Blog Archives

The Fed Can’t Reverse the Decline of Financialization and Globalization

The global economy and financial system are both running on the last toxic fumes of financialization and globalization.

For two generations, globalization and financialization have been the two engines of global growth and soaring assets. Globalization can mean many things, but its beating heart is the arbitraging of the labor of the powerless, and commodity, environmental and tax costs by the powerful to increase their profits and wealth.

In other words, globalization is the result of those at the top of the wealth-power pyramid shifting capital around the world to exploit lower costs of labor, commodities, environmental regulations and taxes.

This manifests as offshoring of jobs, the stripmining of forests, minerals, etc., the degradation of local ecosystems, the decline of tax revenues derived from capital and the explosive rise in stock market valuations as wages stagnate or decline.

A key element in globalization is the transfer of risk from the owners of capital to the workers and public resources. Examples of this transfer of risk abound: rather than pay workers benefits, corporations game part-time/full-time labor laws so workers’ health insurance is paid by taxpayers (Medicaid). Corporations pay wages too low to survive so workers depend on public-sector assistance (food stamps, etc.)

Rather than provide vehicles to workers who drive for a living, corporations such as Uber and Lyft transfer all the risks of ownership, maintenance and enterprise to the drivers. And so on.

Financialization is the exploitation of assets/income that were previously safe from predation by those with access to low-cost central bank credit. While definitions vary, mine is:

Financialization is the mass commoditization of debt collaterized by previously unsecuritized assets, a pyramiding of risk and speculation that is only possible in a massive expansion of low-cost credit and leverage for those at the top of the wealth-power pyramid: financiers, banks and corporations.

One example is the student loan “industry,” which prior to financialization did not exist. A previously safe from predation asset/source of income–college degrees–has been securitized so that loans issued to students for largely worthless diplomas can be sold globally as “secure assets with guaranteed yields.”

(more…)

Tagged with: ,

We Can Only Choose One: Our National Economy or Globalization

Does our economy serve our society, or does our society serve our economy, and by extension, those few who extract most of the economic benefits? It’s a question worth asking, as beneath the political churn around the globe, the issues raised by this question are driving the frustration and anger that’s manifesting in social and political disorder.

A recent essay examines these issues in light of Brexit, which the author sees as a manifestation of dramatic but poorly understood changes in Britain’s economy over the past 60 years:

How Britain was sold: Why we need to rethink the case for a national capitalism in the age of uncertainty.

(more…)

Tagged with: , , ,

Globalization Has Hollowed Out Rural America

What do we make of an economy in which a handful of bubblicious urban areas are magnets for jobs and capital while rural communities have been hollowed out? The short answer is that this progression of urbanization has been one of the core dynamics of civilization for thousands of years: opportunities are greater in cities, and so people move from rural areas with few opportunities to cities with greater opportunities.

But that’s not the only dynamic hollowing out America’s rural communities: globalization plays a key role, too. Rural economies can rarely muster economies of scale that enable globally competitive enterprises. Rural communities generally lack the capital, expertise, global supply chains and cheap transportation costs that are the building blocks of successful global production and distribution.

In a global economy characterized by over-capacity, over-production and mobile capital, localized rural economies can’t compete with the low cost of commoditized products distributed by finely tuned global supply chains and cheap transportation.

Pre-globalization and cheap transport, local bakeries imported bulk flour and baked bread that was lower in cost than loaves shipped in from afar. The local bakeries held the competitive price advantage, and so local bakeries could pay local labor and local taxes that then supported the rest of the local economy.

But in today’s economy, commoditized bread can be delivered rural communities at prices local bakeries cannot match.

The same holds true for virtually all globally tradable goods– foods, clothing, etc. The only economic sectors with a toehold in rural communities are corporate farms, the occasional small specialty corporate factory making non-commoditized components and non-tradable services such as hair salons, motels, thrift shops, cafes, etc.

(more…)

Tagged with: , ,

Our “Prosperity” Is Now Dependent on Predatory Globalization

So here’s the story explaining why “free” trade and globalization create so much wonderful prosperity for all of us: I find a nation with cheap labor and no environmental laws anxious to give me cheap land and tax credits, so I move my factory from my high-cost, highly regulated nation to the low-cost nation, and keep all the profits I reap from the move for myself. Yea for free trade, I’m now far wealthier than I was before.

That’s the story. Feel better about “free” trade and globalization now? Oh wait a minute, there’s something missing–the part about “prosperity for all of us.” Here’s labor’s share of U.S. GDP, which includes imports and exports, i.e. trade:

Notice how labor’s share of the economy tanked once globalization / offshoring kicked into high gear? Now let’s see what happened to corporate profits at that same point in time:

(more…)

Tagged with: , , , ,

What If All the Cheap Stuff Goes Away?

One of the books I just finished reading is The Fate of Rome: Climate, Disease, and the End of an Empire. The thesis of the book is fascinating to those of us interested in the rise and fall of empires: Rome expanded for many reasons, but one that is overlooked was the good fortune of an era of moderate weather from around 200 BC to 150 AD: rain was relatively plentiful/ regular and temperatures were relatively warm.

Then one of Earth’s numerous periods of cooling–a mini ice age–replaced the moderate weather, pressuring agricultural production.

Roman technology and security greatly expanded trade, opening routes to China, India and Africa that supplied much of Roman Europe with luxury goods. The Mediterranean acted as a cost-effective inland sea for transporting enormous quantities of grain, wine, etc. around the empire.

These trade routes acted as vectors for diseases from afar that swept through the Roman world, decimating the empire’s hundreds of densely populated cities whose residents had little resistance to the unfamiliar microbes.

Rome collapsed not just from civil strife and mismanagement, but from environmental and infectious disease pressures that did not exist in its heyday.

(more…)

Tagged with: , , , , , ,

Does the World End in Fire or Ice? Thoughts on Japan and the Inflation/Deflation Debate

Do we implode in a deflationary death spiral (ice) or in an inflationary death spiral (fire)? Debating the question has been a popular parlor game for years, with Eric Janszen’s 1999 Ka-Poom Deflation/Inflation Theory often anchoring the discussion.

I invite everyone interested in the debate to read Janszen’s reasoning and prediction of a deflationary spiral that then triggers a monstrous inflationary response from central banks/states desperate to prop up their faltering status quo.

Alternatively, economies can skip the deflationary spiral and move directly to the collapse of their currency via hyper-inflation. This chart of the Venezuelan currency (Bolivar) illustrates the “skip deflation, go straight to hyper-inflation” pathway:

(more…)

Tagged with: , , , , ,

Why We’re Fragmenting: The Status Quo Is Disintegrating

I confess to being amused by the mainstream media’s implicit view that everything would be peachy if only Trump wasn’t president. Memo to MSM: the nation is fragmenting for reasons that have nothing to do with who’s president, or indeed, which party is the majority in Congress, who sits on the Supreme Court, or any other facet of governance.

The nation is fracturing and fragmenting because the Status Quo is failing the majority of the citizenry. The protected few are reaping all the benefits of the Status Quo, at the expense of the unprotected many.

As I have outlined many times, this unsustainable asymmetry is the only possible outcome of our socio-economic system, which is dominated by these forces:

(more…)

Tagged with: , , , , ,

What’s Killing the Middle Class? (Part 1)

We all know the middle class that actually owns capital and wields political influence is shrinking. As I noted last week in Redefining the Middle Class: It Isn’t What You Earn and Owe, It’s What You Own That Generates Income, defining the middle class by household income alone is a misleading metric, as it leaves out the critical factors of debt and ownership of productive assets.

A household may have an income of $150,000 and appear well-off by that metric, but if they are mired in debt and own virtually no productive assets or wealth that can be passed on to future generations, they aren’t middle class–they’re well-paid proletariats.

So what’s killing the middle class? If you read the dozens of articles on the decline of the middle class in the mainstream (corporate) media, you soon discover there’s a short list of the usual suspects:

1. Globalization / outsourcing

2. Technological changes / automation

3. “Winner take all” asymmetry in rewards for specialized skills

(more…)

Tagged with: , ,

Why Is the US Dollar Rising?

On October 3rd I asked Is the U.S. Dollar Set to Soar? It seems the answer was yes. Here’s the weekly chart of the USD I posted on October 3rd:

And here’s the current weekly chart of the USD:

Note the apparent breakout above 100 and the constructive similarities to the 2014 breakout that was followed by a 20% increase in the purchasing power of the USD relative to other currencies.

(more…)

Tagged with: , , , ,

Our Landfill Economy

Correspondent Bart D. (Australia) captured the entire global economy in three words: The Landfill Economy. Stuff is manufactured, energy is consumed shipping it somewhere, consumers buy it and shortly thereafter it ends up as garbage in the landfill.

This is of course the definition of “economic growth”: waste, inefficiency, environmental destruction–none of these matter. Only two things matter: maximize “growth” by any means necessary, and maximize profits by any means necessary.

The Landfill Economy now encompasses the entire planet. The swirling gyre of plastic trash the size of Texas between Hawaii and California: it’s just one modest example of the planetary trash dump that “growth” and profit generate as byproducts/blowback.

The planet’s oceans are one giant trash dump. Everything from plastic water bottles to abandoned fishing nets to radiation to containers that fell off ships is floating around even the most distant corners of the seas. Seabirds nesting in remote islands die of starvation as their guts fill with plastic bits of “permanent growth.”

Globalization has turned the planet’s land masses and rivers into trash dumps.Want to make a quick profit along a tropical sea coast? Dig some big holes near the coast, dump in baby prawns, food and chemicals to suppress algae blooms and diseases and then harvest the prawns to ship to the insatiable markets of the developed world.

Once the prawn farms are poisoned wastelands, move on and despoil another coastline elsewhere.

(more…)

Tagged with: ,

Trump, Trade and Taxes

Donald Trump has made trade agreements a central issue in this presidential election, declaring trade treaties such as the North American Free Trade Agreement (NAFTA) as unfair and subject to cancellation or renegotiation.

Setting aside the issue of whether presidents can cancel trade treaties via executive orders, let’s look at the underlying issue: the erosion of manufacturing and entry-level job opportunities that lead to middle-class security and pay.

The question then becomes: what are the causes of this erosion of manufacturing and the middle class? Trade is relatively easy to finger because the flood of cheap goods into the U.S. coincided with the wholesale offshoring of manufacturing capacity.

But it isn’t quite that simple. “Free” Trade, Jobs and Income Inequality: It’s Not As Easy As We Might Think (March 22, 2016)

There are many other issues in play, including:

(more…)

Tagged with: , , , , , , , , ,

Globalization’s Few Winners and Many Losers

I often write about the Tyranny of Price, the rarely examined assumption that lower prices are all that matters.

Thanks to the Tyranny of Price, the quality of many goods has plummeted.Obsolescence is either planned or the result of inferior components that fail, crippling the entire product. As correspondent Mark G. has observed, the poor quality we now accept as a global standard wasn’t available at any price in the 1960s– such poor quality goods were simply not manufactured and sold.

There is another even more pernicious consequence of the Tyranny of Price: globalization, which makes two promises to participants: 1) lower prices everywhere and 2) manufacturing work that will raise millions of poor people in developing economies out of poverty.

Globalization is presented as a win-win solution: the developed countries get cheaper goods and the developing world get the benefits of industrialization.

But now a new study, Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies, finds that globalization has been a bad deal for 80% of the people in developed economies, as their income and wealth has stagnated or declined.

A Cheerleader for Globalization Has Second Thoughts: A new study from the McKinsey Global Institute finds that changes in the world economy have left many people worse off..

The McKinsey report focuses on the 540 million residents of developed nations who have lost ground in the era of globalization. But if we look at the terrible pollution in China, we find that rapid industrialization hasn’t been as win-win for developing nations as advertised.

The mainstream cheerleaders of globalization have been forced to accept that globalization exacerbates wealth/income inequalities by boosting the rewards for the 20% who benefit from global markets and capital-friendly central bank policies (zero interest rates and quantitative easing) that have pushed asset valuations to incredible bubble heights around the world.

Domestically, the American ruling class and the mainstream punditry are struggling to square the circle, that is, defend the globalization of the U.S. economy that has greatly enriched corporations, the wealthy and the top 5% of the work force but also alleviate the stagnation in the incomes and wealth of the bottom 80%.

Correspondent Graham R. summed up the situation very succinctly in a recent email:

“Focusing on the minimum wage is a false flag. The society as a whole is now stressed at every level because Globalism has promised us cheaper prices at the cost of destroying societal structures and their meaning for its members.”

Graham identifies a key consequence of globalization that the mainstream media has ignored: the erosion of social/economic structures that supported communities and provided purpose, meaning and stability to their residents.

When price is all that matters, factories and offices are closed overnight and the work is shipped elsewhere. When production costs go up, the production is moved to another locale.

In this environment, employees are competing with workers globally, which suppresses wages everywhere. Since global corporations have gained political power in globalization, they can buy lobbying and political influence that raises the cost of commerce for small businesses–a process known as regulatory capture that erects walls that stifle competition.

Regulatory capture is the inevitable result of globalization’s rewarding of capital and erosion of labor.

Price is not the sole absolute good. Price is only one kind of information. Since price is easily quantified and converted into any currency, it has achieved total dominance in markets and mindspace. Quality, quality of life, and well-being are not easily quantified, so they are ignored. Stagnation, insecurity and a loss of social cohesion are the inevitable result once price is all that counts.

This essay was drawn from Musings Report 29. The weekly Musings Reports are emailed exclusively to subscribers and major contributors ($5/month or $50 annually).

My new book is #10 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition) For more, please visit the book’s website.

Tagged with: ,