SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, America’s locked in a deadly economic battle with China, a great 21st century war between two “one-party superpowers.” And our “free-market capitalist” party is losing to China’s “neo-capitalism.”

Yes, the communist party has invented its own hybrid “state-capitalism.” Now China’s winning, because Chinese rulers learned a crucial lesson: “one-party” authoritarianism doesn’t work.

A laborer holds a shovel as he looks on at a construction site in Beijing's central business district. Reuters

But American politicians still don’t get it. Instead, going the opposite direction, in a brutal war for “one-party” control, as conservatives fight for total control of the government and a rebirth of the extreme free-market capitalism of Ayn Rand and her disciple Paul Ryan.

But it didn’t work last decade. Won’t work this time. Worse, it will trigger a new crash, bigger than the 2008 Wall Street meltdown. But what a bizarre contradiction: American drifting toward “one-party” authoritarian rule. While China is borrowing the best of our capitalism and roaring ahead to recapture its ancient role as the world’s superpower.

Yes, China is winning the 21st century economic war. In a few years China’s GDP will overtake America’s GDP and continue racing ahead of America for a generation.

Here’s the warning: A couple years ago the headline of a Foreign Policy feature by Nobel economist Robert W. Fogel, a renown China scholar, made clear what’s ahead: “$123,000,000,000,000: Why China’s Economy Will Grow to $123 Trillion by 2040.”

By 2040, China’s GDP at 40% of world, as USA’s GDP shrinks to 14%

China’s emerging economic superpower status is a direct result of China’s new hybrid political economy where the old “one-party” communist rule has been stealing the best of capitalism, mixing it with government planning and investment policies and racing to win the prize as global superpower. Listen to Fogle’s disturbing forecast in Foreign Policy:

“In 2040, the Chinese economy will reach $123 trillion, or nearly three times the economic output of the entire globe in 2000. China’s per capita income will hit $85,000, more than double the forecast for the European Union, and also much higher than that of India and Japan. In other words, the average Chinese megacity dweller will be living twice as well as the average Frenchman when China goes from a poor country in 2000 to a super-rich country in 2040. Although it will not have overtaken the United States in per capita wealth, according to my forecasts China’s share of global GDP — 40% — will dwarf that of the United States (14%) and the European Union (5%) 30 years from now. This is what economic hegemony will look like by 2040.”

So China’s on a roll. Meanwhile, over in America, we’ve become our own worst enemy in this economic war with China, essentially handing them the lead, handicapping ourselves by going deeper and deeper in debt — to China no less.

We’re surrendering our middle class tax dollars to China who turns around and invests those massive reserve dollars as cash and collateral to buy, build and own companies, agriculture lands, energy and mining reserves, and commodity assets all across the planet, while America’s political infighting saps our strength, handicapping us in this war with China.

China is wins while myopic narcissists handicap America

Bloomberg BusinessWeek’s recent feature “The Fiscal Cliff We All Saw Coming” is a perfect example of why America is now its own worse enemy, handicapping ourselves, helping China roar ahead on the way to a 40% to 14% global GDP superpower victory by 2040.

Admit it, we’re throwing the game. BW’s Brendan Greeley aptly characterizes America’s incredible ineptitude in this battle between our free-market “fiction” and China’s aggressive hybrid neo-capitalism that’s beating us in global markets. Listen:

“Now, more than a decade’s worth of tax cuts are set to come due in six months, each dreamed up and extended under the fiction that it would be temporary. In 2011 they contributed $1.1 trillion to the debt. In total, since 2001, the CBO calculates that tax cuts have put the Treasury $6.1 trillion in the red. This is what Washington now calls a crisis: completely predictable arithmetic, compounded over a decade by a consistent refusal to acknowledge reality. The fiscal cliff has been clearly visible in the distance for years. The reason we’re talking about it now is that, right on schedule, it’s finally become too big to ignore. The bottom line: The fiscal crisis shouldn’t come as a surprise: The Bush tax cuts had an expiration date because Congress knew they’d lead to big deficits.”

Wake up America: Do you see the denial, the lies, the delusions, the hypocrisy imbedded in our fictional “free market” capitalism? It’s killing America. Everyone in Washington knew in advance the tax-cuts-for-the-rich would add $6.1 trillion in debt, handicapping us.

Worse, the ship’s sinking and the clowns running our government want to make those temporary cuts permanent? That’s suicidal self-destruction. Yes, we are our own worst enemy. And like drug addicts loving the highs — tax cuts, debt, power — we can’t stop.

Two “one-party” nations: China adding capitalism, USA monopolistic

Let’s repeat for emphasis: China’s winning its economic race against America by moving away from a “one party” totally-planned communist economy. Today they’re mixing in the best of Adam Smith’s 1776 pure brand of capitalism. They’ve discovered that capitalism makes them richer, both individually and as a nation.

Yes, the Chinese are loving our capitalism.

Meanwhile, on this side of the planet, America is subtly rejecting Adam Smith’s pure capitalism in favor of what Vanguard’s founder, Jack Bogle calls “mutant capitalism.”

That’s right: America’s power elite is turning away from capitalism, obsessed with becoming a “one-party” nation with monopoly power controlled by a Super-Rich elite that is guided by the extreme, rigid dogma of capitalism’s high priestess Ayn Rand, whose principles are now imbedded in the Ryan Budget.

Two superpowers going in opposite directions: China absorbing the best of capitalism, while American conservatives are sabotaging democracy and free-market capitalism in favor of a monopolistic “one-party” nation favoring a Super-Rich anarchy.

USA’s suicidal infighting surrendering 21st century to China

That pretty much describes America’s new zeitgeist: An elite bloc of Super-Rich conservatives is spending over a billion dollars to achieve “one-party rule:” Their goal, absolute power over America, the presidency, Senate and House, and ultimate control over the Fed’s money machine, Supreme Court, taxing powers and appointments in all regulatory agencies ... that’s the goal, a new “one-party” America.

Fortunately for the Chinese, over the past few generations they’ve learned that “one party” absolute rule doesn’t work. And in the last decade, Americans also discovered it doesn’t work here. But we forgot. And unfortunately, both political parties are guilty of creating this mess over the past generation.

Worse, no matter who’s elected president, nothing will change. Why? The internecine political drama will intensify no matter how much our self-destructive infighting damages our economy. The quest for absolute political power distorts the brain.

But in the process, we’re surrendering the 2040 victory to China with our rigid dogma about no-compromise, no-new-taxes, permanent tax cuts for the rich, more defense spending.

Fortunately, Stiglitz sees some hope, a new America Revolution?

Yes, there is hope, though not soon enough. Our brutal elections and fiscal cliff battles will push us into more of the same well into the next presidential term. We really are our own worse enemy, so America’s economy may have to get much worse before our arrogant Super Rich and their bought politicians and lobbyists are shocked awake.

We saw that ray of hope in Jared Bernstein’s recent Rolling Stone interview of Nobel economist Joseph Stiglitz and his new book, “Price of Inequality: How Today’s Divided Society Endangers Our Future”:

Stiglitz warns, “let me put it very forcefully: No large economy has ever recovered from an economic downturn through austerity. It’s not going to happen in the United States and it’s not going to happen in Europe.” Someday the Super Rich are going to wake up to the “realization that unless the country does well together, even the 1% won’t do well.”

Yes, he sees hope in, of all places, capitalist self-interest, a tipping point, sudden epiphany:

“When you have a highly divided society, it’s hard to come together to make investments in the common good,” so “one of two things, or both, can happen: One, the 1 percent will realize that the direction we’re going is not even in their own self interest, and, two, the 99 percent realize that they’ve been sold a bill of goods.”

And trigger a revolution? Maybe. Stiglitz warns that America has “reached a level of inequality that is really intolerable and we are all paying that price.” But until a sudden global shock and a great awakening, America will just keep surrendering the future to China.