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Today on the Freakonomics blog, I saw Stephen Dubner quote an older friend of his as saying, supposedly jokingly, that, "Yes, it’s true that the Chinese have been selling us toxic toothpaste, toxic pet food, toys with toxic lead paint — but all the while we were selling them toxic investments."

I'm not sure that one's actually funny.

When the toxic pet food and toxic toothpaste and toxic toy scandals all broke, I made the same point each time: this is what happens in a corrupt legal system. The reason that some Chinese businessmen were able to get away with selling dangerously tainted products is that in China, the Communist Party and by extension its ranking members and their friends, are entirely above the law. In extreme cases, low-level, non-member scapegoats will be found and will be quickly executed or found to have suddenly committed suicide before they might have said anything public to clear their names, but the people truly responsible will not be found guilty of anything. And thus, the practice will continue, from scandal to scandal, until one of two things happens: until China grants its judiciary independence and tenure like we have, or until the rest of the world stops buying Chinese exports because they can't know that they're safe. If it comes to the latter, you can bet that the Chinese will find some way to stop the problem, no matter how much it costs -- although it'll still be unlikely that any senior members of the Party, however guilty, will be inconvenienced in any way other than (at most) being passed over for promotion.

This is eerily similar to how we got into the current problem. Back during and immediately after the Great Depression we, as a nation, put in place some admittedly expensive to maintain safeguards to keep the kind of mess we have today from ever happening again. Those safeguards also prevented some corporations from making quite as much profit (on the upside of the business cycle) as they might have without the regulations. But they also protected not just the companies, but the taxpayers who'd end up having to clean up the mess if those companies all went into default, on the down side of the business cycle. Well, along about the 1980s followers of Ayn Rand and her disciples like Milton Friedman and Alan Greenspan convinced us that the business cycle had been tamed, and that due to the magic of our super-efficient computerized markets and the superior moral quality of today's New Capitalist Man, it was no longer necessary to protect taxpayers against the kinds of stupidity that sank the country back in the late 1920s. And so, under both Republicans and right-wing Democrats, Congress and the agencies of the executive branch have removed safeguard after safeguard. Some of those safeguards were too popular to repeal, but that was no obstacle to our New Capitalist Man. The financial services industry simply invented new names for old products, and new products, that would fall entirely outside the 1930s regulatory schema (because they didn't exist back then) and abandoned the old regulated system for the new unregulated system. And, as we've seen, the products were just as toxic. More so: if the US banking system collapses, or for that matter if we pay off our debts with wildly inflated money that sinks the financial industries in every nation that was foolish enough to keep buying, it's going to kill more people through starvation and suicide than the Chinese killed in Latin America with ethylene glycol in toothpaste.

Of course, we "civilized" nations of the world have a system now for determining whether or when one nation's regulatory, or deregulatory, rules are unfair to other countries: the World Trade Organization. We could submit it to their literally secret tribunal. Of course, those of us who know the history of the WTO know how it'll rule: in favor of everybody else, against the United States. Think I'm kidding? Compare the Canada vs. USA case involving methyl tertiary butyl ether (MTBE) to the USA vs. European Union case on genetically modified organisms (GMOs) like Roundup-Ready corn and soybeans. The cases are absolutely identical in their facts. Actually, no, the facts are slightly more on the USA's side in the MTBE case: unlike GMOs which some people say (with no evidence) might, some day, some how, in some way we don't know, cause some unspecified damage, MTBE is a known human carcinogen with a long history of seeping into the water supply. And yet, the USA lost both cases. It's not hard to tell why, really: we're saps. We want it too badly. It's been such an article of faith to both the Republicans and their right-wing Democratic allies that we need "free trade" no matter how corrupt it is that we have no negotiating leverage with the WTO; they know they can ignore the facts and rule against us all day long, and we won't do anything about it. (Vote Barack Obama.) So if you think, despite all the noise yesterday at the United Nations about how toxic our exported investment products turned out to be, that the world is going to do anything more about poisonous American Collateralized Debt Obligations than it's going to do about poisonous Canadian MTBE or poisonous Chinese food and medicine ... well, you may be right, but I doubt it. Although maybe they should.


( 8 comments — Leave a comment )
Sep. 25th, 2008 10:39 am (UTC)
Do you think it's all regulatory environment, or is it partly culture which can set strongly felt limits on how badly you treat people?
Sep. 25th, 2008 11:17 pm (UTC)
You don't base a working society on the bland hope that people will do the right thing. You check often enough to make them afraid of getting caught, and you make the punishment for getting caught enough that they'd be crazy to risk it. That's why I relentlessly mock The New Capitalist Man; this idea that "enlightened self interest" will cause all, not merely most, but all businessmen and workers to do the right thing, not just most of the time but all the time, is just as deranged as Lenin's belief that the New Communist Man would produce to the best of his ability and share freely with other workers each according to their needs without cheating or complaint.

As the saying goes, "trust, but verify."
Sep. 25th, 2008 12:22 pm (UTC)
"Yes, it’s true that the Chinese have been selling us toxic toothpaste, toxic pet food, toys with toxic lead paint — but all the while we were selling them toxic investments."

That was Paul Krugman on Real Time with Bill Maher last week.

Edited at 2008-09-25 12:22 pm (UTC)

Sep. 25th, 2008 01:06 pm (UTC)
A few points.

1. The massive amount of regulation that was put into place after the great Depression didn't really hurt corporations. They were large enough and had enough capital that they could prove compliance. Want to know who it hurt? Small businesses. Even though they are more naturally compliant (they are playing with their own money and are very conservative) they didn't have the staff or the money to go through all the red-tape of proving compliance.

2. President Clinton led the way on most of the deregulation. It wasn't just Republicans and right-wing Democrats...it was a pretty common concensus that it was time to deregulate so that small businesses could thrive. Also, Clinton wanted more Americans to be home-owners. He also saw homeownership as a way to help minorities into the middle class. His intentions were really, really good...but the rewrite he had Rubens do are what set this whole mess up. Ah well...the road to hell is often paved with good intentions.

3. Despite your post yesterday about how politicians really aren't evil and perhaps you see plots where there are none, you post day in/day out about how evil and plotting the Republicans are. In a non-election year I enjoy your blog a great deal even if I don't agree with it because you have great insight into things. During this election cycle, you slant is so great and you bias so strong that it's becomming pretty worthless to read anything other than your gaming posts. I'm not one to shy away from other points of view and I seek them out. But when it is the same thing every time (Gee, how will Brad make this another conspiracy of the evil GOP) it gets tiresome.

But it's your blog and we are your guests - so take this for what it's worth.

Edited at 2008-09-25 02:45 pm (UTC)
Sep. 25th, 2008 09:14 pm (UTC)
Point 3 is a good one.
Sep. 25th, 2008 11:14 pm (UTC)
Then you misunderstand me.

I argue that the Republicans, and their right-wing Democratic allies, achieve evil all the time.

What I also argue is that they do so out of what they consider to be well-thought out, sincerely held good motives. They actually do believe that if we implement their policies it will be better not just for themselves and their backers, but for everybody in the country.

I think history shows, pretty clearly and unambiguously, that they're wrong. I think there are solid scientific reasons why they're wrong. But I don't think that they're bad people. I just think that it's a matter of life and death for us as a nation that we stop them from trying to do us any more good.
Sep. 25th, 2008 04:55 pm (UTC)
What's happening in China is a long and ignoble tradition in Chinese Bureaucratic Culture -- rampant corruption.

In the 19th Century Battle of the Yalu River (between the Chinese and Japanese navies), a lot of the Chinese ironclads were found (the hard way) to have gun barrels cast out of cheap potmetal, coal/fuel "stretched" with rocks painted black, and ammunition loaded with sawdust or sand instead of gunpowder. The sutlers and suppliers (all with bureaucracy connections) had charged the government top dollar for all of these.

As for what's happening now in the US, the regulation-deregulation has become two out-of-balance ideologies playing tug-of-war.

Through the Reagan years, American finance and business WAS over-regulated, a legacy of FDR and the Great Depression. (It was said that a railroad shipped a boxcar of government regulatory paperwork for each boxcar of paying freight.) This was out of balance.

Since then, deregulation has resulted in what we're seeing now; ripoffs of an under-regulated finance and business. This is also Out of Balance, but in the other direction.

Unfortunately, we are now at the point on the Strauss-Howe Cycle where an Idealist-type Generation (the Baby Boomers) are dominant. To an Idealist Generation, Purity of Ideology is supreme; Reality (or compromise with the Infidel/Heretic) cannot be allowed to interfere with Ideology. This cuts both ways -- Left and Right. How can you reach the balance point when everything is Ideologically Zero or 100%?
Sep. 26th, 2008 04:15 pm (UTC)
MTBE is not a proven human carcinogen (check Wikipedia, or the government of Canada website here, which cites US sources up to about 2000: http://www.ec.gc.ca/ceparegistry/documents/part/MTBE/MTBEReport_p2.cfm#p24. ).

It does make drinking water undrinkable, because it tastes godawful. However, it's not carcinogenic at low levels, and it takes about 5ppm to make the water undrinkable due to taste. You could theoretically get cancer from it, but you'd be unlikely to drink enough. Mind you, ruining the water supply is serious stuff, it's just unlikely to directly kill anyone.

Furthermore, it was a Canadian corporation vs. the US government. Your presentation makes it look like the government of Canada set out to poison US citizens.

Add to that, looking at the legal side of the case...considering the original law the lawsuit was about seemed to greatly favor a company which was a campaign contributor of the California governor and which was based in California, the Canadian corporation had a pretty strong argument for protectionism. I don't think the ruling was right, but I do think the ruling was legally sound.

This does raise the interesting (and important) question of whether NAFTA has crippled the ability of Canada, the US and Mexico to make laws in their own territory. After all, if Canada decided it wanted to ban MTBE, any US corporation with interests in Canada could dispute that as well...

I just don't think it raises questions about the WTO's bias against the US. It does suggest that the WTO has a bias toward defending the monetary interests of corporations over possible danger to the citizenry, which I'd agree with.

Furthermore, in this situation, you almost want a counter-US ruling - that'd force in more regulation, which you are earlier arguing was necessary and right. However, you seem to have concluded a sentence later that the WTO'd be utterly OK with the toxic investments - an admittedly logical conclusion, but not one that seems to follow your earlier argument that they're anti-US.

So all in all, I'm really not sure what that bit was supposed to prove...
( 8 comments — Leave a comment )