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J. A. Hobson's analysis in Imperialism, 1902. only needs some modification to explain the current situation.  In his analysis imperialist countries at the turn of the 20th century, especially GB, by virtue of keeping domestic wages low, had surplus capital for which they wanted to find profitable investments.  This was, in large part, satisfied by investing in infrastructure and resource extraction in imperial dominions where their investments were protected by colonial administrators and, ultimately, by the military might of the imperial power.  Domestic allies prospered by building the ships and making the arms, etc.  The current US adventure in Iraq can be seen as a crude failed attempt at such a traditional approach.  But attempting such an approach with China would be seen as madness by almost all US citizens.

The US approach since the 1990s has involved the destruction of domestic industries that provided high wage jobs by buying up companies, shutting down US production, exporting the manufacturing equipment to China and purchasing similar goods from newly minted Chinese manufacturers at a fraction of the cost.  The fact that the quality and hence the value of the Chinese goods was often significantly lower was compensated for by their stunningly lower prices, which were affordable by a relatively impoverished population now working at jobs with far lower wages and less benefits.  The profits were in the retailers, (where labor costs were traditionally lower,) who distributed the Chinese goods, by those who handled the shipping and distribution of these goods, and by those in the financial sector who set up the arrangements.

Given the cost of labor in China, which is held low by   more than one billion rural agricultural population longing for even marginally greater income, the Chinese government took dollars from the US and required workers to be paid in renminbi.  The effect was that they accumulated over one trillion of US dollar denominated government paper.  They couldn't have paid their workers anything like the value of their labor without setting off even more rampant Chinese inflation.  Much of it went into the US real estate bubble via MBSs and CDOs from Fanny and Freddie, etc.  In a very real sense, the US exported employment and imported under-employment in the form of Mc-jobs.  We also exported the capital surplus so as to get it back in the form of loans to further inflate the real estate bubble.  This was the source of the benefits of this cycle which were in the form of fees and profits on the transactions in the financial sector that accompanied the "securitization" of the economy.

Hobson noted that Imperialism was a bad deal for the imperial country as a whole, but that it was highly beneficial to a particular elite.  The results of the "globalization" version of financial imperialism have been and are being vastly more damaging not just to the US domestic economy, but to the whole world.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 9th, 2008 at 04:17:11 PM EST

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