osewalrus (osewalrus) wrote,

More evidence on Europe kicking our economic patootie

I recently observed that a consequence of current US economic policy has been that Europe, with its far more intrusive regulations, is kicking our economic patootie. This was met by some skepticism.

For my next exhibit in the "why Republicans are really bad for big business and the economy" is China's recent announcement that they may start shifting their currency assets away from dollars.

As I've said before and I will say again, I am both obnoxiously pro-Ameircan and outrageously selfish. While I'd love to end world poverty, I also like living in the wealthiest country and enjoying the highest standard of living in the world. Like Faramir, I prefer the U.S. as first among equals rather than as a mistress of slaves, but I don't want us to become a second-rate economy while the rest of the world zooms on by.

But, thanks to the moronic kleptocracy that has governed this country for the last 10 years or so (counting from the Congressional "Republican revolution" and the overall economic policy of the Clinton Administration), we are now poised to do just that. Of course, as this article points out, our decline is hastened by those who cannot imagine that we could be in trouble:
"It's ignorance and arrogance," says Clyde Prestowitz of the Economic Strategy Institute. "The candidates, the voters, the country's elite – they all take it for granted that the U.S. currency is always going to be the world's currency. It hasn't hit them yet."

And when it does, I lay odds on doing something outrageously stupid, sort of the wat the Republicans in 1929 responded to the Depression with the Hawley-Smoot Tariff. Because God knows it can't be anything we've done that is causing this, right?

As fatlefty can tell you, my first reaction on hearing that Bush had won the 2004 election had nothing to do with Iraq or domestic spying or even our own growing divide between rich and poor. I believe my exact quote was "dollars are going to become so cheap that Chinese children will use them for toilet paper." Because while the Dems -- particularly the DLC -- may have been all about helping specific industry sectors with things like massive jacking up of intellectual property enforcement, the current Bush administration is a true-blue kleptocracy that mimics Yeltsin's "economic reforms" of dividing the economy among his friends. As
Paul Krugman pointed out a month ago, most industry leaders have abandoned the Republicans and are giving by hefty margins to Dems. That's not just chasing winners. That's a recognition that this Administration is not so much "pro-busiess" and "pro-cronies."

Take my own sector. While telecom prices declined significantly from 1996 to 2003, reflecting the introduction of competition by requiring line sharing and other deep regulatory means designed to create competition. But when the Republicans took over the FCC, they declared "mission accomplished" and deregulated. The result, six years of consolidation and collapse of the competitive telecom industry. Unsurprisingly, since about 2004, rates for telecom services -- particularly in enterprise markets, called "special access," -- have been rising far faster than the rate of inflation. On the broadband side, we pay outrageously high prces on a bit-per-second basis as compared to other economically developed countries. In video, cable companies have raised rates at about twice the rate of inflation for years -- despite having record high profits per subscriber. Back where I come from, the ability to raise prices while increasing profit per subscriber is generally considered a sign of market power and signals an absence of effective competition.

The result to our economy is the same as an increase in the price of energy, but more subtle. It is a drain on the economy as a whole, because the economy as a whole now relies on telecommunications. Every small business is effectively paying the "duopoly tax" by the increased cost of broadband and telecommunications services. Except that the tax goes to Comcast and Verizon rather than to the feds.

And this is just one sector of the economy. Similar patterns have been repeated in every sector of the economy, where we have deregulated, gutted antitrust enforcement, and eliminated safety and quality control regs. This doesn't even touch our inability to get healthcare spending under control. Because the current system is not merely expensive, it's inefficient. Each little piece of it maximizes its own profit, as one might expect. But doing so introduces enormous inefficiencies.

Indeed, one of the ironies in this whole friggin' mess is that the deregulated companies usually end up hurting themselves as much as everyone else. Because the enormous complexity of the system just about guarantees that the incentives of all parties will create enormous inefficiencies that drive up cost. The challenge of economic policy (for those what believe we should have one) is how to maximize the good elements of profit motive, market incentives, and the ability of inefficient businesses to fail, while minimizing the inevitable problems. No, centralization is not the answer. Socialism and other strong "command and control" type economies have their own problems. But this fact does not make the other extremes, either complete deregulation or kleptocratic corruption, any less of a disaster.

In any event, the end result of the last 7-10 years of mismanagement is an economy saddled by both consumer and government debt, lacking in critical infrastructure, and strangled in key segments by industrial cartels reenforced by government institutions. When investors see these kinds of situations in developing nations, they shy away. While it took some time for other countries to believe we could really do this to ourselves, they are starting to get the message. But sadly, it appears it will be sometime before folks stop chanting about how we have the best economy, healthcare system, or whatever in the world and actually focus on how to keep that a reality.
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