“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Wednesday, January 19, 2011

Aaron Friedberg On China's Ambitions

Princeton University's Aaron Friedberg wrote a succinct, informative editorial in Tuesday's Wall Street Journal explaining China's unexpected change in demeanor as it challenges the US for global dominance.

He concluded his excellent analysis with these paragraphs,

"Since the start of the 2008-09 financial crisis, many Chinese strategists have concluded that the U.S. is declining, while China is rising much faster than expected. Belief that this is the case has fed an already powerful nationalism that appears to be increasingly widespread, especially among the young.

In this view it is time for China to "stand up," to right some of the wrongs suffered when the country was relatively weak, and to reclaim its rightful role in Asia and the world. Such sentiments are not the exclusive preserve of the military, although it may seek to tap them for its own ends. The rising generation of Chinese leaders cannot afford to ignore these views, and they may well share them.

If this assessment is correct, then the last two years are not a temporary deviation but a portent. Rather than signaling the start of a new interval of cooperation and stability, Hu Jintao's visit may mark the end of an era of relatively smooth relations between the U.S. and China."

With this perspective, how can anyone argue whether Congress should be cutting everything in sight? How can we delay putting all transfer payment programs on a pro-rata basis relative to current government tax receipts and GDP?

Could it be more clear what we, as a nation, have done to ourselves since 1935? That's the year in which FDR signed the flawed bill creating the social security program.

It's my contention that, beginning with that act, the US embarked on a path which has fiscally ruined us. We began running deficits, initially to try, futilely, to spend our way out of the Great Depression, then to pay for WWII. After that, except for a few rare years of surplus, Congress and administrations of both parties just spent us into growing debt, essentially to afford inflexible, badly-designed social welfare programs.

Nearly 80 years later, we are borrowing from our enemies to pay retirees a pension and health care.

The Chinese, watching our foolish responses to the recent financial crisis have, as Friedberg points out, concluded that we are in decline, so they have little or nothing to lose by ramping up their rise to global dominance.

What are we going to do, anyway, borrow from the Chinese to buy and build the weapons to fight them? Like the recent commercial depicting Chinese university students laughing as their professor lectures them on the US' economic decline, we have foolishly luxuriated in unaffordable spending programs, the money for which we borrowed from abroad.

China is now realizing that economic coercion will be more effective and easier than going to war to replace the US as the world's dominant power.

We are truly at a cusp now, unlike those predicted for the past decades, because of external developments. China is now poised to take on the US, and, thanks to our profligacy, has the economic influence to do so. Multi-lateral trade has reduced the central role of the US in the global economy. Poor management of our economy and dollar has resulted in its being viewed less desirously by global investors. And our own appetite for non value-added transfer payment programs, resulting in continued budget deficits for most of the past nearly-80 years, have reached a point where our need for global capital has finally met resistance.

I can't see a viable solution which gives us a chance at remaining as the powerful nation we've been for over a century that does not include moving all transfer payment programs to in-year, pro-rata payments, as defined-contributions from the government, as a share of current GDP and tax receipts. No more deficits and no more borrowing to pay fixed pensions or other benefits. Everyone- taxpayers and tax money recipients- shares equally in the nation's economic pains or gains.

We don't really have another choice, because, quite soon, global investors and other nations will simply foreclose our option to continue the madness we've practiced for nearly 80 years.

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