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Free Trade and Unrestricted Capital Flow: How Billionaires Get Rich and Destroy the Rest of Us

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Yves here. This post highlights an issue that gets far too little attention: how the “free trade” agenda has been used to promote a capital mobility agenda, and why that works to the detriment of ordinary citizens.

As Ken Rogoff and Carmen Reinhart found in their study of 800 years of financial crises, high international capital flows are strongly correlated with more frequent and severe financial crises. A very important BIS paper that has not gotten the attention it deserves, “Global imbalances and the financial crisis: Link or no link?” Claudio Borio and Piti Disyatat, discusses how the crisis was the direct result of what they call excess financial elasticity. That means having a banking system that was way too accommodating to the pet wishes of bank customers. From Andrew Dittmer’s translation of the paper from economese to English (the numbers are page references):

The idea of “national savings” or “current account surplus” refers to the total amount of exports sold minus the total amount of imports sold (more or less). The “excess savings” theory holds that this excess had to have been financed somehow, and so presumably by countries in surplus, like China.

However, for the US in 2010, the total amount of financial flows into the US was at least 60 times the current account deficit (9), counting only securities transactions. If this number were correct, then inflows would be 61 times the current account deficit, and outflows would be 60 times the current account deficit. The current account deficit is a drop in the bucket. Why would anyone assume it had anything to do with the picture at all?

Moreover, if the “savings glut” theory was correct, we would expect there to be certain historical correlations between the following variables: (a) current account deficits of the US, (b) US and world long-term interest rates, (c) value of the US dollar, (d) the global savings rate, (e) world GDP. There aren’t (4-6, see graphs).

You would also expect credit crises to occur mainly in countries with current account deficits. They don’t (6).

Suppose we look at a more reasonable variables: gross capital flows (13-14). What do we learn about the causes of the crisis?

Financial flows exploded from 1998 to 2007, expanding by a factor of four RELATIVE to world GDP (13), and then fell by 75% in 2008 (15). The most important source of financial flows was Europe, dwarfing the contributions of Asia and the Middle East (15). The bulk of inflows originated in the private sector (15)….

So what caused the crisis? Clearly, the shadow banking system (mainly based around US and European financial institutions) succeeding in generating huge amounts of leverage and financing all by itself (24, 28). Banks can expand credit independently of their reserve requirements (30) – the central bank’s role is limited to setting short-term interest rates (30). European banks deliberately levered themselves up so they could take advantage of
opportunities to use ABS in strategies (11), many of which were ultimately aimed at looting these same banks for the benefit of bank employees. These activities pushed long-term interest rates down. Short-term rates remained low because the Fed didn’t raise them as long as inflation didn’t appear to be an issue (25, 27).

The post focuses on the real economy side of the free-flowing capital experiment; we’ll discuss next week how the Trans-Pacific Partnership is an alarming advance in this process of grinding down what is left of the middle class to benefit of the rich.

By Gaius Publius. Cross posted from Americablog

Paul Krugman makes a point in this post about Cyprus that I’d like use to make a broader and more important point. His point is that Cyprus is already off the euro and has created its own currency, the Cyprus Euro, which at the moment is pegged to the other euro at 1:1. Why is a euro in a Cyprus bank different from other euros? Because you can’t move it freely, so it has less real value. (Read here to see why he thinks that; also here.)

My point, though, is a little different. My point is about unrestricted free trade and capital flow in general and why understanding both is crucial to understanding:

▪ The neoliberal free-trade project, and
▪ Wealth inequality in America

But don’t let your eyes glaze over; this is not hard to understand. It just has a few odd terms in it. Please stick with me.

There’s a straight line between “free-trade” — a prime tenet of both right-wing Milton Friedman thinking and left-wing Bill Clinton–Robert Rubin neoliberalism — and wealth inequality in America. In fact, if the billionaires didn’t have the one (a global free-trade regime) they couldn’t have the other (your money in their pocket). And the whole global “all your money are belong to us” process has only three moving parts. Read on to see them. Once you “get it,” you’ll get it for a long time.

What does “free trade” mean?

In its simplest terms, “free trade” means one thing only — the ability of people with capital to move that capital freely, anywhere in the world, seeking the highest profit. It’s been said of Bush II, for example, that “when Bush talks of ‘freedom’, he doesn’t mean human freedom, he means freedom to move money.” (Sorry, can’t find a link.)

At its heart, free trade doesn’t mean the ability to trade freely per se; that’s just a byproduct. It means the ability to invest freely without governmental constraint. Free trade is why factories in China have American investors and partners — because you can’t bring down manufacturing wages in Michigan and Alabama if you can’t set up slave factories somewhere else and get your government to make that capital move cost-free, or even tax-incentivized, out of your supposed home country and into a place ripe for predation.

Can you see why both right-wing kings (Koch Bros, Walmart-heir dukes and earls, Reagan I, Bush I and II) and left-wing honchos (Bill Clinton, Robert Rubin, Barack Obama) make “free trade” the cornerstone of each of their economic policies? It’s the song of the rich, and they all sing it.

I’ve shown this video before, but it bears repeating. When you think about “free trade,” you probably think of the Walmart heirs (or Apple owners) wallowing in wealth from the world’s slave factories. But it’s a joint project by all of our owners (sorry, major left- and right-wing campaign contributors and job creators).

This is Barack Obama making his case for campaign funding to Robert (Hi “Bob”) Rubin and others in 2006:

Brand-New Senator Barack Obama, 2006
The opening of Robert Rubin’s Hamilton Project Thinktank

At 1:20: “The forces of globalization have changed the rules of the game,” and at 5:52: “Most of us are strong free-traders.” (His “yes-but” to Rubin in that second segment is an appeal to actually do the worthless retraining for non-existent jobs that Clinton earlier supported but never did. See? Pushback. Independence.)

Three things to note:

1. The “forces of globalization” he refers to are not acts of god, whether Yahweh, Juno or Joxer. They were created by the Clinton- and Rubin-crafted CAFTA and NAFTA treaties. If a god did it, that god also caused a certain blue dress to need a dry-cleaning it never got.

2. If Obama doesn’t say what he just said in that room, he doesn’t get a Rubinite dime for his next political campaign. Period. This is his application speech.

3. Never forget that if Oklahoma knuckle-dragger Sam Walton were in that room, or not-America-first Steve Jobs, Obama would say those same words. “Most of us are strong free-traders.” It’s the tie that binds the left and the right. Bind yourself to Obama economically, and you’re tied to the Waltons. Period.

Bonus points for noting that the push to roll back social insurance is part of the NeoLiberal agenda, for example at 1:30 and elsewhere. It’s why we have the Obama Grand Betrayal, the Catfood Snack That Won’t Go Away (do click; there’s a kitty inside).

Finally, listen again to his opening praise of “Bob” Rubin and the others in the first 30 seconds or so. When Obama says that the men he’s praising have “put us on a pathway of prosperity,” what he means is that they’ve put themselves on a path to prosperity. This is wealth inequality in action, wealth inequality on the hoof. Those slave-wage jobs in China (or Indonesia or the Philippines) replace the unionized, high-paying wages you don’t have and will never get back; the men in that room, including Obama, are the reason; and “free trade” is both the cover story and the tool (more on that duality below).

Never forget — “Free trade” is a bipartisan, hands-across-the-aisle screwage of American incomes and wealth. It’s the necessary cornerstone of both left-wing and right-wing economic policy. Period.

The three tools of wealth extraction

Free trade is a primary tool of wealth extraction. What are the others?

Recall that corporations aren’t actors per se, they are machines by which wealth is vacuumed from workers and consumers into the hands and pockets of the corps’ true owners, the CEO and capital class. As we’ve said before:

(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of MegaCorp.com and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.

(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy — or at least wealthier.

Modern corporations serve one function only — to make the CEO class obscenely rich.

The looting of global wealth into the hands of the capital and CEO class is a simple two-step process: Corps use free trade to loot the world. CEOs then loot the corps and live higher and better than the kings and presidents they control.

Yes, “kings and presidents they control.” The only thing needed to make the looting worldwide is government protection. If the capital class doesn’t control government, they can’t institute … global free trade regimes. And there you have it. So what are the three tools needed by the capital-controlling class?

■ CEO capture of corporations
■ Wealth capture of government
■ A global free-trade regime

And that’s all it takes. With those three tools in your pocket, you can loot and own the world, literally.

Hmm, we have all three now. “Mission accomplished,” as they say in private jet circles.

Free trade keeps the rest of the world in crisis

And now we come back to Krugman. A direct consequence of a world in which capital flow is completely unrestricted is constant economic crisis. The Professor explains that well in the context of the Cyprus problem (my emphasis and some reparagraphing):

Whatever the final outcome in the Cyprus crisis … one thing seems certain: for the time being, and probably for years to come, the island nation will have to maintain fairly draconian controls on the movement of capital in and out of the country. …

That’s quite a remarkable development. It will mark the end of an era for Cyprus, which has in effect spent the past decade advertising itself as a place where wealthy individuals who want to avoid taxes and scrutiny can safely park their money, no questions asked. But it may also mark at least the beginning of the end for something much bigger: the era when unrestricted movement of capital was taken as a desirable norm around the world. …

Then he compares the era of capital control to the era of capital freedom:

It wasn’t always thus. In the first couple of decades after World War II, limits on cross-border money flows were widely considered good policy; they were more or less universal in poorer nations, and present in a majority of richer countries too. Britain, for example, limited overseas investments by its residents until 1979; other advanced countries maintained restrictions into the 1980s. Even the United States briefly limited capital outflows during the 1960s.

But like all good things, that changed:

Over time, however, these restrictions fell out of fashion. To some extent this reflected the fact that capital controls have potential costs: they impose extra burdens of paperwork, they make business operations more difficult, and conventional economic analysis says that they should have a negative impact on growth (although this effect is hard to find in the numbers). But it also reflected the rise of free-market ideology, the assumption that if financial markets want to move money across borders, there must be a good reason, and bureaucrats shouldn’t stand in their way.

What marks the difference between those two eras, the era of capital control and our current free-trade era? Near-constant economic crisis:

[U]unrestricted movement of capital is looking more and more like a failed experiment. It’s hard to imagine now, but for more than three decades after World War II financial crises of the kind we’ve lately become so familiar with hardly ever happened.

Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.

Notice the date of change? “Since 1980, however…” Him again. This is not just a coincidence. The Reagan era didn’t just initiate national looting, but international looting as well. Krugman ties these crises, here and elsewhere, to large and unrestricted inflows of capital, followed by large and unrestricted outflows that create economic bubbles, then leave them thoroughly deflated:

[T]he best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.

The rest of the piece shows that this idea doesn’t originate just with The Professor; it’s widely held by many not paid by Money to represent it in the court of public opinion.

There’s an opportunity in Spain, let’s say, to take advantage of cheap labor and prices. Money flows in, builds huge capacity, then flows out as soon as it finds better opportunity elsewhere. What’s left behind? The Spanish in a crashed economy, and in a world in which the holders of their debt (German bankers et al) are using the EU (remember, capture of government) to make sure that creditors are made whole at the expense of whole populations.

Kind of like how Walmart comes into a town, builds a huge store, drives all the other retailers out of business, then leaves as soon as the low-wage-earners in that town can’t keep the store more profitable than other stores in the state.

What’s left? The wreck of an economy. Where’s the money? In the pockets of the Walton family, ‘natch. Win-win for someone (but not for you).

Your “economic crisis” is just their “cost of doing business”

Keep in mind, the purpose of unrestricted “free trade” is to advantage the holders of capital over everyone else on the planet. Great wealth insulates these men and women from crises, so even global economic crisis is just the externalized price (that we pay) for their wealth extraction enterprise — just like a burdened health care system is the externalized price (that we pay) for wealth extraction by billionaire owners of tobacco companies from the constant stream of lung cancer patients.

What’s “a world in constant crisis” to them? Just the cost of doing business. Nothing personal. It’s just business.

Is free trade an ideology or a tool?

One last point. Framing free trade as an ideology may be technically correct in a few cases — there are true believers in almost anything (I believe in kittehs) — but if “free trade” weren’t a money machine for the wealthy, you’d never hear of it. Crickets, as the kids say.

Put simply, the reason you heard Barack Obama tout “strong free trade” with Robert Rubin in the room, is that bankers like Robert Rubin grow obscenely wealthy by financing billionaire store-owner Billy-Bob Walton’s slave factories in Asia.

And non-millionaire Barack Obama wants millionaire Bill Clinton’s post-presidential money — $80 million and counting. (Click the link for a stunning connection between public policy — in this case, the repeal of Glass-Steagal — and a post-presidential payday.)

Obama may not say he wants “Clinton money.” He might even know it, in that self-blind sense of “know.” But I’ve met lots of drunks who’ve explained themselves so long, they really do “know” they’re just “prone to be ill in the morning.” Right. Occam’s Switchblade, Upton Sinclair edition:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

“I’m doing it for the kids,” Obama edition.

Bottom line

The bottom line is simple: A “free trade” system is a regime in which capital always wins, everywhere. It’s the tool by which global wealth is extracted. It’s supported by both parties. The Democratic Party version is called NeoLiberalism. “NeoLiberal” means not-FDR-liberal in the same way that Tony Blair’s “New Labour” means not-Clement Attlee-Labour. Because, framing counts on CNN, and it’s always opposite day there.

And Barack Obama, Bringer and Betrayer of Hope and Change, is the lead NeoLiberal warrior, the point of the spear until 2016, at which point he’ll pass the torch to another testosterone-branded neoliberal, retire into the sunset of global acclaim, create his Foundation for NeoLiberal Love and Global Kittens, and collect his checks. (Or not.)

My suggestion, given the above — don’t help him. You have enough on your conscience, if you’re at all like the rest of us. Unless, of course, you like your economic crises served always on tap. In which case, do sign up.

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113 comments

  1. Chris Engel

    The desire for free trade and free capital flows comes from the normative view of a totally frictionless economy.

    Most economists are convinced that if you just removed frictions, we could address imbalances in the economy by, say, having someone move from Brazil to France, or liquidating a production facility in Thailand to open one in Malaysia, etc.

    Now, the title of this article is way off base. The Rottschilds and Rober Barons made plenty of money under protectionist regimes. Free trade doesn’t create billionaires, and doesn’t have to necessarily destroy “the rest of us”.

    Think for example about the free trade in the 90′s that has persisted today. The points about free trade are reducing dead weight losses and maximizing surpluses for the economy, but there are downsides. There are simple ways to offset the short-term effects of this kind of policy on workers who lose their jobs domestically:

    1) Tax the windfalls of capitalists from the increased trade, redistribute to train ex-manufacturing workers into managerial/admin workers.

    2) Reduce incentives that over-promote capital flight (remove all these loopholes that corporations use to essentially not pay any tax because of accounting fubars).

    3) Contingent capital controls. This is similar to the kind of stuff central banks in Asia were doing to burn Soros-wannabes from raping their currencies. Essentially, you put in a policy of “Free trade, *”, with the asterisk basically indicating a list of specific contingencies tied to the policy of free flow. I’m not suggesting they should be on the level of Chinese controls, but there’s a happy medium.

    Free trade isn’t the problem, it’s the bad policy that goes along with the implementation of the various agreements which don’t look out for the primary interests of the nation and its people (from a Western point of view).

    I don’t agree at all with the classification in this article about corporations. Yes, they’re not people, we get that. But their incentives can easily be controlled by the state. And a corporation is nothing without the people behind it — the workers, managers, capital providers, etc. I also think it’s ridiculous to say that corporations are only enriching CEO’s. There’s a much more comprehensive review of how the executive remuneration problem has grown to the level it stands at now. Luigi Zingales is the go-to academic on the topic of corporate governance and he has outlined the theory of the firm and corporations very well (you can get the overview here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=46906 )

    But I want to focus on the CEO angle, so let me cite a paper by Steve Kaplan from University of Chicago (Booth, not a neolib nutter):

    The rate of CEO turnover has increased in the 2000s compared to the 1980s and 1990s, and is significantly tied to poor stock performance. While corporate governance failures and pay outliers as well as the very high average pay levels relative to the typical household undoubtedly have contributed to the common perceptions, a meaningful part of CEO pay appears to be market determined and boards do appear to monitor their CEOs. Consistent with that, top executive pay policies at over 98% of S&P 500 and Russell 3000 companies received majority shareholder support in the Dodd-Frank mandated Say-On-Pay votes in 2011.

    - Steve Kaplan, Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges ( http://www.nber.org/papers/w18395 )

    Aligning the interests of the CEO to the value of the company is an important part of modern corporate theory and reality. Would you rather have a CEO that has “skin in the game” (to use a phrase by Nassim Taleb) by owning a significant block of shares in the firm he manages, or to have zero alignment of incentives?

    And the pay of CEOs is indeed out of control, but this is more because in the bubble years, CEO pay went up along with it to “reward good management” (lol) and then when the bubble crashed, CEO pay didn’t drop along with it.

    Additionally, you refer to Obama as “not a millionaire”, but he’s made 10s of millions of dollars from being an author. He may not have been a private sector corporate vulture lawyer, but he did quite well for himself as an author (and still does).

    While I appreciate the pushback against Free Trade, there’s better ways to go about it than using emotional appeals to overpaid CEOs and corrupt politicians. We the people are supposed to be in control of our democracy in the end. It’s our job to regulate the incentives that actors in the economy have. We tax what produces bad results, we subsidize what produces good results in society but would otherwise not be profitable or feasible in the market. People forget this basic idea.

    Finally, these free trade agreements that are signed, including NAFTA, aren’t actual free trade agreements. They just mean that in certain areas there have been liberalized that predictably benefit the capitalists of the richer nation and the low-skill workers of the poorer one. This distinction between actual free trade and the American free trade agreements with various nation is something Naom Chomsky has written about at length:

    ‘GATT and NAFTA ought to be called “investor rights agreements,” not “free trade agreements.” One of their main purposes is to extend the ability of corporations to carry out market-distorting operations internally.’

    - Naom Chomsky – Secrets, Lies, and Democracy, 1994

    So you’re right, capital wins. But why is that a bad thing, especially for capital-rich nations like the United States? We should be harnessing this advantage and using taxation and regulation to help benefit the working class and redistribute windfalls from capitalists to the workers to help in readjustment. Instead of markets being more important than country, we should make our capitalists more patriotic and promote the idea of using their wealth (which wouldn’t exist without the state protecting the accumulation within the system) to benefit the nation.

    1. Chris Engel

      There was one other point that wouldn’t fit in the comment regarding the Corporations and CEOs: and that is shareholder activism and shareholder rights.

      As the Kaplan quote stated, 98% of all the companies (which are of course overpaying their CEO’s) approved the pay. It’s a combination of market distortions (from bubble stock market years), aloof Boards/shareholders, and bad government policy which in the end can always use its power to mitigate any and all commerce issues.

      But it’s not some worldwide conspiracy for CEOs to loot the corporations. There are checks and balances, but they’re just not being properly implemented and controlled!

      1. jake chase

        You tell us confidently, that ‘a meaningful part of CEO pay appears to be market determined and boards do appear to monitor their CEOs’.

        That is errant nonsense. The market to which you so confidentally refer is no more than a large herd of criminals engaged in the same game. Board acquiescence in CEO looting is inevitable, since directors are hired by executives, not vice versa. Any individual director who might have the temerity to object to the chief’s ‘pay package’ would find himself immediately out in the cold. He could kiss this royal road to wealth goodbye and actually find himself or herself forced to earn a living.

        As things are, each one of these celebrity ‘directors’ sits on as many as a dozen boards, and rakes in cheap stock from all of them. All they offer in exchange is resume points and a willingness to go along with the game. Exactly who are these directors? This one is a celebrated female, that one a well known Black, the other one a defrocked Congressman, another a superannuated admiral. Together they could not be trusted to manage a public toilet, and they aren’t trusted to do anything important either. Snoozing through lunches, sitting through buzz word presentations. The alleged control of public corporations by their directors is our most absurd legal fantasy. It amounts to nothing more than a public relations stunt.

        And shareholders have nothing to say about all this. Once a year they receive hundred page proxy statements and little cards which most investors immediately consign to the trash. Have you any idea what percentage of shareholders actually votes? Their only remedy is to sell the stock and buy something else operated in exactly the same way.

        1. Yves Smith Post author

          To amplify what jake chase has said: market determined my ass!

          Search firms put very artificial constraints on who is CEO material.

          And search firms also do the pay studies the boards rely on. Who decides who gets hired to prepare those studies and pays them? The HR department, which means management hires the people who make the pay recommendations. Hhm. whose interests do you think those search firms will serve?

          Even better, the methodology they use results in ever escalating pay. Every board has been convinced to set CEO pay levels against a relevant universe of firms. The LOWEST you’ll see a board set its target at it 50th percentile, most set it 60th percentile or higher.

          So if any firm has dropped into the bottom half of its peer group, the CEOs pay gets raised ONLY for that reason, squat to do with performance. That raises the average and moves some other firms into the bottom, who again have to raise pay. This procedure assures constant leapfrogging of pay.

          Oh, and in searches, the search firms get paid a % of total first year comp. so they benefit directly from helping goose pay levels. They have a keen interest in colluding with incumbent management. And higher CEO pay justified higher pay for directors.

          And shareholder influence? Are you kidding? Do you know who the major shareholders are? Equity fund managers, who want the defined benefit and 401 (k) businesses of these corporations. They are never in a million years going to vote against management. That’s before you get to the fact that the average shareholding time for actively traded stocks has fallen to 22 seconds. By the time the proxy statement has been mailed, a lot of shareholders have traded out!

          Chris, please stop talking about subjects you know nothing about and misleading readers. Anyone who knows squat about this topic would know how wildly off base you are.

          1. Chris Engel

            Yves,

            All yoǘ’ve done is describe characteristics of the market that is determining the CEO pay.

            Readers are free to read the sources that I’ve cited and determine for themselves, rather than have you determine what people should believe.

            If you think management is suddenly going to adopt more expensive pension plans to spite equity fund managers who vote against CEO’s, then maybe you’re the one who doesn’t know what you’re talking about? Case in point:

            “By the time the proxy statement has been mailed, a lot of shareholders have traded out!”

            This is ignorant and misleading. The vast majority of shareholders are of course NOT traded out.

          2. AbyNormal

            “And search firms also do the pay studies the boards rely on.”

            these deadly search groups are also scapegoats to increase salaries of local townships, cities and county official wonkers

            snip
            The Atlanta compensation commission’s six members are appointed by the mayor, city council, city council president and Board of Education. The group worked on its latest recommendations for more than seven months.

            The group hired the Atlanta-based ***Schapiro Group***, a strategy and consulting firm, to compare the city’s pay to nine others: Nashville; Denver; Jacksonville; Boston; Seattle; Memphis; Washington DC; Columbus, Ohio; and Portland, Ore. Reed’s salary ranked seventh out of 10 in the group.
            http://www.ajc.com/news/news/local/pay-raises-for-atlanta-officials-recommended-but-u/nSsXx/

          3. jake chase

            The National Bureau of Economic Research? Fair and balanced twaddle. Next you’ll be citing their Law and Economics Project. Institutional toadying to power remains among our biggest undiscussed problems.

          4. Chris Engel

            jake chase, Abynorml, Yves,

            There’s a growing corporative governance literature that has produced a lot of good data on how Boards should be reformed in the US and EUrope (Europe is already instituting a lot of them, I’ve worked personally in that area).

            Diversification of Board composition (to include academics, representatives of all stakeholders), empowerment of shareholders, reformation of executive remuneration — these are all areas that can help fix the Executive pay bubble and other warped incentives and behavior in corporate America.

            But to accuse any study I post or any individual I post as being a company shill paid to promote right-wing neoliberal ideas is bordering on schizophrenic. And to assail the entire NBER? Seriously?

            I’ve not stated anywhere that there isn’t a problem, I’m suggesting that the state has the power to put in the controls the system needs, and discussed the channels where this can be achieved.

            You lose credibility when you use outlandish rhetoric without any meaningful references.

          5. skippy

            Chris you should read this:

            P.29 top 3rd para

            However, all the members of the board were busy with their own affairs, and many were little more than amateur economists.

            http://www.nber.org/nberhistory/sfabricantrev.pdf

            Skip here… Oh there is so much more… cough Milton Friedman Austrian laz a faire posse… Rockefeller institute of social study’s… which churns out quasi scientific opinions used to glaze over the dull unwashed eyes… shezzz.

            Skippy… hint… economics is neither empirical or a science.

          6. jake chase

            Chris,

            There is endless “reform” literature on corporate governance and nothing changes but the sex and race of the bogus independent directors. The only reform that would mean anything is federalization of corporation law, with strict limitations on executive pay imposed on all publicly held corporations.

            To suggest that independent directors have any power under current circumstances is silly. Berle and Means explained all this in 1932 and the SEC has consistently ignored the problem because its only job is making the financial markets appear safe to the gullible public.

          7. Yves Smith Post author

            Chris,

            Have you ever read or been party to the negotiation of CEO employment agreement? Go have a gander at Edgar and have a look at one. These are not market determined. I’ve seen attorneys go through Edgar, find the most egregious one around (I’m not current, but in the 1990s, the gold standard for piggishness was Linda Wachner at Warnaco) and work from that.

            CEO pay is an exercise in looting. I’ve described the incentives. Everyone involved, the institutional shareholders, the people doing the pay studies, the cronyistic boards (did you forget management nominates the directors, fer Chrissake, the boards are in no way independent, and they are indemnified via D&O insurance on top of that!) has incentives to go along because they benefit from CEOs ratcheting up their own pay, or has strong incentives not to rock the boat. I tell you that, clearly, and you do the equivalent of sticking your fingers in your ears and saying “Nah nah nah.”

    2. Synopticist

      In other words, Chris, you think unrestrained capital free-trade can work as long as the state has to POWER to rein it in, tax it fairly, and prevent its owners and agents exploiting their advantagous position over the rest of society. Very New Labour. I used to think like that.

      The problem is, though, that unrestrained capital has more POWER than individual states who may attempt to restrain it.
      This fact is demonstrably true in so many different ways it can barely be enumerated. Which is why your objections to this piece are Panglossian and unrealistic.

      1. curlydan

        Agree with Synopticist. When Chris (casually?) mentions, “[corporations'] incentives can easily be controlled by the state” then all I can respond with is “Are you kidding me?”. The corporations and the state work hand in hand in creating incentives to leave the corporations alone. We all know the ideas behind free trade and how efficient it could be(e.g. grow wine in California, not Mississippi), but like most of capitalism, the large scale, real world application doesn’t work as well as in the textbook and eventually leads to huge rent extraction.

        1. EricT

          I agree. After reading the testimony to the Senate banking committee by Holder and Dimon, all I could think of was when will the government elevate the CEOs in the USA to the rank of general and give them a uniform.

    3. different clue

      America is not a capital-rich nation. America has a capital-rich class. The capital-rich class of Americans are the only Americans who are capital-rich. And they institute Free Trade so as to move their harvested-capital to slave-havens so as to undercut and disemploy whole industry-loads of former workers in America.

      I continue to believe that part of Bill Clinton’s motivation for supporting Free Trade was to get revenge on the Unionized Democrats who failed to vote for McGovern the way he felt they should. So he lay in wait till the opportunity came for him to destroy the lives and future of millions of unionized workers with his Free Trade Agreements. Only revenge? Maybe not only. But surely a big part of it.

      1. different clue

        One could differentiate between “munny” as “capital” and real physical plant and infrastructure and so forth which are real capital. The Free Traders have been destroying that physical real-plant/facility capital in America as fast as they can. It is their sincere effort to make sure American can never rebuild that real capital.

      2. Kim Kaufman

        If you do a TPP piece, please consider that one of the worst parts of this is that the strategy is to make it a “Fast Track” bill — which means the Executive Branch will negotiate this in secret and then give it to Congress with some very short period in which to vote it up or down — no amendments and no time to really even read it. Lori Wallach suggests that the strategy to push back is to attack the Fast Track issue and I believe there is some movement brewing on this front right now from some congress critters.

        1. Ms G

          Thanks for bringing up this critical point. The strategy against “fast track” sounds like the effective way to approach this.

        2. OpenThePodBayDoorHAL

          YES PLEASE someone do an expose on TPP:the so-called “free trade” agreement where just 2 of 28 points have anything to do with trade. The rest have to do with globalist corporatist centralization of labor, workplace rules, vacation pay. Negotiated in secret of course.
          I live in Australia having bailed out on the US after Bush was re-appointed and TPP would dictate how much employers here can pay, how much time off people can have. It also says ISPs here MUST channel all traffic through US-controlled “monitors” for copyrighted material (among other excuses). It’s the piece de resistance on top of the billionaire-fascism complex.

  2. Max

    One can easily agree with your description of the-get-rich-free-trade sheme. However, is it a full story? It’s just as describing nuclear research and talk only about nuclear weapons development, or mention missile research only in the context of ICBM techology and forget about the Apollo project. Large parts of the world would still be stinky and dirty 3d world without free trade and free movement of capital. Nothing would have helped them to open up new horizons. That’s a fact. Or you had any other alternative that would have worked as quick and efficient in the real Rubinite world?

    1. lolcar

      Countries developed themselves fine before the age of free trade. Foreign capital isn’t required. Foreign expertise may well be. Japan is the example par excellence. They didn’t catch up to the West by allowing Western capitalists to come and build their railroads and extract rents for the rest of eternity. They sent Japanese students overseas to learn and hired foreign engineers to advise, then built it themselves.

      1. Jim Haygood

        ‘Countries developed themselves fine before the age of free trade.’

        From the fall of the Roman empire (when long-distance trade collapsed) until the Industrial revolution, it’s been estimated that global GDP growth averaged a microscopic 0.1% annually. But what’s a dozen bad centuries among friends?

        Interesting that you mention Japan. Quite the success story these days, isn’t it?

        If restricting free trade were the road to riches, autarkic North Korea would be the wealthiest country on earth.

        1. from Mexico

          Ah yes, the industrial revolution.

          It correlates with the rise of liberal imperialism but also with the greatest revolution in energy technology ever known to mankind: the hydrocarbon revolution.

          It’s amazing how from the later Puritans to the present day we have variously attributed prosperity to our greater faith in the “right” God, our superior diligence, our greater skill, or our fervent devotion to the “right” ideologogy, such as the ideals of liberal economics, rather than to our natural resources (and one must never foreget that under the doctrine of liberal imperialism, the whole world is “ours”) and the fortuitous circumstance that our prosperity coincided with the advancement of hydrocarbon energy technology.

        2. lolcar

          Who said anything about restricting genuine trade ? Who wants to promote autarky ? Complete straw man. As far as I’m concerned the more goods and expertise traded the better. Capital however is another story.

        3. Me

          The US developed using the exact OPPOSITE of free trade. It had the highest industrial tariffs in the world for well over a century, still is highly protectionist and its industrial protectionism was even massive under “free market” gods like Reagan. The US has, and has had for some time, the most protectionist agricultural system in the world. The US copied Britain as far as the protectionist developmental model, although Britain’s protectionism lasted longer and was in many ways even more radically anti-free trade. It wasn’t until the late 19th century that Britain really began adopting free trade and, I am sure by chance, the US and other countries either caught up to or passed by Britain starting around then.

          Even Japan, which was the capitalist alternative to China and the other socialist Asian countries, used MASSIVE state activity in the economy to develop. The Japanese state still protects its domestic producers. The government there bailed out Toyota for decades and at time bascially nationalized the company. There would be no Lexus without the Japanese state. No developed country developed behind actual “free trade” and certainly no country has developed behind free markets.

          http://www.independent.co.uk/news/business/comment/hajoon-chang-protectionism-the-truth-is-on-a-10-bill-458396.html

          In the 19th century, the US strictly regulated foreign investment in banking, shipping, mining, and logging. Japan and Korea severely restricted foreign investment in manufacturing. Between the 1930s and the 1980s, Finland officially classified all firms with more than 20 per cent foreign ownership as “dangerous enterprises”.

          …The US may have invented the theory of infant industry protection, but the practice had existed long before. The first big success story was, surprisingly, Britain – the supposed birthplace of free trade. However, over time people saw sense in Hamilton’s argument, and the US shifted to protectionism after the Anglo-American War of 1812. By the 1830s, its industrial tariff rate, at 40-50 per cent, was the highest in the world, and remained so until the Second World War.

          http://mrzine.monthlyreview.org/2008/chang030808.html

          Let me start my talk with a little story. In 1958, Japan tried to export this first passenger car to the US market. The company was Toyota, the car was called Toyopet. And, as you can guess from the name, it was a very cheap, small subcompact car, more of a four-wheels-and-an-ashtray kind of thing, which Toyota hoped rich American consumers could pick up as an afterthought, after finishing their grocery shopping with the changes left. Unfortunately, it was a total flop, so much so that Toyota actually had to withdraw the product. In the realm of failures, this is, like, the biggest thing. It’s not just not selling well — it had to be withdrawn from the market.

          This provoked a very heated debate in Japan. The free trade economists centered around the Bank of Japan, the central bank, said, “Look, this is what happens when you go against the theory of comparative advantage. In a country like Japan, which in relative terms has lots of labor and little capital, we shouldn’t be producing things like motor cars, which are very capital-intensive in production.” Of course, at that time, Japan’s biggest export item was silk. So, case proven, already. And they said, “Don’t tell us that you couldn’t succeed because you didn’t have help. You had 25 years of very high tariff protection. We kicked out all the foreign car makers 20 years ago and didn’t let any of them in since then. And back in 1949 this central bank even injected public money into Toyota to save it from bankruptcy. So, please don’t tell us that you couldn’t succeed because you didn’t have help, because you had all the help you can ask for.”

          …Now, the crazy thing is, go back to the earlier Toyopet example, when you think about that, basically, if Japan had followed Friedman’s kind of advice in the 1950s and 1960s, the Japanese would not be exporting the Lexus, because Toyota probably would have been either wiped out or more likely taken over by General Motors and made into some secondary producer. They won’t be exporting the Lexus but they will be still fighting over who owns which mulberry tree, the tree that feeds silkworms. You know, this is so crazy: it’s like someone writing a book on self-made men, and the first chapter is Henry Ford II.

    2. Jim Haygood

      ‘There’s a straight line between “free-trade” and wealth inequality in America.’

      Actually most of the parade of horribles in this article derives from fiat currency (inflation magnifies wealth inequality since the rich are better able to profit from it) and fractional reserve banking (high leverage naturally means more frequent crashes).

      Restricting free trade is and always been a tactic of domestic guilds and cartels. Nice if you’re a member of the club. Pretty awful if you’re out in the cold with your nose pressed against the window.

        1. skippy

          Jim has yet arrived at the conclusion that his BET is just an expectation which will go unfulfilled.

          Skippy… But, not unlike many of our ancestors, blood will suffice in lieu of expectations balance sheet… sends a massage mob style… eh. Sweet dreams Jim… don’t crush to many in your carriage… whilst chasing expectations…

      1. Cynthia

        I agree, Jim. The true failed experiment is central banking.

        I wonder if capital controls will force multinational corporations to declare their allegiance, by forcing them to choose which nation to keep their money in for the long term? Or, will the predictable happen, and these controls be applied only to the smaller players and to individuals? I can not imagine the global elite corporate barons allowing capital controls. Their corporate “countries” know no Nation State boundaries nor loyalties.

        Laws will be modified excluding certain Special Cases from capital controls.

        Nothing wrong with the Global Economic Model or free flow of capital. The problem is that the Global Economic Model no longer offers many comparative advantages to the US as a sovereign, self-contained nation. Restricting capital flow will not change much, nor would other forms of protectionism. We are screwed unless we live within our means and reduce income disparity. Otherwise, time for a new Economic Model.

      2. Me

        See my comment above, it was directed at you. The US developed, without any shred of doubt, behind MASSIVE protectionism. So did Britain. So has Japan, South Korea, China and most every other developed country. You live in a fantasy world.

      3. Me

        Don’t you people have anything ever to add than your fiat currency, gold standard nonsense? Over and over and over and over again, fiat this, gold that. Libertarian economics has nothing to add to any discussion other than that. One trick ponies and you don’t even have a convincing argument on your one issue any damn way.

        1. Synopticist

          NC is prone to the odd libertarian raid now and again. best to ignore them.
          Cool Toyota story.

    3. from Mexico

      Max now trots out the BIG LIE evangelized by the liberal imperialists: that for the sun to rise on the third world, it must set on the first world.

      This is total fiction.

      There was an in-depth study done that illustrates the degree of untruthfulness to the lie Max is peddling. “NAFTA AT SEVEN: Its impact on workers in all three nations” explores the effects of NAFTA on the workers of Mexico, the US and Canada:

      http://www.ratical.org/co-globalize/NAFTA@7/mx.html

      The percentage of wokers in Mexico with formal employment dropped from 73.9% to 61.2%, while the average wage of those lucky enough to still have a salaried job dropped by 26.6%. Fringe benefits for salaried workers also declined precipitosuly.

      And since 1999, things have only gotten worse for Mexican workers.

      Here’s how the Mexico Solidarity Alliance sums it up:

      For the past four decades, the US-Mexico relationship has been the most important laboratory for the neoliberal model, a sort of proving grounds for corporate-centered globalization. The implications of this experiment will be felt for generations to come, both North and South. The neoliberal era began four decades ago on the US-Mexico border with the Border Industrialization Program, a “free trade zone” that ushered in the era of maquiladoras. Factories that paid decent wages in the US moved south of the border, where wages are typically less than $1 an hour, labor laws are lax, and environmental standards are not enforced. The result is huge profits for transnational corporations, but declining standards of living for the Mexican and the US working classes, and an environmental disaster that affects both sides of the border. The maquiladora/free trade model is now the predominant economic development model throughout Latin America.

      In 1981, under pressure from the Latin American debt crisis, Mexico signed the first IMF-sponsored Structural Adjustment Program (SAP) in exchange for bailout loans. Today, SAPs are standard fair throughout the South, forcing governments with progressive tendencies to adopt neoliberal economic policies (or providing more conservative elites with political cover to do the same).

      The North America Free Trade Accord (NAFTA), signed on January 1, 1994, is defining future US economic relations with the rest of Latin America – free flows of capital and goods across international borders but strict control of people. NAFTA has meant a loss of democracy in Mexico and the US, and an economic disaster for workers on both sides of the border.

      Neoliberal policies have had a dramatic impact in rural areas throughout Latin America, particularly in Mexico. Highly subsidized corn exports from the US destroyed the internal corn market, placing nearly one-quarter of the Mexican population in dire circumstances. The result is massive migration, either to urban centers in Mexico or as undocumented workers to the United States. Neoliberal policies are directly responsible for this historically unprecedented migration, yet they barely enter the discussion on immigration policy.

      The neoliberal model represents a globalization of class alliances. The wealthiest 5 or 10% on both sides of the border, those who control the economies and political systems, have more in common with each other than they do with their fellow citizens, and the resulting neoliberal policies reflect their interests. The elites enjoy increasingly strong institutional links, while the rest of us are left with less democracy, fewer economic options, more repression, increased poverty and less sovereignty.

      http://mexicosolidarity.org/about/analysis/en

      1. Susan the other

        The maquiladoras model was started almost 50 years ago. I remember the photo op of LBJ striding across the border to shake hands with the Mexican president and all the blabber about how it was going to raise the standard of living for all Mexicans. Clearly the maquiladoras model is the problem still today. And it has spread around the world and come full circle right back to the USA. It has nothing to do with raising standards of living. But it doesn’t have to be that way. If there were even a shred of rational regulation, corporations would toe the line. They could do their part. Now at the end of mercantilism. Finally.

    4. different clue

      Would they? They could have protectionized themselves as we did long ago and developed enough industry within their own borders to supply consumption within there own borders.

      And the physical plant capital transferred to Third Worldistan has created zero net nothing no new wealth. It has merely destroyed and dismantled wealth here and tranferred the wreckage over their for rebuilding over their. And they will leave America (and maybe Europe and Japan) as ex-Soviet style dirty stinky shitty shitholes. Good for them, bad for us. Whose side are you on?

  3. Robert Jones

    Yikes. Guess we all need government telling us what we can trade and what we can’t, in order to prevent our impoverishment, as well as global tyranny.

    The only free trade in the world today takes place between individuals when government is nowhere to be found. You would call it the black market – and even that is distorted. There is no other free trade. As soon as individuals use state currency, their trade is siphoned by the currency controllers… free trade gone. Trade publicly and you are now in addition limited to state licensing, approval, regulation.

    It is true that, if we could have free trade, it would also mean having the freedom to move capital. What else would you suggest? That you not have freedom to move your capital?

    Individuals do not have freedom to move capital today. We cannot even cash a check larger than a certain amount without triggering the eyes of the State. We cannot move money anywhere the controllers want it kept without bringing their ire. Your post should be focused on capital controllers, not free trade, which all individuals ought to be able to engage.

    In politics the term “free trade” is used for marketing purposed. It sells subjects the idea that elites care about their economic freedom. They don’t. Try buying marijuana if you think there is free trade. There is no free trade except privately between individuals. All business trade is controlled by the State, its legal monopoly, and its banking cartel.

    You seek to denigrate the moniker of free trade because socialized society is failing, and you see rampant plundering. That is the fault of controls, and the cartels that build around them, not of free trade. The deliberate assassination of words and phrases is also a tactic of controllers.

    1. RalphR

      Are you nuts?

      The only way you can have enforceable agreements and not be expolited (well, reduce the risk of being cheated) is via having legal agreements that are enforceable. That means courts, which means nation states. ‘

      Your “free trade” fantasy is indeed the black market. And one of the big characteristic of black markets is criminality and violence. Why? Because they need the other party to be afraid of retailiation in the absence of legal protection against cheating.

      You want the world to work like Somalia, fine, but very few people do.

    2. lolcar

      Wowie zowie, what is to be learnt here?

      1. Unless you can run a meth lab and move as much money around as you like without reporting it to the IRS you don’t have “free trade”.

      2.Only individuals can “free trade”. So corporations or anyone using state currencies is not “free trading”. Barter and personal IOUs only then ?

      3. The free international movement of non-meth lab related private wealth by private entities in modern times is not actually “free trade” because … (see above) … and therefore is an example of “socialist fail”.
      4. And why shouldn’t I be able to buy a Vietnamese tie-pin factory with my money if I want to? Even though no sane person ever did put significant amounts of money into offshore manufacturing enterprises in third-world world countries before the age of free trade agreements (which are not contracts between atomistic individuals and therefore also evidence of rampant socialistic fail).

    3. Susan the other

      International trade/traders should use their own currency. One not backed by taxpayers. Let them come up with their own regulations to make themselves legitimate. They’d get sober pretty fast if they were suddenly cut off from mommy.

  4. The Dork of Cork.

    The 70s were good to Ireland (although catastrophic in the long run)
    We benefited from a capital export from core Europe until it went to further wage arbitrage shores.

    After Ireland left the Sterling building , old school manufacturing died a death in my lilliputian town.

    Almost immediately (1980) Apple moved in to the city to replace at least some of the vacuum created.

    But I don’t think this computer internet thingy was really about Industrial Revolution as it does not increase energy density.
    It was the means through which capital can be exported and reexported.
    I am not sitting here with this computer because I like the fucking thing , there is much better things to do in life if you have the resources.

    I have recognized for some time this is a war and most middle people are likely to lose.

    1. Clive

      I add this to my list of “off the wall” theories but I do sometimes wonder if the reduction in the “Troubles” (Irish Republican vs. Loyalist) was more due to people realising that, basically, who cares if it’s the North, the South, the Republic or the Crown ? We’re all just at the mercy of the corporations and/or the eurocrats now anyway… Sovereignty, if it ever meant anything at all, is dead.

  5. danny

    We should promote Yves to global wage negotiator. Problem solved.

    Fractional reserve lending is the root and what needs fixing, not HE departments.

  6. LucyLulu

    This speech by Obama profoundly altered my perception of him and his true ideology. It showed his neoliberal colors which I’d previously missed. This was the portion of his speech that scared me the most:

    ” Just remember, as we move forward, that there are real consequences to the work that is being done here. There are people in places like Decatur, Illinois, or Galesburg,Illinois, who have seen their jobs eliminated. They have lost their health care. They have lost their retirement security. They don’t have a clear sense of how their children will succeed in the same way that they succeeded. They believe that this may be the first generation in which their children do worse than they do. Some of that, then, will end up manifesting itself in the sort of nativist sentiment, protectionism, and anti-immigration sentiment that we are debating here in Washington. So there are real consequences to the work that is being done here. This is not a bloodless process.”

    This sentiment couldn’t be any clearer. A town is merely the cost of doing business. It may elicit some fleeting sadness but mustn’t allow those feelings to interfere with the goals of the project.

    1. Cynthia

      Obama is the most effective evil, as activist, Glen Ford, has said. And this is really dangerous because this president oozes the language of liberal concerns, while betraying those concerns and backstabbing the constituents who care about those things; and many of them frankly refuse to confront the pure evil and duplicity he represents. And yet for those who are no longer beguiled, Obama is the most demoralizing political leader in our history. He is another sanctimonious vessel of empire, a serial killer who prattles about “maintaining our values.”

      1. AbyNormal

        “Obama is the most demoralizing political leader in our history.”

        one does not acquire an Obama without a long history of demoralizing leaders

        (and tunnel vision clears the path for the next one)

        1. small farmer

          He and his immediate predecessor, of whom neither had anything to do with setting or enacting policies or creating the situation that is so well described and congenially discussed in this set of comments just happened to be the guys who were sitting in the room or standing in the doorway when the proverbial s##t hit the fan.

          It’s Easter week. Give ‘em a break. “They know not what they do.”

          Find us and run someone who does and watch them get 13% of the popular vote.

          1. different clue

            Thirteen per cent would be ten times better than the 1.3% which all Third Party people got together. So it would be a start. And that many people sprinkled over America would reach people they know even under the MSM cone of silence.

            Since Obama supports the TPP, I would say that Obama knows what he does, and seeks more of this unfolding outcome; just as he said in that speech.

    2. Klassy!

      These are nonpersons.
      Jamie Galbraith writes:
      And the President too is a young man. Unlike say Lyndon B. Johnson or Jimmy Carter, when his term ends he won’t be able simply to go home. He’ll need a big house in a gated suburb, with high walls and rich friends. And a good income, too, from book deals and lecture fees. He may be thinking about that now.

      The good news is: it won’t save him. For if and when he ventures out, for the rest of his life, the eyes of all those, whose hopes he once raised will follow him. The old, the poor, the jobless, the homeless: their eyes will follow him wherever he goes.
      The problem is, he doesn’t see them.

      Did you catch his use of that word “cling” in his speech? In this case, the rubes are clinging to outdated programs (i.e. the single best anti poverty program this country ever created.)
      If I ever find myself stranded in the ocean, I’ll remember that “clinging” to a life raft is for the backwards folk.

      1. tongorad

        Do you really think the Clinton/Obama neoliberal mafia give a rat’s ass about human suffering?

          1. Synopticist

            Obama’s a centre-right politician, timourously defending New Deal and Great society programmes from a vicious hard-right attack.

            His 2 elections wins didn’t or won’t make anything better, but they’ll prevent things getting very much worse.

            The US governments response to the crisis has been more compassionate, economically intelligent and less ideologically driven than Europes’. Thats pretty suprising when you think about, especially given the vast number of right-wing economist toadies, coprporate/plutocrat shills that so many of them are, infesting American academia and the commnetariat.

          2. different clue

            No, he is a Center-Rich politician slyly conspiring to destroy these programs under cover of pretending to support “strengthening” them.

            There was nothing timorous about him crafting the Bowles-Simpson Catfood Commission. It was a bold stroke for his owner-class and against us.

  7. Hayek's Heelbiter

    Guys,

    This might be a little skewed off-topic. If so, I apologize.

    We’re losing the branding war which we could win with just a few adjectives (or probably more accurately, noun adjuncts).

    Whenever any of the following or their ilk are mentioned in any post, we should refer to them thus:

    The “oligarchs Koch Brothers,” the “oligarchy of the Walton heirs,” “oligarch Jamie Dimon.”

    Or those companies that pay less tax than the “little people” like us. Matt Tabibi showed us the way with “Giant Vampire Squid.” Why not be follow his lead consistently and refer to GE as that “parasite multinational GE”? Or “the global bloodsucker Amazon.”

    Just a thought.

    1. H. Alexander Ivey

      nice idea HH (love the moniker!), but we need a bigger gauge gun here. “global bloodsucker” is nice but it’s only 5 syllables, how about “international blood-lickerish”, 9 syllables?
      After all, these guys are playing for keeps (keeps as in keeping the middle class’s money, just to tie this thought to the original posting, in case the hostess is watching…)

      1. Synopticist

        I find “oligarch” slightly annoying, because they’re actually plutocrats, not oligarchs. It’s originally a Russian use of the word, to describe the tiny number of guys looting their state during and after the Yeltsin era.

        1. Hayek's Heelbiter

          Ah, but that’s their brilliance. They are constrained by neither facts nor the truth and hijack both at their convenience, whereas we go out of our way to make semantic distinctions. Notice how they turned “liberal,” one of the noblest of 19th (?) century concepts into a term as derogatory as “baby-raper.” Perhaps “oligarch” is not precise as “plutocrat,” but it’s tone and implication for the amoral rentier class are spot-on.

          Imho.

    2. different clue

      Any such thought is worth thinking and sharing. Launch a thousand memes and see which one(s) take off and spread.

  8. H. Alexander Ivey

    Damn! This must be a good post, look at all the trolls out in the first few postings! My, those guys are fast! Lots of big words, lots of strong adjectives and adverbs, and plenty of non-sequitur reasoning.

    But don’t worry, I’ve learned know how to scroll down past them to find the regular NC contributors.

    1. AbyNormal

      agenda trollers make for crisp kindling

      “The mind is not a vessel to be filled, but a fire to be kindled.”

  9. Moneta

    A few years ago, when I visited Jamestown, I learned a few facts that changed my whole perspective on economics.

    I found out that there was not much in North America to sustain life as Europeans knew it. No domesticable animals, so not much horsepower. Settlers brought in their fruit trees, bees, horses and cows… The list goes on.

    So these huge environmental differences would probably explain a lot in the natives’ lifestyle.

    Despite their living in symbiosis with nature, natives could only stay in the same spot for a couple of hundred years until the land could not support them anymore and they suffered population declines.

    That was never an issue with the Anglo way of living which is to deforest, raze the land, and bring in resources from everywhere else by trade or by force when in need.

    This is the system the US adopted and is exporting to the planet. As long as there is some environment we can raid, life as we know it will keep on.

    But how many people can our level of materialism support? There must be a limit. With free trade and physical limits, this level of consumption should get redistributed globally. Why should Westerners get to consume without restraint while emerging markets do all the work?

    One hundred years ago, a farmer knew that he had to have enough kids to work the land, but too many would impoverish him. We don’t see it today because this reality has been masked by the availability of oil.

    Our entire economic system has disconnected us from the true value of money, geographic realities and environmental limits.

    1. Moneta

      My point is that while Europe’s economic system evolved around its own environment and outgrew it, leading to mass exodus towards the new continent, America was built on an economic model that never accepted its environmental limitations.

      If this was true when the population was small, it must be even more relevant now that the population is above 300 million and still growing. In my mind, the US naturally went global a few decades ago because that is what it needed to do in order to preserve its consumer society for a while longer.

      The entropy in the Western system is so incredbily huge that to keep on keepiing on, it needs global slavery.

    2. Reader2010

      The whole system has been set up for only one purpose, that is the accumulation of capital, as Karl Marx had pointed out long ago. To accomplish that ultimate goal, cost externalization must be achieved first.

  10. from Mexico

    This is a great article, but I believe it could be further strengthened by placing its observations within a fuller historical and ideological context as follows:

    1) In order for capital and trade to be free, humans have to be enslaved, and this never happens without greatly enhancing the size and reach of the state’s instruments of violence — the police and the military.

    2) This is not the first time we’ve seen this movie. We’ve seen it play out numerous times since the ideal of neoliberalism, liberal internationalism or liberal imperialism was first conceived by Adam Smith and like-minded souls in the latter part of the 18th century.

    3) The only time liberal imperialism has run amok to the extent it currently has under Pax Americana was under the aegis of another great pax, Pax Britanica, in the years between 1870 and 1913.

    4) That the Treaty of Versailles was an attempt to reinstate the era of unbridled liberal imperialism that existed under Pax Britanica, as Thorstein Veblen noted in his “Review of John Maynard Keynes’ ‘The Economic Consequences of the Peace’:”

    At the same time the present economic and political order rests on absentee ownership. The imperialist policies of the Great Powers, including America, also look to the maintenance and extension of absentee ownership as the major and abiding purpose of all their political traffic.

    5) That, in an attempt to conserve liberal imperialism, or in the words of Veblen to preserve “the world…made safe for that Democracy of Property Rights” or “absentee ownership,” the Great Powers threw their unbridled support behind the rising wave of fascist and Nazi regimes in Greece, Italy, Spain and Germany. So in this chiliastic battle of error vs. error, wrong vs. wrong, “it became the first concern of all the guardians of the existing order,” Veblen observed, “to root out Bolshevism at any cost, without regard to international law.”

    6) That the plutocrats and oligarchs always labor under the delusion that with the appropriate pedagogical, indoctrinational, propaganda, and terrorist means that they can shape the world to their liking.

    7) That, as post-WWI events demonstrate, this Utopian dream of a “happy” world and a social system which does not rejct them or force them to submit to laws and customs whose meaning is incomprehensible to them was not realized.

    8) That what we’re seeing now is the second grab for the brass ring for the oligarchs and plutocrats.

    1. jake chase

      Glad to see you discovering Veblen. We have more to learn from him than Montesquieu or Hobbes, either.

      Have you read “The Theory of Business Enterprise?” It explains finance capitalism as well as anything written in the past 100+ years.

  11. Ms G

    Yves,

    It looks as though “Free Trade” is one of those phrases that triggers a RED ALERT in the neoliberal Trollosphere and instant mass deployment of BotPosters! It would be funny to have a small post discussing different brands of chewing gum with the phrase “free trade” just randomly thrown in — just to see what happens :)

  12. Max424

    Great post.

    Yes, with the unrestricted neo-liberal money changer’s domination of all aspects of the world economy, prospects for a happy planet look a damn sight worse than desperately bleak.

    The estimable optimist Glenn Greenwald, however, believes we must not give in to “defeatism,” for clearly forward progress on important matters can still be made (though nattering doom & gloomers might insist, albeit only on wedges issues that lie within a greater, move-toward-slavery-everywhere regressive framework)!

    http://www.guardian.co.uk/commentisfree/2013/mar/26/gay-marriage-supreme-court-defeatism

    Indeed. I recall being on a JV team that was trailing 42 to nothing late in the fourth quarter of a football game. In that potentially despair filled moment, did I –did we, my team and my teammates!– give in to defeatism?

    Hell no! In fact, as our quarterback and intrepid leader correctly pointed out in our huddle: “Boys, mathematically speaking, if we score 5 lightening quick touchdowns and successfully convert the last of 6 consecutive onside kicks, this offense will be back on-the-field and in position to steal a miracle victory for the Blue and the Gold, and all its faithful supporters everywhere!”

    “Needless to say though lads, the math also clearly indicates we must score on this possession. So let’s say we give this drive our all!”

    And what say we did! We gave the drive our all, and scored a possibly, not-so-hotly contested touchdown on what turned out to be, the last play of the game.

    Some say, they gave us one, did the other victorious squad. They threw us a bone. But I say, even if true, that is absolutely not the point!

    My team strained mightily to perform a miracle. To do so, we first needed to score and we did. That we eventually –and predictably– ran out of clock and ended up, five touchdowns short, is totally immaterial.

  13. RaulGroom

    I’ve always found it odd that the people who make the most noise about Adam Smith fail to note that the he prescribed conditions of free labor mobility and restricted capital mobility. What modern elites usually call “free trade” is the exact opposite of that.

    1. from Mexico

      You can’t see the forest for the trees.

      One of the pivotal fictions that Smith proselytized was that somehow it is possible for economics to exist in its own separate world, free of state intervention. Of course early critics like Simonde de Sismondi quicly caught on to the fact that all it ever amounted to was a bait and switch strategy. As Jonathan Schell notes in The Unconquerable World, Smith’s doctrine was a key factor in the rise of the war system:

      From Laissez-Faire to the Military Revolution

      A parallel process of militarization ocurred in the evolution of the industrial revolution… The early champitions of the free market, most of them British, had in fact looked to industry mainly to create the wealth of nations, as the title of Adam Smith’s classic book had it, not the power of nations, which had been the preoccupation of their mercantilist predecessors. The advocates of laissez-faire declared the independence of economics from state power. (The eventual coining of the word “economics,” identifying a distinct realm of human activity subject to its own laws, was one sign of their faith in that independence.) The market worked best, the worldly philosophers of the late eighteenth century beleived, when the government kept its hands off it…

      An unbroken thread of faith in free trade as an abettor of peace runs through the entire tradition of liberal internationalism, surviving many diappointments and continuing, if in attenuated form, to this day.

      Yet soon a different relationship of markets to war emerged… For the rest of the history of war, the strength of industrial economics and military power would be closely linked.

      Schell gives the following example:

      However, events did not proceed as the liberal imperialists expected — nether in Asia nor in Africa nor in the Ottoman Empire. The economic arrangements forced upon those lands did not strengthen and liberalize their governments but undermined them and drove them, one after another, toward collapse. The Egyptian government, for example, accepted loans from Europe, spent the funds on large but unproductive public projects, and, when these failed, sought to keep up payments on the loans by raising taxes on the poor, who grew discontented and rebellious. The imperial powers then were faced with what seemed a drastic choice: between withdrawing entirely and imposing rule. They chose direct rule.

      What we are seeing happening now is the liberal imperialists’ vassal states once again rising up in revolt. The puppet regimes installed by the Great Powers can no longer maintain control of the discontented poor, so like in Iraq and Afghanistan, the Great Powers are stepping in, opting for direct rule.

    2. LifelongLib

      At the time Smith was writing workers were often prohibited from relocating within their own countries in search of better wages. Restrictions on imports kept prices high for many commodities that were produced more cheaply in other countries. Compared to that free trade looked like liberation.

      On the other hand, I don’t think Smith envisioned situations where countries became net importers/exporters, or where trade affected employment. He seemed to believe countries could specialize in producing things for which they were best suited and trade them for things that could be produced more cheaply elsewhere, without affecting the overall level of employment in each country.

      1. jake chase

        Smith wrote about trade without taking finance into account. His simpleminded analysis is still quoted today only because his conclusions are congenial to big money.

  14. TomDor

    Worth reading Reality Economics by Micheal Hudson — it gets down to brass tacs

    http://michael-hudson.com/2012/12/reality-economics/

    Micheal Hudson says the following in Economic Reality — I agree

    “Debt leveraging is encouraged by taxing asset-price gains at much lower rates than earnings (wages and profits), and permitting interest to be tax-deductible. This fiscal subsidy is by no means an inherent feature of markets. It reflects the financial sector’s capture of tax policy, along with regulatory capture to disable the government’s oversight so as to make fortunes by deregulating, privatizing, and popularizing the idea that economies can get rich by going into debt. Neoliberal doctrine demonizes government as the only power able to regulate and tax unearned income and prosecute fraud. This inverts the idea of free markets away from the classical meaning of markets free from unearned economic rent, to connote today’s arena free for predatory rentiers.”

  15. coobek

    I think there is a bit of controversy in condaming in straightforward fashion the free-trade. A very important quote from Chris Engel post:

    “They just mean that in certain areas there have been liberalized that predictably benefit the capitalists of the richer nation and the low-skill workers of the poorer one”

    Indeed the so called globalization is having this effect exactly. Somewhere on NC there was a link to interview with a French/UK investor James Goldsmith and EU politician envisioning exactly what happend & he was ‘mean capitalist’ yet he was against that. It was in early 1990s – the interview.

    Basicly 2Bil workers entered the Global Market and I think it still a miracle that the WE & US workers were able to HOLD the level of wages they have achieved. Can you imagine the scale of unbalance in earnings and life quality.

    I think while critisizing ‘free trade’ as it hit develop world we do not give the credit to how likes of Brazil & China & Poland… quickly were able to improve the life quality. The numbers in China are amazing.

    It is worth of understanding that in my opinion in previous years, in a way, everybody in developed world was a bit ridding freely on the backs of the 3rd world.

    Now they joined the fray some time ago, the motivation to earn additional 5$ if you earn $100 per month is staggering. And this was handed to them by global capital. The ebnfits to the developed world was obviously low inflation. But the negatives are coming to it – the unemployment esp to low skilled part of the populace, the stagnating wages, the infingments on social gains.

    I think that we all agree that this part of globalization of capital & free trade, the empowerment of poor is a positive thing, even if we developed world has to bleed. Unless we don’t? I do.

    However.

    It could have been done in far more civilized way and far more democratic and far less, well, Black Market. Take EU for example – to join the common market you as a nation need to fullfill a lot of adjustment in human rights, environmental and comercial side of your countries laws. In fact you need to follow aquis communitare so a common set of rules. So what you are left to compete is labor wages, efificiency , education and such. I think its fair to say that if China, to be awarded a free trade status, would need to accept a common set of rules and companies would for example not need to do a environmental outsourcing (because you can polute) or social outsourcing (because of low freedom level of democracy/corruption) from developed world to China. Then cost of doing business in China would be a bit higher than is currently and China itself a bit slower to grow while the developed world a bit slower to decline. The unbalancing would be done in more acceptable fashion. I think far more acceptable to anybody.

    Additionallyy the developed world were the capital is flowing from to allow for rapid rebalancing which in turn is hurting its own people (famous 1% vs 99%), should probably in some way, somehow tax the capital far more to allow for easy of rebalancing. To offset to 99% the lost or stabilized wages and employment. This has absolutely went in another direction and is not done at all. I think this is a major argument here. Isnt it? For me it is.

    1. from Mexico

      coobek says:

      The numbers in China are amazing.

      They sure are.

      Just as in Mexico, the 300 million workers who are the real engine of China’s economic miracle live an increasingly harsh existence, brutalized by an authoritarian government captured by criminal elites.

      Technocrats are technocrats, regardless of whether they call themselves neoliberals or Marxists.

    2. Me

      There lots of problems with what you are saying. For one, the core of the Chinese economy is in state hands and has never left state hands. Telecommunications, heavy industry, energy, FINANCE, light industry, all of that is largely in state hands. There have been market reforms, I lived In Guandong and saw some of it firsthand, but we are talking about the ability of a Chinese person to have a shop not much bigger than a closet. Even with that you will notice uniform, or damn near, prices and products available on the market. I couldn’t figure out if this was government policy or if the sellers got together to fix prices, but there is many times not tons of difference in the products or prices in local markets. To give you an idea though on the size and importance of the state owned enterprises, there were 69 Chinese firms listed in the Fortune 500 recently. TWO were private firms, the others were state owned enterprises. What that has to do with free trade, free markets or free financial capital movements is beyond me, especially given that the Chinese state controls finance and financial capital flows. Then there is the environmental angle. To make a long story short, the market reforms aren’t sustainable because of the massive environmental and ecological destruction in China. The World Bank estimates that about 10% of China’s GDP is lost to environmental damage. That is certainly under-underestimate, and assumes anyway that you can put a price tag on, say, the extinction of a species, or soil erosion. I want China to succeed and I want my friends in China to have good lives, but there is no way the market reforms are sustainable. I have a background in environmental and ecological economics, I have yet to see a market based policy that has a realistic chance of solving these issues, especially in China and especially given that there is no real private property in land in China (which usually needed for market based policies to have a snowballs chance in hell. Look, for example, at the assumptions needed for Coase negotiations.)

      Taking the bigger picture into account, this “free trade” has NOT lead to economic development, and I am sorry but no other country has nearly as many resources as Brazil. You can’t tell me that what kinda works in Brazil is going to work in El Salvador. What “free trade” has done is destroy independent economic development. A country can only be said to develop if it has the capacity to largely produce for itself and to create its own industries. Most every developed country also doesn’t HAVE to rely on foreign capital. Is that what we see in the vast, vast majority of countries that have adopted what is called here “free trade”? Of course not. They offer up their cheap labor, they allow for capital repatriation, get rid of financial regulations and controls that are needed for actual economic development, they haven’t developed the agricultural system needed for development and they are reliant on foreign capital. That isn’t development, that is allowing Western capitalists to use the reserve army of labor to drive down wages and to drive up profits, to use the developing countries as sinks for wastes and to extract needed and valuable natural resources for pennies on the dollar. The workers in developing countries largely can’t work in factories that produce for export, cause they don’t exist. They can’t form unions are try to get too high of wages because if they do capital will flee and they could in some countries (like the US’ buddy Colombia) be killed.
      Then take into account the massive, massive and still growing debt load of developing countries. The developing world has paid back, many times over, the original principle on its debt and its overall debt load continues to grow regardless.

      http://www.globalissues.org/article/30/the-scale-of-the-debt-crisis

      “Their debt is 50 percent greater than this and has been compounding at twice that rate — over 20 percent per year between 1973 and 1993, from $100 billion to $1.5 trillion [only $400 billion of the $1.5 trillion was actually borrowed money. The rest was runaway compound interest]. If Third World debt continues to compound at 20 percent per year, the $117 trillion debt will be reached in eighteen years and the $13.78 quadrillion debt in thirty-four years.”

      The simple fact is that TRUE economic development threatens the western capitalists and corporations. IF the developing world truly developed they would collectively threaten the power and market share of Western companies. IF they were to develop their own, uncorrupt and efficient financial systems they would also threaten Western financial interests. The West has no interest in true, independent economic development and never has.

    3. Lune

      A few points:

      1) As an American, why do I have to care about improving the living standards of the Chinese, especially if it must be done at the cost of my own living standard? While I harbor no ill will to the Chinese, I expect that capital that has accumulated thanks to the policies, infrastructure, education, etc, etc that America provides should be used for the benefit of its citizens. The Chinese are free to pull themselves up by themselves.

      2) It’s not a miracle that we’ve held our standard of living. Those 2 billion people were there in the 50s-70s. But thanks to capital controls and restrictions on trade, we didn’t have to subsidize their development.

      3) I’m not so sure that foreign capital-based development (as opposed to internally funded development) is all that helpful in the long run:
      –First, as many have pointed out, it can flee quite quickly (ask Cyprus how much of its foreign capital is going to stick around when capital controls are freed).
      –Second, it can corrupt its host governments so that they no longer serve its own citizens (witness U.S. companies successfully undermining Chinese govt attempts at strengthening collective bargaining rights).
      –Third, the development fostered by foreign capital is generally purely focused on foreign needs. (e.g. Mexican maquiladoras don’t produce goods / services to better the lives of Mexicans. They’re produced solely to serve the U.S. market.)

      4) You mention China as amazing. Indeed its economy has grown tremendously. But the effects on its society have been much more uncertain. Certainly lots of people have jobs. But the dismantling of the Iron Rice Bowl means that unless you manage to get a high-paying job, your standard of living is probably *worse* than it was before development started. Housing, health care, education, and retirement benefits, once provided freely by the govt has now become unaffordable even for “middle class” Chinese, to say nothing of the underclass toiling in factories or their families in the hinterlands being thrown off their farms. I’m not an apologist for Communism, especially the kind that recently massacred millions of their citizens, but the actual improvement in Chinese standards of living have been much less impressive than their growth in raw GDP. And notice the Chinese aren’t stupid enough to let their capital leave their country. Even being a prime beneficiary of “free trade” doesn’t mean they wish to be on the donating end of that market.

    4. Heretic

      coobek says:

      ‘I think that we all agree that this part of globalization of capital & free trade, the empowerment of poor is a positive thing, even if we developed world has to bleed. Unless we don’t? I do.’

      You have uttered a Neo-liberal lie based on a Malthusian view of the world; that the amount of prosperity available is fixed, and if the people of the developing world rises up, the people in the developed world must decline. As if money and Capitol are limited, and that trade is necessary for the poor to have better incomes. Exports do not inherently increase the living standards of ordinary people in a third world nation.

      A nation is rich when it enjoys or builds up real wealth for itself. The people of that nation are rich when they can enjoy some of that real worth for their own personal use/comfort. A nation can produce real wealth when it has access to skills, real Capitol, natural resources, appropriate physical infrastructure, and a working societal infrastructure (money/fianacual system, justice system, decent government) to coordinate and incentivize people to transform natural resources into real wealth. The people of the nations can then use and enjoy that wealth if they have an income to purchase that wealth. In China, Mexico and India, the people can produce much wealth, due to technology and industrial transfers from the west, and an inhumane work ethic. However, when you travel there, you will notice that that at least 90% of the people live poorly; they do not have much personal goods, they look thin and harried, and often the neighbourhoods they inhabit are in squalor. Why is this? Although they produce much, they consume little because they each have very small incomes, they avoid using debt to boost short term income (and longterm headache)and the government engages in very small social spending on THEIR behalf. (Although China has huge government spending, it I used to build infrastructure for business, benefit cronies in the construction business, while paying very low wages to the multitudes of construction workers; hence the people remain very poor, relative to the owners of Capitol).

  16. Glen

    Yves,

    Borio and Disyatat’s argument, that it is ‘excess elasticity’ not ‘current account imbalances’, is somewhat academic. Without the imbalances, there would be no capital available to elastic with. Furthermore, other than the US and to a lesser degree Europe, there is no other market large enough and willing to accommodate such large flows. IOW this pool of mobile, ie. elastic, capital would not have been created if not for the room provided by willing US capital markets.

    1. Yves Smith Post author

      Huh?

      Did you actually read the paper? You don’t seem grasp the argument at all.

      Capital flows of 60x trade flows means that the capitals flows have nothing to do with trade flows (the “global imbalances” or “savings glut” argument).

      The capital flows are the result of leverage on leverage vehicles, such as CDOs creating speculative capital looking for trading opportunities. The “elasticity” is basically overly accommodative regulations (permissive regs, lax/no enforcement, policy bias towards high capital mobility).

  17. TomDor

    Life quality improvement? If your costs of living go up faster than the income – your quality of life goes down. Hey, capitalism has increased wages for so many – but, did those higher incomes keep pace with the cost of living – not. So if capitalism is so good, explain why so much income inequality exists, degraded standards of living across the globe – access to clean water, shelter, food, heat, medicine etc. If capitalism is so great for so many – why are so many in such awful positions. Economic rent extraction is a global problem.
    Face the real problem – the rich/elite/parasites/economic rent extractors are the class of folks who receive the biggest incentive and support from those who actually create the wealth in each country – wealth creation requires labor in its production – economic rent extraction does not need labor. Those 47% are not the takers, the real takers – by any measure, are the economic rent extractors….now populated by non-working financialized parasites.

  18. steve from virginia

    From the ‘Here we go again’ department: a long article about capital flows and inequality and not a word about energy.

    Krugman has used the word in conversations but only sparingly. He’s an economist, after all, he thinks of energy as a lowly ‘input’, easily substitutable given the proper ‘price signals’:

    “Over time, however, these restrictions fell out of fashion. To some extent this reflected the fact that capital controls have potential costs: they impose extra burdens of paperwork, they make business operations more difficult, and conventional economic analysis says that they should have a negative impact on growth (although this effect is hard to find in the numbers). But it also reflected the rise of free-market ideology, the assumption that if financial markets want to move money across borders, there must be a good reason, and bureaucrats shouldn’t stand in their way.”

    One reason to move money might be the flow of 88 million barrels of crude oil per day across oceans and international borders. Most of that flow originates in a handful of countries. Meanwhile, every country consumes … money must flow across borders, if not freely there is no consumption.

    Back in Krugman’s halcyon days of post-WWII America, a barrel of oil cost less than $20 and the US satisfied its own domestic fuel requirements. The US earned foreign exchange the old-fashioned way, by exporting its fuel supply in the form of finished goods and services. This state of affairs lasted until 1970 when US domestic crude extraction began its terminal decline. The country was thence required to import large amounts of petroleum … and export large amounts of dollars. Now, with crude costing $120+ at the shipping terminal, a lot of money has to flow … or else.

    Added to the ‘free’ category is the free flow of credit … no credit, no fuel. Why?

    Except for taxi drivers and deliverymen, drivers do not pay for their fuel by using their cars … multiply this condition X 800 million cars. To pay for both fuel AND cars (plus roads and other infrastructure) trillions of dollars (and other currencies) must be lent into existence. This borrowing-to-buy-fuel-in-order-to-waste-it-for-leisure is why the world is indebted to the degree it is now …

    Mercantilism and F/X is a way to increase leverage: what is being described is another failing fuel price hedge … no different from asset price bubbles (wealth effect), off-shoring of jobs, currency ‘unions’ and free-trade zones. Meanwhile, the economists blame retirees, they pimp ‘technology’, they blame welfare queens, they blame the transit of Uranus into the seventh house … Publius hits the target while missing it at the same time! Tycoons are indeed at fault: the auto and fuel tycoons who have created this mess.

    The problem is not on Wall Street or in the halls of Congress, it is at the end of your driveway.

  19. Me

    Great article although I don’t entirely agree with the semantics. Free trade is the free movement of goods over boarders while finanical liberalization is the free movement of financial capital. Goods are tangible while finance isn’t, it is “fictitious”. It is important to draw the distinction. I would argue that if you liberalize one you must not liberalize the other since finance and production need different types of investment.

    Finance wants to be able to move money in and out quickly, without anyone or anything stopping them. The productive economy wants longer term stability since investments in production take a much longer time to make the money back. A productive capitalist invests many times not expecting to make his or her money back for years. If finance can move money in and out freely then it can, and usually does, créate instibility and makes the productive economy next to imposible in practice.

    I also don’t really think the TPP can be considered a free trade deal. Not much of it seems to be about trade. Most of it is making it impossible for government to do anything about sociopathic capitalists making profits at the expense of society at large. If you put in place strong enivronmental laws the secret tribunals that the TPP wants to put in place (and already has in NAFTA and CAFTA) will make the government pay the corporations for profits lost. That has nothing to do with trade and has just as little to do with democracy. The TPP, if you ask me, is the end game for democracy . If we had a functioning democracy we’d have pitchforks outside of government buildings and we’d make our elected “representatives” lives’ a living hell.

    The sociopaths in power aren’t creating politically, ecologically or environmentally sustainable policies. IF they get their way, and there is nothing short of revolution to stop the bastards, the entire system will crash and burn and it won’t take much time either. There are going to be such gross violations of justice and democracy and it will be too blatant to ignore, even for the usually apathetic US public.

    The problema, as far as I see it, is that the left isn’t rallying around a coherent alternative. They exist in theory and in some places in practice, but unlike 100 years ago there is no clear goal and alternative to replace existing policies, institutions and leaders. If there were a revolution but there were no clear alternatives those who gained power will simply control society. They will fill the power vacuum.

  20. Jim Shannon

    This is one of the most important Articles EVER Written in the history of civilization! Most humansy are too busy or brainwashed to observe reality and therb face the truth!
    An overwhelming body of evidence clearly points to the need to TAX all CentaMillionaire$ and Billionaire$ out of existence – world wide! The corrupting power of GREED must be stopped!

    Free Trade is in reality, corruption! The kind of corruption only REAL money can buy!

  21. allcoppedout

    “Free trade” hardly survives basic argument on what it means. My own suspicion is much “neo” (con, liberal, classical) would be destroyed if we had simple, follow the money accounting. British banks and building societies (according to a BoE guesstimate today) are short of £35 billion in capital. The financial sector here employs 4% and pays out 40% of the total bonuses in our economy. Over the last 5 years this is about £60 billion. It seems, across the world, we are incapable of tracking and sequestering such money and capable of stripping assets of mostly ordinary people (I suspect) as in Cyprus in defaults in which no actual creditor gets paid.

  22. Hugh

    What a great post! I have been waiting for what seems like forever to hear more discussion of wealth inequality and how wealth inequality doesn’t just happen or is the natural consequence of merit and hard work but rather is the result of looting, and that this looting is a bipartisan, transnational decades long project.

    I like too the focus on capital flows and free trade. The big push behind the Trans-Pacific Partnership from the US side is precisely to increase capital flows primarily out of the US and into East Asia, or at least have US banks intermediate the flow of capital in East Asia.

    Trade and capital flows should be managed. This gets back to the scission of the economy from its social purpose (building the kind of society we want for ourselves and each other). We should be producing most of the goods we consume (and doing so in a sustainable fashion) because this provides not just jobs, but good paying jobs, for a strong middle class. This would not mean the end of international trade, but rather than as now going into stores where 90% and more of the goods are made in China and other low wage countries the ratio would be reversed. 90% of the goods would be US made. Foreign goods would be mostly specialty/luxury goods at the upper end of the price spectrum. There might be a few industries like electronics where a different mix might apply, but even in such cases there should be monitoring to make sure that a solid domestic industry remained.

    Is this protectionism? Might it reduce the speed of innovation? Yes, but what is wrong with protectionism if it protects American jobs and living standards? As for innovation, faster innovation isn’t better if it is used as an excuse for outsourcing and offshoring, if it decimates whole industries and ruins the lives of those who work in them. Nor is it clear to me why we can’t have both. If we have stable, good paying jobs here at home, then we have more wealth to invest in the basic research which leads to socially useful innovation.

    What I like about this post is, despite its unfortunate references to Krugman, it challenges the neoliberal consensus from outside that consensus. This is the problem I have with Krugman, Bill Black, and most of the MMTers, they always fall back on some variant of “If only the Tsar knew” or “if only the Tsar had better advisers.” In modern terms, this translates into calls for the very political and elite Establishments that defend the rich and loot the rest of us to essentially combat and purge themselves. “If Obama only knew…,” “someone should tell Obama…,” “we should pressure Obama to…,” “sign a petition saying…,” etc. What is refreshing about this post is that it understands that Obama and the Democrats are every bit as much of the problem as the Republicans. That is a break which is both simple and profound and is necessary to any real understanding of what is happening to us, our society, our country, and the world.

    1. psychohistorian

      I agree with your sentiments about the posting.

      Now if we could just encourage folks to see how inheritance is the nut to crack to end this rule by the global inherited rich of the past few centuries…..sigh.

    2. jake chase

      You state, “what is refreshing about this post is that it understands that Obama and the Democrats are every bit as much of the problem as the Republicans.”

      Gore Vidal started saying this around 1970, perhaps earlier. He talks about the Republican Party of Property vs. the Democratic Party of Property. I mention in political discussions that our choices in these elections make no difference, and the listeners either become angry or their eyes take on a deer in the headlikes look.

      An overwhelming majority of Americans seems to feel a need to believe in the two party system, that it is foreign or subversive not to. I have never understood this, but it is unmistakeably true.

  23. calabi

    Good post, I’ve always thought free trade made no sense.

    You cant control the companies because they are uncoupled from any domain.

    They dont even really need to do anything. We have this game where the countries beg the companies to exploit them.

    We have all this government talk of making the country attractive to outside investors. Of course inside investors are no good. And you must reduce regulation and show them how worthless you think you are. Everyones doing it now it must be like christmas everyday for some of these companies.

    Once they have their hold into a country they work purely as leeches, always taking just a bit more than they give.

    So we end up with a guaranteed decline for everyone. I just hope their will be some smart people left whom know the truth of this.

  24. Dalet

    One thing’s for sure, the Clintons have not suffered poverty since Bill pushed NAFTA. Think he was bribed?

    Why does the type on this website show up so small? Can barely read it. Every other website if normal size.

    On a Mac/Firefox browser.

    1. Ms G

      You have two options (1) zoom in (under the “View” tab) or (2) go to preferences in your browser and set the font size larger.

  25. Ms G

    ” … an appeal to actually do the worthless retraining for non-existent jobs that Clinton earlier supported but never did.”

    Indeed. How exactly *did* all that “worker retraining” go that was waved at the American public to maked them swallow NAFTA? I don’t recall any reports anywhere about that “retraining program,” much less any evaluation as to whether it “worked.”

    I agree with myself that there likely are zero studies because nobody was serious about that, these were potemkin promises, and the hundreds of thousands of laid off workers somehow entered the swelling ranks of the un/dis/under employed.

    It would be nice to hear a public figure throw that in Obama’s face as the TPP horizon draws close.

    1. AbyNormal

      Ms G, you have my attention here…thru the years i’ve looked for hard NAFTA numbers but they’re usually skewed. I just backed into this publication: (im still reading)

      1987
      http://www.citizen.org/trade/article_redirect.cfm?ID=1767

      snip
      Public Citizen’s Global Trade Watch first issued a report on NAFTA job creation in September 1995, twenty months into NAFTA. The findings in the 1995 report, which used a similar methodology, were staggering: 59 of 66 company-specific promises made by NAFTA advocates had been broken — the promises did not even come close to being fulfilled. That is, 89 percent of the companies contacted in 1995 had not made any significant steps towards fulfilling their promises of U.S. job creation or export expansion. Despite an arduous search, we were unable to find more than a handful of specific new U.S. jobs created that companies attributed to NAFTA. At that time, the Department of Labor had already certified over 60,000 workers for special assistance under NAFTA Trade Adjustment Assistance.

      Critics of our 1995 study charged that it was too soon to judge whether or not NAFTA was working. They also claimed that Mexico’s December 1994 peso devaluation was responsible for the fact that companies were not performing as promised. ****”It’s time to stop playing the ‘blame NAFTA’ game every time there is a shock felt in the international financial markets,” said the late Commerce Secretary Ronald H. Brown.**** Of course, the United States had already begun a new monthly trade deficit with Mexico under NAFTA in the fall of 1994, four months before the December peso crash.
      http://www.citizen.org/publications/publicationredirect.cfm?ID=7106

  26. mock turtle

    ok you have all fleshed out the problem ad infinitum

    so whats the plan

    how do we fight back

    3rd political party?

    boycott debt and banks?

    pay and be paid in silver?

    lay down in the street and block traffic….

    what?

  27. coobek

    from Mexico says

    “They sure are.

    Just as in Mexico, the 300 million workers who are the real engine of China’s economic miracle live an increasingly harsh existence, brutalized by an authoritarian government captured by criminal elites.

    Technocrats are technocrats, regardless of whether they call themselves neoliberals or Marxists.”

    You cannot dipute the fact of enormous jump in widely acceptable HDI index from 0.4 to 0.7 in 30 years a 75% increase, from far below the world average to a bit above right now. I understand that things are far, far from being right but still I think things did improve tremendously.

  28. Mittymo

    I love it when people say corporations aren’t people, like a corporation is a transformer-like machine or something like that. Dude, even Barney Frank admitted corporations were just people.

    A corporation is a legal fiction that allows people to conduct business as usual (with a few extra formalities) but escape liability.

    To encourage people to form businesses, legislators conceived of a way to make them not personally responsible for their businesses’ debts & not responsible for any harms their businesses did to others. And the way they did that was to create a fictional person, i.e., the corporation.

    Then everybody pretends the corporation is running the business & not its owners. And if the corporation doesn’t pay its bills or harms someone, creditors & injured persons have to sue the corporation & not its owners. But there’s no transformer-like machine out there. It’s just people.

    Assume mom & pop own a corner grocery store. Assume further that they incorporate their business in order to limit their liabilities in running that business, with them being all the shareholders, all the directors, and all the officers (which is quite common for small businesses).

    Does some creature spring to life? No, it’s just mom & pop running their business as usual, with a just few extra formalities to observe.

    1. hunkerdown

      In the view of the law, the corporation is merely a fictitious person. In the view of sociology, the corporation is a micro society, with its own subculture and its own leader.

      It is well known that members of a society commonly suborn some measure of their personal goals, needs and desires to society in order to ensure the society’s success as that society defines it, usually including at least that society’s continued viability. In fact, this is exactly what a “team player” does. It is also commonly the case that a member of a society is dependent to some degree on that society to fulfill basic needs and may even be strongly discouraged by that society’s norms from fulfilling basic needs through other channels, providing members with an additional deterrent from engaging in activities or with channels unacceptable according to those norms.

  29. Alex Tolley

    If free trade is the way to become a billionaire, why don’t the drug cartels try to make their trade legal? Obviously there is more money to be made from artificiasl scarecities that result from non-free trade. On a related note, the fictional Goldfinger made his wealth by the non-free trade in gold – something that now makes the British government motives at the time look completely wrong headed.

    The only part of teh story that I think is correct, is that the wealthy can use the provisions of free movement of capital to avoid/evade taxes, thus escaping any demand for redistributive taxation in their domiciles.

    1. Jim

      The problem is that there is a disconnect between your opinion and reality. The reality is that the world is working just as Gaius Publius is describing. You can be Goldfinger if you like. Or you can be Jamie Dimon, or Lord Blankmind (sorry, Lloyd Blankfein), or Robert Rubin, or Tim Geithman, etc. As for the idea with the cocaine-heroine market, it itsn’t worth commenting on.

    2. LifelongLib

      I heard an interview with a former narcotics cop who pointed out that opium poppies, marijuana, and coca plants are basically weeds. If they were legal they’d be worthless.

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