The Onion's satire captured in caricature form the most important engine pulling up living standards across the planet for the last three decades—the intimate relationship between American consumers and Chinese savers and producers. At its core, the China-America growth engine worked like this: We in America built more and more stores, to sell more and more stuff, made in more and more Chinese factories, powered by more and more coal, and all those sales produced more dollars, which China used to buy more and more U.S. Treasury Bills, which allowed the Federal Reserve to extend more and more easy credit to more and more banks, consumers, and businesses so that more and more Americans could purchase more and more homes, and all those sales drove home prices higher and higher, which made more and more Americans feel like they had more and more money to buy more and more stuff made in more and more Chinese factories powered by more and more coal, which earned China more and more dollars to buy more and more T-bills to be recirculated back to America to create more and more credit so more and more people could build more and more stores and buy more and more homes . . .
This relationship, so critical in inflating the post–Cold War credit bubble, was so intimate that when Americans suddenly stopped buying and building in the fall of 2008, thousands of Chinese factories went dark and whole Chinese villages found themselves unemployed. Consider the Chinese artist colony Dafen, north of Hong Kong. Dafen's roughly nine thousand art academy graduates have made the colony the world's center for mass-produced artwork and knockoffs of masterpieces—the oil paintings that hang in motel rooms and starter homes across America. Some 60 percent of the world's cheap oil paintings are produced within Dafen's four square kilometers. "A reasonably skillful copy of Van Gogh's 'Sunflowers' sells for $51," Spiegel Online reported (August 23, 2006). "Buy 100 and the price goes down to $33 . . . The 100 paintings, guaranteed to have been produced by art academy graduates, ship within three weeks." Not surprisingly, Dafen was devastated by the bursting of the U.S. credit bubble. "American property owners and hotels were usually the biggest consumers of Dafen's works," Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong's Sunday Morning Post (December 14, 2008). "The more houses built in the United States, the more walls that needed our paintings." And we in America sure did create a lot of new walls for a lot of Chinese watercolors. Overconsuming, overbuilding, overborrowing, and overlending all became the new normal during our post–Cold War credit bubble.
One of my favorite examples comes from my own hometown of Minneapolis. I was visiting there in the spring of 2009 and talking about the problem of runaway consumption with my childhood friend Ken Greer when he said to me, "There is something I have to show you." We drove out to a small strip mall off Shady Oak Road and the Crosstown Highway. "OK, look at this," Ken said as we turned in to the entrance. This "something" was hard to miss. On both sides of the entrance were Caribou Coffee shops, the Minnesota version of Starbucks.