For the record, there are at least 21 amino acids found in the human body.
- Mark
Hat tip to Bryce for the spot.
Saturday, May 28, 2016
AN ACID TRIP (of sorts)
For the record, there are at least 21 amino acids found in the human body.
- Mark
Hat tip to Bryce for the spot.
Thursday, May 26, 2016
HOW OUR REALLY MESSED UP PRIMARY PROCESS ACTUALLY WORKS ... by John Oliver
 |
| PrimaryPolitics comic courtesy of Steve Sack, The-Minneapolis-Star-Tribune |
About a month ago I was asked by a real smart person about the primary process. It was a real simple question. But it kind of stumped me because I never really thought about the question until he asked me the way he did. He wanted to know who we're voting for when we vote during the primary season. While it's easy to say that "You're voting for Candidate X" and to leave it at that, the reality is quite different.
We're actually voting for a slate of people - glorified electors - who are supposed to vote for our party's candidate(s) at the national convention. But this only happens if your candidate wins. It's kind of like an electoral college for the primary season ... if that makes sense.
It's actually more complicated than this. But there's no reason for me to elaborate when John Oliver's available to explain our nation's insanely complex primary process, in his usual hilarious way of course. Enjoy ...
- Mark
Hat tip to Nicole for the link.
Wednesday, May 25, 2016
CALVIN AND HOBBES CONTEMPLATE TRUMP & THE GOP
Donald Trump might embody what anti-politics is all about, but this Calvin and Hobbes re-creation pretty much nails it with the questions it raises ...
- Mark
______________________________
______________________________
- Mark
Tuesday, May 24, 2016
A FLOOD OF DOLLARS AND AMERICA'S EXORBITANT PRIVILEGE ... IPE/PS 404 EXAM NOTES
It's exam time, again. The post below is presented for the benefit of my International Political Economy class, and does two things. First, it (partially) explains the transformation of the stable economic environment we had immediately after WWII into the dollar drenched global casino environment we have today. In the process (and second) we learn about both the financialization of our economy - where finance, favorable legislation, and wealth extraction rule the day - and how we've come to ignore the very visible signals that tell us things aren't quite right.
With both confidence and investment lagging in America, the economy was on the ropes. While it was clear that too many dollars floating in the global economy had wiped out the gold standard, new competition from Europe and Asia combined with OPEC price hikes in the 1970s in a way that altered and destabilized global markets.
With economists and policy analysts arguing over the causes there was little political consensus about what to do. The political void created by these developments would be filled by presidential candidate Ronald Reagan in 1980.
Claiming that excessive regulations and high taxes were the problem, candidate Reagan's message touched a political nerve in America - in spite of the fact that his political prescriptions did nothing to address the economic problems challenging America. In the end, Reagan was able to sell America on a deregulation and tax cut program that would do little more than transfer wealth to America's richest class, while exacerbating the economic problems facing the nation, and the world.
In fact, regulations and taxes were only a small piece of the economic puzzle that challenged policy makers in 1980. The economic instability and new challenges America faced were ultimately rooted in the successes - and subsequent collapse - of the post-war world order that the United States had created, then poorly managed and, finally, helped to undermine with reckless budget deficits.
How we arrived at this point is what makes this story.
THE POST-WAR ENVIRONMENT
After World War II, the uncertainty caused by the destruction of war was heightened by the reality that we were now in a nuclear age. Post-war leaders knew they also wanted to avoid the economic conditions that led to the rise of tyrants like Adolf Hitler (economic collapse) and the Soviet Union's Joseph Stalin (underdevelopment).
With nuclear weapons and the cold war staring us in the face, it was clear that the post-war world needed to learn how to cooperate, on many levels.
With memories of walking away from the global community after World War I - when the United States Senate rejected the League of Nations - America was convinced it would have to lead the world in constructing a world order that would be both politically inclusive and economically disciplined.
By supporting the United Nations, the North Atlantic Treaty Organization, and the International Monetary Fund and the World Bank - economic institutions created at Bretton Woods in 1944 - the United States demonstrated that it was committed to building a new world order. With the hope that the world economy would stabilize and grow, America put the full force of its authority behind these political, military, and economic institutions.
In the process, because the goal was cooperation rather than domination, the United States demonstrated that it had embraced a more sophisticated understanding of power.
The Marshall Plan - which committed about 4% of the U.S. GDP to Europe - showed the world that the U.S. was serious about its commitment to the global institutions it helped build. The costs of the Marshall Plan, however, would pale in comparison to the benefits the U.S. enjoyed from having the dollar enshrined as the world's "anchor currency," which nations sought and coveted. Over the years the privileged position of the dollar would allow the U.S. to effectively print and send dollars around the world, which other nations dutifully held.
But this privileged position would come with a price.
The United States would have to pay the bulk of the costs associated with defending the west. While the western world enjoyed the benefits of global stability (as virtual free riders), and recovered economically, the U.S. experienced bloated budgets. So while the post-war world order was at times tense it was a stable one. This set the stage for new market competitors to arrive on the global commercial stage.
As well, a flood of U.S. dollars would spread across the globe, as market players found it convenient and profitable to trade in dollars.
This, as we shall see, is something the United States and their allies may have anticipated - see especially economist Robert Triffin - but never prepared for. This is an issue that continues to plague our world today.
POST-WAR SUCCESSES ... AND A WAVE OF U.S. DOLLARS
Because so many countries sought and welcomed dollars the U.S. learned that it could print and send out dollars without the fear of having them sent back to America, where inflation would then become an issue. Colloquially, the United States found that it could write checks that others would not cash.
With the United States taking the lead in the cold war, in Korea, Vietnam, and in every region around the world America learned that paying for the defense of the west was not so difficult. Demand for devalued dollars was maintained because the world was willing to hold dollars.
This condition was facilitated by several developments that the United States did not necessarily anticipate, and may have even encouraged because of how it promoted the dollar abroad.
Beginning in the 1950s the British understood how popular the dollar was around the world. In an effort to benefit from the demand for dollars the British actively began soliciting and then lending dollars on their own terms in 1957. And just like that, a Euro-currency market built around dollars was born. While this would help undermine its long-term stability (because the British effectively began speculating on the dollar), in the short-term the British were promoting and increasing demand for the dollar.
The rise of the Euro-currency market would parallel the surging demand for dollars that was created by U.S. firms that went abroad in search of new markets to conquer. With increased trade by U.S. multinationals came increased demand for financial services. Following lead of the British in 1957, by the early 1960s U.S. banks jumped in to fill the dollar needs of multinational firms around the world.
By the 1960s the U.S. was putting military bases up around the world and paying for the defense of the west. The Euro-currency market was in full swing. Multinational corporations were also paving the way for the increased use of dollars around the world.
One could be pardoned for thinking that increased demand for U.S. dollars meant all was well for the United States. The reality was quite different.
THE FRENCH CHALLENGE THE EXORBITANT PRIVILEGE ... AND LOSE
Global markets had become so saturated with dollars that the U.S. promise to pay $35 for every ounce of gold became unrealistic. By the 1960s the French began demanding more dollars (or gold), and wanted others to follow their lead. This was the backdrop to a meeting between the French and the Americans in the late 1960s.
It was 1967 and Secretary of State Dean Rusk was engaged in yet another round of frustrating talks with the French over defense issues related to NATO and the creation of multilateral forces. The United States was trying to convince the French that its security needs would be covered by the U.S. “nuclear umbrella” in Europe.
French President Charles de Gaulle was not convinced by the promise. He believed the U.S. wanted to dissuade France from building her own nuclear arsenal because it would undermine America's position as the leader of the free world. The prestige associated with America's privileged position, according to de Gaulle, allowed policy makers in America to avoid being held to account in other areas. And de Gaulle’s evidence was strong.
Charles de Gaulle pointed to the war in Vietnam, which he believed was irresponsibly financed by deficit spending. Coupled with balance of payment deficits and the costs of Lyndon Johnson’s Great Society programs, de Gaulle complained that the U.S. was recklessly printing and issuing more money than it could back with gold. Noted historian, Walter La Faber, explained it this way:
If other nations had been receptive to France's complaints the financial position of the U.S. would have suffered a serious setback. As Benjamin J. Cohen pointed out in In Whose Interest? International Banking and American Foreign Policy (1986), by the mid-1960s “almost two-thirds of America’s cumulative deficit was transferred in the form of gold.” This was up from just 10 percent in 1958.
Fortunately for the United States, there was no real effort to collectively demand gold as the French did after 1965. The Americans, to de Gaulle’s chagrin, could not be disciplined.
This was the backdrop to Charles de Gaulle’s tense meeting with American Secretary of State Dean Rusk over NATO in 1967. Events came to a head for de Gaulle when he announced that France was pulling its troops out of the military arm of NATO. He went so far as to declare that France’s nuclear forces might even be deployed against the west.
Making matters worse was the bitter and acrimonious tone surrounding France’s break from NATO. When de Gaulle informed U.S. Secretary of State Dean Rusk that the French were pulling out of NATO he bluntly told Rusk that he “wanted every American soldier out of France.”
Impatient and angry over de Gaulle’s lack of decorum, Rusk replied, “Does that include the dead Americans in the military cemeteries as well?”
Whatever misgivings Charles de Gaulle had, one thing was clear: The military position of the U.S. and the prosperity generated by the American-led global system meant the U.S. could continue spending beyond its means. As long as the world continued to hold dollars the United States could avoid financial accountability back home.
This privileged position would not last. Trouble was around the corner.
Continued deficit spending on the part of the U.S. coupled with the demands of the French would help convince President Nixon to quit exchanging dollars for gold on demand. This would be followed by price controls, a flood of petrodollars, and climbing debt after 1973.
These and other forces combined to collapse the stability built around the Bretton Woods currency system.
Worse, it would facilitate a speculative assault on the dollar that has destabilized world markets ever since.
Ronald Reagan’s arrival, as we will see, would help accelerate this development.
MISREADING THE TEA LEAVES
So what happened after Charles de Gaulle called attention to U.S. spending habits? For our purposes, effectively nothing. The United States continued to spend. And when de Gualle’s criticisms failed, America spent even more.
The question for us then is, Why didn’t the U.S. suffer the inflationary consequences from creating more dollars? Very simple: The U.S. and its cold war allies had come to an agreement. As Benjamin J. Cohen explained, in the early 1970s the U.S. agreed to continue paying for the defense of the west. For their part, U.S. allies agreed to continue underwriting American debt and to hold U.S. dollars.
While this was both an economic and geo-strategic coup for the United States its western allies benefited as well.
Instead of spending on tanks and guns they could concentrate on producing a parade of better cars and stereos (as it were). The Germans and the Japanese led this economic parade in Europe and Asia. In essence our allies said, “Go ahead, build up your military and spend all that money doing it. Even though you'll be creating more dollars and debt we won’t send your dollars back (at least not yet).”
In the process the U.S. kept its perch as the undisputed leader of the free world.
There was only one problem. Nothing was being done about the long term political, economic and military issues that continue to affect the U.S. position today:
In the case of #7 above, economist Joseph Schumpeter would have argued that our biggest market players today are now playing monopoly rather than building them.
In any case, it's clear what was ailing the United States in 1980 was not simply too many taxes or too many regulations. The challenges confronting the nation were a product of too many dollars and the OPEC shocks that wrecked the institutional discipline created after the 1944 Bretton Woods conference. As well, new competition from Asia and Europe came about precisely because the post-war world order did what it was supposed to do: nurture market stability and economic development.
The problems that Ronald Reagan saw, and the tax cutting and deregulation policies he sold to America, missed these larger issues.
Not only did President Reagan's trickle down policies make matters worse by putting more deficit dollars into the global economy, but they redistributed wealth in America in ways that threatens to undermine the American experience even today.
Worse - and contrary to popular opinion - President Reagan's policies didn't actually fix the problems that confronted America in 1980, as we will see in the next section.
REAGAN'S DEFICIT SPENDING ORGY, AND KEYNESIAN RECOVERY
By the time Ronald Reagan left office inflation and interest rates were down to single digits, while unemployment hovered around 5%. Because of these developments, conservatives and ill-informed talk show hosts like to claim that a combination of tax cuts, deregulation, bureaucratic reform, and assorted incentives created the environment for investment that energized the economy.
Indeed, according to revisionist historians the Reagan administration was able to get America moving by reducing the size of government, cutting government spending, and getting “government off of our backs.”
This would be an interesting by-line, except for one thing. It’s not true.
First, it’s interesting to note that job creation under Ronald Reagan never matched the levels achieved under Jimmy Carter, while the size of the federal workforce grew from 2.8 million employees to 3.1 million under President Reagan.
In fact, the number of federally subsidized programs under Ronald Reagan was scaled back only to 1970-1975 levels. This helps explain why the Reagan administration hardly put a dent in the size of government.
Acknowledging this, in 1985 Fortune magazine wrote that the “budget is way out of balance because of a little-known fact: real federal spending, adjusted for inflation, has climbed even faster under President Reagan than it did in the Carter years.” In the end, in spite of what the supply-side supporters promised, the national debt almost tripled from approximately $930 Billion in 1980 to $2.7 Trillion under Reagan.
So what created the conditions for the American economy to stabilize in the late 1980s, and take off during the 1990s? Primarily three factors; all of which undermine the idea that Reagan fixed America with a good ol' shot of capitalism.
On the inflation front, we find that OPEC – an oligopoly that depends on cooperation to sustain itself – found its solidarity undermined by late 1981. With the beginning of the Iran-Iraq War, which Saddam Hussein initiated in part because the ayatollahs were fomenting fanatic revolution in Iraq, black markets in the oil industry grew as cheating on the part of the two combatants began (to fund their war efforts).
In addition, conservation efforts, alternative energy sources, new oil discoveries, among other developments, helped to stabilize oil prices. But these efforts were initiated by President Ford and, to a larger degree, by President Carter. Still, the reality was OPEC unity – one of the primary catalysts behind price hikes – had unraveled, while government-inspired conservation efforts began to pay off.
As the price for oil dropped, so did inflationary pressures.
We also need to recognize a second force on the inflation front. Recall the strategy employed to control inflation was taken up by Federal Reserve Chairman Paul Volcker. In spite of pressure from the Reagan administration, who initially wanted to expand the money supply, most economists agree that by sticking to his guns, and maintaining a stringent monetary policy, Mr. Volcker helped to slay the inflation dragon. Critical here is that Mr. Volcker was appointed by Jimmy Carter, and not Ronald Reagan.
Finally, the Reagan administration’s deficit spending broke all previous records.
In fact, the Reagan administration spent twice as much as the previous 39 presidential administrations combined, in the process using taxpayer funded debt to deposit hundreds of billions of dollars into the national and global economy each year. This government induced “pump priming” was an artificial stimulus – what economists call a “Keynesian stimulus” – and was hardly a vote of confidence for laissez-faire economics.
SUMMING UP ... IT'S ONLY GOING TO GET WORSE?
In sum, cracks in OPEC unity, conservation efforts, a tight monetary policy, and a state-led stimulus to our larger economy suggest that the Reagan administration’s policies were, at best, a supporting rather than leading factor in reversing the dismal economic environment of the 1970s. Just as importantly, President Reagan's policies did absolutely nothing to fix the very real problems associated with a flood of dollars, new competition, a crumbling global economic framework, and the rise of the symbolic economy. The events of 2008 were very predictable, and not a product of - as Alan Greenspan comically put it - the product of once-in-a-century event.
What we experienced in 2008 was the product of developments that we have chosen to ignore for the better part of four decades. And, yes, our continued "head-in-the-sand" response to the events of 2008 make it clear things will only get worse before they get better.
For my PS 404 students, the link below should prove useful for the upcoming exam question on development ...
The links below will be useful if you want to discuss the relationship between America's exorbitant privilege, the impact of favorable legislation and what financialization and wealth extraction look like ...
- Mark
__________________________________________
It was the 1970s. Inflation, which started at 6.2% in 1970, reached over 13% by the end of 1979. Unemployment hovered around 6%, while borrowing money to pay for a home or a car could easily cost you 20% in interest. Recession, high oil prices, low productivity, and inflation were the new norm in America. The result was a new term in the field of economics, and a fresh challenge in American politics: Stagflation.
With economists and policy analysts arguing over the causes there was little political consensus about what to do. The political void created by these developments would be filled by presidential candidate Ronald Reagan in 1980.
Claiming that excessive regulations and high taxes were the problem, candidate Reagan's message touched a political nerve in America - in spite of the fact that his political prescriptions did nothing to address the economic problems challenging America. In the end, Reagan was able to sell America on a deregulation and tax cut program that would do little more than transfer wealth to America's richest class, while exacerbating the economic problems facing the nation, and the world.
In fact, regulations and taxes were only a small piece of the economic puzzle that challenged policy makers in 1980. The economic instability and new challenges America faced were ultimately rooted in the successes - and subsequent collapse - of the post-war world order that the United States had created, then poorly managed and, finally, helped to undermine with reckless budget deficits.
How we arrived at this point is what makes this story.
THE POST-WAR ENVIRONMENT
After World War II, the uncertainty caused by the destruction of war was heightened by the reality that we were now in a nuclear age. Post-war leaders knew they also wanted to avoid the economic conditions that led to the rise of tyrants like Adolf Hitler (economic collapse) and the Soviet Union's Joseph Stalin (underdevelopment).
With memories of walking away from the global community after World War I - when the United States Senate rejected the League of Nations - America was convinced it would have to lead the world in constructing a world order that would be both politically inclusive and economically disciplined.
By supporting the United Nations, the North Atlantic Treaty Organization, and the International Monetary Fund and the World Bank - economic institutions created at Bretton Woods in 1944 - the United States demonstrated that it was committed to building a new world order. With the hope that the world economy would stabilize and grow, America put the full force of its authority behind these political, military, and economic institutions.
In the process, because the goal was cooperation rather than domination, the United States demonstrated that it had embraced a more sophisticated understanding of power.
The Marshall Plan - which committed about 4% of the U.S. GDP to Europe - showed the world that the U.S. was serious about its commitment to the global institutions it helped build. The costs of the Marshall Plan, however, would pale in comparison to the benefits the U.S. enjoyed from having the dollar enshrined as the world's "anchor currency," which nations sought and coveted. Over the years the privileged position of the dollar would allow the U.S. to effectively print and send dollars around the world, which other nations dutifully held.
But this privileged position would come with a price.
The United States would have to pay the bulk of the costs associated with defending the west. While the western world enjoyed the benefits of global stability (as virtual free riders), and recovered economically, the U.S. experienced bloated budgets. So while the post-war world order was at times tense it was a stable one. This set the stage for new market competitors to arrive on the global commercial stage.
As well, a flood of U.S. dollars would spread across the globe, as market players found it convenient and profitable to trade in dollars.
POST-WAR SUCCESSES ... AND A WAVE OF U.S. DOLLARS
Because so many countries sought and welcomed dollars the U.S. learned that it could print and send out dollars without the fear of having them sent back to America, where inflation would then become an issue. Colloquially, the United States found that it could write checks that others would not cash.
With the United States taking the lead in the cold war, in Korea, Vietnam, and in every region around the world America learned that paying for the defense of the west was not so difficult. Demand for devalued dollars was maintained because the world was willing to hold dollars.
This condition was facilitated by several developments that the United States did not necessarily anticipate, and may have even encouraged because of how it promoted the dollar abroad.
Beginning in the 1950s the British understood how popular the dollar was around the world. In an effort to benefit from the demand for dollars the British actively began soliciting and then lending dollars on their own terms in 1957. And just like that, a Euro-currency market built around dollars was born. While this would help undermine its long-term stability (because the British effectively began speculating on the dollar), in the short-term the British were promoting and increasing demand for the dollar.
The rise of the Euro-currency market would parallel the surging demand for dollars that was created by U.S. firms that went abroad in search of new markets to conquer. With increased trade by U.S. multinationals came increased demand for financial services. Following lead of the British in 1957, by the early 1960s U.S. banks jumped in to fill the dollar needs of multinational firms around the world.
By the 1960s the U.S. was putting military bases up around the world and paying for the defense of the west. The Euro-currency market was in full swing. Multinational corporations were also paving the way for the increased use of dollars around the world.
One could be pardoned for thinking that increased demand for U.S. dollars meant all was well for the United States. The reality was quite different.
THE FRENCH CHALLENGE THE EXORBITANT PRIVILEGE ... AND LOSE
Global markets had become so saturated with dollars that the U.S. promise to pay $35 for every ounce of gold became unrealistic. By the 1960s the French began demanding more dollars (or gold), and wanted others to follow their lead. This was the backdrop to a meeting between the French and the Americans in the late 1960s.
It was 1967 and Secretary of State Dean Rusk was engaged in yet another round of frustrating talks with the French over defense issues related to NATO and the creation of multilateral forces. The United States was trying to convince the French that its security needs would be covered by the U.S. “nuclear umbrella” in Europe.
French President Charles de Gaulle was not convinced by the promise. He believed the U.S. wanted to dissuade France from building her own nuclear arsenal because it would undermine America's position as the leader of the free world. The prestige associated with America's privileged position, according to de Gaulle, allowed policy makers in America to avoid being held to account in other areas. And de Gaulle’s evidence was strong.
Charles de Gaulle pointed to the war in Vietnam, which he believed was irresponsibly financed by deficit spending. Coupled with balance of payment deficits and the costs of Lyndon Johnson’s Great Society programs, de Gaulle complained that the U.S. was recklessly printing and issuing more money than it could back with gold. Noted historian, Walter La Faber, explained it this way:
War costs shot upward from $8 billion in 1966 to $21 billion in 1967. Dollars flew out of the United States to pay for both the war and growing American private investments abroad (which rose from $49 billion in 1960 to $101 billion in 1968). The nations export trade could not pull those dollars back.Charles de Gaulle was particularly miffed that the U.S. was the only country that could unilaterally print money and issue credit without having to experience the inflationary effects at home. No other country had the privilege of writing checks that others would hold. According to de Gaulle this was an “exorbitant privilege” that no other nation enjoyed, and he set out to make things right by demanding gold when France’s dollar reserves grew.
If other nations had been receptive to France's complaints the financial position of the U.S. would have suffered a serious setback. As Benjamin J. Cohen pointed out in In Whose Interest? International Banking and American Foreign Policy (1986), by the mid-1960s “almost two-thirds of America’s cumulative deficit was transferred in the form of gold.” This was up from just 10 percent in 1958.
This was the backdrop to Charles de Gaulle’s tense meeting with American Secretary of State Dean Rusk over NATO in 1967. Events came to a head for de Gaulle when he announced that France was pulling its troops out of the military arm of NATO. He went so far as to declare that France’s nuclear forces might even be deployed against the west.
Making matters worse was the bitter and acrimonious tone surrounding France’s break from NATO. When de Gaulle informed U.S. Secretary of State Dean Rusk that the French were pulling out of NATO he bluntly told Rusk that he “wanted every American soldier out of France.”
Impatient and angry over de Gaulle’s lack of decorum, Rusk replied, “Does that include the dead Americans in the military cemeteries as well?”
 |
| The Oise-Aisne American Cemetery and Memorial in France, where 6,012 American rest. |
Whatever misgivings Charles de Gaulle had, one thing was clear: The military position of the U.S. and the prosperity generated by the American-led global system meant the U.S. could continue spending beyond its means. As long as the world continued to hold dollars the United States could avoid financial accountability back home.
This privileged position would not last. Trouble was around the corner.
Continued deficit spending on the part of the U.S. coupled with the demands of the French would help convince President Nixon to quit exchanging dollars for gold on demand. This would be followed by price controls, a flood of petrodollars, and climbing debt after 1973.
These and other forces combined to collapse the stability built around the Bretton Woods currency system.
Worse, it would facilitate a speculative assault on the dollar that has destabilized world markets ever since.
Ronald Reagan’s arrival, as we will see, would help accelerate this development.
MISREADING THE TEA LEAVES
So what happened after Charles de Gaulle called attention to U.S. spending habits? For our purposes, effectively nothing. The United States continued to spend. And when de Gualle’s criticisms failed, America spent even more.
The question for us then is, Why didn’t the U.S. suffer the inflationary consequences from creating more dollars? Very simple: The U.S. and its cold war allies had come to an agreement. As Benjamin J. Cohen explained, in the early 1970s the U.S. agreed to continue paying for the defense of the west. For their part, U.S. allies agreed to continue underwriting American debt and to hold U.S. dollars.
While this was both an economic and geo-strategic coup for the United States its western allies benefited as well.
Instead of spending on tanks and guns they could concentrate on producing a parade of better cars and stereos (as it were). The Germans and the Japanese led this economic parade in Europe and Asia. In essence our allies said, “Go ahead, build up your military and spend all that money doing it. Even though you'll be creating more dollars and debt we won’t send your dollars back (at least not yet).”
In the process the U.S. kept its perch as the undisputed leader of the free world.
There was only one problem. Nothing was being done about the long term political, economic and military issues that continue to affect the U.S. position today:
(1) BLOATED BUDGETS: The costs associated with paying for the defense of the west has been matched today with the costs associated with industry bailouts and the costs of failed wars. These are financial burdens that will last generations.
(2) FINANCIAL INSTABILITY: A wave of dollars has undermined the value of the dollar, contributed to fluctuating interest rates, and undermined the economic stability we experienced immediately after World War II. Today we see speculation, gambling, and bailouts caused by bets made on increasingly complex financial products.
(3) THE GLOBAL CASINO: The cumulative impact of multinationals and other firms who went from hedging their bets in currency markets to outright speculation and gambling on currencies and other financial products has not been helpful.
(4) VIETNAM SYNDROME RUN AMOK: The penchant for the U.S. to pursue reckless wars and military-spying adventures has undermined America's position, and eroded its prestige around the globe.
(5) ENERGY PLANNING: After OPEC jacked up prices - which supercharged financial instability and global debt - little was done to develop a viable energy policy. Because the OPEC nations made a commitment to continue trading their product in dollars - and to purchase U.S. debt - after 1973, the U.S. has not been able to wean itself and the world from the instability in the Middle East.
(6) NEW COMPETITION: While Europe and Asia were able to recover and develop under the protective institutional umbrellas created after WWII, America was left flat-footed. To date, in an effort to deal with new competition the U.S. has chosen to embrace a race to the bottom strategy that takes jobs overseas and undermines the prospects of labor at home, while castigating other nations for cheating.
(7) THE SYMBOLIC ECONOMY: Finding it easier and more profitable to gamble on currencies and other financial products, market players are increasingly more interested in wealth extraction than wealth creation.
In the case of #7 above, economist Joseph Schumpeter would have argued that our biggest market players today are now playing monopoly rather than building them.
In any case, it's clear what was ailing the United States in 1980 was not simply too many taxes or too many regulations. The challenges confronting the nation were a product of too many dollars and the OPEC shocks that wrecked the institutional discipline created after the 1944 Bretton Woods conference. As well, new competition from Asia and Europe came about precisely because the post-war world order did what it was supposed to do: nurture market stability and economic development.
The problems that Ronald Reagan saw, and the tax cutting and deregulation policies he sold to America, missed these larger issues.
Not only did President Reagan's trickle down policies make matters worse by putting more deficit dollars into the global economy, but they redistributed wealth in America in ways that threatens to undermine the American experience even today.
Worse - and contrary to popular opinion - President Reagan's policies didn't actually fix the problems that confronted America in 1980, as we will see in the next section.
REAGAN'S DEFICIT SPENDING ORGY, AND KEYNESIAN RECOVERY
By the time Ronald Reagan left office inflation and interest rates were down to single digits, while unemployment hovered around 5%. Because of these developments, conservatives and ill-informed talk show hosts like to claim that a combination of tax cuts, deregulation, bureaucratic reform, and assorted incentives created the environment for investment that energized the economy.
Indeed, according to revisionist historians the Reagan administration was able to get America moving by reducing the size of government, cutting government spending, and getting “government off of our backs.”
This would be an interesting by-line, except for one thing. It’s not true.
First, it’s interesting to note that job creation under Ronald Reagan never matched the levels achieved under Jimmy Carter, while the size of the federal workforce grew from 2.8 million employees to 3.1 million under President Reagan.
 |
| Job growth, by president, 1981-2015. |
 |
| Public sector job growth, federal government. Note the growth under President Reagan after the recession (1981-89). |
In fact, the number of federally subsidized programs under Ronald Reagan was scaled back only to 1970-1975 levels. This helps explain why the Reagan administration hardly put a dent in the size of government.
Acknowledging this, in 1985 Fortune magazine wrote that the “budget is way out of balance because of a little-known fact: real federal spending, adjusted for inflation, has climbed even faster under President Reagan than it did in the Carter years.” In the end, in spite of what the supply-side supporters promised, the national debt almost tripled from approximately $930 Billion in 1980 to $2.7 Trillion under Reagan.
So what created the conditions for the American economy to stabilize in the late 1980s, and take off during the 1990s? Primarily three factors; all of which undermine the idea that Reagan fixed America with a good ol' shot of capitalism.
On the inflation front, we find that OPEC – an oligopoly that depends on cooperation to sustain itself – found its solidarity undermined by late 1981. With the beginning of the Iran-Iraq War, which Saddam Hussein initiated in part because the ayatollahs were fomenting fanatic revolution in Iraq, black markets in the oil industry grew as cheating on the part of the two combatants began (to fund their war efforts).
In addition, conservation efforts, alternative energy sources, new oil discoveries, among other developments, helped to stabilize oil prices. But these efforts were initiated by President Ford and, to a larger degree, by President Carter. Still, the reality was OPEC unity – one of the primary catalysts behind price hikes – had unraveled, while government-inspired conservation efforts began to pay off.
As the price for oil dropped, so did inflationary pressures.
We also need to recognize a second force on the inflation front. Recall the strategy employed to control inflation was taken up by Federal Reserve Chairman Paul Volcker. In spite of pressure from the Reagan administration, who initially wanted to expand the money supply, most economists agree that by sticking to his guns, and maintaining a stringent monetary policy, Mr. Volcker helped to slay the inflation dragon. Critical here is that Mr. Volcker was appointed by Jimmy Carter, and not Ronald Reagan.
Finally, the Reagan administration’s deficit spending broke all previous records.
In fact, the Reagan administration spent twice as much as the previous 39 presidential administrations combined, in the process using taxpayer funded debt to deposit hundreds of billions of dollars into the national and global economy each year. This government induced “pump priming” was an artificial stimulus – what economists call a “Keynesian stimulus” – and was hardly a vote of confidence for laissez-faire economics.
SUMMING UP ... IT'S ONLY GOING TO GET WORSE?
In sum, cracks in OPEC unity, conservation efforts, a tight monetary policy, and a state-led stimulus to our larger economy suggest that the Reagan administration’s policies were, at best, a supporting rather than leading factor in reversing the dismal economic environment of the 1970s. Just as importantly, President Reagan's policies did absolutely nothing to fix the very real problems associated with a flood of dollars, new competition, a crumbling global economic framework, and the rise of the symbolic economy. The events of 2008 were very predictable, and not a product of - as Alan Greenspan comically put it - the product of once-in-a-century event.
What we experienced in 2008 was the product of developments that we have chosen to ignore for the better part of four decades. And, yes, our continued "head-in-the-sand" response to the events of 2008 make it clear things will only get worse before they get better.
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For my PS 404 students, the link below should prove useful for the upcoming exam question on development ...
Developing Afghanistan and Iraq ... It's mindless Modernization Theory, again.
The links below will be useful if you want to discuss the relationship between America's exorbitant privilege, the impact of favorable legislation and what financialization and wealth extraction look like ...
Quantitative Easing Explained + bonus information.
Quantitative Easing III (a.k.a. Corporate Welfare) in Europe has begun (again).
Market analysts are really just riding a wave of cheap money and deregulation ... A monkey with darts shows us how.
- Mark
PS 304 EXAM NOTES: FROM LIBERAL REVOLUTION TO FAILED DEVELOPMENT
This Thursday (May 26) we're having an exam in my Theory of International Relations class (PS 304). What follows below are some notes to help students prepare for several of the questions.
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While it's clear that war and conflict are very much a part of our modern world, we can acknowledge that advances have been made. Nation-states do cooperate with one another, and this practice has been picking up steam over the millennium. Specifically, nation-states have learned how to cooperate because of three long-term trends and developments that we don't notice on a daily basis but come to life when we take a long look at history.
LIBERAL REVOLUTION: Contrary to what many pessimists (or "Realists") might want to believe, we have a long series of events and eras that speak to the more positive elements of the human condition. After the Magna Carta and the fight to end slavery (especially by the British), many in the global community embraced the ideas from the Renaissance, the Reformation and the Enlightenment, and worked to develop and promote individual rights and liberty. Fighting for both helped create the modern Liberal Republics that promote treaties and the liberal spirit of cooperation between nation-states today.
TREATIES & THE SHADOW OF WAR: War has cast such a long shadow over humanity that we've learned to agree to disagree, if for no other reason than we've gotten tired of fighting increasingly destructive and ugly wars. Multi-lateral treaties in 1648 (Westphalia), 1714 (Utrecht), 1815 (Vienna), 1917 (Versailles) and 1945 (Bretton Woods / San Francisco) have forged patterns of cooperation between nation-states. These patterns have maintained a degree of cooperation that otherwise would not exist, and breathed constitutional characteristics into the world's post-war treaties.
TECHNOLOGICAL REVOLUTIONS: As technological advancements have been made we find it much easier and faster to communicate and see one another. This has created problems that many never anticipated. For example, soon after the arrival of the steam train we learned that trains traveling across the continent arrived at uncertain times. They also took longer to arrive when moving west to east. All of this made train schedules both uncertain and even dangerous. Technology forced nation-states to figure out how to cooperate on the issue like time (in this case, leading to the Prime Meridian Conference in 1884) which requires nation-states to work together.
So, yes, the long roots and driving force(s) of cooperation and institution building between nation-states are tied to the shadow of war, the Liberal Revolutions, and the new realities created by technology. I will discuss the first two only below.
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| The Treaty of Westphalia, 1648 |
TREATIES AND THE SHADOWS OF WAR
Since the end of World War II the United States has helped underwrite global security. Specifically, what's been called the American Peace - or Pax Americana - has been maintained because the United States openly embraced the creation of multilateral institutions, on many levels (after failing to do so after WWI).
The institutions that were built after WWII (NATO, the United Nations, and those created at Bretton Woods, N.H.) helped shape diplomacy and maintain order. Perhaps most importantly, while wars have been fought and atrocities committed, there has been no World War III. Just as importantly, the Cold War ended with the Russians deciding against slugging it out, as empires have done in the past when confronted with their demise.
The Russians saw, as have many other nations, that the halting and even stunted promises of liberty within the post-WWII institutional order provided enough opportunities for them to operate and succeed as an independent nation-state.
Simply put, in the modern world institutions and treaties matter. Diplomacy and global stability have moved beyond the simple embrace of balance of power, shifting alliances, coercion, and brute force.
This is critical to note because history tells us that global order built on shifting alliances and simple coercion not only break down, but tend to swallow the world into increasingly destructive wars.
The bloody wars of religion brought on the Protestant Reformation, which reached a climax with the Thirty Years War, which ended with the Treaty of Westphalia in 1648. These wars were followed by new intrigue and the War of Spanish Succession (1701-1714), which ended with the Treaty of Utrecht.
The instability and carnage that occurred during the Napoleonic Wars (1799-1815) was brought about by a new distribution of power, and was finally brought to a close with the Treaty of Vienna (1815). This lead to the Concert of Europe, which is known to history for the stability that it brought to the European continent for almost 100 years.
But the Treaty of Vienna failed to take into consideration new political realities (especially how Napoleon had planted and inspired new ideas that would swamp the continent). The post-Napoleonic era of European stability would be followed by the ugliness and destruction of World War I, which ended with the signing of the Treaty of Versailles (1917).
The United States famously failed to participate in the institutions created after WWI, which insured the Treaty of Versailles would be a failed treaty before the ink was dried on the document. The destruction of World War II would follow, which inspired scholars to think of both WWI and WWII as modernity's version of the Thirty Years War.
All of this is important to understand because we've learned over time, albeit begrudgingly, that strong and binding treaties have an impact.
Treaties crafted at Westphalia (1648), Utrecht (1713), Vienna (1815), Versailles (1919), and at Bretton Woods (1944), San Francisco (1945) and Potsdam (1945) have helped to establish international rules, protocols, and global patterns that, in many ways, create the functional equivalent of a global constitution (all of this is laid out in G. John Ikenberry's After Victory).
Established patterns have created expectations that have built - as we discuss in class - islands of order in a sea of anarchy. This doesn't mean that war can (or will) be eradicated. It simply means that the proclivity towards war can be reduced. This can only happen if other nation-states see institutions, and the nation-states that create those institutions, as legitimate.
Institutional legitimacy today comes only when responsible leaders are prepared to use force with cause. But it also comes when everyone, including the biggest actors, play by the rules established by the treaties and institutions created.
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GLOBALISM: For information on the Globalist perspective, Modernization Theory (and, yes, parachuting cats), underdevelopment, and the logic behind the drug trade you can click here.
- Mark
Saturday, May 21, 2016
IS DONALD TRUMP AN ACCIDENT, OR THE FIRST IN A LONG STRING OF AUTHORITARIAN AND DELUSIONAL NATIONALISTS? YOU BE THE JUDGE ...
Over twenty years ago, while in graduate school, I read "The Latin Americanization of the United States" by Howard J. Wiarda. Among the issues we discussed were the growing gaps between the rich and poor and the rise of gated communities in the United States. The piece didn't make any waves then, but the message and discussions we drew from Wiarda's work are pertinent today.
This is especially the case when we see how income and wealth gaps, combined with crushing debt loads, are polarizing our politics and undermining the ability of the United States economy to maintain any kind of dynamic growth.
Apart from economic polarization, the political point that Wiarda made in his "Latin Americanization" piece describes how the United States was becoming increasingly centralized and bureaucratic. While I'm over simplifying the issue, this was a condition that lent itself to "corporatist" and, later, authoritarian political strains that are part of Latin America's political DNA (referred to as bureaucratic-authoritarianism).
What emerged in Latin America politically was an environment where leaders saw overgrown threats, and promised to both defend against and rid the nation of internal enemies. This would include going after those who did nothing about civilian incompetence, those who tolerated suspicious outsiders, and disciplining the corrupt political class running the state. Not surprisingly, Latin America became a cesspool of reactionary militarists and delusional nationalists.
Sound familiar?
This background is important because it helps us understand the reactionary delusion and authoritarian culture that's emerging in America. And, yes, Donald Trump has tapped into this emerging culture, which Ezra Klein and Vox explain here.
While Wiarda believed the "Latin Americanizing" conditions he saw emerging in the United States might be an evolutionary part of modern developed states he also believed it had corrosive qualities. This appears to be the case when we look at the wealth extracting bankruptcy, bailout, and crony capitalist model that's both tolerated and embraced in America.
If you don't want believe the trend you need to take another look at business charlatans like Donald "That's-4-Bankruptcies" Trump and what the multi-trillion dollar bailout kings on Wall Street have done to our nation's economy.
There's more, but you get the point. And if you don't, I think we all know who you're voting for in November.
- Mark
Hat tip to Chris for Vox link.
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