Sunday, August 25, 2013

The Failure of Laissez-Faire Capitalism

Introduction: This is a discussion of Paul Craig Roberts’ book by that title. I just raced through the book. I couldn’t put it down. It hit me real hard, the way inescapable truth hits you. It codifies much of what I have been worrying about for decades.

Roberts’ central theme is simple: Globalism and free trade have been an unmitigated DISASTER for the United States. The country has been outsourcing the totality of its industry to China, to India, to Japan and to others. America’s de-industrialization is now complete. We are now a Third World country, but we don’t yet realize it, because the dollar still functions as the world’s reserve currency.

Who is Paul Craig Roberts? I remember him as a staunch Reaganite. He was assistant secretary of the treasury and co-founder of Reaganomics. He still defends “Supply-side” economics. He insists, however, that this is NOT related to “trickle-down” economics, and he is also mum about the so-called Laffer curve.

Today, Roberts is quite progressive: He strongly opposed the Iraq war. He calls America’s wars “imperialistic.” He notes that the “war on terror” is destroying the Constitution and creating a police state. He explains how the great economic recession was caused by banking deregulation (by Alan Greenspan and his cronies) and by the repeal of Glass-Steagall. He is fully aware that unending economic growth is killing our planet.
Is there any lingering trace of conservatism in this book? I suppose Roberts’ opposition to American military involvement overseas could be construed as “isolationist.” Also, he hints that Reaganomics were pretty hunky-dory.
But by and large, I don’t see Roberts as a mix of “right” and “left.” He is overwhelmingly progressive. He has simply moved WAY over. I find this admirable.

How is laissez-faire Capitalism killing America? In one respect, you could label Roberts a somewhat politically incorrect jingoist: He is fervently pro-American. After all, his central thesis is that America MUST stop outsourcing its jobs.
The author shows why David Ricardo’s theory of free trade no longer applies. In the 18th century, free trade was mutually beneficial to trading partners. Today, this is absolutely no longer so. Yet the government, Wall Street and the overwhelming majority of academic economists conspire and continue to defend free trade and globalism.
Roberts provides an elaborate - and, to me, barely understandable - explanation of the great financial crisis of 2007-8. He demonstrates the utter interpenetration and complicity of Wall Street (Goldman Sachs) and the Federal Government to this very day. Larry Summers is likely to be Obama’s selection to replace Ben Bernanke. The fox guarding the chicken coop!

1. Outsourcing American jobs is bad because in the end, ALL outsourceable jobs leave, including the high-end, high-tech jobs. It is NOT true that America’s “new economy” - “brain jobs” - will take care of unemployment: Brain jobs are also being exported, including those in research and development. In order for a country to perform meaningful R&D, it must produce the industrial goods which it sells to its own people AT HOME. If you export your industrial production, you export just about everything, including the science, technology, research and development that go with it.
Only low-tech, low-pay, non-exportable service jobs remain. Your barber, your dentist and your local restaurant will still be here.

2. Not only is outsourcing a debacle for America. So is the “insourcing” of cheap high-tech labor from places like India, under programs such as the H-1B work visa program. The excuse for these programs is that American universities do not produce enough engineers and computer scientists. But this is a myth: The reason for importing such people from overseas is that they can be paid half as much as American engineers. Meanwhile, thousands of American engineering graduates drive taxis, are restaurant waiters, or are unemployed. It is no longer true that a B.S. guarantees a good job.

Roberts goes so far as to utter the taboo “P” word: American industry and American jobs need protection - dare we mention “tariffs”?

But is laissez-faire Capitalism good for the rest of the world? Is Roberts a nationalist who doesn’t care about economic development in China and in the rest of the emerging markets? Is he selfishly opposed to the global redistribution of wealth from the rich West to the developing world?
That’s not what globalism and laissez-faire capitalism are accomplishing. The only beneficiaries of the current world system are the 1%. The CEOs and the shareholders of the Fortune 500. People who make 500 times what employees earn.

The victims are the American working class AND the workers of the rest of the world. The US has the world’s third worst distribution of wealth, and the developing world’s labor force works for slave wages. Many Third World economies become “monocultures” - forced to grow or mine single exportable products.
On a planetary level, a perpetually growing economy is not sustainable. We still operate on the basis of an “Empty World” economic system. Businesses ignore the external costs of production, including the depletion and the destruction of the environment. We must switch to a “Full World,” steady-state economic model.
Europe is on the wrong road as well: its answer to the spreading debt crisis which began in Greece is to undermine sovereignty and democracy. The banks misbehaved, and for some reason the people must suffer austerity.

Conclusion: It doesn’t matter what political label one attaches to Paul Craig Roberts. To me, his book seems profoundly true. It articulates concerns which I have had for over thirty years. Call him Cassandra, Jeremiah or any other doomsday prophet. The evidence supporting him is all around us, and growing day by day. leave comment here