Worldview: Economics

by A Concerned Citizen

back to the Worldview Menu

Retired on 31 December 2007

Introduction
World Economy
US Economy
Asian Economy
European Economy
Retiring Baby Boomers
Real Estate
Other Articles

29 Jun 06: Economics is as important to the world as it is boring to me. So I'd better open this chapter, even if I'd rather not. Actually, my interest in economics was piqued a year or so ago by a personal experience. I was interested in buying a new home, until I did some online research and came to the conclusion that a bubble was about to burst. People have been saying that for years, but it hasn't happened yet. That may only mean that when it happens, it will be all the more damaging. Add to that our huge national debt, our military overextension throughout the world, and the problems with social security and medicare, and we may have a perfect storm! We'll see.

Back to Economics Menu

World Economy

BBC: 27 Feb 07: World stocks plummet on China woe

US News: What's Behind the Stock Market Plunge

DOW SLIDE MAY BE START OF SOMETHING BIGGER
Robert Reich, NY Daily News, 1 Mar 07

What's the problem? In short, cash is so plentiful all over the world (excess petrodollars, excess Chinese money, excess saving in the rest of Asia) that global investors have been overly optimistic in lending money and buying stocks.
They've gotten ahead of themselves, taking on way more risk than they thought they took on. That has created speculative bubbles, and speculative bubbles eventually pop, as several did this week.
The single biggest speculative bubble has been in China. This isn't surprising, given the frenzied growth of the country's economy and the underregulation of its financial markets. But because global financial markets are so intertwined, the bursting of that bubble has hurt investors all over the world. American mutual funds had been putting capital into the Chinese stock market because, hey, that's where the action has been, and every fund wants a piece of the action.

Chalmers Johnson: Exporting the American Model

LET THE WORLD BANK GO DOWN WITH WOLFIE
Naomi Klein, The Nation, 26 Apr 07

... the game of one-way strip poker that is our global trade system, in which the United States and Europe — via the World Bank, the International Monetary Fund and the World Trade Organization — tell the developing world, 'You take down your trade barriers and we'll keep ours up.' From farm subsidies to the Dubai Ports World scandal, hypocrisy is our economic order's guiding principle.
[. . .]
The more serious lie at the center of the controversy is the implication that the World Bank was an institution with impeccable ethical credentials — until, according to forty-two former Bank executives, its credibility was 'fatally compromised' by Wolfowitz. (Many American liberals have seized on this fairy tale, addicted to the fleeting rush that comes from forcing neocons to resign.) The truth is that the bank's credibility was fatally compromised when it forced school fees on students in Ghana in exchange for a loan; when it demanded that Tanzania privatize its water system; when it made telecom privatization a condition of aid for Hurricane Mitch; when it demanded labor 'flexibility' in the aftermath of the Asian tsunami in Sri Lanka; when it pushed for eliminating food subsidies in post-invasion Iraq. Ecuadoreans care little about Wolfowitz's girlfriend; more pressing is that in 2005, the Bank withheld a promised $100 million after the country dared to spend a portion of its oil revenues on health and education. Some antipoverty organization.
But the area where the World Bank has the most tenuous claim to moral authority is in the fight against corruption. Almost everywhere that mass state pillage has taken place over the past four decades, the Bank and the IMF have been first on the scene of the crime. And no, they have not been looking the other way as the locals lined their pockets; they have been writing the ground rules for the theft and yelling, 'Faster, please!' — a process known as rapid-fire shock therapy. Russia under the leadership of the recently departed Boris Yeltsin was a case in point. ...
Russia is far from unique: From Chile's dictator Augusto Pinochet, who accumulated more than 125 bank accounts while building the first neoliberal state, to Argentine President Carlos Menem, who drove a bright red Ferrari Testarossa while he liquidated his country, to Iraq's 'missing billions' today, there is, in every country, a class of ambitious, bloody-minded politicians who are willing to act as Western subcontractors. They will take a fee, and that fee is called corruption — the silent but ever-present partner in the crusade to privatize the developing world.

Telegraph: Crisis may make 1929 look a 'walk in the park'

John Derbyshire: Review of Amy Chua's Day of Empire

Back to Economics Menu

US Economy

Initial Articles
Articles on Globalization
Libertarians on Globalization
Other Articles

Back to Economics Menu

Initial Articles

Frontline: Is Wal-Mart good for America?

Frontline: Secret history of the credit card

Economist: Most of America's Manufacturers Are Thriving

Andre Frank (Asia Times): Uncle Sam and his Shrinking Dollar

Federal Reserve Bank researcher: US 'could be going bankrupt'

Dennis Cauchon: Real U.S. deficit in trillions...

Mark Trahant: Wake up, Washington: Huge debt is real

Robert Kuttner: Milton Friedman refuted by Milton Friedman

Back to US Economy

Articles on Globalization

Sebastian Mallaby: Matching Free Trade With Taxes

Harold Meyerson: Can Free Trade Be a Fair Deal?

Robert B. Reich: A proposal for labor standards in trade deals

William Greider: The Establishment Rethinks Globalization

Stephen Marshall: Thomas Friedman, wolf in sheep's clothing

FT: Globalisation backlash in rich nations

Penn & Freedman (DLC): The Politics of Globalization

Edward Gresser (DLC): Lou Dobbs is Wrong!

Back to US Economy

Libertarians on Globalization (25 Nov 06): Will globalization reduce the United States to the level of so-called third-world countries, in a global race to the bottom? Or will we all end up being 'second-world' economies, whatever that is? This optimistic article by a libertarian at the Von Mises Institute argues that the global extension of free-markets can only benefit everyone, if carried out with the proper respect for private property, that is, without the heavy hand of the state.

GLOBALIZATION: THE LONG-RUN PICTURE
George Reisman, Von Mises Institute, 18 Nov 06

Globalization, in conjunction with its essential prerequisite of respect for private property rights, and thus the existence of substantial economic freedom in the various individual countries, has the potential to raise the productivity of labor and living standards all across the world to the level of the most advanced countries. In addition, it has the potential to bring about the radical improvement in productivity and living standards in what are today the most advanced countries, and to provide the strongest possible foundation for unprecedented further economic advance everywhere.
These overwhelmingly beneficial results are often hidden from view by the fact that at the same time globalization implies a substantial decline in the relative or even absolute nominal GDPs of today's advanced countries, the experience of which engenders opposition to the process. What is not seen is that to whatever extent globalization might reduce absolute nominal GDP in today's advanced countries, it reduces prices many times more, with the result that it correspondingly increases their real GDP, and that to whatever extent it reduces merely their relative nominal GDP, it again increases their real GDP many times more.
This article shows that by incorporating billions of additional people into the global division of labor, and correspondingly increasing the scale on which all branches of production and economic activity are carried on, globalization makes possible the unprecedented achievement of economies of scale — the maximum consistent with the size of the world's population. First and foremost among these will be the very substantial increase in the number of highly intelligent, highly motivated individuals working in all of the branches of science, technology, and business. This will greatly accelerate the rate of scientific and technological progress and business innovation. The achievement of all other economies of scale will also serve to increase what it is possible to produce with any given quantity of capital goods and labor. Out of this larger gross product comes a correspondingly larger supply of capital goods, which makes possible a further increase in production, resulting in a still larger supply of capital goods, in a process that can be repeated indefinitely so long as scientific and technological progress and business innovation continue and an adequate degree of saving and provision for the future is maintained. The article shows that from the very beginning, the process of globalization serves to promote capital accumulation simply by dramatically increasing production in the countries in which foreign capital is invested, out of which increase in production comes an additional supply of capital goods.

I am weak in the area of economics, but I will say this. Libertarians love both free-markets and freedom from the state, which they see as two sides of the same coin. Now, this article extols the benefits of economies of scale, which tend to lead to oligopolistic domination of entire sectors of the economy by a few giant corporations. This in itself may reduce freedom, but the problem is compounded when corporations are able to buy up politicians through campaign contributions. Have the libertarians thought this aspect of it through? I also wonder whether globalization isn't really just a clever device to destroy unions and bargaining power. Will it divide the world into a tiny and fabulously rich elite and a vast mass of humanity earning bottom wages? Why must American workers compete directly with people who can live on a few dollars a day? Could globalization not have been implemented more gradually and less ruthlessly?

This is a long article, and I certainly have not read it all. Can one believe economists, anyway? Is economics really a science?

For example, skimming a bit further, I come across where the author tells us not to worry about outsourcing, because even if American wages fall a bit, this is more than offset by the much larger drop in prices. As I said, I haven't studied the article, but I have a feeling this may only be true at the beginning, when only a portion of the economy is outsourced. What happens when it all is? There seems to be a view in this article that Americans are then freed up for more interesting and better-paid jobs, involving expertise and creativity and all that good stuff. But surely, this is only true if one can afford the education, which is becoming very expensive. Further, the Asians have shown much ability to do our brain-work too, especially in India. What happens when that goes?

Another problem: Globalization may lead to a rush on scarce natural resources, such as oil, metals, etc. That may be the worst effect of all. At the very least, we must keep population down, it would seem.

Paul Craig Roberts: The New Face of Class Warfare

Gabriel Kolko: Corporations use regulation to thwart competition

Another Libertarian on Globalization (22 Feb 07): On the NewsHour last night, P.J. O'Rourke discussed his new book on Adam Smith. I am weak in economics, but my common sense would still like to take issue with one of those platitudes that is an article of faith for economic liberals. It is the idea that any uncoerced trade is mutually beneficial 'by definition', as O'Rourke (and perhaps Smith) put it. Thus, there is nothing to fear from our trade deficit, no matter how large.

One can easily think of a case where this is transparent nonsense. Suppose you have a nasty and expensive drug habit. And suppose you must finance your habit by getting money from a loan shark who not only charges high interest, but is slowly acquiring a stake in your house, until one day you lose it and die on skid row. Is that a 'mutually beneficial' trade? In some abstract sense, I suppose you got to satisfy your appetite for drugs, but most people would consider this a disaster. Well, are we not doing something similar with respect to Japan and China, by running up a huge debt and mortgaging our country in the form of T-bills?

In general, I view economics as somewhat of a pseudo-science, especially at the general policy level, where the 'experts' seem mostly to be hired guns for policy makers. No doubt, at the microeconomic level, economists may be of some use to business. On the other hand, I can agree with the general principle that free trade produces prosperity. The question is whether selling our country in exchange for cheap products made with cheap labor is in our long term interest. Also, it seems rather ruthless to throw America's workers to the mercy of low-wage workers in parts of the world where living is much cheaper. We are then supposed to 'specialize' in what we do better, presumably 'brain-oriented' jobs. Well, how many of us are trained to do those? Education is very expensive. And the Asians are smart people who are proving quite adept at brain-oriented jobs too.

The bottom line is that some businessmen have gotten rich with globalization, but it is not at all certain that America as a whole will benefit in the long run. We may devolve into a new third-world country. That may partly be our fault, for spending too much, for not studying hard enough, and for not making good education available to all at a reasonable cost, while wasting billions on useless wars and a gigantic military that makes no sense with today's threats. On the other hand, I am glad to see Asians rising. They are mostly civilized and decent people who deserve a reward for favoring education and hard work over drinking, riots, fanaticism and whatever else keeps the idiots going.

UPDATE (22 Feb 07): O'Rourke did make a point I can agree with. Even when the government tries to do good, or claims to be doing good, the reality may be undermined by corruption and/or incompetence. It is claimed that politicians are especially vulnerable to this, and few would disagree. However, it is not clear that business competition always works as claimed to guarantee efficiency and success. In America, we have witnessed CEO's grabbing golden parachutes or gigantic pay packages, even when they fail, because the ordinary stockholders have no real power. In a related vein, Adam Smith's entire discussion of competition seems suspect in a world where a few gigantic corporations tend to dominate, but that is a whole new discussion.

Back to US Economy

Other Articles

2006

Gerard Baker: The dollar is declining. Stay cool

Bill Bonner: America's Glorious Empire of Debt

2007

John Stossel: Losing Sleep Over the Trade Deficit?

Robert Samuelson: Seven Tough Choices We Will Not Make

Michael T. Klare: Behold the Rise of Energy-Based Fascism

Living the American Dream ... in a One-Bedroom Apartment

Nick Gillespie (Reason): Is the middle class endangered?

Robert B. Reich: Balanced Budget Baloney