Sunday, December 2, 2012

The Global Economy and You

We learned this week about how the global economy functions and is structured. This was again a frustrating experience for me. Much of economics the religion seems to be about rationalizing what those at the top of western societies want to do for their benefit. The creation of economics and its increasing rationalization and rootedness in abstract mathematical formulas and "laws" was perhaps the most useful intellectual innovation for the wealthy. This allowed the changes to society needed for their pursuit of more and more wealth to be justified and legitimated by a "science."
 

Globalization and the international financial institutions (IFI's) were the most interesting concepts in this weeks lesson, and also the most contentious. Just as Western society has been conquered by the fairly new capitalist way, backed by the science and rationality of economics, Globalization is the new frontier of imperialism which allows the western countries and corporations to conquer the third world nations. We learned about the methods used by the IFI's to spread the "Washington Consensus" far and wide. More and more international trade agreements were pursued by the developed nations after World War II. With the creation of the IFI's such as the World Trade Organization, these sorts of trade agreements came to be institutionalized, normalized, and almost necessary for all countries to be part of.
 

For developing nations this new global trade regime came at a great cost. They were bombarded with the gospel of comparative advantage so that they would both "open" their nations to trade as well as restructure their entire economies in the hopes of one day being as wealthy as the developed nations. Opening your economy also meant you would become eligible for international investment. Investors and experts from the IFI's would bring in large amounts of loans to be used for infrastructure. The developing nations would take on the debt, but western multinational corporations would most often do the work recommended. Whole industries would be re-structured so that nations could better maximize their competitive advantage. As we did learn from our text, this also had a downside; vulnerability and volatility. Changes in the weather or the market could violently disrupt a whole nation's exports, leaving them in a bind. Many of these nation's took on large debt burdens, paid western companies large sums for infrastructure, and then found themselves unable to pay their debts. Then the IFI's would swoop in and forcefully make "structural adjustments" to their economies. This usually took the form of cutting as much government spending as possible, reducing as many tariffs and taxes as possible, and deregulating as many industries as possible.
 

I called this the new frontier of imperialism for a reason. The western multinational corporations, and in turn the wealthy from the western nations, were able to get paid to extract the natural resources, establish dependencies on our products and companies, create new markets, access dramatically lower cost labor forces and therefore maximize their profits, all without firing a shot or swinging a sword. The same goals of imperialism were accomplished, but this time by a new type of missionary and military. That of the global economy.
 

This effects us in the U.S. as well, especially in regards to the recent presidential election and the looming "fiscal cliff." Norm wrote recently, "The super rich and Obama also share a common view of the global economy.  It is providing huge rewards to those who benefit from globalization and it is punishing the middle class in rich countries as wages, and standards of living converge across nations." This was all in response to an interview of Chrystia Freeland by Ezra Klein in her Washington Post blog, about how "Romney is Wall Street’s worst bet since the bet on subprime." In this interview, Freeland speaks about her insights from numerous interviews with members of what we would call the "super rich." One insight was that the wealthy mainly backed Romney in the election because they viewed him as their best shot at more deregulation and lower taxes; the "Washington Consensus" on home territory.
 

In a recent New York Times article called, "How the Tax Burden has Changed," we can see why the wealthy would want to at least keep the tax system the way it is, if not improve it further for themselves at the detriment of everyone else. This article presents research on taxes from 1980 to 2010. Key findings are that all taxes have actually decreased in the last 30 years. Also, the share of local and state taxes paid by the bottom third of income earners has increased versus that paid by the top income earners; mainly in response to declining municipal revenues and reduced federal support. And the kicker, the distribution of benefits from our tax system as a whole benefits those in the top income brackets much more than those in the bottom half of income brackets.
 

This is all to say that the global economy and our very own economy are structured to benefit the same small group of people. Yet, we all now worship the god of neoclassical economics which was created to make the unjust seem logical. The wealthy in our society are regarded as hero's, job creators, innovators, and intellectuals; a regard that they perhaps deserve since they have been able to create and perpetuate a system which maximizes their wealth and power at the expense of the majority of the world's people and ecosystems.

5 comments:

  1. Thanks for another well-spelled-out article, Joel. I really appreciate the reference to "How the tax burden has changed". What a fantastic set of interactive graphs. For me, these graphs help me understand the immediate results tax policy has on our economic system. Basically, zero lag time from implementation to result. And so i found it interesting to see where Bush's administration continued the legacy of Reaganomics tax policy (a decline in tax rates for all but a much more significant reduction for the affluent). Furthermore the graphs show Bill Clinton's policy, which halted the declining trends and flatlined during his occupancy. I also appreciate how you referenced local and state taxes from the article. That I feel is a very important message from the article. The data clearly postulates a Regressive Tax Policy for State taxes. This seems so backwards to me. State taxes fund state programs, which are generally aimed to benefit the lower income earning brackets. So we have the lower brackets, the folks who need the programs but can least afford it acting as financiers, while the upper brackets who can afford the most are paying less than they use to. I don't think it takes a rocket scientist to figure out the system needs repair.

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  2. Great insights, Joel. I often wonder if the so called job creators realize they create jobs that do not really offer a living wage. This perpetuates the cycle if inequality and prevents people from purchasing the goods and services they provide. How is that good for business and the economy let alone their own wealth?

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  3. Joel, you are awesome by the way, I really enjoyed reading your last post. I do not know if our system of economics was created because a group of the super rich decided this would be the best and most logical way for them to keep raking hand over fist in dollar bills. Unfortunately, it is what our system has become, I think the original purpose of it was with the best of intensions but it has created this beast fueled by greed that only benefits the wealthy. Now it is not only the economic system, but policy and even popular knowledge benefits the rich, perhaps they are heroes, intellectuals, job creators, and innovators, or perhaps they are just pigs.

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  4. Wow, you have great passion and conviction behind your words! I enjoy reading your blog because you hold such a different perspective than I have, up till now, been familiar with. Granted I wouldn't hesitate about drawing these conclusions about the impact on developing nations - it really makes me sick to see the Macro impact our global economy has had on so many people that weren't as "smart" to think of crunching numbers the way some have. It seems to me a new form of "intelligence" needs to be discovered that factors into the matrix of our world more than just ones and zeros.

    That said, I don't entirely believe that the top 1% have conspired to rip off the rest of the world - I think they have adopted more of a fear based thinking, so consumed in their own fears they don't see past their nose. . . afraid of loosing what they have - they must protect and gain more, afraid they will be shamed by those that do better than they do - they must ruthlessly compete for the biggest slice, afraid of loosing control they rationalize their actions as necessary. Wrong? - yes! Evil? - yes! With intent to screw those at the bottom? I don't think so . . . Deluded? - absolutely!

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  5. Joel, you are one of the best and most thoughtful bloggers I have been reading this year. Thank you for this post, and for all your insightful posts! I trust you have read John Perkins' Confessions of an Economic Hit Man (he's a friend of BGI and a Bainbridge resident, BTW), but if not, you should.

    An interesting question, which some of your reader-commentators have raised,is the question of intent. Was this the goal? Were the steps along the way planned? Or was this "just the way things turned out" in the pursuit of other outcomes, or as an unintended consequence of the pursuit of some other outcome? I'm probably naive, but I tend to believe the latter. You?

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