Yearly Archives: 2018

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Jayati Ghosh — The Real Problem With Free Trade

Jayati Ghosh writing for Project Syndicate: 

Globalization’s detractors are right that free trade has created serious imbalances. But a trade war completely misses the point. The problem is not that free trade has led to too much global competition, but rather that it has enabled a few companies to secure monopolies or near-monopolies. This has given rise to massive inequalities, blatant rent-seeking, and predatory behavior. Only by addressing these trends can the benefits of trade be increased and equitably shared.

She also reminds of the forthcoming UNCTAD report which discusses this. So watch out!

The New Yorker Profiles Glenn Greenwald

In the post-Brexit/post-Trump world, Glenn Greenwald’s voice comes across as one of the sanest. You’d expect resistance to Trump as progressive but in reality it is quite different. The resistance has joined hands with neoconservatives and one hysterical story which occupies public debates is the supposed Russia involvement in US elections. The New Yorker has an excellent profile of Glenn Greenwald who has ridiculed these stories.

Because Trump is bad, neocons have exploited the Trump presidency to whitewash themselves. I loved these lines:

… He said, “The people who hate Trump the most are the people who have been running Washington for decades. It’s not so much that they’re bothered by his corruption—they’re bothered by his inability to prettify and mask it.” …

To Greenwald, an agonized response to Trump carries with it the delusional proposition that previous Presidents were upstanding.

The Democrats have used the Russia story to suffocate the debate on why they lost. Things such as free trade, globalisation and how Trump exploited these using his demagogy.

The article is long, but you can use the audio in the link and it’s not an automated voice.

Oh, Jeremy Corbyn!

Jeremy Corbyn is a great leader and perhaps one of the few leaders speaking for fiscal expansion. You could say some others too, but what I have realised is that politicians say nice things just to look good and them saying nice things about fiscal policy doesn’t mean much. But Jeremy Corbyn is different. He is pushing aggressively against austerity.

Here’s a great video posted by him on social media. It is really nice and captures the important elements of Keynesianism. It’s something that not even most economists understand and yet we have Labour, which has got it right!

click to view the video on Twitter.

A problem of our times is that even the left has abandoned Keynesianism. Jeremy Corbyn stresses to European parties regularly that if left ideas are to survive, they ought to oppose austerity.

Two Papers By Thomas Palley On Globalisation

Thomas Palley has two new papers on globalisation:

  1. Globalization Checkmated? Political and Geopolitical Contradictions Coming Home to Roost
  2. Three Globalizations, Not Two: Rethinking The History And Economics Of Trade And Globalization

The first paper places Donald Trump’s trade wars in a broader political economy perspective. The second paper divides modern globalisation in two periods: 1945-90 and 1990-present.

I especially liked the footnote 5 in the first paper where he says that the public has been right on international trade and not economists:

The trade deficit has been a major channel of deindustrialization. This channel is easily understood by the general public, which has therefore made the deficit a catch-all symbol for the negative effects of globalization. Of course, other macroeconomic factors are also involved in determining the deficit, and economist advocates of neoliberal globalization try to belittle the public for not getting this. The public are not economists, and they are also right about the trade deficit’s deleterious economic effects. If anything, it is the economists who have misunderstood the deficit (Palley, 2012, Chapter 7). In the 1980s, economists invented the “twin deficits” hypothesis that blamed the trade deficit on the budget deficit. That hypothesis collapsed in the 1990s when the budget moved to surplus but the trade deficit kept growing. After that, economists invented the “saving shortage” hypothesis which blamed the deficit on lack of household saving. That hypothesis collapsed in the 2000s when the trade deficit continued even as the economy suffered from demand shortage. There is a macroeconomic linkage between the trade deficit, the budget deficit, and household saving, making them cousins (Blecker, 2013). However, structural factors (e.g. globalization) and an over-valued dollar exchange rate have been the decisive factors (Palley, 2015). In sum, the general public has been more right than economists.

Nice papers on the globalisation backlash.

Barack Obama And Glenn Greenwald On The Globalisation Backlash

At an event commemorating the 100th anniversary of Nelson Mandela’s birth, Barack Obama provided a good explanation and context to understand politics around the globe in recent times. You don’t have to agree with his neoliberal ideology to appreciate what he said and how his fans or liberals in general dogmatically oppose the fact that free trade and globalisation have contributed to misery even in advanced nations.

Excerpt:

It should make us hopeful. But if we cannot deny the very real strides that our world has made since that moment when Madiba took those steps out of confinement, we also have to recognize all the ways that the international order has fallen short of its promise. In fact, it is in part because of the failures of governments and powerful elites to squarely address the shortcomings and contradictions of this international order that we now see much of the world threatening to return to an older, a more dangerous, a more brutal way of doing business.

So we have to start by admitting that whatever laws may have existed on the books, whatever wonderful pronouncements existed in constitutions, whatever nice words were spoken during these last several decades at international conferences or in the halls of the United Nations, the previous structures of privilege and power and injustice and exploitation never completely went away. They were never fully dislodged. Caste differences still impact the life chances of people on the Indian subcontinent. Ethnic and religious differences still determine who gets opportunity from the Central Europe to the Gulf. It is a plain fact that racial discrimination still exists in both the United States and South Africa.

And it is also a fact that the accumulated disadvantages of years of institutionalized oppression have created yawning disparities in income, and in wealth, and in education, and in health, in personal safety, in access to credit. Women and girls around the world continue to be blocked from positions of power and authority. They continue to be prevented from getting a basic education. They are disproportionately victimized by violence and abuse. They’re still paid less than men for doing the same work. That’s still happening. Economic opportunity, for all the magnificence of the global economy, all the shining skyscrapers that have transformed the landscape around the world, entire neighborhoods, entire cities, entire regions, entire nations have been bypassed.

In other words, for far too many people, the more things have changed, the more things stayed the same. And while globalization and technology have opened up new opportunities, have driven remarkable economic growth in previously struggling parts of the world, globalization has also upended the agricultural and manufacturing sectors in many countries. It’s also greatly reduced the demand for certain workers, has helped weaken unions and labor’s bargaining power. It’s made it easier for capital to avoid tax laws and the regulations of nation-states — can just move billions, trillions of dollars with a tap of a computer key.

And the result of all these trends has been an explosion in economic inequality. It’s meant that a few dozen individuals control the same amount of wealth as the poorest half of humanity. That’s not an exaggeration, that’s a statistic. Think about that. In many middle-income and developing countries, new wealth has just tracked the old bad deal that people got because it reinforced or even compounded existing patterns of inequality, the only difference is it created even greater opportunities for corruption on an epic scale.

And for once solidly middle-class families in advanced economies like the United States, these trends have meant greater economic insecurity, especially for those who don’t have specialized skills, people who were in manufacturing, people working in factories, people working on farms. In every country, just about, the disproportionate economic clout of those at the top has provided these individuals with wildly disproportionate influence on their countries’ political life and on its media; on what policies are pursued and whose interests end up being ignored.

Now, it should be noted that this new international elite, the professional class that supports them, differs in important respects from the ruling aristocracies of old. It includes many who are self-made. It includes champions of meritocracy. And although still mostly white and male, as a group they reflect a diversity of nationalities and ethnicities that would have not existed a hundred years ago. A decent percentage consider themselves liberal in their politics, modern and cosmopolitan in their outlook.

Unburdened by parochialism, or nationalism, or overt racial prejudice or strong religious sentiment, they are equally comfortable in New York or London or Shanghai or Nairobi or Buenos Aires, or Johannesburg. Many are sincere and effective in their philanthropy. Some of them count Nelson Mandela among their heroes. Some even supported Barack Obama for the presidency of the United States, and by virtue of my status as a former head of state, some of them consider me as an honorary member of the club. And I get invited to these fancy things, you know? They’ll fly me out.

But what’s nevertheless true is that in their business dealings, many titans of industry and finance are increasingly detached from any single locale or nation-state, and they live lives more and more insulated from the struggles of ordinary people in their countries of origin. And their decisions — their decisions to shut down a manufacturing plant, or to try to minimize their tax bill by shifting profits to a tax haven with the help of high-priced accountants or lawyers, or their decision to take advantage of lower-cost immigrant labor, or their decision to pay a bribe — are often done without malice; it’s just a rational response, they consider, to the demands of their balance sheets and their shareholders and competitive pressures.

But too often, these decisions are also made without reference to notions of human solidarity — or a ground-level understanding of the consequences that will be felt by particular people in particular communities by the decisions that are made. And from their board rooms or retreats, global decision makers don’t get a chance to see sometimes the pain in the faces of laid-off workers. Their kids don’t suffer when cuts in public education and health care result as a consequence of a reduced tax base because of tax avoidance. They can’t hear the resentment of an older tradesman when he complains that a newcomer doesn’t speak his language on a job site where he once worked. They’re less subject to the discomfort and the displacement that some of their countrymen may feel as globalization scrambles not only existing economic arrangements, but traditional social and religious mores.

Which is why, at the end of the 20th century, while some Western commentators were declaring the end of history and the inevitable triumph of liberal democracy and the virtues of the global supply chain, so many missed signs of a brewing backlash — a backlash that arrived in so many forms. It announced itself most violently with 9/11 and the emergence of transnational terrorist networks, fueled by an ideology that perverted one of the world’s great religions and asserted a struggle not just between Islam and the West but between Islam and modernity, and an ill-advised U.S. invasion of Iraq didn’t help, accelerating a sectarian conflict.

Russia, already humiliated by its reduced influence since the collapse of the Soviet Union, feeling threatened by democratic movements along its borders, suddenly started reasserting authoritarian control and in some cases meddling with its neighbors. China, emboldened by its economic success, started bristling against criticism of its human rights record; it framed the promotion of universal values as nothing more than foreign meddling, imperialism under a new name.

Within the United States, within the European Union, challenges to globalization first came from the left but then came more forcefully from the right, as you started seeing populist movements — which, by the way, are often cynically funded by right-wing billionaires intent on reducing government constraints on their business interests — these movements tapped the unease that was felt by many people who lived outside of the urban cores; fears that economic security was slipping away, that their social status and privileges were eroding, that their cultural identities were being threatened by outsiders, somebody that didn’t look like them or sound like them or pray as they did.

And perhaps more than anything else, the devastating impact of the 2008 financial crisis, in which the reckless behavior of financial elites resulted in years of hardship for ordinary people all around the world, made all the previous assurances of experts ring hollow — all those assurances that somehow financial regulators knew what they were doing, that somebody was minding the store, that global economic integration was an unadulterated good. Because of the actions taken by governments during and after that crisis, including, I should add, by aggressive steps by my administration, the global economy has now returned to healthy growth.

But the credibility of the international system, the faith in experts in places like Washington or Brussels, all that had taken a blow. And a politics of fear and resentment and retrenchment began to appear, and that kind of politics is now on the move. It’s on the move at a pace that would have seemed unimaginable just a few years ago. I am not being alarmist, I am simply stating the facts.

h/t Glenn Greenwald for the highlights who also commented on Twitter:

Also, for all the attempts to depict Obama as some devoted “globalist” – and, that has been a part of his worldview depending on one’s definition – he’s also clear that globalism has destroyed the future of huge numbers & that, too, has fueled extremism

Separately in an interview with Democracy Now, Glenn said this on the hilarious Russia collusion theory:

… a lot of these international institutions that are supposed to be off limits from criticism, like free trade organizations, the World Trade Organization, NATO, the EU, have devastated the working-class populations of multiple countries. And if we want to understand why we have a Donald Trump and why we have a resurgent “alt-right” throughout Europe and why we have Brexit, we need to start asking questions about whether or not these institutions, that have been so sacred for so long, are actually ones that are serving the interest of our country. And until we figure out how to solve the root causes that have given rise to Trumpism and to fascist extremism in Europe and in the country I live in, Brazil, which is that these institutions are destroying the economic future of tens of millions and hundreds of millions of people in order to benefit the rich, we’re just going to have more Trumps, no matter how much we kick our feet and call him names. And that, I think is the issue that is most being ignored by all of this rhetoric.

Barack Obama, Mandela Lecture, Johannesburg, South Africa

Barack Obama, Mandela Lecture, Johannesburg, South Africa. Picture credit: Obama Foundation

Transcripts credit: The New York Times.

You can watch the speech on YouTube. The video starts at the part quoted above.

… In short, we repudiated all versions of the doctrine of original sin, of there being insane and irrational springs of wickedness in most men. We were not aware that civilisation was a thin and precarious crust erected by the personality and the will of a very few, and only maintained by rules and conventions skilfully put across and guilefully preserved. We had no respect for traditional wisdom or the restraints of custom. We lacked reverence, as Lawrence observed and as Ludwig with justice also used to say— for everything and everyone. It did not occur to us to respect the extraordinary accomplishment of our predecessors in the ordering of life (as it now seems to me to have been) or the elaborate framework which they had devised to protect this order. Plato said in his Laws that one of the best of a set of good laws would be a law forbidding any young man to enquire which of them are right or wrong, though an old man remarking any defect in the laws might communicate this observation to a ruler or to an equal in years when no young man was present. — John Maynard Keynes, in The Collected Writings Of John Maynard Keynes, Volume 10: Essays In BiographyPart VI – Two Memoirs, Chapter 39: My Early Beliefs, pages 447-448:

Cambridge University Press link. Quote h/t Ann Pettifor.

Misinterpretation Of Joan Robinson’s Quote On Dropping Rocks

In her famous 1937 articleBeggar-My-Neighbour Remedies For Unemployment, Joan Robinson made this famous remark about dropping rocks into our harbours, i.e., imposing tariffs as retaliation:

The popular view that free trade is all very well so long as all nations are free-traders, but that when other nations erect tariffs we must erect tariffs too, is countered by the argument that it would be just as sensible to drop rocks into our harbours because other nations have rocky coasts.6 This argument, once more, is unexceptionable on its own ground. The tariffs of foreign nations (except in so far as they can be modified by bargaining) are simply a fact of nature from the point of view of the home authorities, and the maximum of specialization that is possible in face of them still yields the maximum of efficiency. But when the game of beggar-my-neighbour has been played for one or two rounds, and foreign nations have stimulated their exports and cut down their imports by every device in their power, the burden of unemployment upon any country which refuses to join in the game will become intolerable and the demand for some form of retaliation irresistible. The popular view that tariffs must be answered by tariffs has therefore much practical force, though the question still remains open from which suit in any given circumstances it is wisest to play a card.

6 Beveridge, op. cit., p. 110. [Tariffs: the Case Examined]

[bolding and italics mine]

Joan Robinson

Joan Robinson, left. Picture credit: Nationaal Archief

This quote however gets misinterpreted often as a recent Financial Times article did:

… All these complications are real, but they do not change the fundamental nature of the argument about trade, which was best summarised by the British economist Joan Robinson. In 1937 she pointed out that, except as a narrow negotiating ploy, it made little sense to meet tariffs with tariffs: “It would be just as sensible to drop rocks into our harbours because other nations have rocky coasts.”

This quote makes it look like Joan Robinson was a free trader, whereas Robinson was opposed to it from the very beginning to the end and her stand free trade was far ahead and louder than John Maynard Keynes.

But what Robinson is saying is that according to the arguments of those for free trade, retaliation is wrong. But as Joan says, it has a practical force. Robinson is saying that if you retaliate you don’t believe in free trade.

Pankaj Mishra On The Entwined History Of Liberalism And Imperialism

A bit old, from Dec 2015 but still fresh.

Pankaj Mishra in London Review Of Books:

Visiting Africa and Asia in the 1960s, Conor Cruise O’Brien discovered that many people in former colonies were ‘sickened by the word “liberalism”’. They saw it as an ‘ingratiating moral mask which a toughly acquisitive society wears before the world it robs’. O’Brien – ‘incurably liberal’ himself (at least in this early phase of his career) – was dismayed. He couldn’t understand why liberalism had come to be seen as an ‘ideology of the rich, the elevation into universal values of the codes which favoured the emergence, and favour the continuance, of capitalist society’. This seemed to him too harsh a verdict on a set of ideas and dispositions that appeared to promote democratic government, constitutionalism, the rule of law, a minimal state, property rights, self-regulating markets and the empowerment of the autonomous rational individual.

Liberal ideas in the West had emerged in a variety of political and economic settings, in both Europe and North America. They originated in the Reformation’s stress on individual responsibility, and were shaped to fit the mould of the market freedoms that capitalism would need if it was to thrive (the right to private property and free labour, freedom from state regulation and taxation). They did not seem particularly liberal to the peoples subjugated by British, French and American imperialism in the 18th and 19th centuries. Contradictions and elisions haunted the rhetoric of liberalism from the beginning. ‘How is it,’ Samuel Johnson asked about secession-minded American colonists, ‘that we hear the loudest yelps for liberty among the drivers of negroes?’ John Stuart Mill credited India’s free-trading British overlords with benign liberal intentions towards a people self-evidently incapable of self-rule. ‘Despotism,’ he wrote, ‘is a legitimate mode of government in dealing with barbarians, provided the end be their improvement.’ Alexis de Tocqueville, by contrast, felt no need of the ingratiating moral mask; the French colonial project in Algeria was a glorious enterprise, a vital part of French nation-building after decades of political turmoil.

It wasn’t only the entwined history of liberalism and imperialism that in the 1960s made many Asians and Africans suspect American and European liberals of being ‘false friends’ …

Michał Kalecki, 1933 – Stimulating The World Business Upswing

Michał Kalecki in “Stimulating the World Business Upswing,” in Collected Works of Michał Kalecki, vol. 1, Capitalism: Business Cycles and Full Employment, ed. Jerzy Osiatyński, trans. Chester Adam Kisel (Oxford: Clarendon, 1990), 156–64 (possibly ahead of John Maynard Keynes):

We very often encounter the argument against building new factories while the old ones are still unemployed. This simple truism shares the fate of many of its fellows—it is false. In order for existing capital equipment to be fully employed, it must be continually expanded, since then accumulated profits are invested. If they are not invested, profits fall and, along with the fall in profits, there is a decline in the capacity utilization of existing factories.

Let us assume, as often happens in the USA, that two competing railway lines run between two cities. Traffic on both lines is weak. How does one deal with this? Paradoxically, one should build a third railway line, for then materials and people for construction of the third will be transported on the first two. What should be done when the third one is finished? Then one should build a fourth and a fifth one … This example, as we warned, is paradoxical, since unquestionably it would be better to undertake some other investment near the first two railway lines rather than build a third one; nevertheless, it perfectly illustrates the laws of development of the capitalist system as a whole.

Michał Kalecki

Michał Kalecki, picture credit: PWN

quote h/t Jan Toporowski