The Grasshopper and the Ant: The U.S. and China
The Chinese look at the size of their population, the scarcity of many key resources in their country and the growing resource problems of the world. From their point of view, they need to secure resources for their growing economy. And they've been doing just that. They now consume more iron and coal than any other country. That's the clearest evidence of the economic dynamo they have created in the last thirty years.
Although China has more than 4 times the population of the U.S., they are still far short of our consumption levels in some resources such as oil. Nevertheless, they seem to see the future and they are locking in contracts and also building reserves. Here's an Associated Press story:
Since crude oil and other commodity prices plunged last year - oil tumbled from $147 last July to nearly $33 in December - China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.
Ultimately, China aims to have about three months of supply in national reserves. It now has about a month's worth, or about 38.6 million tons of crude oil in both commercial and state reserves, according to state media reports.
The United States also has taken advantage of the drop in oil prices to buy crude for its Strategic Petroleum Reserve, which is far bigger than China's.
The U.S. reserve is about 730 million barrels. China's reserve will be about 170 million barrels. I'm struck by the fact that our reserve, if we include domestic production, is intended to last about 70 days. China's reserve is supposed to last 90 days.
Although one can easily argue that China is making it harder for the U.S. to find oil (along with deliberate production cuts by some members of OPEC), Chinese purchases have helped the price of oil recover. Obviously when oil is $147 a barrel, the price can cripple economies. But a price of $65 to $75 is important. A lot of the oil that is still being found in the world is expensive to produce. If the price of oil falls too low, some of these projects cannot be developed.
The truth is that no one quite knows what's going on with the world's resources—or the world economy for that matter. The Chinese are taking no chances and are planning for the future. In contrast, the free marketeers, including many in the U.S., claim that high prices will naturally develop more resources or at least substitutes. But while we've been waiting for dreamosol to fuel our cars since the 1970s, the events of the last four years tells us that we are in a new era of volatility, an era that means a lot of old thinking and old habits have got to go out the window. With adjustments, capitalism will probably survive. But we have to stop thinking that the markets are some magic bullet. They aren't, as we have seen all too often.
Some people are paying attention and it's not a pretty sight. Here's Paul Volcker's recent comments:
Former Federal Reserve chairman Paul Volcker said the rise of China and other emerging economies has underscored a decline in the comparative economic and intellectual leadership of the U.S.
“I don’t know how we accommodate ourselves to it,” Volcker, an economic adviser to President Barack Obama, said in an interview with PBS’s Charlie Rose taped yesterday in New York. “You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they’re going to be passive observers of whatever you do.”
Part of the rage of the right wingers over the last year is that they don't understand why the good times don't just keep rolling on (never mind that the good times have been something of an illusion for some years). They blame the government but our government for the last 30 years has not taken the lead. The business sector has and it is failing us. And it will continue to do so until there is real reform in Washington. For too long, the grasshoppers have ruled.