Tag Archives: globalization

Glenn Greenwald On The New Yorker‘s Admission

Since the U.S. elections results, the media has been hysterically claiming that Hillary Clinton lost the election because of “Russian hacking”. This is mainly to suffocate the debate on why Clinton really lost. A lot of journalists leaning Hillary Clinton before the election do this Russian hacking thing regularly either on TV, or on Twitter or in their articles. Even Paul Krugman has been mentioning Vladimir Putin’s name in almost every article since Nov 9.

There is of course little truth to all this. The main reason this story has attention is that Julian Assange’s WikiLeaks leaked emails of John Podesta, a former White House chief of staff. It’s true that Russia tries to hack the U.S. government servers regularly and hence it’s become easier for people promoting the Russian hacking story to claim that WikiLeaks’ source is the Russian government. But nobody has given any proof of this, yet.

But instead of stopping, the hysteria keeps continuing. Recently The New Yorker published a 13,000-word cover story (Mar 6, 2017) on Trump and Russia/Putin. 

The online version has this header image:

But toward the end of the long essay, The New Yorker makes this admission:

No reasonable analyst believes that Russia’s active measures in the United States and Europe have been the dominant force behind the ascent of Trump and nationalist politicians in Europe. Resentment of the effects of globalization and deindustrialization are far more important factors.

So despite so much hysteria, the magazine is conceding to the effect of globalization and de-industrialization on workers.

Glenn Greenwald of The Intercept has a nice critique of The New Yorker‘s cover story. He says:

As long as the Russia story enables pervasive avoidance of self-critique – one of the things humans least like to do – it will continue to resonate no matter its actual substance and value.

And quoting the cover story’s reference to globalization and deindustrialization, he says:

As Even The New Yorker Admits™, the primary reason for Trump, for Brexit, and for growing right-wing über-nationalism throughout Europe is that prevailing neoliberal policies have destroyed the economic security and future of hundreds of millions of people, rendering them highly susceptible to scapegoating and desperate, in a nothing-to-lose sort of way, for any type of radical change, no matter how risky or harmful that change might be. But all of that gets to be ignored, all of the self-reckoning is avoided, as long we get ourselves to believe that some omnipotent foreign power is behind it all.

Donald Trump has to be resisted but a strong alternative would not be neoliberalism.

Dean Baker On Automation

In his farewell address, Barack Obama toed the New Consensus’ line (around 12:50 in the video in the link):

… But, for all the real progress that we’ve made, we know it’s not enough. Our economy doesn’t work as well or grow as fast when a few prosper at the expense of a growing middle class, and ladders for folks who want to get into the middle class.

That’s the economic argument. But stark inequality is also corrosive to our democratic idea. While the top 1 percent has amassed a bigger share of wealth and income, too many of our families in inner cities and in rural counties have been left behind.

The laid off factory worker, the waitress or health care worker who’s just barely getting by and struggling to pay the bills. Convinced that the game is fixed against them. That their government only serves the interest of the powerful. That’s a recipe for more cynicism and polarization in our politics.

Now there’re no quick fixes to this long-term trend. I agree, our trade should be fair and not just free. But the next wave of economic dislocations won’t come from overseas. It will come from the relentless pace of automation that makes a lot of good middle class jobs obsolete.

In other words, Obama says that international trade and globalizing production aren’t responsible for weak employment and labour markets, but it’s automation.

Dean Baker has been writing a series of good articles puncturing these arguments. In his latest, titled Badly Confused Economics: The Debate on Automation, he writes that productivity hasn’t been rising much and that if tightness of the labour market is cited as one of the reasons for hikes in interest rates by the Federal Reserve, that’s contradictory. Baker says:

… The other reason why the concern over automation seems misplaced is that it is directly at odds with how we talk about other areas of economy policy. To take an example that has recently been in the news, the Federal Reserve Board raised interest rates in the United States last month. It is widely expected to raise interest rates several more times in 2017.

The reason for raising interest rates is that the Fed is concerned that the economy is creating too many jobs. This will increase workers’ bargaining power, putting upward pressure on wages. A more rapid rate of wage increases will lead to more rapid inflation. To prevent this outcome, the Fed wants the economy to have fewer jobs.

But how can it make sense that, at a time when we are worried that automation is destroying a massive number of jobs, we also need the Federal Reserve Board to add to the job destruction by raising interest rates? If automation is leading to mass job destruction the Fed should not have to be worried about overly tight labor markets.

The Trouble With The Recent Consensus

In a speech The Specture Of Monetarism, at Liverpool John Moores University, the Governor of the Bank of England, Mark Carney talked about globalization and inequality.

The central theme of Carney’s speech and also the new/recent consensus of the economics profession is this:

III. The Way Forward

Given these developments, the challenge is how to manage and moderate the forces of innovation and integration which breed aggregate prosperity for the economy as a whole but which also foster isolation and detachment for substantial proportions of the population. In the balance of my remarks, I will focus on three priorities for doing so.

First, economists must clearly acknowledge the challenges we face, including the realities of uneven gains from trade and technology.

Second, we must grow our economy by rebalancing the mix of monetary policy, fiscal policy and structural reforms.

Third, we need to move towards more inclusive growth where everyone has a stake in globalisation.

[bold in original]

click the picture for the video and the text

While this acknowledges the trouble with globalization—under the current rules—it is still flawed. Carney continues to say:

Consider the disconnect between economists and workers. The former have not been sufficiently upfront about the distributional consequences of rapid changes in technology and globalisation. Amongst economists, a belief in free trade is totemic.xiv But, while trade makes countries better off, it does not raise all boats; in the clinical words of the economist, trade is not Pareto optimal.xv

(endnotes)

xiv E.g. Bhagwati, J. (2011), “Why free trade matters”, Project Syndicate, June 23.

xv In neoclassical models, free trade is Pareto Optimal in principle – in that the aggregate gains are sufficient to compensate those that lose out while preserving gains for the winners. This typically means some form of redistribution of the gains from trade is needed to achieve this outcome. This is the Kaldor-Hicks compensation principle. It is an open question, however, whether redistribution of this kind actually takes place in practice and, indeed, whether it is itself costless, as the Kaldor-Hicks principle assumes.

So Carney’s point is more about “Pareto optimality”, than on globalization under the current system.

The trouble with this view—as can be inferred from the quotes above—is that it’s based on the assumption of convergence of nations’ fortunes via globalization and free trade under the current system, instead of divergence and polarization. In other words, not only does globalization and free trade contribute to grievances for some economic actors, but also to nations and hence the world as a whole. Under a different set of rules, each nation would be better off and might avoid polarization.

As Nicholas Kaldor himself said (quoted above!) in 1980 in Foundations And Implications Of Free Trade Theory, written in 📚 Unemployment In Western Countries:

Owing to increasing returns in processing activities (in manufactures) success breeds further success and failure begets more failure. Another Swedish economist, Gunnar Myrdal called this’the principle of circular and cumulative causation’.

It is as a result of this that free trade in the field of manfactured goods led to the concentration of manufacturing production in certain areas – to a ‘polarization process’ which inhibits the growth of such activities in some areas and concentrates them on others.

You can preview Kaldor’s article on Google Books. It’s his finest.