Chinese Professor Ad Highlights Cause of America's Decline

Citizens Against Government Waste is running a powerful new one minute ad on how bad economic policies in Washington can change the balance of power in the world to the benefit of foreign rivals. The "Chinese professor" ad is set in the year 2030 and can be viewed at either the GAGW site or on YouTube. The professor is lecturing his large class on "why do great nations fail?" Throughout history the cause of decline has been the running up of large deficits through reckless spending. In the case of the United States, the professor notes, "we owned most of their debt and now they work for us." The students then join with the professor in laughing at the foolish Americans.


There are some problems with the details if not with the overall validity of the argument. The Chinese scholar criticizes Washington for resorting to "so called stimulus spending" to fight the recession. But Beijing used a $586 billion stimulus package which, relative to the size of the Chinese economy, was larger than the U.S. effort.  It was targeted on infrastructure programs and was meant to use government demand to replace reduced exports. China weathered the storm rather well and economic growth is running at 9.6 percent this year. Beijing's execution of its recovery program has been much more effective than that of the Obama administration.


The professor also lists the "government takeover of private industries" as a mistake. Yet, the Chinese economy is dominated by state owned enterprises. Indeed, the advantage China has had over the U.S. during this economic downturn is that its state-run banking system did not collapse, but kept to its conservative role as a provider of capital to business firms rather than become a center for speculation. It just doesn't fit for a Chinese professor speaking in front of a giant portrait of Mao Zedong to sound like a libertarian.


The CAGW makes an effective case on the leading issues of this year's Congressional election. The only real drawback is that it does not go far enough. Where did China get the money to buy up America's debt? The answer is in the other U.S. deficit, the one in international trade. American consumers have sent Beijing over $1.6 trillion during the last decade, money used to fuel Chinese industrial and military expansion, and to give it enormous currency reserves that can be used to buy up assets around the world. Even at low interest rates, buying U.S. bonds adds to China's trade profits. Meanwhile, consumers who buy "cheap" Chinese goods find in the long run that buying on credit can be very expensive.


The November election will turn on the issue of budget deficits, but the new Congress will have to deal with the trade deficit if the U.S. economy is to recover in any acceptable time frame. By stressing the balance of power aspects of economic policy and the international transfer of wealth between the U.S. and China, the CAGW ad helps set the stage for changes on both deficit fronts.

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