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INTERNNATIONAL FINANCE AND INEQUALITY (PART I)

August 19, 2017

INTERNATIONAL FINANCE AND INEQUALITY (PART I)

My all-time favorite economist, John Maynard Keynes, whose followers such as Joseph E. Stiglitz and Thomas Piketty are also favorites of mine, warned against unregulated international finance at the Bretton Woods Conference in 1944. Most unfortunately, he did not live to see his predictions fulfilled, dying two years later in 1946, leaving Stiglitz and Piketty among the living to carry the torch. Keynes correctly sensed but had no way of knowing in 1946 that neoliberal capital liberalization could lead to international depression if unregulated because the neoliberals were not yet in existence.

Our international credit system as captured and now in use by the neoliberals is probably the most reckless, irresponsible extensions of any credit system in world history, per Robin Hahnel, as set forth in his book, Economic Justice and Democracy. Financial crises of the 19th century written about in the 20th century (which had its own Great Depression) are nothing compared with the crises of the past thirty years, including Bush’s Great Recession and lesser ones. How did we ever set the stage for such crises of the last thirty years to happen?

We set the stage by coming up with an unprecedented pool of liquid global wealth created by record profits due to stagnant wages (aka wage inequality), new financial products dreamed up by highly leveraged global hedge funds, corporate downsizing and megamergers, and rapid increases in technological innovation toward the end of the 20th century. Such huge capital accumulations were freed to go anywhere with the click of a computer button by the repeal of the Glass-Steagall Act, no regulations, no monitoring, and International Monetary Fund (IMF)-enforced removal of all manner of capital controls governments around the world might use to slow bubbles and panics (as a condition for loans noted by Stiglitz who, among other positions, served on IMF).  Per Hahnel,”In a word, the global economy is now haunted by the specter Keynes warned against at the Bretton Woods Conference over 60 years ago: unregulated international finance.”

There is a continuing debate as to whether capital or trade liberalization has provided global efficiency gains in any event since studies have shown that neoliberal policies have slowed rather than increased the rate of growth of world GDP per capita, but there is no debate that adoption of such policies has aggravated inequality both between and within both more and less developed countries. The United States is a case in point, where wage inequality has not only contributed to the enormous pool of liquid capital for roaming the globe in search of profitable deals by the financial sector and their handmaiden American multinational corporations, but where such foreign investments put downward pressure on American wages as American labor must compete with cheap foreign labor.

Thus American labor cannot roam the globe looking for higher wages like American capital does in the latter’s search for higher profits, but is held to the consequences of such unimpeded and unregulated export of capital in the form of stagnant or even lowered wages which in turn add to corporate profits available for offshore investment – a situation in which American labor is involuntarily contributing to its own further inequality in wages, demise of working conditions etc. in our race to the bottom competing with Third World wages and working conditions.

I am of the opinion (along with Keynes 73 years ago) that it is time to regulate such export of capital with a view toward how such exports would affect American labor, American consumers, American domestic corporations who are not active in offshore operations, and other American interests currently ignored by Wall Street and their friendly policymakers in the Congress, and if found to be adverse to our collective interests, then such exports of capital should be constrained or otherwise fashioned with the interests of the folks back home a consideration in whether such capital exports would be approved. I think the profit-making interests of financiers and multinationals should not be the only ones considered in our regulation of international financing since the rest of us are directly affected and perhaps bankrupted by Wall Street’s decisions, not ours. Socialism? Hardly. On the contrary, the design is to save capitalism in our country by leveling the global playing table.

I will have further commentary and conclusions and a tentative look at how to fix this problem in Part II. Stay tuned.      GERALD       E

 

 

 

 

 

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