It isn’t the format of John Robb’s speculations about what would happen in the event of a serious loss of confidence in the U. S. government on the part of foreign governments and other investors that puzzled me. After all future history has been an important approach to communicating social ideas since at least 1887 when Edward Bellamy wrote Looking Backward. Utopians or, in John Robb’s case, dystopians have been employing the device regularly ever since.
It’s the assumptions about how things work and what the reactions would be to events that puzzled me. Here are my questions.
First, what would the response of foreign governments be? I recall a speculation from Angry Bear a couple of years ago about China dumping its bond holdings. The problem I saw with the scenario is that the value of the bonds involved is a significantly greater proportion of China’s GDP than it is of ours. That’s even truer now that we believe that China’s actual GDP is about 40% lower than we thought it was. BTW you might want to take a look at Walter Russell Mead’s LA Times op-ed on the implications of this.
It might be appropriate to remember the old saw that when you owe $10,000 to the bank, the bank owns you but when you owe $10,000,000 to the bank you own the bank. Would China act to reduce the value of its investment or to bolster it?
Second, how dependent is government, generally, in the United States on foreign investment? Not just the federal government but government at all levels. K-12 education isn’t funded by the federal government or, more precisely, federal funding is only a small portion of that pie. Most education which continues to be the largest government program in the U. S. is funded by property taxes which in turn is supported by property values. Would foreign governments purchasing U. S. land raise or lower its value?
Finally, is there a trend towards greater or lesser privatization in the U. S.? The entirety of the scenario painted by John Robb hinges on the idea that the trend is towards greater privatization. If the trend is in the opposite direction (as I think it well may be), wouldn’t the reaction be towards nationalization rather than privatization?
In a sense that’s one of the quiet underlying issues in the present presidential campaign. It’s a little difficult for me to imagine a President Hillary Clinton or a President John Edwards presiding over a mass privatization of presently public American assets.
So, what’s the trend?
Hat tip: Mark Safranski