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Just another day at the Community Pool in Penglai in Sichuan Province, China

The recent Pre-Olympics scuffles over Chinese actions in Tibet only served to obscure a much more serious problem in China’s foreign policy: their willingness to support and arm the worst dictators in Africa. Yesterday a courageous South African dock-workers union refused to unload a large shipment of Chinese guns, mortars, and shoulder-fired missiles bound for Mugabe’s Army in Zimbabwe. Before the Tibet issue came to dominate the debate, activists had managed to highlight China’s role in the repression in Darfur. The Chinese response to the hold up of the arms to Mugabe’s thugs was classic real-politik.

“China has always had a prudent and responsible attitude toward arm sales,” its Foreign Ministry told Reuters. “One of the most important principles is not to interfere in the internal affairs of other countries.”

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China has blocked all access to You Tube in order to prevent citizens from seeing images like this from Tibet.  For years the Chinese government has maintained a fantasy narrative that the Tibetans love being ruled by the Chinese. Clearly recent events have clashed with that narrative and so like all great propaganda machines, the only response is to block all evidence that contravenes your myth.

But to many Tibetans and their sympathizers, the weeklong uprising against Chinese rule in Lhasa reflects years of simmering resentment over Beijing’s interference in Buddhist religious rites, its tightened political control and the destruction of the environment across the Himalayan territory the Tibetans consider sacred. If there is a surprise, it may be that Beijing has managed to keep things stable for so long.

I teach a lot of Chinese grad students and they all believe that Internet censorship is an impossible task for the government. There are so many smart engineering students (read geeks) in Chinese Universities that just love the challenge of circumventing ‘The Great FireWall of China”.

As I’ve said before, its hard for countries still trying to practice Internet censorship to know where the next challenge will come from. China is entranced by a new scandal known as “Sexy Photo Gate”and the desire of average citizens to see whats going on are driving the censors crazy. It all started when Chinese Hip Hop Star Edison Chen dropped his pink Mac Book off for repairs. Next thing Eddie knew, hundreds of pictures of him in compromising positions with many young Chinese Starlets were floating around the Internet.

In this part of the world, Sexy Photo Gate is much more than your average Paris Hilton affair. In mainland China, which tightly monitors Internet content through a series of blocks often called the “Great Firewall,” the rapid spread of the images challenges the effectiveness of government controls. In Hong Kong, aggressive moves by police, which have arrested nine people involved in distributing the photos, has made the scandal an unusual rallying point for protecting civil liberties.

In Tom Stoppard’s wonderful play Rock and Roll, the Velvet Revolution in Prague in 1984 is stalled as the state clamps down on political speech. And then a band called The Plastic People start performing music with political content. And of course the censors try to ban them. And then the kids get mad and politicized and accomplish what Havel and the intellectuals had been unable to get them to do. Whatever it takes to get the kids into the streets asking for Internet freedom is fine with me.

Let me see if I understand this. The U.S. Treasury is going to borrow $150 Billion from the Chinese and other T-Bill buyers and mail checks for that total amount to anyone earning less than $75,000 a year. But because the IRS is too busy dealing with tax returns, the earliest the money could arrive in your mailbox is June. At that point consumers are going to do one of two things with the $600 check. Either use it to pay down their maxed out credit card or go out and spend it on some cheap Chinese manufactured goods at WalMart.

Assuming that Roubini and other smart economists are right, by June unemployment will be one of the biggest problems facing the nation. But in this plan, not a single American job will have been created, though some Chinese jobs will probably have been saved. You will say: What about those WalMart clerks jobs? I will say: WalMart did not get to be the low price leader by expanding employment in a downturn.

Imagine on the other hand if the government said it was creating immediately an Alternative Energy Investment Fund that would be sent to the states in the form of per capita Block Grants (i.e. California got more money than Rhode Island) that would need to be matched by local public/private partnerships to create businesses around alternative energy creation. Then we would have created $300 billion in job creating businesses that would have had a real effect long after the $600 checks have been sent to China.

This morning in Beirut, a U.S. Embassy Bullet Proof transport was blown up. In Kabul, the main hotel where Americans stay, was the target of “a commando style Suicide raid”. The NPR Reporter asked a local Beirut journalist–”Who might be responsible for the bombing of the American’s?”, the reply was “I don’t know, the Americans have so many enemies.” These young men willing to blow themselves up are responding to what has been called “the Crusade Narrative”–That America is out to control and ultimately crush Islam. The rationale elites in Beirut or Afghanistan may not believe the crusader narrative, but the alienated kid on the street does.

I told you I would try to make an argument for why we need to make a revolutionary change from the militarization of foreign policy. The first part of that argument rests on a game theory called The Free Rider Problem. The simplest definition of the free rider problem is the jerk who slips out from the restaurant before the dinner check is paid. Today, because the U.S. in the last 27 years has been willing to “pick up the check” in our role of “World Cop”, our main commercial rivals (Japan, China, Korea, India, Europe, Brazil, Mexico and Canada) are free-riders under the world defense umbrella the U.S. provides them. All this to the tune of a bit less than $1 trillion per year from U.S. taxpayers. These rivals are unburdened with the costs of keeping a huge Navy and Air Force presence in the Gulf, let alone fighting full wars in Iraq and Afghanistan. They are spending some of their wealth building state of the art digital infrastructures (we are 16th in the world in Broadband diffusion). What they don’t spend on infrastructure, they loan to us at competitive rates with gilt edged security (T-Bills), to pay for our wars. So what does this budgetary distortion do to how we spend our money as a country? Check out this budget chart:

A you can see, the military takes up so much of the discretionary budget, that all public services are reduced to small slices in comparison. So while we pay K-12 teachers at about 1.3 X the average income ($36,000/ year), the South Koreans pay the equivalent teacher 2.5X the average Korean income. And then we wonder why our 12th graders are ranked 27th in the world in math and science competency.

The Republicans pretend their are no trade-offs. The Irony of the twin poles of the Neoconservative philosophy first elucidated by Irving Kristol in The Public Interest in 1965, is that still today the fiscal insanity of the task is not generally realized. Here’s the Gospel according to Irving:

 In domestic affairs the national government should shrink (by cutting taxes and business regulations) 

In foreign affairs the government should grow (by becoming the world’s sole military superpower).

If insanity has been defined as the ability to hold two opposing ideas in your mind simultaneously, than this must be exhibit A. The idea that you could radically cut taxes on the wealthy while building a giant military machine is still lost to all of the Republican candidates for President (with the obvious exception of Ron Paul).

So far in this argument, I just want you to accept that at a minimum there is a reason we are called “Uncle Sucker” in some parts of the world. As I explained in yesterday’s post ,

Oil is just a fungible commodity represented by the digital marks on the computer screens of oil traders around the globe. The Chinese and Japanese, who have no investment in the Iraq Occupation that will cost America $2 trillion, buy that oil from those same traders at the same price Exxon Mobil pays. The notion that we need to hold territory to get access to oil, seems a peculiar throwback to Imperialism, in a digital age of free market oil trading.

Tomorrow I will try to sketch out why a new age of “Trading Powers” like Japan,China, and India with large diaspora populations and large net trading and current account surpluses with the U.S., could make the next era of global economic competition extremely painful for us.