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Power Politics vs. American Prosperity

Politics / US Politics Aug 22, 2012 - 10:44 AM GMT

By: Ian_Fletcher


Best Financial Markets Analysis ArticleI had one of those “Aha!” moments recently.

I was engaged in an e-mail dialogue with a moderately prominent individual active in America’s international trade relations.  He’s a former high-ranking public official, important enough to matter but not a household name.  You might recognize him if you follow trade politics closely. Democrat, left-of-center, but nothing radical.

Anyhow, what I realized, in the course of this discussion, was that we were, in fact, arguing at cross purposes.

I viewed the American economy as a thing whose purpose is to provide income and a living standard to Americans. 

He viewed it as a thing whose purpose was to provide a platform for projecting power in the world.

I mean, he didn’t say it quite so explicitly, but that was the bottom line of every train of argument we pursued.  It was the only interpretation of his words under which they made any sense.

I can’t give you any more details because of my need to respect confidentiality.  But I think his attitude explains a lot about how we are governed, because I think this is how America’s ruling elite really thinks.

I believe our ruling elite isn’t merely greedy for money.  I believe they’re also greedy for something far worse.  I believe they’re also greedy for world power beyond any extent to which this either serves American national security—or, for that matter, makes them richer.

I believe they privately view this country as their horse, upon which they ride in a global jousting tournament with rival elites.  And they only really care about America, and the strength of its economy, insofar as it gives them a better horse to ride on.

The rest of the time, they’re mainly thinking about how to keep the horse obedient, hard at work, cheaply fed, and docile. That’s their goal as they pull the strings of both parties.

Why? Because power itself is a direct emotional stimulant, a tonic for the ego.  So our foreign relations, including our trade relations, don’t need to have any direct connection to economics.

Our economic policy isn’t about economics.

Everyone has an ego, and the pleasures of the ego are just as real as the pleasures of driving a nice car, eating well, or living in an expensive house.  So, once you’ve got plenty of money, why would money be more important than power?

It wouldn’t.

Poor naïve old Karl Marx had no idea.  He thought everything elites do is about money, albeit often money dressed up as something else. “Men’s material life determines their consciousness,” he used to say.

Wrong.  People’s  emotions determine their consciousness, and they only care about money because of the emotional satisfactions it accords. So power politics can easily wind up in the driver’s seat of economic policy.

All obvious enough, once baldly stated.  But this isn’t the standard assumption of our political discourse. The standard assumption is that economic policy, including trade policy, is about economics.

Nobody openly says, “We need economic policy X because it will enable us to throw our weight around, regardless of the economic consequences.” But that’s how our policymakers often think. 

This disconnect explains why so much of our economic policy makes no sense.  It’s not even trying to make sense as economic policy.

Instead, our rulers have been running this country’s trade relations with the rest of the world with the sophistication of a high-school clique in a lunchroom contest with rival cliques.

The new Trans-Pacific partnership, for example?  This has less economic logic to it than the euro.  It’s all about showing China that we have more friends in that part of the world than they do.

The whole thing was actually dreamed up by the government of Singapore, which is culturally mostly Chinese but still feels the need to remind Beijing it’s not their lapdog.

Think serious governments with trillions in GDP and nuclear weapons don’t engage in childish contests over prestige and ego? Think again.

Of course, all the cool kids in the lunchroom have a shared identity as cool kids, and these rival cliques can get together in a flash when something unites them against the uncool. That’s why they throw a party for themselves at Davos every year. 

The uncool?  That’s you and me, friend: the populists, the mass citizenry, ordinary folk and the politicians—they still exist, here and there—who serve our interests.

We the Peasants.

We, in the elite’s eyes, are the boring nobodies, the unsophisticated rubes watching television and eating corn dogs in places like Indiana where no member of the elite would dream of living.

They’d never admit it, but they positively enjoy our inferiority.  They enjoy the sense of their own superiority that our own pathetic unhipness gives them. 

They pretend to wrinkle their noses in disgust, but they actually find our existence reassuring.  Because you can’t be superior without being superior to somebody. 

What the elite likes even more is the feeling of dominating us, the feeling of cracking the whip and digging their spurs into the side of the horse. I suspect they even enjoy a bit of pushback, as overcoming it makes them feel more powerful.

I also think they enjoy seeing a bit of pain.  I think it’s an unstated thrill for them to know that Detroit is in ruins because they decreed that it should be. It’s like tossing the vodka glasses into the fireplace when you’re finished with them.

Usually this thrill is deeply sublimated in technocratic blather about “shifting comparative advantage in industry” and “creative destruction being the basis of economic growth,” but the underlying feeling is the same: the joy of watching the world be dominated by you and your friends.

Some readers probably think I’m nuts for saying all this.  Surely serious economic decisions made on computer spreadsheets in shiny glass skyscrapers can’t be about something so base? Isn’t power something clean and technocratic, not some weird Freudian morass?  Isn’t this all just too subjective?

Well, no.  I don’t think power is cool and rational. I don’t think economics is. And I’m not the first economist to realize this.  Not to deflate my own bubble here, but every idea in this article is stolen straight from Thorstein Veblen.

He’s the once-famous American economist (1857-1929) mainly remembered today for his book The Theory of the Leisure Class.

What’s more incredible is that he was once elected president of the American Economic Association. If you’re not an economist, that latter fact probably doesn’t mean much to you.  But it should. Because it means that economists once understood how base—and uneconomic!—are the impulses that drive economic reality.

Lost in their mathematical ice castles, they mostly don’t anymore. It’s economics as if people were robots.

Anyhow, this all suggests to an interpretation of what may be going on with Romney and Obama right now.

Romney, I increasingly suspect, represents a section of the establishment that is finally starting to fear that the hollowing out of the American economy, and our craven economic surrender to China, may have gone too far for the good of America’s ruling elite.

So they’re willing to cut the peasants—you and me—some slack, because they need to. That’s why Romney may well genuinely mean what he says about cracking down on China’s abusive trade relations with the United States.  Which would go a long way towards solving the trade mess that has put a damper on everything we’ve tried to do to revive our economy.

In some sense, this is obviously good news.  Our rulers have realized they can’t starve the horse they’re riding on.  One might wish for better motivations, but at least they’ve gotten the point.

They’ve had a good run starving their obedient horse for profit, but the grown-ups among them know they can’t take this too far, or they risk ending up riding a dead horse. Or—less likely but still possible—electing a genuinely populist government that would take a chunk of their money away and give it to the plebes.

My guess is that if Romney is elected, the strings will be pulled to create an economic recovery in fairly short order.  Strings like choking imports to force our trade back into balance, which would redirect hundreds of billions dollars a year of demand back into our own economy, ending the leakage that has sabotaged Obama’s Keynesian “pump priming” so far.

Then, when recovery comes (as it eventually would have anyway), Romney can pose as the new Ronald Reagan, coast to a second term, and leave Obama  as discredited as Jimmy Carter. A whole new myth cycle of Democratic recession and Republican recovery will be created, and the Republican party will have bought itself another 20-year lease on life.

I don’t traffic in conspiracy theory, but it’s not beyond imagination that this same establishment helped Obama into power in 2008 precisely in order to discredit economic liberalism  by handing an unready candidate a situation of which nobody could have made good. A poisoned chalice for an unready prince.

Tricky, huh?  Well, don’t forget that these guys are good.

After all, they rule the world. We don’t.

Ian Fletcher is the author of the new book Free Trade Doesn’t Work: What Should Replace It and Why (USBIC, $24.95)  He is an Adjunct Fellow at the San Francisco office of the U.S. Business and Industry Council, a Washington think tank founded in 1933.  He was previously an economist in private practice, mostly serving hedge funds and private equity firms. He may be contacted at

© 2012 Copyright  Ian Fletcher - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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