The Big, Bad cost of 2008

Forbes - - FACT & COMMENT -

Per­haps the most toxic fall­out from 2008–09 was not eco­nomic but rather geopo­lit­i­cal. It se­verely dam­aged faith in free mar­kets in much of the world—most omi­nously in Bei­jing—even though govern­ment folly brought on the cri­sis. Pol­icy er­rors that sub­se­quently stunted u.S. growth for nearly a decade re­in­forced the per­cep­tion in China, Rus­sia, Iran and North Korea that the u.S. was a de­clin­ing power, and they acted ac­cord­ingly. It will take a few years of good, solid growth in Amer­ica to put an end to this kind of de­luded—and dan­ger­ous—think­ing.

What­ever dif­fer­ences it had with the u.S., China be­lieved Amer­i­cans un­der­stood money and fi­nance. The dis­il­lu­sion­ment trig­gered by the cri­sis quickly set in mo­tion a resur­gence of Chi­nese govern­ment in­ter­ven­tion in the econ­omy that goes on to this day. Vi­o­la­tions of in­ter­na­tional trad­ing rules that Bei­jing had agreed to honor pro­lif­er­ated. Forced trans­fers of know-how and trade se­crets from for­eign com­pa­nies to Chi­nese ones mush­roomed, as did in­vol­un­tary merg­ers with do­mes­tic en­ti­ties.

Dis­turbingly, China has chucked out the cau­tious for­eign pol­icy that had been in place since 1978. It is ag­gres­sively work­ing to ex­pand its in­flu­ence re­gion­ally and glob­ally. Spend­ing on mil­i­tary forces and R&D is rapidly grow­ing. Bei­jing is de­ter­mined to be the mas­ter of cy­ber­war­fare.

The lib­eral post-WWII or­der of Amer­i­can-led mil­i­tary se­cu­rity and grow­ing trade is un­der stress.

of course, a sus­tained Rea­ganesque eco­nomic and mil­i­tary re­vival at home and wise peace-through-strength poli­cies over­seas could right mat­ters again, as they did once be­fore.

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