The Perils of Changes of Global Leadership

John Plender in his comment at the Financial Times, “Great dangers attend the rise and fall of great powers,” does a fine job given the space constraints of discussing the fraught process of changes in global economic and political leadership.

I thought it would be useful to quote Plender at length, with some additional observations, in the hope of eliciting reader input and reactions. From the Financial Times:

It is a discomfiting historical fact that great power shifts in the global economy are dangerous. They have tended to coincide with extreme financial dislocation, currency turbulence and trade friction. This is because the aspiring new boy on the block is usually a protectionist-inclined creditor country that is reluctant to shoulder international responsibility commensurate with its economic strength.

Consider the transition from British to US hegemony after the first world war. From 1918 the US rejected the Versailles treaty, opted out of the League of Nations and had nothing to do with German reparations, although it collected war debts from the allies. Britain’s liberal attitude to trade allowed the US to run a big trade surplus. Meantime, the young and inexperienced Federal Reserve pursued lax monetary policies in the Roaring Twenties while unwisely trying to prop up the ailing pound.

Yves here. There are a number of different ways to frame this change, both as to when it took place and what its triggers were. World War I forced the end not merely of British ascendancy, but the powerful hold of monarchies and landed aristocracy on political power through much of Europe. No one saw this sea change coming; the summer of 1914 was gay, and while many saw war in the offing, it was expected to be a short affair.

Similarly, I’m not certain whether greater US engagement could have shifted the tide sufficiently after World War I to have prevented many of the woes that followed. The US was a late entrant and thus would have no basis for playing a leading role in crafting a post-war order. Many stakes were put in the ground with the Treaty of Versailles. Moreover, the US appears not to have been up to the task of international stewardship, even if it had aspired to that position. Keynes’ Economic Consequences of the Peace depicts the US representatives as skillfully manipulated and marginalized. Back to the Financial Times:

When the Fed belatedly pricked the resulting bubble in 1929, the Jazz Age came to an abrupt end, banks collapsed and the depression ensued. As the US exported its problem of deficient demand to the rest of the world, it failed to provide leadership to prevent an outbreak of disastrous competitive devaluations and was unwilling to act as a global lender of last resort to collapsing banks.

Yves here. The US was having enough trouble attempting to right its own economy, particularly since initial enthusiasm for Roosevelt by quite a few businessmen and financiers quickly soured. The idea that the US could act as a lender to foreign banks seems quite implausible. And I’m not certain this supports Plender’s argument, that the US should have done more. As we’ve noted before, there are tradeoffs among international integration, national sovereignity, and democracy. Plender is arguing (basically) for the US running roughshod over national sovereignity and democracy to salvage an international financial order. There are very few windows where the stars align for that strategy to be both politically viable and economically sound. One was in the wake of World War II devastation, when the US, with 50% or world GDP, was unquestionably dominant, and the Axis nations were prostrate politically. Back to Plender:

The next case in point is postwar Japan. Japanese economic growth was export-led, fuelled by an undervalued yen and subsidies for exporters. It was a model that worked as long as Japan was not a significant economic power. Yet by the late 1960s Japan was the second largest economy in the world. It was also running a huge trade surplus with the US.

International efforts to address imbalances and stabilise an overvalued dollar in the Reagan era had unintended consequences – not least that Japanese intervention in the yen-dollar rate had the same bubble-inducing outcome as the Fed’s efforts to prop up sterling in 1927. The pricking of the bubble led to 20 years of economic stagnation.

Yves here. There’s an implication that Japan should have sought a dominant role, but first, Japan was and is a military protectorship of the US, and second, Japanese would really rather not deal with foreigners. Moreover, Plender suggests Japan’s real estate and stock market bubbles were an accident. In fact, the authorities were in favor of them, because they thought the wealth effects of higher asset values would spur more domestic consumption, which would in turn offset the dampening effects of the fall in exports caused by the rise of the yen. The authorities raised rates because the bubbles were producing income and wealth disparities and undermining Japan’s highly valued social cohesion.

Back to Plender:

China’s challenge to the US is similarly export-led and its current account surplus is the biggest contributor to the Eurasian savings glut that led to the credit bubble and the global imbalances behind the financial crisis. Yet despite its success, China’s economic model generates wasteful over-investment and under-delivers to ordinary people, who have the lowest share of private consumption in GDP in Asia. In a country that enjoys double-digit growth rates, employment growth has been running at a paltry 1 per cent a year, while real returns on savings are negative. As with Japan at its peak, the economy delivers a poorer quality of life than the per capita income figures suggest, with pollution, adulterated food and bad employment conditions posing threats to health…

What is needed globally is for both debtor and creditor countries to rebalance their economies. The debtors need to tidy their balance sheets, while the creditors need to bump up domestic consumption, let currencies float and reduce export dependence. This would also be in China’s own interest because its economy is in disequilibrium. It cannot, among other things, prevent inflation and asset-price bubbles while running an artificially low exchange rate. Yet the obstacles to change are formidable. The key to rebalancing towards consumption, says Mr [Charles] Dumas [of Lombard Street Research], may be relaxation of government control over its citizens, which is unlikely to happen. There are also powerful lobbies against change, not least the inefficient producers who have been featherbedded by a cheap currency and whose economic survival depends on continuing undervaluation.

There is, then, a Chinese policy impasse. How does the world escape from its dire potential economic consequences? One scenario might be muddle-through: the US responds to an impending economic slowdown with looser fiscal and monetary policy, at the cost of racking up more debt and a crunch later on. Another would see US fiscal conservatives prevent budgetary loosening, while monetary policy remains lax. This would cause the US current account deficit to shrink sooner rather than later.

Either way, the risks of a protectionist backlash against China would rise. Under either scenario, the world’s creditor countries would ultimately see their chief market dry up. The main difference is in the timing. When, you might well ask, will the creditors wake up?

Yves here. Notice how Plender sees the political obstacles in China put the onus on the US to force changes. Most policymakers are wedded to the idea of free trade, but with a high unemployment rate and slack resources, the US would come out ahead by implementing protectionist measures (although corporate CEOs might not fare as well). As unemployment continues to be high and foreclosures continue to exact a toll, pushing back against mercantilists like China will look more and more attractive.

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  1. nathan tankus

    i suggest michael hudson’s superimperialism on this point. the u.s actually was very involved in international politics and was actively belligerent on many things including the crucial intergovernmental debt between u.s and the allied’s interesting the contrast between u.s creditor policy in the 30’s compared to u.s debter policy in the post war period.

  2. anonymous

    The question is: protectionist measures look more attractive to whom, precisely? Again, I’ll wade into waters well over my head because protectionism is precisely what I see as the only way of increasing domestic production and domestic consumption. The US can’t correct the trade deficit Yves referred to in a post several days ago by going toe to toe with nations in the free market with nations like China.

    China is playing hardball demanding technology transfers for the right to sell inside China. And that’s just the part of the story that’s getting aired publicly.

    We haven’t seen populism fused to protectionism, but add a little xenophobia to the unemployment crisis and that could change.

  3. anonymous

    Another bungled edit, apologies, but I think you get the point: protectionism will appeal to the unemployed, but not to the rich fat cats that fund the current administration. Or am I wrong?

  4. nathan tankus

    “It would be false to say that the United States provoked World War II out of malice or
    out of knowledge of the results of insisting on repayment of its war debts by a world utterly
    unable to repay them. It is true, however, that no act contributed more to the genesis of
    World War II than the intolerable burdens that the United States imposed on its allies of
    World War I and, through them, on Germany. Every U.S. administration from 1917 through
    the Roosevelt era employed the strategy of compelling repayment of these war debts, above
    all by Britain. The effect was to splinter Europe so that the continent was laid open politically
    as a possible province of the United States.”-michael hudson, superimperialism, pg 100

  5. dearieme

    “The US was a late entrant and thus would have no basis for playing a leading role in crafting a post-war order.” I have always assumed that the whole point of US entry was to gain itself the position to let Wilson play “a leading role in crafting a post-war order”. No?

    1. Ishmael

      dearieme I believe you are correct. People like Wilson wanted to play with the big boys and got the US involved in the conflicts of Europe despite the warnings of the founding fathers. If we are going to look back, the worse thing that ever happened to the world is Wilson getting the US involved in WW1. Other wise those countries would have fought themselves to exhaustion. A more equal treaty would have been drafted and accordingly no Hitler which would have meant no holocast or WW2 or no Pacific conflict. Probably not even a depression.

      The United States would have marched along more agarian and no military industrial complex.

      The world would have been far better off. Accordingly, all the problems stem from a small group of people (think the Council of Foreign Relations) wanting to play like a bunch of big boys have lead the rest of us to disaster.

      1. Richard Kline

        Per this comment and those of yours immediately below, Ishmael, I’m personaly sympathetic to collapsing the military industrial complex in the US. There are multiple nits to pick with things you posit in passing here though, and the picture resulting looks different with that done. Woodrow Wilson assuredly wanted in on the spoils division at the end, but nothing is that simple. The US had taken an overtly ‘rising power’ roled from the 1880s on, not Wilson’s doing though he was certainly an exemplar of it. Senior leadership of both parties was for this. The real problem for them is the _public_ sentiment in the US was very much pro-GERMAN even after the start of the Great War. ‘Bully Britain’ had actively backed the South fifty years before, and we and they had thought hard about having a war some twenty years prior over Guyana. [Kinda like our pissing about in Yemen now, just because we can.] ‘Rape of Belgium’ British propaganda had made inroads, but it took an organized effort at the top of the US government to get the country in then sure.

        —But this nonsense going around the web now regarding ‘If we hadn’t, then no Hitler & Co.,’ is just that, nonsense. Ultranationalism had been rising in Europe well prior to August 1914; indeed, the driving narratives of Pan-[Whomever] had much to do with what happened. Severe anti-Semitism was virulent in Austria-Hungary well before the War. The Turks were closing in on genocide of their Christian minorities—Armenian, Assyrian, and Greek—before the war, and the inception of those genocides was in no way influenced by any American position of any kind. There was a fascist takeover in Spain and Portugal immediately after the Great War; neither participated in that larger folly. Furthermore, it’s generally under-valued in re-analysis of the Great War that all the players new by early 1916 that things were going to be verrrry different after the war. Russia was on the ropes by then, and had already had a fizzled bourgeois revolution. Austria-Hungary would have collapsed by then but that German troops shored them up on multiple fronts. Turkey had had a revolution, and genocide, and had come close to dissolution repeatedly before the War. The US leadership was in many ways more concerned with getting a better share in East Asia, but there while the US sat and fiddled the Japanese had snapped up all German positions, radically altering the military economy of the equation. American intervention took place in this context. I see nothing in the reading of those times to suggest that US leadership expected to _supplant_ Britain. The goal was much more to prop them up because they and France were such vital economic partners for the US elite whereas Germany was much, much the less so. A secondary goal was assuredly to restore British and French efficacy in East Asia rather than leaving a vaccuum where the Japanese could prosper with the implosion of German and Russian colonies; a goal not realized.

        It’s all very well to talk about ‘withdrawing to the US borders.’ I’m sympathetic to that, but nothing is so simple. Economically, we are profoundly entangled with the rest of the world. Politically, the US has long had a strategy of beating up on peripheral designated bad guys as a way of ‘showing all the rest.’ That strategy is 400 years old; getting it replaced isn’t goint to be an easy thing, especially since the bulk of the population here has eaten deeply of the ‘We’re No. 1’ apple, and isn’t ready for something new.

        Opposition to the military-industrial follies should be programmatic, but has to be on an issue by issue refutation, is part of what I’m saying. And we need a credible alternative policy. Which neo-isolationism is NOT. And supposing even that we did opt for it, there is no reason to think that we’ll ‘develop the little guy right’ at home simply by coming home. A more vicious fight over the reduced pie is at least as likely. Engagement with the rest of the world is a plus, it’s the terms of engagement sought by the US which nee to change. To me.

    2. Yves Smith Post author

      I think my drafting was unclear. Fair point to question the post as written (as to what is meant by “leading role”). Plender is talking about the role of a hegemon (I hate that word, but it fits). I don’t think it was realistic to believe the US could have taken the baton quickly and cleanly from England in the interwar period.

      Wilson did hope to gain influence, but even with throwing its weight in in 1916, the fact that England and France has suffered such large human casualties (both lost a huge swathe of their young men, and ironically, their aristocratic young men, since the Allied Powers had expected the war to be a cakewalk, and many signed up not just out of a sense of duty, but of adventure) that even if the US had been more deft in negotiations and institution-building, it could not have been a DOMINANT voice, but have an equal seat at the table with perhaps more influence on specific issues arguably of greater importance to the US. This is a marked contrast to England’s historical role and the one the US assumed post World War II.

      Ishmael, that’s an interesting counterfactual, that the US entry into the war had far more perverse effects than recognized. But how long could the war have continued? If both sides had fought to exhaustion, you’d see Germany holding large areas of what is now France, and controlling much of Europe’s coal producing areas. You are assuming throwing in the towel would have led to a stable post war outcome. I’m not certain (although it would be hard to imagine anything worse than World War II, but I’m suggesting “less bad” might not be all that good either).

      1. Ishmael

        Yves–Both sides were already close to the point of exhaustion. The US entering the war caused Germany to take one last gamble and launch its last offensive prior to the full strength of US forces arriving. The offensive was brought to an end at the Battle of Belleau Wood by US Marines. When the French wanted to retreat one Marine shouted “Retreat Hell We Just Got Here.”

        There is one other thing which was causing the war to wind down quicly. The Spanish Influenza was starting to take hold. If the combat had not ended the war the Influenza would have. It was already starting to have a great impact. Here is a quote from Wikipedia on the subject:

        While World War I did not cause the flu, the close troop quarters and massive troop movements hastened the pandemic and probably increased transmission, augmented mutation and may have increased the lethality of the virus. Some speculate that the soldiers’ immune systems were weakened by malnourishment as well as the stresses of combat and chemical attacks, increasing their susceptibility.[11] Andrew Price-Smith has made the controversial argument that the virus helped tip the balance of power in the latter days of the war towards the Allied cause. He provides data that the viral waves hit the Central Powers before they hit the Allied powers, and that both morbidity and mortality in Germany and Austria were considerably higher than in Britain and France.

        1. Ishmael

          By the way, let us look at Europe now. Please tell me what two world wars accomplished. Basically Germany controls Europe. All the conflicts have been for nothing. Germany has practically everything it was after in the beginning. Also, Germany had already kicked France’s ass in the Franco Prussian war and the aftermath of that conflict was not that terrible.

          Various political elities in the US (mainly out of the Northeast) who wanted to play with the big boys have in the end destroyed this country. The cure is to stop being the policeman of the world, pull back to our borders, get rid of the military industrial complex and several other industries who want to control the world and focus on improving the lives of the average American. The average US citizen has been cannon fodder (either on battlefields or having their manufacturing jobs destoyed) for the elities of this country one way or another for the last 100 years and maybe all the way back to the War Between the States.

          1. Richard Kline

            And it’s a bad thing that Germany has the greatest weight in Europe because . . . .? They’re the largest group and largest state. They’re the best run. They’re amongst the socially fairest [because most socialist now, natch]. They are presently the _least_ militarist.

            Germany was always going to have the greatest weight in any European alliance. It has been British and French violent opposition to that which has been the biggest problem. This isn’t an endorsement of German nationalism in any way, but a simple weighing of the situation. Over the long term, Britain and France were going to lose status to a united Germany so long as it was united, and deserved to. Negotiating an alliance, such as now exists, would have been, has been, and is the most responsible and profitable course. It just took four generations of mordant stupidity to get past _French and British nationalism_ for the obvious result to eventuate. Rascist fascism was a despicable detour; not that the Us did anything to prevent its eruption, nor did we enter WW II to save the weak anymore than we fought the Civil War to free the enslaved. Although those were secondary consequences of other goals, so we deserve one cheer for that.

            Where’s the problem?

          2. Taylor

            You are not seriously comparing Wilhelmist Germany with its tradition of Prussian militarism, with the current social democracy still traumatized by its flirtation with national insanity, are you?

            Had the US not entered WWII, Germany was the only European superpower with reserves of young men to keep fighting. We would have seen a Europe dominated by Prussia. War between German Europe and the US would be inevitable, just on economic grounds. Probably this would be preceded by war between German Europe and Stalinist Russia. Want to bet which side the US would choose in that conflict?

            All in all, things would perhaps not be as different as some would like to think, had the US stayed out of WWI.

  6. pros

    Look, Yves, we live in a one-party state controlled by a financial-military elite.

    All branches of government are subservient to the American Empire Project.

    It has come to pass exactly as Eisenhower laid it out in his farewell speech….roughly paraphrased:

    “We now have a large standing army for the first time in American history…this military-industrial complex poses the greatest threat to freedom.”

  7. koshem Bos

    Crystallization of political/economic theory out of a single historical event or even two as Plender attempts is questionable. What is clear at this stage is the steep deterioration of the American economy (the so call information based economy is a real joke) and the rise of the Chinese and Indian economies. China has become a major international player in Africa and South America and it fails to meet Plender’s model.

    Although many of the details Plender provides are correct, I hesitate to accept his wider ranging views.

  8. Tom Crowl

    I believe the only solutions will require some sort of ‘social disontinuity’ at best.

    There are all the ugly versions… you know… collapse, riots, purges and guillotines.

    But the less drastic versions will require abandoning some shibboleths.

    Two possible radical solutions (but less radical than the guillotines)…

    Direct cash infusions to the bottom of the economy but with heavy biases for spending on domestic goods and services… (even if it takes tariffs, boycotts or specialized taxes)…

    Or a massive re-distribution of wealth downwards via a one-time wealth levy (a la ‘monopoly) and high progressivity going forward at least for some period of time.

    Neither of these seems too likely. Maybe I’m wrong. It’s an attempt to look solutions that might derive from a social energy* perspective.

    *social energy: a civilization or any social organism is quite literally is a product of countless Decisions (Decision = an Idea + an Action) by individuals and groups operating within limits of physical reality. We then can see culture as an expression of net social energy. But unlike the other forms of energy we’re familiar with social energy requires agreement on a whole collection of underlying values and assumptions to operate efficiently for the benefit of the organism as a whole.

    Credit Creation and the Building of Sustainable Economic Ecologies

    Whether these ideas have any merit or not (even theoretically)… we don’t have a chance if we don’t do something about our political and economic decision systems.

    Political Fundraising: Act Blue, Facebook and the Missing Network Imperative

    1. Ishmael

      Oh, and the communists coming trotting out with their redistribution of wealth fixing everything. And why do you think that will work!

      What really needs to happen is Americans need to get back to the hot dirty jobs they use to do and start making things to build wealth. They need to get off their butts, stop wasting their money and start saving. There are no free lunches or people to wipe your butts for you.

      It is the so called savior state that has lead us to this point and you want it to continue and grow bigger.

      The problem with liberals is sooner or later they run out of other people’s money to give away.

      I do not embrace the Republican party and most of them make me ill to my stomach, but the communists really make me want to blow big chunks.

      1. Tom Crowl

        Just to clear it up… I’m not a liberal… I am a Progressive… I’m a believer in the fundamentals of Adam Smith.

        As for wealth re-distribution…

        The current financial system is NOT acting in a way that encourages the sorts of things I suspect we both advocate…

        Further the advent of high technology in finance as well as behavioral factors operating in a debt-based, and lending driven economy lead to rapid and erratic pools of wealth having jack diddly to do with hard work.

        We need a productive economy that produces the things we need and relies on its own capabilities to the extent possible.

        I do support a jobs program. I do not support general welfare except for the disabled.

        P.S. I’ve worked in canneries, as a janitor, washing dishes and a furniture mover… I’ve also had times of wealth.

        Currently I’m very poor trying to do something worthwhile which, btw, should be worth a dollar or two. The bank (Wells Fargo) took my house on Monday. I could tell you the story… and probably will at some point… but I’m no high-liver and … well, I’m just too pissed to go on… right now.

        If you want to do ad hominem attacks… at least know what you’re talking about.

        1. Tom Crowl

          And I’ve just got to add… when I hear the dogmatists talking about ‘wealth distribution’…

          It’s like if a thief robs you blind…

          And then comes to you afterward and says…

          “Okay, well clearly there are some problems in my character… I’ll attend to them.”

          And I say,

          “That’s fine, Bozo… but give me back my shit first!”

        2. Ishmael

          Tom I am truly sorry to hear about your situation, but let us seperate two things. First there are people who have obtained their wealth through various bankster operations. As far as I am concerned I would strip any and all banksters who have acquired their wealth from banking over the last 10 to 15 years. This would go double for politicians, lobbyists etc.

          Then there people who have worked 80 hours a week saved their money and lived with in their means. I put myself in this group. The money we have made is because I have several times put everything we own on the line to make something happen. More than once I have had to come home and tell my significant other I had lost a quarter of our net worth. Fighting and scratching we have built a comfortable nest egg. I can assure you I have lived and worked in some the least hospitable places in this world. I have had machine guns pointed at me as well as some bacterial infection in my lungs from a third world country which took me 6 months to get over (thank god I got well — I thought it was going to kill me). Have there been set backs. You are damn right and it was usually because someone reneged on their promises once I performed my part. I have been screwed multiple times until I am one of the meanest and least trusting SOB’s you have ever met. So why should I give up what I have so that somebody who sits around all weekend drinking soda pop, eating french fries and watching NASCAR should be given some (I am not putting you in that category). I am in my mid 50’s and when the phone rings I could be on the plane the next day. My bags are usually half packed. How is that going to get this country moving forward.

          Recently I listened to Illiad on tapes while traveling (read it years ago) and the narrator said the Greeks were taught Homer early on for two lessons — (1) to learn that life was not fair and (2) be prepared for poor leadership.

          1. Ishmael

            By the way Tom, I would avoid the “Progressive” label. In this world of PR savy people, everyone is well aware of rebranding. In my mind Progressive, Liberal, Social Justice, Socialist are all just rebranding of the old word — Communist.

            Charles Smith has a far better essay on this at

            Where he says in a far more articulate manner than I can (note there is far more to his essay than I am putting here and I hope I am not breaking any rules here by referencing another web site).


            Why Is Income Disparity Widening?

            August 21, 2010

            That income disparity is increasing is not in doubt, but the causes–and thus the solutions–are not easily parsed.
            The statistics are unequivocal: The Gap Between the Top 5% and the Bottom 95% Is Widening in America. Is this the result of “natural” forces, or of government favoritism?

            In a nutshell, the potential causes of the widening gap can be divided into two camps: “natural forces” of capitalism and Central State intervention.

            Causal factors in the first camp include:

            — The differences in education, motivation and skills in people; the hardest working, most ambitious and most highly skilled people will naturally end up making more money than those with less skills and drive.

            — The differences in humans’ propensity to save/invest or consume/gamble. The Pareto Principle suggests that 80% of the property and wealth ends up in 20% of the populace’s hands, regardless of the initial state (in other words, even if income is evenly distributed to start with).

            — The globalization of trade and manufacture has introduced an extremely competitive wage arbitrage in which American workers are often competing with workers not just in different states but in different countries.

            In general, this camp is discounted by “progressives” to whom innate differences between people are verboten for ideological reasons; the “liberal” ideology often confuses equal rights and opportunities with equal ability and drive.

            The “progressive” agenda is thus set on equalizing not just rights and opportunities but skillsets, education, etc.–everything which is perceived to be a sociological wellspring of unequal skills and motivation, and thus of future income. Government intervention is thus essential to keep the society from diverging into financial nobility and serfs.

      2. Richard Kline

        There are no communists in the US, Ismael, and you reduce your initially small credibility to a negative number by redolent rhetoric of this kind. Got a problem with social justice and a fair society? State your case like an adult. Namecallers have no substantive arguments, that’s bank.

      3. Richard Kline

        Oh and for the record, you evidently have zero idea (0) who progressives are, what they advocate, or anything related to the term not smeared on it by its opponents. Importing screed from your preferred agitator isn’t substance. Show us you understand a progressive position, and can make an argument against it for what you would otherwise endorse, and we’ll have something to talk about.

        For the record, I think progressive goals are too weak: I prefer radical ones.

  9. Richard Kline

    I personally find most of the scholarly (and from that popular) discussion on great powers and balance of powers thinly evidenced at best, and regardless wildly ad hoc in its reasoning. The thesis of Plender’s here—change in dominant power is always messy—is, depending how one qualifies ‘dominant’ refuted by the change of leadership from the Dutch to the British in the 18th century, a relatively non-dispruptive shift. The instance of change from UK to US is _not_ one can use as a basis of comparison since multiple imperial domains collapsed simultaneously attendant upon or concurrent with WW I: Turkey, China, Russia, Germany. Much of the disruptions of the time in the political economy operational then were not driven by the industrial economic balance shift between Europe and the US. The French, British, and Dutch Empires didn’t even collapse after WW I: they expanded hypertrophicly.

    The reason that great power arguments seem to be advanced, in so far as I can tell reading most of this literature that counts, is as a propagandistic justification for a particular nation-state grabbing all the marbles and clinging to them. ‘What’s good for us is good for stability,’ more or less. And that seems very much the tenors of Plender’s cantor-call. ‘China is a threat; the US is a promise; let’s not rock the boat [while I’m getting paid], shall we.’ Not the stuff of thought that carries much weight with me.

    We really don’t have enough instances of great power change in the Modern Era to form a basis for comparison. ‘Nother couple o’ millennia and then we can start a real debate . . . .

  10. i on the ball patriot

    “Yves here. There are a number of different ways to frame this change, both as to when it took place and what its triggers were. World War I forced the end not merely of British ascendancy, but the powerful hold of monarchies and landed aristocracy on political power through much of Europe. No one saw this sea change coming; the summer of 1914 was gay, and while many saw war in the offing, it was expected to be a short affair.”

    The present day unseen sea change …

    There has been a very unique unseen sea change going on in the past forty plus years. Just as the British, the monarchies, and the landed aristocracy lost much of their political power in 1914 so too have ALL nation state governments now lost their power over the past forty years or so. Nation state governments, and their militaries and media, have been co-opted by a global wealthy ruling elite through their central banks and corporations. They now manipulate the citizens within the nation states at will, playing them one against the other. Control of credit, very centralized globally, is now the primary control of resource consumption or no resource consumption planet wide.

    Just as the artificial constructs of ‘racism’ (and many other hateforprofitism schemes are used to divide and conquer), the now co-opted artificial constructs of nation states, are pitted one against the other as easily as sports teams as their populations are being culturally reprogrammed for hate and divisiveness.

    Mr. ‘Market’ is now ruled by Mr. Global Propaganda.

    This is the greatest deception ever perpetrated on planet earth. The most important aspect of this new sea change is the policy change being implemented by the wealthy ruling elite. The old fashioned Vanilla Greed for profit has been replaced by the more Pernicious Greed for control. The goal is a global herd thinning and reduction of global resource consumption. The end game is a two tier ruler and ruled world with the ruled in an intentionally created perpetual conflict.

    John Plender is just another shit talking, sell out global propaganda tool, as is the Financial Times. They are the real “great danger”.

    Deception is the strongest political force on the planet.

    1. Yves Smith Post author

      You are correct re the not sufficiently recognized role of a global elite. Jamie Galbraith talks about it in The Predator State in some detail.

    2. craazyman

      ball the moving parts work like this.

      even before the spanish came for gold the aztecs would rip the hearts out of prisoners at the tops of pyramids with obsidian knives, this was done by high priests who were quite pious individuals no doubt, with their big head gear plumes of feathers. I wonder what happened if the head gear blew off in the wind when they were up there on the pyramid. probably everyone gasped.

      the society did this because they thought it was necessary to sacrifice life spirit in ritual atonement to keep the larger life spirit of the world going. that’s the truth. they thought if they didn’t do this, nature would collapse and the world would die.

      why they believed this is complicated and deeply pyschotic, probably due to some atavistic brain stem energy backflow into the fish consciousness. but today, we have the same thing going on, in metaphor. the high priests of the elite money-blood run the banks and rip the money heart out of the peasants and the Fed presides over this ritual sacrifice like Montezuma, with grim determination to propitiate the gods of the money blood.

      And if somehow the whole thing stopped, they all believe that the world would die. And the ritual death of the peasants is a ritual sacrifice, the life energy that flies to the gods of the volcano-dollar feeds the greater life energy of the world, so they piously believe. this is a bit of an exxageration, for metaphorical illustration

      How the protean archetypes mutate like kaliedescopes (sp?) I would say there has been some progress from Aztec times, but not nearly as much as the high priests of the elite would believe. And as for the other elite. Most are drug addicts, alchololics, sex addicts, party animals, medicated like veal cows with medicine chests full of drugs, running from party to party to meeting to meeting, running, flying, running. I’m not sure they have enough of their act together to really control anything. They can’t control themselves even. But they know they’ve got the life-money-blood runnning in their bank-veins and that’s all they need to know walking down the street, that and where’s a good bar for 4 or 5 martinis where they can find a lonely bimbo who worships money. there we go. I don’t think it’s quite as much a conspiracy as it is a conspiracy of lost DNA radios blaring the insane show through the brain night and day, broadcasat from somne pyramid somewhere in hell. :)

    3. Skippy

      The genealogical sheep skins starting with Jesus name have been replaced by / co oped with black box binary….muhahahahaha!

      Skippy….It’s (consumers/sheeple) puts the lotion on and then back in the basket…

      PS. learning how to make my own mustard[!] kangaroo tail baloney[?] you game (pun there[?]).

      1. i on the ball patriot

        Kangaroo tail baloney — I like it with a little bounce still in it. Serve it up!

  11. purple

    The China 2010 / US 1930 comparison isn’t to accurate and I’m not sure why it has gained credibility.

    Compare per caita income; the US was the world leader in free labor wages for decades while China is more or less on the level of Uganda per cap wise. China is an authoritarian state one-party state, as well.

    China will probably never be able to impose global leadership due to its internal poverty.

    What we are seeing is more the breakdown of an international order rather than the emergence of a new one.

    1. Mark G.

      “What we are seeing is more the breakdown of an international order rather than the emergence of a new one.”

      Very good

    2. kievite

      China faces huge political problems as communist ideology is now discredited and Communist Party will have difficulties to command the leadership role based on the pure force of repressive power of the state in the age of Internet.

      This problem of “society with collapsed ideology” makes is actually very similar to the USA. Republican Party in the USA is a kind of Communist Party of China (extremes meet ;-)

    3. Richard Kline

      I agree with you here, purple, and a lot more could be said in that vein. I didn’t feel like taking that up myself last night, but I do not think the ‘rising power’ arguments pertain well to China. For one thing, the Chinese were severely abused by a foreign (Manchu) occupation of generations, grossly exploited by European colonial enclaves to boot, and genocidally attacked by their immediate neighbor while in disarry, prior to expelling the lot at the cost of many tens of millions dead and a lost generation after it all. No ‘rising power’ of the modern era has endured such a harrowing experience prior to ‘development.’ China is not the second industrial economy of large scale to emerge outside of the Atlantic continuum, so from that perspective the best comparable would be Japan. However, the hyper-militarism of Japan of four and three generations is simply not demonstrated in China of the present (nor likely of the near or middle future, either). So the comparison is seriously inapt from the outset.

      The best comparison for China’s present emergence as an industrial power that I can think of would be to 20th century Russia. And there, Russia was _repeatedly and most violently attacked_ by its natural competitors. Only to endure and finally overthrow those attacks. I’m sure the Chinese understand the history. So why is that we, a declared competitor, refuse to do the same?

  12. Jim the Skeptic

    “This is because the aspiring new boy on the block is usually a protectionist-inclined creditor country that is reluctant to shoulder international responsibility commensurate with its economic strength.”

    If we expect our friends or our foes to forego acting in their own best interests, we are bound to be disappointed. This applies to banks, their walkaway customers, or countries which trade with us. We can whine about it but we are not going to change it.

    “As the US exported its problem of deficient demand to the rest of the world, it failed to provide leadership to prevent an outbreak of disastrous competitive devaluations…”

    There was no societal norm which required us to limit our efforts at economic recovery even if those efforts hurt countries which traded with us. We can whine about it but only a sucker bails out others in hopes that they will return the favor. They will act in their own interests most of the time or there will be a change in government.

    We can criticize the Japanese for their actions leading up to WWII because they used armed force. But their peaceful actions after WWII were intended to improve the lot of their population. Peaceful actions by the Chinese to improve the lot of their population were also to be expected. Neither Japan nor China should be criticized for those efforts even if they have harmed us. We should have expected nothing less.

    In the 1980s we forced the Japanese to move part of their production to the United States. That was against their interests but they could not resist. They could not risk our imposing tariffs on their products. Their economy paid a price as a result. (Competition from the rest of southeast Asia also took a toll.)

    “The debtors need to tidy their balance sheets, while the creditors need to bump up domestic consumption, let currencies float and reduce export dependence. ”

    The Chinese are acting in their own interests. They have a huge poor population. They are not going to bail us out. And I predict they will really really float their currency when we apply the same pressures that we put on Japan! AND it will make little or no difference in our trade balances. Because if they float their currency their products will be more expensive then their southeast Asian competitors. The consumers of the United States will then spend less on Chinese goods and more on their competitors. Net new American jobs equal about zero. And I predict the Chinese will restrict their exports in some meaningful way just after hell freezes over.

    The rest of the world has not bought into our idealistic theories. Political correctness has run amok in this country or we would reject those idealistic theories too. (Oh no wouldn’t want to be labeled a xenophobe!)

  13. Bates

    @ i on the ball patriot…excellent post. You’re one of the few posters that has a grip on what is happening. Of course, that so few see what is going on is not unusual, for it’s always difficult to see what is happening during times of crisis or change with so much baloney being thrown around by so many ‘experts’.

    Plinder: “Meantime, the young and inexperienced Federal Reserve pursued lax monetary policies in the Roaring Twenties while unwisely trying to prop up the ailing pound.”

    Why would anyone suppose that the Fed did not realize what they were doing in the 1920s? Or, for that matter in the serial bubbles that they have blown over their reign as the US Central Bank? If the Fed did not know what it was doing in the 1920s, and Bernanke is a student of the Great Depression, one would reasonably conclude that the Fed would have seen the outcome of a 30 year credit expansion leading to the current world wide credit crisis, no?

    Plinder: “Consider the transition from British to US hegemony after the first world war. From 1918 the US rejected the Versailles treaty, opted out of the League of Nations and had nothing to do with German reparations, although it collected war debts from the allies.”

    Plinder’s wording of this is very deceptive. The US rejected the Versailles treaty because Wilson and his staff considered the terms too ornerous and that the outcome would be another conflict…which it was…WW2. The League of Nations was Wilson’s idea! A major contributor to Wilson’s death was his tireless campaign to get American capitalists, government, people, and press, to accept the league. More revisionist history by Plinder here even though I am not a fan of Wilson.

    Yves: “Similarly, I’m not certain whether greater US engagement could have shifted the tide sufficiently after World War I to have prevented many of the woes that followed. The US was a late entrant and thus would have no basis for playing a leading role in crafting a post-war order.”

    WW1 was a battle of attrition of man power and resources. Brutal trench warfare with lots of artillery and mass charges into the newly invented machine guns dominated the action. The only way an earlier US entrance into WW2 would have mattered is if the US could have brought modern tanks onto the battle field to break the stalemate of the trenches…But, the US had no more modern tanks than any of the other combatants. Iirc, the US sent 250,000 ‘expeditionary’ troops along with Gen Pershing at a time when 50,000 men were being lost per day by the combatants. Pershing and many of the US contingent had been chasing Pancho Villa around the US Southwest and Mexico with no success. Villa was guilty of stealing US cattle and robbing US banks, occupations reserved for US bandits. US entry into the war did affect thinking in Germany because they were running out of men, guns, bullets, and money. The US entry was a psychological hit to Germany more than anything else. Germany realized that it could not win with US manufacturing and finance thrown into the mix.

    Plinder: “The pricking of the [Japanese] bubble led to 20 years of economic stagnation.”

    Failure to let the zombie banks of Japan led to 20 years of economic stagnation…just as will happne in the US if the friends of the Fed are not allowed to fail.

    “Yves here. Notice how Plender sees the political obstacles in China put the onus on the US to force changes. Most policymakers are wedded to the idea of free trade, but with a high unemployment rate and slack resources, the US would come out ahead by implementing protectionist measures (although corporate CEOs might not fare as well). As unemployment continues to be high and foreclosures continue to exact a toll, pushing back against mercantilists like China will look more and more attractive.”

    Speculation about the future…

    Yves: Question…How do you see a ‘push back’ against ‘Chinese mercantilists’ unfolding?

    1. Ming

      Excellent post Mr. Bates, very good that you corrected some of plinder’s revisionism….especially about President Woodrow Wilson.

      Bates mentions this:
      “Plinder: “The pricking of the [Japanese] bubble led to 20 years of economic stagnation.”

      Failure to let the zombie banks of Japan led to 20 years of economic stagnation…just as will happne in the US if the friends of the Fed are not allowed to fail.”

      I wonder how much of Japan’s stagnation occurred because of outsourcing of production to countries such as China, US, and other parts of Asia. The loss of stability and decent job prospects, would have resulted into an increasing stratification of income as
      owners of capitol and fnanciers enjoy greater income due to cost savngs,
      and Japanese workers being relegated to much lower paying jobs. Certainly it has affected the younger generation… A rapidly declining birthrate and adult children who refuse to leave home.

    2. Yves Smith Post author

      To your question re China, more of what we have started doing, WTO cases and countervailing tariffs in markets where China can be argued to have behaved badly. The Chinese so far squeal like stuck pigs but only engage in tit for tat (as in acting against an equally narrow export market to China) but they don’t escalate.

      The bigger cudgel, in theory, is branding China a currency manipulator. China is plenty worried about that, it gets utterly hysterical every time Treasury saber rattles. It announced its largely empty reforms on the verge of Treasury’s last window to deter action. I don’t see Team Obama having the guts to take action, but if the economy continues to stink prior to the 2012 presidential elections, self-preservation instincts might overcome their native extreme caution.

      But I don’t see a pretty outcome for China even if the US sits on its hands. It has the biggest FX surplus relative to GDP, ever, worse than the US pre the Great Depression and Japan’s pre its bust. Consumption has fallen as a % of GDP since 2000. Growth is increasingly dependent on investment, nearly 50% of GDP, an utterly unheard of level even for a developing economy, and the evidence is that many of these investments are unproductive. They may look like infrastructure and productive capacity investment, but it terms of their true future utility, Keynesian digging and refilling ditches arguably would be more useful, you now have structures that occupy land that will need to be razed and replaced and you wouldn’t be diverting demand creation into the commodity and energy purchases needed to create what will ultimately be white elephants.

      1. Skippy

        Cultural memory is a MOFO, it some times supersedes the rational (linear thinking), even if the economic world is a pole spike in social science declination .

  14. lark

    We need tariffs. With high enough tariffs, the jobs will come back.

    The global trading system: Break it, then mend it.

    The brutal truth is that profits are up, even as the American people spiral down into the toilet.

    Who cares about Marx, or Reagan. Just break globalization.

    1. Ishmael

      What the US needs is fair trade not free trade. If we do not believe in slavery in this country why should we believe in importing products which are practically built or raised in slave labor conditions. Same for workers compensation, social security and etc. Would we knowingly have imported products made in Nazi slave labor camps. The failure to comprehend this really amazes me. All to line the pockets of a select few in this country. Ever wonder how Bill Clinton (the person who gave MFN status to China) went from being bankrupt to being worth $100 million.

      1. Anonymous Jones

        Agreed re fair trade (I will forget most of the rest).

        Fair trade is both a national and international concern and should be focused on the internalization of externalities so that supplier prices represent the forces of competitive supply and demand based on true costs (borne both by the supplier and the society at large). It always surprises me that this is controversial in theory. It is a hell of a mess in practice, but in theory, I haven’t seen too many counterarguments that hold any sway.

        1. psychohistorian

          Fair trade is a great concept but without ending America’s imperialism first how are you going to define it otherwise? And you are going to end our imperialism when and how?

          Great posting and series of comments…thanks to all.

          I do want to add that I think it is a joke for pundits to say that some countries need to increase consumption, like there is some world wide requirement to consume crap for consumptions sake. The world needs to consider what to do with an increasing proportion of the population that does not need to work to provide basic necessities. The rich have us killing each other but I would think we can do better.

      2. Richard Kline

        Who bells the cat? To get fair trade and a build-down of the military-industrial complex, we have no choice but to cut _our own_ elite down to size. You understand this, but then come out against ‘redistribution by the state.’ You solution is Let Jehovah Do It? The oligarchs would be perfectly happy for you to withdraw into your bunker with a pop gun and canned rations; indeed, they’ll pay for the domestic propaganda to cheer you on to just that (as they are no funding Tea Potter sputtering). When you’ve eaten the last, either you put the barrel in your own mouth, or come out shooting whereupon Homeland Gestapo ace you and tell everybody “That’s what we’re protecting you from.”

        Think your positions through, man; past the fantasies to finished arguments. No, we don’t get everything we might want in the real world. Yes, we have to show some solidarity for others to get anything useful done.

  15. KS

    I would modify one of the basic premises of the article as follows: …it takes the aspiring new boy on the block and the rest of the kids about 2 decades to recognize the economic strength and the power it gives. Then it lasts for some 7 to 10 decades. The “new boy” abuses the power and it takes another 2 decades for all “boys” to recognize it. As a consequence comes disruption. In the case of the British, the abuse was breathtaking! I think I heard Freeman Dyson in a talk say that hegemonies last about 15 decades.

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