Sunday, October 12, 2008


Its the end of the world as we know it!

I am hoping after the elections, that Obama wins, and he can jet set the G-7 to Bretton Woods and try again.

Terrific commentary
by Noam Chomsky on the topic. The economic liberalization that the US initiated in 1980 with Reagan (and Thatcher abroad), which was embraced by democrats and the moderate republican Bill Clinton; was really begun with Nixon when the original Bretton Woods system was destroyed.

Bit of background:

After the first collapse of global capitalism in the 1930's, each country had a go at it alone approach. Then toward the end of WWII all the major players, including the great John M Keynes took off to New Hampshire and settled down at a ski resort known as Bretton Woods; to establish a sound, common global capitalist system.

What Chomsky highlights, and is crucial I believe; is the need stressed to prevent capitalism from overruning democracy. They put checks on capital flight and had currencies pegged, instead of free floating. Why does this matter? One minute.

Vietnam was draining on the dollar and Nixon decided to rip of Bretton Woods to help the US. Instead of pegging the dollar to gold, the dollar was now pegged to nothing. So fell the house of cards. Currencies could float freely now. More on this later...

About this time Milton Friedman and his band of thugs were off promoting what would in the 80s be called the "Washington Consensus"; or in the 90's "Neoliberalism"; or "market reform" or "economic liberalization". Many names.

The premise was this: Capital and corporations should have no constraints whatsoever. And because the only way people CAN control them is through government, it was decided government was awful and must be destroyed. Everything must be privatized, regulations must be torn down, so-called free trade (which isnt free but thats another topic) was promoted.

But no one liked this in rich countries; so instead it was experimented in South America where the US installed right wing dictators who enacted Friedman's reforms in exchange for tactical support (see Naomi Klein for more on this).

These economic "reforms" were disaterous and eventually the dictators across Latin America were overthrown and replaced with democracy. But here's the kicker. Although the economic policies were hated by the people, the Western Corporations said they must stay. And if they do not? Capital flight and currency attack. They could destroy these countries. And in many cases did (see Argentina).

Then these reforms came to the US ala Ronald Reagan (and Britain ala Thatcher) where they kept railing that government is awful and must be destroyed, it cannot interfere with business. Being two democracies, the government is the public, and they were essentially arguing that democratic governments are awful, they should stand back and let corporations rule. The public should not have an opinion. "Government is the problem"

So for 30 years this was embraced by the US and England and pushed on much of the rest of the world. The result has been that for the vast majority of the American people, their incomes have either stagnated or declined for the last 30 years; despite economic growth and substantial gains for the top 5%

In fact its the first time in american (or world) HISTORY that we have had steady economic growth for years, with virtually no gain for the vast majority of the population. About this time credit and debt became very popular. So now for the past few years the US has had a negative savings rate for the first time since the Depression.

Anyway, here we are in 2008. For 90% of American's, their incomes were higher in 2000 then today. For 10% of Americans the last 8 years have been a dream come true.

But now the global economy is collapsing.

Now I'll just add this. From 1945-1970 was the most egalitarian and biggest growth for the majority of American people. What that means is we had economic growth, and that translated into income and wealth growth for the ENTIRE POPULATION.

Then stagflation and reaganism. Now we have had economic growth, but that translates to income decline or stagnation for most americans and wealth growth for the top 10% (and wild growth for the top 1%).

So when we consider the new system we will build (if they do) I hope they rely more on Keynes and Bretton Woods then Friedman and Reaganomics.

And I hope Obama is in the White House negotiating. But not with Clinton economic advisors

No comments: