Updated July 19, 2015
The industrial revolution produced three types of people, those that envisioned a marketplace that self-corrected, those that divined its self-destruction and those who thought they could keep supply and demand in equilibrium.
It was the latter that held sway until the early 1970s. Prior to that turning point it was a mixed economy that balanced demand within the industrial nations and Bretton Woods that balanced global trade. It was the golden age of capitalism and it came to an abrupt end as post war reconstruction brought Germany, Japan and others up to speed and the United States began facing serious competition and a drain on their gold reserves. Nixon responded by taking the U.S. off the gold standard and then immediately manipulated its currency by offering Saudi Arabia both protection and arms in exchange for denominating oil purchases in dollars. At first glace this seems odd. Left to currency markets the dollar would weaken making imports more expensive and our exports more competitive. The problem here is that oil imports would cost more; I guess it was tradeoff of sorts. The thing is, those who thought they could balance things, had thought wrong. When push came to shove they were shoved to the side and neoliberalism was pushed to the front. There is no longer an intermediary between capitalists and Marxists, and that's bad news for many reasons.
First, both are fundamentally flawed. Both embrace an ideology that is a reflection of the material base: the marketplace. What they both put forward, therefore, is an ideology of matter over mind. Different prophets, Adam Smith and Karl Marx, but they both have put their faith and our fate in hands of the marketplace god.
That's bad enough. And it gets worse. Capitalists nations have a willingness for war; politics by other means as they battle for markets and resources. So hand in hand with the constant technological advances in the mode of production,, came advancements in the mode of destruction: machine guns, tanks, battleships, aircraft carriers fighter and bomber planes, ICBM's and nuclear bombs.
Bad enough again. But these wars themselves provided opportunities for antsy Marxists, who jumped the gun, and established communist regimes in Russia and China.
So with the advent of the atomic bomb, the United States and the Soviet Union entered an era where they cannot exist without constantly revolutionizing the mode of production and means exchange: nuclear bombs and ICBM's. And following the dialectics of thesis (the U.S), antithesis (the Soviet Union) the synthesis is this: eventually their numbers will reach a critical mass (a loss of control, a glitch) and a great leap occur: matter over mind, the end of all history.
Nonetheless, Reagan, representing the vanguard of neoliberalism, the now-in-power capitalists, escalated the cold war, pushing us closer to the nuclear abyss; a nuclear standoff.
So, enter Gorbachev with Perestroika: New Thinking for Our Country and the World. Here, the backbone of the new thinking is nuclear disarmament, stepping away from the nuclear abyss; the survival of humankind. That is the backbone, but the new way of thinking also led to the dissolution of the Soviet Union. And while it was perceived as a revolution by the various Republics, no tanks were rolled out; the revolution was allowed, the Cold War was over, Gorbachev blinked, and it seemed like we had reached the end of history.
Yet the fall of the Soviet Union was followed by the rise of socialist China who continued its embrace of Marxism. And a democratic revolution here was met with tanks at Tiananmen Square. So history marches on.
Right now the global economy is slowing down and the world's major central banks are lowering interest rates (the Federal Reserve holding the federal funds rate at rock bottom) and their respective governments are doing what they can where they can to stimulate demand and bring it up to speed. If it were only that easy.
The reality is, there is a global disconnect between supply and demand. The global economy is unbalanced and wobbling on its axis. So while central banks can slow the slowing, they cannot rebalance the global economy. They cannot bring manufacturing jobs back, for instance, to the United States. That's the job of market forces. Currently that means manufacturing fleeing the industrial nations and exploiting the workers in undeveloped nations. So in the short term, the former industrial powerhouses find themselves in dire straits. However, according to capitalist theory, this nothing to worry about. In the long term things will balance out as their workers, reduced to subsistence wages, again become competitive in global markets.
However, counter to the classical view, is the Keynesian view that in the long-term we are all dead; hence central banks lowering interest rates along with infusing banks with more money and Obama's Recovery Act. It seems like neoliberalism is dead... until Obama put forward another trade agreement. Meanwhile our trade deficits continue to grow, the global economy continues to wobble, and if unchecked will spin out of control in a MAD world.
So that's pretty much sums up the doom and report which in and of itself calls for an ideological revolution. So what follows is put forward in two parts. Part I is a historical perspective of the economic, political world where the marketplace god rules and the consequences of its rule. Here, we pick up with the rise of socialist China. Part II posits an ideological alternative: a shift from the theoretical to the practical that brings us to the end of history.
Part I: The Unbalancing Act
When 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. While adhering to Marxism it was decided they would take the capitalist road to industrialization. Socialism then 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 had to open their door to the capitalists.
But what is socialism with Chinese characteristics? It's this: 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 based on gospel: they (the capitalists) must nestle everywhere; even in socialist China. It's not they were blind to the consequences, in the short term there was a buck to be made, and that trumps everything.
However, when the multinationals (representing 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. Capitalism, left on automatic, self-destructed, and socialist China by capturing the mode of production changed the dynamics of Marxism.
Offshoring manufacturing and assembly to socialist China sort of centralized production in China, turning it into the so-called factory to the world. In the process the multinationals left in their wake rising unemployment in their respective countries creating a global disconnect between supply and demand. Structurally that means the latter demands less from China, who in turn demands less from the world who in turn demands less from China. Hence the global economy wobbling on it's axis. In practice, the marketplace god is dead, but it lives on in the minds of the faithful while our fate has never been more threatened as we near a day of reckoning. It's coming, but only after various events that propped up the system have played out.
Looking at the United States, first there is the ever-increasing national debt that propped up the federal government and so propped 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 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. Yet the bubble popped dispelling the myth and 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.
While the Fed initially lowered interest rates, it was Bush (the decider who decided to do nothing) who pushed the Ownership Society, and with it
But it was the global housing boom that propped up global demand.
And when the bubble popped, the global economy fell into The Great Recession.
While the Eurozone has its problems and austerity measures have been forced on its weaker members, the United States responded with
Keynesianism; fiscal and monetary stimulus. Obama's Recovery Act and the Fed's pushing interest rates to rock bottom stimulated demand (here and in China) that led to a modest recovery; those too discouraged to look for work (the participation rate) are not counted, giving a positive spin to the unemployment rate. However the economy is nothing to cheer about. It's just not that most of the new jobs are low-wage or part-time or wages continue to stagnate and too many live from paycheck to paycheck, receive food stamps, and go deeper in debt, it's this: our trade deficits and national debt continue to increase while U.S. factory orders have declined in nine of the last ten months.
Even so, 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 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 (as they demanded more from the world the world demanded more from them) and their exports surged. However, exports peaked and began a bumpy decline with a slight uptick.
But why the bumpy decline and the uptick? The simple answer is oil. China's rise required huge amounts of oil straining global supply pushing up prices.
Yet as prices soared they allowed producers in the U.S. to wring out tight oil from expensive to extract reserves; increasing global supply while giving a significant boost to the U.S. economy. So arguably without those investments in new cities and infrastructure, the global economy could have collapsed. Yet, as oil production rose in the U.S. it's imports of oil correspondingly fell and the result was the collapse of global oil prices and an uptick in exports.
Yet, slowing growth in China should reflect a slowdown in oil imports. That it isn't could be accounted for by the building up of their strategic oil reserves. And too, China, the fourth largest producer of crude oil, may have reached peak production requiring more imports.
The thing is lower oil prices have somewhat propped up the global economy, yet as production in U.S. oil shale plays wind down, prices again will go up at the same time conventional supplies are going down. You can't have growth without rising oil prices. Cheap oil financed global growth and expensive oil shuts it down.
However, right now, herein lies the anxiety: China is currently demanding less from the global commodity markets, signaling a slowdown in the development of new cities (so-called ghost cities); perceived as the mother of all housing bubbles, and when it pops, 50 million migrant workers lose their jobs as well as those in upstream and downstream industries (such as steel, cement, glass, furniture and appliances) and the service sector. But to be clear, it's not a housing bubble, there is a population restraint on the number of new cites that can be built. It is not a matter of prices or occupancy, it's a matter of limits, and when they reach those limits, China demands less from world, and world demands less from China.
So here we are: central banks trying to prop up the global economy with no real cure. The clamor for investment in infrastructure is not the cure, if implemented it just kicks the can down road and increases the national debt. The reality remains an unbalanced global economy working its way to a tipping point. And while you can't put a date on it, you can theorize about the outcome, the collapse of the global economy.
In socialist China, they turn to communism: from each according to ability, to each according to need. Having captured the mode of production along with the mass production of ghost cites and related infrastructure, their colonization in parts of Africa along with their waiting base in Angola, they are good to go, albeit not without some trepidation as collapse elsewhere leads to chaos.
As with the Great Depression, chaos follows the collapse of the stock markets as players read the handwriting on wall and panic. However:
- If threshold 2 is breached before 1 p.m., the market would close for two hours. If such a decline took place between 1 p.m. and 2 p.m., there would be a one-hour pause. The market would close for the day if stocks sank to that level after 2 p.m.
- In the event where threshold 3 is breached, the market would close for the day, regardless of the time.
There is no revolution; there's just death and chaos. What happens next? It is either a military coup or the Federal government taking total control under the provisions of the Defense Production Act of 1950. Given the track record of our leaders, the rise of a military dictatorship looks to be inevitable. So here we pause to look at the political perspective.
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 people: 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.”
(Really? Never mind that the New Deal created Social Security; stored demand for future use. Never mind the National Housing Act that increased home ownership by insuring lenders that provided low interest loans, low down payments, and long term mortgages. Never mind that this set off set off a housing revolution, funded by Fannie Mae, that became the backbone of economic growth. Never mind whatever government takes in, it equally puts out in demand and underwrites those that whine, moan, and complain the most. Never mind that it is government that propped up the capitalist.)
So it's no surprise their reaction to the unfolding crisis was to become reactionary. Under Reagan the assault against unions and the Federal government (the quest for lower corporate taxes and fewer regulations) began anew and Reagan set the nation on a path (and a Republican mindset) where an unfettered marketplace would provide the solution.
That led to NAFTA and that great sucking sound. And it didn't end with the Clinton Administration.
Nonetheless, those susceptible workers are too far gone to put two and two together; while functional in the workplace, they have lost the ability to reason, and can only parrot the capitalist playbook. And what trickles down here is intolerance that is turning to the dark side. The Republican Party has created a base that now wags the running dog. Here, it is the most outrageous candidate that appeals to the base: Donald Trump. And while the GOP tries to distance themselves, they are hoist by their own petard.
An informed society is critical to democracy and the GOP has spectacularly failed the nation. Government on the other hand has an inherent tendency to play the role of the shepherd. And while those on left have are better informed, there's is something to be said that government does, to some degree, interfere with the thought process. We do have an educational crisis and I would pin that on the marketplace god as well.
In response to the financial crisis, which in reality is a response to neoliberalism that offshored manufacturing, Obama brought Keynesianism back into the game with the Recovery Act (along with rock bottom interest rates initiated by the Fed) that created jobs. However very few of those jobs where export related, and consequently allowed for more imports, rising trade deficits and national debt. It's not a recovery until we recover those lost manufacturing jobs. And what does Obama do? He flips (WTF?!) to neoliberalism advocating another trade agreement, another appeasement to the marketplace god. Meanwhile the flock remains the flock and the shepherd, as a guide, relies on the past as a guide to the future.
There was no audacity, there was no bold move, there was no hope. The curtain is coming down. And there are no new actors, it's the same old cast of characters with no new lines. And when it does, whether now or after the next general election, the military will step in, take center stage and establish a military dictatorship providing quick and decisive action.
First, they calm the chaos by assuring the nation with a clear and distinct message. Their first priority is getting food back on your tables (even it is MRE's). At the same time working to get utilities back on line, getting money in your pocket by the taking over the Treasury (printing press) insuring health care, education, Social Security and unemployment benefits, so you can pay for your food, rent, utilities. Having control of the purse strings, and you, they then set about reindustrializing the nation and securing our energy future
stockpiling bullets (thank you NRA), just remember to save one for yourself. And while you are preparing, so are the wealthy. But they have to wonder if those that protect them, really need them.
Of course is this is as optimistic scenario. It may be that their primary mission is to maintain the military/industrial complex, reinforcing the nuclear fort;
those that can't play a supporting role, are superfluous.
This is a grim tale, and at the moment remains theoretical. But the current threat is real, the global economy is unbalanced at the same you can't have growth without rising oil prices. And global warming is real. Just looking at the United States, global warming is impacting droughts, along with extreme winters and extreme weather. While extreme winters and weather have an economic impact, it is the ongoing droughts in the southwest and California that have the potential to crash the economy. Lake Mead is running and annual deficit hovering in and around ten percent. Overuse is the primary culprit (the Colorado River hasn't reached the Sea of Cortez for decades outside of exceptional el Niño years) but global warming is reducing snowpack in the Rockies, and so together Lake Mead may reach dead storage within ten years. Ditto for the Sierra Nevada Mountain Range and California's reservoirs that may run dry next year. And California is too big to fail. And even if California were to dodge that bullet, our children may not.
For Marx, consciousness is a reflection of the political economy. "It is not the consciousness of men that determines their being, but on the contrary, their social being that determines their consciousness." And I would add: determines their fate. As it is: we are bystanders to history being written by the marketplace god. As it is, disregarding conservatives, we are becoming more conscious of the threats,
The Road To Freedom
What I'm hearing (and others: here, here and here ) is that neoliberalism and Keynesianism, have been pretty much kicked to the curb by history.
But if you continue to think in those terms, when you think about it, that means rebalancing manufacturing, reindustrialization in the affected countries, and that leads back to Marx's epidemic of global over-production. So thinking about it means actually thinking about it. And thinking about it means shifting from a global economy based on the interdependence of nations to the creation of sustainable self-sufficient nations.
In the realm of reason there is the theoretical; here the prevailing ideology, despite actions by central banks, is neoliberalism, the idea that markets self-correct. It's not happening; so we are left with the alternative: practical reason; simply doing what is necessary
What follows is not an absolute prescription, but it is a way forward as we, consciously, coherently, and purposely meet the challenges that are the consequence of our being.
True, there's no denying there is a perceived problem here: currency markets frown on nations that print money in this manner. Consequently their currencies are devalued and the cost of their imports rise feeding an inflation spiral. However, on other side of the hyperinflation coin, a weak currency makes their exports cheaper, they become more competitive... if they can
can survive the inflationary chaos. That aside, however, if accepted as a common practice that benefits the whole, it is the solution. That would necessitate a new Bretton Woods that turns to the practical side.
In the United States the primary focus will be on algae fuels as Treasury subsidizes their development to the point that prices dropped enough to spur economic growth. What follows is a decrease in greenhouse gases, an increase in employment and an increase in global demand for consumer goods.
Here, the Greece problem goes away. The European Central Bank subsidizes the development of algae fuels in Greece; a good location being on the Mediterranean. So Greece gets jobs and the Eurozone gets subsidize fuel and perhaps eventually energy independence as the south, Italy, Portugal and Spain become subsidized providers of algae fuels.
In the short term this benefits China, global consumers and the advanced industrial nations as they import, for instance, low cost steel. Now comes the agenda for self-sufficiency and sustainability.
As the affected developed nations reindustrialize and push the envelope on automation, on their way to self-sufficiency the new markets will still be the developing and undeveloped nations. But instead of exploiting their labor and using them as an export platform, the developed nations will be exporting, along with consumer goods, the mode of production, the latest in technology.
Here's where it gets interesting. While they can export resources to the developed nations, there is a problem of direct investments. In the present world direct investment comes about as multinationals seek out cheaper labor in the developing countries using them as an export platform. That's a problem. This prompts the question: can one nation subsidize another? If the answer is yes, there is no problem, industrial nations, in supplying developing nations with the means of production keep their economies buzzing, keeps the world at peace on its way to the end of history: when robots can assemble a cell phone and the industrial revolution has come to an end.
About the author:
I'm a follower of Ebenezer Howard, the author Garden Cities of Tomorrow. While perceived as the father of urban planning, he is the de facto father of sustainable cities and sustainable development. He inspired the new town movement (re: EPCOT) that spread throughout the world Howard was described, by Lewis Mumford, as a practical idealist, and as follower, I too consider myself a practical idealist who offers practical solutions. With the collapse of housing bubble and the ensuing recession I responded with this. So here we are in 2015, and simple logic no longer works, and nothing short of a global ideological shift will.
As a practical idealist, I have presented by case, made my final argument, and while you deliberate, consider who is on trial, consider the tribulations, and consider the time as we move ever closer to midnight.