So this is how it worked: Instead of greening our manufacturing base, amping up our recycling system, and competing on the basis of better production technology, we shipped our production to China, which is busy polluting itself and spewing carbon dioxide. In return, the Chinese took the hundreds of billions from sales to the U.S. and reinvested the money here, helping to make our sprawl even spawlier and our military even more wasteful.

According to an article from The New York Times, “Chinese Savings Helped Inflate American Bubble”:

In the 19th century, the United States built its railroads with capital borrowed from the British … But Americans did not use the lower-cost money afforded by Chinese investment to build a 21st-century equivalent of the railroads. Instead, the government engaged in a costly war in Iraq, and consumers used loose credit to buy sport utility vehicles and larger homes. Banks and investors, eagerly seeking higher interest rates in this easy-money environment, created risky new securities like collateralized debt obligations.

So China and the U.S. are caught in a death spiral — well, maybe that’s too strong a phrase. By undercutting our manufacturers, in the long run the Chinese are destroying the very market that they are selling to. But they are terrified of upsetting the model that is “working” in China, creating the world’s biggest middle class and decreasing pressure for democratization. Meanwhile, the Americans desperately need the savings from China in order to keep the economic system afloat, and need to import cheap goods for the formerly well-employed working class.

This would be called colonialism, or imperialism, on the part of the U.S. if the U.S. owned China: they send us their goods for very little in exchange, in effect. And like all empires, we are concentrating on destruction and consumption, not production.

The rational solution for China, which the U.S. and Chinese governments have been trying to sell to the Chinese public, is to spend some of their own money at home instead of saving so much of it, creating pressure to park the saved money somewhere — like in the U.S. However, as the article states:

Chinese save with the same zeal that, until recently, Americans spent. Shorn of the social safety net of the old Communist state, they squirrel away money to pay for hospital visits, housing, or retirement.

In other words, it seems to me, the Chinese could solve this problem by providing the population with a safety net, with a national health system, social security system, and unemployment benefits. And then they could even buy U.S. goods and services.

The rational solution for the U.S. is to create a green manufacturing base, one that will employ millions in well-paying, high-skill jobs, instead of relying on financial shenanigans and real estate. As Michael Hudson has argued, higher prices for already-existing things does not add wealth to the economy; only creating goods and services adds wealth to the economy. And in order to avoid climate change, ecosystem destruction, and resource exhaustion, an entirely new production infrastructure needs to be put in place. And then the Chinese would have someone to sell to, and they might be able to get their ecological act together.