Trump Claims Whole Economy Is Rigged

He is right, and he is right that our main problem is that the good middle-class jobs went to foreigners who earn less. And he has been correct that this has nothing to do with free-market competition and everything to do with manipulation. And I'm not even a Trump supporter.

This story is worth repeating since too few people understand it, given how central it is. (Diehard non-believers only have to pick up a new book or two by Martin Wolf or Raghuram Rajan, card-carrying members of the global elite, who have to admit this implicitly.)

But he's wrong about the cause. It's not that we couldn't get good trade deals and needed a better negotiator. We never wanted to. The American elites benefited too much from the situation.

From the early 90s on, the Chinese central bank suppressed the value of the yuan artificially by massively buying up dollars with newly printed yuans -- this gave China a price advantage and an artificial export-driven prosperity that made the regime tolerable. The US had all the moral, political, and institutional power to stop the currency manipulation, which would really be the only 'good trade deal' that made sense. Instead, this problem was greeted with occasional lip-service.

You see, this whole conveyor-belt of money and debt enabled the US and Americans to borrow cheaply, run up more debt, and still keep inflation low. American politicians couldn't ask for a better world. Since this gave the Fed the excuse to keep interest low, savers were encouraged to take risks, and so Wall Street was happy too. Unemployment was low since the low interest stimulated new job creation in service and technology. Mainstream commentators called it the Goldilocks Economy, the Great Moderation -- who could disagree?

(Under the surface, what really went on was that the labor of ordinary Chinese, who couldn't influence their own country's policies, became the new gold that backed the dollar. If the People's Bank of China made sure consumer goods could always be bought cheaply with dollars, people trusted the dollar. This last part is always the unspoken holy grail of the American elites -- the ring that rules them all -- at least while it lasts. They couldn't possibly give this up by reforming the 'global imbalances.')

'Global imbalances' was what the elites' house-pet economists called it, eventually, when the profound problems from the giant asset bubble could no longer be hidden and Westerners suffering from real economic pain needed an explanation. The straw that broke the camel's back happened to be the internet and housing bubbles in the US.

The real story is almost as old as modernity. Since the 1500s, the Western imperial elites have always enjoyed unearned wealth and power by issuing money, debt, and other financial assets out of thin air, and propping them up with state power. When the ill-effects of these bubbles could no longer be contained, when bad news could no longer be hidden from the public, the entire economy paid the price.

It is not that elastic, state-issued money enabled the modern economic miracle. It's the other way round. The genius of modern innovators and managers, and lately the quasi-slave-labor of China, gave value to the paper issued by the elites and ultimately enabled their extraction of wealth from the rest of society.