The Priest Shouts: "Religion be Damned! This is a Serious Business!"

When a free-market economist like Paul Krugman advises the US to block the Chinese bid to buy UNOCAL, you should freak out.

Krugman points out that China, with its newfound wealth and US Bond IOUs, is now buying American companies. However, unlike its predecessor in the area (Japan), it's not buying companies at inflated rates, and targeted for prestige purposes (MGM, Rockefeller Center) -- that is, it's not making dumb investments. It's shrewdly buying companies to forward its manufacturing and global geopolitical position (Maytag; and an Oil company).

Also, it's worth noting that when Japan bought, it was actually Japanese private citizens. Here, the companies doing the buying are owned by the Chinese government. It's the Chinese government which will own the now American companies.

So, what we're seeing here is, the Chinese government is using the US Debt to buy US Companies, to forward their manufacturing and geopolitical position. This is actually unprecedented in history. No single entity -- and certainly, no government -- has ever entered the marketplace with the singular political will and growing economic influence that China has, and will have, for the next decades.

Krugman makes a purely political, non-economically motivated recommendation: block the sale of UNOCAL. Clearly, he feels that selling our historical dominance of energy-resource companies to China will place us at such a heavy political disadvantage, that politics is the more important consideration than free-market economics.

And that should freak you out. It's a bit like a priest suddenly shouting "Religion be damned! This is a serious business, no place for religion!"

What Krugman is saying is happening is exactly what anyone who can add sees as becoming the dominant world political trend: China, with a billion people, a rising economy and single-party dictatorship which owns all major Chinese companies, is rising, and its political and economic interests are beginning to brush up against those of the United States. As China's economy continues to grow exponentially, the brushes will grow, too.

The major question for the US is: will we permit what is, in effect, growing influence on the world economy by the Chinese government, or will we require the Chinese government to divest itself of companies which wish to grow by acquiring US assets -- in effect, privatising the Chinese economy. Expect the Chinese government to say "we don't have to privatise", so that it retains control of these assets -- and political control of its citizens, while effecting a larger international political control through its new acquisitions, rivalling that of the US economy (itself entirely private); and the US government to say, "If you don't privitise your companies, then we would be permitting the Chinese government to take control of the world economy, and we cannot permit a single government to control the world economy." This will play out first in the World Trade Organization, and then, when the Chinese government refuses to divest -- which they will -- it will play out in fora with many fewer ground rules for behavior than the WTO has.

Religion be damned, this is a serious business.