Introduced as having held every significant position in economics within the United States Government, former Secretary of the Treasury and former Chief Economist of the World Bank Dr. Lawrence H. Summers gave a talk in Washington D.C. last week titled “Economic Statecraft and Global Order”.
Lawrence Summer’s talk was considered “provocative” by the Center for Strategic and International Studies.
The event consisted of a 45 minute talk followed by another 45 minutes of questions. Advancing in staccato rhythm, each paragraph by Summers unfolded a systematic approach to reasoning about the significance of foreign economic policy. Citing the history of the World Wars, the Great Depression and the fall of the Soviet Union, his unfurling thesis implied theories of how economic policy contributes to global outcomes: Summers advocates that more aggressive economic warfare between the 1880s and 1920s would have stopped the industrial advancement of Prussia, ultimately preventing World War I, and that the Third Reich and World War II was only made possible by The Depression and the oppressive terms purposefully advocated in the 1919 Treaty of Versailles.
This thesis culminates in our former Secretary of Treasury laying down his cards. Seventeen minutes into the talk he lays waste to the notion that political capital should be spent trying to advocate for US companies – he argues that at stake in trade negotiations and economic diplomacy is something higher than the mere success of American businesses. He criticises “competitive ‘win-the-game’ theory” and even posits that “Almost every policy sentence that uses the word competitiveness is misguided. It conjures the competition between companies, but that doesn’t apply to countries.”
And then says some curious things:
“There’s no a priori logic even in the narrow economic realm where we can assume we do well if another country’s economics prospects diminish.”
“Any paradigm around the notion that we want to win and we want others to lose is misguided in narrow economic terms and catastrophic in broader political terms. It is hard to imagine having harmonious relations with those whose economy it is our desire to suppress.”
“The objective of policy should be to foster a more integrated global economic system in which more nations and more people within nations have a stake in collective success.
In a phrase. It should be the promotion of shared prosperity.”
“Shared prosperity strategy that offers the best prospect for a successful integration of China into the global order.”
“The American posture, having designed a Pacific Trade Agreement, that was crafted in a way that whatever was legally possible made it not practically realistic for China to participate.
“Having done that when China sought to create an institution that invested in Asian infrastructure; for the US to allow an appearance to develop that it was working hard not just to not to participate but to discourage others from participating and then have our longest standing ally the Brits lead the charge of repudiation constituted one of the darker days of US economic diplomacy.”
“This I would submit is a matter of particular urgency at the current time when we are seeing for the first time this year capital flows from south to north – from downhill to uphill – on an unprecedented scale; complicating the matters of macroeconomic management through capital flight from emerging markets and current account deficits.”
“In a real sense the remainder of this decade emerging markets will probably be submerging markets.”
– Lawrence Summers, Center for Strategic and International Studies, Washington D.C.
What is Summer’s talking about? The United States strategy to destroy China’s economy, flirting with global economic collapse in the process, his argument entails, is neither a good strategy that advances US values nor a strategy that has gained us many allies.
The Asia Pacific arena in particular, and developing economies in the Asia Pacific more broadly, are projected to overtake the United States and the Atlantic as the center of the global economy. Soon the very vast majority – two thirds of all world trade – will be passing through the South China Sea.
The United States strategy has been, not colonialism or theft or international espionage, but abject destruction. Wielding the powers of the world’s most powerful lending, monetary and financial institutions, every measure has been taken to styme the rising power’s economy that left unchecked is certain to overtake the US. To deal with China, the United States has architected the Trans Pacific Partnership, which as Summers states was “crafted in a way that whatever was legally possible made it not practically realistic for China to participate.”
Of course, it isn’t just Summers saying these things. Robert Blackwill, former ambassador and National Security Council deputy for Iraq reporting to Condolezza Rice, and Ashley Tellis, National Security Council staff as Special Assistant to the President and Senior Director for Strategic Planning and Southwest Asia, codrafted a Grand Strategy Document Toward China out of the Council for Foreign Relations – an influential policy thinktank in Washington DC created after the First World War.
The opening paragraphs of this Grand Strategy Toward China quickly summarize its content:
“It has become something of a cliché to say that no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China. Like many clichés, this statement is true but not terribly useful, as it tells us little or nothing about the nature of the relationship in question.”
“Some point to history and argue that strategic rivalry is highly likely if not inevitable between the existing major power of the day and the principal rising power.”
“A number of policy prescriptions follow, including the adoption of policies designed to produce more robust economic growth in the United States; new trade arrangements in Asia that exclude China; a stricter technology-control regime affecting exports to China…”– “Revising US Grant Strategy Toward China”, Council on Foreign Relations(emphasis ours)
Summers also discusses how the United States sought to crush international investment banks organized by China – but lost face with the rest of the world and saw the international community rally against it. The United States has been rallying a whole-of-government effort to prevent China’s rise.
Statesmen, partnered with private hedge fund managers, are currently spending fortunes trying to deflate China’s currency so that the country implodes into an era of recession. They calculate that by around the middle of 2016 they can deplete China’s foreign currency reserves to the minimum levels required to operate trade and that after this they can devalue the Chinese currency by up to 40-50%, preventing China from graduating from a developing country to a developed one – what would represent the largest move of lower income people into the Middle Class in all of history.
The United States Fed continues to promise repeated rate hikes despite the danger that poses to the domestic economy. When these rates are hiked, a stronger US dollar makes it more difficult for US-dominated debt around the world to be paid off, as it effectively multiplies the cost of the loan. The anticipation of hikes, the burden they will cause for government budgets, and the relative devaluation of holding capital outside US dollars, causes capital flight increases out of China, Brazil, India, Turkey, Russia and other countries. Wealthy individuals who fear their fortunes may be ruined from the combinations of devaluing currency, increasing debts, and geoeconomic warfare delist their investments from the home countries. This flight of capital causes further complications for the victimized countries.
As a result of America’s policies, globally, for the first time in world history, investment capital will net be leaving developing countries for the developed world. Larry Summers calls this ‘downhill-to-uphill’, and pains that it deeply complicates the stability of the global economic system.
Harry B. Harris, Admiral and Commander of the United States Pacific Command, in a report to the same Washington institution says:
“If [China] were to build out Scarborough Reef like they have Firey-Cross Reef, like they have built out Woody Island, they would control the South China Sea against all of the militaries out there except for the United States military in all scenarios short of war. This has operations implications for me as military commander and strategic implications for the United States: when you consider the $5 trillion dollars of trade pass through the South China Sea every year.”
“Economics: I’m a supporter of TPP, I think it’s critical to our economic power. And at the end of the day The Rebalance [to Asia] is about economy. It’s not about China. It’s about us and the values we hold dear and what matters to us. And the biggest piece of The Rebalance is the economic piece.”
– United States Admiral Harry B. Harris
Harris goes on to note that we also have deployed the most sophisticated weapon systems the United States has developed to the region. China’s primary defensive weakness to external threats in modern warfare – were one to arise between it and the United States – is its dependence on easy-to-blockade ports and trade straits, the most important the Strait of Malacca. The United States regularly enumerates the foreign strategic assets it seeks to control: the Strait of Malacca made the 2008 list.
In addition to crippling China’s economy, which has in turn set the tides for a global and domestic recession, Harris explains that the United States is simultaneously committed to complicating China’s plans to build military outposts that protect its trade waters from blockades.
Lest one think the United States is not the aggressor in this exchange the high level strategies enumerated within the Grand Strategy Toward China report China as: pursuing maintenance of internal order, sustained high economic growth, peace around its periphery, and cement international status.
On the other hand the United States is recommended to “permit successful U.S. power projection even against concerted opposition from Beijing”, “U.S.-Asian alliances should be rebooted for offensive and defensive geoeconomic action. This intensified alliance focus should be as concentrated on geoeconomics as on political-military instruments”, “Strengthen the U.S. Military”, “increase the frequency and duration of naval exercises with South China Sea littoral states”, “working with the ROK (and Japan) to develop a comprehensive strategy for regime change in North Korea”, “substantially loosen its restraints on military technology transfer to India”, “regard Indian nuclear weapons as an asset in maintaining the current balance of power in Asia”, “possible future arms sales to Taiwan could include signals intelligence aircraft, transport aircraft, upgraded engines for F-16s, upgrades to frigates and other ships, and/or land-based missile defense systems.”
Lawrence Summer’s talk was considered “provocative” by the Center for Strategic and International Studies.
Not provocative because he wanted to export more pollution into developing countries. Not provocative because he wanted to sidestep sovereignty, impose rents, privitize resources, and collect profits from emerging nations.
Lawrence Summer’s talk was considered provocative by the Center of Strategic and International Studies because he reasoned that the US ought to allow the peaceful and uninterrupted development of China into a modern economy – even if that means losing global economic primacy. Provocative because he criticized the destructive measures the United States is taking to inhibit world growth for its own selfish and paranoid justifications.
P.S. The Washington Times published a report on these events, but with severely questionable journalistic ethics and standards: “Official: China stock crash is U.S. economic warfare“.
7 thoughts on “Political Economy, Global Order, Fed Hikes and Recession”
A lot to comment on here. Good information and summary. It occurs to me that what’s good for governments, including the US, is not good for citizens. The idea of economic warfare, for instance, only increases costs for citizens of all countries involved, and contributes enormously to poverty in all, as well as general reduction of quality of life. Trade agreements effectively restrict choices to the citizens of the countries involved. Governments cannot trade anything except favors, at the expense of their citizens.
Unfortunately for the international bankers, international corporations, and governments generally, the economic warfare is forcing more domestic investment in every country, including the US. As capital leaves the “emerging markets”, so does the foreign dominance, which frees domestic economies to build from within. I say this is a good thing for citizens. That China claims to be investing more internally is a good sign, if true, but probably gives the international asset plunderers and money churners the jitters.
Additionally, foreign governments are quite capable of nationalizing corporate holdings, as Venezuela did with oil. They are also capable of defaulting on debt, which is why the ECB and World Bank could not allow Greece to get away with it. Such a move would prick the balloon of debt-backed currency that gives the central banking industry its power.
Thanks for the comment. 🙂
I agree! I absolutely look forward to seeing how these developing countries and emerging economies cope with this unique period in global economic order. There’s bound to be a number of incredible case studies and anecdotes for record and for study. Unfortunately it doesn’t seem to be the case that because capital flows have reversed that the structures and forms of usury have been lifted. Indeed, the debts they have to pay off have multiplied ultimately because the Fed agreed on a new number.
I do hope that what we see at the end of this is a radically more equitable world structure.
“It occurs to me that what’s good for governments, including the US, is not good for citizens.”
I do hear this argument in various forms on pretty frequent occasion. Chomsky, for example, regards US imperialism as a project of the elite – ultimately detrimental to civil society and the general populace. The “Free Market” folk – the ones who espouse removing rent and usury – tell this same tale that living and let living actually benefits more people the most overall. Your argument does a great job at demonstrating the costs of economic warfare to the modern plebian class.
However: the Washington Thinktank didn’t seem very moved by Summer’s suggestions. Neither do the highest circles of power. Machiavelli doesn’t recommend peace and harmony. Nor does any serious text on rule.
And that’s because even the plebians of Rome benefited by being citizens of the world superpower. Roman peasantry, even the slaves, had better lives being poor in Rome than being poor outside of it. This is equally true of the British, the Chinese, the Ottomans and all of the other great Empires that ever came to power. The citizens of these empires did very well by imperialism, mercantilism and colonialism.
It’s a demonstrably false statement that as US citizens we don’t benefit from our country being the most powerful nation – and at the center of the economic world.
Preventing China’s rise in this sense will absolutely benefit Americans. The costs that will be borne will be temporary for Americans, and borne more permanently primarily by the expense of the rest of the world.
The argument not to do it isn’t that it doesn’t actually benefit us citizens.
The argument not to do it is that it’s a monstrously horrible, despicable and immoral thing to do. That it’s on the wrong side of history. That benefiting at the cost of anothers suffering lacks the civility, maturity and responsibility of our better natures.
Thanks for the thoughtful reply. I suspect our differences are primarily in how we define “benefit” and “free market,” among other things. If your definition of “benefit” is purely economic, I would agree that in Julius Caesar’s time, it was better to be a Roman citizen than not. Caesar was quite generous with the poor, whom he used to help secure his power base against the Optimates.
This is what we are seeing now in the US, in which class struggle is exploited by the powerful to maintain their power. But anything that benefits one group over another ultimately drags down the whole, and the long-term consequences are visible world-wide today. Caesar maintained his power by continuing to conquer and plunder new territory, provide expensive entertainments for the masses, and–most important–insure a food supply for the populace.
Preventing China’s rise will not benefit Americans nearly as much as using our resources to build from within. If we stop buying cheap imported junk made by virtual slave labor in China, it will naturally prevent China’s economic rise, because the US market is China’s largest. Americans, who are so proud to have eliminated slavery (supposedly) don’t want to recognize that Chinese and other imports are cheaper because labor is cheap, regulations lax, and corporations have no loyalty to any nation or moral standards. And governments are symbiotic with corporations. I’m willing to bet that the biggest corporations are heavily dependent on government contracts for their income.
There is no such thing as a “free market” today. Trade agreements are the opposite of a free market. So are monopolistic government contracts provided to the world’s worst eco-rapist corporations, like war contractors, oil companies, and chemical companies. Where is the benefit when the US government actively supports destroying by guns and poisons everything that gets in its way? Are we really benefitted by the accumulation of environmental toxins that far surpass “greenhouse gases” as a threat to the planet?
No genuine free market capitalist would try to undermine its trading partners, yet we see an entire population here that believes competition is good–that you benefit by dragging the other down. On the contrary, I believe that by supporting others, you put them in a better position to support you. Thus you spread good will rather than hatred and fear, because everyone is treated with respect and given a fair chance.
🙂 I read the comment several times. I wasn’t very clear so I apologize.
I’m very positive we have the same ideas about “Free Market”. When I wrote ‘The “Free Market” folk – the ones who espouse removing rent and usury – tell this same tale that living and let living actually benefits more people the most overall.’ I meant not the people who use “Free Market” to mean Mercantilism and Colonialism – but those who actually mean free markets. I intended to talk about the people who “espouse removing rent and usury.” Given that the term “Free Market” has been sabotaged by people who are not free market and that the spoiled version of the term has gained widespread acceptance it was a poor choice for me to use it.
> If your definition of “benefit” is purely economic,
My definition of benefit is not narrowly economic, but concerned with power. “Benefit” asks the questions: Who commands labor and makes it work for him? Whose demand mobilizes resources into production?
> I would agree that in Julius Caesar’s time, it was better to be a Roman citizen than not. Caesar was quite generous with the poor, whom he used to help secure his power base against the Optimates.
In Rome, far beyond Caesars time – both before and after it – the Roman Empire was powerful and the labor of the lands around it made to work for the desires of the Roman people: both those in the elite and those who were poor. This is what I mean by benefit. The Roman Empire was rich and powerful and even the poor benefited. (Again even ignoring Caesar) People around Rome sold themselves and their children into slavery because it was better being a Roman slave than a virtual, but not official, slave on its periphery.
In the British, Ottoman, Chinese, Mongolian, etc Empires the same feature is true. The Empires commanded the labor and mobilized resources into production.
> Preventing China’s rise will not benefit Americans nearly as much as using our resources to build from within.
Agreed we should be concerned with domestic production and health. But again, the term “benefit” means much more than wrote economic prosperity. It means being able to pull giant economic levers, sanction military enemies, flood or starve international markets for capital, allow our international corporations to rent-seek on native land on resources, and command global labor and production. Preventing China’s rise keeps the “power” token in the American court.
> If we stop buying cheap imported junk made by virtual slave labor in China, it will naturally prevent China’s economic rise, because the US market is China’s largest.
This is not true whatsoever. At this point China has the capital and the infrastructure building capability (they’ve layed more concrete in three years than America has in its entire existence) to overtake America on its own. It has many markets and is at the helm of a region of the world that, despite being small geographically, contains over half of the world’s population. All of these people are headed, at different speeds, for modern economies and Middle Class educations, jobs, and wages.
It’s a really nice sentiment and a comforting one but this hasn’t been true for some time.
> Americans, who are so proud to have eliminated slavery (supposedly) don’t want to recognize that Chinese and other imports are cheaper because labor is cheap, regulations lax, and corporations have no loyalty to any nation or moral standards. And governments are symbiotic with corporations. I’m willing to bet that the biggest corporations are heavily dependent on government contracts for their income.
This, of course, all equally applies to the American government and American corporations. Though it doesn’t seem to get the same press.
> There is no such thing as a “free market” today.
Agreed its primarily Mercantilism. I did a poor job being clear there. I had intended to mean a very small subclass of folk who legitimately believe in eliminating Mercantilist policy, colonial ambitions and rent-seeking behavior. Maybe enough of them don’t exist to have made a reference to them. For that I apologize.
> Trade agreements are the opposite of a free market.
They can be. The TPP for sure as hell is.
> So are monopolistic government contracts provided to the world’s worst eco-rapist corporations, like war contractors, oil companies, and chemical companies.
> Where is the benefit when the US government actively supports destroying by guns and poisons everything that gets in its way?
Power. The ability to mobilize production and command labor. The ability to determine world outcomes in your own interests.
> Are we really benefitted by the accumulation of environmental toxins that far surpass “greenhouse gases” as a threat to the planet?
In the sense of overall prosperity, of course not. But yes, America benefits from industrial crises like global warming. The United States is not trying to industrialize. India, China, Brazil: these adversaries are. Industrial crises harm the developing nations more than they do the developed world. And look at the climate talks – for example the ones just a few months back in Paris. The terms for an agreement by the US and developed countries insists that the developing world effectively not industrialize.
If they can not industrialize it is the US that has power.
This is like hand-cuffing yourself to another person and threatening to jump off a cliff. Does this increase overall prosperity? Hell no. Does it give you power? Undoubtedly.
This is why the essay ends “the destructive measures the United States is taking to inhibit world growth for its own selfish and paranoid justifications.”
> No genuine free market capitalist would try to undermine its trading partners
The United States is not a genuine free market capitalist enterprise.
> On the contrary, I believe that by supporting others, you put them in a better position to support you. Thus you spread good will rather than hatred and fear, because everyone is treated with respect and given a fair chance.
I encourage you to be extremely critical of the United States government for its geoeconomic military aggression against China – and therein against the rest of the world.
The undated quote from Robert Blackwill kind of confuses your argument. If Condalezza Rice is involved, it must be previous to 2008, which is much previous to the present situation. There was some question of TPP being organized AGAINST China. I wonder about that. If you don’t want to trade with China, then you just don’t. Why bother with what? a “revengeful” conspiracy? USA/China relation is co-dependent, although I think Americans thought a “little” trade with China was a good thing and it grew into a monster, and economic fallout is really now appearing as investors fear falling growth in China – you apparently say that some WANT China to fail. Yes, well, you have to KNOW who that is, so who is it, exactly?
The Blackwill quote is from March 2015.
I may have worded it poorly, but I had intended “former ambassador and National Security Council deputy for Iraq reporting to Condolezza Rice” that he was a former ambassador and a former National Security Council deputy for Iraq formally reporting to Condolezza Rice. It may sound weird because I lifted the phrasing almost verbatim from a bio of his.
> There was some question of TPP being organized AGAINST China. I wonder about that. If you don’t want to trade with China, then you just don’t.
I encourage you to read the documents, listen to the speeches, read the quotes and follow the links within the article.
The TPP is intended to create a trade bloc in which *nobody* trades with China.
> Why bother with what? a “revengeful” conspiracy?
I wouldn’t call it “revengeful”. I would quote directly from strategy documents (which I did in the article) to explain that it’s “aggressive”, “anticipatory” geoeconomic policy. China hasn’t done very much worthy of revenge. But to requote from the documents: “Some point to history and argue that strategic rivalry is highly likely if not inevitable between the existing major power of the day and the principal rising power.” The purpose is to prevent the rise of China. Not to punish it for something its done wrong.
> USA/China relation is co-dependent, although I think Americans thought a “little” trade with China was a good thing and it grew into a monster
Certainly the USA and China are the most important economies in the world. The economic warfare is due to United States fears that it will become the second most important economy of the two given projections. Originally it had been thought that the Asian Crash of 1997 and economic liberalization could contain China, but now that they haven’t the resort is more extreme.
> economic fallout is really now appearing as investors fear falling growth in China
This is definitely something investors, world leaders and the international community fear. Indeed, the stock market is currently betting on a recession. As Summers says at the Council for Foreign Relations “Second, there is at least a reasonable prospect—I would say it’s probably one in—probably one in three, maybe slightly more than that—that a substantial downturn in the world economy, with the U.S. playing a prominent role, will be a defining—will be a defining story.” (http://www.cfr.org/global/assessing-global-economic-political-risks-2016/p37458)
The key to understanding the article (and I encourage you to read it again, more slowly) is to understand what role the United States is playing.
> you apparently say that some WANT China to fail. Yes, well, you have to KNOW who that is, so who is it, exactly?
If you follow links in the article you quickly find the names George Soros, Kyle Bass, Bill Ackman, David Tepper, Blackwill, Tellis, and more.
Take some the CNBC reporting: http://www.cnbc.com/2016/02/01/china-takes-on-hedge-fund-bosses-ackman-bass-tepper-in-yuan-battle.html
You won’t get a good financial understanding from this article, but you will understand correctly that it is a ‘battle.’ If the United States were not leveraging its monetary policy, geoeconomic instruments and shorting the yuan at the same time – China’s economy would be quite fine.
Indeed, there are numbers predicting when China will start to have difficulties with the valuation of it’s currency. When its foreign reserves are depleted to around 2.7 trillion dollars (the amount required for it to run its international trade) it will have to resort to using other measures to land its currency gently. Last I checked it had about 3.3 trillion dollars in its foreign reserves. The Soros crowd are short selling the Renminbi at around 80 billion dollars a month and so within the year China is expected to have a serious reckoning with the stability of its economy. The financial apparatus of the United States is investing over a half trillion dollars in tanking the Chinese currency.
If they were merely betting on the Chinese Yuan faltering – and not actively trying to make it happen – it sure as hell wouldn’t be on information like the above.
Now, if we were worried about China’s collapse the strategy is pretty simple: we would progressively lower the Fed rates and the stop shorting the Yuan before it drops to below the ~2.7 trillion dollar target.
Again, I highly encourage you to read the article if you just read the first few paragraphs or otherwise to read it more carefully. And don’t feel discouraged from looking things up online!
Thanks for the post coxrobert. 🙂
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