Economics

3 New Thoughts on China’s Emergence as a Superpower

September 6th, 2012 // 2:19 pm @ Oliver DeMille

There is a lot of recent chatter about China, even though Iran is the big topic in international affairs.

Recent articles and books on China mostly center around one of two themes.

One side argues that China is a serious and growing threat, the other that China is misunderstood and Washington should do more to cooperate with Beijing.

A third, more relevant, argument is needed, and it goes something like this: China isn’t the problem, Washington is!

Three Trends

Consider the following three trends:

1-Many China experts in the West criticize China because it is becoming a superpower without showing much likelihood of getting involved in world leadership.

But this is actually a normal historical pattern. New superpowers benefit because the older superpowers are overextended around the globe trying to “exert leadership” in every part of the earth.

For example, Britain’s overreach made it simple for the U.S. to become a superpower, just as Spain’s overextension did the same for Britain. Rome did the same thing. Critics say that it was Hitler who weakened the UK, but imagine how strong London would have been if it had stopped trying to police the world for the decades before Hitler and had instead built its wealth and strength. Hitler may well have declined to spread across Europe in the face of such power.

One would think that an old superpower in a battle with a rising new threat would be smart enough to reduce its global overreach and return to the things that once made it competitive. But, historically, logic seldom reigns in superpower decline.

2-China is currently involved in aggressive currency competition. It seems to want the U.S. currency to be weakened, and for the U.S. credit rating to be downgraded again. It is also pushing for the dollar to lose its world reserve currency status (which allows Washington to print money at will without metal backing).

When this same thing occurred to Britain in the 1970s, the British economy was deeply hurt and still hasn’t fully recovered. In fact, the average net worth of most people in the UK was decreased by more than 30% overnight when this happened.

Such a circumstance in the current U.S. would be a major boost for Chinese power in the world, and the American economy is presently vulnerable. The natural consequence of such a development would likely come in two stages. First, a new reserve currency would be an IMF or other international tender backed by currencies from several top nations including the U.S., EU and China. Second, eventually China’s currency would be adopted as the world reserve.

This is not a far-fetched possibility. As mentioned above, it happened to Britain as recently as the 1970s.

Shockingly, while China is actively promoting this scenario, Washington is basically ignoring it and suggesting tax increases, increased government spending, and more regulation. This plays right into the Chinese strategy, and is worse than the old clichés of arranging chairs on the deck of the Titanic or fiddling while Rome burns. We have time to turn this around, but Washington is preoccupied with increasing taxes and regulations, both of which actually strengthen the Chinese agenda.

3-Chinese firms (government owned) are buying up many of the world’s natural, mineral and energy resources on all continents—including North America. U.S. firms can’t compete with such purchases because of the regulations and extra costs required by the federal government. Washington is literally refusing to compete with China and forbidding private American companies from doing so either.

Don’t Blame China

As I’ve written before, we shouldn’t blame Beijing for this. It’s natural to try to increase one’s power and place in the world. Good for the Chinese for expanding their influence and wealth! That’s the pursuit of happiness.

But it is amazing that Washington won’t let U.S. free enterprise compete fairly in this contest. If Americans want to compete with the emerging Chinese Century, we should give freedom a chance. Free enterprise is significantly and demonstrably more effective than the kind of centralized state economics used in China.

But a federal government in Washington that is highly bureaucratized and addicted to more regulation isn’t much better. In fact, when a Chinese company with the backing of Beijing competes with an American firm that is highly hampered by Washington, it isn’t surprising that the Chinese win.

The battle for leadership in the 21^st Century couldn’t be clearer: China vs. the U.S.

If this were as simple as authoritarian Chinese state capitalism versus American free enterprise, the battle would be short and easily won by the United States.

But the battle is actually authoritarian Chinese state capitalism versus overreaching federal U.S. regulations, higher taxes, bigger government and other policies that dampen American business endeavors.

If this reality remains, Beijing has all the advantages.

Unless something changes, and soon, we are going to lose this battle.

Category : Blog &Current Events &Economics &Foreign Affairs

The Reality Behind the 2012 Election

September 4th, 2012 // 2:18 pm @ Oliver DeMille

In 2010 I wrote the following article about the upcoming 2010 election. Today the principles are the same, but with the bigger stakes of a presidential election. Here is what I wrote:

It’s the Economy

The economy is struggling, and it is driving the election. As so many have said since the Clinton campaign made it popular in the nineties, “It’s the Economy, Stupid!”  And many Americans believe the economy will continue to decline.

If it does, the Obama Administration has very few tools to respond.

The White House has based its entire economic policy on an ideological belief in government spending and intervention, but further economic downturn will require it to take serious action.

What can it do that it hasn’t already tried? How much more can it spend? And at what point will it accept that such spending isn’t delivering fixes to unemployment and the economy as promised?

If the government increases spending, promotes more stimulus, raises taxes or increases regulations (or all of the above, which is what it has done so far), it will run into major difficulty. So far none of these have fixed the economy… And the major issues fueling dislike of the Obama agenda are unemployment… the health care law and other increased government regulation, and  massive government spending.

Some economists, like Paul Krugman, say the problem is that the stimulus should have been much bigger in the first place—since now there is very little support for more government spending. The White House seems to agree, and it is preparing to raise taxes on big business.

The problem with this strategy is that very few small businesses have a lot of extra cash right now. Big business, in contrast, has a lot more extra cash than the whole of government stimulus.

Unfortunately, with the Obama Administration promising to end tax cuts to big business, these companies are unlikely to hire or spend their extra money. And if President Obama does raise taxes on big business, they are likely to simply hold their cash or spend it in other countries.

A lot of corporations are seriously considering moving more of their operations abroad to find more favorable environments for profit. Many have already made this move, taking jobs and money with them.

Some countries are aggressively advertising their low tax rates to lure international investors. For example, a full-page ad in The Economist reads: “Fact: the Gulf’s lowest taxes are in Bahrain. As are the region’s lowest living and operation costs. Which leaves more of the cake for you and your business.”[i]

A lot of nations are using similar campaigns to lure investment, while the U.S. is actively adopting policies which drive capital away.

Why would businesses which can afford to move stay in the U.S. to face more White House attacks and increasing taxes and regulations?

This not only won’t help our economy, it will increase unemployment, make credit harder to obtain for small businesses, and convince consumers to buy less.

In short, it will significantly hurt the economy. The Obama plan claims to help small business, but in fact its proposed policies will do the opposite.

One Harvard economist points out that our debt load is now even worse than that of Greece,[ii] which has just experienced major economic collapse and is being bailed out by international banks.

It’s the Economy

The impact on the elections is obvious. If a lot of Republicans win, they will have more influence to argue for more business-friendly policies.

But there is no guarantee they will do so. After all, the Bush Administration significantly outspent the Clinton Administration.

No matter what happens in the election, the Obama team needs to take a different route if they want to reboot the economy.

Two years into Ronald Reagan’s presidency, the economy was struggling and unemployment was above 10%.

Reagan pushed to cut taxes, reduce government spending, and, perhaps most importantly, sent out the message—over and over—that government needed to be reduced and that private business was the hope of the economy.

In retrospect, spending actually increased under Reagan, but his consistent message of promoting business, love for business growth and free enterprise, and the need to cut government and spending made business feel safe.

He spoke optimistically of business on all levels, and lauded the opportunities provided by free enterprise and free markets.

The result? Businesses hired and entrepreneurs went to work. Business boomed. Growth quickly soared to 8% (the Obama recovery was around 1%) and unemployment rates came down.

The 1980s became an era of economic boom, which grew into the roaring 1990s.

Too often the opposite message is coming from Washington.

The White House repeats its “unfriendly to business” message over and over, calling businessmen “fat cats” and telling young people to work for non-profits and not go into business.

It constantly promotes increased government spending and ever-expanded regulations which drastically increase the cost to start and build businesses.

It has publicly attacked the Chamber of Commerce, the ultimate small-business advocate, and in general it has sounded angry and dangerous to business.

Now, in the name of “helping small business,” it is increasing taxes on big business and people who succeed in small business—many of those above the $200,000-$250,000 threshold are small entrepreneurs.

And, as I said above, many big businesses which hold a lot of cash are making plans to take it abroad.

These realities are a serious problem…

It’s the Economy

Of course a lot of Republicans support Republican politicians and a lot of Democrats support Democrats. But President Obama was swept into office by independents, and now most of them no longer support his policies.

Independents are mostly for fiscal responsibility, lower taxes and lower levels than the current government intervention in the economy. Indeed, many of them supported Candidate Obama because they disliked the Bush Administration’s high-spending, over-regulating policies.

It seemed to independents that Candidate Obama promised new leadership and a new direction for Washington. Many independents have been shocked and dismayed by the Obama Administration’s move to the left. But they could have supported this surprise if there wasn’t such a lack of new-era leadership.

For example, as an independent, I expected President Obama to be liberal. I closely read The Audacity of Hope before the election and I was clear that he would govern from the left.

But I also thought he would bring a new brand of leadership—a fresh, charismatic, Generation-X-style emphasis on American growth and vibrancy rather than old-line Washington politics.

Unfortunately for all Americans (left, right and independent), that did not occur.

Many independents feel abandoned by President Obama less for his liberalism than for his return to “Washington politics as usual.” This shift occurred within days of inauguration, and his popularity among independents has consistently fallen ever since.

We live in an era where the key to winning elections is to combine support from your base (liberal or conservative) with the support of independents. This is true nationally and in most locales as well.

For Democrats, who will get the bulk of Democratic votes no matter what, the goal right now should be to bring in independents by pushing through many tax breaks and finding ways to de-regulate business requirements…

It’s the Economy, Really!

The Democratic narrative seems to be that without the stimulus the recession would have been much worse.  But many independents don’t buy it. They didn’t like many of President Bush’s policies, but they are just as frustrated with the current administration’s strategies.

They believe the stimulus was a flop and health care and other massive regulations have seriously hurt the economy. They blame both Obama and Bush for the current economic mess. But since Bush is out of the discussion, their frustration is pointed at President Obama.

American independents aren’t the only ones who feel that the Obama Administration’s stimulus and massive spending/regulating strategy has worsened the economy.

Some international analysts, for example, say: “[The stimulus] has not worked. The whole thing has failed. And that is why America, of the big economies, is the one that is now teetering on the brink”; and “I think in Europe it’s very clear the direction the Europeans are going down, which is to basically start bringing public debts and deficits under control.

Obama is still worried about the polls….Personally, I think the best thing they could do is probably just sit on their hands in the U.S….”[iii]

If the plan is to spend more, tax more and increase regulations, then I agree—let the politicians sit on their hands and do nothing!

But what if, instead, they cut taxes, deregulated small business, changed the healthcare law to incentivize business investment, and extended an olive branch of friendship and thanks (yes, genuine gratitude) to entrepreneurs and business for their vital contributions to our prosperity?

Washington needs to reverse the bad-for-business policies accumulated since 1987—or at least during the Bush/Obama growth of anti-business policy since 2001. If this sounds impossible, we may be in for a very long period of economic struggles.

Conclusion: It’s the Economy!

The future of the economy depends on the willingness of small business to take risks and the willingness of big business to hire, spend and invest.

Until our national leaders are willing to cut government spending, lower taxes, reduce government interventions in almost every sector of business, and show more genuine friendliness to business, our economic problems will continue.

Whatever the results of the 2010 election, Washington has got to make friends with business. We simply must make those who spend their lives in business feel safe and excited about building, hiring, investing, growing and spending. Otherwise, more economic troubles are ahead.

We desperately need real leadership in Washington, leadership which will actually incentivize, promote and reboot the economy. The best case scenario would be for the Obama Administration to lead out in this direction…

This pro-business outline (cut taxes, significantly reduce regulation on business, get government spending under control, and make friends with business) should be the guiding principle to every voter in every election across the nation this year.

We need to pay little or no attention to political party and instead elect leaders who will help kick-start, encourage, and stimulate the economy. This is a true mandate, and our national future depends on it.

This is just as true in the 2012 election as it was when I wrote it before the 2010 election.

Category : Blog &Current Events &Economics &Government &Politics

Two-Decade Teens

August 13th, 2012 // 12:24 pm @ Oliver DeMille

With more and more college graduates returning home to live with their parents, many adults are becoming frustrated with the rising generation.

In the book Slouching Toward Adulthood, Sally Koslow shows how this trend is the natural result of the last two generations of parenting.

The problem is not so much the slumped economy and high unemployment, although these are realities, but the fact that using student loans to get through college is now the norm, so when students graduate they are loaded with debt and many can’t afford rent.

Even more difficult, the Boomer generation tended to bring up their children with an attitude that left little room for the lessons learned from failure.

This was mixed with a strangely controlling approach to scheduling and achievement.

As reviewer Judith Newman wrote in People  (July 9, 2012):

“Recognize that channel-surfing, chips-snacking lump on the couch? It might well be your adult child. Koslow writes wittily about the infantilization of American youth as increasing numbers treat getting a job and moving out as just an option. The solution? Stop trying to inculcate our kids against failure, for starters.”

Over six million adult children now live with their parents, pay no rent, eat without limits from their parents’ fridge, and use the house, yard, cable and computers without paying for them.

Many consider their parents an ATM.

Moreover, very few of them are out actively seeking employment.

The irony, Koslow notes, is that most of these adults were raised in a culture where they were constantly told they were special.

The result is that they value having fun with friends, want to travel extensively, and look down on working for the money to pay for their lives, hobbies and interests.

Many of the generation see themselves as free spirits, but unlike the sixties generation they want the expensive yuppie lifestyles of freeloaders.

As Diedre Donahue put it in USA Today,

“The adults aren’t helping. Koslow believes parents often infantilize their adult children because it makes parents feel needed. The result: entitled but incompetent children and exploited but enabling adults.”

As if that’s not enough, the new generation of adultescents “…crave attention and often cash from parents, whom they frequently ask to help them move from place to place; create a mess; rack up debt…”

Then, all too often, they blame their parents for their plight, anxiety, and lack of opportunity.

Of course, this doesn’t describe the entire generation, or even a majority of them, but it does accurately depict far too many.

This new adultescent trend, as Koslow calls it, doesn’t show any likelihood of slowing in the years ahead.

If anything, it will likely increase.

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Oliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Culture &Current Events &Economics &Family &Generations

Losing the Battle

July 14th, 2012 // 4:29 pm @ Oliver DeMille

Sometimes domestic politics can be so engaging that we miss the forest for the trees.

The Chinese government and government-run companies have been busy for a decade buying up oil, minerals and other natural resources in Asia, the Middle East, Africa, Latin America, and Central Asia, while U.S. firms face massive amounts of red tape and regulations from Washington when they try to compete for world resources.

This is creating a new split between the haves and the have nots—China has resources and the rights to resources around the world, while the U.S. increasingly does not.

Free enterprise is a better system than state-owned, authoritarian economics, but in this case Washington isn’t allowing free enterprise.

It’s more like a statist, authoritarian economy in Beijing versus an over-regulating, short-sighted bureaucracy in Washington. And totalitarian dictatorships are notoriously more effective than bumbling bureaucracies.

There is an excellent article on the topic in Foreign Affairs (July/August 2012): “How to Succeed in Business: And Why Washington Should Really Try,” by Alexander Bernard.

Bernard notes that the motive behind China’s state-owned purchases of resources around the globe isn’t to make money, but rather to “fuel the country’s economic rise.”

Certainly military might and political clout will follow.

Nor is China the only nation in the game.

India, Brazil, Russia, Britain, France and Germany, among others, are far more aggressive in tying up the world’s resources and contracts than U.S. companies.

Again, Washington’s regulatory scheme makes a reversal of this trend unlikely.

When our own government shuts down free enterprise, our corporations can’t compete with the biggest governments in the world.

Bernard writes:

“Among its peers, the United States is by far the least aggressive in promoting commercial interests…. China has managed to plant its commercial flag even in countries that are U.S. allies.”

In all this, the future of American wealth, prosperity, investment and jobs is drastically impacted for the negative.

We are failing to reboot our domestic economy because of our addiction to high regulation and high taxation, and the same things are causing consistent failure for U.S. commercial interests abroad.

Free enterprise works, but American policy has turned against it.

We are losing the battle, but losing the war.

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Oliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through Leadership Education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Business &Current Events &Economics &Entrepreneurship &Featured &Government

Common Wisdom versus Greatness in the American Election

July 14th, 2012 // 2:49 pm @ Oliver DeMille

The common wisdom says that incumbent presidents run on their record, and that the state of the economy determines presidential elections.

According to the numbers, right now the common wisdom is wrong.

The economy is still sputtering, but 51% of voters in battleground states like President Obama’s handling of the economy while only 42% like Romney’s economic plans (CNN/ORC International Poll, June/July 2012).

Furthermore, 41% of national voters believe Obama has a clear plan for improving the economy while only 27% believe Mitt Romney has one (Fox News Poll, July 2012).

In short, President Obama’s numbers aren’t great, but Governor Romney’s are worse. And 68% of Americans blame George Bush, not Barack Obama, for the poor state of the economy (Gallup Poll, July 2012).

Why is the common wisdom failing?

Analyst Juan Williams had it right on Fox News Sunday when he said that a majority of Americans see Mitt Romney as “a rich guy.”

It’s a rich guy versus a cool guy, and cool will always win in the American electorate.

Many Republicans and conservatives have criticized Mitt Romney for not having an effective plan to fix the economy.

Leaders from the Right—as different as Rush Limbaugh, Bill Crystal, George Will, and The Wall Street Journal—are concerned that Romney is doing little to establish himself as a serious leader on the issues.

They argue that he seems caught up in responding to attacks by Barack Obama and alternatively attacking Obama.

To have any chance in November, Romney needs to make real gains by September.

He may have little chance of being seen as cool, but he has every opportunity to go all in: To use his strengths and provide real leadership and a vision of what America can be and how he’ll lead us in the direction of American greatness over the next four years.

The common wisdom says, “It’s the economy, stupid!”

For the entire post-World War II era the common man has selected the candidate who seemed the most cool, the most likely to lead.

But both of these actually boil down to leadership.

Candidates must have strong, effective plans to take us in a moving and positive direction in the future, and they must be able to articulate this.

In 2008, Barack Obama very effectively presented a vision of a better America, a nation of change, a new era of unified cooperation in Washington, and a citizenry acting on the chant of “Yes, we can!”

Critics say that after inauguration he failed to deliver on these promises, but nevertheless he projected a moving vision and rallied a majority of voters behind it.

So far, neither candidate has done this in 2012.

If neither candidate can effectively articulate a great vision of the future, the incumbent will most likely win the election­­.

For this reason, the Obama campaign may be waiting to promote any sweeping grand vision of American leadership.

Why risk it if they’re winning anyway?

Thus the ball is in Romney’s court.

If Romney rolls out a great, Reaganesque vision of America, the Obama team will have to do the same and we’ll have a great debate in 2012.

Right now the high vision of the campaigns is, “We can’t go back to the failed policies of Bush,” versus “We must repeal Obamacare and Barack Obama or our economy will fall off a cliff in the next four years.”

Neither of these reach the level of a high debate.

They effectively speak to the base of each party, but the base was always going to vote for its candidate.

The real issue is independents, and neither side has effectively spoken to them.

President Obama is ahead in this battle because he has reached out in petite visions to special interest groups from Latinos to same-sex groups to women.

As Jimmy Fallon said in a late night comedy sketch, “President Obama said Americans need someone who will wake up every single day and fight for their jobs. Then he said, ‘But until we find that guy, I’m still your best choice.’”

We are experiencing a mini-campaign, focused on negative bantering about the small things.

Even the one big topic of debate, health care, is being discussed in micro-terms: about pre-existing conditions, adult children on their parents’ insurance, etc.

No candidate has yet taken bold leadership on the grand scale, to capture the American mind and propel the nation on a powerful, compelling journey toward the future.

The hottest days of summer are still ahead, and the American voters deserve a real debate on the biggest questions.

The opportunity for real leadership is here, and the voters are watching, hoping, for someone to step up and show us what leadership really means in the 21^st Century.

Americans sense that our challenges are going to increase, and that it’s time for another great American leader like Franklin Delano Roosevelt or Ronald Reagan.

Note that neither FDR nor Reagan were the great leaders they became before they were elected, but they were both openly and clearly committed to a great vision of America’s future.

The election of 2012 will go to whichever candidate stands up and projects the image and agenda of greatness.

If neither candidate does this, voters will probably just stick with the incumbent.

In short, it’s common wisdom against common wisdom: cool versus the economy.

But Americans don’t want to follow the common wisdom, they want to be led by greatness toward a truly great vision of the future.

They want to be touched, moved and impressed.

They want to rally behind a great leader.

They want to believe that their vote will make all the difference, that the president in 2013 will take bold steps that put America on the path to greatness.

The nation is ripe for a candidate who exudes great plans, a great vision, and great leadership.

Right now either candidate could rise to this need, and the best-case scenario would be for both to step it up and embrace American greatness.

Whoever does this most effectively will win the election.

Both candidates are avoiding risk right now, but what we need is a leader who leads, who goes all in and stops thinking about winning the election and invites us to an America that wins the 21^st Century.

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Oliver DeMille is the chairman of the Center for Social Leadership and co-creator of Thomas Jefferson Education.

He is the author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Culture &Current Events &Economics &Featured &Government &Leadership &Politics