Can China buy America with our own debt?
Late-night comics and the Right Wing say yes – Jay Leno joking “at a recent conference Native Americans were confused. They once owned America, they thought we owned it now, and were surprised to hear the Chinese own it.” A recurring skit on Saturday Night Live shows Obama kowtowing to the Chinese Prime Minister, our nation reduced to beggar status by our massive obligations.
This economist started down the road to answer the question with facts, but ran into problems with the question. As the philosopher Alfred North Whitehead commented, “the existence of questions does not imply the existence of answers.”
The first assumption is that countries are bought and sold. The answer is easy, they are not.
Next we would ask “can a nation’s value be calculated in numbers?”
When I think of the word “nation” I think of the words “one nation (under God was added by Ike in the 1950’s) indivisible with liberty and justice for all.” America is more than financial statistics; it is our collective hope and dreams. Neither the Chinese, or anyone else can buy these American emotions. We created this nation with a Declaration of Independence, the establishment of a Constitution, suffered a trial by fire in the Civil War, and have defended the country in war and in peace.
So the real question is “does US foreign debt threaten our sovereignty, lead to loss of independence, and potentially allow our country to fall into the hands of outside forces?Let’s look at the numbers. The Chinese government holds about $1.155 trillion of the total $ 5.45 trillion US debt held abroad – or 21% – as of 2012. The Japanese are a close second with$1.132 trillion.
Looking at China’s holdings of US Government debt in context, it is utter nonsense that China alone or China and Japan together could possibly buy all of Americas’ productive assets. America’s real assets (factories, machinery, and property) are worth $53 trillion when used to produce our annual gross domestic product of $16 trillion. At this time foreigners own $2.5 trillion of the $53 trillion. Our most productive asset in the United States is our labor force. It is clearly not for sale, and foreigners do not own any Americans. The 155 million American workers are worth $214 trillion, valued as human capital assets. They obviously could not be bought for the measly price of $1.155 trillion by the Chinese. Slave labor is long gone. The NY Times reports from BLS data that “foreign-owned companies in the United States have a work force of more than 5.3 million, or some 3.5 percent of all workers, and are spread across the 50 states in sectors from manufacturing to retail and publishing. If these jobs did not exist, the nation’s unemployment rate would be above 13 percent.
As an economist I would be happy to have the Chinese to invest in our country, and add to the $25.2 trillion of foreign direct investment in the US earning $523.1 billion and employing 5.3 million US workers. By comparison the US owns $21.2 trillion of assets abroad, earning $787.1 billion in 2011. This clearly shows the United States wins the foreign investment game, earning more abroad on a smaller investment base than the rest of the world does in our country.
The right wing will continue to engage in a disinformation campaign built on fear of foreigners and the loaded words – “debt” and “trillions”, which tends to drowned out any factual discussion. In the public mind the words small and trillion cannot be used in the same sentence when government debt is the question. The right wing only has to say the words ”China” and “we owe trillions”, to keep facts from being considered. Economists will never compete as entertainers or pundits, but the public should carefully analyze questions and keep the discussion about debt in any form based in reality, a place where the right wing faces its most difficult challenge. The idea that China or any other country can “buy America” is just factually false. The problem is that the question is a red herring used tactically by the right wing to undermine the credibility of government in its pursuit of “small” government. As Paul Harvey would say “and now for the rest of the story.” This is the subject of my next The Bizzy Life contribution.