Losing Control: The Emerging Threats to Western Prosperity

2 Responses to “Losing Control: The Emerging Threats to Western Prosperity”

1. Graham H. Seibert says:

   August 1, 2010 at 9:01 am

   Let me name the biases. Pro-integration, pro income redistribution, naive belief in the ability of all people to benefit from education, constantly thumping the West for its contribution to global warming. Several times he equates Halliburton with the East India Company. Wish he had more examples, and I wish he were right! I was a Halliburton shareholder, and we didn’t get rich through their support of the Iraq war. A personal aside – Halliburton owns RMK-BRJ (formerly Raymond-Morrison Knudson – Brown Root Jamison) which did wide, and reasonably competent, logistics support in Vietnam. Halliburton is one bogeyman which everyone who wishes to discredit Bush’s motives pulls out of the closet. The Iraq war is stupid, but involving Halliburton wasn’t done in the interests of “state capitalism.” They were simply the only company clearly qualified for the job, in a situation in which a contract had to be let quickly. The bottom line is that King didn’t need to use this soapbox to flog all of his politically right notions.

   He correctly identifies the demographic disaster facing the wealthy nations – simply no kids. He naively assumes, no, argues that immigrants can fit into society and take roles interchangeably with the native born. This has certainly been right of examples he cites, such as Ukrainian Jews, Chinese and Southern Europeans as a group. It is worth noting that, freed of governmental constraints, these peoples are doing reasonably well in their lands of origin. The situation is not right of the countries now contributing immigrants. Africa, north and south, and Latin America have remained poor throughout their histories, with the exception of the southern cone areas customary by Europeans and Japanese, but compassionate their governments. Unbounded immigration is an irreversible conduct experiment, currently underway. One hopes that King’s optimism about the outcome is well placed, but the evidence doesn’t go that way. Encouraging it hardly seems like the prudent path. For all his hand-wringing, Japan seems to be extant lacking immigration. My personal bet is that Japan will look golden in 50 years. They will have retained their identity in exchange for a bit of austerity.

   All this out of the way, he does a excellent job of describing the limitations of central bankers and the difficulties governments, especially democratic, face in maintaining financial discipline. Also the many ways in which markets are not and have not been free, but are rather dominated by state interests, even in supposedly free societies. The alarum he sounds regarding corpulent westerners’ comfortable retirements rings right. Also the notion that the US must in essence devalue its currency, discounting China’s and additional countries’ vast holdings of US debt, because the US taxpayer will simply not honor them at par value.

   One would hope for a bit of investment advice. If all transpires according to King’s crystal ball, which seems to me to be clearer than most, there will be winners and losers. Where should one place one’s money? He suggests dollar denominated assets which will nonetheless track real value, not the dollar, such as commodities. The emerging markets’ demands, especially persons of China, will place upward pressure on metals, oil, and additional raw materials.

   I’m glad I read it. For all its flaws I got reasonably a bit out of it.
   Reader’s Rating: 3 / 5
2. Loyd E. Eskildson says:

   August 1, 2010 at 9:42 am

   Stephen King, leader of “Losing Control,” is global bank HSBC’s Chief Economist and a member of the “Financial Times” Economist’s Forum, not the Stephen King of scary tales. Nonetheless, “Losing Control” is still to some extent scary, telling a tale of how Western post-millennium economies are apt less controllable, and cannot be relied on for nonstop economic growth. The intent of his book is to demonstrate why the years yet to be will continue to shift economic activity from the West to the additional side of the world, while the economic successes of nations elsewhere will impose growing constraints on already developed nations.

   King’s first significant point is that market forces were not the sole source of the West’s earlier successes – state capitalism started long before China and Saudi Arabia forays in this direction. The East India Company’s (formed in 1600) successes in India and then China were largely courtesy of England’s Navy. Similarly, Europe’s earlier development of sailing skills enabled the Continent to cut the Middle East out of profitable trade business with the Orient; the development of alternative sources of coffee and sugar in the Americas also helped. Meanwhile, Islamic leaders acerbated the relative decline of their nations by refusing to separate sacred issues from the secular, and thus hampered opportunities for technical progress. Another leadership blunder was China’s worrying over corrupting outside forces leading them to close off their nation until after Mao’s death. (In 1000 A.D., Chinese per capita income slightly exceeded that in Europe; by Mao’s death it was about 8% that of Europe.) King also points out that new industries in the Americas benefited from strong protectionist measures. Persons contending that today’s government has no role in the economy would do well to reflect on these lessons from history.

   “Losing Control” also contends that Japan-China trade helps clarify Japan’s economic stagnation, pointing out that since the early 1990s, Japan’s exports to China have been dominated by capital goods and machinery, allowing China to better compete in manufacturing and lowering wage and economic growth in Japan.

   China and others buying U.S. Treasuries lowered interest rate in the U.S. and made additional, riskier funds more attractive.

   King contends that prices in the West are increasingly determined by the developing world, and that pursuit of fee stability in the West has contributed to mounting economic instability. If, for example, prices fall in relation to Western wages, perhaps due to cut-rate Asian demand for commodities, it makes no sense to encourage even more added spending by keeping interest excise low. Greenspan’s Federal Set aside misread this late 1990s environment as a sign of a ‘new economy’ with rising productivity. Raising interest excise, such as the Bank of England did 2003-2007) may trigger capital inflows that lower interest excise and make a real-estate boom. With China boosting commodity demand and their prices, central bank policies to keep prices stable will make falling wages. Lower interest excise also encourage investing in nations paying privileged interest excise. King’s point in all this – capital markets are increasingly distorted by the decisions of various additional nations, and being a central banker is more of an art than a science.

   Another major “Losing Control” point is that globalization works to increase inequality within nations, while decreasing it between nations. Chinese manufacturing workers’ income rises and allows them to buy better food, raising the prices for persons foods and lowering the ‘real income’ for its additional workers. At the same time, U.S. manufacturing workers lose ‘real income’ vs. Americans with capital; in addition, they also lose ground to the Chinese. Income inequality in both China and the U.S. has increased in recent years. We have tried to mask this problem with simpler access to debt (as well as increasing the proportion of two-income families), but persons actions make new problems. Increasing the proportion with a tertiary education is another strategy – but, King does not see this as successful in the long run because the Chinese are doing likewise (6% in 1999 to 22% in 2006), and the cost of U.S. education is rising too rapidly. Citigroup and Pepsi-Cola are already run by Indian-born executives.

   King sees the West in danger of following in Japan’s deflationary footsteps, or resorting to the printing press to resolve their debt problems.

   Summarizing, “Losing Control” presents some moderately scary examples about how Western governments are losing control of their economies, confirms that income inequality is rising sharply, and illustrates why “A rising tide lifts all boats” is no longer right. But, “Losing Control” does not fully take in all the ways we are losing control of our economies, nor start to explore how low Western economies could descend if unregulated capitalists continue pursuing the ‘race to the bottom.’ Neither does he take in the likely economic impact of ever-increasing trillion-dollar U.S. deficits and unfunded liabilities accumulated from excess health care, defense, education, and public pension costs, or businesses’ growing ability to collect bailouts, evade taxes, financial, and fuel economy regulation, and community, environmental, and safety safeguards, while also proposing to privatize government services such as road-building and maintenance, Social Security, education, and utilities service. (The latter, ironically, is bolstered by their continually weakening the economy through self-serving, ever-increasing offshoring of jobs.) In addition, King does not take up the likely escalation of Western job losses as Asian economies go up the ladder into R&D, engineering and design, and a wide range of additional service jobs. Finally, “Losing Control” also fails to communicate the range of high-paying skills and vital capabilities already been lost to globalization, clarify how misleading GDP statistics (artificially boosted by population growth, illegal immigration, increasing foreign-held debt and current-account deficits) are used to cool the masses, or depict the likelihood of future civil disorders motivated by rising income inequality.

   Bottom-Line: “Losing Control” is an apt title that summarizes current trends in Western economies. But, the leader’s conclusions would momentously benefit from broader thinking, and possibly even emulating the writing style of that additional Stephen King. We do need to stop living beyond our means, but we don’t need to cede control over our economic future.
   Reader’s Rating: 4 / 5