Skip to comments.Lost Or Unrecognized Multi-National Economic Principles And Slavery
Posted on 10/28/2002 3:05:58 PM PST by Red Jones
Slavery, lost or unrecognized economic principles, and multinational economics.
By Robert L. Kocher
There is an American historical myth. The belief is that White people in the old American South sat about in affluent splendor drinking mint juleps and living like Scarlet O'Hara & Company in Gone With The Wind. That Old South never existed except for one or two percent of the southern population. Many southern whites were worse off economically than most Black slaves. Before you seize on that and laugh, think about it. The South was the last place any white person would go to find economic opportunity. In 1860, out of a Southern population of 9,000,000 people, 4,000,000 were slaves. Most work of any significance was done by slaves and there was no way to take a job and make a start to work your way up. Unless you had enough money to buy land and fifty slaves, you were at an economic dead end and would starve before finding any opportunity in the Old South. Slavery was economically disastrous to white people. The only opportunity for a white person born without inherited position was to head North.
But the South and even poor southern white people were held mental prisoners by a social, and even biblical, theology which preached a myth and also provided even the eternal white poor with a sense of status above the slaves. Essentially, that status and a quasi-religious illusion was all they had.
As a collateral issue, the South lived under constant direct physical threat and fear from Slavery. The South had a tiger by the tail and could not let loose lest it be eaten. Given that the slaves were almost equal in numbers to the non slaves, a widespread rebellion by the slaves would have been powerful in force and would have resulted in millions of deaths with much of the South destroyed by flames. Southern whites had cornered themselves. In expanding slavery what the South had imported and bred over the years was a large potential army lacking communication and arms. The South had to keep the slaves frightened, controlled, distant from arms, isolated from communication, and fragmented.
It is little known that there were people in the South who were abolitionists for reasons of self protection and personal survival rather than morality. The status of many Southern Whites was one of such desperation and vulnerability that there was worry that there would be attempts to claim they had black blood in them and be made slaves. In some cases they would have no choice but to accept slavery out of economic desperation. Slave-holding societies are calloused and voracious operations that have little reservation about gobbling up non slaves.
Myth and fantasy are often stronger than reality because fantasies are more attractive than reality, particularly when that reality is unacceptable. By perversity of human nature people will fight for abstract slogans that have been beautified with manipulation of language and by theatrical trappings had by the few. And so it was that Southern armies were filled by hundreds of thousands of men who had no real economic or social future in the South, but who fought with fierce determination for "The Cause." That any serious inspection and analysis would indicate life for most southern whites was one of unending primitive hardship and that the portrayed glories of Southern Life that constituted the image of The South were something had only by the few made no difference.
In the beginning the Southern armies could be staffed and fueled by those blindly affected by delirium of self delusion and myth. But those less affected were more sensitive to reality and to insult. When the South instituted a draft and it was announced any man who owned 20 slaves was automatically exempt from military service, the confederacy began to be looked upon as a rich man's war, but a poor man's fight. Fifty percent of eligible Southern men rebelled and did not sign up for conscription.
Slavery ultimately destroys the masters. In order to produce progress, the slavemaster gets himself a better whip. The man who does the work himself invents a better idea. For that reason, industrial progress lags in slave-based societies. This includes socialistic societies. In all my years of watching socialism, I have never seen socialism come up with much that is new or original. Imposed conformity to the system creates an unspirited submissive uncreative mentality. Those who conform best, and show the least amount of disturbing creative individuality that threatens the socialistic herd, become leaders, insuring perpetuation of the condition. This pattern is also noticeable in academia.
In a slave society, masters hold economic and political power. They become soft and weakened by their style of living as any man who does not do for himself eventually becomes incapable of doing or understanding. Basic competence and emotional ruggedness is lost and this loss becomes a cultural characteristic passed down from generation to generation. One hundred years after the civil war there still existed a class of descendants of what was idealized as Southern Aristocracy whose only capacity was to sit around grieving over having been cheated out of an inherited secure position in a caste system with membership not based on effort and with a genteel life of cotillions and darkeys waiting on them.
There is also another myth: Slave-based societies can not function economically. In fact, they can function rather well, for what they are intended to do. Slaves built the pyramids of Egypt and the Roman aqueducts. Slaves rowed the galleys of war and commerce in the Mediterranean. The question becomes one of what the slaves are directed to do and how well the system is administered. A creative ethos in the masters can create an adequately functioning slave-utilizing society --at least until the masters degenerate.
Were I to ask, "What is the function of a slave?" I would receive a variety of answers. There is only one correct answer. "The function of slaves is to keep the masters and the elite happy." That's it. Period. Nothing else counts. Whether the masters and the elite are right or wrong or stupid or degenerate in anything or everything, or whether they ultimately run themselves and a nation into the ground makes little difference. As long as the masters and the elite remain in power and are happy at the moment, slavery will continue. There are arguments that slavery in the South would not have continued because (fill in the blank with various economic or other theories). Without the Civil War slavery would have continued for considerably period because the people living comfortably in the plantation houses were fat and happy with it. That is all that counted. A comfort to effort ratio of that nature requires little efficiency. Each plantation was a self-sustaining self-contained independent kingdom where the pampered kings had absolute life and death power over subjects who could not leave.
Recent arguments advocating reparations for blacks are prone to dramatic statements about just compensation for the American nation having been built on the backs of black slaves. Upon analysis of the realities of the period, the arguments are ludicrous. The slaves built very little. All they did was keep a few people in plantation houses happy. Slaves weren't asked to build anything of enduring value or function by self-indulgent and complacent Southern masters who had little interest in such matters. Little of that had importance or effect on the outside world. What little that was produced in the South could have been produced more efficiently. Efficiency or creativity weren't necessary or of great concern when the main product of dozens of slaves was primarily the comfort of several people in the plantation house. Nobody needed to meet a payroll when people were forced to work for free. Southern plantation owners weren't Henry Fords or Andrew Carnegies founding new industries that became important legacies passed to civilization. Mostly, they were self-centered neurotics being waited upon in an attempted fairyland. Many of them had degenerated to the point of incompetence in any other type of life. The Old South passed on nothing of serious lasting economic importance. Therefore, in 1860 the industrial output of the entire South was less than one quarter of the industrial output of the state of New York. Any building that occurred took place in the North under free enterprise.
If the entire plantation system, including the slaves, had had to make a reasonable or enjoyable standard of living from the system, then the system would have been needed to have been run efficiency and creativity. But under the system that existed, the people who suffered for inefficiency were the slaves, not the owners. There was neither motivation nor necessity for change among those in power.
In ninth grade civics class we were taught that the four prerequisites to building an industry under the free enterprise system were land, labor, capital, and management. To this list there should be added a very important fifth necessity that has been forgotten by many theorists. There must also be people with the willingness and capacity to purchase what is being produced by that industry. If there is nobody with economic capacity enabling them to purchase what is being produced, then there will be no money coming in to pay the bills for cost of production and the industry will fail.
There is an important implicit corollary in this set of prerequisites. In order to produce goods in any quantity, there must be proportionately sufficient available buyers with economic capacity to buy those goods. That means that the laboring force in industries must be paid wages sufficient to buy most of what they produce, or something comparable, in order for those industries to survive. As a practical matter, any industrialized market economy run with poorly paid workers will collapse or stagnate for lack of a market for the goods it produces. Mass production requires mass market requires mass decent wages.
That's one reason the Old South in America was an economic disaster that was dependent upon the North. None of the millions of slaves doing the work had any money to buy anything and there was no way of selling anything or no market for anything in any quantity in the South. In this case we are talking about nearly 45% of the population who were not a market for anything. Neither did the white people whose economic opportunity was displaced by slavery represent a market for goods and services. It's impossible to sell something to poorly paid people.
If the entire American nation had been a slave society like the South, and if slavery had continued, there would probably be few or no automobiles, no TVs, no modern appliances. With a market of one or two percent of the population, there wouldn't have been enough eventual volume or demand for products to support research and development or any of the other expenses inherent in setting up efficient production mechanisms. At the very least, production costs would be divided among a small production-volume of goods so as to make them expensive.
Where there is large scale slavery, or quasi slavery, a market-based economy is not possible.
What is about to be said is important. In a market economy the workers within a finite boundary of economic interaction must be paid enough to purchase goods that they produce or the system fails for lack of sufficient market to sell those goods. Extending the idea further, somewhere in the evolution of a finite healthy free enterprise market economy a close to optimum equilibrium of worker salaries develops, or should develop, based upon this principle.
For much of my life I have detested labor unions. There have been many instances in which unions have raised stupidity to the level of a social and economic movement. But I also have come to realize in recent years that the union movement, perhaps inadvertently, has done as much as anything else to build the American economy through raising the wages of workers to the point where workers became a market for the goods and services produced by the economy. Without those wage increases, the economy would never have developed to the extent it did. If, for instance, John L. Lewis had not organized the mine workers, there would have been no market for automobiles among any of the workers in that industry. And so it is with parallel industries throughout the nation. By increasing wages, unions have indirectly created entire industries through creating and expanding the capacity of people to become markets for those industries. This is not to deny that unions are not at times corrupt, destructive, childishly oppositional, and obstructionistic.
Unions are at times corrupt, destructive, childishly oppositional, and obstructionistic. This is not peculiar to labor unions. Most participating functional groups in a free enterprise or free market economy, and just about any other form of economy, contribute to a dynamic equilibrium of stupidity and self-indulgence among groups within that society. I have seen unions destroy companies. I have seen management destroy companies and industries. I have seen what are called consumers destroy portions of economies because they don't want to pay prices necessary to maintain an economy for goods that they want. The utopian ideal for the individual consumer is often that he should get paid well while others should work for low wages or for free so that he can buy products at arbitrary prices he wants to pay. To the extent consumers are successful in pursuing their wish in this regard, they are inevitably unhappy to find that their neighbor down the street is somehow no longer able to afford their services.
Now, somewhere in the evolution of a finite healthy free enterprise market economy a close to optimum equilibrium of worker salaries develops, or should develop, vis-a-vis other groups. Anything that is destructive to that equilibrium is destructive to the economy in the entirety. A destructive action upon that equilibrium may have a sequential cascading effect that will eventually maul much of the entire economy over time. What that means is that exporting industries to nations where there is slave, semi-slave, or cheap labor is likely to produce recession or worse. Importing large amounts of cheap labor will result in the same thing. The consequences can be long term or permanent.
It doesn't make any difference if you get something cheaper as a result of destroying that equilibrium. Deterioration of the greater long term economy is the realistic result. That's the way the economy works. But, people selling economic theories that will create that deterioration will focus upon what you get cheap or for free. That's the way economic sophistry works.
That the price of products must by high enough to pay workers enough to make workers a significant market for the goods a free enterprise market economy produces is one of the least attractive and most resented of all economic principles.
The creation and continuation of an industrialized economy is an intricate and fragile process. When Ed wants to make and sell something to Joe, Joe must have a job and money to buy it. But before Joe can buy anything, he must be able to get money by making something for Harry. But Harry must first have a job before he can do anything and so on. What exists is a complex chain of interdependent events that are required to sustain each other. Economic development is a bootstrap operation requiring decades during which each of these people is slowly incorporated into economic participation within what I refer to as the monetary-industrial interactive circle. I have been somewhat successful at computer modeling it. It's not truly a circle, but more like a spoked wheel with people exchanging money for goods and services across and next to each other from positions around the wheel. As a free market economy develops, the diameter of the wheel increases, more spokes are added, and more people take positions where the spokes intersect the wheel rim.
People are added to positions on the circle one at a time as new products are developed, or as greater demand for existing products develop, requiring more people at productive labor. This process is reversible.
Breaking or weakening the chain of economic capacity and interaction can produce cataclysmic consequences for each member of the chain, initiating a depression. That is much of what happened during the great depression of the thirties. People were out of work or out of business because the people who formerly bought their goods were out of work or out of business because the people who formerly bought their goods or services were out of work or out of business and so on. The diameter of the monetary-industrial interactive circle contracted and fewer people were left in it. Much of it was brought on by fear or panic in which people were determined not to buy anything because they thought bad times were coming. They thus put each other out of work. There was also a collapse of the banking system. There was an additional element to be mentioned momentarily.
The above, exclusive of the last four sentences, explains much of the problem with the recent/present Russian economy. The Soviet Union moved from socialism to attempted private enterprise in a matter of days when it would, in fact, require a twenty or forty year transition. Russia had been a country where there was no system of private ownership over any of the means of production, and no sector of job availability within a private enterprise system, which did not yet exist. There was no previously allowed accumulated individual capital to invest in industries, but rather a death penalty for crimes against socialism for any such attempts. Consequently, there was neither mechanism for investment, nor much time to do it. Development of a free enterprise economy requires time. Many of the more molecular mechanisms and prerequisites for private enterprise did not exist. Overnight, Russia was precipitated into a vacuum and chaos.
It is much easier to go from free enterprise to socialism, than to go from socialism to free enterprise. Socialism can be achieved through confiscation and nationalization in a month while shooting all opposition. Free enterprise must develop through evolution of ownership, evolution of motivated and talented leadership, monetary industrial/employment integration, and evolution of industry size over decades as happened in the United States. In un-nationalizing industries that were developed under a system where there is no private sector, there is very little provision for even determining or bestowing private ownership of existent productive facilities. Most of the productive facilities in the country are suddenly unowned and with no provision for private operation or way to pay the bills. There is no money to buy previous socialized large industries, no money to duplicate them, impossible difficulty in coordinating the privatization of all major industries at the same time to accommodate the interdependence of products and services between industries, and difficulty in putting enough people to work immediately for a product market. --And we haven't even started examining the problems yet.
With considerable sense of celebration leftists say the Russian people were better off under communism than they are lately under individual enterprise. In saying this, they are absolutely correct. However, the problem is neither the superiority of socialism nor the inferiority of private enterprise, but the way the transition was mishandled. The political consequences of this mishandling may be to push Russia back toward communism simultaneous with a permanent fear of individual enterprise as a result of the feeling of having been catastrophically betrayed by it. Unfortunately, there has been nobody on either national scene who has made a competent serious attempt at explaining any of this.
America was lucky during its urban industrialized development in that the predominant American population lived in rural independent agricultural self-sufficiency while waiting to take its eventual place in the urban monetary-industrial interactive circle. In 1870, almost 90% of the American population was rural. In about 1917, when industrialization occurred in earnest in this country, the city population finally equaled the rural population. If the entire American population now positioned in the monetary-industrial interactive circle had simply been suddenly released upon an urban land with no privately owned industrial development, and no buffer of sustaining rural life, the consequences would be as chaotic as has been lately seen in Russia.
Neither Yeltsin nor anybody else in what was the former Soviet Union there can be blamed for the present or recent economic difficulties in Russia. The difficulty was inherent, but not bothered to be understood, from the beginning.
What should have been done in Russia was continue, without expansion, the socialistic production and monetary system while encouraging development of private business and private systems of production. Over a period of twenty to forty years, private enterprise could have slowly displaced, and incrementally obsoleted, the socialist system without the nearly lethal convulsions we have seen and which are being exploited by the radical left here, and in Russia, as celebrated evidence that private enterprise is inherently and fatally flawed.
I have a suspicion that Gorbachev might have had some intuitive understanding of this. He was a reasonable man capable of thinking beyond the twisted mechanical rote programming characteristic of most leftists. He might need a little pushing and help at times, but he was a reasonable and intelligent man. Unfortunately, he was sitting on a pressure cooker with a 70 year load of steam that exploded when the lid was loosened. It is a tragic paradox that the man most willing in Soviet history to look at the deficiencies of the Soviet system was politically destroyed by the consequences of his openness.
In a private enterprise monetary based system, people are added to positions on the individual enterprise monetary-industrial interactive circle one at a time as new products are developed, or as greater demand for existing products develop. Incorporation of people into new industries has the effect of increasing market for products of older industries so the two processes are interactive. This process is reversible. Not only is it reversible, It is catastrophically reversible in a short period of time and, without outside intervention, may require a near-recapitulation of the decades-long process that built the economy that collapsed. This is what happened in the great depression that lasted until preparations for the second world war. In 1929 the average unemployment rate was 3.2%. Being an average, the unemployment rate was probably a little less than that at the beginning of the year before the stock market crash. The stock market had become a national gambling game where everybody won simultaneously. People had been becoming millionaires playing the stock market, and had been spending money like millionaires, massively stimulating the economy. Few people had doubt that it would last forever. The velocity of money circulation within the circle of economic interaction, producing jobs and goods, was like a tornado. With the crash of the stock market the era in which people had piles of easy hot money to spend that stimulated the economy was ended. Many were also saddled with debt they had expected to pay off with rising stock prices and they found themselves broke with no prospects. By 1932 the monetary-industrial interactive circle had swiftly contracted to a point of 23.6% unemployment. In 1939 there was still a disastrous 17.2% average national unemployment rate that was even known about and recorded, while another 50% of people were desperately holding on to almost nothing from moment to moment in fear, and with no reserves. Even the improved 17.2% unemployment rate was unstable and unreliable. Few people presently alive in America have any idea of how horrible an ongoing 17-18% unemployment rate is.
The Japanese and Germans came along to save the economic day by rattling sabers and eventually starting a war, suddenly bringing the average unemployment rate down to 4.7% in 1942, basically within a less than six month period, then 1.9% in 1943 as Americans were employed in the war effort. Without the war, there is very good possibility we would still have been in serious economic difficulties by 1950. Nobody had ever seen a nearly completely urbanized industrial economy before, and nobody, or few people, understood what was happening. There was a host of hurried ideologically-distorted analysis without convincing depth of content. Without World War II the American nation would probably have adopted complete communism/socialism in a desperate attempt to end the economic chaos.
For those who are novices to the field of economics, there are six important systems of economic science and interpretation. There is what the Radical Left says. There is what the Right says. There is what the people who are presently happily in the monetary-industrial interactive circle at the moment say. There is what the people presently languishing outside the circle at the moment say. Fortunately, and most importantly, as a relief from tedium, and as a further contribution to the already overburdened compendium of human knowledge, there is also what is being said here. There is also what I won't say because it's highly classified and will go with me to my grave. Economics is somewhat like nuclear physics in that knowledge of it eventually falls into hands of those who will use it to build the political equivalent of an atom bomb.
At the present time the government watches trends for economic contraction and counteracts those trends. We hope. This is an inherent necessity because having the capacity to extract substantial tax money from the economic interactive pool confers the accidental consequence of destroying the economy. This is somewhat of an under-explanation, and there is a great deal of ineptitude and misunderstanding in the process.
There is an economic principle known as the multiplier effect. Given a pool of economic interaction, adding a given amount of money to that pool will generate five, 10, or more times the value of that money in terms of industrial output or job employment. For example, if I give person 'A' $100 and he spends it by asking person 'B' to make something for him within a 10% tax rate, it puts person 'B' to work while 'A' ends up with a new widget or whatever he bought. If, after taxes, 'B' has $90 left and spends it by asking 'C' to make him something, it puts 'C' to work. After taxes 'C' has $81 and puts 'D' to work doing something. --And so on down the line. Thus, $100 added to a pool of economic interaction can eventually generate $1,000 worth of goods and job activity depending upon the tax rate and rate at which the money is spent.
Governmental or other agency's feeding of money into the economy through interest rate adjustment, government research or defense contracts, public works, or whatever, to employ the multiplier effect and stimulate the economy is theoretically one method of preventing or counteracting recession or depression. It has been called pump-priming. A good rip-snorting war where people are put to work building airplanes, tanks, and cannons; then use the money they are paid to buy automobiles, hair coloring, false teeth, and refrigerators is a proven effective, but crude, depression-stopper --or preventer. There are more subtle ways of infusing money into the pool of economic interaction.
If there is a multiplier effect, there must be a demultiplier effect, and there is. If nothing else, the demultiplier effect is the absence of the economically sustaining multiplier effect. Anything that withdraws, fails to replenish, or otherwise reduces, the amount of money in the economic interactive pool has the reverse effect of the multiplier effect. It produces demultiplication. It contracts the monetary-industrial interactive circle and eventually puts people out of work or out of business.
That the multiplier effect works, rests on several assumptions. One of these assumptions is that people will work for money put into the system. That is not always true. During the mentality of entitlement without effort that developed during the 60s and 70s, you couldn't pay many in a new generation enough to involve themselves in concrete real productivity. The result was massive inflation with economic stagnation --so-called stagflation.
Another very major assumption is that the money put into the economic pool will remain within the finite interactive economic pool. Until recent years, this assumption held true. A comparatively small amount of money injected into the interactive economic circle would result in someone's spending money that would put his neighbor to work. --However, this assumes he or she is making the products you buy. But suppose you or your neighbor buys Japanese automobiles, clothes from Hong Kong or Mexico, Japanese electronics, or mainland Chinese machinery. It is possible to throw $100,000,000,000 into stimulating the economy and create a party that lasts for a couple months without one new job being created here, and with a subsequently filled short and medium term market for similar domestic goods and services because they have been done elsewhere.
If we stop at that point of thinking, the subsequent result should be a period of lay-offs and domestic business contraction. The money has left the interactive pool or circle. There is a reduction in domestic manufacturing due to the market-satisfying products that have been imported. That results in less demand for domestic labor. And so a recession, or worse, is started.
But, the analysis should not be arbitrarily ended at that point. In the early 1980s, educational TV, in the throes of a brief passing lucid moment, presented a splendid economics course given by the distinguished Milton Friedman, called Free to Choose. At one point Friedman was asked what the effect would be of buying foreign goods. Friedman's answer was, what can foreigners do with the money we paid for those goods? Answer: They will be required to spend those dollars to buy American products. When they spend the money for American products, it puts people back to work here and stimulates our economy. So if we arbitrarily stop our analysis at this new point, there should be no problems in trade with foreign countries. This point, usually vaguely understood, and now expressed mostly as a manic assertion, is now where economic analysis arbitrarily ends when it is convenient.
That is where Friedman was at the time on the basis of his experience and knowledge when he created the analysis and theory. When he created his theories a yearly trade deficit of three hundred billion dollars would have been so absolutely unthinkable that suggestion that anything approaching that would ever exist would constitute fulfillment of requirement to qualify for free residency at the local state mental institution. But, a lot of water has passed over the dam and much has changed since he arrived at his conceptions. Unfortunately, it isn't nearly as simple as Friedman thought. There are new developments and considerations that render older systems of economic theory somewhat irrelevant. Empirically, the spent money is not even close to being returned in the form of purchase of American products and stimulation of the American economy, for example.
The success of money spent on foreign goods returning in purchase of American products depends upon artificialities and the equality of value in the rates of international monetary exchange. If foreign goods can be purchased at excessively low prices, the influx of such goods can knock people out of work here, while leaving people in the country we buy the stuff from without sufficient money to buy significant quantities of anything from American industry. There can be massive imports of foreign products, displacing American workers and industries, while the foreign workers producing the stuff aren't paid enough to afford an American-made toothpick. There is no restimulation of the American economy.
Let us propose an extreme model. Suppose the entire American need for industrial machinery for the year, billions of dollars in machinery, could somehow be purchased by a broker for $500,000 from a foreign source. He could sell it for $2,500,000 here to ecstatic buyers. At that point the broker is rich and some American companies are happy with new machinery that will last for years. But the secondary consequence would be that overnight virtually every American worker in the American machinery industry would be out of a job along with many American machinery manufacturing businesses. The unemployed Americans would no longer be able to buy American products, and the foreign nation hasn't received enough money to buy American products to stimulate or maintain the American economy. The broker, while becoming individually wealthy enough to afford a new BMW and servants, does not make a subsequent substantial quantitative contribution to maintaining the viability of the circle of economic interaction. Even if the broker makes $50,000,000 on the deal and, as usually is argued, puts it in the bank where people can supposedly borrow it to start new businesses, the affect of that amount of money is not nearly enough to offset the billions of dollars in negative effect. The economy would go into recession. If it happened in several large industries simultaneously, our economy would collapse. When you QUANTIFY and follow modeling of the sequence of effects, that's the foreseeable mathematically dictated result.
More about borrowing money and the "putting money to work" cliche will be addressed in a few minutes.
There is a tendency for people arguing that unlimited free trade will provide cheap goods to employ the same type of vague superficial unquantified non-followed-up logic used to argue for perpetual motion machines which always look like they work in terms of superficial verbal constructs, but don't work under detailed quantitative analysis.
One can see temptations in the paragraphs above, at various levels, to make short term individual financial killings at considerable long term overall cost to the economic entirety. In fact, the brokers become permanently wealthy while everyone else gets destroyed after a delayed period. The broker has financial motivation to destroy the country. Other people want something for nothing, providing similar motivation. The long term economic cost is disastrous.
The bottom line is that the clever man can move the slave quarters 10,000 miles away to socialist or other countries, create a system similar to what existed in the old American South, make enormous amounts of money on it, and those consumers who still have jobs will welcome the marginal decrease in prices.
The realities of the process can be obscured by doctored up mystifying and diversionary explanations. As a general principle, when selling an indefensible position, the arguments should be as complex, confusing, convoluted, and self-referencing as possible. Adding a bit of denial also helps.
The less extreme the example, the less extreme the effect and/or the greater the time lag before the effect is felt. But the basic principle holds true. There is a gradient of effect that is immediately profound at great difference between foreign and domestic prices for comparable items, and minuscule at comparable prices --given certain doubtful assumptions regarding the latter. In any finite monetary-based market economic system, distributing outside products for free or at reduced prices destroys the system. That is a bargain you make when adopting it.
The oft stated idea of putting foreign profit money to work my loaning it is an intriguing cliche that is seldom seriously examined in detail. It is asserted foreign countries will, or can, put surplus dollars accumulated in trade deficits into our banking system where, when borrowed, "The money will be put back to work" here. The same is true of the profits acquired by domestic brokers. The money may be put to work, all right, but if one is not careful it may be put to work draining and destroying the entire economic system.
It is at this point where we must examine the long term effects of interest rates, interest flow, and nonredistributed accumulations.
The idea of foreign nations and foreign organizations drawing interest on money through injecting it into the banking system may put that money to work financing new businesses and whatever over the short term, but it has serious long term deteriorating side effects. The interest on that money may leave the country. Also, when people borrow money to start businesses, and when other people borrow money to buy the products made by those business, interest is paid out in both transactions and that interest is subtracted from the pool of personally owned money in the economic system. The pool of unencumbered personally owned working money is absorbed to the point of being slowly withdrawn or exhausted from the economic system. It's much like partially loosening the drain plug on a bathtub. the water, in this case the unencumbered private money, is drained out by interest continually paid upon it. Eventually all money can become borrowed money with no unencumbered personal funds to pay the loans back. The system, and people in it, need to make loans to pay off the loans.
Interest rates are somewhat like peeling a potato. If the potato is peeled forever, at some point what results is all peeling and no potato left. If the potato peel is looked upon as analogous to interest payment, at some point there is no non-loaned money left in the system.
The problem of interest rates can be troubling. I've heard it said that if someone had put a single dollar in an Italian bank 500 years ago during the period of commerce there, at compound interest the accumulated sum would be trillions of dollars. According to my calculator, at 5% interest the sum would be 3.4 times 10 to the tenth power. If $100.00 had been put in, it would leave the family descendants owning nearly all the currency of present day Italy. At some point we might expect that would generate some difficulty. I leave further consideration of that as an exercise of the mind for readers.
Analyzing this further, there are two systems or types of interest on borrowed money. One system is relatively nonaccumulated redistributed interest. The second is non-redistributed accumulation. In the case of nonaccumulated redistributed interest a wide expanse of individual citizens contribute savings to various institutions be they banks, credit unions, or whatever. The money is loaned out. The interest paid on those loans is redistributed among the little people who placed savings in that institution. Upon redistribution, the interest money again becomes privately owned funds which can be used to fuel or recirculate the economic interactive circle, stimulating the economy.
In the case where non-redistributed accumulation money is loaned, The interest is accumulated by institutions or individuals in foreign nations instead of being redistributed on a more molecular level in this country. A parallel process exists domestically in those instances where the loaning institutions and the investors in those institutions are of such nature that there is little or no redistribution of interest on the molecular level into the economic interactive circle.
In one sense nonredistributed loan interest has the equivalent effect economically as taxation in the sense of withdrawing capital accumulation of capital to an abstract system. The critical difference in sequence of effect is that government taxation is used to pay government employees here who spend the money within the economic interactive circle, consequently maintaining industries and employment. The government also purchases products, thereby keeping people employed. Taxes are an unaccumulative redistributive system. That does not mean taxation should be excessive. Taxes are ultimately added to the cost of goods and services that must be priced high enough to pay them. Importantly, lest we become too tangled up in potential double meaning of words, the concept of redistribution is being used, here, in a restricted specialized sense. We are NOT using the term necessary redistribution in the sense of arbitrarily supporting irresponsible life styles in the name of producing unconditional "social equality" or "social justice." What is being said is that is that money withdrawn from the economic capacity of the pool of individuals to participate in the economic interactive circle must be returned to that circle within a reasonable period or the economy deteriorates. Nonredistributed loan interest does not maintain the circle of economic interaction.
The interest on trillions of dollars, compounded, would drain the country if it were to be honestly paid.
For parallel reasons, one should be cautious about the prospect of foreign investment between nations. When foreign nations build plants in America to produce products sold in America, money leaves the American circle of economic interaction in the form of profits sent out of the country.
The same is true of outside investment in undeveloped countries. In the initial stages of investment and development, the initial consequences are exhilarating for the local people. They have employment and for the first time enough money to start their own pool of economic interaction complete with multiplier effect, They have money enough to buy products from those factories built by foreign investors. But in the second stage the development begins to stagnate because continuous of extraction of profits from the local economy. At some point, it is advantageous, and maybe even necessary, for people in those countries to nationalize or otherwise acquire ownership of those outside investments.
When the Soviet Union fell, the cry in America was to invest in creating businesses and factories there. The last thing the Russians needed was for Americans to buy up the country and send the profits back home. I wanted to see the Russian transition into free enterprise succeed. Instrumental to this I wanted to see business profits remain in Russia so as to continue and stimulate the circle of economic interaction there.
How much foreign economies spend for our goods and services minus how much we spend, or how much money goes out, for foreign goods and services, is called the balance of trade. This January (in 1999 when this portion of the article was originally written) our economy bought $17,000,000,000 more in goods more than it took in. Last year's trade deficit was about $180,000,000,000. (Since this article was originally written we've climbed up into the $450,000,000,000 per year trade deficit level.) This is not a one month or one year anomaly. The trade deficit process has been advancing consistently for the 20 or so years I have been watching it. At present rates, about a year from now, the accumulated stuff we will have bought will be about $3,000,000,000,000 more that what we have made and sold. If you look at the proportion of foreign-made products on store shelves, there is corroboration that this is happening.
At this point in the discussion some people are starting to squirm and feel defensive, and usually I will start to hear contorted theories concocted in defending against their fear. If there is some fear here, maybe it should be resolved by facing some realities instead of attempting to defend against them.
The fact is, it becomes apparent that we are importing increasingly enormous amounts of foreign goods, without the foreign countries buying anywhere near the same amount of our goods or anything else and are presuming the ability to do so endlessly. The financial manipulations underwriting this are not pertinent at this point. Unlike Milton Friedman thought, through fancy manipulation of money and artificialities in the monetary exchange system, we are importing enormous quantities of goods without exporting goods, in kind or equivalence, that have been manufactured in America --and without that money returning here to buy goods. American jobs are being displaced rather than sustained. It is a several trillion dollar empirical fact of life. To hell with word salad theories and arguments to the contrary. They are being contradicted by reality on the matter over a sustained period. We are not making over here what we are using over here, but are instead living off an obfuscated form of international welfare. In the event that some of that foreign money is invested in bonds or something similar, we end up paying continual increasing interest on what we buy, or don't export, or the work we don't do, depending how you look at it.
(The typical comment I get at this point will be from some jackass who pipes up to declare we are exporting obsolete jobs which are the equivalent of making buggy whips. Then it must be asked in return, we are importing trillions of dollars in buggy whips? The stuff we are importing and the jobs making it must not be so obsolete if we are paying billions and trillion of dollars to get our hands on it.
Sometimes all this produces embarrassing difficulties. Somewhere during the middle to late 60s a crusty old French leader by the name of Charles De Gaulle said, You've been buying our stuff. We haven't been buying your stuff and don't want it. Our banks have all these billions of dollar bills laying around that are useless to us. They are declared to be backed with gold in Fort Knox. We'll take the gold. We screamed, NO! because it would have wiped us out. But De Gaulle was right. Under a legitimate honorable free trade relationship, he was entitled to the gold. He challenged the validity of a concocted self-indulgent trade fantasy by asking us to actually pay for what we had been getting in hard currency. Had we paid the debt, Fort Knox would have been wiped out. Eventually we wormed our way out of paying our bills.
In desperation Japanese used their portion of the trade deficit money to buy American real estate and by 1992 owned one third of the prime commercial real estate in many major American cities while also producing 94% of consumer electronics used in America. This elicited hysterical indignation among Americans who realized they were shortly to be in the humiliating position of needing to rent America from Japanese. The result would have stabilized the Japanese economy. But, in response to American indignation, the Japanese retreated in confusion, taking a financial loss in their hurry to leave. In about 1988, Japan was producing about 28% of the automobiles used in America and was a few years away from putting Detroit out of business. The situation became so bitter that a bunch of auto workers beat a man of Japanese ancestry who worked for General Motors to death in a parking lot on sight. (Actually, Detroit was helping to put itself out of business. America had not kept up with Japanese engineering advances or quantity of engineering competence and quality. Americans had become complacent and thought Japanese automobiles would never sell here. When the Japanese began plans to sell automobiles in America I heard, "Toyota, it's a toy, get it? Geee Haw! Guffaw!" Well, Toyotas soon sold like hotcakes.) Americans complained bitterly until the Japanese put a voluntary cap on their imports. We drive the Japanese nuts with our deficiencies and complaints. Without investigating the matter through a step audit, it's possible to wonder if we are destroying the Japan economy by subverting it with useless dollars, then complaining about, or more often ridiculing, the way they run their economy. The truth is, we demand to run their economy for our own purposes. When the consequences are destructive to the Japanese economy, we blame and ridicule the Japanese. They are stuck with hundreds of billions of dollar bills while we practice a type of subtle free trader isolationism and protectionism that forbids their investing it here because in 15 years they would own America and we don't like it.
In summation, we do not allow rational resolution of Japanese economic problems if the process means inconvenience to our pride and our fantasies.
One of Japan's major problems is that it has little in the way of naturally occurring ores or other materials. Had the Japanese been allowed to continue with their real estate plans the profits could be used to purchase desperately needed raw materials that don't exist in Japan and their economy would not be in the trouble we gloat about today. At this point I'm not arguing that it would, or would not have been, good for Americans, but only that Americans have affected the Japanese economic condition, --in many cases quite detrimentally.
Basically, many Americans who mislabel themselves free traders are freeloaders. They want the benefits of a peculiar trade system without the legitimate consequences, or even admitting the consequences. Americans want to enjoy a type of international welfare system that allows them to receive without producing. We want to enjoy an educational system that produces and glorifies rarefied-mentality fops instead of the disciplined engineering caliber-minds necessary to make industries run. We like cheap goods that we aren't required to dirty our hands to produce. We like desk jobs in which our after-shave and ear rings are impressive keys to success. Why the hell do you think we went to college for God's sake?
The question then becomes, how is it possible to spend trillions of dollars over a sustained period while having the money accepted and with no expectation of having it returned for purchase of American industrial production? Much of it is by accident of historical happenstance. After world war two the industrial capacity of Europe lay in bombed-out rubble. The industrial capacities of Asia that were not destroyed were depleted or undeveloped. American industry was untouched, operating at high capacity, and capable of transferring from war-related products to consumer-related products. The result was, the dollar was unquestionably the only currency that would buy anything with any reliability because most industrial material of any significance being made in the world was being made in America. The world needed, and was dependent upon, dollars to do anything. The dollar was everything. The dollar became institutionalized as the mechanism of international trade.
By force of historical momentum, by unquestioned force of habit, and by institutionalization, the US dollar is used as an international currency. While foreign nations may not purchase products made in America, they can use dollars to buy products from each other. As long as the intrinsic value of the dollar is unquestioned and America exports just enough products to maintain some slight intrinsic value and belief in the dollar, this condition will continue. Indeed, the world monetary system is so dollar dependent in functioning that foreign nations and the world economic system are forced to support the dollar regardless of it's intrinsic worth in terms of American productivity and demand for American goods, or in spite of American foolishness indolence, or stupidity. In some ways the dollar may be regarded as similar to the English language.
So the American trade deficit is tolerated and absorbed into a pool of money circulated world wide that is used within itself --at least for the present.
The situation has become very complex. One attempt to deal with part of it is to make the dollar the official unit of exchange in both the North and South American continents. That way we can print money and use it to buy what we want.
The now three trillion dollar deficit figure doesn't explain everything. Artificialities in the international monetary exchange system come into play in other ways.
As a research engineer, the real thing, not an amateur, (now retired) in addition to knowing about electronics, physics, and chemistry, I must be competent to machine out complex and unique research or other equipment down to very precise tolerances. Therefore, my resume says "instrument grade machinist" and I am familiar with tooling and machinery. What I am about to say is not a commercial for anybody. It is fact, although there may be occasional anomalies.
Mainland Chinese tools and machinery are often very good, except for cosmetic details. Some of their machinery labeling occasionally tends to be crummy stick-on stuff that can be applied at the last moment depending upon which country and which language area the machinery has been sold to, or even which outlet it is sold to within a country. Occasionally, Chinese machinery castings are sometimes a little lighter than I wish, which makes machinery easier to ship over water, and such machinery should be what we call "indicated" under stress for precision work. (An old style Cincinnati horizontal mill weighs nearly as much as a Sherman tank and doesn't give under nearly any set of circumstances.) But, mating surfaces and functional details of Chinese hand tools tend to be excellent and well-designed. The electric motors on large Chinese machinery tend to be well-balanced and without work-affecting vibration. Chinese bearings tend to be good so that there is little bearing rumble or off-axis problems on machinery such as lathes and mills. Chinese are knowledgeable metallurgists so surfaces are correctly heat treated and/or hardened. A complete set of carbide-tipped Chinese micrometers for $39.00 will agree to within +-.0002 inches of an expensive set from other nations, which has its own variations. At that level you can't even hold anything in your hand to measure it because the heat from your fingers will change the dimension of the object beyond that range. Chinese are good engineers and are serious about what they do. Their stuff is useful and getting better. As a side comment, I have never found anything made in India that worked worth a damn and can be trusted.
There is a certain American manual vertical metal-working milling machine that has been a standard in America for decades. It's selling for $9,000, used, very used, on the internet. A Chinese copy, with added digital readout, sold new for $7,000 in a showroom the last time I looked. The actual cost of the mill applied to balance of trade figures might be listed at $5,500 at port of entry before American profits and costs in distribution are added on to make the final cost here. Its international trade price at port of entry is set at about $5,500 because the person or committee with authority over the state-owned factory that makes it said so.
In fact, the mill's initial real equivalent worth or effect upon the American monetary-industrial interactive circle may be two, three. or more times the $5,500. In other words, due to the rates of exchange and the set price in China, for the equivalent amount of money it would take to buy one new American mill, a buyer can obtain two or more Chinese mills while putting the Americans that would otherwise make those two machines out of work. From the standpoint of the effect on the interactive economic circle, the balance of trade deficit figures can be two or more times the stated dollar amount. The effect of trade upon an economy should not be evaluated only on the dollar cost of items transferred, but also upon the functional worth and functional equality of products. A hypothetical automated boring machine that could be purchased for a ridiculously low price of $1,000 may register on the balance of trade figures as only $1,000, but will have far greater real effect than that on the economy that purchases it.
Going back for clarification, returning to the hypothetical extreme case a few paragraphs above, the $500,000 trade deficit in the machinery import example wouldn't accurately describe what's happening. Neither does the real life present trade deficit of over $400,000,000,000 per year tell the entire story.
Sitting in front of me is a statistical analysis from an industry trade magazine, Modern Machine Shop --Metalworking Insiders Report. mmsonline.com for those who like engineering and machining. Partial quote:
'The World Machine-Tool Survey At A Glance
TOTAL WORLD OUTPUT $37-billion in 1997--
Best Machine-tool-trade balance: Japan, with trade surplus of $6-billion. Worst trade balance: USA with a deficit of $2.6-billion.'
Here are some figures on Machine Tool Trade Balance.
Country 1997 1996
Japan +$5.99bil +$6.24 bil
U. S. -2.6 bil -2.4 bil
China -1.3bil -2.27 bil
Country 1997 1996
Japan $6.7bil $6.96 bil
U. S. $1.2bil ; $1.29 bil
China $0.33bil $0.25 bil
(Worst trade balance: USA with a deficit of $2.6-billion. No, dear hearts. This isn't obsolete buggy whips. This is the basic tooling necessary to make American industry run.)
The Chinese are smart. They imported several pieces of every foreign model of top-grade equipment --accounting for their 1996 deficit. The greatest part of it will be used in manufacturing, including manufacturing Chinese-made duplicates of itself to be used internally as well as exported. Their machinery import levels are going down, while their exports are rising. In the next few years they will be exporting nearly exclusively with little need for American or other products in that area. At present trends, in 10 years the Japanese and Chinese will be the nearly exclusive producers in the machine industry while we will produce increasingly little here with collateral loss of employment. Our "world's largest" machinery trade deficit is heading toward total external dependence on foreign sources. (As I write this, I have just finished looking at one of my domestic wonderful genuine Milwaukee tools, which is very good. In fine print it says Made in China.)
Here are some recent figures in a partial summary. Cut and form refer to different types of tooling.
[2002 Consumption Survey] ---------------------------------------------
Machine-tool production (cutting and forming types) in millions of U.S. dollars
2001 (est.) 2000 (rev.)
Country Total Cut Form Total Cut Form
1. Japan 7,899.9 84% 16% 8,838.5 86% 14%
2. Germany 7,438.0 71% 29% 6,963.0 71% 29%
3. Italy 4,114.2 59% 41% 3,834.7 59% 41%
4. USA 2,945.3 74% 26% 3,544.5 71% 29%
5. China 2,623.0 72% 28% 2,197.0 71% 29%
The China figures here are for Chinese prices, not for comparable American prices for the same machinery. Consequently, they are artificially lower. As can be seen here, by the time you read this, China, a nation nearly in the industrial dark ages 25 years ago, will probably have pulled even with, or ahead of, the United States in production of industrial level metal working machinery, without taking account the non-equivalencies of pricing. Certainly within ten years, China will be completely independent of need for any imports of industrial machinery.
A lot of Chinese machinery is being utilized within their country and they are developing internal industrial capacity at an exponential rate.
As an aside, the rising tide of Chinese exports and industrial productivity threatens to destroy Japan. As mentioned earlier, Japan has almost no amount of indigenous raw materials. The Japanese economy is dependent upon trading engineering, industrial processing, and technology for raw materials. In instances, it processes raw materials into finished products, exports those products for sale, then uses the profits to buy and process more raw materials, and so on. Pert of the profits are used to buy raw materials to sustain the Japanese people. In the event cheaper, but decent quality, Chinese exports displace Japanese exports, Japan will crumble.
As a further aside, there is another important aspect that takes hold exponentially as a trade deficit develops. When we buy stuff from foreign markets for good reason, and people from other countries want to buy stuff, they will buy it from the same place we buy it and for the same reason. I can't go to China and sell them their own machinery. When a Honda or Toyota model automobile is a top selling car in America, I can't export it from America showrooms and sell it back to the Japanese or anybody else to remedy the trade imbalance.
This has been going on throughout numerous major industries in America. American industry is withering while we import increasing amounts of foreign goods, for practical purposes, for free, through international financial manipulation --not infrequently using slave or semi-slave labor. What is evolving is return to a more complex version of the Old South, with a new group of plantation owners who broker the process and with slave quarters hundreds or thousands of miles from our national boundaries and our pretty mansions.
Radical free trade and Marxism are not mutually exclusive positions. The radical free trader practices an arm's length relationship that does not require consistency or ideological commitment extending beyond himself and his trading partner or broader than momentary bargain. The political or social system producing the goods he is bargaining for may be of no interest to him. Neither are the long term effects of interest. It's possible to be a free trader who is a de facto agent for, and supporter of, socialist societies when it becomes profitable.
For some absurd reason, many people incorrectly labeling themselves free trade advocates argue that much of what has been described is free trade. It's not free trade. To put it bluntly, in many cases all we are doing is jerking people in other countries around. It's dishonest in that we are not producing or trading in kind or comparable worth. There is also a type of selective free trader brand of isolationalism and protectionism used to keep the French, Japanese, or whoever from owning or carrying off this country while allowing us to hide the fundamental incompetence and dishonesty in our part of the process. Something is not trade unless you are paying for what you are getting, or willing to accept the consequences of what you are doing. In many cases what is being done is antithetical to the principles of a free society because what has been done is to achieve indirect license to exploit slavery.
Despite stop-gap measures and robbing Peter to pay Paul pyramid schemes, regardless of what inane arguments we make up to blind ourselves to realities, the day will come when we will be unable to, and perhaps even now have no real honest intention of, legitimately paying for what we are getting. Parts of the arguments for what we are doing remind me of Bill Clinton's distortedly evasive and dishonest, but technically legal, court and jury testimony. There is a system here where there is expectation to have trillions of dollars of goods endlessly sent to America without shipping anything equivalent back. While it is technically financially legal, the rest of the world can not, and should not, support us in a life of industrial ease and obliviousness forever.
There are attempts to avoid the trade deficit problem by arguing that the deficit doesn't exist, or has no effect. In economic discussions with people who attempt to dismiss the importance of the trade deficit and its effects I am often hit with the argument, "I have a 100% trade deficit with my local grocer. Har, har, har!" This is a bit of witty repartee, but it is seriously superficial and dangerous.
In analyzing system functioning and final effects, a portion too small for analysis can not be used to represent the system in it's entirety. In this argument the analysis is far too restricted and lacking in attention to subsequent events. It analyzes a single step which is attempted to be substituted for an entire sequence or cycle of events.
From an overly restricted point of view, I do have a momentary trade deficit with my grocer. But that boundary of interaction does not come close to describing what happens within the greater system of the economic interactive circle. Suppose I am an auto mechanic and I spend money at the local supermarket. Part of the money I spend is paid to the checkout clerk there. Suppose the checkout clerk then goes to a dentist. Is it not possible that the dentist will come to me wanting his automobile fixed? If not the dentist, could it not be someone else further along the line?
The point is, my immediate so-called trade deficit with the supermarket is an economic transaction that reaches far beyond the artificial rhetorical confines of that statement. It is an initial step that enters the money I spend into supporting a larger swirling monetary economic pool where the money is combined and mixed with further series of complex economic interactions which result in a return of money into my business through an indirect course. It can be called indirect reciprocation. The buying of goods from foreign nations and the permanent transfer of funds of payment to those nations under continuing deficit conditions does not result in the transferred funds returning to me through my business. This is where a serious and competent analysis should lead.
There is a certain polarized system of economic thinking that has led to denial and irrationality. Within this is a panicked desperately held view that all forms of trade are anti-Marxist and that any criticism of unlimited unreasoned buying or selling is socialism. But, what some people call free trade can be Marxism, can support Marxism, and destroy the free enterprise system. The same person who declares himself adamantly against a something-far-nothing lazy welfare-recipient mentality domestically, can have few reservations about slyly demanding it for America internationally while doctoring it up with complex evasion and mystification.
Aside from that, the internal consequences here are becoming difficult. While large portions of the population, including those adversely affected, want something for nothing, and may even be getting it for the moment, it's destroying the economy as a whole, long term, and slowly degrading increasing proportions of the population as individuals when they are displaced into lower employment levels in this process. Last year we deleted another 355,000 high-quality domestic manufacturing jobs to accommodate this. The average American has lost about 13% of their income/buying power in the last 20-25 years as the quality of employment has decreased and more people move to lower quality positions. But it doesn't make any difference as long as the people responsible can still play the stock market. The unaffected are also the people who typically write economic analysis.
To talk about the economic gap between the rich and the poor is to receive accusation of being a Marxist in promoting a view of class envy and class struggle. However, there are some realities here that must be examined not only for the good of political stability, but for the survival of the economy. What is occurring is two separate economies. The first or top economy is made up of people who broker economic deterioration or who have yet to be affected by such deterioration. The second economy is people on the lower economic levels who are looked upon as distensible and are being displaced.
The lower and middle classes who are taking a beating are without political representation. The Democratic party, which once was the party of labor, has long since been taken over by radicals and become focused upon countercultural issues such as homosexuality and abortion. Its economic views are essentially Marxist or paramarxist that would enjoy seeing the free enterprise economy, and workers along with it, fail, in order to validate their philosophy. The Republican party now lives in another galaxy which occasionally sends bland gutless brainless visitors to this world who are aimlessly unaware of anything. None of this relates to the real economic world. The percentage of voter turnout hovers at all time low levels because there is nobody to vote for who relates to reality.
Again, there is what the people who are presently happily in the monetary-industrial interactive circle at the moment say. There is what the people presently languishing outside the circle at the moment say. (Whether or not people are getting hurt determines their view of economic theories.) The people brokering this system, and those not yet affected by it, shout its praises. But there is indication that, while there is supposedly high percentage of employment, an increasing proportion of American people are being displaced into marginal subsistence jobs. Depending upon who you talk to, you get emphasis on different statistics. Whenever I want to talk about long term consequences and the real condition of the economy, others want to dance around like cheerleaders or pom pom girls for the stock market or the supposed employment rate. Of course, that's nothing new. For 35 years when I have tried to talk to anybody about long term costs instead of the short term fun regarding anything, the conversation is circumvented.
Periodically one stumbles onto a phrase or occurrence that precipitates a thought so profound that it becomes a governing principle for the remainder of one's life. One of these was precipitated by, of all places, an old Star Trek episode. In the episode Captain Kirk was being approached by an alien space ship. He had found out that the chemistry between humans and those particular aliens was mutually toxic. Kirk sent an urgent message to the captain of the alien space craft. "Contact between our life forms is lethal."
And so it is that economic trade between certain economies or societies with widely differing levels of economic development or widely differing theoretical basis, no matter how well intentioned, no matter how well supported by narrow abstract theoretical moral principle, no matter how profitable it might be to some, is destructive to one or both economies. The principle of lethality should be recognized as a prime over-riding moral and economic principle.
In conjunction with international trade issues there has been development of mystical buzz phrases such as world economy, global economy, or that we are in an interdependent global economy. These make up part of the compendium of blind-alley abstractions, blind-alley generalities, or blind-alley thinking which has arisen in this country and elsewhere. Blind alley thinking is a pattern of analysis which proceeds to some arbitrary point and stops short of completeness for some reason. That reason may be impatience with the analytical process, inadequate free time, inadequate intellectual capacity, or insincerity in attempt to discover truth.
On the average, new jobs and economic expansion are not created by honest real economic trade with developed foreign countries. The idea of finding new markets for our products, i. e. that we can simply go to foreign countries and sell goods indefinitely, thereby expanding American industry infinitely, violates basic economic principles. In order to sell goods in foreign countries, they supposedly must have money. They get that money by selling us goods. If we sell a Chevrolet in Germany, they need to sell a Volkswagen here to get the money to pay for the Chevrolet. Any earnings or work created here by sending the Chevrolet to Germany are canceled by the money and work exported to Germany for the Volkswagen. In an honest trade what is achieved is a cancellation, not an economic miracle--or an economic interdependence except under special circumstances.
New jobs and industries occur through development of new kinds of products and services or by expanding production of existing products where those products are in limited supply and when people have money to buy them. Most industrialized countries produce nearly the same products in the same proportions as we do here. We are not answering any critical economic deficiency on their part by offering economic trade to them for the same products they already manufacture. If comparable effort and costs go into fabricating products, in an honest and just world the prices should be equal.
Economic interdependence does not hold up under detailed analysis. The fact is, in a true free trade situation, if all Europe were to sink into the water tomorrow morning, while it might be an inconvenience to the Europeans, it would not seriously affect our economy. We would just buy the equivalent here of what we are arbitrarily buying there, and go on about our business in Cadillacs instead of BMWs. The American economy expanded at an excellent rate before we imported millions of foreign automobiles and before we became intrigued with exports.
The idea of interdependence must be amended slightly. South Africa has certain mineral deposits of a quantity and quality unavailable elsewhere in the world that are essential to high speed cutting and stainless alloys. Japan does not have raw materials in enough quantity to support an industrial economy there, and is hence dependent upon outside sources and trade. Japan is dependent upon trading engineering and labor for raw materials. There also may be pockets of specialized production and expertise in various countries which it would not be profitable to duplicate. A truly advanced economy requires an adult population somewhere in the order of 25 to 35 million adults to furnish the diversity and depth of specialization necessary for full technological industrialization. Small countries are therefore necessarily externally dependent unless they are to remain at a basic primitive agricultural level of development. In such cases they would do well to form small common trade zones with unified currencies and vestigial national borders. In that sense they are interdependent.
A number of political, romantic, and narcissistic factors surround the trade issue and the NAFTA issue and the multinational issue. Not the least of these is that so-called free international trade, as it now is defined, can be the tool or ultimate implementation of Marxism/paramarxism.
Most of us who have attended liberal colleges have occasionally dealt with professors who believe society should be reordered upon pet theories which they hold and which they feel only those of exceptionally enlightened intellect such as themselves have the capacity to understand and implement. Furthermore, the demonstrated incapacity of lower members of society to understand and accept, constitutes, in their mind, necessity and right to impose that reordering by whatever methods required. The concept is adequately demonstrated in, but not limited to, the university environment.
In the classic political novel/commentary Brave New World, the direction of society rested exclusively with a small group of world controllers who were of the intellectually elite class structure. There are many in real life who are of the belief that they are of an intellectual elite and would be world controllers.
No lack of political or personal ambition exists anywhere in this world. Times for presidential elections in this country have never wanted for candidates. Wars have been fought and whole empires have risen or fallen because of ambition. Ambition may be combined with ideological belief, and depending upon the individual and the ideology the best or worst of both worlds may be obtained.
There are people who have a grandiose world view. That view is grandiose to the point of approaching the borderline of pathology. The grandiosity of their world consciousness is so expansive that it occludes or de-prioritizes their awareness or capacity to deal with the real world around them. Indeed, some of them seem to have lacked that real-world capacity from the beginning. These are people who see THE BIG PICTURE. They are marching to a different distant drumbeat. But, their eyes are psychically unfocused to present realities to the point of blindness by focus upon distant visions.
One-world socialists are of this mentality and they are numerous. One-world socialism is spiritually and intellectually akin to American liberalism, and to the newly coined globalism.
There is, underwriting some of this, a romanticized vision of a new world order--a glorious unified world under a unified world leadership--a world without the petty nationalistic fragmentations or economic differences that lead to wars--a world united in social and economic harmony. The lion and the lamb shall lie down together under a unified world philosophy. There are people who wax almost orgasmic when talking about it. There is also a tantalizing temptation to go down forever in history books beside names such as Caesar and Alexander as the visionary architect of world unification. (This particular set of paragraphs was originally written some years before the phrase New World Order became common to either American politics or professional wrestling.)
Attainment of this goal in the minds of some would require the strategic preparatory sacrifice of bringing an economic parity between the advanced and poor nations so as to facilitate the transition through economic homogeneity. That is interpreted as meaning the sacrificing of the American economic condition to make the eventual economic averaging under world unity with what are now poorer nations less abrupt. That is the assertion I have been given in private conversations and arguments with people of such mentality since the early-to-mid sixties. The nobility of the end justifies American sacrifice. Parenthetically, it should be noticed that those calling for sacrifice are usually not the ones being called upon to experience it. For others, it is viewed as an exercise in masochistic nobility. One way of accomplishing this is through practicing a type of destructive form of free trade which either benefits or leads to Marxism or paramarxism over the long term.
The psychology of this is complex. There are people who seek a destructive outcome so as to be able to attribute personal unhappiness to that outcome rather than examine the real reasons for that unhappiness. As it happens, just before the final review of this paragraph I happened upon a quote of a very astute statement made by Ronald Reagan in 1951. He said if you scratch a communist, particularly an intellectual one, you find a neurotic. "These people might otherwise have gone in for a phoney religion to ease their personal pressures. For them, communism filled a need. It let them blame their failures on something besides their own inabilities." The phenomena extends beyond the communism of the period and into the paramarxism and liberalism of the present. Reagan's brilliant perception can be broadened to include the first two sentences of this paragraph. There is also simple hostility. Beneath the glittering generalities there is a seething hatred of individuality and of nonconformity to mediocrity. The sincerity and nobility of masochism has become a powerful force in recent decades. However, the psychological aspects are a distraction from what is intended here to be primarily an economic/political paper.
Make no mistake about it, these people are real and they are absolutely serious. It is being taught in universities as gospel not to be contradicted. Courses of study are built around grading and certification based upon having assimilated it. I have been arguing with, and fighting them, for nearly 40 years. They believe decline of the American economy is a small price to pay for the attainment of world peace and economic justice. Even a century or two of economic suffering transition is supposedly worth the social advancement of mankind. However, those who are out of jobs in the middle of all this idealism may be justifiably less than ecstatic.
Collateral arguments have been encoded into various forms. I can't count how many times I have heard the declaration that the United States, with only five or so percent of the world's population, uses forty or whatever percent of the world's resources. Choose your own numbers. The figures and facts quoted in the assertions are correct. The conclusion derived from them is incorrect. The assertion then becomes that the United States economy should be reduced in scale so as to use only a percent of world resources in proportion to its population. (There is no consideration of the possibility that in employment of natural resources, creativity is the true resource, or that a country develops, develops not just uses, resources in proportion to its creativity and vitality, not its population. The Arab world is loaded with sand (glass) containing silicon. However, they don't make transistors or fiberglass or optics. They have oil, but produce no nylon or PVC. The base ores for aluminum and titanium were considered unusable nuisances not too many years ago.)
Those who plan this world of economic equality see no need to burden the people of this country with a vision of the future they would be incapable of understanding. Indeed, those who are among the elite believe the people other than themselves should be disqualified from rejecting or knowing what is happening. Understanding and acceptance will come after successful imposition. This parallel attitude is readily seen in justification of pathological content in the arts and media which it is felt those of us who are intellectually inferior are unequipped to understand or criticize, and it is equally employable in the political or economic arena.
As I originally wrote this particular passage, President Clinton was negotiating expanded free trade with the mainland Chinese. Negotiating is not the proper word. That there was negotiation was a pretense and a deception. While there may have been some outward show of toughness and grumbling, Clinton wanted to do it or he wouldn't have invited the Chinese premier to come here. And for China it's like dying and going to heaven. It's going to tear hell out of this economy and this country for reasons already explained, and the Chinese know it. Given the pattern of destructiveness seen in everything else Clinton did, Clinton, even at his feeble intelligence level, also probably knew it. When the agreement is concluded, we will remedy the past deficiencies of an adversary, and create a mighty ideological and military opponent who even now is testing long range missiles. (Please notice the same people who are adamantly in favor of gun control over here do not apply the same logic to Marxist missile development.) The image of world socialism will be enhanced and looked upon as successful, while the chaos here will produce dissatisfaction and doubts about the validity of individual free enterprise. The world leftist movement will be reinvigorated by socialist economic success in Asia. It will represent a triumph of 60s left wing political radicalism and destructiveness. Our Judas goat will be the opportunity for a few people to get rich brokering it, and a desire to get something momentarily cheap or for free.
Will there be a new world order?
Presuming mankind survives, it is possible that three hundred years from now either a much stronger world government or deemphasized national boundaries and identities, as well as increased economic and social interaction among various areas of the planet will exist. It is quite probable that only two or three languages will survive prevalence of usage in the pressures of communication process inherent in international interaction.
But the condition of parity with less developed nations, if it is to be either desirable or a necessity, would be best achieved through independent development of those nations by the same means that America developed. That insures that those nations develop rational societies. The condition of parity and understanding should be achieved by development of rational and free productive societies there, not through self-flagellating decline here. Self-flagellating decline may be argued as being a demonstration of sincerity in our desire to participate in the world community, and there should be little doubt that there will be other nations or despots, as well as pockets of freeloaders, eager to volunteer to aid us in attaining that condition of decline. However, the greater burden of proof of sincerity rests upon those nations whose unreasoned cultures, unreasoned ideologies, and unreasoned leadership have placed them, or kept them, in the condition they are in. Weakening or destruction of this society to bring it into social and economic conformation signals that what is being conformed to, and the end result, will be an irrational or oppressive condition. An oppressive world condition, or world irrationality, just for the sake of saying we have attained world unity, does not represent betterment for mankind.
The view in our international political lives should be the same as a healthy attitude in our personal lives. Those who demand compliance to their irrationality and corruption should be avoided and left to suffer their own consequences. If they do not like those consequences, it is their responsibility to change, not the responsibility of the rest of the world to comply with, or support, their irrationality in the hope that such irrationality and corruption will disappear if coddled and fed.
In a rational and uncorrupt world, an authoritative world order is either not a necessity or need be only rudimentary. In a world where such an order is argued to be necessary to deal with evil and corruption, to the same extent that such an order is necessary, it is also to be regarded suspiciously because of the requirement of incorporating and giving power to the very mentalities that make it necessary.
What is of concern about people of vision, about people who see the overall BIG picture, about would-be world controllers, about people who encourage irrationality in the population in pursuit of political ambition, and about an entire spectrum of similar people; is that they possess a remarkable knack for being undisturbed about the fact that the rest of us must go on living in this country after they are done messing around with it.
Can we compete with other countries? In many cases clearly not. My mandatory automobile insurance and costs of traveling to work are equal to the yearly salary of engineers and other people in some other countries. In the early '90s there were newspaper reports that Borg-Warner and Jeep were having transmissions made in China. For practical purposes that was slave labor. What the workers there were ending up with was a bicycle, blue state uniforms and a reeducation program if they expressed any reservations. We should not expect workers here to compete with those wages or those conditions unless it is the intention to set up that kind of state in America. I didn't see Lee Iacocca trading his house, his salary and his position for a bicycle and a socialist workers cap and uniform. His annual salary was somewhere in the order of $20,000,000 per year for his share of the economic downgrade and suffering. At those prices and that level of brilliance it's easy to say to hell with this country and to hell with jobs here.
We're making some strange arrangements in our trade agreements. Several years ago Boeing aircraft was training and utilizing Japanese engineers to construct a major aircraft, many parts of which were to be manufactured in China. Then who needs Boeing, who needs America, and who needs American workers? It wasn't very good news for Boeing engineers and workers.
That was a few years back. Here are extracts from a more recent report in The News Tribune (Tacoma) 02/07/02 by John Gillie, with my comments.
Alan Mulally, president of Boeing Commercial Airplanes Group gave a speech before The News Tribune editorial board that sounded like a paraphrasing of '60s college leftist radicals demands combined with a touch of manic word salad. Not all of it will be repeated here. His main points were:
"---Boeing can't act like British colonialists extracting wealth from other countries and exporting it all back home."
"...the United States has no divine right to our standard of living,"
Note: Apparently this self-impressed fop has neither understanding nor interest in the reality that the standard of living he dismisses with what seems like vindictive contempt is what created Boeing by creating the market for airline travel and, consequently, need for Boeing aircraft, and it is necessary for continuation of existence of Boeing Aircraft. People with lowered standards of living are not going to buy tickets to travel on Boeing airplanes. Neither will people moved up into marginal standards of living do so. If the standard of living deteriorates, Boeing goes down with it.
The airlines, and Boeing, will have customers only so long as the standard of living supports it. This is also true with every other industry in the United States. It's hard to believe an idiot like this could ever be hired for anything requiring responsibility, let alone become a high level executive, in a reputable American corporation. Boeing has gone nuts. There are more like Mulally and more like Boing.
"---the new, more global Boeing Co. (will) share its work and its wealth with workers around the world."
---with 70 percent of Boeing's commercial airplanes sold to airlines operating outside the United States, Boeing has an obligation to build parts of its aircraft overseas.
Note: If people in other nations decide to purchase airplanes for their own purposes, why does that entail further obligation? The assumption should be made that they are competent enough to profit from the purchase. They are receiving the aircraft enabling them to form and maintain an industry in those nations. In the event cities in those nations are serviced by American airlines, the collateral facilities and personnel required will stimulate an economy within those nations.
---The Boeing executive said the company wants to concentrate on what it does best: design, sales, marketing and large-scale integration of complex products.
"---Very few people in the world can build an airplane and make it safe. So the most important thing that we do is product development, sales, marketing, new airplanes, new services and taking care of our customers." (How does the first sentence relate to the second? This man is functionally incoherent, but in a world of deteriorated mental functioning, coherence is no longer necessary as long as one just continues talking.)
---Mulally said doing what the company does best may well mean farming out more parts production elsewhere.
Note: Whatever happened to the important word "manufacturing?" When one puts these three paragraphs together it's seen that what is being re-formed is essentially a downgraded company and an industry being gutted into becoming an empty shell with a clique of executives making money through shuffling around work and products done on plantations in other nations. "Very few people in the world can build an airplane and make it safe." Yes, and soon Boeing will no longer be one of them. And neither will America. These people aren't building airplanes or anything else. They are basically a breed of incompetent useless bullshitters who don't want responsibility for serious concrete production, who have found a place to hide and are making quick profits from destroying the economy needed to maintain the company. The bullcrap part of the business will be kept here while substance will be let go. This entire nation is on the way to being gutted of substance.
---"We just operate everywhere," he said. "We need to include everybody around the world in the asset utilization. They buy our products and pay up. We can't just extract wealth from other countries and pay ourselves."
Note: Now we should ask, does this mean Mulally, in his altruism and social consciousness, is not going to extract a huge salary from the work of lesser paid workers in other areas of the world? Of course he is. He's not sharing anything. Eventually, even the Boeing stockholders won't have anything as the foreign organizations find they no longer need to pay off fops at Boeing to build airplanes. This clown reminds me of Bill Clinton. He has nothing of substance to contribute to anything. He's a fast talker who speaks in a word salad language. He leaves a trail of confused destruction. If we had an immature psychopathic president for eight years, we might as well have the same characteristics in our corporate executives. That's what we are getting.
It's my opinion Mulally basically lacks the personal competence and guts to manufacture aircraft in the United States and has created a place to hide by diverting the task from building aircraft to fulfillment of social dialogue and visions.
---Mulally in September (of 2001) said the company would lay off about 30,000 workers because of the after effects of the Sept. 11 terrorist attacks.
Note: The September announcement was quickly and enthusiastically made before there were after-effects. The Sept. 11 terrorist attacks were seized upon as an excuse and rationalization for what had been happening and what had been planned anyway. Of those due to lose their jobs, Mulally was, unfortunately, rather certain he would not be one of them. If Mulally and those like him have their way, what the do to the economy of this nation will be more destructive than the terrorist attacks. It is so stated in his stern declaration "...the United States has no divine right to our standard of living," and what seems an obvious punitive attempt to lower that standard of living. There has ascended into some of the corporations of this nation a perverse mentality that seems to be determined to inflict what will ultimately be far more destruction upon America than that imposed by the terrorists.
---At the meeting Mulally said he hopes Boeing's layoffs are nearly done. The company has laid off or issued warning notices to more than 28,000 workers.
Note: The impression given by Mulally's statements is one of preaching some kind of quasi-religious and/or ideological crusade into which he incorporates diffuse hatred of the industrialized world, particularly America, and wants to humiliate and punish America for what are interpreted as it's sins. This should make him the center of attention and importance at trendy cocktail parties. Hatred of this nation has become a self-hatred which has worked its way into the top levels of American corporate structure. (This contempt for the American economy might well be supported by their knowledge that the system will pay them in their incompetence. The typical confidence man loses respect for, and gains contempt for, his victims because they are stupid enough to believe him.) That move and view has become fashionable. If Nothing else, Mulally appears to be almost orgasmically fashionable. It is unfortunate that corporation executives have been programmed with a guilt such that they now hate the system which made their positions possible. They have also been programed with an intent. The educational systems are no longer turning out people with executive capacity, but are turning out self-hating and America-hating personnel designed to systematically subvert or destroy the nation.
Among men of intelligence and stature there is a morality more serious and consequential than the blind Phil Donahue type writhing over the condition of other nations which I find is often substituted for other responsibilities and capacities in life. That more serious morality encompasses perpetuating a rational society. That rationality and effort, at least when it existed in the past, is why America once built aircraft. That is why other nations came to Americans for aircraft. Nobody forced them to do it, or exploited them to do it. The lag in rationality and effort within those cultures is why other nations did not make aircraft.
There was once a time when executives were expected to be intelligent and to produce products. Now we are seeing increasing numbers of executives who just preach diffuse social consciousness used to obscure the process of making millions while barely functioning to produce products and destroying the economy of the nation.
People such as Mulally know what they are doing. When they declare a nation has no right to a standard of living they are telling people what's being done to them and what they are going to end up with under the new system of economics to the point of ridiculing the American people while they are being destroyed. The typical American has been beaten down for so long as to be almost schizophrenically unreactive and take it, or not be able to believe what's being done to hum. The new economics and those who would impose it are committed to equalizing and redistributing the wealth, industrial assets of the United States on the backs of workers and the economy while making huge salaries doing it. They intend to do so from a position of distance and safety from the consequences and actions. Is Mulally going to take a large drop in income or experience any other painful consequences as a result of this?
Further Note: Colonialism? Colonialism? Manufacturing an airplane in the United States with American workers is colonialism? Mulally is plain flat earth leftist radical nuts. Under the colonial system other nations were occupied by force of arms and subsequently administered by outside governments. Nobody is forcing outside nations to come to the United States to buy airplanes.
If this nation, by result of it's culture and economic system produces airplanes, It is no other nation's business.
If people in the United States are not entitled to a standard of living, then people in other countries are no more entitled to a proportion of the standard of living once created by this country and are not entitled to have that standard disassembled and redistributed around the world.
The Mulallys of this nation are going to produce an economic degradation. and a recession or worse that will affect everybody except themselves and those like them while they become rich and feel like superior grandiose social architects. He's chanting some kind of global socialism equality sermon while doing it.
End of Boring Article and author's Specific Discussion.
Corporation executives, descendants of Karl Marx, Kofi Annan, Bill Clinton, and George Bush are all saying close to the same thing and seem to take some sort of perverse delight in sacrificing the United States to the remainder of the world. As part of this, what is arising is a new breed of mentally dysfunctional and twisted corporation executives, some of whom exhibit passive-aggressive thought patterns wherein the release hostility and destruction upon American society in an indirect and rationalized manner.
So, we are now in the position of importing a trillion dollars worth of products every few years and paying for it with money that isn't used to buy anything here--and we have been doing it at increasing levels for years as part of the Global Economy. If this continues to work, there is no reason why we can't ship all jobs out of the country, import everything we use, and pay for it all with money not used to buy anything here. Presumably we could then all become intellectuals, super sales executives, and paper pushing mediocrities. That's just for the people still employed. What do you want to bet there is something wrong in this system of reasoning.
The American economy and standard of living can not survive this. There are great numbers of people here who seem to have been programmed to take a perverse satisfaction in the destruction.
Wait a second! You mean to tell me that the statement, "[t]he North was jealous of Southern prosperity..." is either a myth or propaganda?
250 years ago, about 95% of the human race was engaged in agriculture. Then came the Industrial Revolution, steam-power, followed by the internal-combustion engine. By the late 20th Century, less than 5% of the population was growing the food for the other 95%. It came about because a skilled farmer with tractors, combines, etc could out-produce an army of peasants
We are on the edge of another fundamental transformation. At the moment, semi-skilled Chinese workers are cheaper than semi-skilled American labor. Within ten years, computer-controlled robotic machinery will be cheaper than even semi-skilled slave-labor Third-world workers. In that environment, the only people in a position to create value will be engineers and designers
Question: Just who do you think will constitute the majority of these "engineers and designers?" I tend to agree with you, that's why I ask.
All throughout undergrad and graduate school, we were inundated with foreign students in the field. While discussing majors with others, I always got the "crazy" look from my peers be they black or white Americans when I stated mine.
Sad to say, but I always felt "out of place" when I attended class. Go figure.
This is an offshoot of a comprehensive course at the graduate level or above which now euns about 1,000 pages and at times touchs on economics. The series has been running at zolatimes2.com for nearly four years. About 40% of my readers are M. D.s or Ph.D.s. There is another 30-50 page paper that goes with this, but which isn't on paper yet. It isn't easy reading.
This particular paper is at odds with my editor's economic views, so I am constructing my own web site to archive it.
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