Losing Control

[Jackpine Radical]

This is indisputably the best book review I have ever read on Amazon:

http://www.amazon.com/review/R304FZPRFM8PGC?_encoding=UTF8&ASIN=0300154321&cdPage=&nodeID=283155&ref_=cm_cr_dp_cmt&newContentNum=1&cdMSG=addedToThread&newContentID=Mx1YRKZW88QO8MA#CustomerDiscussions


By Loyd E. Eskildson "Pragmatist"

This review is from: Losing Control: The Emerging Threats to Western Prosperity (Hardcover)
Stephen King, author of "Losing Control," is global bank HSBC's Chief Economist and a member of the "Financial Times" Economist's Forum, not the Stephen King of scary stories. Nonetheless, "Losing Control" is still somewhat scary, telling a tale of how Western post-millennium economies are becoming less controllable, and cannot be relied on for continued economic growth. The intent of his book is to demonstrate why the years ahead will continue to shift economic activity from the West to the other side of the world, while the economic successes of nations elsewhere will impose growing constraints on already developed nations.

King's first significant point is that market forces were not the sole source of the West's earlier successes - state capitalism began long before China and Saudi Arabia forays in this direction. The East India Company's (formed in 1600) successes in India and then China were largely courtesy of England's Navy. Similarly, Europe's earlier development of sailing skills enabled the Continent to cut the Middle East out of profitable trade business with the Orient; the development of alternative sources of coffee and sugar in the Americas also helped. Meanwhile, Islamic leaders acerbated the relative decline of their nations by refusing to separate sacred issues from the secular, and thus hampered opportunities for technical progress. Another leadership blunder was China's worrying over corrupting outside forces leading them to close off their nation until after Mao's death. (In 1000 A.D., Chinese per capita income slightly exceeded that in Europe; by Mao's death it was about 8% that of Europe.) King also points out that new industries in the Americas benefited from strong protectionist measures. Those contending that today's government has no role in the economy would do well to reflect on these lessons from history.

"Losing Control" also contends that Japan-China trade helps explain Japan's economic stagnation, pointing out that since the early 1990s, Japan's exports to China have been dominated by capital. China and others buying U.S. Treasuries lowered interest rates in the U.S. and made other, riskier investments more attractive.

King contends that prices in the West are increasingly determined by the developing world, and that pursuit of price stability in the West has contributed to mounting economic instability. If, for example, prices fall in relation to Western wages, perhaps due to reduced Asian demand for commodities, it makes no sense to encourage even more added spending by keeping interest rates low. Greenspan's Federal Reserve misread this late 1990s environment as a sign of a 'new economy' with rising productivity. Raising interest rates, such as the Bank of England did 2003-2007) may trigger capital inflows that lower interest rates and create a real-estate boom. With China boosting commodity demand and their prices, central bank policies to keep prices stable will create falling wages. Lower interest rates also encourage investing in nations paying higher interest rates. King's point in all this - capital markets are increasingly distorted by the decisions of various other nations, and being a central banker is more of an art than a science.

Another major "Losing Control" point is that globalization works to increase inequality within nations, while decreasing it between nations. Chinese industrial workers' income rises and allows them to buy better food, raising the prices for those foods and lowering the 'real income' for its other workers. At the same time, U.S. industrial workers lose 'real income' vs. Americans with capital; in addition, they also lose ground to the Chinese. Income inequality in both China and the U.S. has increased in recent years. We have tried to mask this problem with easier access to debt (as well as increasing the proportion of two-income families), but those actions create new problems. Increasing the proportion with a tertiary education is another strategy - however, King does not see this as successful in the long run because the Chinese are doing likewise (6% in 1999 to 22% in 2006), and the cost of U.S. education is rising too rapidly. Citigroup and Pepsi-Cola are already run by Indian-born executives. King sees the West in danger of following in Japan's deflationary footsteps, or resorting to the printing press to resolve their debt problems.

Summarizing, "Losing Control" presents some moderately scary examples about how Western governments are losing control of their economies, confirms that income inequality is rising sharply, and illustrates why "A rising tide lifts all boats" is no longer true. However, "Losing Control" does not fully cover all the ways we are losing control of our economies, nor begin to explore how low Western economies could descend if unregulated capitalists continue pursuing the 'race to the bottom.' Neither does he cover the likely economic impact of ever-increasing trillion-dollar U.S. deficits and unfunded liabilities accumulated from excess health care, defense, education, and public pension costs, or businesses' growing ability to collect bailouts, evade taxes, financial, and fuel economy regulation, and community, environmental, and safety safeguards, while also proposing to privatize government services such as road-building and maintenance, Social Security, education, and utilities service. (The latter, ironically, is bolstered by their continually weakening the economy through self-serving, ever-increasing offshoring of jobs.) In addition, King does not address the likely escalation of Western job losses as Asian economies move up the ladder into R&D, engineering and design, and a wide range of other service jobs. Finally, "Losing Control" also fails to communicate the range of high-paying skills and vital capabilities already been lost to globalization, explain how misleading GDP statistics (artificially boosted by population growth, illegal immigration, increasing foreign-held debt and current-account deficits) are used to mollify the masses, or depict the likelihood of future civil disorders motivated by rising income inequality.

Bottom-Line: "Losing Control" is an apt title that summarizes current trends in Western economies. However, the author's conclusions would greatly benefit from broader thinking, and possibly even emulating the writing style of that other Stephen King. We do need to stop living beyond our means, but we don't need to cede control over our economic future.