French Guard, Monty Python and the Holy Grail
So it's come down to this. The United States is being lectured by Communists about economic policy. From the Financial Times:
Wen Jiabao, the Chinese premier, and Vladimir Putin, Russia’s prime minister, used the World Economic Forum in Davos to argue that the two rising powers must play a bigger role in a new economic order.
Mr Wen made scathing comments about the “inappropriate macroeconomic policies” of some unnamed countries and the “unsustainable model of development characterised by prolonged low savings and high consumption”.
He attacked financial institutions’ “blind pursuit of profit” and their “lack of self-discipline”.
The two men’s self-confident speeches contrasted with the gloomy mood hanging over the annual gathering of the world’s political, financial and social leaders. “This is Davos under the Russian flag,” Dmitry Peskov, Mr Putin’s spokesman, told reporters on Tuesday.
Their speeches came as a senior adviser to Dmitry Medvedev, Russian president, criticised the scale of the new US administration’s economic rescue package and projected budget deficit, saying it would suck liquidity from other global markets.
“What is discouraging is [Barack] Obama’s statement that he is going to run a $1 trillion deficit for years to come. For us, that means that all the free liquidity in the world will run into American Treasury bills,” said Igor Yurgens, who heads a think tank advising Mr Medvedev.
Mr Yurgens likened the policy to the “beggar thy neighbour” protectionist policies of the 1930s. “Of course, [Mr Obama] expects the Chinese or Russians to buy US Treasury bills. That is pretty selfish and philosophically it is protectionism,” he said.
Mr Wen also voiced concern about protectionism as he called for the establishment of “a new world economic order that is just, equitable, sound and stable”.
The Russian and Chinese leaders are pretty brazen, given the fact that their own economies are facing very difficult circumstances. It's becoming fairly clear that unless the world economy miraculously turns around, the Chinese government will have a difficult time finding a purpose for the myriad of workers now returning home after their factories closed. You can get a sense of it from the poignant article on the "reverse migration" of Chinese workers in Der Spiegel:
At least Xiaoju's boss did not simply abandon the factory, escaping at night, like the owners of other bankrupt factories in the neighborhood. Xiaoju heard how angry workers seized the machines in those factories. And in some factories, she says, the workers even organized gangs of thugs to collect their outstanding wages.
But these have been isolated cases so far. Most of the laid-off workers take the crisis personally, not politically. For "Little Chrysanthemum," too, the government in Beijing is far away. She has few expectations of the country's leaders, nor does she blame them for anything. "No one can be held responsible for the crisis," she says, as if she were talking about a natural disaster. "It strikes everyone in the same way."
Yet Steven Keen on his blog, Debtwatch, indicates that this might be too benign a view. China's Providences have a history of rebellion when the Central Government's dictates go awry at the local level.
But its current serious decline is sending probably millions of once-were-peasants back from their coastal manufacturing jobs to the countryside, where they are likely to be unemployed and seriously disaffected.
If they emulate their parents, they may well rise up against the local Party officials; the demure acquiescence to Party authority will go out the window when the Party’s policy fails them.
When it does, there will be a political shift in China at the top as well–not necessarily an overthrow of the Western, development orientation, but certainly a strengthening of those who believe, for example, that the provinces should be developed rather than throwing all the resources at the coastal manufacturing cities.
Likewise, Vladimir Putin seems unaware of the political problems that arise in Russia when commodity prices fall. In my view, the sustained low price of oil did as much to bankrupt Russia in the 1980s and cause the fall of Communism as did President Ronald Reagan's Cold War military buildup. The political ramifications of an economic recession are not always so severe. However, Putin is tempting fate by lecturing the United States at a time when his own country will be facing a severe economic downturn.
China's and Russia's lectures show that the move to protectionism is starting. The retoric is being turned up and it will only shortly follow with actual policy. Enacting protectionist policies will do more to extend this economic contraction than any bank failure could ever do.