March 20, 2012... Bob Brinker interviewed Peter D. Kiernan in the third hour of Sunday Moneytalk. Bob Brinker never gave the name of the book on the air.
Becoming China's Bitch: And Nine More Catastrophes We Must Avoid Right Now by Peter D. Kiernan, Chairman of the Darden School of Business at University of Virginia. Our guest-writer, FrankJ, has summarized the high points of the interview. (Editorial comments are FrankJ's):
This country’s largest supplier of consumer goods is also our banker. The United States has a “negotiated economy” where it is easy to delay and stymie growth. Our economic rival, has a top-down economy, dictated by the leaders of the Communist party. When they decide on a course of action, everyone falls into line. Our “supplier and banker” knows a great deal more about us than we know about them.
This describes the relationship and important differences between the US, and the People’s Republic of China.
Peter Kiernan, Chair of the Darden Business School at the University of Virginia, has written a book on the dangers in our relationship with China – and other catastrophes this county must avoid.
Kiernan said he thought there were about 30 big issues we should be dealing with, and he distilled this list down to ten to write about. He expressed frustration that no one in Washington DC seems to be doing anything about the big issues. We can infer that the issue of our relationship with China is at or near the top of Kiernan’s list – and some of the other subjects discussed in the third hour interview with Bob Brinker are on the list as well, but it would have been useful for Bob to ask the guest to run down the list of the top ten, just for clarity.
China knows more about us, than we know about them. They understand our leadership, economy and psychology more so than we understand theirs. In fact, there is a distinct lack of curiosity in this country about how China “works.” One thing we do know, they are our largest supplier of cheap goods (Kiernan’s words) and they also own $1.7 trillion (with a T) in Treasury securities, making them the largest creditor outside the US. Kiernan believes this co-dependency, as he called it, cannot turn out well for the US.
EC. In the past, BB has been merciless in his criticism of public figures who expressed alarm at the fact that China owns so much of our debt. In his view, it is the creditor who is in the weak position, not the borrower, but he made no comment back to Kiernan on this topic.
Some examples of what China is doing came through in the interview and in Kiernan’s response to questions:
· The party takes a major role in planning the business strategy of “China Inc.”· The psychology of China’s investing is to become a world economic power and they choose to invest in infrastructure as a way to achieve that goal.
· Leadership in port facilities: Of the top ten world ports, 6 are in China and none are in the US. According to the guest, Shanghai alone, is larger than the top 7 US ports, combined.· When the party leadership decides to do something, it happens with a minimum of red tape, example: building the Shanghai airport in 18 months. China “steamrolls through the checks and balances” (of the type) we have in the US.
· The US led the world in production in rare earth elements in the 1960’s and 1970’s but we lost dominance and China took over as the leading worldwide producer. “We watched it happen.” Now, one of the only ways to access these materials, some of which have strategic value, is to build your own factory in China. Link to Wikipedia entry: http://en.wikipedia.org/wiki/Rare_earth_element·* The party owns and/or controls industries: China makes 80% of the world’s supply of Vitamin C and 20% of Vitamin A.
* 400,000 people in America are studying Chinese language (presumably Mandarin). 100 Million Chinese are studying English.·* China is a leader in electric car battery production.
The interview revealed some of the other topics on Kiernan’s top ten list.
BB mentioned a phrase familiar to most MoneyTalk regulars: “We have the best government money can buy.” Kiernan discussed what he sees as a “selectorate” hovering above the voters and the government itself. Lobbyists (15,000 of them) and think tanks exert too much control over the rules, decisions and regulations put out by government.
They not only influence legislation, but help write it. A significant number of people who leave Congress (including Congressional staff) go to work for lobbying firms. With this as a post-Congress career option, it is unlikely these people will push back very hard against lobbyists while serving in elected office.
BB and Kiernan discussed public unions and their impact on local budgets. In 1950, 7% of the public workforce was unionized. Today it is 36%. The taxpayer is not represented in negotiations with public employee unions because, through the election process, the public employee unions help choose who their boss will be, i.e., the person who will sit across the table from them. Kiernan believes that state treasurers need to get involved and explain in clear terms, using basic math, that the promised benefits are almost impossible to meet in financial and economic terms. If this happens, and it is made clear that even “brilliant investing” can not save you, then there is a chance for progress.
BB said that people who plan to relocate need to know in advance if they might be moving into a community where they will be taxed heavily simply to provide public employee benefits.
E.C. By coincidence, the March 2012 issue of Imprimis, a monthly newsletter from Hillsdale College is devoted to the question of public employee unions. “What Public Employee Unions Are Doing to Our Country,” is adapted from an address by William McGurn, columnist for the Wall Street Journal.
On the topic of Social Security, Kiernan brought up the importance of demographics in relation to public policy. When it was first established, there were 30 workers per retiree and people were not expected to live more than 10 years past retirement. In 5 years, there will be only 2 workers per retiree. “That’s like every family getting an extra Grandma.”
The “over 80” age group is the fastest growing age group in our population and in 15 years, two-thirds of the population will be over 55. Social Security, along with Medicare and Medicaid have become “untouchable” issues in politics. He mentioned the fact that the recommendations of the Simpson-Bowles committee were shelved and that Congress spent every dime from the money that was set aside in a trust fund (in 1983) to cover Social Security shortfalls.
Caller David from Whittier, CA asked about cap and trade. This gave Peter Kiernan the opportunity to discuss another topic that is probably on his top ten list: a lack a national strategy for energy. We get approximately 20% of our electrical power from 104 nuclear facilities. Some of these are old and need to be replaced, but we haven’t built a new plant in this country since 1979. We need to build one new plant each year for the next 15 years to replace our current crop of aging nuclear power plants.
EC: Good interview, I thought, although it seemed short, starting at about 15 after the hour and ending at 10 minutes to 4. The topic, issues that should be addressed, but are not being addressed was timely considering we are in an election year.
Honey here: Thank you so much for that recap. It's a very serious subject and Kiernan covered a lot of events that will have huge impacts on all of us. Please see my Summaries of hours one and two below.
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