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GLOBALIZATION AND ITS FALLOUT THEN AND NOW (PART I)

August 26, 2014

GLOBALIZATION AND ITS FALLOUT THEN AND NOW (PART I)

Most critics (and I am one of them) blame our persisting unemployment (and consequent wage inequality) on greedy capitalists who send our jobs overseas to avail themselves of slave labor, then return the slave-assembled finished products to our shores under sweetheart trade agreements that essentially take tariffs and other so-called “trade barriers” out of the picture. Not everyone agrees that this is the cause of our persisting unemployment, including an economist who has my utmost respect, Jeff Madrick. He instead attributes such unemployment to financial globalization (made possible by deregulation of movement of capital around the world willy nilly on the promise by powerful banks and investors in the world’s money centers that “the market” will distribute capital efficiently and will avoid speculative bubbles (a Wall Street pretense I have consistently condemned in numerous posts and a practice in dire need of regulation). The Wall Street cover (aka propaganda) for crapshoots is Adam Smith’s banter from a 238 year old book and had application to a competitive market, not the monopoly market of today. Thus such wisdom is inapplicable (and Wall Street knows it but deliberately breaks out its “Adam Smith card” in order to frame the agenda and mislead those in the debate).

When all else fails to persuade policy makers to make the ideological shift permitting Wall Street to roam the globe looking for a buck, the banks break out their “invisible hand of Adam Smith” trump card (along with a large dose of “free market” mythology) for display to policy makers and regulators (accompanied by large campaign contributions to select members of Congress involved in setting such policies). It worked – until the crash of ’08 – and the economic mayhem and bailouts and forced mergers following. But not to worry – the banks are bigger and more profitable than ever, while those of us who live in a different economy than the bankers are even bigger victims of off-shoring and bankrolling the banks’ crapshoots with derivatives and mortgage paper. We are not alone in our unemployment victimhood. Our economy is underperforming as trillions in wealth are lost; aggregate demand is stagnant, businesses are closing and bankruptcies are on the rise. So, speaking of persuasion, I await proof that such current policies (especially against a guaranteed-to-fail set of government austerity policies adopted by our policy makers in vogue today) are good for America and anyone not in the corporate and investment class (the 99.98 percent). As we used to say, “Where’s the beef?”

The ’08 crash did not occur in a vacuum; it had a history, and I will write a thumbnail sketch of that history in this series, a part of which springs from an article by Jeff Madrick in the August, 2013 edition of Harpers Magazine. Madrick writes under the banner of “The Anti-Economist,” and writes well.

We have had a sort of globalization since the Bretton Woods Conference in New Hampshire in 1944 (one attended by the great economist, John Maynard Keynes, who passed on a few years later). The international community at that conference came up with rules and institutions to regulate global trade and finance for the post-WW II world. The two major creations of that historic meeting were the General Agreement on Tariffs and Trade (GATT) and the International Monetary Fund (IMF). The Conference cut tariffs, but unlike today’s trade re-creations (products of Wall Street), the Conference’s creators were careful to give individual nations latitude to implement many of their own policies. On the home front, governments covered by Bretton Woods were largely free to do as they pleased. They could, for instance, adopt generous public-welfare programs or subsidize nascent industries. They could also control the flow of capital across their borders. Currencies were fixed against the U.S. dollar to help reduce uncertainties among traders and investors.

This Conference fixed the U.S. dollar as the world’s reserve currency, which (to our great advantage) it still is, though some countries are threatening to abandon the U.S. dollar as the world’s reserve currency in view of the right wing threat to default on our debt a few years ago. The world’s reserve currency must enjoy stability and certainty if it is to remain the world’s reserve currency (and attract international capital deposits along with low interest on our bonded indebtedness). It is no place for political ideology whether left or right. Politicians should fight their wars on different turfs; the full faith and credit of the United States of America is institutionally sacrosanct and inviolable territory. All citizens take note.

Today’s globalization looks a lot different than the one bequeathed to us by Bretton Woods. Gone are capital controls; gone are rights of trading nations to make many of their own domestic policies (to run their own business as an attribute of sovereignty); gone are fixed currency controls (leaving their values to market manipulation); and we are now hearing that some of the redone trade agreements are, for instance, going to allow lawsuits by foreign investors against units of American government (townships, cities, states et al.) if the latters’ laws and policies are deemed to interfere with such foreign corporations’ profit-making and activities in furtherance of such profit-making from their investments here. Whether a trade agreement’s provisions negotiated by our federal government takes precedence over, for instance, a community’s environmental and zoning regulations, it seems to me, presents a constitutional question. Further, if a foreign corporation’s bottom line is favored over the right of local governments to self-govern, then what next interloper will the federal government invite into the right of local governments to self-govern? Is our democracy at stake? When does this chase for profit end?

All of us are awaiting the final language of the proposed TPP trade agreement (another Wall Street concoction)  which will expand the slave labor market for corporate America now that Chinese factories are beginning to pay higher wages (which raises costs of production). With the re-introduction of the good old days of slave wages for Wall Street, look for further off-shoring of American jobs, which is one of several reasons why I have opposed and still oppose ratification of the TPP by the Senate.

I will write more on the history of a globalization in flux in Part II, including a critique of books written by Tom Friedman which naively cheer-lead the new globalization as the ultimate answer to the world’s economic problems. I dismissed his Alice in Wonderland recitals at the time of their publication, and events (some catastrophic) have proven his fairy tales to be. . . fairy tales.  Stay tuned.   GERALD    E

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