March 18, 2005

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Thomas Friedman on China

Thomas Friedman has a piece in the IHT titled: Bush's energy policy is a gift for China. What follows is a good ol' fashioned fisking.

Bush officials have always been eager to pose as the tough guys willing to make the tough decisions. On Iraq and Afghanistan, they did. But when it comes to China, the Bush administration is engaged in one of the greatest acts of unilateral disarmament ever seen in U.S. foreign policy.

National security is about so much more than just military deployments. It is also about tax, energy and competitiveness policies. And if you look at all these areas, the Bush team has not only been steadily eroding America's leverage and room for maneuver vis-à-vis its biggest long-term competitor - China - but it has actually been making us more dependent than ever on Beijing. Indeed, if the Bush policies were wrapped into a single legislative bill it could be called "The U.S.-China Dependency Act."

This is all predicated on an important assumption: that China is America's "biggest long-term competitor". But why? What's the basis for that? There are plenty of reasons to see China as a rival, but just as many to see it as a partner. Replace the word China with the word Europe in that paragraph. Just as absurd.
The excessive tax cuts for the rich, combined with a total lack of discipline on spending, have helped China become the second-largest holder of U.S. debt, with a little under $200 billion. No, I don't think China will start dumping its T-bills on a whim. But don't tell me that as China buys up more and more American debt - and that is the only way we can finance the tax holiday the Bush team wants to make permanent - it won't limit our room to maneuver with Beijing, should it take aggressive steps toward Taiwan.
For an economist Friedman is edging on embarrassment here. China isn't buying US T-bills as part of a sinister plot to wield influence over America. It buys as a consequence of its fixed exchange rate. Japan buys more than China- is that part of a sinister plot? Taiwan is also a large holder of US dollar assets. There's a fallacy at play here. Why would the USA's military freedom be hampered even if China decided, somewhat suicidedly for itself, to dump its US dollar assets? American soldiers are paid in US dollars. American equipment is primarily built in America and paid for in US dollars. America to some extent is immune from currency problems because of its dominance in the world economy and the dollar's position as the world's reserve currency. Having the world's biggest military doesn't hurt either. China has far less leverage over America than Friedman supposes.
What China might do with all its U.S. T-bills in the event of a clash over Taiwan is a total wild card that we have put in Beijing's hands. On energy, the Bush team's obsession with drilling in the Alaskan wilderness to increase supply is mind-boggling. "I am sure China will be thrilled with the Bush decision to drill in Alaska," said the noted energy economist Philip Verleger Jr. "Oil in Alaska cannot easily or efficiently be shipped to our Gulf Coast refineries. The logical markets are on the West Coast of the United States and in Asia. Consumers in China and Japan, not the U.S., will be the real beneficiaries of any big Alaska find.
Hang on. Last paragraph China was the great big threat. Now it's the great big customer. Good business means not treating customers like potential rivals.
"With a big find, China and Japan will be able to increase imports from a dependable supplier - the U.S. - while consumers in the U.S. will still be at the mercy of unreliable suppliers, such as Venezuela and Saudi Arabia. It is simple geography. Also, a big find will lead to lower prices in the short term, promoting more emissions and more warming."
Reducing record high oil prices is a bad thing? Does Friedman drive? This all implies that China would become more dependant on the USA for its most important commodity. Doesn't that offset the alleged potential threat of China owning so many T-bills?
Moreover, focusing exclusively on squeezing out a little more supply will only discourage conservation, Verleger added, setting the stage for higher prices again in three or four years - "when exhausting oil reserves and burgeoning demand from China and India will drive the price of oil to well above $100 a barrel." That will put even more money in the pockets of some of the world's worst governments.
He did it again! Contradicted himself in the space of a paragraph. The oil price falls because of greater supply, but it goes up becuase conservation is discouraged. The only thing missing from this article is logic.
That's why America urgently needs what I call a "geo-green" strategy, which combines geopolitics with environmentalism. Geo-greenism starts with a $1-per-gallon gasoline tax, which would help close the U.S. budget gap and force the U.S. auto industry to convert more of its fleet to hybrid and ethanol technology, thereby reducing the amount of money going to Sudan, Saudi Arabia and Iran for oil. It would also reduce U.S. dependence on China to finance its debt and the chances that America will end up in a global struggle with China for energy.
It would also cause the collapse of the American car industry and manufacturing sector, a drop in the economy, massive job losses and possibly bankrupt one of the Big 3. Not to mention the inflationary impact putting pressure on the Fed to raise interest rates faster.
Finally, on competition policy, the Bush team and Congress cut the budget of the National Science Foundation for this fiscal year by $105 million. I could not put it better than Congressman Vernon Ehlers of Michigan, one of the few dissenting Republicans, who said: "This decision shows dangerous disregard for our nation's future at a time when other nations continue to surpass our students in math and science and consistently increase their funding of basic research. We cannot hope to fight jobs lost to international competition without a well-trained and educated work force."
A massive petrol tax closes the deficit and is a good thing despite the massive economic dislocation it causes; but a budget cut to close the deficit is the end of the world as we know it. Spending on research and science is important. Should it be Government funded? That's a whole different topic. In the interim the majority of American voters decided to have George W. Bush run things, and that includes lower taxes and tat has required spending cuts. It's called democracy.
Moreover, at a time when China is encouraging its new companies to offer employees stock options to get Chinese innovators to stay at home and start new firms, the Bush team has been mutely going along with a change in accounting standards that will force U.S. companies to expense stock options by June 2005. This is likely to dampen the growth of our own high-tech companies and encourage U.S.-educated Indian and Chinese techies to go back home.
A fundamental accounting change like expensing stock options has become a geopolitical error? Stock options was a major factor in the late 90s stock bubble. They are a clear benefit to the employees and thus are a clear expense. Would Friedman rather company accounts remain opaque and stock options not be expensed? That simply inflates profits that don't really exist. What does encourage US-educated Indian and Chinese techies to go home? Better opportunities, booming economies, family, standards of living. They return and make their extremely poor countries more prosperous, thus helping lift the standard of living of literally millions in two countries where GDP per capita is less than US$1,000 p.a. It's an effective anti-poverty measure and in the longer term a likely moderating influence on China. It encourages ties between China and America. These are all what we in the business call "good things".
I am not a China basher.
It's like someone saying "I'm not a racist". It's the clearest sign you are.
We need to engage China and help accommodate its rising power in the world system, but the only way to do that is from a position of strength. But everything the Bush team is doing is ensuring that it will be from a position of weakness.
There's plenty of weakness, but it's all in Friedman's piece. This is a piece of rubbish. What's worse is Mr Friedman is wasting precious natural resources in generating this cr@p. There should be a US$1 tax on every Friedman article. Now that could have major benefits.

posted by Simon on 03.18.05 at 03:29 PM in the


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Simon World Fisks Thomas Friedman on China
Excerpt: Why does Mr. Friedman lack faith in the market to solve this problem? Where will the greater incentive to manufacture energy efficient vehicles come from? The government or the marketplace? Friedman just makes no sense. Good job Simon!
Weblog: EagleSpeak
Tracked: March 19, 2005 09:32 PM

Like a clock striking on the hour, ...
Excerpt: ... Thomas Friedman rings out for a $1 gas tax. Simon of Simon's World gratuitously does the fisking of "Bush's energy policy is a gift for China" this time. [...]
Weblog: The Dusty Attic
Tracked: March 21, 2005 04:04 AM


I like this word "fisking". Fisking is basically a game of rhetorical chess with only two moves, his (sometimes hers) first and then mate.
This is something I've been doing all the time except I didn't know there was a name for it. A tool of the trade. Thanks.

posted by: bluejives on 03.19.05 at 12:03 AM [permalink]

i had the fortune of attending a meeting at the new york times buildnig this order to reach the conference room, we had to walk down the pullitzer corridor where photos of past prize winners are posted on the walls.the fact that thomas friedman has won two of these things diminishes the value.someone one described him as a 'silly' man.i have two general problems with me: one, he is often so very wrong but he ploughs on ignoring his record.two, he writes not a newspaper op-ed writer but as someone who holds the truth and if only the rest of the world would follow his prescriptions ...

posted by: eswn on 03.19.05 at 04:05 AM [permalink]

article unnecesserily raises fear of china. china has a long way to go for posing any real threat, economic or military,to u.s.
btw can anyone explain mechanism of off-loading u.s t bills held by a foreign country in a conflict with u.s. and can us stop it.

posted by: nh on 03.19.05 at 10:39 AM [permalink]

I wrote this entry in my blog about a month ago on what I think a good R&D policy would be. This relates to your part about spending on the National Science Foundation. I'd be honored if you told me what you think.

A Suggestion for R&D Policy

posted by: Ryan Breen on 03.22.05 at 11:07 AM [permalink]

What should the policy be for national energy? The NYT article argues that the US administration should be striving for security of supply and conservation - at least until some other form of energy turns up.

But how the nation achieves security of supply is causing some unrest internationally: "The tension [of Venezuela's weapons procurement programme] threatens to put strain on the relationship between Washington and one of its top oil suppliers. The United States is the biggest consumer of oil from Venezuela, the world's fifth largest oil exporter."

And conservation of energy? Unfortunately the global marketplace gives people whatever they want. The UN hasn't really been allowed to intervene in the past - perhaps in the future?

posted by: IJ on 03.24.05 at 07:28 PM [permalink]

The NYT stresses today the difficulty in planning for life without fossil fuel. And, if a new unlimited energy source is discovered by someone eventually, as is prayed, bridges will be needed between the end of the fossil fuel era and its replacement. "On the demand side, this means huge investments in conservation and energy efficiency - two areas that policy makers and consumers have sadly neglected."

Power plants will be expected to run on fossil fuel that does not pollute. "The marriage of gasified coal plants and geologic storage could allow us to build power plants that produce vast amounts of energy with virtually no carbon dioxide emissions in the air. The [US] Department of Energy is pursuing plans to build such a zero-emission power plant and is encouraging energy companies to come up with proposals of their own. The United States, Britain and Germany are also collaborating to build such plants in China and India as part of an effort by the Group of 8."

All very iffy. Some formality in the arrangements seems necessary. The UN?

posted by: IJ on 03.26.05 at 01:46 AM [permalink]

Replacement energy is not on the horizon.

The absence of UN supervision seems to be leading to a national stalemate in the research into energy for the future. A competition to host the 'International Thermonuclear Experimental Reactor' for fusion energy (ITER) has come down to candidates France and Japan. There is much to research, so the project is forecast to take 30 years. France has the support of China, the European Union and Russia. Japan is backed by South Korea and the United States.

The European Union is getting anxious about the delay: "European Union leaders want an international agreement to build the world's first nuclear fusion reactor in France by July, a document said on Wednesday, adding pressure on Japan to give up its bid to host the site. . . The EU has called for high-level political talks with Japan to resolve the issue. But Japan refused, saying they would only lead to deadlock."

posted by: IJ on 03.28.05 at 01:01 AM [permalink]

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