Krugmans juvenile Sinophobia

| 9 Comments

The text is almost completely devoid of any economic analyses, and could as well have been written by some college freshman student playing too much �Civilization III�. Once he educated the public, now he is now adding to misconceptions by repeating to the 'blood for oil' myth and playing on the public�s unenlightened (but in their case understandable) fear of outsiders.

http://www.nytimes.com/2005/06/27/opinion/27krugman.html?oref=login


1. Oil conspiracies


First of all, there is no such thing as a great game �in which major economic powers scramble for access to far-flung oil and natural gas reserves.� This is just a childish fantasy among those who still have a feudal view of the world.

Oil is traded in a single global market, with in practice a single world price. Control of oil may have been important in WWII, but it simply means nothing today. To suggest that Iraq was invaded in order to gain �control� of oil is just nonsensical.

As there is an integrated work market in oil there are really only two things you can do with it: sell it or don�t sell it. And if you want to obtain oil you do not need �control�, you only need cash. America uses some 1-1.5% of it GDP annually to import all the oil she needs without needing to control any of it.

As I doubt even Krugmans thinks the US is planning to steal Iraqs oil the occupation has absolutely no bearing on American access to Iraqi oil, which is sold on the world market to anyone and everyone.

Control of oil would only be relevant in the extremely unlikely situation of a prolonged global war. But in that case a Chinese company having legal ownership of an American oil company is completely meaningless!!! The beauty of knowing economics is that you will not make these kind of simple logical errors.

Krugman seems to have been influenced by fellow economist moonbat Lyndon Larouche on the impending collapse of the US economy, so maybe he really fears War is coming. In that case he should instead be advocating the US develop strategic oil reserves in Alaska and elsewhere instead of preaching protectionism.


2. The Manchurian candidate (Sinatra version)


Throughout the article he is exploiting the fear of China, suggesting that FDI by Chinese is somehow menacing, and that the purpose of their investments it to take control of America �After all, there's no natural law that says Americans will always be in charge�.

This is again complete nonsense, and almost has a racist feel to it. I do not remember Krugman protesting Brittish or Canadians investments, which are tens of times the size of Chinese investments. BP paid some 90 billion $ for American firms AMCO and ARCO without Krugman whining about it. Why write in such dark tone about China, even calling to block one of the deals?

The evidence is annecdotal, and the sums are un-impressing (and never mentioned!) The Maytag bid is 1.3 billion dollars. Is slightly more for Unocal, 19 billion $.

In comparison the value of the US capital Stock is worth 45 Trillion dollars. Foreigners (mostly white people, so I guess it is OK) already own some 10-11 trillion of US assets, while Americans own 7-8 trillion of foreign assets.

According to the OECD In 2004 Americans outflow of foreign investments was 252 billion $, whereas inflow was 107 billion $. Since this week it is bad in Krugmans book that foreigners invest in your economy, should the rest of the world complain that the US is �taking charge� of their countries?

With Maytag he seems to acknowledge that the deal is beneficial for both sides, but cannot help himself by ending on a ominous note. �Still, the deal won't be as one-sided as the deals with the Japanese often were.� Que? He said himself the deal will help America, why would we want it to be �one-sided�? Trade is not war or conflict, it is meant to help both sides. One of the biggest misconceptions among the public is that exchange is a zero sum game. From once brilliantly debunking such myths Krugman is now ready to promoting them to suit his short term political agenda. Principled guy.

It is never explained why he would block the sale of Uncial. He seems to hint it is because the price of oil is high right now. But any moron understands that the high price is already reflected in the price the one has to pay for Uncials. We should just take his word for it I guess.


3. Michel Moore with a college degree?


The most amusing side of it is the game Krugman has to play, dealing with two audiences. One is the non-economists readers, to that crowd it is just partisan politics, playing on their worst fears and using emotional arguments. But he probably also wants to be able to look his fellow Princeton Economics professors in the eyes next day.

He didn�t solve the dilemma by intellectual honesty or logical coherence. Instead he uses the Michel Moore technique; when you are playing to emotional side don�t use actual arguments, instead rely on a vague language and innuendo. So he never actually said we invaded Iraq for oil, only implied it. Never repeated the Unocal-Taliban-9/11 conspiracy theories that are so popular among the hard core left, just hinted at it.

In my personal experience he still has a lot of respect among people outside the US, i.e. those who haven�t read his NYT columns. But a common reaction among American economist upon mentioning Krugman is them smiling slightly, shaking hteir heads or rolling their eyes. The price he had to pay to become the darling of Howard Dean and the like was loosing the respect of most his peers. Hope it was worth it.

K. Brancato adds: See also Alex Tabarrok on Krugman's illiberalism.

9 Comments

Oil is traded in a single global market...

Yes, at present it is. Right now China is in no position to change that. What Krugman is thinking about is the future. Whether he is right to be worried I'm not sure. Whether a liberal trading system requires a global hegemon and will degenerate into a struggle for markets when American power is on the wane is debatable. But the idea that China's leaders are Realists (in the IR sense), who will change the rules of the game if and when they have the power to do so, is no "childish fantasy."

The global market for oil worked exactly as it does today when we had an actual bipolar world. If the Sovjet union with they might and will to take over the world couldn't change it China hardly will by buying American companies.

Or how exactly do you envision them changing "the rules of the game"? Remember the only rules that matter are supply and demand for oil. Remember oil market is already a monopoly through OPEC, so that can't be it.

The fact that Krugman doesn�t even envision or gives us a scenario is the reason I call it a juvenile fantasy.

"Yes, at present it is."

So, any credible scenarios around for China breaking up the global free trade in oil? This should be an especially tricky task, as China will not have a viable blue-sea navy for quite some time.

If control of oil means nothing, why are the Chinese trying to buy Unocal? Why are they desperately trying to secure access to oil in Venezuela, Nigeria, Canada, and the Middle East? Why don't they just buy the oil on the open market at the single world price?

This is again complete nonsense, and almost has a racist feel to it. I do not remember Krugman protesting Brittish or Canadians investments.

The obvious rejoinder to this is that Britain and Canada are not China. Britain and Canada are allies with a long history of cooperation with the US, and could not pose a serious threat to the US under any circumstances. China is not a friend, has a history of enmity with the US, and could pose a threat under the right circumstances. It has the size, the resources, and possibly the intent to do so. Such an entity should represent a major concern to the US, whether populated by Asians or by Swedish albinos.

First of all even if you believe the oil-nonsense the part about Canada and Britain was in reference to Krugmans general remark that foreigners buying American equity (like Maytag) was tantamount to them 'taking charge' of the US. This is crazy, and the racism comes from trying to scare people with China.

unless Krugman has gone completely crazy he understands very well that it hardly matters who own equity (albinos, arabs, yellows) of a firm in terms of the functioning of the economy. He is just exploiting people like you who are afraid of China.

Your second argument is circular reasoning. China want to buy Unocoal
to get control, and the proof that oil gives control is that China wants to buy Unocoal!

As I said buying a oil company (Unocoal isn�t primarily an oil company anyway, most of it�s assets being natural gas) does not give you "control" of oil in any meaningfully sense, since oil is a homogenous commodity traded in a global market. If you don�t understand why you should read http://www.techcentralstation.com/012003A.html

�Control� only matters if the global market is destroyed at times of extreme crisis or war, in which case legal ownership doesn�t matter anyway.

The �China quest for oil� is a media herring. First of all the main thing they are doing is logical, going to nations where the US has sanctions (Iran, Cuba) or otherwise underdeveloped (Venezuela) and developing their oil fields. This will however increase world supply of oil, not Chinas. Maybe it is bad politically for the US, who is trying to punish Cuba and Iran, but good economically.

And to answer you question China IS buying tens of billions of dollars of oil from the integrated world market every year with cash.

First of all even if you believe the oil-nonsense the part about Canada and Britain was in reference to Krugmans general remark that foreigners buying American equity (like Maytag) was tantamount to them 'taking charge' of the US.

The key point is that not all countries are the same, and they should not be treated identically. A large and unfriendly country owning an important US company is completely different from a small and friendly country owning an important US company. This is especially true if the company in question does not produce dishwashers but oil.

This is crazy, and the racism comes from trying to scare people with
China.

Accusations of racism are a stupid diversion from real, important issues. I have absolutely no respect for anyone who wants to stop the discussion of China as a long-term strategic threat by screaming �racism!� China is a serious national security problem, not because of their race but because of their capabilities and intentions. Do I need to remind you that China is a nuclear-armed Communist dictatorship that has threatened to annihilate American cities? That they are rapidly modernizing their military, building missile forces and power projection capabilities, and intensively spying on American government and industry? It would be completely irresponsible for the US government not to ponder the national security implications of these developments.

I have no problem with Japan � another powerful Asian country � buying US companies, because Japan is a friend, an ally, and a democracy. China is none of these things. That is the issue, not race.

unless Krugman has gone completely crazy he understands very well that it
hardly matters who own equity (albinos, arabs, yellows) of a firm in terms of
the functioning of the economy.

Apparently, it is not just Krugman who has gone crazy, but the Chinese themselves. They clearly think control of oil production at the source has some significance, as many other decisions besides the Unocal bid demonstrate. Your attack on Krugman would have been a lot more effective if you�d provided some intelligent commentary on what you think the Chinese are really doing � why are they obsessed with energy security, and how does the Unocal deal fit into their overall strategy?

He is just exploiting people like you who are afraid of China.

I am disappointed that a puerile jibe of this sort should appear on T&B.
Generally the discourse is at a higher level than mere name-calling, which is one of the reasons I read T&B.

Your second argument is circular reasoning. China want to buy Unocoal to get control, and the proof that oil gives control is that China wants to buy
Unocoal!

I did not make that argument. I simply asked a question that you seem unable to answer. Why do the Chinese want to buy Unocal?

As I said buying a oil company (Unocoal isn�t primarily an oil company
anyway, most of it�s assets being natural gas) does not give you "control" of
oil in any meaningfully sense, since oil is a homogenous commodity traded in a global market. If you don�t understand why you should read
http://www.techcentralstation.com/012003A.html

Why then what is your explanation for what the Chinese are doing? Are they stupid? Don�t they know they can�t control oil by buying an oil company? Perhaps they should read techcentralstation.

�Control� only matters if the global market is destroyed at times of extreme crisis or war, in which case legal ownership doesn�t matter anyway.

By this logic, the US should not care who controls the Middle East oil fields. Yet the US spent 45 years trying to prevent the Soviets and their proxies from controlling the Middle East. The US also exerted considerable effort from 1980 to the present in order to prevent any single power (e.g. Saddam or Iran) from dominating the region. Clearly the US thought that �control� in some way �mattered� even in circumstances short of extreme crisis or war. The US did not shrug and say, �who cares if Saddam legally controls Persian Gulf and Saudi oil, since he has to sell it to us anyway.� Do you really believe the US was incompetent, and pursued a consistently irrational policy for decades? Or was the US correct in thinking that control �matters�?

One might also note that control is more likely to �matter� if it is exerted through an entity that is not motivated entirely by commercial concerns. The Chinese state-owned oil company CNOOC is just such an entity. One cannot assume that CNOOC would operate Unocal solely for the purpose of generating maximum profit, since political considerations and geopolitics would obviously influence CNOOC decisions.

The �China quest for oil� is a media herring. First of all the main thing
they are doing is logical, going to nations where the US has sanctions (Iran,
Cuba) or otherwise underdeveloped (Venezuela) and developing their oil fields. This will however increase world supply of oil, not Chinas. Maybe it is bad politically for the US, who is trying to punish Cuba and Iran, but good economically.

Um, sorry, but Venezuela is hardly �underdeveloped� from the standpoint of oil production. It is the fifth largest oil producer in the world, and provides roughly 13% of US imports. And Indonesian, Nigerian and Canadian oil production is neither underdeveloped nor under US sanctions, so something else must explain Chinese behavior in these cases.

And to answer you question China IS buying tens of billions of dollars of oil from the integrated world market every year with cash.

You didn�t answer the question. If they can do this, and are doing this, why buy Unocal?

1. No, the key point is that owning equity has al but nothing to do with �national security�. That is the key point.

2. Racism as a substitue for real arguments is unfair, I agree. And China could be a national security problem (of course, they were a much bigger one in the past).

But again I repeat: Finanicial transactions are sales of eqity have *nothing* to do with national security. They may in Tom Clancy novels, but not in real life.

Krugmans knows this. The racism comes from exploiting peoples ignorance about economics and irrational fear of China. Yes, this fear is largely racist, and has deep historic roots.

3. I repeat that you are using circular reasoning. You have simply assumed out if thin aid that China is buying Unicol as a part of some hidden plan to take �control� of oil, and excluded all other much more reasonable economic explanations.

Firms buy other firms all the time, hundreds of billions of dollars worth of merger and acquisitions take place constantly, almost non of it has anything to do with "national security". And it is hardly strange that a country that is growing like crazy and has an energy sector that is growing like crazy is expanding. Anything else would be surpricing.

4. The conspiracy theorist acts thought reversing the burden of evidence. That is like my assuming Krugman wrote the article as ordered by Karl Rove. No? Where is your proof it wasn't? I am waiting.

Next prove to me why BP bought two large American oil companies. since we "know" this was about controll we have to ask ourselfs why they want control of our oil.

Or better yet, explain why American firms are buying so many Swedish companies. Volvo and Saab are now both owned by Americans. Are you trying to take over our country? It is not like companies merge for other reasons...

Joking aside, the most important evidence you have to provide is showing how exactly legal ownership of a small firm with small oil and gas assets (or for that matter a large firm) matters in terms of security. Give me a scenario you find likely. Be concrete, vauge refrences are not enough.

Would they send the oil to China? Who cares, that would only substitute other oil China would buy. Would they refuse to sell to the US? Again who cares, whomever they sold to would free up oil America would buy.

In an integrated market legal control does not matter. (of course if you controll enough you can make the market a monopoly, like OPEC, but thats another issue) Also Venezuella IS underdeveloped in recent years due to recent domestic roubles, and so is Nigeria.

5. �Yet the US spent 45 years trying to prevent the Soviets and their proxies from controlling the Middle East...Saddam...�

I explicitly made clear that war was an exception. By the way, the mullahs in Iran prove my case nicely. There is no more anti-american regime in the world than Iran, and even they countinued to supply oil to the world market (and indirectly to the US). Iran direct control of 5000 billion $ worth of oil didn�t matter, why would legal ownership of 20 billio$ (of which most seems to be natural gas)???

China is a Communist Country. C.C.P. is responsible for 80 million deaths since 1955. That is more than all the wars combined. We can not Cow Tow to Communism. You can't trust Communism. It is a liar and the mother of it. We have no Business dealing with C.C.P. How dare the Chinese Goverment tell our own Congress to back off as if that oil company in China isn't run by their goverment. 3 million Chinese have renounced membership in the Communist Party. Their own people don't want it! Let's not invite it over here. Look at companys like Cisco who sold out and is helping them suppress their own people by stopping freedom of speech. They installed routers that stop words like freedom and democracy when it is typed on the computer wich alerts a 911 system that can track you to your house where the police will come and kick down your door and arrest you. Is this the type of Goverment we want to deal with? I don't thinks so. Plese read the Nine Commentaries On the Communist Party and decide for yourself. http://www.theepochtimes.com/jiuping.asp

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