Empires, Past and Present

By Joseph Joyce. Originally published at Angry Bear

Economists rarely write about “empires,” unless they are referring to historical examples such as the Roman empire. But Thomas Hauner of the Federal Reserve Bank of Minneapolis,  Branko Milanovic of the Graduate Center of City University of New York and Suresh Naidu of Columbia University have presented a study of empires using criteria drawn from an economics classic, John Hobson’s Imperialism (1902). The same criteria can be used to examine whether any empires exist today.

Hobson was not a Marxist, but his work greatly influenced later Marxist writers who wrote about imperialism, including Vladimir Lenin, Rudolf Hilferding and Rosa Luxemburg. Hobson believed that there was chronic underconsumption in advanced capitalist countries due to unequal distributions of income. This lowered the return on domestic investment, and as a result the owners of financial capital turned to foreign markets where returns would be higher. These investors relied on their governments to guarantee the safety of their foreign holdings from seizure.

Hauner, Milanvic and Naidu demonstrate that there was a high degree of inequality within the advanced capitalist countries in the late 19th century. The foreign assets held by wealthy investors in Britain and France expanded greatly during this period, and these assets generated rates of return higher than those available from domestic investments. They also present evidence of a linkage between the accumulation of foreign assets and militarization that led to World War I. These results are consistent with Hobson’s work.

Hobson’s empires established positive net international investment positions (NIIP) and received income from these foreign investments. The payments appear in the current account of the balance of payments as “net primary income.” This component of the current account records the difference between payments received by domestic residents for providing productive resources, such as their labor, financial resources or land, to foreigners minus the payments made to foreigners for their productive resources made available to the domestic economy. For most countries, receipts and payments on financial assets are the largest component of their net primary income.

Great Britain was a financial center and the preeminent creditor nation during the zenith of its empire, and a net recipient of foreign income. It earned net income worth 5.4% of GDP in the period 1974-1890, and 6.8% from 1891 to 1913 (Matthews, Feinstein and Odling-Smee 1982). The surpluses were large enough to offset a trade deficit and allow the country to continue to invest abroad and expand their foreign holdings.

What are the largest creditor nations today? Are they also Hobsonian empires? Japan is the leading creditor nation, with a net international investment position of $2.8 trillion in 2015, which represented 67% of its GDP. It earned $165.88 billion in net primary income, worth 3.8% of its GDP. Germany is also a creditor nation, with a NIIP of about $1.5 trillion (45% of GDP) in 2015 and net income of $74.6 billion (2.2% of its GDP).

But Japan and Germany nations do not fulfill the other criteria to be called empires. They do not have the disparities in wealth that the U.S. and many developing countries possess. Their Gini coefficients are almost identical: 32.1 for Japan and 31.4 for Germany. These are similar in magnitude to those of other European countries, higher than those of the Scandinavian nations but below those of Portugal and Spain.

Moreover, the two nations are not militaristic powers. Japan’s constitution forbids the use of force, although the country does have Self-Defense Forces. Prime Minister Shinzo Abe is seeking to amend the country’s constitution in order to clarify the rules governing the disposition of these troops. Germany is part of NATO, but the foreign deployment of German forces is strictly supervised by Parliament.

The situation of other large countries is more anomalous. China is a leading creditor nation, with a NIIP in 2015 only slightly lower than Germany’s and equal to 194% of its GDP. But that country registered a deficit of net primary income of $41.8 billion. On the other hand, the country with the largest inflow of income in absolute terms was the U.S., a debtor nation with a NIIP of -$7.8 trillion in 2015, worth about 45% of GDP. Its net income inflow of $204.5 billion represented 1.1% of its GDP.

The explanation for these seemingly inconsistent results lies with the composition of the external assets and liabilities. The U.S. is “long equity, short debt,” with assets largely composed of foreign direct investments (FDI) and portfolio equity, and liabilities primarily in the form of debt (bonds, such as U.S. Treasury securities, or bank loans). In 2015, for example, 60% of its assets were held in the form of FDI or portfolio equity, which earn an equity premium because of their riskier nature. China, on the other hand, is “long debt and short equity,” where the debt includes the central bank’s foreign reserves held in the form of U.S. Treasury bonds. Debt assets and foreign reserves constituted 79% of China’s foreign assets in 2015, and the returns on these have been quite low in recent years. FDI and portfolio equity liabilities, on the other hand, accounted for 74% of the external liabilities.

The unusual nature of these income flows have attracted great attention. Yu Yongding of China’s Academy of Social Sciences, for example, has written about his country’s “irrational IIP structure.” He attributes this to an undervalued exchange rate that has allowed the country to have surpluses in both the current and capital accounts that were balanced by increases in foreign reserves, as well as government policies that favored FDI from abroad.

The positive return that the U.S. receives has been called an “exorbitant privilege” that is due to the status of the dollar as a reserve currency. In 1966 Emile Despres of Stanford University, Charles P. Kindleberger of MIT and Walter S. Salant of the Brookings Institution wrote that the configuration of the U.S. balance of payments was due to its status as the “world’s banker”, issuing short-term liabilities in exchange for long-term assets. More recently, Pierre-Olivier Gourinchas of UC-Berkeley and Hélène Rey of the London Business School updated this description of the U.S. to the “world venture capitalist.”

The global financial crisis might have ended this status of the U.S., but the influence of the U.S. economy and its monetary policies has not diminished. Changes in U.S. interest rates have widespread effects on capital flows and credit creation. Several recent studies, including one by Òscar Jordàof UC-Davis, Moritz Schularick of the University of Bonn and Alan Taylor of UC-Davis, have referred to the existence of a global financial cycle that is very responsive to U.S. monetary policy. Similarly, Matteo Iacoviello and Gaston Navarro  of the Federal Reserve Board have written about the spillover effects of U.S. interest rates on foreign economeis.

It may be time for a new definition of imperialism. If the U.S. possesses an empire, it is based on its ownership of foreign capital that it accumulates in return for the issuance of “safe assets.” It takes advantage of this position to invest in more lucrative equity. In addition, it hosts the largest and most liquid financial markets and networks. Moreover, the U.S. government has shown its willingness to use financial sanctions as a policy tool.

With respect to the other attributes of 19thcentury empires, we no longer send Marines to Central America to safeguard our foreign holdings. But our military spending greatly exceeds that of other nations. Wealth is heavily concentrated; the richest U.S. families—those in the top 1% of the distribution of wealth—own 40% of the wealth in this country. Those assets undoubtedly include direct and indirect ownership in foreign enterprises, which contribute to the returns they receive.

What could end this arrangement? The renminbi and the euro are rival currencies, but it is doubtful that they will attain the global status of the dollar. Under ordinary circumstances, one might expect the U.S. position to continue for the foreseeable future. But these are not ordinary times. The Trump administration seems ready to shred a wide range of international agreements, such as those that established the World Trade Organization and the North American Free Trade Association. Moreover, the tax legislation passed last year that lowered personal and corporate tax rates is pushing up the government’s budget deficit. The Congressional Budget Office’s projection for this fiscal year’s deficit has risen from $563 billion to $804 billion and is projected to reach $1 trillion by 2020. Will U.S. Treasury securities continue to be viewed as safe?

The record of transitions in international monetary regimes does not bode well for the future. The gold standard collapsed in the 1930s as governments sought to escape the world-wide contraction in global economic activity. The Bretton Woods regime began to disintegrate when the Nixon administration ended the conversion of the dollar reserves of foreign central banks into gold in 1971. None of these regime ends were planned and they led to further instability. The end of America’s hegemonic financial position has long been forecasted–and avoided. But the shockwaves of the global financial crisis are still taking place, and eventually may be even more disruptive than we ever imagined.

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  1. Richard Kline

    “. . . [W]ith a NIIP of -$7.8 trillion in 2015.” That is a real shocker. What that number means is that the US has ceased to actually invest in assets or production abroad. Not actually, totally ceased, but that such investments have dropped to a non-meaningful share of net financial flows. One can see US actual investment in Latin America and Africa drying up, so that number jibes with some observables. There are many implications of that which require thought. One is certainly that American ‘soft power’ influence is certainly at its lowest levels in the post-war era. We don’t own a lot, and don’t put in money-to-stay. So we don’t have many friends who are actually ‘bought in long,’ only mutual short term profiteers.

    Instead, we mint bitbucks, and swap them for our imports and transient ownership of financial assets abroad. Our buckchain technology is very stable at this time, so if it’s all ‘treasuries in the air’ nobody wants to wake up from the daydream. Those bitbucks are everybody’s convertible asset of choice, and given how we enforce their use through our ownership of the world’ clearance system, their imposed asset of default. It’s a great game so long as you’re the only banker. This is really what almost all the jaw is about, internationally: staying the only banker.

    Where is the risk for the US in all this? The narrowness of our influence. It’s lawyers, gunz, and bitmoney. We don’t make friends. We’re telling our long time partners that they are now demonted to debt peons, just ones with gold plated toilets, that’s all, unlike the rest. We are abrogating leadership in international institutions, or simply ignoring them and acting unilaterally, losing the multiplier value that the institutions have to this point provided. The gunz aren’t enough to stay on top, and when we cease to act through international institutions the lawyers’ cease to present a meaningful threat. So US power really begins and ends with $ bonds, i.e. bitbucks. That isn’t a comforting thought. Power-asset diversity would be a more rational goal, supposing that one wanted hegemony to continue.

    We have financialized our international power, in short. Everything we do internationally is about rents. Which are extracted for private capitalist gain, be it said, leaving the FedGuv to issue more bitbucks to cover operational expenses. It seems to have been decided tacitly that taxes need not be paid by the hegemonic class (true in the Roman Empire also). A stool that rests on one leg is prone to tip over in a shock, and the higher it is the further the fall . . . .

    1. Amfortas the Hippie

      ^^”…nobody wants to wake up from the daydream…”^^
      That’s the source of the uncanny levitation.
      everything is tied up and tangled into the US fire economy. Nobody wants to be the first to jump.
      along these lines, I think it’s interesting that the places we send the Legions have almost all threatened at one time or another to erect their own Reserve Currency, Oil Bourse, or whatever.
      Plug in the repeated and long term betrayal of treaties and such, and eventually, it will all fall apart.
      To my understanding, it’s mostly thin air already anyway, based almost entirely on fear and faith, coupled with the Nixonian “let them think we’re nuts” doctrine on meth.

      1. Eclair

        Amfortas, maybe I need more caffeine this morning, but as I read your comment about the ‘US fire economy,’ my brain visualized California (and Colorado, Montana, Idaho, Washington) burning.

        Then, it righted itself and translated, ‘FIRE.’

        But maybe its first take was correct.

        1. Amfortas the Hippie

          lol. I was aware of potential confusion, but left it that way for grins.
          I meant “fire economy”, but we’ve had 2 large fires in the last week, here, and before today, it was dry as mars, around here…so both are germane…as I’ve felt since I learned the term, many moons ago. the parasitical rentier sector is a blight upon the earth. But remember that real fires are a necessary feature of ecology. We’ll just hafta somehow arrange that something better grows up out of the ashes.

          1. fresno dan

            Amfortas the Hippie
            August 10, 2018 at 1:14 pm

            It’s ‘All Gonna Burn’: As Holy Fire Rages, Authorities Find A Human Suspect

            (Actual) fire, – finance, insurance, and real estate…& holy.
            Interesting (in the sense of the Chinese curse, “may you live in interesting times”curse) juxtaposition of words.

      2. drumlin woodchuckles

        I have long had the feeling that the air above us is filled with conceptual cinder blocks which are being levitated by managerial-class brain-magic and broadly shared social hallucination. When the spell breaks, the cinder blocks will all fall down.

        Are you ready to survive the rain of falling cinder blocks?

    2. Spoofs desu

      NIIP =Negative $7.8 trillion? That truly is an astounding number; especially in light of a positive net income flow of $200 billion for the U.S.

      What that really means– if my interpretation is correct and it is not a typo–is that even though foreigners own have $7.8 trillion more U.S. assets than U.S. owns of foreign assets, U.S. returns on foreign held assets are $200 more than foreigners return on thier U.S. Held assets.

      Sounds like a pretty good arrangement for any empire. Maybe we can call it post modern empire?

      Am I interpreting that correctly? Can foreigners be purchasing U.S. assets in spite of the fact that they could get higher return by investing domestically? As demonstrated by the fact that the U.S. has a positive net income flow of $200 bill?

      1. john c. halasz

        The NIIP is a shifting “dynamic” number, heavily influenced by relative currency values and diverging performance of asset, especially equity, markets globally. I remember in 2006 when the U.S. current account deficit ballooned to 6% of GDP being astonished that the NIIP actually shrank from $3 tn to $2.5 tn IIRC. But a then sharply falling $ combined with out-performance by foreign, especially European stock markets raised the $ valuation of U.S. owned foreign assets. Nowadays with the $ relatively high vs. the euro and the like and the U.S. stock market goosed by QE financed stock buy-backs the NIIP increases, even though until recently at least, the CA deficit had shrunk by half. (And of course, a current account deficit is the same with the opposite sign as a capital account surplus, so a country running a current account deficit is importing capital and paying for it by issuing debt to foreigners, thus increasing the stock of external debt that it owes). But the U.S. has been playing the game of borrowing long and cheap from abroad via treasury bonds and investing at much higher returns abroad since the demise of Bretton Woods (though its NIIP only actually turned negative during Reagan’s second term). As the official in charge of the negotiations at that time Paul Volcker remarked, “well, we’re just going to have to out-run them”. How long can that last?

        1. Spoofs desu

          Thanks John H. Very useful/informative and makes sense that it is dynamic with identities of flows in opposite directions, etc. A lot going on here, to say the least.

          So it sounds like the -7.8 trill is correct…(you mentioned that it was negative during Reagan, seemingly suggesting it was rare) Just to focus on NIIP and the 200 bill net income:

          So, just to recap, all else being equal, (I.e fx rates) and to simplify a bit; as of 2015, the U.S. has accumatively borrowed $7.8 trill more from foreigners than we have have lent to foreigners. Yet the U.S. servicing that debt is so cheap relative to foreigners servicing that debt, we actually have a net income of 200 bill(?); even though we have $7.8 trill more debt to service(?).

          If this is true, and I suspect it is, it would be interesting to see to what degree it is the same foreigners/monetary unions doing the lending and borrowing; I.e lending the dollars low and then borrowing dollars high, creating the 200 bill net income. This would be absurd, of course…but who knows?

          More likely, NY/Wall st./treasury are just intermediaries; I.e. borrow low from some foreigners and lend high to other foreigners. Couldn’t they just go direct?

          Either way, to your point, “how long can that last?”. Especially when every few years we pull the rug out from these emerging market economies, who are likely making this 200 bill net income happen, and then act surprised when it blows up and we have to bring in the imf for some hard core austerity…-but I am digressing…

          But back to main point that these gaps in capital flows/income are seemingly way out of control and best case scenario is a very slow motion crash a la Triffin dilemma which states there is an inherent contradiction between having a domestic currency and an international (I.e reserve) as the same currency.


          1. Spoofs desu

            Yes. Perhaps 20 years–I am still trying to get my head around this above mentioned massive negative NIIP associated with the positive net income.

            This in turn, I think, will help understand the mechanism and timing related to “how long it can that last”.

            For example, why is the u.s. able to consistently borrow cheaply and lend at higher rates? Why wouldn’t these same foreigners lend at a higher rate directly to who ever the u.s. is lending to at higher rates? They are missing out on 100s of billions of dollars every year that are now going to the u.s., as clearly demonstrated by the above mentioned negative NIIP and positive net income.

            Is this really just a function of oil, for example, being invoiced in dollars somehow?

            If we can answer that, I think we might be able to answer the “how long can that last?” whether it will be a slow motion crash or something a little more sudden, I think.

            Note: thanks for the thoughtful posts/responses above/below Much appreciated.

        2. john c. halasz

          Just to clarify, in case I was ambiguous, the U.S. has run trade/current account deficits continuously since the end of the 1960’s, but it was only during the later 1980’s that the NIIP turned negative, as it’s been variably ever since. After Nixon pulled the plug on Bretton Woods in 1971 there were international negotiations to try and patch things back together until 1973, which failed. The Undersecretary of the Treasury under the politicians Nixon and Connolly was a technocrat Paul Volcker, who actually conducted the negotiations and was himself fairly dovish. It was after the failure of the attempted negotiations that he made his “out-run them” remark. Later of course, Volcker was appointed to be Fed chair and jacked up the Fed rate to 20% to brutally squelch the high inflation peaking at 13%. This caused the value of the $ to soar (50% above its Bretton Woods value), which caused the first big wave of U.S. de-industrialization due to burgeoning trade/current account deficits and also set off the Third World debt crisis, setting the U.S. definitively on the course of globalized financialization. And of course, the currency/financial crises of the 1990’s caused a lot of effected countries to subsequently build up their FX reserves to avoid a repeat, resulting in further retrenchment of the $, (if actually also lowering global aggregate demand). Nowadays, at least 60% of global reserves are still in $ and 80% of currency swaps still have the $ on one end or the other. But the international currency markets have grown huge, about a quadrillion $ annually, with a global GDP of maybe $80 tn and actual international trade maybe 40% of that. Since the annual net figures are just a small fraction of global financial flows, many big-wig international macro-economists, such as Maurice Obstfeld, recently appointed chief economist at the IMF, have thrown up their hands and effectively given up trying to make sense of it all. In the meantime, the U.S. itself basically holds almost no foreign FX reserves ($125 bn).

          1. Todde

            I would also add that the strong dollar alsoa made foreign labor cheaper for domestic companies and hastened America’s deindustrialization

          2. Jeremy Grimm

            Your comments help make the most sense out of this curious and disturbing post. But explaining the NIIP accounting item seems more than a little problematic — a little interpreting the GDP or current account deficit numbers. If as you indicate the US has been “borrowing long and cheap from abroad via treasury bonds and investing at much higher returns abroad” don’t those investments abroad count as equity or debt, and if so, how does the NIIP come out negative? I am confused about how assets and debits are assigned to nationalities in a world where companies are International and earn their largest returns in countries with the lowest taxes. Also if Corporations are busy borrowing money to drive up share prices while the Corporate Higher Management carts off the money, is some component of this income producing negative NIIP obliquely capturing the sell-off of US profit streams to foreign investors which generates an income from the sales of those US assets realized as capital gains for US tax purposes?

            1. john c. halasz

              Remember NIIP is net; the gross of assets and liabilities attached to notionally U.S. agents vs. assets and liabilities attached to foreign agents is prolly an order of magnitude or more higher than the net. And yes, it is a bit obscure just how the official NIIP figure is gathered and calculated in a highly globalized world with massive financial flows dominated in large part by MNCs. (For that matter something like half of international trade is actually infra-corporate transfers of MNCs and another chunk is sub-contracted supply chains such as Walmart). But it’s a good guess that the higher returns from U.S. foreign investment, especially in FDI and equity, are bound up with tax, labor and regulatory arbitrage strategies. (For example, until recently the U.S. had a high official corporate tax rate, 35%. Lower returns for foreign investors in the U.S. and higher returns for U.S. investors abroad would largely be an artifact of both sets reporting their earnings in lower tax jurisdictions abroad, via transfer pricing, IP transfers, and the like).

              1. Jeremy Grimm

                Thanks! That helps some. I have trouble wrapping my head around the ‘actual’ meaning of many of the aggregate items cited in many of the economic papers I attempt.

    3. Lord Koos

      While the USA’s global soft power is eroding, China is working hard to increase their reach, making huge investments in South America, Africa, Asia, and even Europe, where they have purchased controlling interests in ports. Meanwhile the US continues to pour money into the military which isn’t much different than pouring it down a hole.

      1. Spoofs desu

        Yes. We hear a lot about China investing in all these global projects. I think the question, in the context capital flows, etc., is whether this investment means they will not be lending us money at 0% and will instead invest using non u.s. Dollars.

        1. Mel

          A commenter on Richard Murphy’s blog quoted a trenchant saying about what’s sufficient and what’s not necessary for investment:

          People will probably ask me, where will Bavaria get the money to complete such giant works [railways]? I answer, that I have not yet seen any silver or gold in any of the canals or railways. To build them we use only consumer goods, steel, stones, wood, manpower, the power of animals. But is there not a surplus of all this in Bavaria? To the extent that we transform this surplus into canals and railways, which are not yet in existence, we create permanent and enduring value, we create an instrument which doubles the productive power of the entire nation. The money, however, does not leave the country, it only settles accounts. — Friedrich List, On a Railway System in Saxony as the Foundation of a General German Railway System, 1933

  2. CB

    my reading in history says all empires have the same trajectory, only the timelines differ. humans haven’t changed the motives or the methods of imperial overreach in all the sorry history of empires, nor the obscene destruction and stomach turning cruelties: just finished skimming a book on the period btwn wwi and wwii. dear god

      1. CB

        The Vanquished: Why the First World War Failed to End, Robert Gerwarth

        but I don’t think it’s the original idea Gerwarth thinks it is bc I have a strong impression that we were taught this in hs and college in the 50s and 60s. as Freddy Coleman said of sports fads, “Things go in vogues.” awkward phrasing but right on the money otherwise

    1. Summer

      The more I read about WWI, the more I think it never really ended. All the wars and conflicts since are phases of a change that started as the power of many monarchies collapsed.

      The aftermath of phase II left the USA to take charge of containing the war. That aftermath included the winding down of the last large Euro empire – Britain. War continues, but the intent is to try to keep those funds flowing for global war profiteers – a new power elite that arose after the decline in power of many monarchies. Their adjuncts are the technocrats and marketers.

      But note: despite all of that revolutionary fevor of the early 20th Century, monarchies still actually exist in the world, as if waiting for their chance to announce their triumphant return to total power.

  3. jfleni

    This post and the Film excerpt should be color-ized and shown EVERYWHERE; then we and the jumped-up generalis-imos can really discus it intelligently!

  4. Carolinian

    Of course there have long been those who say everything the US does in foreign policy is about that hegemonic financial position–that it is at the heart of the Russia obsession, Middle East maneuverings etc.

    The end of America’s financial version of colonialism can’t come soon enough. This may cause pain and suffering among both Walmart shoppers and especially the elites but we are a wealthy country and will get over it.

  5. Craig H.

    > It may be time for a new definition of imperialism.

    The empire is not the United States. The empire is the multinational super-rich club. The country or countries where they receive their mail makes no difference to them at all as long as they have a secure escape route when the bombs start falling. They are more like James Bond villains than Julius Caesar or Napoleon.

    Some of us are fans of the way that Vladimir Putin has dealt with these guys. Have you seen that video where he calls that room full of managers a bunch of cockroaches? It is pretty funny.

    Here is a link; it is only two minutes.

    1. tegnost

      give me back my pen…
      priceless…imagine if Obama had done that with the banksters
      he coulda been a contender…

    2. Susan the other

      The end is near ;-). Where’s all that money gonna go? Can’t invest at home because inflation is a bitch. Pretty obvious, in spite of statistics devoid of a point, “inflation” is a profit driven phenomenon beause, with a small profitable delay, all profiteering here or there results in higher costs and lost jobs. Corporations refused to come back for FDR too – there was no profit to be made. It’s a private protectionism racket. The oligarchs are protecting their hoards of money which they “earned” during a brief boom just before prices caught up with their profiteering – it was really a case of corporate suicide. But they blame labor and then they claim to be the job creators. Such nonsense. They are all profiteers who externalize devastating costs at every turn. At some point the statistics above materialize into the real world. Profiteers can no longer find a place to easily exploit and returns trickle to a drip. Financialization is the only game left – let money make money and at that point there is no economy left to support society. And finance – the last stand of the imperialists – has nowhere to turn. Wish we had our own Putin.

  6. Newton Finn

    This seems to be a greatly MMT-challenged analysis. Classical economic theory proved false in 2008, and the new theory has arrived. Time to begin using it as a matter of course.

    1. Shane

      I’m glad you said something to this effect, Newton Finn. From what I understand of MMT, it seems to make the most sense of all the working economic theories out there these days, but this passage in particular made me question how well this article jives with it:

      The Congressional Budget Office’s projection for this fiscal year’s deficit has risen from $563 billion to $804 billion and is projected to reach $1 trillion by 2020. Will U.S. Treasury securities continue to be viewed as safe?

      And, if we can safely say it does NOT jive with MMT, what exactly are we supposed to take away from it (with regard to its conclusions; the individual details provided are useful in themselves)? This isn’t rhetorical: if anyone in the commentariat with a better grasp of MMT and/or international economics can shed some light on this, I’d greatly appreciate it.

  7. tegnost

    Kind of strange post but maybe I’m missing some things…it starts with this but then leaves it…
    Hobson believed that there was chronic underconsumption in advanced capitalist countries due to unequal distributions of income. This lowered the return on domestic investment, and as a result the owners of financial capital turned to foreign markets where returns would be higher. These investors relied on their governments to guarantee the safety of their foreign holdings from seizure.
    Basically the current state of affairs in a nutshell.
    Well we have underconsumption in the areas where control capitalism tries to force consumption I see the PPACA as this sort of forced participation in the”teachers pet” GDP numbers as one direct example, and QE as an indirect example (switching from mark to market to mark to model was an asset security)
    The post closes, however, with scare mongering re the various international trade pacts that have privatized much of the global income, led by the hegemonic if not quite imperialist usa..Hmm.

  8. Loneprotester

    Interesting analysis. I’m not an economic historian but I am a historian of empires (specifically the British variant). A very popular explanation for the decline of that one posits that capital outflows, facilitated by the City of London, starved the domestic economy of investment for decades. Then the wars of the 20th century drained the national coffers, while anti-colonialism cut off investors from their assets in the newly independent post-colonial states.

    All that was left was a hyperconnected, highly skilled class of financiers, who continued to help the UK “punch above its weight” into this century but is in serious danger of being annihilated by Brexit. Why Brexit? Because this class merged with its international counterparts and disconnected itself from its hinterland, which stuck a large knife in its back “suddenly” (after a century of being treated with increasing contempt).

    What’s interesting about this new data is that two of the largest beneficiaries are the losers of WWII which have no armies and not a lot of soft power. How are they winning so hugely? Because the “winners” of the war have provided the financial heft (London) and the military might (DC) to enforce global contracts and international protocols (Bretton Woods and NATO) and provide the soft power cover of an Anglophone media that completely dominates the global imagination.

    China is interesting because it has risen as a semi-colony of the West, attracting massive capital investment for decades and draining its engineering and industrial might in exchange for a one-time massive payoff of the ownership class. It then silently morphed from the colonized into the colonizer, ramping up its military industrial complex, diplomatic/investment wing (the One Road initiative is, in essence, a play for a Chinese Empire), and financial investments in the heart of the West. We created a monster in our own image and no longer know quite how to handle it.

    The US remains the odd man out, massively indebted yet armed to the teeth and still driving much of the global economy through sheer dynamism. Is it sustainable? Damned if I know. For much of the past half-century the world has told the US to “hold my beer” while “free” trade agreements drained it of its industrial power, leaving us dominant only in military might, agricultural output, and high technology. These being concentrated on the coasts, much of the hinterland has suffered mightily, and in 2016 stuck an orange knife in the back of the two-party elite plutocracy that had been gorging happily for decades.

    The whole thing is likely without parallel in recorded history. The end of ancient Rome may offer some insight, however. There a dissolute elite class ran off the rails whilst barbarians who had been brought in to do much of the dirty work of ruling an empire (fighting, building, administering, policing) gradually took the reigns of power and then threw over the Romans entirely. Perhaps there were similar brawls over identity politics and some equivalent of “Russian” bogeymen at the time.

    The questions that remain are: is Trump too late (or too corrupt, too venal, too divisive) to reverse the rot? Can the international system be salvaged (and if it can, should it)? Can China be made to toe the line and act like a normal country? Can the US?

    At the end of the day, it seems that everyone assumed that China would become like Japan or Europe, when in fact it always wanted to be the new USA. And in the meantime, “everyone” assumed that the US would eventually become more like Europe (an outcome the Democrats still pine for), forcibly redistributing the wealth created by globalization to keep the masses happy. The Republican response to that appears to be, when you have pried my gun from my cold dead hands. We do not have it in us to to go quietly into the retirement home of history. The future is unwritten, for sure.

    1. pretzelattack

      i haven’t seen much evidence that the democrats of recent vintage want to distribute the wealth resulting from globalization anywhere but to the donor class, but they are happy to forcibly redistribute the wealth the middle class once had to that same class.

      1. L

        Yes, the wealth of the hyper-rich .001% circles the earth on the stratospheric level where grubby fingers cannot find it. I content myself with the notion that they will be unable, when it finally comes to it, to make it to their New Zealand boltholes. Either that or they will arrive to find hundreds of fierce Maori warriors already living there. “You can gather our firewood,” they offer. I’d like to see that.

    2. Richard Kline

      You raise a range of interesting points. Let me rephrase a bit.

      Britain, France, and the Netherlands lost the ability to defend The White Zone over which they had spread outside of Europe, both of overt colonies, implied local hegemonies, and enforced economic concessions. The lost this for long term cyclical reasons in the main, and for short term material reasons in the wake of bankruptcy and exhaustion of WW II.

      Britain recruited the US to ‘retain hegemony’ over the White Zone which European post-colonial powers lacked the means to do themselves. Much of the decision process on this ‘handoff of the paramounts’ took place during WW II without any public discussion. So the US added the White Zone to its own Blue Zone, with the intent that a) all economic assets there would remain subordinate to American-Euro capital, and that b) governments accepting of that would be the only ones allowed to remain in power. This also required that c) significant competitors be excluded from the BlueWhite Zone. The plan got going in China and Greece even before WW II was over, with varying success, and has continued since.

      The US is thus not an ’empire’ in the technical sense, but the guarantor of an ‘hegemony’ more nearly. There are many other factors which have shifted the parameters of this decision space in the decades since without really changing it. The erosion of American industrial capacity was very likely to happen regardless of intent by American capitalists. Production has historically moved to low wage, emergent areas over the long term, shifting across Europe in that fashion, out of Europe, out of North America, and to a degree now even out of Russia as well. This inherent trend toward deindustrialization could have been managed better rather than mismanaged catastrophically but would have been underway regardless.

      Then there is the emergence of China, not something guaranteed to happen at all within the parameters in place c. 1945 of European recession from the White Zone. I do not think at all that China ‘wants to be the next US.’ The Chinese leadership and populace have their own objectives which are perhaps better discussed elsewhere, but which first and foremost are about mainland security, and secondly about the ability of private capital to diversify partially outside of Chinese government control. In cultivating a Red Zone, they are not playing a game of empire; yet. They may down the road.

      The US has responded to China’s emergence with the utmost strategic incompetence imaginable. Trump is the worst symptom of that of all, but even the ‘normal strategy’ in place of the prior twenty years has been very poorly thought out and executed. I hope very deeply that there is not a Big War at the end of this. China certainly wouldn’t start it, but misleadership in the US is quite capable of backing into such an outcome ineptly. Not just yet, and I hope never, but the potential is all too real.

      The real problem for the US is that defending the White Zone has become a costly strategic liability in the main, and we are doing a sloppy job of holding onto it. An enormous amount of energy is being spent ‘chasing bandits’ in the Near East and Africa, with no strategic vision of where it all leads. Regardless, the US is locked into the structural liabilities of defensive posture trying to hold onto a broad hegemony, and so in no position to take an offensive posture repositioning long term partnerships. There’s a lot more to that argument, but that is the nut of it.

      Trump is not a symptom of resistance to American FinCap exploitation of the BlueWhite Zone. He would simply prefer to convert it into an actual empire, a project which on macro cultural grounds plays very well in Heartland America actually. It plays much less well in the Urban Archipelago. An actual empire would cost more, so FinCap doesn’t want it. Liberal America is against it, not wanting to get its hands that dirty as the cost of its continued privileges. And it is absolutely not achievable, so madness to even consider.

      1. skippy

        What are your thoughts on that meeting of heads on the battleship off Nova Scotia and how it reflected on Colonialism, until that got the treatment post Eisenhower.

        Funny aside, this week someone accused me of being a polymath….

      2. Carolinian

        He would simply prefer to convert it into an actual empire,

        Care to back that up with something other than bald assertions? You seem to have Trump confused with the George W. “we are an Empire now” Bush administration. Not that I’m claiming any insight into Trump’s goals. He may not even have any other than to keep all eyes on him.

        1. skippy

          His team picks and his rolling back any friction wrt anything in the way of profit e.g. Fin dereg [lambasting the SEC for not moving fast enough], environmental [water wrt Calif fires], pro corporatist Judiciary selection, increased MIC Keynesianism, Larry – ????, alt-rht fire fanning on ID issues, taking credit for stuff that has no basis….

          All I can see is some guy that thinks 52 card pick up is a brilliant plan.

  9. Edward

    Is Germany an empire with respect to Greece and other EU countries?

    I think this is a typo: “…in the period 1974-1890”

    There was a Michael Hudson article several years ago about the “carry trade” with Japan. As I recall this involved the U.S. borrowing money from Japanese banks and lending it at a higher interest rate elsewhere, so Japan was a resource for American financial imperialism.

    Do private institutions such as Wall Street still have national affiliations?

  10. Scott1

    You can keep your name but we get to keep all your assets and run your government with our proxies and your strongmen who like being rich as we make them rich.

    You can keep your name, but the IMF uses dollars. You have to have credit and have to be in debt to us. We don’t like Unions so we like it when you kill their leaders.
    & your guys are our guys we can call villains.

    Catapillar, Catapillar. In South America there are few tanks. We use bulldozers
    to get rid of the people we want in the ghettos.

    What is being done now is that foreign business is free. Finance doesn’t need any real industry except as it can tear it apart and sell off the parts as done to Timkin gears.

    Uranium One was a bad look regardless of the legality. Still what does it illustrate but what big money is doing that degrades the real power of the dollar, aye?
    Sewing machines. Were a transformational machine. Civilian power & machines are a bellwether bunch of indicators where there are fewer hot spots with Mexico as a Front of the Drug War which is hot.

    Waning of the US Financial system may be anticipated by bulldozer sales. The Japanese with their Sovereign Wealth fund intended to profit for their nation off our US infrastructure spending could mean introduction of their mythic Cyberdine exoskeleton.

    My apologies for some misspellings. I am in a rush. Thanks

  11. ewmayer

    Interesting read. Re. finance and empire – I’ve long referred to US use of its exorbitant privilege as ‘reserve currency colonialism’.

  12. RMO

    “With respect to the other attributes of 19th century empires, we no longer send Marines to Central America to safeguard our foreign holdings.” ….Ohhkay. Of course there are a little over 200 nations in the world and the U.S. has a military presence in 177 of them with approximately 800 bases. I think that alone meets the requirements to be called an empire.

  13. Luke

    Just the War of Northern Aggression and the U.S. falling below the 80% minimum in the dominant ethnic group required for national stability without imposed force (e.g., being a genuine NATION) classifies the U.S. as an empire. That’s without getting into currency and overseas military activities, also indicative.


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