The China Shock or Oligarchy

Why Capitalist Economists Got it Wrong

I lived in the Midwest at the tail end of the thriving Oligarchy. I was in college and saw the writing on the wall. Jobs were drying up in Indiana. I had my eyes set on Houston or Orlando. I chose Florida with only $200 in my pocket since there was no point in staying in Middletown once the automotive industry began to pack up and leave in droves. My once thriving town was shedding jobs by the thousands. Not just the big plants like Chevy, Delco Battery, and Warner Gear, but all the tool and die shops that fed off the plants’ work. It was the beginning of a mass exit with the blame game to ensue for decades.

The blame was America’s greedy unions wanting too much of the profits. Federal and state regulators were cracking down on the pollution and eating into profits. I bought all the excuses because the “media wouldn’t lie to us.” They were all saying the same thing – greedy unions and too many federal regulations. Everyone who lost their livelihoods accepted those excuses. Nearly forty years later, they still believe it in those cities and states because the economists and media are still shelling out the propaganda. Nevermind the big elephant sitting in the room.

Traditional Economists Got It Wrong, But How?

I’ve since moved back to the shell of a town with the remnants of the old factories still around. Old factories everywhere — mostly all of them left behind polluted soil for the states and towns to clean up. The holding companies the Oligarchs spun off held the brownfield properties. The automotive town, now college town, still fights over its identity.

The site of the former Ball Brothers Glass Manufacturing Co on W Memorial Drive, South Muncie
Photograph: David Levene/The Guardian

I read an interview this morning on NPR’s Planet Money with the economists of a study called “On the Persistence of the China Shock.” NPR writes:

For those not caught up on the China Shock saga: About a decade ago, economists Autor, Dorn and Hanson began a groundbreaking research project to see what happened to the U.S. after China cannonballed into the global marketplace at the turn of the millennium. For competitors, it was like an earthquake followed by a tsunami followed by a flood. Between 1991 and 2013, China’s manufacturing exports went from only 2.3% of the world’s total to a whopping 19% of it.

China was an agrarian population (farmers) who became an industrial powerhouse overnight when every US Oligarch moved their factories to China to take advantage of the low wages and minimal to no regulations in their developing country. The Oligarchs could ship their raw materials to China, manufacture their products, ship them back to the coast, and transfer them to retail stores around the country and still make an incredible profit. The stock market has grown exponentially as a result. In 1984 when I moved, the Dow Jones Industrial Average was 3200, and in 2013 it was 18,000.

The Oligarchy Made a Financial Decision

The Oligarch’s strategy of bailing on the unions and their polluted land allowed them to make a fortune for themselves. The workers and communities be damned.

Do you know what the university economists said?

These losses were heavily concentrated in small- and medium-size communities dotting America’s heartland — and workers who lost their jobs in those areas struggled to find other work. The China Shock created what looked like miniature Great Depressions in these places.

Standard economic theory said that the non-college-educated workers who lost their jobs would move or retrain and find work in other places or sectors. But they didn’t. Most stayed put and were never fully employed again. “It ended up creating these pockets of distress,” Hanson says. “That was the surprising part. That’s what we economists didn’t know was going to happen.”

Wait, the economists didn’t know those non-college-educated factory workers who just got sucker-punched by Oligarchs, their trade unions, and elected officials would stay in their hometowns after their employers sprinted toward global markets?

What do you think happened to their home values after all the jobs evaporated? These factory workers made over $40 thousand a year working in the factory and tool and die shops. Where were they going to go to make similar wages when all the factories left for Mexico or China?

And the Economists Blame Politicians

Just so we’re clear, the politicians or elected officials were listening to economists all across the country working in universities and think-tanks advocating for these free-trade agreements and telling everyone, including the media, that the problem was greedy unions and federal government regulation, when the truth was, Oligarchs took advantage of developing nations with cheap labor and no rules. It was a profit-maximizing scheme, and it worked exceptionally well for the Oligarchs. What about the working class?

Leaders failed to create effective policies to help workers cope with the pain brought about by trade. Hanson says America’s policies have been and remain pathetic when it comes to helping those who lose their jobs. He argues we should increase the generosity of unemployment insurance and trade-adjustment assistance and retool our programs aimed at retraining workers. Other advanced countries, he says, do a much better job on this front.

Well, there you go. The policymakers should have done a better job helping the working class. Has anybody read about the Walmart effect on communities across the country? That also gutted US communities as consumer goods manufacturers also bolted to China and the large retail presence of Walmart stores wiped out small homegrown retailers overnight replacing small owned stores with minimum wage jobs.

It Will Soon Be 2022, and the Working-Class?

We just had a global pandemic shred the population in the United States. The working-class wages stuck in the 1990s levels according to per-capita household measures. The Great Resignation is upon us. Workers were forced off unemployment early to take jobs in low-paying service industries lacking benefits. October was referred to as Striketober as workers across the globe went on strike for higher wages and more benefits.

Meanwhile, the Oligarchy is breaking records for CEO pay, stock-market performance continues breaking records, etc. Offshore tax havens are seeing deposits soar as hackers penetrate the law offices catering to transnational corporations and billionaires with astronomical net worth growth.

And the policymakers who serve the Oligarchs? They have made fools of themselves in Washington with a coup attempt, and the Democrats can’t even improve the lives of the working-class or save the planet.

Remind me again why all the media networks still interview economists or write columns in the local newspapers. Oh yeah, the economists work for the Oligarchy as well. It makes you wonder why the Constitutional Founders used the words, “We the people…,” when they should have used, “We the Oligarchy…”

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Todd Smekens

Journalist, consultant, publisher, and servant-leader with a passion for truth-seeking. Enjoy motorcycling, meditation, and spending quality time with my daughter and rescue hound. Spiritually-centered first and foremost. Lived in multiple states within the USA and frequent traveler to the mountains.

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