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Global capital is the tail that wags the U.S. economic dog

141 points by bzbarsky 6y ago

nine_zeros 6y ago
Maybe the US dollar should stop being the global reserve currency. That will really stop US imports rapidly (just as it did for the last reserve currency country UK). Ultimately, the only reason US capital flows elsewhere is because other countries need it and will accept it. If the need for it is cut off, other countries will happily trade in their currencies and US capital stays inside. What is impossible is being the reserve currency and yet not wanting to be integrated with the world. It will quickly get replaced by anything else, and there are countries competing to replace it now.
- tomdell 6y ago
  America and American capitalists benefit from America’s position, so I can’t imagine American isolation going much further. The US controls many of the world’s major supply chains and trade routes and ensures them with its military. What country can offer realistic competition for a reserve currency? China is trusted even less than America in many parts of the world, and their governance is even more opaque.
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  - fedreserved 6y ago
    The Euro is the only currency in the same league. Although I don't see the red Sox dethroning the Yankees anytime soon
  - Pet_Ant 6y ago
    The next best bet is the Euro. Which is isn’t without it’s problems... but let’s remember the debt show-downs that threaten the USD.
    - hehetrthrthrjn 6y ago
      The "debt show-downs" aka political theater.
      - Pet_Ant 6y ago
        > The "debt show-downs" aka political theater. Given the choice, I'd rather not have that for host country my reserve currency. You want your reserve currency as boring as a old brick in a vault.
- thedudeabides5 6y ago
  China may want to replace the US as a reserve currency... https://foreignpolicy.com/2020/08/21/dollar-global-reserve-currency-yuan-china/ https://foreignpolicy.com/2020/08/21/dollar-global-reserve-c... But wanting and doing are different things. Part of the dollar's status as a reserve currency is not just what you can buy with dollars (which is a lot more than RMB right now), but the fact that it is backed by a political, economic and military institutional framework which has been by and large consistent for more than 150 years. Maybe we should hold off on declaring the USD dead till the day China stops throwing random teenagers in black site jails with no access to outside counsel or due process. https://www.youtube.com/watch?v=G7s3GK9T09c https://www.youtube.com/watch?v=G7s3GK9T09c In short, imagine you wake up tomorrow and find yourself in the 0.001%. Now as yourself, does that 0.001% version of yourself want to live in Hong Kong/Beijing/Taipei or NYC/LA/SF. Obvious. At least if you want to be able to, you know, talk about stuff openly. And really, really rich people, well they tend to have a lot of opinions...
  - bubbleRefuge 6y ago
    I would posit that the current state is good and we should in fact further optimize it. Imports are a benefit and exports are cost in real terms. The point of an economy is to maximize consumption. Its costs labor, raw materials, and even pollution to produce IPhones and Mercedez Benz. The problem is everyone wants to export and only America wants to import. Is that a bad thing for America ? I don't think so. If you give me an Iphone and I give you a piece of paper, or, better yet, a debit on a spreadsheet, who is getting the better deal here ? Why do you want to horde that piece of paper? You can't eat it or use it for shelter. So why not have fed policy that optimizes this rather than calling our trade partners currency manipulators . Certainly we need to protect industries that are vital to national security and that list has increased with the pandemic. Wouldn't put iPhones on that list.
    - sudosysgen 6y ago
      The issue is that this creates conditions in which there is no incentive for the US economy to develop the infrastructure necessary for large scale manufacturing, and that without a large manufacturing advantage national security cannot be guaranteed.
- 082349872349872 6y ago
  That might imply the end of petrodollars: not sure that'd be a sellable proposal?
- patfla 6y ago
  The dollar's status as the world's reserve currency allows the US to consume at a rate that wouldn't otherwise be possible. All the trade surplus countries want that to continue. Losing that status, or changing the institutional structure in ways that undermine it, would cause huge, wrenching changes in the US but might be for the best. But again, the surplus countries really don't want that. For Germany, Japan and China these are actually the best of times - at least economically.
scottlocklin 6y ago
Or... you could institute tariffs to protect local industry and let Capital do whatever. Ricardo is a shaggy dog story they tell ideologues with linear regression models (aka macroeconomists), not a suicide pact for workers rights.
- deleted 6y ago
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- samirillian 6y ago
  I think if Syriza had been willing or able to prevent capital flight when elected, then they wouldn't have capitulated to Germany's demands. Not sure how tariffs fix a problem like that.
  - cblconfederate 6y ago
    They imposed capital controls while capitulating to german demands.
  - ClumsyPilot 6y ago
    Greece is very difficult case that is not 'normal' - a tiny economy, tiny population, part of a huge union with no border controls and does not even control it's currency. I feel the Euro was the worst mistake of the EU, once you've given up currency you a basically not a government but an oversized city councill. Control over currncy is the most important government lever.
- andrewjl 6y ago
  In practice this has not worked (Argentina) just as often as it did (China). Ricardo's theory is generally sound, but leaves out intangibles which don't necessarily come for free.
  - scottlocklin 6y ago
    It's almost hysterically funny how wrong Ricardo's theory is; even in the example he used of Portugal and the UK. Great job destroying Portuguese industry at the behest of UK capital though. As Joan Robinson put it “but in real life Portugal was dependent on British naval support, and it was for this reason that she was obliged to accept conditions of trade which wiped out her production of textiles and inhibited industrial development so as to make her more dependent than ever”. She further notes that: “What Ricardo was really concerned about was to abolish the Corn Laws so as to lower the real cost of wage goods and raise the rate of profit... When accumulation is brought into the story, it is evident that Portugal is not going to benefit from free trade. Investment in expanding manufactures leads to technical advance, learning by doing, specialisation of industries and accelerating accumulation, while investment in wine runs up a blind alley into stagnation” “Ricardo took the example of trade between England and Portugal. He argued that England, by allowing imports of wine from Portugal, would expand the production and export of cloth to pay for it. Ricardo, of course, was thinking of the English side of the exchange but the analysis is perfectly symmetrical; it implies that Portugal will gain from specialising on wine and importing cloth. In reality, the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of industrial revolution” As I've always said, this sort of economics is linear regression in service of the ruling class rather than anything resembling science.
warrenq 6y ago
Can a dude be called 'China Expert' if he pathetically and continuously has a disaster track record on predicting anything related to China?
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deleted 6y ago
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082349872349872 6y ago
How does this approach relate to https://en.wikipedia.org/wiki/Bancor https://en.wikipedia.org/wiki/Bancor ?
- andrewjl 6y ago
  The Bancor is a nice idea but cannot work in practice without a strong transnational institutional backing. Most countries would never cede their sovereignty to the extent that's needed and recent trends arguably point in the opposite direction.
mdnahas 6y ago
Ideally, global savings would go to help industrialize poor countries. However, investors are usually scared that they will not get their money back. Either because of corruption or "nationalization". Thus, investors are likely to choose a less productive use in a country with strong rules to reward investment.
- andrewjl 6y ago
  The best way to solve for this is to raise the expected rate of return to cover risks and provide firm legal and regulatory incentives to return investor capital. This is exactly what institutions like the IMF and the World Bank are designed to do.
  - minerjoe 6y ago
    Hmm. I thought the IMF and World Bank were there to make sure dictators run off with billions, scott free, and the citizens of the countries that they "ran" are stuck with the bill and the lovely austerity measures?
    - andrewjl 6y ago
      It generally helps to read multiple perspectives before adopting such an extreme view. Obviously that's not true.
      - blululu 6y ago
        The parent is a sarcastic exaggeration but it is not totally false. The IMF has changed a lot in the last 20 years, but they had a streak in the 80s where they would force third world countries to scrap their social welfare systems to pay off debt on loans that were foolishly made to previous unelected dictators.
        andrewjl 6y ago
        I'm not familiar with the details, but if they were at all similar to the mid-2010s Greek situation then they were not sustainable, irrespective of IMFs involvement. Generally I think there are better ways to grow economy than pure austerity, but the details do matter.
maerF0x0 6y ago
We can and should change the fact that people can move money around in the blink of an eye. Only then can we rebalance trade in a way that is optimal for the global economy. I feel like this is a freedom/rights question vs general good. Does the freedom to do what you will with your property supersede the demand to take care of your neighbor (and is there some other system, like philanthropy that actually does the latter?)
- PaulDavisThe1st 6y ago
  The fact the money is fungible should not be allowed to obscure the fact that money (the form in which capital is moved around) is a complex social agreement that exists only because of a highly evolved and history-dependent set of rules. Talking about money as "your property" typically bypasses the real nature of money, and encourages people to uncritically buy into a conservative/libertarian perspective that plays with people's sense of fairness to the interest of only those in positions of existing wealth and power. The fact that one can "move capital" to other countries at all is not some law of nature, but a deliberate political choice. Had the choice been made in some other direction (such as taxing currency conversions), a totally different pathway would emerge. The fact that one choice appears to involve "removing" constraints and the other appears to involve "adding" constraints makes it appear as though one of them is somehow closer to the natural order or things. But the very existence of money at all is not part of the natural order of things, and the preference for choices that avoid constraints just favors the status quo over change.
  - 082349872349872 6y ago
    Feudal economies were famous for encouraging their elite to acquire and store wealth in the form of real estate, which (unless one is a border lord) is not easily moved to another jurisdiction.
  - maerF0x0 6y ago
    > is a complex social agreement that exists +1 agree this is a massively important distinction in a fiat currency world. Money was property when it was Gold (+gold backed). Now it's more social than that. Unfortunately it seems people are up/down voting me, presumably, on what they think is true and where they think I land on the choice set proposed (Social good vs freedom)
snake_plissken 6y ago
Along the lines of this article, there's the dilemma/contradiction faced by modern globalisation in that money can move much faster and more freely than labor. In previous iterations (late 1700s, 1800s and the first few decades of the 1900s) labor and money moved at basically the same speed: as an investor, your capital (gold/silver, then whatever money instrument replaced it) took the same boat/train/carriage as labor. This had a moderating effect, and the system was able to almost always equalize itself in terms of trade and investments flows.
- ryandrake 6y ago
  Capital also doesn't need a passport and visa to cross borders.
  - andrewjl 6y ago
    That's not the case in countries that have capital controls. Some of the biggest economies today do.
  - Frost1x 6y ago
    Capital also doesn't need, I dont know: basic human social needs like a stable group of friends, family, loved ones and community opposed to living a nomadic drifter chasing money/jobs instead of wild game like hunter gathering civilizations.
    - tspike 6y ago
      Your point is taken, but hunter/gathering civilizations tended to be very stable groups of friends, family, loved ones and community. The entire group was nomadic.
    - ClumsyPilot 6y ago
      Very strange point - many people cross borders alone and start anew. Good luck crossing without documents
      - 6y ago
petermcneeley 6y ago
"We can and should change the fact that people can move money around in the blink of an eye." Some things once done can not be undone.
- 082349872349872 6y ago
  Lycurgus reportedly had ideas for making cash less fungible[1], but given the rest of his ideas, he might not be the best inspiration. [1] http://www.perseus.tufts.edu/hopper/text?doc=Perseus:text:2008.01.0047:chapter=9 http://www.perseus.tufts.edu/hopper/text?doc=Perseus:text:20...
- PaulDavisThe1st 6y ago
  The final sentence is true. But what's the evidence or case that this applies to free movement of capital?
- ClumsyPilot 6y ago
  It could certainly be undone, for instance, by WW3. The question is, can it be undone at a reasonable cost.
claydavisss 6y ago
More central planning for a global economy on the brink of ruin thanks to decades of central planning. We already "lock" capital into state-sponsored companies (GM, Ford, Boeing, all banks)...how is the working for everyone? With a Democrat sweep in the elections we'll see all of this pushed into overdrive, "locking" $10 trillion of new stimulus into our moribund, debt-riddled corpse of an economy. Don't worry, markets will go crazy.
ilaksh 6y ago
I feel like this is an example, but the root causes are multiple structural problems. 1. Poor integration between government and money. 2. Poor integration between different governments. My impression is that many people are opposed to both of those things on the basis that governments have historically been horrible in many ways. Probably will just get buried, but I would like to suggest that we don't have an alternative. Unless, maybe, you want to create something high-tech that can replace government. Which I think would really be a new form of government. It almost seems like we are moving towards one bad version of that. Look at the power of companies like Google or Amazon etc or the ability of Uber to successfully ignore laws. I guess this is another instance of #1. I feel like somehow you need fair, functioning governments with control over money that work together globally. A new type of high-tech money integrated with a new type of high-tech government might be possible and if so maybe it could solve those problems. Or you need a totally new paradigm where somehow the omnipotent mega-corporations (including the banks) start looking out for the interests of the people. That doesn't seem workable given the motivations and structure of corporations.
- fuzzfactor 6y ago
  Keep in mind the North American colonies were founded by multinational corporations for the benefit of multinational corporations. The interests of the people were not the primary consideration, nor whether they were capable of purchasing their freedom or not.
coliveira 6y ago
This is a condition that was created by the US itself. Most of this money was generated by multinationals that decided not to bring their capital back for tax reasons. This money stays in other countries and it is reinvested in the US creating a cycle. It is also reinforced by the financial system created by the US after WW2 where the USD is the global currency, so all the money generated in other countries is recycled into US debt.
hacknat 6y ago
First, I want to state that I agree with the premise of this article. While I do think the US is more than just a capitalist oligarchy, from a certain perspective you can see America as being the world's main laundry service for capital. However, the cat's out of the bag. The only historical precedent for limiting capital's ability to flow are periods of societal collapse and feudalization. When capital gets going nothing seems able to stop it (considering that IBM did business with the Nazis, even horrible things like war only seem to slow it down). I think the evidence is strong that capital has never been more powerful relative to the state than at this moment in history (the IRS freely admits it has become too expensive to audit the wealthy[1]). So the idea that we have any advantage over the past in being able to limit it seems ludicrous on its face. The best (only?) approach is to try to manage the negative externalities that the free flow of capital creates (rapidly accelerating wealth inequality, etc). Personally, I'm on the UBI bandwagon for this reason. [1] https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor https://www.propublica.org/article/irs-sorry-but-its-just-ea...
- arrosenberg 6y ago
  > the IRS freely admits it has become too expensive to audit the wealthy The IRS is no longer receiving enough budget from Congress to successfully bring these cases. It's not literally too expensive. > The best (only?) approach is to try to manage the negative externalities that the free flow of capital creates (rapidly accelerating wealth inequality, etc) Nonsense. We already have laws on the books that would allow an enthusiastic regulator to break up the power of capital. What you are describing is a continuation of the liberal surrender to big money, with the hope that some kind of socialism takes form to offset it. Following the beaten path is much more likely to succeed.
  - hacknat 6y ago
    > The IRS is no longer receiving enough budget from Congress... Why do you think that is? Probably because capital controls Congress pretty effectively (the Senate did vote for this past leveraged corporate bail out 96-4 after all). Anyway, I don't disagree with you that the situation could be remedied, I was pointing to it as evidence that capital is very, very powerful right now. > Nonsense. We already have laws on the books that would allow an enthusiastic regulator to break up the power of capital. What you are describing is a continuation of the liberal surrender to big money, with the hope that some kind of socialism takes form to offset it. I'm not arguing that capital's effects on the politics of this country cannot be dampened or curtailed to some degree, I'm arguing against the specific point made in the article that we can find meaningful ways to stop the flow of capital around the world. > Following the beaten path is much more likely to succeed. What beaten path? If you're referring to the post-War Great Compression[1], I would argue that that is a historical aberration and certainly not a well-beaten path. I don't see either major political party in this country jumping at the chance to organize a political movement around labour right now, so what political coalition is fighting capital in this country right now? None, as far as I can tell. [1] https://en.wikipedia.org/wiki/Great_Compression https://en.wikipedia.org/wiki/Great_Compression
jungletime 6y ago
The current global economy is only possible because of cheap global shipping using tanker ships. Just take a look at a map of ship traffic. https://www.visualcapitalist.com/visualizing-every-ship-real-time/ https://www.visualcapitalist.com/visualizing-every-ship-real... Its so cheap, it makes possible to catch salmon in Alaska, process it in China and sell it back in Alaska. But its a singular failure point. If at any point war or pandemic disrupts this traffic, millions of people will die of hunger. Cities like Dubai and Honolulu don't have any hope of feeding their million strong populations with their local farming and natural resources. Its either impossible, or they have totally abandoned their food production capability for cheaper shipped produce. I would move to Hawaii, but the probability of all out cannibalism in a war situation is real threat there.
- 082349872349872 6y ago
  Global shipping empire is why Oceania is named Oceania. (A hegemon who rules the waves may, on occasion, also waive the rules. However, when Britannia had the empire, she was in favour of free trade.)
- Der_Einzige 6y ago
  There is no war involving the US that involves the US being crippled without nuclear weapons. If you are worried about war related cannibalism, you should be far more worried about dying from nuclear annihilation...
  - jungletime 6y ago
    Consider that the US ran out of face masks, and PPEs because it could not import them from China earlier this year. And the US public was without adequate supplies for months. And the government made vague health statements about their benefit, so that the healthcare workers would be rationed enough face masks without the public buying them all out. I think its a safe bet that people already died because of supply chain disruptions. And this is something as simple to manufacturing as a cloth covering. Imagine a disruption to food supplies. All it would take is a couple tankers worth of food shipments to be delayed to Oahu, by a month, and people are starving there. Everything is now "held with bubble gum and shoes string", and "just in time delivery" in this economy. There are no large food storage supplies on Oahu that I am aware of.
marcus_holmes 6y ago
> the vast majority of international capital flows into advanced economies that are already flooded with excess savings and cheap capital. I'm going to go out on a limb here, and say that this is because of the ridiculous state of derivatives in modern stock markets. If the derivatives market didn't provide an infinite soak for excess capital, then that money would be forced to go find something "real" to invest in, and the economic theory TFA talks about might work (money should flow from advanced, low growth, economies, to less developed, higher growth opportunity, markets).
- riskneutral 6y ago
  Yeah I don’t think so. You’re just scapegoating something you don’t understand, and people will agree with you because it’s a popular scapegoat.
  - justwalt 6y ago
    Can you explain why you feel that way?
  - naringas 6y ago
    I do not understand sophisticaded derivatives either. I blame this fact on my lack of exposure to such financial instruments.
  - ItalianPizza64 6y ago
    Would you mind expanding on this? Do you not agree that derivatives allow for infinite inflow of capital?
    - dpc_pw 6y ago
      I don't even understand what this is supposed to mean. Every asset allows infinite inflow of capital. If humans wanted, they could trade everything for TSLA, moving it's price to gazzilion dollars per share. Derivatives are transaction between to parties like any other. One side pays money the other takes money for making certain bet. The problems I'm aware of with derivaties is that it makes easier for companies to hide their speculative bets off the balance sheet, and it exaggerates overleveraged long-term bets. But it's hardly a root of all evil.
Ericson2314 6y ago
This is taken from the book which the author is here a co-author of: Trade wars are class wars. See: https://phenomenalworld.org/reviews/trade-wars https://phenomenalworld.org/reviews/trade-wars https://phenomenalworld.org/interviews/trade-wars-are-class-wars https://phenomenalworld.org/interviews/trade-wars-are-class-... Phenomenal World is also a fantastic publication, and I highly recommend it in general.
euroderf 6y ago
A Tobin tax, HFT reined in, problem at least partly solved.
fuzzfactor 6y ago
Project: Pyramid. Resource: rock quarry. 1. Building phase. Locate, obtain, and add value to the resource. Rich finds and big accumulation always mean overwhelming leverage can be applied if desired. Complete the project one brick at a time, that's the purpose of leveraging the resource, and it takes a lot of labor to go along with the resource. 2. Peak Pyramid phase. The value added by shrewdly combining resources & labor is at a maximum, the landmark nearly-impossible project is complete. Built to last, it can then be maintained virtually forever with relatively insignificant resource drain compared to when it was being built. It does best what it was supposed to do. Enjoy the maximally leveraged resource and minimized drain. 3. Crumbling phase. If labor & resources can not be wisely supplied at the way required for maintenance of such a wonderful structure, it will become less wonderful all on its own. This can often occur when the whole optimized structure changes hands. Somebody has to still make decisions long after the unmatched original builders are gone. Newcomers not there from the start can fail to realize how nearly impossible it was to get built to begin with. Well built, it may still seem to look like it will last forever anyway. 4. Deconstruction phase. Changes of priorities in resource & labor allocation, or major fluctuations or trends can result in resources being drawn from a built structure rather than by adding value to raw material. This is an extremely deleveraging process, more expediently accomplished than the building phase. Value is lost faster and more irreplaceably than it was originally added. To the same basic resources. Often it can be when the responsible parties benefit more from the underlying accumulated resource in place than they do from the continued existence of the structure as a whole. After fully depreciating the unique combination of labor and time that made the structure possible to begin with. __________________ It could be worse, depending on the system with overwhelming leverage you could have a pyramid using resources that are not even there. Seems a lot faster to build that way, and could get pretty big on faith alone without a firm foundation, but may not stand the test of time. Would be more subject to collapse from the peak rather than showing early signs of crumbling. No resource recovery could be expected either.
thunderchief1 6y ago
"[The dollar system would transform] a nation of creative producers into a community of rentiers increasingly living on others, seeking gratification in ever more useless consumption, with all the debilitating effects of the bread and circuses of imperial Rome"—Kaldor, 1971

141 points by bzbarsky 6y ago

Maybe the US dollar should stop being the global reserve currency. That will really stop US imports rapidly (just as it did for the last reserve currency country UK). Ultimately, the only reason US capital flows elsewhere is because other countries need it and will accept it. If the need for it is cut off, other countries will happily trade in their currencies and US capital stays inside. What is impossible is being the reserve currency and yet not wanting to be integrated with the world. It will quickly get replaced by anything else, and there are countries competing to replace it now.

tomdell 6y ago
America and American capitalists benefit from America’s position, so I can’t imagine American isolation going much further. The US controls many of the world’s major supply chains and trade routes and ensures them with its military. What country can offer realistic competition for a reserve currency? China is trusted even less than America in many parts of the world, and their governance is even more opaque.
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- fedreserved 6y ago
  The Euro is the only currency in the same league. Although I don't see the red Sox dethroning the Yankees anytime soon
- Pet_Ant 6y ago
  The next best bet is the Euro. Which is isn’t without it’s problems... but let’s remember the debt show-downs that threaten the USD.
  - hehetrthrthrjn 6y ago
    The "debt show-downs" aka political theater.
    - Pet_Ant 6y ago
      > The "debt show-downs" aka political theater. Given the choice, I'd rather not have that for host country my reserve currency. You want your reserve currency as boring as a old brick in a vault.
thedudeabides5 6y ago
China may want to replace the US as a reserve currency... https://foreignpolicy.com/2020/08/21/dollar-global-reserve-currency-yuan-china/ https://foreignpolicy.com/2020/08/21/dollar-global-reserve-c... But wanting and doing are different things. Part of the dollar's status as a reserve currency is not just what you can buy with dollars (which is a lot more than RMB right now), but the fact that it is backed by a political, economic and military institutional framework which has been by and large consistent for more than 150 years. Maybe we should hold off on declaring the USD dead till the day China stops throwing random teenagers in black site jails with no access to outside counsel or due process. https://www.youtube.com/watch?v=G7s3GK9T09c https://www.youtube.com/watch?v=G7s3GK9T09c In short, imagine you wake up tomorrow and find yourself in the 0.001%. Now as yourself, does that 0.001% version of yourself want to live in Hong Kong/Beijing/Taipei or NYC/LA/SF. Obvious. At least if you want to be able to, you know, talk about stuff openly. And really, really rich people, well they tend to have a lot of opinions...
- bubbleRefuge 6y ago
  I would posit that the current state is good and we should in fact further optimize it. Imports are a benefit and exports are cost in real terms. The point of an economy is to maximize consumption. Its costs labor, raw materials, and even pollution to produce IPhones and Mercedez Benz. The problem is everyone wants to export and only America wants to import. Is that a bad thing for America ? I don't think so. If you give me an Iphone and I give you a piece of paper, or, better yet, a debit on a spreadsheet, who is getting the better deal here ? Why do you want to horde that piece of paper? You can't eat it or use it for shelter. So why not have fed policy that optimizes this rather than calling our trade partners currency manipulators . Certainly we need to protect industries that are vital to national security and that list has increased with the pandemic. Wouldn't put iPhones on that list.
  - sudosysgen 6y ago
    The issue is that this creates conditions in which there is no incentive for the US economy to develop the infrastructure necessary for large scale manufacturing, and that without a large manufacturing advantage national security cannot be guaranteed.
082349872349872 6y ago
That might imply the end of petrodollars: not sure that'd be a sellable proposal?
patfla 6y ago
The dollar's status as the world's reserve currency allows the US to consume at a rate that wouldn't otherwise be possible. All the trade surplus countries want that to continue. Losing that status, or changing the institutional structure in ways that undermine it, would cause huge, wrenching changes in the US but might be for the best. But again, the surplus countries really don't want that. For Germany, Japan and China these are actually the best of times - at least economically.

scottlocklin 6y ago

Or... you could institute tariffs to protect local industry and let Capital do whatever. Ricardo is a shaggy dog story they tell ideologues with linear regression models (aka macroeconomists), not a suicide pact for workers rights.

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samirillian 6y ago
I think if Syriza had been willing or able to prevent capital flight when elected, then they wouldn't have capitulated to Germany's demands. Not sure how tariffs fix a problem like that.
- cblconfederate 6y ago
  They imposed capital controls while capitulating to german demands.
- ClumsyPilot 6y ago
  Greece is very difficult case that is not 'normal' - a tiny economy, tiny population, part of a huge union with no border controls and does not even control it's currency. I feel the Euro was the worst mistake of the EU, once you've given up currency you a basically not a government but an oversized city councill. Control over currncy is the most important government lever.
andrewjl 6y ago
In practice this has not worked (Argentina) just as often as it did (China). Ricardo's theory is generally sound, but leaves out intangibles which don't necessarily come for free.
- scottlocklin 6y ago
  It's almost hysterically funny how wrong Ricardo's theory is; even in the example he used of Portugal and the UK. Great job destroying Portuguese industry at the behest of UK capital though. As Joan Robinson put it “but in real life Portugal was dependent on British naval support, and it was for this reason that she was obliged to accept conditions of trade which wiped out her production of textiles and inhibited industrial development so as to make her more dependent than ever”. She further notes that: “What Ricardo was really concerned about was to abolish the Corn Laws so as to lower the real cost of wage goods and raise the rate of profit... When accumulation is brought into the story, it is evident that Portugal is not going to benefit from free trade. Investment in expanding manufactures leads to technical advance, learning by doing, specialisation of industries and accelerating accumulation, while investment in wine runs up a blind alley into stagnation” “Ricardo took the example of trade between England and Portugal. He argued that England, by allowing imports of wine from Portugal, would expand the production and export of cloth to pay for it. Ricardo, of course, was thinking of the English side of the exchange but the analysis is perfectly symmetrical; it implies that Portugal will gain from specialising on wine and importing cloth. In reality, the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of industrial revolution” As I've always said, this sort of economics is linear regression in service of the ruling class rather than anything resembling science.

warrenq 6y ago

Can a dude be called 'China Expert' if he pathetically and continuously has a disaster track record on predicting anything related to China?

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082349872349872 6y ago

How does this approach relate to https://en.wikipedia.org/wiki/Bancor https://en.wikipedia.org/wiki/Bancor ?

andrewjl 6y ago
The Bancor is a nice idea but cannot work in practice without a strong transnational institutional backing. Most countries would never cede their sovereignty to the extent that's needed and recent trends arguably point in the opposite direction.

mdnahas 6y ago

Ideally, global savings would go to help industrialize poor countries. However, investors are usually scared that they will not get their money back. Either because of corruption or "nationalization". Thus, investors are likely to choose a less productive use in a country with strong rules to reward investment.

andrewjl 6y ago
The best way to solve for this is to raise the expected rate of return to cover risks and provide firm legal and regulatory incentives to return investor capital. This is exactly what institutions like the IMF and the World Bank are designed to do.
- minerjoe 6y ago
  Hmm. I thought the IMF and World Bank were there to make sure dictators run off with billions, scott free, and the citizens of the countries that they "ran" are stuck with the bill and the lovely austerity measures?
  - andrewjl 6y ago
    It generally helps to read multiple perspectives before adopting such an extreme view. Obviously that's not true.
    - blululu 6y ago
      The parent is a sarcastic exaggeration but it is not totally false. The IMF has changed a lot in the last 20 years, but they had a streak in the 80s where they would force third world countries to scrap their social welfare systems to pay off debt on loans that were foolishly made to previous unelected dictators.
      - andrewjl 6y ago
        I'm not familiar with the details, but if they were at all similar to the mid-2010s Greek situation then they were not sustainable, irrespective of IMFs involvement. Generally I think there are better ways to grow economy than pure austerity, but the details do matter.

maerF0x0 6y ago

We can and should change the fact that people can move money around in the blink of an eye. Only then can we rebalance trade in a way that is optimal for the global economy. I feel like this is a freedom/rights question vs general good. Does the freedom to do what you will with your property supersede the demand to take care of your neighbor (and is there some other system, like philanthropy that actually does the latter?)

PaulDavisThe1st 6y ago
The fact the money is fungible should not be allowed to obscure the fact that money (the form in which capital is moved around) is a complex social agreement that exists only because of a highly evolved and history-dependent set of rules. Talking about money as "your property" typically bypasses the real nature of money, and encourages people to uncritically buy into a conservative/libertarian perspective that plays with people's sense of fairness to the interest of only those in positions of existing wealth and power. The fact that one can "move capital" to other countries at all is not some law of nature, but a deliberate political choice. Had the choice been made in some other direction (such as taxing currency conversions), a totally different pathway would emerge. The fact that one choice appears to involve "removing" constraints and the other appears to involve "adding" constraints makes it appear as though one of them is somehow closer to the natural order or things. But the very existence of money at all is not part of the natural order of things, and the preference for choices that avoid constraints just favors the status quo over change.
- 082349872349872 6y ago
  Feudal economies were famous for encouraging their elite to acquire and store wealth in the form of real estate, which (unless one is a border lord) is not easily moved to another jurisdiction.
- maerF0x0 6y ago
  > is a complex social agreement that exists +1 agree this is a massively important distinction in a fiat currency world. Money was property when it was Gold (+gold backed). Now it's more social than that. Unfortunately it seems people are up/down voting me, presumably, on what they think is true and where they think I land on the choice set proposed (Social good vs freedom)

snake_plissken 6y ago

Along the lines of this article, there's the dilemma/contradiction faced by modern globalisation in that money can move much faster and more freely than labor. In previous iterations (late 1700s, 1800s and the first few decades of the 1900s) labor and money moved at basically the same speed: as an investor, your capital (gold/silver, then whatever money instrument replaced it) took the same boat/train/carriage as labor. This had a moderating effect, and the system was able to almost always equalize itself in terms of trade and investments flows.

ryandrake 6y ago
Capital also doesn't need a passport and visa to cross borders.
- andrewjl 6y ago
  That's not the case in countries that have capital controls. Some of the biggest economies today do.
- Frost1x 6y ago
  Capital also doesn't need, I dont know: basic human social needs like a stable group of friends, family, loved ones and community opposed to living a nomadic drifter chasing money/jobs instead of wild game like hunter gathering civilizations.
  - tspike 6y ago
    Your point is taken, but hunter/gathering civilizations tended to be very stable groups of friends, family, loved ones and community. The entire group was nomadic.
  - ClumsyPilot 6y ago
    Very strange point - many people cross borders alone and start anew. Good luck crossing without documents
    - 6y ago

petermcneeley 6y ago

"We can and should change the fact that people can move money around in the blink of an eye." Some things once done can not be undone.

082349872349872 6y ago
Lycurgus reportedly had ideas for making cash less fungible[1], but given the rest of his ideas, he might not be the best inspiration. [1] http://www.perseus.tufts.edu/hopper/text?doc=Perseus:text:2008.01.0047:chapter=9 http://www.perseus.tufts.edu/hopper/text?doc=Perseus:text:20...
PaulDavisThe1st 6y ago
The final sentence is true. But what's the evidence or case that this applies to free movement of capital?
ClumsyPilot 6y ago
It could certainly be undone, for instance, by WW3. The question is, can it be undone at a reasonable cost.

claydavisss 6y ago

More central planning for a global economy on the brink of ruin thanks to decades of central planning. We already "lock" capital into state-sponsored companies (GM, Ford, Boeing, all banks)...how is the working for everyone? With a Democrat sweep in the elections we'll see all of this pushed into overdrive, "locking" $10 trillion of new stimulus into our moribund, debt-riddled corpse of an economy. Don't worry, markets will go crazy.

ilaksh 6y ago

I feel like this is an example, but the root causes are multiple structural problems. 1. Poor integration between government and money. 2. Poor integration between different governments. My impression is that many people are opposed to both of those things on the basis that governments have historically been horrible in many ways. Probably will just get buried, but I would like to suggest that we don't have an alternative. Unless, maybe, you want to create something high-tech that can replace government. Which I think would really be a new form of government. It almost seems like we are moving towards one bad version of that. Look at the power of companies like Google or Amazon etc or the ability of Uber to successfully ignore laws. I guess this is another instance of #1. I feel like somehow you need fair, functioning governments with control over money that work together globally. A new type of high-tech money integrated with a new type of high-tech government might be possible and if so maybe it could solve those problems. Or you need a totally new paradigm where somehow the omnipotent mega-corporations (including the banks) start looking out for the interests of the people. That doesn't seem workable given the motivations and structure of corporations.

fuzzfactor 6y ago
Keep in mind the North American colonies were founded by multinational corporations for the benefit of multinational corporations. The interests of the people were not the primary consideration, nor whether they were capable of purchasing their freedom or not.

coliveira 6y ago

This is a condition that was created by the US itself. Most of this money was generated by multinationals that decided not to bring their capital back for tax reasons. This money stays in other countries and it is reinvested in the US creating a cycle. It is also reinforced by the financial system created by the US after WW2 where the USD is the global currency, so all the money generated in other countries is recycled into US debt.

hacknat 6y ago

First, I want to state that I agree with the premise of this article. While I do think the US is more than just a capitalist oligarchy, from a certain perspective you can see America as being the world's main laundry service for capital. However, the cat's out of the bag. The only historical precedent for limiting capital's ability to flow are periods of societal collapse and feudalization. When capital gets going nothing seems able to stop it (considering that IBM did business with the Nazis, even horrible things like war only seem to slow it down). I think the evidence is strong that capital has never been more powerful relative to the state than at this moment in history (the IRS freely admits it has become too expensive to audit the wealthy[1]). So the idea that we have any advantage over the past in being able to limit it seems ludicrous on its face. The best (only?) approach is to try to manage the negative externalities that the free flow of capital creates (rapidly accelerating wealth inequality, etc). Personally, I'm on the UBI bandwagon for this reason. [1] https://www.propublica.org/article/irs-sorry-but-its-just-easier-and-cheaper-to-audit-the-poor https://www.propublica.org/article/irs-sorry-but-its-just-ea...

arrosenberg 6y ago
> the IRS freely admits it has become too expensive to audit the wealthy The IRS is no longer receiving enough budget from Congress to successfully bring these cases. It's not literally too expensive. > The best (only?) approach is to try to manage the negative externalities that the free flow of capital creates (rapidly accelerating wealth inequality, etc) Nonsense. We already have laws on the books that would allow an enthusiastic regulator to break up the power of capital. What you are describing is a continuation of the liberal surrender to big money, with the hope that some kind of socialism takes form to offset it. Following the beaten path is much more likely to succeed.
- hacknat 6y ago
  > The IRS is no longer receiving enough budget from Congress... Why do you think that is? Probably because capital controls Congress pretty effectively (the Senate did vote for this past leveraged corporate bail out 96-4 after all). Anyway, I don't disagree with you that the situation could be remedied, I was pointing to it as evidence that capital is very, very powerful right now. > Nonsense. We already have laws on the books that would allow an enthusiastic regulator to break up the power of capital. What you are describing is a continuation of the liberal surrender to big money, with the hope that some kind of socialism takes form to offset it. I'm not arguing that capital's effects on the politics of this country cannot be dampened or curtailed to some degree, I'm arguing against the specific point made in the article that we can find meaningful ways to stop the flow of capital around the world. > Following the beaten path is much more likely to succeed. What beaten path? If you're referring to the post-War Great Compression[1], I would argue that that is a historical aberration and certainly not a well-beaten path. I don't see either major political party in this country jumping at the chance to organize a political movement around labour right now, so what political coalition is fighting capital in this country right now? None, as far as I can tell. [1] https://en.wikipedia.org/wiki/Great_Compression https://en.wikipedia.org/wiki/Great_Compression

jungletime 6y ago

The current global economy is only possible because of cheap global shipping using tanker ships. Just take a look at a map of ship traffic. https://www.visualcapitalist.com/visualizing-every-ship-real-time/ https://www.visualcapitalist.com/visualizing-every-ship-real... Its so cheap, it makes possible to catch salmon in Alaska, process it in China and sell it back in Alaska. But its a singular failure point. If at any point war or pandemic disrupts this traffic, millions of people will die of hunger. Cities like Dubai and Honolulu don't have any hope of feeding their million strong populations with their local farming and natural resources. Its either impossible, or they have totally abandoned their food production capability for cheaper shipped produce. I would move to Hawaii, but the probability of all out cannibalism in a war situation is real threat there.

082349872349872 6y ago
Global shipping empire is why Oceania is named Oceania. (A hegemon who rules the waves may, on occasion, also waive the rules. However, when Britannia had the empire, she was in favour of free trade.)
Der_Einzige 6y ago
There is no war involving the US that involves the US being crippled without nuclear weapons. If you are worried about war related cannibalism, you should be far more worried about dying from nuclear annihilation...
- jungletime 6y ago
  Consider that the US ran out of face masks, and PPEs because it could not import them from China earlier this year. And the US public was without adequate supplies for months. And the government made vague health statements about their benefit, so that the healthcare workers would be rationed enough face masks without the public buying them all out. I think its a safe bet that people already died because of supply chain disruptions. And this is something as simple to manufacturing as a cloth covering. Imagine a disruption to food supplies. All it would take is a couple tankers worth of food shipments to be delayed to Oahu, by a month, and people are starving there. Everything is now "held with bubble gum and shoes string", and "just in time delivery" in this economy. There are no large food storage supplies on Oahu that I am aware of.

marcus_holmes 6y ago

> the vast majority of international capital flows into advanced economies that are already flooded with excess savings and cheap capital. I'm going to go out on a limb here, and say that this is because of the ridiculous state of derivatives in modern stock markets. If the derivatives market didn't provide an infinite soak for excess capital, then that money would be forced to go find something "real" to invest in, and the economic theory TFA talks about might work (money should flow from advanced, low growth, economies, to less developed, higher growth opportunity, markets).

riskneutral 6y ago
Yeah I don’t think so. You’re just scapegoating something you don’t understand, and people will agree with you because it’s a popular scapegoat.
- justwalt 6y ago
  Can you explain why you feel that way?
- naringas 6y ago
  I do not understand sophisticaded derivatives either. I blame this fact on my lack of exposure to such financial instruments.
- ItalianPizza64 6y ago
  Would you mind expanding on this? Do you not agree that derivatives allow for infinite inflow of capital?
  - dpc_pw 6y ago
    I don't even understand what this is supposed to mean. Every asset allows infinite inflow of capital. If humans wanted, they could trade everything for TSLA, moving it's price to gazzilion dollars per share. Derivatives are transaction between to parties like any other. One side pays money the other takes money for making certain bet. The problems I'm aware of with derivaties is that it makes easier for companies to hide their speculative bets off the balance sheet, and it exaggerates overleveraged long-term bets. But it's hardly a root of all evil.

Ericson2314 6y ago

This is taken from the book which the author is here a co-author of: Trade wars are class wars. See: https://phenomenalworld.org/reviews/trade-wars https://phenomenalworld.org/reviews/trade-wars https://phenomenalworld.org/interviews/trade-wars-are-class-wars https://phenomenalworld.org/interviews/trade-wars-are-class-... Phenomenal World is also a fantastic publication, and I highly recommend it in general.

euroderf 6y ago

A Tobin tax, HFT reined in, problem at least partly solved.

fuzzfactor 6y ago

Project: Pyramid. Resource: rock quarry. 1. Building phase. Locate, obtain, and add value to the resource. Rich finds and big accumulation always mean overwhelming leverage can be applied if desired. Complete the project one brick at a time, that's the purpose of leveraging the resource, and it takes a lot of labor to go along with the resource. 2. Peak Pyramid phase. The value added by shrewdly combining resources & labor is at a maximum, the landmark nearly-impossible project is complete. Built to last, it can then be maintained virtually forever with relatively insignificant resource drain compared to when it was being built. It does best what it was supposed to do. Enjoy the maximally leveraged resource and minimized drain. 3. Crumbling phase. If labor & resources can not be wisely supplied at the way required for maintenance of such a wonderful structure, it will become less wonderful all on its own. This can often occur when the whole optimized structure changes hands. Somebody has to still make decisions long after the unmatched original builders are gone. Newcomers not there from the start can fail to realize how nearly impossible it was to get built to begin with. Well built, it may still seem to look like it will last forever anyway. 4. Deconstruction phase. Changes of priorities in resource & labor allocation, or major fluctuations or trends can result in resources being drawn from a built structure rather than by adding value to raw material. This is an extremely deleveraging process, more expediently accomplished than the building phase. Value is lost faster and more irreplaceably than it was originally added. To the same basic resources. Often it can be when the responsible parties benefit more from the underlying accumulated resource in place than they do from the continued existence of the structure as a whole. After fully depreciating the unique combination of labor and time that made the structure possible to begin with. __________________ It could be worse, depending on the system with overwhelming leverage you could have a pyramid using resources that are not even there. Seems a lot faster to build that way, and could get pretty big on faith alone without a firm foundation, but may not stand the test of time. Would be more subject to collapse from the peak rather than showing early signs of crumbling. No resource recovery could be expected either.

thunderchief1 6y ago

"[The dollar system would transform] a nation of creative producers into a community of rentiers increasingly living on others, seeking gratification in ever more useless consumption, with all the debilitating effects of the bread and circuses of imperial Rome"—Kaldor, 1971