Mr. Sachs, Mr Keynes. Oh, you've met already

    By Flavius on Thu, 08/18/2011 - 3:26pm |

    The New Yorker

    I fondly remember a cartoon a decade ago. A blackboard full of equations.  Two elderly physicists. One, pointing at a spot on the board., which says “then a miracle occurs”.

     

    The Financial Times

     Aug 18 2011

    Jeffrey Sachs

     …….. No need to blame the rating agencies: governments.. have been unable to cope with the realities of global capital markets and competition from Asia…

    I’ve watched dozens of financial crises up close, and know that success means showing the public a way out that is bold, technically sound and built on social values…leadership is failing. on all counts. Neither  the US nor Europe has even properly diagnosed the core problem, namely that both regions are being whipsawed by globalization.

    Jobs for low-skilled workers in manufacturing and new investments in large swaths of industry have been lost to international  competition. Employment …..during the 2000s was held up only by housing construction stoked by low interest rates and reckless deregulation until. the bubble collapsed. The path to recovery now lies not in a new housing bubble but

    Flavius

          Here’s where a miracle occurs

    Jeffrey Sachs (continuing)

     in upgraded  skills, increased exports,  and public investments in infrastructure and low carbon energy……………………………………

      The simple fact is that globalization has not only hit the unskilled hard but also proved a bonanza for the global super rich…….they have been able to convince their home governments to cut tax rates……in the name of  global competition. In the end the poor are doubly hit , first by global market forces ,then by the ability of the rich to park money..in hideaways around the world

    Flavius

    So if the poor are poor and the rich have been able to convince their home governments to cut tax rates who will pay for 

    upgrading the skills of those out- of- work low -skilled workers? And can the economic  future of the developed world depend upon unemployed masons and car manufacturers developing skills which will somehow result in products to be exported.

    Jeffrey Sachs

    President Obama is the incredibly shrinking leader, waiting to see whether the Congressional power barons will call.......More generally , the US cannot prosper ............until there is a revival of bold ,concerted leadership.

    Flavius

      and of economists who have the guts to say that since Globalization is the problem  the solution is to end Globalization. 

    Skidelsky’s biography of Keynes

    First …he was ‘ not persuaded that the economic advantages of the international division of labour to-day are at all comparable  with what they were.......most modern  mass-production processes can be performed in most countries..with almost equal efficiency….

    Secondly , he stated bluntly that free trade, combined with international mobility of capital was more likely to provoke war than keep peace. So “ I sympathize ..with those who would minimize rather than who would maximize  economic entanglements. Ideas, knowledge, art, hospitality, travel these are things that by their nature should be  international. But let goods be homespun

    Thirdly ,Keynes urged the case for politico-economic experiment .” We each have our own fancy. Not believing  we are saved already , we each  would like to have a try at working out our own salvation. We do not wish to be at the mercy of world forces working out, or trying to work out some uniform equilibrium according to the ideal principles of laissez faire capitalism.”

    Flavius again. Sorry.

    Since Globalization is the problem , the solution is not Charter Schools or campaign finance reform. It's to end Globalization.

    Here in the land of lobelias and tennis flannels

    The rabbit will burrow and the thorn revisit

    And the wind will say

    Here lived a decent godless people]

    Their only monument

    The asphalt road and

    a thousand lost golf balls.

    TS. Eliot.

    No, what the wind will say is that a society which paid its auto makers $20 per hour  should never have laid them off and bought its cars 10,000 miles away where the workers were paid $1.Not when a wise man had already told them Let Goods be homespun.

    Globalization has to be ended. Full stop. Nothing else will save us.

    Pull up the ladder mate, we're aboard.

    Comments


    by MrSmith1 on Thu, 08/18/2011 - 4:13pm

    Easter Island. One theory is that native trees were used to build the monuments to the Gods. The gradual deforestation caused ecological stresses. The response? Build more monuments until there was nothing left. Apparently the first discovers found large half-finished sculptures, tools strewn nearby. The native peoples followed their course right into oblivion, leaving the monuments and a few tools behind on a desecrated island.


    by Oxy Mora on Thu, 08/18/2011 - 4:14pm

    yup


    by Flavius on Thu, 08/18/2011 - 4:31pm

    Um ... what?


    by Dan Kervick on Thu, 08/18/2011 - 8:12pm

    Hi Dan, what's your question?

    Since I dealt this mess I feel some responsibility  to provide answers to the first couple of comments , if any.

    OxyMora's chilling Easter Island anecdote- which I have heard before- is a an example of our species ability to embark on a  program like Globalization which we perversely  carry to its harmful conclusion.

    100 years from now the economic historians will just shake their heads over our self inflicted wounds=if we're even around to shake their heads over.


    by Flavius on Thu, 08/18/2011 - 9:20pm

    How can a story about an economic disaster befalling an isolated island society show that there is a problem with globalization?


    by Dan Kervick on Fri, 08/19/2011 - 12:21am

    The chance of famine for example is much less thanks to globalization and better transportation. The places where famine happens now tend to be in war or oppressed zones, or disaster sites.

    While it's possible to use up basic resources, it's possible to use them up quicker when used inefficiently. The aggregation of production in China and elsewhere is a great boon to efficiency.

    The move from rural to urban communities also promotes efficiency. Driving mail trucks miles between farmhouses is not an efficient process, nor is delivering food, wiring homes, providing internet & mobile access, etc.

    3500 years ago, Tasmanians dropped scaled fish from their diet, which made their survival really difficult. Who knows why they did that - forgot how to spear fish? Religious belief?


    by PeraclesPlease (not verified) on Fri, 08/19/2011 - 5:00am

    I accept that globalization can have benefits. My position is that it can also have drawbacks. We have to think hard about which applies.

    It can  be a mistake to put all your eggs in one basket, like 19th century Ireland becoming overly dependent on potatoes .Apart from that my guess  is that  gains in efficiency from aggregation run into the law of diminishing returns.


    by Flavius on Fri, 08/19/2011 - 10:05am

    The Irish were overly dependent on the English. When the English locked up the surplus of potatoes in storerooms, the Irish starved. Globalization - having complex distribution chains to rely on - would have prevented that, short of the English putting a naval embargo on Ireland. (okay, they had Ireland occupied and under slavery, so a naval embargo would be an unnecessary step)

    http://www.schillerinstitute.org/economy/nbw/pot_famine95.html

    [Note that "free trade" in the article means exactly the opposite of what you might expect it to mean - free for the English, prohibited for any others if conflicted with the East India Company or other interested parties]

    The article also makes it clear the Irish were raising other crops - the English just wouldn't let them eat those.

    I think your example has an opposite lesson to what you thought it was.


    by PeraclesPlease (not verified) on Fri, 08/19/2011 - 11:55am

    For all I know ,you're right I don't know much Irish history even tho my first boss had to flee Ireland for his own protection  during the 1922 Civil War. 

    Interestingly if so rather than (or in addition to)demonstrating the evil nature of the British occupation it might be another example of Keynes comment that most of us are the unwitting slaves of some defunct economist.

    John Strachey's book "An End to Empire" describes a vessel full of food shipwrecked on the coast of famine stricken India. .Strachey's ancestor-grandfather probably-as head of the Raj prevented the locals from reaching the boat until it washed away. Not because he was evil but because he believed that the release of free food would undercut the workings of the market economy.

     


    by Flavius on Fri, 08/19/2011 - 12:39pm

    It was Oxy Mora's post but what I took it to mean is that a society can persist in a practice  with disastrous effects. Another example would be the Romans recruiting the barbarians . 


    by Flavius on Fri, 08/19/2011 - 9:17am

    Can't seem to recall the name of the author who posited the theory. The book included Greenland as another example. I believe the author also wrote about steel, and disease, conquering the New World.


    by Oxy Mora on Fri, 08/19/2011 - 10:29am

    Jared Diamond's

    Collapse: How Societies Choose to Fail or Succeed.


    by artappraiser on Fri, 08/19/2011 - 2:46pm

    While Oxy Mora's reference was apropos in introducing related thought provocation, I'm not so sure that Jared Diamond's main points would go along with your argument. If you take a look the wikipedia entry on the book (which I cited above,) one point the book stressed was this

    most important lesson is that societies most able to avoid collapse are the ones that are most agile; they are able to adopt practices favorable to their own survival and avoid unfavorable ones

    and

    Diamond identifies five factors that contribute to collapse: climate change, hostile neighbors, collapse of essential trading partners, environmental problems, and failure to adapt to environmental issues.....Diamond also states that "it would be absurd to claim that environmental damage must be a major factor in all collapses: the collapse of the Soviet Union is a modern counter-example, and the destruction of Carthage by Rome in 146 BC is an ancient one. It's obviously true that military or economic factors alone may suffice"

    Globalization is still a fact going on whether we participate in it or not, and Jeffrey Sachs is someone who tends to look at the whole global situation; in your cite he mentions Asia, the global rich, etc.. Now it may be a wise decision to counter all this somehow, but I doubt very much Jared Diamond would argue that it should be on the basis of axioms like your let all goods be homespun. Diamond's main point would lead to the conclusion that sometimes it would be good to let all goods be homespun and other times it would be really stupid to do so, not that there are such truisms that one should always follow.

    Indeed, his book's main point may be that societies should avoid relying on such "truisms." I.E., how do you know that your belief that protectionism will do the trick is not similar to ancient islanders thinking making more wood totems would do the trick?


    by artappraiser on Fri, 08/19/2011 - 3:24pm

    Martin Wolfe of Financial Times notes that in the late 1800's there was probably much more in the way of globalization and open borders than today.

    The chauvinism that ushered in WWI also brought all that unity to a screeching halt.


    by PeraclesPlease (not verified) on Fri, 08/19/2011 - 3:32pm

    In Skidelsky's biog of Keynes he prefaces one chapter by a passage by someone -maybe Keynes-describing how interconnected  Europe was in June 1914.

    One of the several examples ( I don't have the book here):you could wake up and without getting out of bed in London phone your order for tonight's desert to a Parisian  Patisserie.

    An influential 1910 essay (by Norman something or other) argued that there wouldn't be any more wars because of the close links among the business people across state lines. 

    Maybe the only safe generalization is that no generalization is safe.

     

     


    by Flavius on Fri, 08/19/2011 - 3:57pm

    I'm all for generalizations, they just have to be tested.

    Re: 1914, I think the borders had already started closing a bit before then, and protectionism was on the rise.

    Of course that wave of globalization was also fed by colonialist passions of the top European countries, so suffers the same general faults as the particular English occupation of Ireland.

    http://www.history.ox.ac.uk/currentunder/honours/history/general/12resources/1856_1914.pdf


    by PeraclesPlease (not verified) on Fri, 08/19/2011 - 4:16pm

    Your use of the word chauvinism in this context somehow triggered me to think of how one very famous axiom (that ironically comes from the WWI era even though popularized more recently) sort of summarizes Diamond's book:

    The original phrase "Think Global, Act Local" has been attributed to Scots town planner and social activist Patrick Geddes.[1] Although the exact phrase does not appear in Geddes' 1915 book "Cities in Evolution," [2] the idea (as applied to city planning) is clearly evident: " 'Local character' is thus no mere accidental old-world quaintness, as its mimics think and say. It is attained only in course of adequate grasp and treatment of the whole environment, and in active sympathy with the essential and characteristic life of the place concerned."


    by artappraiser on Fri, 08/19/2011 - 4:01pm

    how do you know that your belief that protectionism will do the trick is not similar to ancient islanders thinking making more wood totems would do the trick?

     

    I was mildly interested that Keynes in his break from his life time support of Free Trade stated

    The virtue of Protectionism is that it does the trick

     

    As to my confidence in that truism , it hardly matters but I'll do a stand alone blog on the subject and duck..

     


    by Flavius on Fri, 08/19/2011 - 10:09pm

    Malaysia during the 1990's East Asia meltdown ignored the World Bank's advice (order) and put up walls to protect its currency. They managed to weather the crash much better.

    However there are tons of examples where protectionism left inefficient systems stand without pressure to change.

    I'd like to know how how opening our borders to cheap Brazilian ethanol would have changed our corn industry, energy industry and solutions for alternate fuels. Instead we put a 63 cent a gallon tariff on it.

    The other issue is that frequently when we talking about protectionism, we're jackknifing between helping US workers and helping "the world".

    It's arguable that US trade with China has been a help for everyone - we get very cheap stuff across the board with low margins (as do other Chinese clients), it's dramatically helped Chinese poor, and China has done more to develop Africa in the last decade than we have.

    Oops, but it's also left our workers and many elsewhere competing with long hour, dorm-living worker bees in China - Foxconn's work with Apple being the best known.

    But that probably isn't the real problem - Chinese protectionism keeps their currency artificially high, and keeps US-funded goods made in China from being sold in China. Plus the Chinese government through all sorts of military and other government-owned companies, subsidizes the bejeezus out of products to compete overseas. Otherwise trade and labor conditions would balance over the long run.

    So countries buying Huawei products are really getting them dirt-cheap, financed by China, making it impossible for western companies to compete.

    Another issue is that while every American has to pay taxes on earnings anywhere in the world, companies - despite being "people too" - are exempt from this. And of course don't pay Social Security either. So through our government, we provide all sorts of support for US commercial activities around the world, but then our clients stiff us and only report taxable income abroad.

    So it's not really globalization that's hurting the most - it's that we're not able to bring down the biggest foreign protectionist racket, and that we're not making our own corporations pay their share.

    [of course protectionism in this case does help China - short term. Long term they've got serious problems getting to certain stages of quality, and rely too much on intellectual property theft - like burying those technology-stolen bullet trains rather than someone actually finding out why they crashed and what was in the design they'd used. And note that China still can't do well in the auto market.]


    by PeraclesPlease (not verified) on Sat, 08/20/2011 - 12:42am

    I took it as Oxy Mora saying that the conventional wisdom can be dead wrong.


    by Flavius on Fri, 08/19/2011 - 10:16pm

    To tell you the truth I am still laughing at the thousand lost golf balls.

    hahaah

    What? A million...ten million?

    All I can think of is this:


    by Richard Day on Fri, 08/19/2011 - 5:03am

    I've  always assumed that Eliot wasn't describing the world , just causing you to envisage one very genteel  part of it with lobelias and tennis flannels and decent godless people..

     

    Thanks for Buddy Holly..Did he ever sing Rosalie's Good Eats Cafe ?


    by Flavius on Sat, 08/20/2011 - 7:49am

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