Digging Our Own Grave

China’s rapid growth and climb in economic power is old news and should not be a surprise to anybody. Something to keep in mind, however, is that the development of China’s infrastructure is still ages behind the United States. This should come as good news to the average American citizen who is concerned with China establishing itself as an economic powerhouse, but for those of us who are above average, we should see this an opportunity.

In order for a country like China to build its infrastructure, it needs many basic resources, such as concrete, iron, steel, food products, etc. So, where do you think China is obtaining these resources? Well, I’ll tell where they are not obtaining these resources, the United States. China is quickly becoming (or has already become) the world’s top super power, and although the United States has this infrastructural advantage over the Chinese, we do not appear to be exploiting it to try and regain a competitive advantage. Put simply, we are in the race for our lives, and we are tying our own shoes together.

While China continues to grow and expand, the United States has become too concerned with its internal reforms to take a step back and look at the big picture. We are missing out on Asian growth and may eventually be unable to compete with those other countries that are providing China (and many other Asian countries that are expanding as well) with the resources it needs to build this desirable infrastructure. In 2009, China superseded the United States as the top customer for commodity imports from Brazil. This is not a surprise because, given the circumstances that the United States’ infrastructure is so much more advanced than China’s, the United States has significantly less room for growth than China.

Because the United States has so many groups protecting blue collar workers, such as unions, and activist groups making it difficult for many companies trying to obtain natural resources, it would be impossible for the United States to provide such commodities to China at prices that are competitive with Brazil’s. As a result of this, such developing countries providing China with the resources it needs to grow have become the Home Depot for all of the expansion in Asia and the Middle East. These direct beneficiaries of Asian growth (those countries providing China with the resources it needs to expand) that are trying to develop are gaining wealth, giving those countries the opportunity to purchase more consumer goods. Basically, China is purchasing raw materials to build its infrastructure, and countries like Brazil that are accumulating wealth from selling those raw materials will eventually be purchasing goods back from China. The major problem with this picture is that the United States is completely out of it. The United States continues to pass legislation that increase taxes on the American consumer, so the American consumer will have less spending money to purchase those consumer goods. This is also a double-edged sword because China owns a large portion of the United States’ debt, so if American consumers are not buying consumer goods, the ability for the United States to get out of debt decreases therefore giving China even more power. In essence, China will not only be in control of the United States because of the mass amount of debt they own, but will also have power over those countries that are dependent on buying its products, such as those developing countries providing China with resources.

It would be wrong to say that Brazil should not be able to gain wealth by selling less expensive commodities to China because every human being should be given the opportunity to achieve a higher standard of living. However, the United States needs to figure out how to use our infrastructural advantage over China to get back into “competition shape.”

Wishful Thinking By The Obama Administration

In an article in The Wall Street Journal entitled "Factories Revive Economy", it was reported that the “U.S. manufacturing index in March registered its best reading since 2004…” and goes on to claim that production is increasing around the world, which is a good sign that the United States won’t “double-dip” back into a recession. One would have to be very naïve to believe that this production increase indicates a solid turnaround in business growth in the United States because although there’s been an increase in production in the private sector of the US, permanent employment numbers have not changed significantly. When a recession occurs, businesses have two means of surviving: cutting expenditures or increasing productivity at a lower a cost of producing goods.

In the recently released uptick in employment numbers, when temporarily subsidized stimulus related employment, along with temporary additional census workers are removed, the permanent private sector job increase has been at a minimum, despite the increase in production. Production has been, for the most part, increased in companies that have demonstrated the ability to show productivity and efficiency increases without labor cost increases. In other words, it has been a jobless recovery in the private sector.

Politically, it has been very important for the current administration to be able to speak about employment increases to help improve the American public’s confidence in our economy, but as stated before, these employment increases have been somewhat illusionary. Private sector companies will increase their costs, such as labor, only when absolutely required to maintain productivity growth. That is why the government has made such a push for stimulating employment through every means at its disposal with subsidies in the areas of energy efficiency, as well as federal and state work projects that could be advanced through the use of stimulus money.

The fact of the matter is the United States economy will not truly begin to turnaround until the private sector begins providing more jobs because the key to success is to give the American consumer increased purchasing power as a result of truly improved employment conditions and increased confidence in the security of the future of the American economy. One of the reasons that the economy is depressed is the people that continue to have jobs are being conservative in their own spending because nobody has confidence in their job security. Since so many American workers fear reduced hours, pay, or being laid off, they do not want to spend their money. All of these temporary fixes make the Obama administrations statistics look better, but they are not providing for long-term sustainability of our economy. You can only buy so much with stimulus money because at some point, the economy needs to be able to stand on its own and compete with the rest of the world’s economies.

If you read this Wall Street Journal article more closely, the details begin to unravel as it is revealed that the main contributor of the sudden increase in factory production is China (and other Asian countries as well). As a matter of fact, the United States production levels are only a smidgeon higher than they have been since the recession hit. That’s not to say that the United States isn’t doing better, but production has correlated with the increase in purchases made by these other countries and consumption in the United States has really been minimal. The inflated employment numbers, coupled with the positive statistics in factory production have only been effective in tricking the American consumer to have more confidence in the economy. This will hopefully help in encouraging people to spend more money, but this is not the panacea that the current administration would like you to believe that it is.