China's Economy Rolls On

At one point last year, the Chinese stock market had lost two-thirds of its value from its high in late 2007. That kind of fall was actually scarier than what we saw with the Dow Jones when it reached its peak in October 2007, sagged for months and then suddenly fell off the cliff last fall. But the Dow Jones in March of this year fell only slightly below half its October 2007 level and only briefly before rebounding to its current level.

Now here's an irony, American stock markets are moving up while the economic news is not good on the job front. Meanwhile, the Chinese stock market is having minor problems but the economy is booming. In China, there is no economy unless workers have jobs. No jobs means enormous unrest.

In the U.S., jobs and the health of corporations have become increasingly disconnected. In recent years the U.S. has repeatedly seen wages stagnate and the real unemployment rate rise while corporations post record profits.

But the Chinese are not succeeding simply because they emphasize jobs. They're also succeeding because they pushed a big stimulus package. Here's the story from The New York Times:

“The whole country’s economy is back on track,” said Shi Yingyi, a 34-year-old housewife who joined the throng. “I feel more confident now.”

The confidence stems from China’s three-pronged effort — a combination of stimulus, liberal bank lending and broad government support for exports.

The Chinese central bank said the country’s economy surged at an annualized rate of 14.9 percent in the second quarter. The United States economy shrank at an annual rate of 1 percent in that period.

There are two main differences between what the Chinese have done in the last year and what Americans have done. First, the Chinese acted sooner than the U.S. while developing a plan. Although Bush gets credit—of sorts—for stopping the recurrence of another Great Depression, he had no plan, and let things deteriorate far longer than he should have. Bush also did nothing once Bernanke and Paulson were able to put the brakes on the economic meltdown.

Actually, Bush, as he so often did on a range of issues during his eight years in office, sat on his hands when economic warning signs showed up in 2005, 2006, 2007 and 2008. Many prominent Republicans are very adept these days at describing what they don't like but somewhere along the line Republican leaders have lost the ability to come up with useful ideas. For most congressional Republicans, a good idea is doing a favor for a useless corporate lobbyist.

Now the second thing the Chinese did is that they pushed a massive stimulus package and made sure banks were loaning money. Obama pushed a stimulus package his first day in office but such a package should have been forthcoming weeks if not months earlier. Unfortunately, given conservative Democrats, uncooperative Republicans and media types who are too dense too realize that Republican economics has failed, the stimulus package that finally did get passed under Obama wasn't quite big enough. It's likely we're going to need more, particularly in terms of stimulating the development of alternative energy. What many Americans, particularly conservatives in the South, do not understand is that we cannot spend enormous amounts of money on foreign oil and enormous amounts of money on Chinese goods and expect the American economy to thrive for long, particularly if we keep destroying good-paying jobs at home. It simply won't work.

I should mention one other problem: American banks are still not loaning money nearly as much as they should. Now banks have a great deal to do with why the economy went sour in the last thirty months. Many of those problems are still not addressed, largely because no one outside the Bush Administration realized just how little anyone in government was minding the store.

In a broader sense, the banking crisis is a function of conservative policies that have been pushed by Republicans with help from moderate to conservative Democrats for the last thirty years. Actually, a more accurate way of describing the problem is this way: for the last thirty years, too many politicians practicing business as usual managed to get themselves reelected year after year. If the American economy is to thrive in the years ahead—and everyone should remember that a lesson of this recession is how key a player the U.S. is in the world economy—we are going to need more reforms from Obama and congressional Democrats. If these reforms do not happen, it is highly unlikely they will happen under the Republicans who currently lead the GOP.