which, if you step back and consider it, is odd. Why would what I just described above be considered “romantic” or “quaint?” It was, after all, the case. It is true and it wasn’t quaint. Now, however, it is not the case. Now the downtown has no stores at all save East End Pawnshop. It’s a good pawn shop though, I’ll give it that much. Now there are no pencils produced there. There is still a packing plant. There is no tannery. There is no Ford dealership. There is really barely anything. Why not? Everything that could be made more cheaply elsewhere is now made elsewhere. Now those goods from this cheaper “elsewhere” pour into the town through one major vendor called Wal-Mart (this is not a Wal-Mart article) and these goods are then distributed for small amounts of money among the poor and getting poorer by the day residents of this small town. And, as they get poorer every day, and they do, the goods must get cheaper every day which means that the “elsewhere” will eventually have to be moved to a cheaper venue in order to create these extremely inexpensive goods.

Everyone’s familiar with Wal-Mart and I won’t dwell on it. What I want to talk about is the out of balance life our country is living every day but first I’m going to present you with a graph. It starts in 1996 and ends in 2012. I imagine that many of TC’s readers were small children in 1996. I’d just graduated high school. I am, as my 27 year old girlfriend would lovingly say, “old as fuck.”

If you’re the average Thought Catalog reader then you’re likely either college educated already or you’re currently being college educated. Your family, at the least, likely makes okay money. You may or may not have student loans. Regardless, you likely would not have worked in a pencil factory or a tannery or selling Fords. You certainly will not be a coal miner. So, you’re asking yourself, “why do I care about the loss of pencil factories and the like? This does not effect me whatsoever.”

Oh, but it does. It effects you profoundly. It takes what you might have had in different circumstances and reduces it immensely. It guarantees your options are limited and that your wages will not keep up with inflation. It cheats you. How? Outsourcing to poor countries results in entire industries and the expertise required to run those industries leaving the country. Want an example? Okay, I’ll pick a prominent one, Solyndra.

The Big Cheat

Republicans made a big stink about when the President funneled a bunch of federal support to Solyndra, a solar power company that had a unique design and wanted to fabricate the panels and equipment in California and sell them in the US and around the world. You probably just remember the scandal which was found to be groundless in October of last year but which wasn’t reported on very much at all. Solyndra employed about 1,100 people at its peak and it was basically still a startup at that point. What’s more, it would have likely been viable had the Chinese not chosen that exact time period, 2009, to dump (yes, it’s called dumping) an incredible supply of cheaply made conventional solar panels on the US market thus pushing Solyndra’s product out of competitiveness. Now the free marketeer in you may say “but China was able to compete and produce a viable product for less money. They deserved to win.” But, they didn’t. Here’s why.

China’s government subsidizes their growth industries directly to the point that their products are artificially less expensive than any other products in the world. The Chinese government has been busy buying entire market sectors in this way and when no one in the US can compete against China on cost anymore then the entire fabrication process and knowledge of that sector leaves US shores. At that point, it’s over. China also sets the value of their own currency and they have a set formula for its value that is determined by the value of the dollar. If the value of the dollar drops then the value of the Yuan drops. If the value of the dollar rises then the value of the Yuan rises. You know what other countries do things like that? Oh, that’s right, none. China’s entire economic plan is to underbid US industry through government subsidy and to artificially make sure the exchange rate between the US is always at an exactly predictable level. And while there is some evidence that the Chinese have allowed the value of the Yuan to raise a bit, it’s nowhere near where it should be.

And so the Chinese eat US industries and no one says boo. Even better, when the US complains as it did when China dumped all those Chinese solar panels, the Chinese appeal to the World Trade Organization (WTO) and the WTO says “well, China isn’t a market economy (they’re a totalitarian state) so they don’t have to play by the same rules as the US….so, they’re free to do whatever they want. Eat it, US and Europe.”

Complaint by China.

On 31 July 2009, China requested consultations with the European Communities concerning Article 9(5) of Council Regulation (EC) No. 384/96 (the EC’s Basic Anti‑Dumping Regulation) which provides that in case of imports from non-market economy countries, the duty shall be specified for the supplying country concerned and not for each supplier and that an individual duty will only be specified for exporters that demonstrate that they fulfil the criteria listed in that provision.

What the above means is that,in this case, the EU can set a duty (tariff/tax) on a country but not on the country’s products which means that China is free to dump all the goods, in this case steel, it wants on Europe and there’s nothing that can be done about it even if it drives Europe’s entire steel industry out of business. Sound fair?

Remember one thing, China is a Communist nation and the Chinese government therefore, in actual fact, has complete authority over every Chinese industry in the nation. They have a planned economy. The US has a free market with fairly minimal, by comparison, planning of the economy. When China eats US industries that creates poor people. When you have more poor people they require more government services to keep them from starving. When the government has to spend more money to keep people from starving it has to raise taxes or do things like lower spending in other areas like, oh, say, education which disproportionately affects those same poor people. Or, the government lowers taxes which, for the very poor has exactly zero effect at all in any real way and in the case of the Middle Class, keeps revenue out of the hands of the government…which means less internal investment. And since a cycle like this just keeps creating more poor people it drives up US debt and drives down, again, US internal investment.

It’s a self perpetuating suck cycle.

The Myth of the Fantastic 90s

But, the early 90s were great. We were welcoming the new economy, the internet economy. We were all going to be millionaires just for starting a website that sold pet supplies. Oh, it was going to be wonderful. We were in a sweet spot where we were coming out of a recession and we still had more money and revenue than God. NAFTA hadn’t been signed yet and so Detroit was still making cars and we were the number one industrial producer in the nation and the number one exporter. We were killing it, recession or not. Then trade agreements were reached and things started going over to China in a big way. Now, by 2016, China will have the largest economy in the world. It will be because we gave it to them. We gave it to them because we wanted cheaper goods and we were willing to trade our wages away for that, our security, our ability to self determine through traditional factory work which is how poor people have always gotten into the Middle Class. All that in just around 20 years. The 90s are remembered fondly because we were in a sweet spot where Americans still had money and pretty good jobs and also could now buy super cheap goods. Once employers figured out they didn’t have to keep paying well or that they could leave the country entirely then things started to go badly. Then 9/11, then Afghanistan, then Iraq, then the Depression of 2008….doing more and more with less.

Yeah, why not piss all that industrial capacity away. Y’know it’s interesting, Joseph Stalin understood the importance that an industrial base has for a nation so well that he was essentially willing to let millions of his own people die in order to create it. He didn’t do that just because he was an asshole. He did it because it’s that important. You can never be a first world nation without industrial capacity, ever. You know who else understood that? Mao Zedong, who killed 10s of millions in the cultural revolution. Modern China is the recipient of that brutal vision. Many of them are basically slaves killing themselves over iPhones. But, cheap stuff, ZOMG! No, I’m not okay with that. It’s exploitation.

Why the Stimulus Didn’t Do Nearly What It Should Have

Think about it. The US stimulus policy for individuals was basically to stick 20 more dollars in their paychecks every month so that they’d spend it and get money moving. One problem with that…people spent that money on things that aren’t produced in the US. That money, which was intended to be spent and then bounce around in the domestic economy for a while, hit Wal-Mart, Target, etc, and went straight overseas. It didn’t do anything because it didn’t stay here and that was your tax money and debt. Think about that.

One Last Thing

This is not so complicated an issue that it cannot be understood no matter what you hear. They need us more than we need them. There seems to be a feeling among younger people in the US that China “owns our asses” or somesuch because they own X amount of our debt. That’s not the case. Our current economic relationship with China isn’t the only road we have to travel which is why you see Obama busting his hump to try and formalize a trans-Atlantic trade agreement with Europe. China may own quite a bit of our debt but that debt also appears on their balance sheet. If the US were to default then China would lose all that money out of their economy. Additionally, the US is China’s number one customer. If we quit buying then the Chinese peasant class would be fighting soldiers in the streets by Spring time which, frankly, might not be a bad thing.

If the US imposed hard tariffs on China (or better yet, tariffs against developing countries in general) and forcibly revalued everything they imported to make it more like US costs of production then the US economy would take a big hit from that for about one year. After that, everyone would move home and produce things locally because it would be cheaper.

Now I’m not saying we should do that. I’m also not saying we shouldn’t but the consumer has the power. This is a choice we have made as a nation and it’s a shitty one and we’re paying for it in regular 15 month periods of unemployment for many and increased food stamp costs and stopgap funding measures. It’s going to get worse. We’re not living in an exceptional time. This is the new normal if we allow it to be.