Diatribes of Jay: Chaos is not a Plan

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As of 10:45 am EDT this morning the Dow had dropped 1,208 points, or more than 4.5%, from its recent high of April 23. The self-evident reason is China’s salvo of tariffs on $60 billion worth of US goods. That salvo responded to our adding 15% more tariffs on $200 billion of Chinese goods last Friday. We are now in a full-fledged trade war with China.

My personal retirement portfolio has been almost totally defensive and out of equities since February 2, 2018. Why? Because we have a president who is not only a nasty, lying, litigious lout; he’s incompetent and erratic, too. He thinks that chaos is policy. With chaos as a “plan,” failure was inevitable. It just took some time.

The most likely positive outcome of this needless trade war with China is our own capitulation, under the fig leaf of some temporary bit of good news. For a whole bunch of reasons, China is not going to capitulate. China’s leaders need a good excuse to go all-in on their Belt and Road Initiative, with the aim of eventually making our 5% of the world’s population commercially irrelevant. They also have the ancient Asian desire to “save face.” That’s why China started small, with tariffs on $60 billion worth of trade, versus our $200 billion.

The entire “war” against China is misdirected. The vast majority of our technology and intellectual property now used by and in China was not stolen. Our oligarchs gave it up voluntarily in exchange for access to China’s huge market and to low-cost Chinese labor for worldwide exports from China, including to our home market.

Our oligarchs sold out our factory and other skilled workers for market access and cheap Chinese labor. In so doing, they created our divided society, with an aristocracy of oligarchs and their educated elite, and the rest of our workers as serfs.

The jobs they cost us in so doing are not coming back. But we still have the world’s greatest innovation machine. What we need is an industrial policy designed to keep at home the good jobs that producing our future innovations will create.

Otherwise, our own innovation, exported to low-wage countries, will continue to create more oligarchs at home and fewer jobs for line workers. Our already lopsided economy—top heavy with a vanishing middle class—will continue to skew, and our politics will continue to run off the rails.

It’s really quite simple. We need to manage our own economy to keep at home more of the economic benefit of our chief comparative advantage in trade: our innovation. To do that, we have to control and manage our oligarchs for the good of all our people. Antitrust law will playing a leading role, as Elizabeth Warren understands, and control of technology and intellectual property will play a supporting role.

If China is going to continue to try to steal our technology and intellectual property, as it has been doing more recently, we have to play our cards much closer to our chest. That will be a tricky job. We don’t want to hide our innovations too much, because we might miss out on world-wide trade, as well as globalized cooperative research and development. In hiding our innovation, we might forego new opportunities for innovation and/or new markets for good and services. But we have to keep enough of the production of our own innovations here at home in order not further to inflame our already-divided society of wealthy oligarchs and serfs.

Curtailing trade in goods and services, through tariffs or otherwise, is not the answer. We need to manage our technology and intellectual property to maintain our chief comparative advantage in trade. We need to ramp up our exports of future goods and services to give our own workers more of the benefits of our national innovation machine.

Doing that will require restricting our exports of technology and intellectual property and managing their production and use at home with intelligent industrial policy. Only in that way can we maintain a balanced economy with good jobs for everyone, not just the oligarchs and the educated elite. A trade war in existing goods and services, let alone steel, oil-driven cars and aluminum, is not the answer.

More generally, we need a plan, not a war. We need something like China’s Belt and Road Initiative, but focused on maintaining the comparative advantage of our innovation machine and harnessing it for our working people. To make that plan, we need leaders who understand the situation and believe in planning, not chaos.

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For analysis of how Facebook scams voters and society, click here.
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For a review of Speaker Pelosi’s superb qualifications to lead the Democratic Party, click here.
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For the source of Facebook’s discontents and how to save democracy from it, click here.
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The Last Adult is Leaving the White House. Who will Shut Off the Lights?
For how our two parties lost their souls, click here.
For the dire portent of Putin’s high-fiving the Saudi Crown Prince, click here.
For updated advice on how to drive on the Sun’s power alone, or without fossil fuels, click here.
For a 2018 Thanksgiving Message, click here.

Diatribes of Jay

13 May 2019

Chaos is not a Plan

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