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Posts Tagged ‘deindustrialization’

How economists mislead…

November 11, 2010 Leave a comment

Here is a post at Beat the Press from Dean Baker, who is a decent enough economist to embrace the idea of shorter working time; but who, despite this point in his favor, nevertheless brings such defective reasoning to his analysis that it makes us cringe:

The Falling Dollar and Developing country Exports | Thursday, 11 November 2010 05:44

The Washington Post notes that the Fed’s new round of quantitative easing will:

“harm exports from developing countries. That’s because steps to lower U.S. interest rates and put money into the economy have the effect of making other countries’ currencies more expensive.”

If world imbalances are going to be addressed, then developing country exports must be hurt. In economic
theory, rich countries like the United States are supposed to have trade surpluses. This means that they export capital developing countries. The logic of this pattern of trade is that capital commands a higher rate of return in fast growing developing countries in which it is relatively scarce.

There were in fact substantial flows of capital from rich countries to poor countries prior to the East Asian
financial crisis in 1997. However, the harsh treatment of countries in the region by the I.M.F. led developing countries throughout the world to focus on accumulating vast amounts of reserves in order to avoid ever being in the same situation. This meant that developing countries had to run export surpluses with the United States and other wealthy countries.

In effect, the I.M.F, under the guidance of the Rubin-Summers Treasury Department, put in place a dysfunctional system that would inevitably explode. The effort to re-balance trade is about reversing those policies.

Baker should know better.

It should have occurred to him that if an idea appears on the pages of the Washington Post, it is probably wrong. The post makes the argument that quantitative easing will hurt exports from developing countries. As dollars flood the American economy, interest rates will fall, and capital will go looking for someplace with a better return — like China or Brazil — forcing their currencies to appreciate.

If we understand Baker in this post, he is agreeing with the Washington Post, and making the argument that exports from the developing countries must fall in order to “re-balance” the world economy — i.e., reduce the US trade deficit. Rich countries, says Baker, are supposed to have exports surpluses, not poor countries.

So why is it now the other way around? Why does China export to the United States more than it imports from the United States? Baker’s answer to this is that China exports so that it can accumulate sufficient dollars to protect it from a financial crisis like the one that hit Asia in 1997.

As Baker alludes, the developing world was hit with a series of financial crises over the decade and a half prior to the Asian Crisis of 1997, because of the US decision to turn these less developed countries into low wage export platforms for American companies seeking to import back into the US. The crisis even dumped Japan into a permanent depression in 1989. This was the exports of capital he refers to.

So, the “dysfunctional” trade imbalances that Baker says resulted from the Asia Crisis actually created the Asia Crisis in the first place. Moreover, despite these rolling financial crises, the US deficit has continued to grow without pause.

But, that doesn’t fit into the story progressive economists want to tell. They want a story that blames China for the US trade deficit and the loss of manufacturing jobs. So, despite their own evidence that the US export of capital is the cause of the US trade imbalance, they need a story that makes Chinese exports the problem.

The only problem with this reasoning is that China’s exports have little or nothing to do with the exchange rate between the dollar and the yuan. The US imports from China are increasing even though its currency has been appreciating against the dollar. It imports from Germany even as the euro is rising against the dollar. And, the Japanese yen has risen from 360 yen per dollar to 80 yen per dollar over the last 40 years, but the US still imports from Japan.

Yen exchange rate with the Dollar (1950-2010)

The reason why this is happening — and will continue to happen despite US quantitative easing — is twofold. First, the US owns the world reserve currency, which allows it to depreciate its currency at will, while paying no cost for this depreciation in terms of reduced consumption from imports. Second, the US dollar is a worthless piece of paper, which can be generated in whatever quantities are needed by Washington to buy whatever its wants.

In effect, the US profits by depreciating its currency because it pays nothing for the exports of other countries. And, the more currency it prints, the more it profits by this depreciation.

Quantitative easing will not result in more US exports, nor in the repatriation of US industry back to the US. Instead, it will force other countries to ship even more output to the US at the expense of the consumption of their own citizens.

When progressive economists apply the fallacies of economics to concrete problems they risk misdirecting activists time and attention to blind alleys. In this case, activists would draw the conclusion that it is China, not the US that is responsible for the off-shoring of US jobs.

In fact, off-shoring is a deliberate Washington strategy to reducing labor costs and destroy domestic unions. Quantitative easing is just the latest weapon in that arsenal.

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Plouffed: An alternative hypothesis…

January 30, 2010 2 comments

The BBC has an article which purports to explain why un-unionized working people will tend to vote against their own interest. They introduce the discussion with a shocking statistic:

In Texas, where barely two-thirds of the population have full health insurance and over a fifth of all children have no cover at all, opposition to the legislation is currently running at 87%.

In the BBC’s explanation,voters feel they are being taken for granted:

As Mr Frank sees it, authenticity has replaced economics as the driving force of modern politics. The authentic politicians are the ones who sound like they are speaking from the gut, not the cerebral cortex. Of course, they might be faking it, but it is no joke to say that in contemporary politics, if you can fake sincerity, you have got it made.

And the ultimate sin in modern politics is appearing to take the voters for granted.

This is a culture war but it is not simply being driven by differences over abortion, or religion, or patriotism. And it is not simply Red states vs. Blue states any more. It is a war on the entire political culture, on the arrogance of politicians, on their slipperiness and lack of principle, on their endless deal making and compromises.

And when the politicians say to the people protesting: ‘But we’re doing this for you’, that just makes it worse. In fact, that seems to be what makes them angriest of all.

The argument is tempting. The writer and his sources work off the implicit assumption that Washington is busily doing what is in our interest and getting slapped for it. This assumption, however, is never substantiated.

The article also does nothing to explain the other likely scenario: that Washington is taking them for granted – treating them as if they were of marginal concern. It tries to explain the voters’ response to the snub, but not the snub itself.

Plouffed…(3) (Retracing our steps)

January 29, 2010 Leave a comment

Welcome to Wal-Mart!

As you probably guessed, the work here is usually the first take on a hypothesis. We tend to write with firm convictions, but, in reality, we are trying to make sense of this shit as much as you are. We struggle with the same question you do: How the fuck did that happen? Unlike many of you, however, we don’t believe in the explanatory power of accidents, fools, or God! If shit happens, then the conditions of society must make it both possible and, to some extent, historically necessary.

So, as we really began to think about how you were left defenseless by the absence of your own organizations a question immediately came to mind: Why does this matter? Certainly, workers at Wal-Mart seem quite satisfied with their jobs and lives – at least as satisfied as the rest of us – and, appear to believe they are not harmed in any fundamentally important way by the lack of a union.

Further up the employment food chain there is little dissent with this view.

You may argue that this view is wrong, but any hypothesis which seeks to explain why the lack of a union at Wal-Mart has been the single most important expression of the dire predicament you now face must also explain why the indifference of Wal-Mart workers to the union movement is a embedded in that predicament without relying on such external devices as misinformation, bribery, propaganda, stupidity, or tricks.

Our explanation would be that a union itself provides the necessary (but, apparently, not sufficient) condition for the development among its members of thoughts and actions consistent with their position as members of a distinct class.

To understand why consider that, separately, each Wal-Mart worker is actually in the same business as Wal-Mart: They sell commodites – goods. And, taken individually, workers have the same concerns as Wal-Mart in this regard: How much can I get for what I have to sell? Wal-Mart sells badly made shoes from China. Wal-Mart’s workers sell their physical selves for a certain period of time. There is, in theory, no difference between Wal-Mart’s view of the world and the view of the world held by its employees, insofar as they are considered only as someone with something to sell. Although both Wal-Mart and its employees are, in reality, far more complex than this simple picture of their interests would suggest, they share a common concern: If either Wal-Mart or its employees are unable to sell their goods, they die or go bankrupt.

However, the circumstance each faces is actually unequal in this regard: If the employee is unable to sell her good – her physical self – she will die, but Wal-Mart probably will continue. The reverse case does not hold: If Wal-Mart is no longer able to sell its good, the employee will be unable to sell hers – and, thus, she will die anyway. The sale of her good is dependent on the sale of Wal-Mart’s goods, but the sale of Wal-Mart’s goods is not dependent on the sale of her good. Strictly considered only from the standpoint of Wal-Mart and its employee as simple sellers of a commodity, the interest of the employee is that Wal-Mart flourishes so that she might be able to continue selling her commodity to it. The initial premise of her thought and action is not, therefore, rooted in her definite social position as a worker, but in her position as a commodity seller.

Should she, or a co-worker, get into their head that a union might make things a little less intolerable at Wal-Mart, the first thought that comes to mind is the possibility she might lose the opportunity to sell her commodity as a result. The most important function a union provides is not that of an instrument to engage capital in the struggle over wages and working conditions, but to make it possible for the worker to develop an independent consciousness of herself as a member of a class through those struggles. Without it, that consciousness cannot easily develop.

What you saw on the chart we produced – the decline in union membership since 1948 – is, most importantly, a decline in the capacity of an entire class to think for itself, act on its own behalf and in its own interest, even as a relentless war was being waged against it.

(As an aside: If we wanted to stunt the growth of unions among service sector workers in this country, we would probably pick and capitalize a small retailer in a backward right-to-work state like Arkansas to take nation wide. We would also deliberately expand it, first, in places marked by lower wages and income and minimal unionization. Just a thought.)