Reply to Marino – the economic side.
1. Yes cheaper energy is a good thing. This is especially true for Europe and East Asia that import such a large percentage of their petrol and natural gas. The exchange rate problem is that the sole current model the world seems to have for prosperity is export to the US. Europe has structural problems. East Asia has a Japanese model of mercantilist growth that the rest adopted. The problem is that what works for any one nation doesn’t work if everyone plays the same game. What you get is a giant US trade deficit. In the short run this is fine. We get goods and give you fiat money [dollars]. The trap comes when someone gets worried that this fiat money may decline in value. Again, small numbers can liquidate their dollars by selling them to others. As more and more players try to do the same, this changes the relative prices, which makes selling to the US ever more difficult. What makes it even harder as that different people, nations and regions have different willingness to hold onto piles of dollars to keep the game going. Having fewer choices, the East Asians will always keep employment up by holding onto their dollars to a far greater degree than the Europeans. This means that the bulk of the burden of adjusting the dollar’s relative value / reducing the US import glut falls on Europe. Actions, consequences.
2. The problem at its heart is the economic model being proposed. Globalization means a race to the bottom. It just doesn’t happen quickly enough for most folks to grasp. The original Washington Consensus argument was that ‘old economy’ jobs – textiles, simple manufacturing and assembly, steel, shipbuilding – could be a growth route for poorer nations. Having lower social and labor costs, they could make these goods more cheaply and sell them to the First World, using the proceeds to buy technology, higher tech and services. We export the ‘bad’ jobs and keep the ‘good’ jobs with benefits. They sweat while we sit in an office and wear white shirts to work. The revolutions in transportation and communications have speeded the cycle by which jobs can be moved and vastly expanded what can be done on the other side of the globe and exported. Ever fewer things must be done by First Worlders in the First World. And a lot of what must be done [household servants, lawn care, nail salons…] are such low wage jobs that 3rd and 4th Worlders migrate to the First World to do them. The WSJ yesterday used the excuse that all we are doing is returning to the historic reality of 1820 when 45% of the world’s production was done in India and China. Cute. Fascile. Think it through. What we are talking about here folks is evening out per capita income globally. This means averaging First World incomes into the global average. Do the math and see how far it can fall. Already in the US males with less than a university education have seen declining standards of earnings, ability to support families, etc. for thirty years. Just those old ‘good’ factory jobs vanishing. It was easy for those of us who had degrees and skills to think the parade would stop before it got to our level. Surprise. India and China can produce university graduates too. They can produce IT professionals, accountants…gee, just about anything. We even educate many of them at our universities.
3. Now no one part of this is evil per se. That is the hideous beauty of the Washington Consensus. It all sounds wonderful. The critics all sound like reactionary xenophobes. Yup. However, actions and consequences. Ever faster cycles between the First World inventing a line of work and the Asians beginning to do it sufficiently cheaper where the economics will dictate shifting the work if politics permits it. And yes Marino you will be forced to go to McJobs. The Social Market will be destroyed. Because the logic of the Washington Consensus is that of our three linked interests [we are all producers, consumers and citizens] the Consensus only protects us as consumers. Games have rules. The rules of this game are that all other things being equal cheaper wins. Now capitalism is a wonderful feedback mechanism. Without it absurdities occur. However, unless you set boundaries it trumps politics. The reason for boundaries is to allow you to deal with issues like saying that income distribution does count. The US grew rich in part by a protected continental size domestic market where a working man could rise to decent middle class affluence. Could become affluent enough to share some of that wealth rebuilding Europe and Japan after WW2. Could send his children to university. Could have a decent old age. Could make enough to afford some of the wonders his labor created. Instead we have a new world where children move back in with their parents for economic instead of family reasons. Isn’t this just SO wonderful. Globalization is a bad idea. Capital market liberalization is a bad idea. The key bad is time scale. Over time Europe could raise its Club Med members to northern European standards of living. Had it been done with the speed we are moving today instead of raising Club Med the EEC would have made all of Europe poor.
4. There is a linked thought in your post – that there are other 'goods' than just consuming more physical products ever more cheaply. Strange as you may find it coming from a rightwing loon, I would agree. We might disagree as to what those 'goods' are – I think I have a greater fondness for spending on prisons, police and the military than thou – we would both agree with the concept. Again it dies of globalization. Social goods are a cost. Europe could have a social market as long as it was trading inside the Block. In a world of free trade, production and employment will migrate to the cheapest place to make them. Labor standards, benefits, environmental standards…these are all costs. If all competitors are not given the same social costs…just actions and consequences. The solution is simple. Free trade works within similar sociopolitical systems. There are currently three First World models - East Asia, Europe and the US. Canada wishes it were Europe so let us make the Canadians honorary Europeans. Free trade within each block works. Beyond that trade and financial flows should be politically managed. This is NOT maximal economic utility. It is reasonable economic utility. Of course this leaves most of the rest of the world on the outside looking in. YUP. It may cause more unrest in the excluded areas and more economic illegal migration. YUP. It isn’t nice. YUP. All political questions – the question we have to ask ourselves is who is the polity. Who gets to vote. Whose interests count. Me, I’m the same nationalist I always was. However, we have been manipulated into the belief that free trade, transnational capital mobility and all the rest of globalization’s baggage are cost free goods. The invisible hand and all that – Riccardo, division of labor on a global scale – it is all some perpetual motion machine by which everyone becomes rich without any major group being worse off. It is actually three card Monte – the dealer [the transnational finance capitalists in the City of London, Frankfort, La Cite in Paris, Wall Street, Tokyo and a few other places] get rich shuffling the paper regardless of who else wins or loses at the table.
5. So what do you do with India and China? Old system from the 30’s – blocked accounts. Let them sell what they will to the degree you open your markets [each center deciding how much to open as the Japanese will open nothing while Europe and the US will never agree product by product on ANYTHING]. The Indians and Chinese get Euro or Dollar balances. Those cannot be repatriated. They must be spent on other goods and services. It is clunky. It is NOT the most efficient use of resources. It ensures everyone is in the game without the government making a mess picking winners and losers. If we want to let India have English language accounting jobs the money paid must be used to buy something. Therefore everyone cannot fire all their employees and move all the work to India. Someone must employ people to produce what the Indians buy. Actions, consequences.
posted by scott 4:24 AM