Updated November 15, 2015
The industrial revolution produced three types of people: Those who preached that markets self-correct those that divined that markets self-destruct and those who thought they could keep supply and demand in equilibrium.
It was the latter that held sway up until the early 1970's; a combination of a mixed economy that kept national industrial economies humming and a global agreement forged at Bretton Woods that kept global trade in balance. It was the golden age of capitalism, a period when post war reconstruction created significant global demand and prosperity.
Yet with reconstruction Germany and Japan emerged as serious competitors and as they penetrated U.S. markets dollars flowed out resulting in a drain on U.S. gold reserves. In response Nixon took the U.S. off the gold standard and then proceeded to manipulate the dollar by making a trade deal with Saudi Arabia. The United States would provide the Saudi's with weapons and guarantee their security in exchange for denominating the sale of oil in dollars. At first glance this seems odd. Left to currency markets, the dollar would weaken, raising the costs of imports while making their exports more competitive. The problem here is that the cost of oil imports would rise. I guess it was a tradeoff of sorts. The thing is, taking the U.S. off the gold standard in effect collapsed the Bretton Woods agreement. But it wasn't until the election of Ronald Reagan and the Reagan Revolution that things began to change; a mixed economy was out and neoliberalism, a return to laissez-fare economics was in. Out too was détente as Reagan ratcheted up the arms race heating up the cold war. Risky business, Reagan was playing with nuclear matches.
Enter Gorbachev and Perestroika: New Thinking for Our Country and the World. Here, the backbone of the new way of thinking is nuclear disarmament, stepping away from the nuclear abyss; humankind's survival. And while this was the backbone of Perestroika, new thinking also led to the dissolution of the Soviet Union. It wasn't so much that revolutions in the Republics were successful that led to this event, but that they were allowed to do so. No tanks were seriously rolled out; socialism was out and liberal democracy in. Not only was it in, the thinking was we had reached the the end of history: liberal democracy being the end point of humanity's social economic evolution. However, with the fall of the Soviet Union came the rise of socialist China, and here the revolution was crushed; the tanks were rolled out at Tiananmen Square.
Thus, the end of history was still in question and the ideological battle between capitalists and Marxists are still in play. And while they are diametrically opposed, while they have different prophets, Adam Smith and Karl Marx, their ideologies are both a reflection of the material base: the marketplace. These are matter over mind ideologies. That is bad news. Not just in the evolutionary scheme of things, the necessary progression of ideas to consciously meet the consequences of a fast-changing world, but that the abyss still beckons. Yet, this is the world we live in. A world ruled by high priest ideologues who have put their faith and our fate in the hands of their prophets who had divined the will of the marketplace god and the path to the promised land. So, how goes the ideological battle in a MAD world?
When the communists overthrew the existing order in China they didn't capture much in the way of industrial development which eventually led to a revolutionary shift in ideology: Socialism with Chinese Characteristics. Think of it as divine revelation. While adhering to Marxism it was decided they would take the capitalist road to industrialization. Socialism now is the primary stage where they capture the mode of production where the dictate is: to each according to his work that precedes the advanced stage of communism where the dictate becomes from each according to ability to each according to need.
And to get there they simply adopted an open-door policy. Here the chief characteristic is the Art of War; that is: The supreme art of war is to subdue the enemy without fighting. They captured the mode production while
undermining the existing order without firing a shot. It was a great leap forward based on Marxist gospel: The bourgeoisie cannot exist without
constantly revolutionising the instruments of production, and thereby the relations of production, and with them the whole relations of society... Constant revolutionising of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones... The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connexions everywhere. Even in socialist China.
However, when the multinationals (the highest stage of capitalism, self-interested stateless entities) , driven not so much for new markets, but by competition in their race to the bottom--in their quest for fewer regulations, lower taxes and cheaper labor--nestled in socialist China, they reached the bottom with a resounding thud that changed everything.
When multinationals offshored manufacturing and/or assembly to socialist China they turned it into the so-called factory to the world that should have led to a global recession as lost manufacturing jobs in the U.S. and elsewhere led to less demand dragging down the supply-side in China. But as we'll see, events postponed the day of reckoning. However, the underlying facts are: one, capitalism left on automatic self-destructed and two, as production was centralized in socialist China, it changed the dynamics of Marxism: a global glut, an epidemic of overproduction, is no longer in play. Nonetheless the global economy still collapses. What that means is chaos in the capitalist world while in socialist China, having captured the mode of production, they simply turn to communism. Hence socialism with Chinese characteristics.
And we are on the cusp. Right now the global economy is unbalanced and wobbling on axis on its way to spinning out of control. Yet the perception is one of slowing growth and central banks in response are lowering interest rates. Yet, while they may slow the slowing, they can't bring supply and demand into equilibrium, they can't rebalance the global economy, they can't return jobs, say to the United States; that's left to market forces. If low skilled jobs go anywhere, they'll go where labor is the cheapest. So, as to those events that postponed the day of reckoning we start with the United States.
First is its status as a free rider. The dollar as a global currency allows it to maintain its trade deficits without repercussions in currency markets. So in effect it can import goods and export dollars in exchange. A strong dollar also allows for an ever-increasing national debt; itself a major prop in that it props up the federal government and so props up a significant part of GNP. Then there were bubbles and bubbles, toils and trouble beginning with the dot.com boom that created jobs, paper wealth, and lot of capital gains and so a lot of capital gains taxes that together led to budget surpluses. Nonetheless Clinton claimed ownership and the myth spread that rationalized Bush's tax cuts and a Republican Congress going on a spending spree even as the bubble popped dispelling the myth as the economy fell into a mild recession. Yet the fear was the economy might double-dip into recession: To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Greenspan obliged and pushed interest rates down and Bush pushed the Ownership Society along with lax lending standards that revived the American dream of home ownership leading to a surge in demand which drove up the price signaling builders to build more. And as the price went up a bubble emerged and the Fed responded with higher rates.
Even so, the bubble would have eventually popped as buyers were priced out of the market. Yet, it did create a lot demand. In the U.S. housing starts went from 1,560,000 in 2000 to a peak of 2,068,000 in 2005. Compare that with 2014.
There was also indirect demand. Speculation was rampant driving up prices prompting flippers to enter the market upgrading homes and quickly reselling; yet the positive side was that upgrading created jobs and demand for materials and appliances. Then there was a rash of cash out refinancing by home owners that financed purchases that ranged from electronic gadgets, new cars and trucks to home remodeling. All in all, it was quite the stimulus package.
But it wasn't just a U.S. housing bubble, but a global bubble. And when the bubble popped, the global economy fell into The Great Recession.
The resulting crisis in the Eurozone was met with a fiscal policy of austerity at odds with its monetary policy and so remains on the edge of recession.
Yet the perception is one of optimism: the Fed, while patient, is thinking about raising interest rates. However, in a global economy you need to think beyond your nose. So the Fed waits to see how the global economy is playing out; so back to China.
With the Great Recession their exports plummeted. And they responded by accelerating the development of new cities and infrastructure increasing employment domestically and globally. Yet while their exports initially surged they began to fall off.
But why the bumpy decline in exports? The simple answer is oil. China's rise required huge amounts of oil straining global supply pushing up prices.
Increased domestic production led to a decrease in imported oil which increased global supply which drove down global prices and so the incentive to develop new wells; rig counts are down. Yet these are not giant fields, basically they are cracking rocks and therefore have a rapid depletion rate. Consequently production will fall along with inventories, and the U.S. will import more oil and prices again will go up. Meanwhile prices are low and the U.S. shale patch is feeling the pain along with conventional producers here and abroad.
Meanwhile, back at the China ranch its development of hundreds of new cities (portrayed as ghost cities and the mother of all housing bubbles) propped up the global economy. And it appears to be weakening. And as it does 50 million migrant workers will lose their jobs as well as those in upstream and downstream industries (such as steel, cement, glass, furniture and appliances) and the service sector prompting fears of a hard landing and global recession as China demands less from the global commodity markets and the world in turn demands less from socialist China.
What's changed in the interval is that while capitalism still faces collapse and chaos, socialist China, along with capturing the mode of production, has built hundreds of new cities. They've colonized segments of Africa. They are getting rid of the corruption. They are cleaning up the environment. They are getting ready to turn to communism: from each according to ability, to each according need filling up those millions of empty apartments while paying current owners with freshly printed Yuan. They are also getting ready for the collapse of capitalism, building up their military and fortifying the South China Sea. Russia too is distancing itself from the West under the guise of the Ukrainian conflict, turning to autarky while building up its military arsenal. What this suggests is that the Soviet Union's fall and China's rise was no mere coincidence but an act of deception. If communism failed in the Soviet Union, how could it succeed in Socialist China? It is the Art of War; deception at its best. Yet, are they ready for what follows?
As global markets crash, global food supply chains break and panic leads to a run on supermarkets, a war of all against all breaks out and martial law is imposed giving rise to military dictatorships that may or may not save the day. Yet... oil is the life-blood of industrial economies and the Middle East, already on the edge of chaos, will plunge into total chaos. In an effort to assure their supplies the United States steps in militarily and Russia responds in kind resulting in a nuclear standoff. The only option is a scorched earth policy; nuking the oil fields. They then retreat into their nuclear forces where they go into their versions of DEFCON I (cocked pistol), and morph into a quasi-Orwellian existence where the priority is maintaining the nuclear fort, the military/industrial complex. But the threat that each poses to other is manifest; a constant strain on the psych until one or other breaks and unleashes a nuclear apocalypse.
The thing is, all things considered, is that we are just bystanders to history. And as such it a scenario that could play out. All this is just meant to prompt the question: what is the alternative to liberal democracy? What would constitute an end of history ideological shift? However, before we go there, it's necessary to complete the narrative and bring events up to date. So once again:
A tough time for the nation and even tougher time for President Carter: an oil shock, rising prices, the Fed raising interest rates and so stagflation and an all time high in the misery index, all of which prompted Reagan to ask the nation: are you better off than you were four years ago. So without even thinking, they elected Ronald Reagan in a landside and the Senate went Republican for the first time since 1952.
Reagan, in his augural address made it abundantly clear: “In this present crisis, government is not the solution to our problem, government IS the problem. It isn't so much that liberals are ignorant, it's just that they know so much that isn't so.”
Under Reagan the assault against unions and the Federal government (the quest for lower corporate taxes and fewer regulations) began anew. Never mind that taxes, no matter how they are spent, whatever government takes in, it equally puts out in demand and underwrites those that whine, moan, and complain the most. Never mind that the New Deal provided long term mortgages with low down payments and interest rates that set off a housing revolution that drove economic prosperity across the board. Never mind Social Security (despite its illusion). Nonetheless Reagan set the nation on a path (and a Republican mindset) where an unfettered marketplace would provide the solution. And if there was some hope for a progressive solution within the Democratic Party it was dispelled when Clinton became president.
And what of Obama, he flipped from Keynesianism to neoliberalism; throwing another trade agreement on the altar of the marketplace god despite its dire consequences. The Reagan Revolution remains in place. There was no audacity, there was no boldness, there is no hope... there is only the marketplace god.
So here we are: a Republican Party still in play even though it is the party that defends an unfettered market that offshored our manufacturing jobs to socialist China aiding and abetting their rise to a global power and now a formidable foe. A party still in play because of a relentless propaganda machine that distorts reality, preying on the susceptible, the disgruntled, the prejudiced, the fearful, fostering a festering base of intolerance against their fellow Americans. In the process they have lured a significant number of workers to their side and given them their just rewards: lower wages. They exist because they still pedal a false consciousness that workers still buy at a high price; not so much lower wages, but that they have lost their minds. They are still functional in workplace, but they have lost the ability to reason. In the process of bending their minds they have created a base that now wags the running dog incapable of learning new tricks.
On the Democratic side, with the entry of Sanders, it has taken a progressive turn. Yet redistribution of wealth does little to rebalance the global economy as demand is largely supplied by socialist China. And too, Democrats at best play the role of the shepherd tending its flock. And that in itself tends to stupefy its constituency despite it's live and let live social agenda and more conscious grasp of the challenges facing us. But outside of taxing the wealthy, there is no conscious plan to meet those challenges that are the consequences of our being other than going deeper in debt.
For Marx, consciousness is a reflection of the political economy. A person's thoughts tend to be shaped by his or her political and economic circumstances. He famously wrote, "It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness." So the political process offers nothing new; there's no thinking outside the box.
Meanwhile small business failures have exceeded startups (perhaps a combination of stagnant wages, rising rents and too many entrepreneurs chasing the same customer), retail sales are close to flat (tempering fourth quarter grow). Factory orders are down along with factory jobs, a record fall in manufacturing, a manufacturing recession and third quarter GDP came in at a dismal 1.5 percent. In the Eurozone GNP is 0.3 percent and Japan has entered a technical recession.
Yet the October's job report surprised everyone as it posted a gain of 271, 000 which takes the Fed's eye off of China and puts it on interest rates. Even so a global recession is not out of the question: check it out here, here, here, here, and here. What underlies all these global concerns is that not much of anything can be done to advert the coming recession that may well be a depression. Which gives credence to those who think we are ideologically bankrupt: here, here, here, and here.
Meanwhile tensions between the U.S. Russia and China continue to mount: Russia in the Ukraine and Syria and China in the South China Sea.
So what's the alternative to liberal democracy, that is, free market (capitalist) democracy? What would constitute the end of history, the end point of humanity's sociocultural evolution?
Right now nations are in debt up to their eyeballs, but still they subsidize domestic industries to better compete in the global marketplace, to support needed development, health care, or just good old crony capitalism. This is all possible because of fiat currencies. What this is leading up to is this: if we can rationalize this illusion as sustainable then we can rationally do what is necessary for building a sustainable global economy; nations simply print their currencies (no borrowing, no taxes) and subsidize what needs to be none.
True, there's no denying there is a perceived problem here: hyperinflation. But inflation here is a result of currency markets responding to what they see as flagrant abuse of currencies, so they devalue those currencies. A weak currency leads to import inflation (think oil) which sets off an inflationary spiral creating socioeconomic chaos (this is Greece if exits the euro). But if it is accepted as a common practice that benefits the whole, if it is a collective will, then there is no problem.
The first thing to be subsidized is the production algae fuel to include labor to power our cars, trucks, trains and planes. What follow is a decrease in greenhouse gases and, an increase in employment and global trade.
Next is reindustrializing those countries that lost manufacturing jobs to China and elsewhere. Just as algae fuel is about energy independence, this is another step to self-sufficiency. However, multinationals are not going to return unless wages are reduced to a point where they are globally competitive. So we subsidize wages here too. And all that money that they are hoarding, they can now bring home tax free and rebuild our industrial base while pushing the automation envelope. The problem here, as affected nations reindustrialize, as the global economy rebalances, we are back in Marx's world where a global glut, an epidemic of overproduction leads to layoffs again threatening a global collapse; so, again the practical.
While the affected nations reindustrialize they are doing so in pursuit of self-sufficiency while exporting self-sufficiency to the developing and undeveloped nations.
So, what's the way there? Resource exports from these nations alone can't accomplice the task. But subsidies can.
So one nation or a group of nations subsidizes their industrialization to the degree they need to keep their own economies buzzing, keeping them on the path to self-sufficiency while putting their client nations on a similar path. It's a win-win game.
This is the end of the marketplace god and the beginning of the end of history.
This is a proposal put forward for consideration and discussion and eventually would require a gathering of minds, another Bretton Woods. Meanwhile we, the United States, can unilaterally start by subsidizing algae fuel via the printing press. And say that currency markets devalue the dollar and so drive up the cost of imports driving down exports from China and elsewhere. So it would be wise to follow our lead.
So first is algae fuel. And second is Social Security and third Medicare. This isn't about eliminating the respective entitlements from payroll taxes, it's about eliminating the funding of Social Security and Medicare from the Federal budget. Why would currency markets react here? There's no more additional demand on the global marketplace.
What we may be witnessing here is the beginning of the end history. As nations become self-sufficient they gain monetary independence. Individual nations, their Treasuries, via the printing press, can fund their governments, social security, health care and education and guarantee a minimum standard of living. Coupled with trends in population growth (stabilizing) and recycling, self-sufficiency brings to an end ideological conflict, a struggle for markets or resources, no more wars for such ends, and no more environmental degradation.
And while you're thinking about that, think about this: global warming is in play: extreme droughts, extreme winters and extreme weather along with raging forest fires are the new normal. Where is the money going to come from to deal with these mounting challenges?
Take a look at California. Even if the forecast of a strong El Nino materializes, it's historical impact mainly effects the southern part of the state. Couple that with the fact its main reservoir, the Sierra Nevada snowpack is disappearing as temperatures rise, California still remains at risk. And California is too big to fail.