Zero-sum thinking has begun. Despite comparative advantage, mutual cooperation, and specialization proving indisputably more beneficial than any other approach to economic interaction, this ideal is under threat. Rules and norms for economic integration lifted hundreds of millions of people out of poverty, created an order-of-magnitude increase in the average wealth of the Western population, and benefited countless hundreds of millions enabling a way of life otherwise unimaginable post-World War II. Now that system is under threat as developed countries subsidize alternative energy, attract manufacturing via expensive subsidies, and restrict the flow of goods and capital. Mutual benefit is out; national gain is now the highest priority. In other words, stupidity and zero-sum thinking have taken over. A handful of bureaucrats, regardless of how brilliant each may be, can never equal the mind of the market. Management and control usually spell disaster eventually. Managed focus on technological development for products and services the central government believes have greater substantial benefit to the overall society may not be calamitous, but the law of unintended consequences has not been repealed. It will be inefficient, substandard, and create potentially dangerous side effects. Innovation, creative freedom, and unstructured thought are essential components to the development of any technology of substance and disruptive benefit.
The “Thucydides trap” is where a rising nation-state – for Thucydides it was Athens – must eventually have a violent confrontation with the existing dominant nation-state – Sparta in his time. It is a zero-sum game where there can be only one dominant nation-state as the eventual winner – and it is usually assumed to be the rising nation-state outdoing the dominant nation-state.
Today, many “experts” (and I have great disdain for self-proclaimed experts) believe this is the circumstance between the US and China. We are headed toward violent confrontation where there can be only one winner. I read the book by Thucydides about the conflict between Athens and Sparta (I cannot be dispassionate here about that outcome because my family is from Sparta on my father’s side). But I fundamentally disagree with Thucydides’s historical descriptions being used as analysis by anyone to describe global events, especially those between the US and China.
The world economy is struggling to escape the Covid-19 economic shock. During the worst of this pandemic, the world’s developed economies provided an enormous fiscal stimulus on a scale not seen since the second world war.
Now, however, the US is proposing to more than double its already generous fiscal stimulus. Is this a good idea or excessively risky?
Go Big, But Where?
For its proponents, the idea of “going big” is designed to be a transformative political moment. But too much appears allocated inefficiently, and it may simply be irresponsible.
An easy money era produced only anemic growth. But the scale and direction of additional stimulus look more like irresponsible fiscal policy leading to significant overheating and the waste of resources. While there is a strong case for a more aggressive approach to fiscal policy, that policy still needs to be grounded in economic realities and reasonable priorities. These are not.
Sometimes, things can change simply because we want things to change. People can feel differently and that can spark a cascade of cause and effect. For instance, sometimes a recession can start simply because people feel as if there is a recession. So, it becomes a downward spiral, and our actions start matching our thoughts and words, and suddenly we have caused recessionary activity. Then we enter a downward spiral that makes reality from our thoughts.
Some of the things that Pres. Biden has done right away were maneuvers to undo what seemed like harmful policies and actions. But also, it was intended to have us think differently. Right away, he did things to try to reconnect us with the rest of the world. For example, the United States is back in the Paris Accord, he is not going to build the wall, he is going to reconnect us with the WHO, and many other things. But right away, he is sending a message that the United States will become part of the world and that is likely to undo the fragmented and rudderless direction and create a cascade of positive actions that lead in the same direction – one toward openness and connectivity. I sense we are going to reconnect a little bit more with China, reconnect more generally with the world through global trade and cooperation on climate change, and many other important topics. It’s suddenly uplifting for people to focus their energy, and thoughts lead to words lead to actions.
A global economic and political chess game is on between the United States and China. There are many moves, defensive and offensive strategies, short- and long-term gains, but, unlike chess, mutual victory is possible.
Chinese economic policies and motivations since 2008 not only emphasize growth and sustainability of state-owned enterprises but, a critical but much less well-appreciated dimension is the Chinese government’s emphasis on stability. No economic policy in China will ignore this, and the high value placed on stability pervades all the current trade talks with the United…