Category Archives: Global Political Economy

The Sources of Inequality: Why Globalization Matters

1Photo Credit: Rangan Halder 500px “Materialism Versus Materialistic Capture” http://500px.com/photo/8540236

In his speech to the Rock ‘n Roll Hall of Fame, Chairman of the Council of Economic Advisers Alan Krueger offered up some food for thought regarding the sources of inequality in American society, and globally. Krueger focused on four factors that help to explain income inequality: technology, scale, luck, and the erosion of social pressures for fairness. In this post, I want to focus on scale, and I’m going to also refer to the Atlantic’s reprint of the key points of Krueger’s talk to expand on a factor that Krueger mentions but does not develop in enough detail, in my view: globalization.

The authors discuss the music industry as an example. As they point out, the music industry creates a ‘star economy’ focused on a few ‘winners’ or ‘stars’ who are able to drive growth in the system. The ‘star economy’ in music has produced a skewed income curve. If you look at incomes across the industry, the greater benefits are concentrated at the top. However, if one considers not just the artists (who are essentially the workers producing the product) but the entire ecosystem of label CEOs, CFOs, managers, R & R people, the marketing department, etc. then one gets a better idea of the scope of the real economy of music. In fact, music industry bloggers and observers have been criticizing the inequality in the music industry for a long time: As Bob Lefsentz points out in a recent post, the corporate labels, the entertainment mega-giants like Sony and Universal, are the real structural beneficiaries of the sharper inequalities imposed upon all musicians, just as the fat cats in the garment or manufacturing industry are the real beneficiaries of inequality in those economies.

The power of the music industry has grown in lock-step with globalization, offering command of larger and larger shares of music consumption. The incomes of the music industry managers have survived the recent purge caused by the technological challenges. They have survived for a reason: it is their machines that generate the wealth, rather than the luck or talent of the artists. Ultimately, as Krueger suggests, ‘luck’ and the perception of popularity have a huge impact on success in the music industry, but ‘luck’ is not some impartial uncertain or random arbiter of fortunes, since success comes through the perception of popularity, which is heavily influenced by these industrial complexes.

As Salganik et. al. have discovered through experimenting with a controlled ‘music market’, social perceptions of the popularity of songs increase the degree of inequality among them (although they don’t make it any easier to predict success). Frankly, no matter the uncertainty caused by the internet or disruption of the industry by downloading, any artist that can command the attention of the marketing machine and the vast resources of a label can succeed beyond their wildest dreams through these social effects. Many high-quality and deserving artists don’t succeed, while a few poor quality and undeserving artists succeed beyond their wildest dreams. Youtube doesn’t ‘make’ you a star, but the attention that Youtube brings can make you popular. Attention from the music elite (increasingly, from successful artists) or from a label with a hyper-marketing machine behind it makes you a star, since you can then marshal the resources necessary to maintain that attention.

Globalization has had one important impact on the 1% that should not be downplayed: it has vastly expanded the freedom to disengage from local economies and impose conditions upon all other economic activities. What matters is the decisions made by the elite to affect the market, and these decisions are not based on luck, fairness, or even on quality. In political science this is termed ‘structural power’: the ability to not only win the game, but to affect the rules of the game for all other players. The inequality of today arises from specific decisions made by earlier masters of the universe in the 1980s to protect the interests of their class. Krueger hints at some of these decisions in his article: the demise of labour unions, the deliberate erosion of the minimum wage policy, and changes to taxation. These factors cannot be explained by the impartial workings of a global market or by luck, rather, these are conscious government policies aimed at expanding the scope and freedom of movement for the wealthy.

I would allow that there is some room in this analysis for what might be termed ‘unexpected’ consequences in the form of a severe recession and political backlash against perceived unfairness. Krueger’s analysis seems to suggest that the erosion of a social commitment to fairness in income distribution is some kind of ephemeral byproduct of historical forces and global and cultural change. However, I would argue that society has always appreciated the importance of fairness. Indeed, when elites overreached in their efforts to influence the public’s perception of fairness, it created the present global backlash and protests against inequality.

Given the true nature and extent of the cultural power that elites have garnered over the last 50 years, their expectation of being able to manage the change to a more unequal society was not unrealistic. And they may still succeed! Leaving out the element of cultural power, and the broader impact of corporate globalization and the effects of structure, neglects one of the key explanations for the continuation of inequality. The perception that success comes from luck or from effort, and not from the structure, is central to the perception of inherent fairness in the system that allows inequality to persist.

So, Krueger’s piece gives us much to think about: technology, scale, luck and the erosion of fairness have played their parts in the rise in inequality. I would put the focus on scale and the rise of globalization, which has fundamentally altered not only the rules for economic acquisition, but also the rules for social, political, and technological relationships. The change in these rules has helped to produce the profound social and economic inequalities we see today.


What Kind of (In)Equality Do We Want?

Photo Credit: Jessica Tam Flickr

When analyzing any phenomena, it helps to have a good idea what we want to achieve. In political science as in life, equality has great significance. Analysts tend to think quite differently from the general public, however, about what constitutes equality and how we should use the term. Let’s consider a thought experiment to sort out the difference between ‘equality of opportunity’ and ‘equality of condition’.

If we imagine that equality of opportunity and equality of condition are kinds of ideal types at opposite poles, with a spectrum of variations in between, then the picture might look something like this: under ‘equality of condition’ everyone would experience the same life outcomes: equal incomes, equal standards of living, and equal levels of education, health care, and work. How would things differ? Likely inequality would creep in through limited means: for example, some may work longer hours, have more or less education, spend more or less time skiing, etc.

What is wrong with this picture? The most common criticisms of this ‘absolute equality’ are:

It reduces the incentive to succeed, and 2. It distorts the value of things, leading to scarcities and gluts in supply.

Society involves differential treatment.

But these are practical criticisms, not questions of justice.   Would absolute equality actually be ‘just’?  Assuming for the moment that such a system could be workable (and I’m not saying it is) then an argument could be made that it actually creates injustice by failing to differentiate among people with ascribed or inherent differences who deserve differential outcomes.  Those who work harder or are more creative or who are disabled or ill should be treated differently.  Some may deserve preferential access to resources either as a result of their extra effort, their accomplishment or contributions, or by virtue of need.  Tellingly, the right more often argues for differential outcomes based on effort and accomplishment, while ‘need’ tends to take second place. It is sometimes said that such a system would be communistic.  However, under Marx’s vision of communism, the ideal form of equality actually allowed for differential rewards focusing on need rather than accomplishment or contribution. Contrary to popular belief, Marx did not advocate absolute equality of condition. Indeed, nobody has, in all seriousness, ever really proposed that large-scale industrial societies impose absolute equality of condition.  This is because serious thinkers would quickly realize that equality of condition, even in its ideal form, would inevitably raise both practical and fairness questions since there would still need to be some argument for different treatment of some people.  Nobody is average.

Now, what about equality of opportunity? That sounds like something we can all get behind: everybody can try or fail equally well, and those with the greatest accomplishments and talents will rise to the top. This is kind of what Paul Summerville argues when he says:

Equality of opportunity is a virtue when it is twinned with unequal outcomes. It is meaningless without it. What is the point of equality opportunity if success is discouraged by custom, law, or taxation?

But, to respond to this, how can we be sure that everyone actually has an equal opportunity to try, and to win? Inequality all by itself is not evidence of equality of opportunity. What if the winners try to ‘kick the ladder out’ from behind them, blocking the upward advance of others? What if they use their newfound positions to favour their heirs and families and friends rather than allow their loved ones to fail? Perhaps when we see that some are able to climb up to the top from the very bottom of the social ladder without artificial assistance from the state, then we can say that equality of opportunity exists. But how many of these examples are sufficient to prove it? One? One in ten? One in a thousand? The fact is there is no natural or inevitable level of inequality that can tell us when everyone truly has an equal chance. We can point to clues: perhaps when the top 1% is as diverse and representative of the entire society, or when every member of the top group can claim to have climbed out of the gutter, but that seems as unlikely as the ideally equal society discussed above. The question of fairness rises again: even in a society in which opportunities are purely equally distributed, there will be unfairness due to the same factors mentioned above: What about those disadvantaged by illness or age or poor upbringing? What about highly talented or accomplished individuals who don’t manage to make it through no fault of their own? why value some talents more than others?

Given differences, how can we be sure that equality of opportunity exists?
Given differences, how can we be sure that equality of opportunity exists?

Again, the argument to treat some people differently in order for equality of opportunity to be realized is present. But, the same question arises: what should be the basis for differential treatment? Here, the differences between the two poles start to disappear: the essential argument is not about equality at all, but about the basis and rationale for differences. Both sides work toward an ideal world that is impractical and unfair, yet both sides argue for ‘differential’ treatment on the basis of different individual characteristics. The right argues that differential treatment should be based on talents or contributions, while the left focuses on compensating for special needs and other (class) disadvantages.

The world we actually live in is of course far more complicated. Equality before the law, which is the dominant discourse of equality in Canada and other Western liberal democracies, is actually a fall-back position avoiding both of the options described above. It doesn’t guarantee equality of opportunity and it doesn’t mitigate inequalities of condition. At most, it provides a measure of our progress toward some compromise on fairness and practicality. It’s not irrelevant, far from it! The legal guarantees of the Voting Rights Act or protections for gay marriage or for equality between religious beliefs do matter, but not for the reasons we think. They matter less because they create equal opportunities, and more because they clarify the legitimate grounds for treating people differently. The fact that people are all, in some way, treated differently by society still needs to be acknowledged by all participants in the equality debate.

The next two blog posts will address the sources of present-day inequality in globalization, and the basis for differential treatment and its centrality to equality.

Further Reading: Tax the Rich (More)!

For those attending the Munk Debate livestream on May 30th:

Munk Debates   The DebatesPaul Summerville, University of Victoria economist, recently wrote a series of blogs on the topic of equality and inequality.  You can find them here:

“Guest Post: A History of Equality” May 14th, 2013 The Inside Agenda Blog 

“Guest Post: The Difference Between Decreasing Inequality and Increasing Equality” May 22nd, 2013 The Inside Agenda Blog 

“Guest Post: Why We Need Winners and Losers” May 28th, 2013 The Inside Agenda Blog 

David Miller responded:

“Guest Post: The Economic and Democratic Harms of Income Inequality” May 29th, 2013 The Inside Agenda Blog 

The Globe and Mail also has run a series of blog articles by debaters, you can find them here: 

Can currency wars lead to real wars?

Are we in a potential inflationary moment?

Imagine the following:  China secretly buys up gold futures in the hopes of stockpiling a war fund to fight inflation caused by US ‘quantitative easing’.  If the US goes too far in trying to fund its stimulus by debasing the dollar, China triggers a crisis by buying up gold.  The ultimate statement of lack of confidence in the US dollar (which is the key currency for all international trade and capital reserves) leads to a catastrophic run on the dollar and a collapse of globalization as each country tries to ‘beggar’ its neighbour with cascading tit for tat devaluations.  In his book Currency Wars: The Making of the Next Global Crisis, Jim Rickards presents several scenarios by which the world could come to the brink of collapse as a result of governments’ efforts to manipulate their currencies, thereby stimulating their economies at the expense of their trading partners.  Indeed, it is not hard to imagine how the monetary underpinnings of globalization could easily come crashing down given the wobbliness of the top currency, the high level of US debt, and the lackluster response of the US consumer, traditionally the world’s growth engine, in recovering from the 2007 recession.  Indeed, one could argue that even a much less complicated scenario might lead to crisis:  what if China simply decided to use it’s so-called ‘nuclear option’ and stop buying US treasuries, triggering a cascading dive of confidence in the world’s reserve currency?  What if politics really did take over economics?

The alarmism over a coming hyperinflationary crisis appears to be growing, and it’s not without some foundation.  Fiscal stimulus appears to have met its match in the global system of monetary exchange, where politics and economics do not just interact, but essentially meld.  However, at least some of the alarmism should be taken with a grain of salt.  The calls for curbing the US fiscal deficit (quite apart from the debt) are at least in part motivated by an ideological discomfort with government’s influence on the market as well as a moral panic over Americans’ dependency and perceived complacency.  This view tends to see the world as a dangerous, zero-sum place where countries await any and every opportunity to force an advantage over their competitors.  However, economic competition is not exactly the same as political rivalry, and should not be equated.  While it is not impossible for countries to mutually try to obliterate each other (see the Great Depression) it is not likely given the availability of much more palatable options.

Economic and political 'wars' should not be equated
Economic and political ‘wars’ should not be equated

It is important to remember that unlike real wars, currency wars that result in hyperinflation are not really deliberate—they result from governments’ fumbling and lack of effort to cooperate or lead rather than from single-minded plans to dominate the world.   They are tragedies (or tragicomedies) rather than evils.  They are not so much caused by politics as by a lack of politics.  Because of the uncertain results of currency manipulation, it is a very blunt and unpredictable instrument of policy indeed.   As with nuclear deterrence, mutual deterrence is more likely than not to push countries to cooperate and to head off crises before they get out of hand.  Indeed, this is exactly what has been happening for the last (almost) 42 years.   The players may change, but the game will remain: keep the poker face on and ensure the world continues to have a world reserve currency with some usefulness to everybody.   The alternative is just too awful to contemplate.

Entanglement: The Enmeshment of the Economy and the Government

In quantum physics, there is the idea that a single particle can have an effect on a different particle many light years away.  Einstein called this ‘spooky action at a distance’.  In today’chicken_or_egg_400_clr_10064s globalized world, economic activity shows similar ‘spooky’ characteristics, indeed, it is virtually a truism to say that what happens in one industry or segment of an economy will inevitably affect others at great distances.   What is often overlooked in ideological debates between the right and the left, however, is the entanglement of the free market economy with the activities of government.  They are separate, just like particles separated by great distances, but they are so closely entangled. Action in one sphere will unavoidably affect the other. arrow_halves_join_400_clr_9621

Take, for example, the encroaching effects of the ‘fiscal cliff’.  An increase in taxes coupled with spending cuts, could potentially cause a drop of as much as 1% of GDP growth in the US.  The resulting reduction in economic activity would then impact government revenues, cutting into revenues just as measures to reduce the deficit kick in.  This makes these measures, therefore, essentially self-defeating.  Even a more measured response to deficit reduction that allows for some spending increase could potentially trigger inflation, since it will unavoidably give the impression that the government will just keep printing money to pay its debt. Inflation could also reduce economic activity and jeopardize growth, although it seems unlikely in the short term, by undermining investor confidence and leading to capital flight.  The result, as with the fiscal cliff, is the same: a hit to government revenues and a self-defeating policy.

The first step to breaking the cycle is to recognize that the favoured solutions of both the right and the left are both inappropriate in the present context.  Reducing taxes to stimulate the economy without accompanying measures to induce spending and investment just doesn’t work, there is no evidence of it ever having worked, and it does severe damage to the government’s ability to raise revenue.  At the same time, government spending does not have the growth-inducing impact as in the past because thuncle_sam_holding_money_pc_400_clr_1727e implied willingness to spend and borrow undermines investor confidence.

The solution lies in the awareness that government is both an economic actor and an economic hedge.  Contrary to the arguments on the right, government cannot just ‘get out of the way’ and let the market grow.  For one thing, it might grow somewhere else.  For another thing, markets need government to backstop their activities and stop them from imploding on themselves.  The sooner that people stop thinking of governments as part of the problem, and realize that free markets require governments to make decisions for the common good, the better off both the economy and the government will be.  Governments and markets are not the same thing, their purposes are different and their instruments are different, but they are irrevocably enmeshed together. 

A Leaner, Meaner Politics in the US: What About Canada?

In his book The Age of Austerity: How Scarcity will Remake American Politics Thomas Byrne Edsall argues that shrinking public and private resources will make politics leaner, meaner and less civil.  It’s not just that right and left disagree on how to distribute resources, it is a fundamental rift in the understanding of the purpose of the state itself.   It’s also not just a fight over ideas:  it is a battle for survival.  The supporters of the right, to pearth_tighten_belt_800_clr_7668araphrase Edsall, are ageing, embattled, middle to upper class whites living in decimated and depopulated suburbs who are increasingly bitter about the direction of the redistributive state.  In the past, the right’s call to arms was a kind of negative freedom (‘Don’t Tread on Me’) which fought to preserve the individual’s ability to choose their own forms of happiness unimpeded by state regulations.  The premise of this, we know now, was the expectation that everyone could gain from a growing pie.  No more.  Programs for which supporters of the right are the primary recipients (including Medicare and social security) are considered sacrosanct.  Programs from which others benefit (read black, immigrants, poor or public sector workers) like Medicaid, the Patient Protection and Affordable Care Act, or income supports, are untenable ‘entitlements’.  On the left, there is a counter-move to protect the public sphere from erosion while simultaneously trying to remain coherent in the face of a fiscal crisis and an unrelenting personal attack on Obama during an election year.  The left is increasingly turning to middle class minorities, immigrant and young voters who are far less steady in their support and are on the whole less well-established and more vulnerable both economically and politically.

These kinds of politics reveal rifts that have historically deep-soil_money_canada_pc_800_clr_2385eated roots but which linger below the surface until austerity and crisis reveal them.  What rifts lie below the surface of Canadian society that have been eroding the social consensus gradually and unrelentingly?  Could Canada go down a similar route?  Recent battles paint a picture of the possibilities.  With vitriolic flourishes the Harper government and environmentalists are fighting an increasingly pitched battle over oil resources.   The push for a pipeline to expand foreign markets for oil, whether through a Northern route or Keystone, has as its root a long-standing fear that overproduction of oil will drive the price down and shrink profits.  This is a real fear, since the flattening of oil prices will make the billions of dollars already invested uneconomic, and capital will flee.  On the one hand, it seems more like an embarrassment of riches than a problem of austerity: oil consumption is maintaining a steady stiff pace overseas and is set to grow, along with its negative climate impacts.  On the other hand, it has all of the set piece features of a zero-sum fight over a shrinking resource.  As anti-fossil fuel efforts grow, and as more bitumen-type oil production facilities are being developed in Latin America and more unconventional oil is prospected in the Arctic and other areas, the chances of oil revenues becoming restricted in the future is higher and higher.  If this happens, look for politics here to follow a similar path to those in the US, with the centre of the storm being the role of shattered_dollar_coin_800_clr_8730the state as a (re)distributor of resources.  With potentially shrinking state revenues due to tax reductions and few other signs of growth outside the resource sector, the temptation to retrench at the expense of the poor, immigrants, the disabled and other marginalized groups may well be irresistible.  On the other hand, another fight between regions in true Canadian fashion may be brewing.  I want to end on a positive note here.  Everything I’ve learned in teaching young people about politics in the last 15 years has taught me that if anything, youth are more accepting, welcoming, compromising and diverse than ever.  I can only hope that these qualities will enable the cultivation of a middle ground in the future in Canada that seems increasingly elusive in the divisive and paralyzing politics down south in the US.  If we are to believe Edsall, however, austerity could bring out the worst in all of us.

Upside Down: A Post-Modern World System

In 1974, Immanuel Wallerstein argued that the world was composed of three types of economies: a core, a semi-periphery, and a periphery.  In the core countries, capital-intensive manufactured products with high levels of complexity and value-added were the primary source of national wealth.  In the periphery, labour-intensive primary resource industries were the main source of wealth.  The semi-periphery countries mediated between the twroller coastero, but all countries acted in accordance with the principles of the global capitalist system. What characterized the relationship between the three regions was the terms of trade among them: core countries accumulated wealth by extracting resources and labour from the periphery.  In the outskirts, raw materials were traded for machinery and technology. The semi-periphery managed the relationship between the other two, with a mixed economy based on trade.

Even though Wallerstein’s analysis was applied primarily to Western and Eastern Europe, no one had any illusions at that time about who constituted the core, and who the periphery.  At the commanding height of the world economy, the US was unrivalled as a trading powerhouse, the most efficient and competitive economy in the world, the driver and reference point for development for all countries (including the Soviet Union, the ostensible rival).  Americans were the world’s consumers, traders, thinkers, workers, and investors.  America defined the ‘core’ of the world economy.

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Today, Asia is the world’s factory and an exporting powerhouse, sucking in raw materials from abroad at a ferocious rate.  China is becoming the world’s braintrust, transforming trade goods into high-end tradable commodities and changing their workforce using technical and business knowledge to ‘reverse innovate’ new products and services. Today, Hollywood movies are released in China and India a full month before anyone in the US can see them.   Australia, Canada, the Middle East, and South Africa, formerly the nimble trading members of the semi-periphery, are now repositioning themselves as raw materials and commoditiesproducers, supplying the forests, minerals, food, and fuel for the new core countries.

In this post-modern world-system, unrecognizable as it is fromwinners and losersthat of 50 years ago, the core and periphery have switched places.  It is not so much ‘flat’ (as claimed by Thomas Friedman) as ‘bumpy’; with hills and valleys defined by the underlying forces of finance and production.  Sometimes the ‘bumps’ create stranged bedfellows, as Greece and Germany are discovering.   It is highly intermingled, more like a ‘neo-Medieval’ system of interlocking interdependencies coupled with rigid underlying hierarchies.

But as Wallerstein recognized, exactly which country plays which role is irrelevant. All of the things that are often deemed to make civilizations unique, like values, culture, soft power, technology, and even military prowess, are less important than the underlying patterns of wealth and exchange that dictate the range of motion that a country has.   Assuming, as America and Canada have recently, that one is immune to the disciplining forces of capitalism, and that capitalism will only ever  work in your own interests and against those of your competitors and partners; is a myopic failure of vision.  It assumes that only one vantage point exists or even matters, and neglects the realities of the new post-modern topsy turvy world.


How Are Jobs and the Environment Related?

President Barack Obama launched a new plan to create jobs last week. Although Obama’s speech was not about the environment but creating jobs, underlying it was the implicit premise that there is an unequivocal synergy between government spending on clean energy, increases in economic growth, and job growth.  But how are jobs and the environment related?

Protecting old-growth forests means that some foresters may have less work

Sometimes there is a stark conflict between jobs and the environment: for example, protecting old-growth forests means that some foresters may have less work, full stop, end of story.

However, more often, the choices are less stark, and more complex.  Building wind turbines means using plastics, steel, energy, and other materials that must come from nature in the here and now. Building turbines may create fewer jobs in the short term than (for example) drilling for oil. On the other hand, building turbines now may help reduce the reliance on oil in the future.  This would, paradoxically, increase job losses in the fossil fuel industry.  On the other hand, employment from wind production is less subject to declines in the supply of the resource, since wind is, in theory, not limited in supply the way that oil is.  On so it goes.

115928823What I want to argue is that both unemployment and environmental degradation are functions of the same problem: the way in which capitalist economies produce wealth.  Unless the fundamentals are addressed, meaning changes in the way that work and nature are imagined and valued, then governments will be able to do little to solve either problem.

Both work and nature in capitalism are what is termed ‘factors of production’.  This means that, essentially, the application of work to nature is what makes production of goods happen.  John Locke was among the first thinkers to elaborate this idea, arguing that the mixing of labour with nature produced property rights and ownership.  Others, like Karl Marx, also postulated that work and nature combined together to create value (although emphatically not a right to property) and in fact Marx attributed the value of all goods to the amount of labour included in its production.  The relative neglect of nature, and the resulting environmental and resource degradation, is to a large degree what has driven the environmental movement in the West since the beginning of industrial capitalism in the 17th century.

Industry and factories in the Industrial Revolution required, and voraciously consumed, both work and nature.  In the process, through the adept use of technology, politics, and the forces of supply and demand, industrialists were able to ensure that their costs were kept low and the prices of goods high.  The effect of the productive forces of capitalism was to progressively and systematically devalue both nature and work as factors in the value of goods.  The disconnect between work and nature therefore became one of the key features of industrial capitalism.The devaluation of work and nature have now reached a crisis point.

The devaluation of work and the devaluation of nature in production have now reached a crisis point.  Since there is not a US economy or a German economy or a Chinese economy but a global economy, the same factors that devalue work in China also devalue the work of thousands of middle-class Americans and Canadians who production has become, not less efficient, but more efficient, in the process of adding work to nature.  Efficiency has, perversely, increased waste by making workers redundant and nature incidental to the calculation of wealth.

The disconnect between nature and work, and the devaluation of both, has been accompanied by distorting imbalances in economic activity:  the havoc wreaked upon the value of thousands of people’s work (in the form of homes, infrastructure, and businesses)  by a hurricane is counted as a plus in the national accounts, because it makes possible more production rather than less.  The manufacture and monitoring of weapons of mass destruction becomes a productive activity, since the damage it potentially causes is discounted, omitted from the national accounts that focus solely on the present value of the application of work to nature.  Drilling for oil and even cleaning up an oil spill becomes productive work, while taking measures to prevent the spill and protect oil workers is counted as a cost, and so is devalued.  Oil companies roll in profits, while governments compensate them for their costs, feeding the devaluation cycle.

There is a pressing need to revalue both work and natureSo, the problems of unemployment and the problems of environmental degradation are related.  However, increasing economic growth with little attention to the devaluation of nature will not solve unemployment in the long term, since it activates the very forces that devalue both work and nature.  Unemployed workers, like ecosystems, represent overutilized and undervalued factors of production.  As long as growth is calculated in a way that devalues work and nature, then governments will continually play catch-up to try and make up the difference.  Ultimately, as we are seeing, government’s efforts to bridge the gap, in the form of payroll tax cuts and spending for stimulus, become devalued themselves.  Subsidizing the costs of these inputs in the production process makes them less, not more, valuable for industry. Valuing nature for the ecosystem services it provides, and valuing work for the usefulness of the goods it produces, ultimately improves efficiency and reduces the waste, both human and natural, that capitalism creates.

For more: Worldwatch Institute “Valuing Nature’s Services Today is an Investment in the Future” September 14th, 2011

US is Now a Normal Country

Whatever happens on August 3rd, whether a full default or a spluttering decline, we are now at an historic turning point in the history of US hegemony.  For the first time since the US ascended to the role of world leader in 1945, the leadership (and the people) of the US must deal with the implications of world leadership—and realize its accompanying costs just as they have enjoyed its benefits.

Despite the rhetoric on the right, the US government is not spendthrift, wasteful, or bloated.   Rather, it has attempted through the decades to chart a course that balances domestic with international requirements in such a way that Americans avoid paying the costs of maintaining US leadership in the world.  Initially, maintaing Pax Americana meant spreading a US military presence virtually everywhere around the globe that it would be tolerated, and even some places where it was not.

In exchange for fighting communism, American taxpayers would become the customers of the world, and to do so, their currency would be as good as gold.  Unlike other countries, the hegemon is able to avoid the full costs of its expenditures by manipulating the value of its currency, something the US resorted to in 1971 at least in part to avoid paying for the Vietnam War.  However, domestic and international roles still essentially coincided, since what was good for the US as a world leader was also generally good for US consumers.

A hegemon can pay its bills by manipulating its currency.

As long as there was little real conflict between the domestic and international roles of the hegemon, the US could continue to spend with impunity.  Relatively sheltered from global crises of inflation that damaged their trade partners, Americans could afford to keep buying, borrowing, and spending without having to worry about maintaining their export markets or competitiveness, as other countries had to.  Consumers responded to this exceptional situation essentially rationally, by using their dollars to  purchase cheap imports.   The government responded by lowering taxes and interest rates to reflect the strength of consumer purchasing power relative to other countries, and hoped for continued growth and the goodwill of trade partners to make up the difference.

Eventually, the costs of hegemony must be borne—if not by Americans, then by someone else.  As long as Americans kept buying, the emperor’s lack of clothes could be conveniently ignored.  However, the conflict between the interests of Americans and the interests of the world is now apparent.  If history is any judge, do not expect Americans to sacrifice to maintain US leadership.  The US has little experience in being a normal country, and it seems unlikely that it will now take its place among the rest without a fight.