| Home | My photos | Forex | My trading | Contacts |
|
|
You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
|
So there was delicious irony for the free market economist in the implosion of the primary Marxist system under the weight of its own egregious economic mismanagementLAISSEZ FAIRE AND OUR PRESENT INTERESTS At first sight, the spectacular collapse of the centrally planned economy of the U.S.S.R. appeared to decisively validate laissez faire. Marxist economic theory occupied the opposite end of the interference spectrum, micro-management of the economy by the central government. Marx had argued that laissez faire capitalism is inherently unstable and must eventually generate conditions that insure its collapse. So there was delicious irony for the free market economist in the implosion of the primary Marxist system under the weight of its own egregious economic mismanagement. Conveniently, this apparent validation of laissez faire justified our selfinterest. It dovetailed with two concerns, pointing in different directions. One was to maintain our dominance. The other was to encourage the rapid economic growth of our allies to serve as a bulwark against the spread of communism. The former interest was best served by a flat playing field on which the consistent winner should be the player with the best technology and the greatest economic strength. Our trading partners would have a chance only if their governments tilted the playing field: imposing tariffs, controlling the export of capital, subsidizing fledgling manufacturers. Such conflicting interest between dominant and secondary economic powers is not new. For centuries the dominant economic and financial power would advocate a level playing field while developing countries would impose tariffs to protect their start-up industries. “Except perhaps for Holland any European state would serve as an example, including England, where industry originally developed behind a wall of highly protective tariffs.” (Braudel, The Wheels of Commerce, p. 332.) We now preach laissez faire and flat playing fields and complain that the Japanese ignore our wisdom. Yet throughout the 1800s we ourselves adopted protectionist policies, initially to enable our domestic industries to grow without being crushed by the superior technology and financial resources of the British. Our relationship to Britain in the nineteenth century resembled Japan’s relationship to us at the end of World War II. In the 1800s, the British enjoyed an economic and technological hegemony similar to our own at the end of the Second World War. They were the ones who had everything to gain from government non-interference. It was they who preached the virtues of a flat playing field, just as we do today. We ignored them, sheltering our domestic manufacturers from British competition. We became enamored of free trade only after we achieved economic dominance. In the seventeenth and early eighteenth centuries the Dutch were the dominant commercial power. They were the ones who had everything to gain from government non-interference. It was they who advocated a flat economic playing field. In the 1690s it was the English who ignored them, imposing heavy duties on Dutch textiles. The English became enamored of free trade only after they achieved economic dominance. Just as the English rejected the laissez faire wisdom of the Dutch in the late seventeenth century and just as we rejected the same laissez faire wisdom of the English in the nineteenth century, it is not surprising that our trading partners should reject our identical wisdom. Nor have we been fazed by such rejection. Our muted reaction to the protectionist policies of our allies was motivated by our latter interest, the desire to protect them — and ultimately ourselves — from the spread of communism. It was to our advantage to have our allies develop sound and growing economies, even if it was partly at our expense. Increasing prosperity would enable them to resist the lure of communism. This self-interest encouraged us to act as though our international economic policy were a passive extension of the Marshall Plan. We turned a blind eye to the protectionist policies and government subsidies of our trading partners and a deaf ear to the complaints of our own industries that suffered as a result. It is not that our policies were necessarily misguided. Rather, we deceived ourselves by failing to understand our own motivation. We ignored historical precedents and pretended that laissez faire is the only realistic alternative to communism. We assumed that our trading partners, left to their own devices, would eventually see the light and level the playing field. We elevated the claim that there are no realistic alternatives to laissez faire to the status of dogma. Reality differs markedly from this dogma. There are other economic paradigms. Keynes produced a real alternative to classical economics, not just minor adjustments. He argued that the propensity to save increases as income rises. Because not all savings are reinvested, the economy can become starved for cash. This leads to a decline in demand that feeds on itself. As industries cut production and lay off workers in response to slower sales, those workers, and others who feel threatened, curtail spending. Demand decreases further and companies, faced with growing inventories, cut production again and lay off more workers. Those workers now reduce their spending. The economy spirals downward. Keynes argued if the economy is performing poorly it is up to government, through monetary and fiscal stimulus, to increase total demand. His recommendations appeared to be validated by our economic performance from The New Deal until the inflationary 1970s. A very different departure from laissez faire was suggested by nineteenth century Austrian economist Friedrich List. Influenced by Hegel, he regarded the state as the supreme entity and one that by its very nature must be engaged in Darwinian competition with other states. List was unimpressed with the laissez faire goal of maximizing total consumption. Rather, he argued, the economic strength of a country — what it can produce — must be its most important consideration. Given the overriding importance of strategic production, it would be imprudent to relinquish economic independence, even if one had to support industries that are uneconomic. Economic independence, and even dominance, could be best secured by protectionism plus heavy government investment in infrastructure and education. Even though they have received little attention from our economists, List’s views are taken seriously by our trading partners, especially those of South and East Asia. Historians, too, have been struck by their propriety. “The world was the City of London’s oyster, which was all very well in peacetime, but what would be the situation if it ever came to another Great Power war?... In such circumstances, ironically, the advanced British economy might be more severely hurt than a state which was less ‘mature’ but also less dependent on international trade and finance.” (Kennedy, The Rise and Decline of the Great Powers, p. 157-8.) List would have understood Kennedy’s remarks. He faulted elevating consumption and short-term profitability above other considerations because it sacrifices long-term health and security. Even today, laissez faire has no regard for security. Consider our privatization of U.S. Enrichment Corporation (USEC), the agency responsible for enriching the U-235 content of uranium from 0.7% in natural uranium to 4% in nuclear reactor fuel — or 95% in nuclear weapons. As a public corporation, USEC’s primary mandate is to maximize profits. Suppose a terrorist organization were to offer to pay USEC a premium for weapons-grade uranium. Would a refusal by USEC be a violation of its primary mandate and its fiduciary duty to shareholders? This question is not far fetched. There is a serious risk of fissionable material leaking out from Russia to rogue states or terrorist groups. With fraying central control in Russia, the more of this lethal material that remains there, the higher the chance of leakage. USEC was made the sole agent for the uranium deal and given the exclusive right to import the material from Russia. The reason this unusual monopoly power was granted was that this government-owned firm, acting in the interests of national security, would ensure the most rapid import of the material. Instead, it has systematically dragged its feet, especially as it prepared for privatization. It was not in USEC’s financial interest to import the Russian uranium as quickly as possible, because buying Russian fuel is more expensive than producing it in the U.S. I learned, in the summer of 1996, that my concerns were well-founded. Russia had offered to increase its pace of delivery by 50%, only to be turned down by USEC. Instead, the organization paid Moscow a large sum not to make the additional deliveries. It also insisted the Russians keep the agreement secret — even from those of us on the decision-making committee in the White House…” (J. Stiglitz, The Wall Street Journal, June 2, 1996.) The reason for this behavior is that enriching natural uranium is more profitable than de-enriching weapons-grade uranium. From the perspective of laissez faire, USEC’s actions were appropriate. It would have been economically irrational for them to do otherwise. Yet it takes dangerously naïve faith to believe that such action, which may contribute to nuclear proliferation, is good for our country, much less the world. |
|
|||||||||||||||
Previous Issues
|
| ©2007 Olesia | Home • My photos • Forex • News • My trading • Contacts |