By Matt Stoller, the former Senior Policy Advisor for Rep. Alan Grayson. His Twitter feed is @matthewstoller
The Federal Open Market Committee releases its transcripts on a five year time lag. Last week, we learned what they were saying in 2005. Dylan Ratigan blogged an interesting catch: Dallas Fed President Richard Fisher expressed his frustration about Chinese imports. Not, of course, that there were too many imports, but that our ports weren’t big enough to allow all the outsourcing American CEOs wanted.
Fisher is just the latest Fed official to applaud this trend. Here’s the backstory. In the 1970s, there was a lot of inflation. The oligarchs of the time didn’t like this, because it made their portfolios worth less money. So they decided they would clamp down on inflation by no longer allowing wage increases. To get the goods they needed without a high wage work force, they would ship in everything they needed from East Asia and Mexico. The strategy worked. Inflation collapsed. Wages stopped going up. There were no more strikes. Unemployment jumped.
There were all sorts of excuses for why this was a good idea – we would do the ‘high value add’ work in America, like research and development, while the ‘low quality work’ like manufacturing went abroad. And everyone would benefit – sure you wouldn’t get a raise, but you’d get low prices at Walmart (Walmart shows up all the time in FOMC meeting transcripts). But basically this was a way of ensuring that banks and creditors could make a lot of money that would instead go to workers. It was known as ‘the great moderation’, a term coined by Bernanke, and was considered a great success.
As late as 2005, Richard Fisher was celebrating this trend. In that same meeting where he complained about too few Chinese goods coming into the US, he bragged about the weakness of one of the most significant employers in the United States: “My most delicious irony is the fact that similarly dated Vietnamese debt now trades on a price basis richer, and on a yield basis lower, than that of Ford Motor Company. [Laughter]”
The Fed’s strategy is not without cost to the elites, and the bill will come due. The problem is that if you want to consume stuff from abroad, someone has to make it. And if it’s not going to be American workers, it’s going to be foreigners. But whoever it is, they wind up taking dollars when they sell it to the US. So pretty soon, these foreigners had a lot of dollars that they got in return for all the crap we were buying at Walmart and our rich were buying to fuel their private jets. For instance, China is believed to hold about 60% of its foreign exchange reserves, or well over a trillion dollars, in US currency (and oil producers have even more). There aren’t very many places you can put a trillion dollars, so rather than keep it in cash, China simply lent that money back to us. And that enormous flow of money recycled back into the US (through the big banks) helped create our massive debt pile-up. This process is known in econo-speak as ‘recycling global trade imbalances.’
As Jane D’Arista and Korkut Erturk, point out in a penetrating analysis of the financial crisis, this had a lot to do with causing financial instability. To fill our Walmarts and private jets with stuff, we had to borrow money from the Chinese and Arabs to buy it from the Chinese and Arabs. As D’Arista and Erturk said, “US households came to absorb an ever larger part of these global surpluses over time and thus became the epicentre of debt build up.“ And household debt, in this case mortgage and credit card debt, is the least productive kind of debt. It’s not as if the US was borrowing to invest in its future; the US was borrowing to create an illusion of prosperity while it was actually hollowing out of its economy.
Hot pools of money flowing around the globe are a pervasive source of global instability. It’s something Keynes thought hard about this problem and sought to fix it after WWII, though we ended up not with his intended stable regime for managing trade imbalances but a crippled and narrow IMF and a creaky system of public recycling of these flows. Since American economic dominance was so profound after the war, the weaknesses of this system were masked until the early 1960s. As the instability became more and more obvious, the American financial elite began pushing for deregulation to compensate for the loss of American economic strength. They could profit from the boom times, and get bailouts during the bad.
Since the 1970s, the bailouts have become progressively larger; the Latin-American debt crisis made the money center banks insolvent, the S&L crisis was massive, and of course, the 2007-2009 crisis crashed us into a depression. This deregulation is how elites reacted to an increasingly imbalanced set of trade flows, which were themselves caused by declining American competitiveness. They crushed unions, and the public mechanisms for intermediating financial flows gradually were privatized into large private TBTF institutions. Citigroup’s payment system is now simply an essential piece of infrastructure for global commerce, and the bank itself has $500B of foreign deposits that sit in the bank in a constructive zone of ambiguity as to who insures them.
This instability is leading to declining standards of living around the world, which is resulting in civil unrest in Europe, increasingly nationalistic rhetoric, global lawlessness in the form of cyber-attacks and piracy, and military build-ups. The big banks that intermediate these flows like this situation. So does China, whose mercantilist policies are allowing the acquisition of a massive industrial base. And the oil producers do as well, because of the wealth and power they acquire through a global dependence on their resource.
The only way out of this box is to establish a new international order of trade, which both handles balance of payments problems effectively, ends the arbitrage of labor, and directs resources into common global problems like pollution, energy deficits, pandemics, and extreme poverty. This means, though, that the big banks simply must become less important. Trading flows have to be managed by trusted public entities, new business sectors that drive value from innovation must supplant the exist outsource predatory model, and workers must find representation in some sort of forum to allow them some economic power.
83 comments
Comments are closed.
The financial crisis seems to be evolving into a currency war. The structural imbalances mainly between China and the US are being played out in their currencies. Both are heavily manipulating them. Both want to keep their currency low relative to the other to help exports but people that own these currencies (ie have bank accounts) don’t want to see them devalued too strongly as this damages their buying power (ie is inflationary). QE2 is the US manipulation by printing dollars to bail out the toxic assets related mostly to the housing bubble. The US doesn’t want to do the structural reform of a heavy overhaul of the current banking system and overvalued stock market. The banking system is still allowed to make casino-like bets on such things as precious metal futures and QE2 money is also used to buoy the stock market.
China is very irritated by all this QE2 as it lowers the value of their dollar reserves. But they got themselves into this problem by buying all those dollars to take them out of the system and thus increase their value relative to the yuan. They don’t want to do the structural reform of increasing domestic demand by increasing wages which would be damaging to their export driven economy.
Both countries are basically trying to protect their economies and their employment levels. This will necessarily hurt all other countries that aren’t able to match these levels of manipulation. Also manipulation is not a good way to run a global economy. Adult supervision such as Stiglitz’s plan for a global currency is probably needed here.
———-
http://www.marketoracle.co.uk/Article23074.html
Deep Economic and Debt Frictions Triggering Competing Currency Wars
http://www.ft.com/cms/s/0/9fa5bd4a-cb2e-11df-95c0-00144feab49a.html
Currencies clash in new age of beggar-my-neighbor
“The only way out of this box is to establish a new international order of trade, which both handles balance of payments problems effectively, ends the arbitrage of labor, and directs resources into common global problems like pollution, energy deficits, pandemics, and extreme poverty. This means, though, that the big banks simply must become less important. Trading flows have to be managed by trusted public entities, new business sectors that drive value from innovation must supplant the exist outsource predatory model, and workers must find representation in some sort of forum to allow them some economic power.”
And there’s the rub: “trusted public entities” do not exist. so, dream on. In spite of all the trust that has been squandered.
Exactly. Stoller’s objective of ‘handling balance of payments problems’ was managed fairly effectively by the gold standard during 1871-1914, and again during Bretton Woods I (1946-1971). But piling on multiple objectives such as ‘ending labor arbitrage’ is just as problematical as the Fed’s dual mandate.
It ends up sounding like global managed trade, administered by central planners who (like today) would end up doing the bidding of multinational giants at the expense of small businesses and consumers.
Hello, black market! As the vast international trade in illegal drugs indicates, smugglers will run rings around a managed trade regime, with the heightened incentives it would provide for blockade busters.
Yeah. Whats a perpetual deflationary environment and the penury of the lower classes! Bring on the gold standard!
new business sectors that drive value from innovation
maybe you mean ‘derive value’ from innovation.
China will sell us the rope to hang capitalism.
I’m sorry, I’m not buying this BS. Sure the American Industrial elite sold the American worker down the river, but that no excuse for the New World Order to establish Global “international order of trade”.
The problem is CDO’s and CDS”s sold by the Bankster Con men that pollute the financial holdings of Banks, Municipalities, Pension funds and investment portfolios globally.
Sometimes, when I get particularly paranoid, I feel that we are being set up for the NWO. I mean what better way for the elites to set up their World Government than to make things so bad that the people actually ask for it simply because it is the only option offered.
It’s not too late to dismantle TBTF and their toxic creations and there is no need for a global government to do it.
Let’s remember something, china and the Arab world did not force American banks to borrow from them, nor did they force American banks to loan money in an irresponsible manner to the American consummers. It was American banks who dropped their lending standards, and who came up with lending promotions to entice the American consummers to go into debt to buy more stuff. The responsibility for this mess lies with both the American consummers and the banks, not with China or the Arab world. Mind you, since banks have hundreds of years of experience in lending, and are full of all the ‘talented’ personnel who should know the business of banking, a heavier portion of the blame lies on the banks, for loaning money to people who, based on their employment income, could never hope to pay them back.
I’m sorry, I’m not buying this BS. Sure the American Industrial elite sold the American worker down the river, but that no excuse for the New World Order to establish Global “international order of trade”.
Trading systems exist. They are either chaotic and lead to wars, or they are peaceful and well-managed. I guess you could wish away the rest of the world, and there are also plenty of blogs where you can discuss your favorite unicorn colors.
Speaking of unicorns, a policy recommendation that depends on “trusted public entities,” and yet gives no indication where such entities are to be found, or how they are to be created, is mighty close to being in unicorn territory itself.
It isn’t impossible to create democratic structures that have public trust, it’s been done before. I don’t necessarily have a plan to do it, but that doesn’t mean it can’t be done. As for making policy recommendations without a strategy for implementation, you do that as well (see your comment below about turning banking into a utility).
At this point, we’re so far from a coherent idea of what to do about the international trading system that it makes sense to grok the possibilities. The most likely opportunity for serious change is after another financial crash that is even worse than the 2007-2009 crisis.
Regardless, the diagnoses about China seemed off-base to me, so I wanted to frame the problem a little differently.
Stoller responds:
I agree.
Well, I don’t know whether to view the implied parity (“you do that as well”) here with hope or despair.
If there’s really no difference between the set of implementation proposals to recreate “trusted public entities” that are available to a tiny, no-access, and unfunded blogger from a marginal state, and those that available to a well-known D staffer, that’s certainly an interesting data point. Apparently, nobody in Versailles is thinking about that issue at all, then. Yes?
While i agree with the thrust of your article, I have to agree with the critics of – trusted public authorities. It’s sad but we’re now in the history rhyming place of Germany 1938 in its peculiar American reincarnation. The people of Germany trusted the government mostly invented by Bismarck – unemployment insurance – universal health insurance – etc. The Americans trusted the government style brought to America by FDR. Social Security did help end the poverty of old age in the US. But the military industrial complex has entrenched itself – the banksters have reinstated their old place after their failure in the 30’s. Globalization using computers, electronic communications, jet planes, and air conditioning has broken the Unions (not that the Cold War rhetoric didn’t blind them to their own interests and now they are toast. The rise in gas prices in the 70s did in most progressive third world countries ideas but led to stagflation in the developed countries because Unions could create wage price inflation. Now they can’t – the people behind Reagan saw to that. The Corporations and the elites have won the latest round. The supreme court has made it legal to buy the politicians (which of course was already going on but… Men and women in positions of power just don’t seem to care for the common good. Elizabeth Warren stands out but how much power does she really have? Can you even imagine a bill like the Clean Air Act or the Clean Water Act being passed by Congress these days? No, we had private meetings with Cheney so that the frackers don’t have to comply with the existing laws. And Obama for the Democrats seems more more like the the mole or compromised man Tony Blair was for English Labour. It is more and more – What to do? What to do? except keep oneself and loved ones together so as to be in a position to pick up the pieces when this hideous system collapses. Discerning what to keep – what worked.
Sadly, it would seem that the only way to establish trust in democratic systems would leave us with a tremendous shortage of short necked politicians and a real gap in recruitment of new ones..
There have always been some good people in government. They are usually hamstrung by party machinery. Few people are so public minded that they will risk exposing themselves to political warfare. Of those few only a small number are tough enough and smart enough to get elected. The political party was possibly the worst thing ever invented.
Matt, I think there has always been too much emphasis on “stability” in the markets. Managed markets, or Goldilock’s economies, cause more problems than they solve. A “managed market” is just as manipulated as anything Goldman could dream up, with two added costs. Firstly, Goldman knows which direction the management will take the market beforehand (and act accordingly), secondly the management scheme will stifle innovation, and also prevent the market from clearing itself.
Yes, I’m sure concentrating all global power in a new world order run by “trusted public entities” will make everything better. For the apparatchiks, technocrats, and authoritarians.
Or we could stop whining, realize that a people in other countries might also desire jobs and that the cheapest bid probably deserves it, and learn to live with a global flattening of wages and, yes, even living standards. It’s going to happen eventually, let’s try not and start wars over it.
Dojostar you wrote:
‘Or we could stop whining, realize that a people in other countries might also desire jobs and that the cheapest bid probably deserves it, and learn to live with a global flattening of wages and, yes, even living standards. It’s going to happen eventually, let’s try not and start wars over it.’
Dojistar… You should lead by example. When you are willing to work for $0.85/hr, 7 days a week, 12 hours a day, and are still willing to preach the merits of letting work go to the cheapest bidder who also completely neglects the environment, then your thoughts might have some
credibilty. But if you feel that this would be a ‘unpleasant’ experience’ for yourself, then do not wish it upon others.
Ming, as my rapidly declining living standards prove, I am leading by example. I am (globally) worth a little more than a factory laborer (for now may not last), but I live no better than competitors domiciled elsewhere (actually, probably much worse). In my profession, people have had to compete globally since around the invention of the telegraph, perhaps even since trans-ocean sailing ships. This perhaps excuses my lack of sympathy.
The problem with protectionism is that it’s saying “it’s ok to steal money from other people in my country (via taxes, trade barriers, etc.) because someone elsewhere in the world works cheaper than I want to.” Really, why? It’s intensely jingoist. Why is someone else in your own country somehow more deserving of a higher wage than someone in another country? I’ve never heard a decent moral defense of nationalism.
And as for environmental arbitrage, why should developed nations alone get to unilaterally dictate global environmental standards? Their military might? The way they ran the globe so well during the imperialist colonial era? Maybe people elsewhere value economic growth a little more than North Americans or Western Europeans. I think they deserve that option.
I think it’s finally time for me to unsubscribe from this blog after a couple of years. I’ve never commented, but I’ve been a faithful reader. The economic content is often good… But the whole anti-globalization/anti-business/anti-free market meme has gotten to be too high a percentage of the content. This article was about the nadir.
I think you are looking at only one side of the coin.
As a nation gains industries as China is doing (and as the US elites allowed), the logical consequence should be the strengthening the exporting nations currency and the increase in wages for people in those countries.
If neither of the above happen, its only the rich elite who get to keep all the gains while making/keeping labor in both nations poor. A possible way for this to happen is via government intervention and policies which FORCE people to work cheap by exploiting their helplessness against tyranny (or their circumstances).
Is this what you want?
Unregulated Free trade is all well and good “theoretically”…but for whom??
Attempts to “regulate” trade always seem to reinforce the authority of existing elites. This seems to happen in several ways:
1. Free-trade agreements strengthen Wall Street and further damage our manufacturing and high-tech sectors. The agreement is often as follows: Country X allows Wall Street unfettered access to its financial sector and, in exchange, Country X can import more manufactured and/or agricultural goods without tariffs or other barriers, receive “technology transfers,” receive increased country-specific visas to help country X-based outsourcing companies and immigrants, and/or receive “regulatory relief” exempting the company from regulations affecting US-made products. As Wikileaks showed, the US will also use domestic laws against its own companies and citizens in exchange for diplomatic or other concessions. The result: Wall Street gains, Main street loses.
2. Decision making processes are shifted to an accountable, non-public NAFTA, WTO, or other tribunal that can render the decision the elites want, overriding federal state, and local laws. NAFTA tribunals, for example, punished Mexico for stopping an unpopular toxic waste dump and barred Canada from banning a gasoline additive that Canada believes causes brain damage.
http://en.wikipedia.org/wiki/Nafta#Canadian_disputes
http://www.clm.com/pubs/pub-990359_1.html
Should be:
1. Free-trade agreements strengthen Wall Street and further damage our manufacturing and high-tech sectors. The agreement is often as follows: Country X allows Wall Street unfettered access to its financial sector and, in exchange, Country X can EXPORT TO THE US more manufactured and/or agricultural goods without tariffs or other barriers, receive “technology transfers,” receive increased country-specific visas to help country X-based outsourcing companies and immigrants, and/or receive “regulatory relief” exempting the company from regulations affecting US-made products. As Wikileaks showed, the US will also aggressively enforce domestic laws against its own companies and citizens in exchange for diplomatic or other concessions abroad. The result: Wall Street gains, Main street loses.
Should be:
Decision making processes are shifted to an unaccountable, non-public NAFTA, WTO, or other tribunal that can render the decision the elites want, overriding federal state, and local laws. NAFTA tribunals, for example, punished Mexico for stopping an unpopular toxic waste dump and barred Canada from banning a gasoline additive that Canada believes causes brain damage.
http://en.wikipedia.org/wiki/Nafta#Canadian_disputes
http://www.clm.com/pubs/pub-990359_1.html
—
I feel that we are being set up for the NWO
—
The NWO is here in the guise of multinational corporations.
But since they finance the WSJ, Fox News, etc., the revolution was not televised.
“The Fed’s strategy is not without cost to the elites, and the bill will come due.”
Really? When will this happen and in what form? “Flattening” of THEIR living standards down to being millionaires while the rest of us fight over scraps?
I would love to believe this is true, but haven’t seen any evidence that the elites have EVER paid any price for their bills. Not since 1789.
Many of them disliked the 1930s, and they don’t tend to like pandemics or global wars.
Reading between the lines, then, your argument is that the “trusted public entities” will be established by the sort of elite that would prefer to avoid global pandemics and another round of global words. Do you have any evidence that this is happening? An example of a funded initiative would be helpful, so readers would have some idea of what a “trusted public entity” means to you.
No, that’s not what I’m saying. It’s what you say I’m saying.
Then decrypt, please. I withdraw my decryption in favor of yours, whatever it might be. In response to this:
You write:
What are the implications of that for the “trusted public entities,” then? Since apparently the implication I drew was incorrect. What are you saying?
They may not like pandemics, but I’m pretty sure most of the big players made plenty of money in the global wars.
As they are even now: see: weapons industry, MIC in the US, chemical companies, etc. etc.
So, I’m not sure, apart from some who may have thrown themselves out of windows during the Crash on 1929, how many of our elites have actually had to foot the bill for their own criminal enterprises….
Now, this is in fact a scary article. Did you copy it from a new Stephen King movie? Everyone needs to cut and paste the last paragraph, enlarge the words, scan it and send it out to everyone they know with the following message: BEWARE AMERICA!
Yves,
Please tell me you are not in support of this.
Only scary if you’re into the Evangelical Dallas Baptist capitalism thing. Free Markets as God’s own plan for man. I thought that was Salvation, but I guess we’ll take Globalization as the proffered substitute.
Stoller’s analysis of the shelling out of the US economy to suit the interests of the rich is factual, accurate, and relevant. However, the solution given is still too much NPR cultural liberal orthodoxy.
Realize there’s no such thing as The World. National states are very real, have very real interests, and do very real things to protect them. The experience of NAFTA, the European Union, the UAR, the Warsaw Pact, the Greater Asian Coprosperity Sphere, etc., just reinforces this. The real world is not Star Trek. And in any case, to them, we’re the other. If not as a daily policy, then certainly when trouble hits and it’s time to look after those you can look after. Remember Tonto at the Battle of the Little Big Horn.
Rather than a world trade authority, we’re probably looking at bilateral treaties, probably a model with national variations. Sewing up groups of nations in trade agreements sounds cool, but shortcuts just don’t work. Better to do the work and keep doing the work to look after our interests and the interests of others.
“Trading flows have to be managed by trusted public entities”
Who exactly? Institutions such as the IMF and World Bank have employed many of the people who are responsible for the current mess and use many of their policies. During the Bush Administration, Tim Geithner and former Bush defense official and Iraq war advocate Paul Wolfowitz held major policy making positions at the IMF and World Bank, respectively. Historically, neither institution was prioritized the average people they are purportedly there to help.
Allowing the global economy to be managed by a small group of unelected, unaccountable “experts” (whose demographics would likely be unrepresentative of the planet at large) would, if anything, make matters worse. Almost any “expert” would have worked for or consulted for the very banks that this plan purports to rein in.
I cannot blame China rejecting the neo-colonialism implicit in this plan. “Give me control over a nation’s currency, and I care not who makes the laws” (Mayer Rothschild)
Again, trade is already managed by a small group of unelected actors. This is a bad thing.
i apologize in advance. the only thing missing from this new New World Order ideology is “Why can’t we all get along?” [photo of helpless black man on the ground being beaten by police mob]
LeeAnne…take out ‘back’, ‘man’, and ‘police’…and you will be closer to the truth. For some reason humankind cannot shake the pack mentality of attacking anything different, specially if it is weak.
Stoller writes:
It’s not enough to just to say “must.” There will be no “trusted public entities” (assuming that there even is such a thing, these days, as a public entity) until “the public” sees bankster CEOs in orange jumpsuits doing the perp walk.
That’s the prerequisite for trust, since otherwise Stoller’s recommendations will turn out to be a new “bust out,” same as the old bust out.
If the legacy parties, including Grayson, Kaptur, et al. were going to do that, they would already have done it. So they’re not going to, and under current assumptions, the perps are going to get away clean.
So how does Stoller propose to restore trust, that being the pre-requisite for his policy recommendations?
So how does Stoller propose to restore trust, that being the pre-requisite for his policy recommendations?
I don’t know. The last time the international order broke down like this, it took a war and a depression to persuade elites that stability and broad prosperity were useful.
You seem to be far more of an optimist than I.
More an optimist? Why? Because I think learning to grow your own food is important?
What is this ‘world order’ breaking down stuff? com’n!
The US has broken down everything and everyone in its wake. The US has been THE world leader for 60 years. Yet, US criminals have gained the upper hand through a shadow government/shadow banking system heavily laden with criminals that has led the rest of the world away from aspirations of democracy and a decent life for all and on a merry break down of rule-of-law while it so grandly touted itself as being distinctly exceptional.
And, where is the rule-of-law now? Where is Eric Holder?
Instead, we have an over abundance of gangster propaganda hacks expounding on the most superficial levels for popular consumption absolute rubbish.
Where’s Eric Holder? He’s off bringing charges against petty criminals, like the “the mob,” which is a two-fer: (1) It looks good for the cameras, and (2) it sends the message to the real criminals, the banksters, that they’re off the hook. Now they will feel free to contribute to the campaign of His Oliness in 2012.
Don’t forget the DOJ’s hassling of Wikileaks….up to and including having State tell the Swedes to trump up something, anything to get that “terrorist” Julian Assange….
The last time the international order broke down like this, it took a war and a depression to persuade elites that stability and broad prosperity were useful.
I’ve never understood those who propose reformism but who, under enough pressure demanding to know, “how are we supposed to achieve reform under these conditions?”, throw up their hands and admit that they don’t really think reform is possible.
Then why do you propose reformism in the first place? It’s a scam, as you belatedly admit.
And when are people finally going to grow up and recognize that:
1. We can never persuade “elites” of anything.
2. Elites are absolutely worthless at best, and more often criminals.
3. We the productive people can exercise our own democracies and run our own economies.
4. So let’s get rid of the parasites once and for all, and finally assume adult responsibilities as democratic human beings.
Yet even those who recognize the absolute worthlessness and malevolence of the kleptocracy and the corporations are still prone to revert to prehistoric shamanism over the very concept of having “elites”.
“We just need better elites!”
We did have a period after the breakdown in the Great Depression where there was a consensus that shared prosperity is a good thing. It lasted until the 1960s when the US’s military commitments (Cold War, Vietnam, NASA, which people forget was a big ticket item) plus an overly fast rise in social commitments led to irresponsible fiscal policies. And we also had pretty strong currency controls. Not trying to limit the growth of the Eurodollar market, in retrospect, was a big mistake.
The elites also behave more responsibly elsewhere. I’ve seen it in Australia, there is much more of a sense of community. So throwing up your hands and saying it can’t happened based on the mess the US is now is wrongheaded.
Yves,
I agree. A lot of the problems facing America are really due to this extremely selfish individualism where “I’ve gone mine, so screw you!” is considered an acceptable attitude to have.
This needs to change. It probably will eventually, but it’s going to be a long, drawn-out effort to do.
A perfect world it is not and yes down under the lines are not drawn so brightly, although our size (area) to mass (Pop.) is more conducive to the arrangement, templates don’t always transfer well. That said, the American MSM driven encroachment into the Aussie way of life is seceding, just look at our debt levels, private and public, the old ways are dying, being replaced by the incessant need for consumerism to validate ones life (there are a lot of phony elites these days)… cough…consumerist affluence is a poor substitute for the educated husbandry of old and to much of a good thing spoils the brew..eh.
Still I hope after and still on going, good will running around this paddock
Skippy…America has a very violent history at home…eh, it doth repeat, this is the biggest contrast between us.
1. That ignores the facts of Peak Oil (and resource limits in general), and that all “capitalist” sectors are mature and must either see profits dwindle to nil of else become permanent tyrannical oligopolies.
Those are the two structural reasons why we won’t see any such “consensus” again. On the contrary, the historical record is clear. Starting the the 70s the elite consensus switched completely to radical class war.
(And that post-war consensus itself was mostly the result of Cold War political duress. People had an obvious alternative to capitalism.)
2. I’m just an obscure blogger, but within my scope I’ve elaborated a position and consistently argued it. And I make plenty of suggestions for what people can start doing now. So I nver do anything which can be called “throwing up my hands”.
On the contrary, it’s the reformists who keep proposing ad nauseum the same things which have already failed who are clearly throwing up their hands since they’re out of ideas.
“Fisher is just the latest Fed official to applaud this trend. Here’s the backstory. In the 1970s, there was a lot of inflation. The oligarchs of the time didn’t like this, because it made their portfolios worth less money.”
I’m sorry, but this is why I can never trust leftist with money. Anyone who believes that the inflation of the 1970s was good for the working class is batshit crazy, the 70s were miserable for everyone and inflation hits the working class hard. If you don’t think Paul Volcker was a hero and what he did saved America from decades of runaway inflation and economic collapse your a moron whose opinion not worth considering.
All the rest of it: the outsourcing, the trade policy, currency issues, wage stagnation, etc. are a result of economic policies adopted by governments and industry. Having runaway inflation would not have solved these problems. If you think adding double digit inflation to the mix would have made made the world a workers paradise you are batshit insane.
“I can never trust leftist with money.”
The bailouts were the largest upward transfer of wealth in world history. Bush began them, and Obama came not to abolish but to fulfill what Bush did, on a thoroughly bipartisan basis. So, who are these “leftists” of whom you speak, and where, in the Beltway, are they to be found?
I consistently see leftist bloggers that are ALWAYS on the side of inflation, 24/7. If there was a time in American history when it couldn’t be more obvious we needed to fight inflation it was the 1970s. If someone can’t see that, how can we trust them with the printing press?
Revisionist history. The big reason we had fiscally irresponsible policies in the 1960s was Johnson was unwilling to raise taxes to pay for Vietnam, which was already starting to be unpopular. And both right AND left wing economists decried the deficits at the time. But Milton Friedman gets the credit, and Walter Heller and others do not.
Yves, Not that I ever thought we could have guns and butter, how do you measure fiscal irresponsibility? Didn’t the debt-to-GDP ratio continue to decrease all through the 60s and 70s and only start rising with Reagan?
I would like to add that the inflation of the 70s is ultimately what undermined the center-left economic consensus of the 50s and 60s that liberals pine for. You can either figure out what flaws in the model led to inflation and try to fix your policies, or you can live in denial and try to pretend it was a good thing.
It was the flattening of real wages since the mid-1970s, a process in which both legacy parties colluded, that — in the long run, for those of us who are not yet dead — revealed the consensus as hollow, and “left” and “right” (as seen from the Beltway) as a sham.
See my comment above. I suggest you bone up on the history of that period rather than speaking from prejudice.
And you conveniently pin the blame for the 1960s inflation on social programs, as opposed to Vietnam and the space race, both of which were very big ticket items (NASA was huge) and elective also.
I’m a bit confused by the exchange between Dave and Yves. Dave seems to be talking about the inflation of the 70s and Yves about inflation in the Johnson Administration which wasn’t nearly so serious.
I think that the less serious inflation during the Johnson Administration was caused by the Vietnam War much more than by spending on social programs, and also that the Space program was very expensive. It was demand-pull inflation of the kind one gets when the productive capacity of the economy is stretched.
But the stagflation during the Carter Administration was an example of cost-push inflation initially caused by the oil cartel, and then reinforced by wage increases run by Labor and Paul Volcker’s own interest rate increases which only fed the feedback loops until the rates got high enough to break demand and the Oil Cartel. I think Volcker showed that monetary policy is a blunt instrument and that price and wage controls should have been used by Carter to fight the Cartel instead.
The inflation of the 1970s was rooted in the large deficits that started in the Johnson era. And the conventional wisdom is that the cause was his Great Society program, thus commitments made on his watch.
The devaluation of the dollar (the end of the Bretton Woods system) was one of the REAL proximate causes of the oil crisis. Oil then as now was pegged to dollars. The depreciation of the dollar meant the Saudis were making less. Using the US’s policy on Israel as the reason for oil price hikes gave OPEC a convenient cover for what was really an economic move (and allowed them to make a useful additional point). The breakdown in BW was again due to the 1960s deficits.
That’s wrong in key respects per my comments above.
Yves, OK. I’ll buy the connection between ’60s deficits and the Cartel’s raising of oil prices, but I said:
is this correct in your view?
In 2005, as Fisher was complaining about physical bottle necks to imports, the US trade deficit had reached its worst ever–6% of GDP.
Feedback loops blow bubbles. Hmm. Who would have ever figured that out?
The rich may profit from circumstances, but they no more understand them than a lion understands Darwin. A crashing ecosystem often destroys the top predators. Consider where are the monarchies today.
The problem with capitalism is that capital is also subject to the laws of supply and demand. All that wealth has to be lent to someone in order to retain value. Paul Volcker didn’t cure inflation, because you don’t solve an oversupply by raising prices. It was the expansion of government debt which cured inflation. The only material difference between the Fed selling debt and the Treasury issuing new debt is that the Treasury issues far more and then uses the proceeds in ways the wealthy who bought that debt never would have. Thus circulating wealth back into sectors of the economy that might not return a direct profit, but enable other sectors to continue functioning.
The fact is that money is a public contract, not a form of personal property. When we treat it as property, there is the desire to accumulate far more than the economy can support and then we need those banks to create all sorts of artificial support systems to hold it.
If we treated money as the public commons it is, people would be far more careful how much value they take from personal resources and community relationships to convert into currency in the first place. This would create better communities, healthier environments and a more stable monetary system. As well as reduce the hold government and banks have over every aspect of our lives.
Roads are a similar form of public circulation system, of which we all value, but there is little inclination to pave more than is necessary.
Politics started as private enterprise, what we would refer to as warlords today, eventually to acquire the veneer of gentility known as monarchy. We finally learned how to make political power a public trust and now it’s time to start the same process with the private banking system. They were kind enough to make responsibility for the currency a public function, with the creation of central banking and now it’s time to finish the process.
Yep. One obvious policy recommendation to advocate for, if you’re really into creating “trusted public entities,” would be turning the boring part of banking into a regulated public utility. I mean, I trust the gas or electric company a heck of a lot more than Citi or Golden Sacks or the rest of the “savvy businessmen.”
A significant part of the non-boring parts of banking have to do with creating methods of preserving excess capital. Capitalism is promoted as serving the function of efficiently distributing wealth where it is most productive. The reality is that it is largely about creating capital, far beyond what is economically productive.
It is the lack of organized conflict, which undermines the integrity of our institutions. In banking, the destruction of the savings & loans and the coming of the universal bank were disasters for integrity. No diversity of interests; no conflicts of interest — the elite, just a happy, unaccountable club.
The Federal Reserve banks would be a “trusted entity” if they were not the monopoly preserve of big banks and the extremely wealthy. The Federal Reserve system has a nominal system of governance, which is quite populist in its requirements for non-bank community participation. Maybe, someone on the Left could look into taking over control of a regional Federal Reserve bank, or at least contesting control.
Matt is certainly correct that trade will be managed by someone. Every society has an elite. And, lambert’s St. Francis of Assisi act isn’t really very helpful. But, elites can have conflicts among themselves, which require mass participation. We need conflict among the technocrats, and elites dependent on the masses for carrying on their conflicts.
I think Stoller provides an acceptable narrative of the rise of New York in the global economic order. I simply doubt that there is any solution to be found within the confines of a corporatist representative democracy. Statists would have us believe that there are people who are capable of managing the global trade flows of going on 7 billion of their fellow humans. This is insane hubris. Our vast wealth and engineering abilities have made it difficult to remember that we are human, that there are no “entities” which can correctly price the costs of financial instability or environmental costs. As long as we have an elite, they will buy politicians and regulators. No system can be adequately managed by a “representative” of the people in these conditions. It is time for the people to represent themselves.
The Wall Street crowd is not concerned about China harming the American people, it is concerned about China replacing _them_. Once Wall Street’s economic power is diminished, so is their ability to influence, bordering on control, key aspects of domestic and foreign policy. The NY elites would gladly dispossess average Americans on behalf of China (or any other nation) in order to keep their wealth and power.
Yes. Would that I would live to see a NYer cartoon I once had pinned to my cubicle come true:
Two guys sitting at a desk on one side, another guy on the opposite side of the desk. All well dressed in suits and ties. One guy appears to be Hispanic. Guy says to the one guy, “I’m afraid we’re going to have to let you go. Mr. Lopez here is willing to do your Vice President job for half the pay.”
I think Matt is right. The breadth of opposition to measures dependent on international cooperation in this nation is somewhat astounding. It is my view that each and every international organization to which a United States entity belongs is dominated by that entity. Although, come to think of it, this is a real good reason to oppose internationalism – all those erstwhile “good” countries, sullied and bullied by the U.S.
Sarcasm aside, I hope folks recognize how the current situation enriches and empowers the global elite and impoverishes us. There indeed has been a race to the bottom – lower wages, lower standards of living, a diminished safety net, and reduced financial security. I stand four-square for protectionism – charge importers the difference in labor and environmental protection costs. It would be as good for China as it would the U.S. as there would no longer be profit in enslavement and environmental debasement.
BTW – I love the idea of banks as “not for profit” entities, serving a public service function ala Lambert Strether. And yes, I am a socialist.
One of my most successful private equity buddies is also a socialist, spends serious $ on candidates who will raise his taxes, says loudly his taxes ought to be higher, but also says until the system is changed, he’s not going to not take advantage of it.
Interesting reply Yves. You recognize of course that the term “private equity socialist” is sure to cause cognitive dissonance in most sentient beings.
What’s his best 10-bagger?
I want to be a socialist too!
But first I have to be a capitalist, so I can afford to be a socialist. A good 10-bagger would do it. I’m not greedy. I could probably move to Paris and live in an absinthe bar for what a run of the mill PE partner gets for an annual bonus. After a certain financial point is reached, I’d rather just drink. Some of those private equity guys are plugged in and know what’s up. LOL.
A cursory reading of Marxist Economics will reveal a basic component of stages of history that must be passed through, of feudalism, capitalism, socialism, communism. It is not some bizarre abstract ideal to posit this analysis. For example, China, is taking its people through monopoly state capitalism but still a form of capitalism, to get the productive benefits from this form of social organization. Primitive capital accumulation, before the modern corporation, politically fueled in America by the UCC, brings us to today’s late stage of capitalism. China, by passed much of the diminutive forms of capitalism, and went straight to monopoly capitalism. In America, when there are only 1 or 2 companies left in each significant sector, there will be no more increasing rate of return for capital, but society will still need the productive capacity in the form of the industrialized economy. The stage will be set for socialism, as even capitalists abandon the enterprises which at this stage will be run as utilities, having achieved insurmountable scales of economy. What ever paper currency or digital money that China holds is irrelevant, when you have built up an advanced industrialized technology driven productive capacity. They will have roads, bullet trains, solar panels, ports, telecom, hundreds of millions of square feet of offices, commercial and industrial real estate. They can operate it with enterprise software and use and an electronic banking system, not dependent on outside inputs.
We can do the same here. We have gone through a mixed economy and have a democratically controlled republic with the technology and experience to administer social programs successful, provided that political attacks from reactionary conservatives can be put to rest once and for all. Americans should not view other Americans as mortal enemies because of ideas, in the face of actual material prosperity.
Our problems are not economic, but purely political in nature. There must be a settled commonly agreed upon politics for internal stability. I would hope that it is based on egalitarian trends of inclusiveness at the ballot box, equity in the consumption of the commonwealth, a government of the people, by the people and for the people. My measure of a public policy is to answer this question: How much is anyone’s humanity diminished by its implementation? How much progress is there in enhancing anyone’s humanity? A necessary and sufficient analysis can be based on the measure of someone’s humanity. Killing someone obviously is the limiting case, an undesirable policy choice. Giving someone a life expectancy of 80 plus years is a great measure of good public policy. The argument over balance of trade and economic prosperity is insoluble, as it is a component of the structure of the current world wide system of capitalism, such as it is called today. The problems that capitalism produces grow larger and more volatile, creating international instability that can not be reduced to various policy tweaks of currency, monetary theory, or trade balances. The overall purpose of pursuing an abstract goal, profits, in order to endlessly accumulate capital, so that you can continue to endless accumulate capital, no longer is sustainable, not that it made any sense to begin with.
I’m not a socialist or a capitalist, though Glen Beck and others would probably think I am a socialist. I think that we should do what works. If capitalism and the market economy is working in a particular area of the economy, then I have no problem with it.
But when a market concentrates, is dominated by a few players, and is no longer a free market fulfilling consumer needs, then I think public enterprise is better.
After all, if some entity is going to control a market, I’d much rather that entity be ultimately accountable to voters than to managers (especially since big businesses that control markets seem never to be accountable to stockholders).
Other than the random luck of being born in the United States what gives you the right of a ‘living wage’?
As someone else noted above, this kind of jingoistic nationalism becomes incredibly dangerous incredibly quickly once we accept the normative argument that the 5/6ths of the world that dont live in the developed world do not deserve to live as well as the lucky 1/6th.
Why not just come out and say you want to wage a next generation of Opium Wars. Its convenient since Afghanistan is already occupied and production is ramping up. [Those silly Afghans! Why dont they just accept that having failed to roll the genetic lottery like you did they should accept the fact that they should live out their lives in poverty]
The reason why the 1950s and 60s was such a wonderful time was: 1) The majority of humans were held in political bondage of the “Socialist” black or in the remnants of Western colonial Empire, which was of course originally created because Western Europeans simply could not generate a positive trade surplus with Asia and had to resort to military-political domination and forced de-industrialization of Asia.
2) Even those nations that were not controlled by totalitarians and imperialists, except for Canada, saw their industrial base destroyed by World War 2.
3) Oil cost less than a bottle of coca cola.
So yes, the 50s and 60s was a magical time for an American because by virtue of being born American they were sparred for the most part the ravages of two world wars and domination by totalitarianism. AND by the virtue of being one of the two great powers they were able to access the key component of all economic growth, oil, incredibly cheaply.
And when I say Americans, I mean white, heterosexual men. It truly was the best time to be born into that specific subset of the human population.
Of course this success was built on the corpses of millions and the political and economic disenfranchisement of billions.
Other than the random luck of being born in the United States what gives you the right of a ‘living wage’?
Working gives anyone the right to the full produce of their work.
As a corollary, no one has the right to extract and hoard more than that value.
Put the two together, and we’d have full access to work and full access to the fruits of work.
As for “wages”, living or otherwise, we’d have purged that obscenity once and for all.
You know, I had to memorize that simplistic bullshit in the Soviet Union too. And it is wrong. I realize that capitalism takes an enormous toll and some people simply reach a point and can no longer endure it and that is too bad. But escaping into the castles of your mind is not a viable solution.
I notice you didn’t even try to argue. That’s because you can’t, because those are self-evident truths. All the brutality and murder in the world won’t change the truth.
Where did the original capitalist “property” hoard come from in the first place? Do you know? Ah yes, god gave it to them….
As for viability, living as human beings would also be far more productive and socially stable. It’s your criminal system which is proven to be unviable except through continual applications of violence.
In the end, your only logic is to shoot someone in the head and then claim that proves whatever he was trying to do couldn’t have worked. That’s all your kind has ever done.
Its nice to live in a world of imaginary castles. Because after writing a million angry blog posts the capitalist system is still here and you are still there, writing empty words.
American exceptionalism see:
http://en.wikipedia.org/wiki/American_exceptionalism
In the 1930s, academicians in the U.S. redefined American exceptionalism as befitting a nation that was to lead the world, with the newer United States ready to serve the older European societies as an example of a liberated future free from Marxism and socialism.
Solution?
An international gold standard! Amen! Fiat money serves the interests of the banking and corporate establishment; it has always and it will always until it is stopped. The only way to restrain the greed and ambition of those banksters is the gold standard.
I’m sorry but this is just as stupid as the original post.
The ‘gold standard’ broke down twice, in the late 20s and in the early 70s. In both cases there was a reason, enfranchisement of the working class who arent prepared to suffer 25% unemployment so that hoarders of gold and creators of mortgages can live high on the hog.
I certainly don not always agree with this blog but on some big issues like TBTF, keeping the brokerage function away from banks and honoring the paper trail creating when borrowing to buy a home I do agree. But this post is just complete nonsense…I don’t even know where to start. You’re better than this.
I don’t know why we need a new international order of trade, and I don’t think Matt has made clear how the new order he’s outlined could fail to strengthen the globalizing plutocracy we see forming around us.
Right now the Chinese, Japanese and oil exporters want USD. So they’d rather export to us, then let their own populations consume the goods they’re sending us. In some areas, this situation is having a negative effect on us because it’s killing certain industries we need to have here for various economic and non-economic reasons. In those areas we need industrial policy to ensure that we can continue to have the capabilities, skills, and knowledge we need to keep these areas of economic activity healthy here.
In areas we don’t view as vital, the willingness of other nations to export to us can be a great help because they free up a lot of our labor force to work in areas that are important for reconstructing a rapidly deteriorating America. So, I think we ought to enjoy their exports as long as we can, while taking care to see that Americans are fully employed doing the very many things we need to have done here.
To make that happen, our Government may need to run large deficits for awhile to make up for the leakage of demand to savings and to imports. That will go on until other nations have had enough of sending us their real wealth in return for our dollars and begin to export less to us. At some point if their prices go up too high, there will be space for our people to get back into some of the industries they’ve been dominating.
Of course, for all this to go well, there are some specific things we have to see to here. Apart from restoring full employment, and providing Medicare for All, so that we’re not saying “die quickly” to 58,000 people per year, we desperately need an emergency effort to develop and use alternative energy sources. Within five years we have be off all oil not produced in the US, and we have to ensure that no oil produced here is exported anywhere else for the time being. There’s a long list of other things we have to do as well. I think we all know what they are.
In order to get all of these things done, we’re going to have to forget about conventional neo-liberal economics, and any attempt to manage Government fiscal policy with reference to deficits, debts, or the debt-to-gdp ratio. These numbers are not important because there’s no close relation of these to full employment, inflation, or any other important consequence of Government economic policy. What is important is public purpose and we have to add on any Government expenditure whether or not it contributes to public purpose.
Finally, of course, I agree with those who’ve said or implied that the fraud and corruption we see in our system has to end. The perps do need to be carted off and given orange jump suits. Tight regulation of the FIRE sector and other areas of the economy has to be restored. the mortgage mess must be cleaned up and in such a way that those who committed the frauds pay the price for them. Our democracy depends on how well we do this. If we can’t accomplish this clean-up, we can kiss it goodbye. We’ve got the plutocracy for good.
We’ve all been scammed. Our two political parties’ politicians are playing good-cop/bad-cop and We, the People, are pitted against each other, whereas we should be united against the oligarchy that already exists and continues to expand its power and wealth at our expense. You think you have it bad now? Just wait and see what’s in store for us if we continue to be manipulated into denial of the obvious.