re: Economics: Self-Sufficiency vs. Globalization; on Immigration and Unemployment (Istvan Simon, US)

Istvan Simon (IS) responds to Jon Kofas (JK)’s post of 19 November:

(JK) If indeed the countries of origin would be developed on “self-sufficiency” models instead of globalization rooted in draining their resources and keeping them perpetually underdeveloped, then I would agree with the argument some WAISers have advanced against “temporary immigrants.”

(IS) This sounds like Marxist propaganda, which has been around for at least the past 50 years, and is designed to make populations feel like permanent victims of diabolical external forces, thereby freeing them of the responsibility for their own destiny.

Mr. Kofas’s championing of the self-sufficiency model versus globalization seems misplaced. Self-sufficiency was tried by both Mao Zedong in China and Gandhi, Nehru and successors in India, and the attempts failed miserably. What is more interesting than these failures is the fact that more recently both of these countries started a period of sustained and extraordinarily successful development by reversing those policies, and joining the globalized world. So this experience does not support Mr. Kofas’s position: Globalization 2, Self-sufficiency 0 .

But the score actually is much higher if one examines the countries which have been successful in development over a number of years before these latest two examples, and compares them to the countries that have not. Such comparisons were made in the excellent speech delivered by President Oscar Arias of Costa Rica on April 18, 2009 to his Latin American colleagues.:

http://www.boliviabella.com/we-did-something-wrong-speech-by-oscar-arias-president-of-costa-rica.html

or in the original Spanish:

http://mabb.blogspot.com/2009/05/latin-america-oscar-arias-words-to.html

Three months ago WAISer Joe Listo sent me this speech in Spanish in private correspondence. I thought it was a historical watershed speech because one hears far too little of these thoughts articulated in Latin America, where instead the tired, old, obsolete Marxist rhetoric is still quite in vogue. So I translated it into English, and suggested to him that he forward it to WAIS with his comments. He did so, but unfortunately J.E. never published it. This speech also came up during the WAIS ‘09 discussion of the China panel, because I mentioned it, as it fit perfectly with Bill Rattliff’s excellent in-depth paper.

Being an immigrant, I tend to sympathize with them, and feel somewhat uncomfortable with the remarks recently made by David Gress. There are many people in the United States too that blame hard working immigrants for our ills. I do not agree with them. They say that Latin American immigrants do not contribute to our economy, consuming more in government services than they contribute in taxes, which may or may not be true, but in any case the same would be true of non-immigrants in similar situations. For the most part, I see immigrants as working hard just like everyone else, and with many contributions to our economy. The whole building industry is mainly manned by immigrant labor, and so is farm labor. When there are crackdowns on illegal immigration, fruit and produce often are left not harvested, rotting in California fields. This waste seems to show that the economic value of these crops does not support higher wages on the one hand, which might attract other workers to do the hard work necessary that currently only immigrants are willing to take.

But on the other hand, I disagree again with Jon Kofas who said that these workers are “terribly exploited.” If their working conditions are so appalling and they are so exploited, one has to wonder why do they pay large sums to smugglers, and endure the perils of being smuggled into the country, often risking death to come here? It is obvious that farm labor in the United States fills a major need in Mexico and other Latin American countries for jobs, while at the same time produces important economic benefits for the United States. It is a match that produces a win-win situation and it is futile and unwise to try to stop it. The attempts of our government to legalize this migration with temporary work visas unfortunately have been an utter failure so far, because it neither answered the needs of farmers and other employers for the labor, nor has it been able to curb illegal immigration.

However, there is also truth in what David Gress says. Muslim immigrants in Europe might indeed be taking advantage of the welfare state. Worse, there seems to be a major problem of assimilating these immigrants into European culture. Who is to blame for this lack of assimilation for several generations and consequent buildup of resentment on both sides is not my point here. I merely point out that the problem exists and is a dangerous situation that should be addressed. The murder of Theo van Gogh and countless other incidents all throughout Europe point to this. It may be incorrect to fix the blame on either “lazy immigrants” or on “racist natives,” but the problem is very real. Perhaps it would be more productive to try to propose solutions. I have noted before that this problem seems to be much more characteristic of Europe than the United States, so studying this difference may be useful in proposing solutions.

Tor Guimaraes (21 November) mentioned U-6 as a broader measure of unemployment. But this is somewhat inaccurate. The definitions of what the various measures of unemployment and underemployment used by the Bureau of labor Statistics are given in

http://www.bls.gov/lau/stalt.htm

U-6 includes not only the unemployed but also people who are under-employed, that is workers who are employed in two categories of jobs, but which are considered as temporary until they find better ones more suitable as replacements for the jobs they lost. I quote the definitions given by the Bureau of Labor Statistics from the above document:

• U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
• U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
• U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
• U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
• U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
• U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers

I think that Tor is correct in concentrating on jobs, because unemployment causes the most suffering in a recession and no doubt when it starts decreasing significantly consumption, which fuels 2/3 of the economy, will soon follow, further accelerating the recovery. But one should not forget that the unemployment rate tends to decrease last in a recovery, well after the recovery has been under way for many months, because employers quite naturally delay hiring new workers when demand picks up, gaining from the improved productivity that recessions produce. When unemployment starts decreasing the Fed will switch to increasing interest rates, otherwise inflation will result in a superheated accelerating economy. Judging from the graphs of the present and past recessions and recoveries, we seem to be halfway through the current one. Unemployment rates always increase in recessions, and then decrease about approximately the same speeds that the increase occurred, forming a U shaped symmetrical curve. If this is true, that is if we hit the bottom of this U-shaped curve, we will soon see a decrease of unemployment rates. Furthermore, as I said the decrease in unemployment rates tends to occur with the same inverse speeds that the increase occurred, and if this is true in this recession as well, we can expect another two years before the unemployment rates decrease to the levels before the recession started under the Bush administration. This would put it right before the last year of the Obama administration, which perhaps could help re-elect president Obama for a second term.

JE comments: My apologies to Istvan Simon for failing to post the Arias speech; I don’t recall receiving it. (I am occasionally guilty of overlooking a post when the volume is large.)

re: Economics: Unemployment and Leading Indicators (Tor Guimaraes, Brazil/US)

Tor Guimaraes writes:

Mike Bonnie (20 November) brings up a good point. The 10.2% unemployment figure is what economists call U-3. Nationally, the latest figures say U-6 (a broader measure) is 17.5 percent. 30 percent is an educated guess of what the level would be if the US government did not bail out or artificially stimulate the economy.

Regarding leading indicators, there is a large collection besides cardboard box production. A widely used indicator is the level of Baltic shipping, or other measures of transportation activity. I suppose there is nothing better than actual sales. As I said before numerous times, presently I reduce all indicators to one: jobs, jobs, jobs.

JE comments: Jobs, indeed! Many pundits with their slide-rules (so to speak) say the recession is over. Too bad the folks on Main Street haven’t yet noticed…

re: Capitalism, Democracy, Political and Economic Freedom (Mike Bonnie, US)

Mike Bonnie responds to the recent exchange between Istvan Simon (IS) and Tor Guimaraes (TG):

IS: Tor Guimaraes is not only wrong in continually referring to the
current crisis in emotional, almost hysterical, apocalyptic terms, like
“economic terrorism,” and other similar meaningless rhetoric, but he
fails to account for the fact, as Cameron Sawyer correctly pointed out,
that even in the current crisis, and in spite of the unemployment rate
having reached the very uncomfortable level of 10%, still 90% of the
employable people continues to be employed…

TG: I am pleased that the US unemployment rate is around 10 percent
rather that 30 percent which is where it would probably be without the
enormous American people bailout of the great capitalists, massive
economic stimuli, and crippling government deficits. Unemployment in
building trades

Mike Bonnie: I’m not certain where Istvan and Tor are getting
their numbers or what segment(s) of employment they’re looking at.
Perhaps 10% is a national average unemployment for all workers or a
government number that selectively reports to minimize political damage.
Unemployment is not looking positive from my point of view. Wisconsin
usually has a relatively stable economy in downturns. This year, however,
home and business construction season declined sharply. Here’s a report
from one group of workers in Wisconsin:

“The recession has put the brakes on new construction throughout
Wisconsin and that’s meant a lot of time sitting at home for some of the
state’s 45,000 union tradesmen. Lyle Balistreri says unemployment in the
construction trades is running about 25 percent and will likely go
higher. Balistreri heads up the Milwaukee Building and Construction
Trades Council. It negotiates project agreements on behalf of union
workers. ”

The entire discussion of building trades employment can be found at:
http://www.wuwm.com/programs/news/view_news.php?articleid=5406

Is it still true that to get a true indication of the direction of the
economy, leading economic indicators such as, cardboard used for
shipping appliances to furnish new home construction, is one direction
to look? If shippers are producing materials, that must mean the
refrigerator, washer and dryer manufacturers are planning for increases
in home construction.

JE comments: Current unemployment figures in my hard-luck state: 19% for Lenawee County (Adrian), and a whopping 28% for the city of Detroit.

re: Immigration and Street Crime (Richard Hancock, US)

Richard Hancock responds to David Gress’s post of 18 November:

I disagree with David Gress’s assertation that immigrants do little good in our country. A prime example is seen in the 19 November WSJ, where Neil King Jr. and John Hechinerer report, “D.C. Schools Chief Targets Tenure.” The school chief, Michael Rhee, happens to be a 39-year-old Asian woman. The Washington, D.C. School System is the highest cost school in the US, at $14,000 per student and the drop-out rate is 40%. Ms Rhee has offered teachers a voluntary program featuring much higher wages with performance bonuses in exchange for teachers giving up tenure. “The union, The American Federation of teachers, soundly rejected it and went ballistic.”

Ms. Rhee is Asian, but the article didn’t state from which country or when her ancestors came to the US. In Norman, Oklahoma, whenever the list of honor students comes out, East Asians and Indians (from India) are prominent although their percentage of the population is tiny. It is obvious to me that Ms. Rhee is persuing the level of exelence that we all come to associate with people of her race.

I have never favored tenure in the public schools. I think that the fear that lack of tenure will result in good teachers being fired is overblown. The reason that we have a School Board and newspaper reporters is to prevent such abuses by an overly authoritarian administration.

I have no problem with Latin Americans emigrating to the US. Like any social phenomenon, this immigration should not be left unregulated. Nancy and I rent a small apartment in Norman which backs up to a creek which offers a park-like appearance from our back door. That park is maintained by the neighborhood association. For several years I have watched these 100-per cent American mowers avoid any semblance of common labor. Instead of picking up a fallen limb, they would simply mow around it thereby leaving a wild, over-grown island in the middle of our park. Likewise they failed to mow the banks of the creek, leaving a growing encroachment of a scrub forest.

I complained mightly to the homeowners association and received mostly excuses. This 83-year-old man got out and cleared 130 yards of the creek and picked up all the fallen limbs. I received no acknowledgement of my good work but I noted that the crew of white men had been replaced by a Mexican crew and once again we are enjoying the beautiful park-like quality of the area that encouraged us to rent this property in the first place.

People say that the Mexicans take jobs that patriotic American should have. I have never seen this happen. I am thrilled to have Mexicans replace these lazy scalawags.

JE comments: Pablo Swedberg (18 November) debunked the hoary lament heard everywhere that immigrants “take jobs away” from God-fearing locals. Richard Hancock gives further evidence that this is a myth. It is interesting, however, that the argument will not go away.

We’ve discussed the topic of teacher tenure before. I’ll plead the Fifth for now, except for the comment that teachers are justifiably wary about leaving their job security in the hands of often capricious administrators.

“Nativist” Politics and Prejudice of Immigration (Jon Kofas, Greece)

On the politics of immigration, a recent WAIS hot topic, Jon Kofas writes:

“Nativist” politics and prejudice of immigration are very old in both US and Europe, as are the arguments against immigration. The irony of all this is that the American colonists were invaders and destroyers of native cultures, as were the European Barbarians who migrated from Central Asia to colonize the continent.

But that is far too distant, far too historical and unemotional to have any relevance in the present. If indeed the countries of origin would be developed on “self-sufficiency” models instead of globalization rooted in draining their resources and keeping them perpetually underdeveloped, then I would agree with the argument some WAISers have advanced against “temporary immigrants.” The fact that there is “permanent and temporary foreign labor” is proof that the countries of origin are not developed in large measure because they exist under exploitative models of integration. This is not to excuse the utterly corrupt public and private sectors of the “countries of origin” (invariably underdeveloped in Africa, Asia, and Latin America), but they do not operate separately and distinctly from the world capitalist economy.

Regarding the impact of private remittances [see Tim Brown's post of 18 November--JE], I agree about their positive value to the country of origin, and thank God remittances are something although they come with the hard work, deplorable living conditions, and exploitative wages of legal and illegal immigrants in the advanced capitalist countries. Be that as it may, are remittances a structural solution to fix the chronic problem? Nor do I believe that trickle-down economics, as the great John Kenneth Galbraith noted during the Reagan-Thatcher decade, works to do much for the lower classes of either poor or rich nations.

And please let us correct the record: I am not one of those who has ever advocated, either in WAIS posts or in my publications on IMF and World Bank, that “trickle down economic development” works. And I think it is an insult to the millions of Mexicans in the US who have helped build the US economy in the past 200 years to dismiss them as gardeners and swimming pool cleaners for the rich, and to limit their vast and multifarious contributions to the US economy and social fabric. I believe kind well-intentioned people–whether politicians and intellectuals, including WAISers–or the corner drug store pharmacist in Cleveland or Paris, feel less secure when they see or hear about waves of immigrants threatening the status quo. I am not sure why people find it extraordinary that the poor–in this case poor immigrants–commit crimes, given that poverty is the real crime that capitalism precipitates. And I am seriously concerned when people single out Muslims, Africans, Latin Americans, Asians, or any other group to prove their point about the evils of immigration, and then they ask for empirical evidence to prove that higher percentage of crime is caused by natives instead of immigrants. All of this implies there is something in the DNA of the immigrant that causes him to commit crimes, and that the environment is free of any responsibility. As an emotionally charged issue, especially in this decade after 9/11 and the US-western-led wars against Muslims, immigration on the surface is an easy target for all calamities people believe befall their country, not realizing that as “established natives” they are descendants of immigrants.

JE comments: Agree with his economics or not, Jon Kofas’s viewpoint has been lacking on WAIS for the year of his “sabbatical.” Jon now joins Alain de Benoist as the principal WAISer non-apologists for globalization. (On a related note, I’ve just realized that the work to redesign the WAIS website is being carried out simultaneously in Germany, China, India and the US. Is there any reality other than globalization these days?)

Glad to have you back, Jon.

re: Capitalism, Democracy, Political and Economic Freedom (Rodolfo Neirotti, Argentina)

Istvan Simon wrote on 16 November:

The bubbles and periodic failures of market economies show that they are not perfect. But so do forest fires, and yet they have been shown to be essential in ecosystems. Likewise, periodic failures give opportunities in market economies for the emergence of new technologies and a better and more productive economy. Crisis also equals opportunity.

Rodolfo Neirotti responds:

I believe we should distinguish the efficient controlled fires used by the Native American from the massive forest fires that result from the current policies of the Forest Service, burning large areas with damage to the ecosystem and significant expenses in fire management. I see some similarities with the unregulated market economies (reactive) vis à vis free markets with intelligent regulations (proactive) which are enforced, as suggested by the recent postings of Tor Guimaraes.

re: Capitalism, Democracy, Political and Economic Freedom (Tor Guimaraes, Brazil/US)

Tor Guimaraes (TG) responds to Istvan Simon (IS)’s post of 16 November:

IS: Tor Guimaraes is not only wrong in continually referring to the current crisis in emotional, almost hysterical, apocalyptic terms, like “economic terrorism,” and other similar meaningless rhetoric, but he fails to account for the fact, as Cameron Sawyer correctly pointed out, that even in the current crisis, and in spite of the unemployment rate having reached the very uncomfortable level of 10%, still 90% of the employable people continues to be employed…

TG: I am pleased that the US unemployment rate is around 10 percent rather that 30 percent which is where it would probably be without the enormous American people bailout of the great capitalists, massive economic stimuli, and crippling government deficits.

IS: If a system in crisis is able to perform relatively so well, surely it is a system worth greater respect than the excessive rhetoric exhibited by Tor Guimaraes.

TG: I hope in the future Istvan reads other people’s postings more carefully before levelling unfounded criticism. I have great respect for capitalism but have even greater respect for free and orderly markets. As I said several times in previous postings, all parties must ensure free markets through intelligent regulations which are enforced, otherwise capitalism will lead to disasters as we have today. That is not disrespect, it is a fact which has been observed numerous times in history.

IS: The bubbles and periodic failures of market economies show that they are not perfect. But so do forest fires, and yet they have been shown to be essential in ecosystems. Likewise, periodic failures give opportunities in market economies for the emergence of new technologies and a better and more productive economy. Crisis also equals opportunity.

TG: So was the 9/11 terrorist attack. Would you like to have more of those? America had a unique oppotunity to show how tough, brave, and resilient we are. Similarly, market bubbles are created through market manipulation and many times outright fraud such as the latest subprime mortgage disaster. Do you like to see innocent people being hurt financially, losing their homes, their retirement accounts and pensions just before they were planning to retire? Forest fire indeed.

re: Immigration and Development (Tim Brown, US)

Tim Brown responds to Jon Kofas’s post of 17 November:

Mr. Kofas misses what for me are two important pieces of the equation–the difference between permanent immigration and temporary foreign labor. Making temporary workers permanent, in the name of compassion for their “plight,” undermines and eventually destroys the best hope to develop of their countries of origin.

Speaking as someone that has both managed foreign aid programs and done in-depth economic studies of direct foreign assistance (ODC–government-to-government) and remittances (people-to-people fund transfers), what I have found is that the economic development impact of remittances sent home by temporary foreign workers is by several orders of magnitude the single biggest and most effective source of bottom-up versus top-down development funds reaching the poor in developing countries. In 2006 remittances were estimated to have totalled $350-400 billion, of which about 90-95% went directly into the hands of the poor in developing countries. By way of contrast, total world-wide ODC via bilateral and multilateral channels totalled about $40 billion, with perhaps 10% of that actually reaching the poor. That makes remittance about 100 times more important to the poor in developing countries than ODC, an extraordinary difference. Further, remittances were used almost entirely to improve the living standards of the poor because their recipients spent them on education, health, housing and to capitalize small businesses.

I find it fascinating that those that condemn trickle-down economics at the national level as a farce are the same people that insist that, overseas, trickle-down economic development is the only possible approach to foreign aid. The kicker comes when, usually in the name of “compassion for poor immigrants,” these same people also demand that temporary migrants be given permanent status by the country where they’re working. At first this may have little or no impact on the level of their remittances to those they left at home. But as they, and later their children, settle in to their new permanent status their ties to their country of origin gradually weaken and their remittances eventually slow and even stop.

Those who actually care about world poverty should oppose not support the mass legalization of temporary workers in favor of harnessing them to the economic development of their countries of origin.

JE comments: For further thoughts on this topic, I refer WAISers to Tim Brown’s article, “A Business Model for Foreign Labor,” which was published in the Hoover Digest (2007) and reprinted some time ago on WAIS:

http://cgi.stanford.edu/group/wais/cgi-bin/wp/wp-content/uploads/2009/04/09timbrownimmigration.pdf

re: Immigration Costs and Benefits (Pablo Swedberg, Spain/Sweden/US)

David Gress wrote on 18 November:

The costs [of immigration] are huge, on the order of several thousand dollars per taxpayer per year. And they grow, yearly. In much of Europe, most immigrants do not contribute to the labor market, but receive benefits provided by productive taxpayers.

Pablo Swedberg responds:

David has been very clever in choosing George Borjas and Michael Mannheimer as a reference for blaming immigrants for the enormous costs derived from the generous welfare systems in Europe. It’s always easy to find research and evidence that supports one’s own thesis on different topics. I have been working on immigration for the last couple of years, and reality proves to be much more complex than a few papers and several anecdotes.

On the labor market consequences of immigration, even Borjas argues that immigration has a weak impact on the employment of natives (I can provide the paper). As long as native workers and firms respond by moving to areas that offer new and better opportunities, the impact of immigration on salaries and employment opportunities will remain small. In fact the literature has proven it very difficult to find evidence that supports the hypothesis that states that an increase in labor supply due to immigration reduces native wages. Empirical evidence seems to be very time- and country-sensitive. The problem is that since production inputs (capital and labor) are mobile across local labor markets, correlations will fail to capture the degree of substitution between immigrant and native workers.

Another important consideration is the effect of immigration on public finances. In other words, it is crucial to determine the impact of immigration on government revenues and expenditures. With regard to government revenues, immigrants pay taxes, and the amount paid will depend on the host country’s tax system and the socio-economic characteristics of the immigrants themselves. The government expenditures will depend on the generosity of the welfare system in the host country, the costs of the services provided by the government, and the proportion of immigrants that use these services determined by their socio-economic status. Of course, the time horizon used becomes very important in determining the net impact of immigration on public finances as well. The evidence shows that more recent immigrants have lower wages and are more likely to be unemployed, and this reduces the taxes paid and increases the expenditures they generate. The costs of education for their children, and an eventual retirement in the host country are important considerations as well. Immigrants may have a negative impact on government finances in the short run, but a positive impact in the medium and long-run. So it always depends on how you analyze these issues.

Another potential cost of immigration that is particularly prominent in the recent policy debate in Europe is the impact of immigration on crime. The immigrants may commit crimes themselves or contribute indirectly by increasing group conflict or social tensions. However, it is an open question whether concerns over the effect of immigration on crime reflect rational calculations, since the literature is not conclusive on this issue according to Card, Dustmann, and Preston.

Of course there are also many positive economic and cultural contributions of immigration that are not mentioned usually (guess why), like the supply of skilled workers in key industries, the relief of strains on tax/funded pension system that threatens an aging population in Europe, and the new artistic, intellectual, gastronomical, and cultural life in the host country.

Finally and according to Dani Rodrik, a prominent economist from Harvard, “the gains from liberalizing labor movements across countries are enormous, and much larger than the likely benefits from further liberalization in the traditional areas of goods and capital. If international policymakers were really interested in maximizing worldwide efficiency, they would spend little of their energies on a new trade round or on the international financial architecture and be busy at work liberalizing immigration restrictions.”

JE comments: I’d like to extend a warm “WAIS welcome back” to Pablo Swedberg. We haven’t heard from him (if memory serves) in over a year. Very informative posting, Pablo: please write us more often!

re: Capitalism, Democracy, Political and Economic Freedom (Istvan Simon, US)

Istvan Simon writes:

On 16 November, John Heelan said that capitalism under Salazar, Franco and Pinochet was “rampant” without political freedoms.

I did not say otherwise, and perhaps John misunderstood my argument with this response. I did not say that capitalism cannot co-exist with dictatorial governments, provided some minimum freedoms are allowed, as they had been in the three cases cited by John. Clearly, it still coexists with it in China and Vietnam today. What I said is that economic freedoms lead to political freedoms as well, which is different. Indeed, not only democracy followed the Franco, Salazar and Pinochet governments, but capitalism flourished even better under the subsequent democratic governments in all three cases. Chile is undoubtedly the most prosperous Latin American country. Portugal’s economy is in far better shape than it had been under the “rampant capitalism” of Salazar, and the same can be said about Franco’s Spain. So, notwithstanding the truth of John Heelan’s statement, the there countries are good examples for the argument I made in my previous post.

Books: David Westbrook’s *Out of Crisis* (David Westbrook, US)

David Westbrook sends this excellent news:

My latest book, Out of Crisis: Rethinking Our Financial Markets, is
out. The book is based on my years of teaching, and lectures at LSE, in
China (with the sponsorship of the State Department), and elsewhere over
the last year or so.

The book may be ordered from the publisher, website below, from
Amazon (ignore “ships by”), or at better bookstores.

http://www.paradigmpublishers.com/books/BookDetail.aspx?productID=215115

JE comments: Congratulations to one of the most prolific WAIS authors, David Westbrook, on the appearance of this timely book. I already have three of David’s books in the WAIS HQ Library, and plan to get my copy of Out of Crisis in time for the Holiday Season! Hope the book is a huge success.

re: Capitalism, Democracy, Political and Economic Freedom (John Heelan, UK)

John Heelan writes:

Istvan Simon (16 November) wrote interesting comments on the relationship between political and economic freedoms.

[IS] In fact there is ample evidence that economic freedom leads to political freedom. This can be observed in China. No sane person would argue that political freedoms in China today are not far greater than in Mao’s time, or even in Deng Xiao Ping’s time. [...] But China is not the only example where economic freedom and capitalism led to political freedoms as well. A similar evolution happened in Vietnam, Spain, Portugal, Chile, and Brazil.

[John Heelan] I would be interested in the comments of WAIS “China Hands” on Istvan’s comments about China. There are many who suffered under Franco, Salazar and Pinochet regimes who would argue that there was no political freedom despite rampant capitalism under those dictatorships.

re: Capitalism, Democracy, Political and Economic Freedom (Istvan Simon, US)

Istvan Simon responds to the recent postings of Jordi Molins i Coronado, Cameron Sawyer, Tor Guimaraes and Alain de Benoist:

I have followed the exchange on capitalism and economic and political freedoms with great interest. Cameron Sawyer exposed with great ability and clarity to my mind the essential issues. Alain de Benoist presented a different perspective based on the theoretical writings of Marxists and other philosophers. Alain called Marxist critiques of capitalism an analysis, but it hardly deserves that name. Marxists have always insisted that their theory was science. I am willing to entertain Marxist theories as a scientist, but then they must be evaluated the same way as any scientific theory is evaluated.

A scientific theory is useless if it merely “explains” reality. It only becomes useful when inferences and predictions can be drawn from the theory, and then the validity of those predictions can be tested against reality. Marx’s theories therefore failed on a colossal scale, because his predictions failed. I see no reason to keep citing Marx, any more than citing physicists that proposed theories of the ether. We do not do that in Physics, because we accepted that those theories were wrong, and moved on. It is high time we do the same with Marxism and relegate Marx and Marxism to the giant heap of failed ideas.

Marx’s observations on illimitation are just as false as his predictions that capitalism would collapse and would be replaced by the dictatorship of the proletariat, and Communism will take over as the most perfect stage in the evolution of socialism, in a perfect, ultimate, scientifically unavoidable system. Rubbish. It was clearly Communism which collapsed instead, and capitalism continues to prosper, even in countries that still are governed by nominally Communist regimes like in China. This is what Cameron very ably pointed out. The failures and bubbles in market-oriented economies in no way negate the superiority of markets, because these systems, though far from perfect, have consistently shown to be able to create wealth for a large number of people over hundreds of years now, and continue to do so in spite of such failures. The Great Depression was no doubt terrible, but it was preceded and followed by an unprecedented long period of great prosperity and growth. Tor Guimaraes is not only wrong in continually referring to the current crisis in emotional, almost hysterical, apocalyptic terms, like “economic terrorism,” and other similar meaningless rhetoric, but he fails to account for the fact, as Cameron correctly pointed out, that even in the current crisis, and in spite of the unemployment rate having reached the very uncomfortable level of 10%, still 90% of the employable people continues to be employed, and continues to live at a rather comfortable level. If a system in crisis is able to perform relatively so well, surely it is a system worth greater respect than the excessive rhetoric exhibited by Tor Guimaraes. The bubbles and periodic failures of market economies show that they are not perfect. But so do forest fires, and yet they have been shown to be essential in ecosystems. Likewise, periodic failures give opportunities in market economies for the emergence of new technologies and a better and more productive economy. Crisis also equals opportunity.

Alain is right that democracy is based on equality–one citizen one vote. But though this is one of the essential features of democracy, it is not the only one, and arguably it is not even the most important one. The protection of minorities from the oppression and dictatorship of a majority is also an essential part of democracy. If the “one citizen - one vote” principle were enough, minorities could be easily oppressed by an intolerant majority. So Cameron is quite right in emphasizing political freedom in democracy, because it is political freedom and pluralism which enable it to be a stable and yet dynamic system which is adaptable, and therefore a system that does and can endure. Merely voting would hardly matter if there were no political freedom that would protect the rights of minorities. Without it, the voices of the opposition would be silenced, like they are in so many Islamic countries or left and right wing dictatorships. With the voice of dissent silenced, new ideas could not ever be articulated, making such a “democracy” a static and ultimately dead political system, as it would be unable to evolve with new ideas and adapt to a changing world.

What I would like to add to Cameron’s analysis and further elaborate on Jordi Molins Coronado’s observations is that it is not a coincidence that democracy and Capitalism flourish together. Slavoj Zizek is just plain wrong. We do not have to fear that economic freedom would work better in a dictatorial system, because it does not. In fact there is ample evidence that economic freedom leads to political freedom. This can be observed in China. No sane person would argue that political freedoms in China today are not far greater than in Mao’s time, or even in Deng Xiao Ping’s time. Though the Chinese are nowhere as politically free as we would like them to be, they are much freer than they used to be. One can go to China today and openly criticize Mao Zedong with Chinese citizens. They are not afraid to express criticism themselves, and for example call the “great Helmsman” worse than Saddam Hussein, as indeed two Chinese citizens have independently told me so five years ago. Clearly they would have been afraid to openly voice such criticism in Mao’s time, before and after the turbulence and frenzied insanity of the Cultural Revolution, but they are no longer afraid today . Mao’s feet are today made of clay. Though many still revere him, perhaps an even larger number do not. The regime in China is still far too authoritarian, but it is not a totalitarian system anymore. A great part of the reason for that is the Capitalist economy, because economic opportunities are no longer awarded to only Communist party members, nor conditioned to a slavish support of the Communist party’s rule. But China is not the only example where economic freedom and Capitalism led to political freedoms as well. A similar evolution happened in Vietnam, Spain, Portugal, Chile, and Brazil. Chavez’s Venezuela is perhaps a counter-example of what I am saying here. It would be interesting to try to analyze why, but in any case it is likely to be just a temporary setback, perhaps made possible by an economy excessively dependent on oil.

One could ask in a deeper sense why Slavoj Zizek is wrong. Why should economic freedom lead to political freedom? I think that the reason is that economic freedom always creates an economy which is invariably more and more complex and diversified, where it becomes less and less possible to make easy choices of what is best for the economy, by a few people and a few planners. This is not the only reason why planned economies always failed, but I think it is one of the main reasons. Planners and governments may desire to make the best decisions for the economy, but they cannot do so, even if they are well intentioned, simply because the economy is far too complex and changes far too fast for them to ever understand what is going on. The “best” for the economy is hardly obvious in such a dynamic environment. The markets do a far better job in allocating resources than the planners do. They adapt to changes far better and far faster. So as economies become ever more complex, ever more freedom is needed to successfully keep such a dynamic constantly changing system going. This is I think why political freedom follows economic freedom. If it did not, economic growth would stall, as more and more cases would occur where political considerations override economic ones, undermining the smooth working of the economy. Political and economic freedom also allows entrepreneurs to start businesses without having to consult the political authorities. Without such entrepreneurs no economy can be healthy for long. Capitalism and freedom, both economic and political, are inexorably intertwined and linked.

re: Economics: “The Asian Knout and the European Stock Market” (Alain de Benoist, France)

Alain de Benoist writes:

I have read with interest the recent exchange between Tor Guimaraes and Cameron Sawyer about capitalism, its merits and its faults. WAISers will not be surprised that I am more in agreement with Tor’s argumentation. I realize however how difficult it is to criticize capitalism in an “Americanosphere” so closely linked, since its birth, to that system.

Cameron (14 November) wrote: “ The biggest difference between market economics and totalitarian socialism is that market economics does not claim to remake human nature, does not claim to perfect mankind, and does not claim to have all the answers to all human problems.”

This could be debated. I am not sure than any totalitarianism has ever seriously claimed to “have all the answers to all human problems.” Capitalism, on the other hand, does not claim to “remake human nature,” but nonetheless it transforms and shapes this “human nature” by giving priority to exchange and commercial values, therefore to quantity more than quality, which has a clear effect on the collective symbolic imaginary. (In European history, commercial values have been considered during centuries as the lowest values, money being something extremely vile.) Moreover, capitalism is historically linked to the rise of the bourgeoisie and to the ideology of progress, whose main theoreticians (see Condorcet) asserted human nature would be constantly improved as a consequence of “progress” (material progress was supposed to improve the moral nature of mankind, a failed promised among others).

The basic feature of capitalism is illimitation (always more). Marx was very right to say that for capitalism everything which impedes the perpetual expansion of the process of (over)accumulation is an obstacle to suppress. Limits are seen as evil. This kind of illimitation is quite similar to what Heidegger called the “Gestell,” the planetary submission to the forces of technology, calculation and rationalism.

Under capitalism, the relationship between men is slowly evolving on the model of the relationship to things. This is the phenomenon called “reification” (Verdinglichung) of the social relations under the fetichism of merchandise, as analyzed by Marx, Lukács and Heidegger.

About markets: before discussing the merits and faults of the markets, it would be useful to wonder and ask if a “free market” is something which can really exist. Many economists have answered negatively (see for instance the books written by François Perroux). Markets are not abstractions, except in some liberal theoreticians’ writings. In reality, markets have always to take social and cultural specificities, effects of power and domination, influences of all kind, into account. A “free market” is just an idea.

Cameron wrote also that “democracy is nothing but political freedom.” This is the usual liberal and American mantra. For most political scientists, however, democracy has nothing to do with “political freedom,” but rather with equality. But even this view can be discussed. Democracy is actually the regime where the sovereignty belongs to the people (not to its representatives), and where all the citizens have the possibility to contribute to the decisions interesting public affairs (the democratic motto is not “one man, one vote,” but “one citizen, one vote”). Some of these decisions can be orientated toward “political freedom,” some of them can go in very different (even opposite) directions.

re: Economics: “The Asian Knout and the European Stock Market” (Tor Guimaraes, Brazil/US)

Tor Guimaraes responds to John Heelan’s post of 13 November:

I believe Slavoj Zizek is on to some critical issues. In practice over the years I have reached a few conclusions about capitalism which dovetail with what he is saying. Capitalism can be good or bad depending on what we do with it. Thus any blanket statement that capitalism is evil is as wrong as a blanket statement that we need no market rules and regulations to limit potential abuse. Properly harnessed, capitalist greed can be a wonderful force as an integral part of creating new goods and services which improve people’s lives. Without a doubt, free markets must be constantly protected by all parties. However, in practice free markets are at every opportunity being undermined by capitalists themselves for an unfair advantage and greater profits in the short term. Totalitarianism may provide a great tool for gaining monopoly power if the opportunity arises

A major problem with capitalism in practice stems from its very success.

As corporations grow into huge global companies, their socio/political/economic power grows much larger than the governments of most societies they can manipulate. For example, having these giant global companies making multi billions in profit while families go under financially is not good for anyone in the long run. Presently the Chinese government seems to be striking a reasonable balance between free markets and central control, between capitalism and socialism.

The struggle between capitalists and labor has been going on since Adam and Eve. Since 1945 what kept capitalists from running over labor and the middle class was the Soviet Evil Empire and the threat of Communism looking more appealing than Capitalism. Since Communism has gone to oblivion, Capitalists can now quickly forget their dogmas and really get creative; including using social funds for bailing themselves out of their self-created disasters and refilling their own pockets at taxpayers expenses. The reality is that capitalists with the big money to invest, the controlling power, and the knowledge to position themselves properly, need major dislocations in the markets to really gain great payoffs. That is why periodically we have bubbles and bursts; stable markets are rather boring to most capitalists. The present global financial/economic crisis was not caused by Chinese capitalism but by seasoned American capitalists.

The greed which drives capitalism is an extremely powerful human force. Capitalists don’t have enough wisdom to voluntarily give capital back to the people except as charitable donations. Otherwise, it is a one-way street. Capitalism is like a game, relentless, creative, and difficult to resist. As common people become relatively more ignorant, overworked, stressed out, and complacent, capitalists take over the financial system and the information systems. Once they have these two systems as they do now in the US and most of the world, how long before they have the government? The evidence is clear that they control most of our government. Is there any way to turn this tide back? I doubt it. Just as with any other “ism,” without strong democracy and proper controls, rampant capitalism will accumulate wealth in the hands of the few and to the detriment of the people. Up to now the Chinese government seems to be holding its own managing foreign and indigenous capitalist forces, but for how long? And, what will happen if a powerful totalitarian government becomes driven by capitalist zeal?

In a supposedly democratic nation as the US, what will capitalists do after they own everything? Unfortunately there will be no winners; poorer people will afford less, thus business will spend less and produce less. In turn, government will have lower funding sources, a weaker military, etc. Concepts like free markets, competitiveness, shareholder value are critical for a healthy economy, but are no panacea. Lenin has been proven wrong but, if we capitalists aren’t harnessed by intelligent regulations which promote entrepreneurship and ensure free markets, Karl Marx might eventually be proven right in many ways. In a Marxist country as China, what will happen if the socialist government becomes controlled by capitalist groups?

JE comments: Isn’t the last scenario already the case in China, Inc? WAISer thoughts?

re: Economics: “The Asian Knout and the European Stock Market” (Cameron Sawyer, Russia)

On 13 November, John Heelan forwarded this quote from Slovenian philosopher Slavoj Zizek:

The way market fundamentalists react to the turmoil that ensues when their ideas are implemented is typical of utopian “totalitarians”: they blame the failure on compromise–there is still too much state intervention–and demand an even more radical implementation of market doctrine.

Cameron Sawyer responds:

There is an important difference–totalitarian socialism failed entirely. Market economics have been a very big success which have created a great deal of prosperity over decades and centuries for a very many people. Some convulsions and some failures–some bad years–doesn’t mean that the whole system is a failure. One ought certainly to discern the difference between localized and temporary failure, and systemic and final failure. A failure to make such discernment will lead one to the most horrible mistakes.

And if someone suggests that some particular, local failure of the free market system is due to some deviation from free market principles–why, it might be true. The contrary is not proven by a facile comparison to totalitarian socialism. One must get into the substance of the argument, to know whether it holds any water or not. Speaking as a person who generally advocates more free, rather than less free markets, I would say that these cases are all different. Some failures certainly come from too much regulation, to my mind. Other failures do not.

The biggest difference between market economics and totalitarian socialism is that market economics does not claim to remake human nature, does not claim to perfect mankind, and does not claim to have all the answers to all human problems. And this is an enormous difference. Market economics does not claim (except in a few crackpot versions, not generally accepted) to be perfect. It does not claim to make life better every day for every person in every way. It is not contradicted by compromises, adjustments, and accomodations with other values. It does not cease to work because it is not perfectly implemented. It even worked, in its own very limited way, between the cracks, as it were, in Stalin’s world. And it is certainly working today in the U.S. and Europe, after and despite the financial meltdown of last year. Most people are still working, earning money, feeding their families, and living not too badly.

As to the other point of the author: “What if it shows that democracy, as we understand it, is no longer the condition and engine of economic development, but its obstacle?” I think he is being insincere. He has just said that market economics result in “turmoil” and “failures,” and has accused apologists of market economics for being like Communists–blaming inherent failures on insufficiently perfect implementation. Now he’s talking from a contradictory point of view–he’s asking whether market economics might be such a powerful engine of economic development, but is hindered by democracy, so that it might turn out to be more potently combined with Chinese-style authoritarianism?

I don’t think we have much to worry about. Market economics is nothing but economic freedom. Democracy is nothing but political freedom. They are perhaps not absolutely necessary to each other, but they go hand in hand. Both of them work imperfectly because human beings are imperfect. But they are both civilizing forces, which improve the lives of most people over the long term, at least. Market economics will be a civilizing force in China–wealthier citizens are harder to oppress. Citizens accustomed to econonomic freedom will not tolerate having no political freedom forever.

* Interesting side note–why did the author put quotation marks around the word “totalitarian”? One suspects that the author, a celebrity Marxist-Leninist (http://en.wikipedia.org/wiki/Slavoj_%C5%BDi%C5%BEek; http://www.britannica.com/bps/additionalcontent/18/28536695/ACTING-UP;http://www.eurozine.com/articles/2008-01-22-clark-en.html), formerly married to a “supermodel and Lacan scholar” Analia Hounie, is not being quite sincere, when he compares capitalism with “totalitarian socialism”–he does not seem to quite accept the “totalitarian” part. Not surprising for someone who wrote a book called Repeating Lenin (http://www.marxists.org/reference/subject/philosophy/works/ot/zizek1.htm).

Zizek, by the way, is a disciple of the delightful Jacques Lacan. If Lacan didn’t exist, we would have had to invent him. He was a kind of Salvador Dali of philosophy, playing Dali to Derrida’s Picasso, say. His writing is such complete outlandish gibberish, that Lacan himself said famously that he does not write anything so that anyone will understand it. Which did not discourage legions of pious fools like Zizek to devote themselves to the exegesis of those writings.

JE comments: Cameron’s description of Lacan would make card-carrying members of Comp Lit departments cringe! Many a brilliant academic career has been made by explaining and “applying” Lacan. Me? I never found his stuff to be my cup of critical tea–whether this distaste emerges from the imaginary or the symbolic level, I cannot say.

re: Economics: “The Asian Knout and the European Stock Market” (Jordi Molins i Coronado, Catalonia)

On 13 November, John Heelan noted a question from Slavoj Zizek:

What if it shows that democracy, as we understand it, is no longer the condition and engine of economic development, but its obstacle?

Jordi Molins responds:

The answer is easy: democracy is not the condition and engine of economic development: capitalism is. However, both are intertwined because capitalism and democracy appeared more or less at the same time, in the same places. Probably, this was not a coincidence: capitalism and democracy are non-intuitively positive ideas, and only in a free-thinking environment are they allowed to prosper and flourish.

However, there is even a small negative correlation between democracy and economic growth (but not statistically significant).

But who cares? Democracy is a moral issue (people should be allowed to decide how to govern a country), capitalism is not. Democracy is robust. It could very well be that a very well organized dictatorship is able to accomplish a higher growth for its country than any democracy could. However, this “good” dictatorship would be very unstable: “bad” people would be around power, and they could seize it quite easily, transforming the “good” dictatorship into a “bad” one (the most typical example of dictatorship). Instead, democracy is much more robust: definitely, “bad” people can reach power, but they will ultimately be fired by the people.

Coincidentially, I do not find it surprising that somebody who is anti-capitalist (”The experience of the last few decades has clearly shown that the market is not a benign mechanism that works best when left alone”) has doubts about democracy (”What if it shows that democracy, as we understand it, is no longer the condition and engine of economic development, but its obstacle?”). I don’t.

Economics: “The Asian Knout and the European Stock Market” (John Heelan, UK)

John Heelan writes:

Slavoj Zizek uses Trotsky’s characterisation of Tsarist Russia and asks some uncomfortable questions in an interesting article in the latest London Review of Books. He ends his article with the following:

“In the 1990s, it was believed that humanity had finally found the formula for an optimal socio-economic order. The experience of the last few decades has clearly shown that the market is not a benign mechanism that works best when left alone. It requires violence to create the conditions necessary for it to function. The way market fundamentalists react to the turmoil that ensues when their ideas are implemented is typical of utopian ‘totalitarians’: they blame the failure on compromise–there is still too much state intervention–and demand an even more radical implementation of market doctrine.

“Today we observe the explosion of capitalism in China and ask when it will become a democracy. But what if it never does? What if its authoritarian capitalism isn’t merely a repetition of the process of capitalist accumulation which, in Europe, went on from the 16th to the 18th century, but a sign of what is to come? What if ‘the vicious combination of the Asian knout and the European stock market’ (Trotsky’s characterisation of tsarist Russia) proves economically more efficient than liberal capitalism? What if it shows that democracy, as we understand it, is no longer the condition and engine of economic development, but its obstacle?”

[http://www.lrb.co.uk/v31/n22/slavoj-zizek/post-wall]

Given that recent WAIS discussions have often centred on post-Berlin Wall, democracy, liberal markets, and the rise of Chinese capitalism, perhaps Zizek’s questions might challenge some of the assumptions on which we have been basing our ideas?

JE comments: I’ll leave WAISers for the next several hours with these questions from Zizek–everyone’s favorite Slovenian philosopher. My day job beckons.

re: Economics: “Peak Oil” and Computing Technology (Randy Black, US)

Randy Black writes:

I read with great interest and nodding agreement Istvan Simon’s comments (3 November) about the ability to produce economic growth with the same effort and in some cases less effort and resources than in the past.

Istvan said, “25 years ago a microprocessor consisted of about 5000 transistors. Today it consists of 5 million. This is a 1000-fold increase but the amount of physical resources involved in the manufacturing of the 1000 times more powerful microprocessor is less than in the earlier model. Thus computing power has been growing exponentially for the last 50 years, but the amount of physical resources necessary to make these devices has not. That is why computer prices continually fall while their computing power continually grows.”

I say, bravo and pravda. It’s more evident to me than ever that Istvan speaks the truth about as I recall my first laptop and the subsequent six since 1984. Three sit in the top of my home office closet and one is a door stop on windy days like today when I like to open the windows and doors.

From my Tandy-Radio Shack TRS-80 with which I covered the 1984 Republican National Convention for a wire service, to my most recent laptop, purchased this week, I am amazed at the improvements and the less expensive nature of these “necessities.”

By 1991, for about $1,400, I purchased a pre-Windows, black and white Toshiba 1200 XT laptop with a built-in modem! It had a 30mg (30 megabytes!) hard drive and I thought I was rocking. 18 months later, I tried to give it to a Russian acquaintance in Siberia and he refused it because the technology had advanced so far in so short a time.

This week, for only $500, I purchased the HP 64-bit laptop, wireless of course, built-in web cam, 320GB hard drive, 3GB RAM of some sort, high definition 16 inch screen, dual core 2.10GHz processor, whatever the heck that means, running Windows 7. One third of the cost of a clearly inferior 1991 laptop. As I type on this very sharp machine, I recall the long ago efforts on the little “Trash-80” as the TRS-80 was called, with its tiny micro-tape drive and all the rest. How far we’ve come. When I was shopping for my new tool, I tried out the new, large touch screen PC monitors with their “large” prices. Maybe next year when the prices retreat yet again.

On the topic of micro processors, Texas Instruments announced about seven weeks ago that it was going to open its new 1.1 million square foot silicon wafer chip factory in Richardson, a Dallas suburb. The $1.2 billion factory was completed in 2007 but was kept in mothballs for the past two years as the economy floundered along with demand for chips. By beginning to hire up to 1,000 new, highly paid employees and by moving equipment into the facility that will produce the 300-milimeter wafers, TI is sending its own message that these products can be competitively produced in the USA.

TI is renowned for its high-quality employee benefits package. I may be mistaken, but I sort of recall that the TI facility may be the first opened in the US since 1996. While TI owns chip factories around the world, TI’s new Dallas facility is a significant statement of support for TI’s position to open manufacturing plants “near their customers.” TI believes that they’ll produce up to $1 billion worth of chips annually by the time they’re up to speed at the end of 2010.

JE comments: TI’s new factory is certainly good news for US manufacturing. A question for the floor: what is the most innovative/creative use you’ve found for an obsolete computer? “Dust collector” doesn’t count. Randy Black has found a high-tech door stop. I have an ancient, tiny-screen Macintosh (c. 1991) sitting in my Adrian College office, where it does double duty as a bookend and conversation starter. It still works, although it takes about 30 minutes to boot up.

re: Economics: Heinberg and “Peak Oil” (Istvan Simon, US)

Istvan Simon writes:

I think that the proponents of the Peak Oil theory are very likely to be wrong. I would like to quote from the WAIS ‘09 conference, where one of our speakers said: “The Stone Age did not end because of lack of stone.” This is a wise observation, which applies to the oil age as well. It is quite likely that our Oil Age also will not end because of lack of oil, but because newer and better technologies will replace oil as our main source of energy.

Alain de Benoist (2 November) read the analysis of Richard Heinberg that he forwarded to WAIS with sympathy because like him, Alain also thinks that economic growth is unsustainable. But we have talked about this subject before and the logical mistakes of those that advocate these ideas.

Fact: exponential economic growth does not imply that we must have exponential growth of physical resources to achieve it. A large part of economic growth is in services, and these can grow exponentially without needing any exponential increase in physical resources consumed. In addition, technological advances allow frequently the exponential growth in the power of physical devices, for example electronic devices like computers, calculators, MP3 players, TV sets, etc., while actually reducing the physical resources consumed in their making. Much of the vertiginous increase of computing power that occurred in the last 50 years is based on this fact. 25 years ago a microprocessor consisted of about 5000 transistors. Today it consists of 5 million. This is a 1000-fold increase but the amount of physical resources involved in the manufacturing of the 1000 times more powerful microprocessor is less than in the earlier model. Thus computing power has been growing exponentially for the last 50 years, but the amount of physical resources necessary to make these devices has not. That is why computer prices continually fall while their computing power continually grows.

Clearly, more powerful computers allow us to have large increases in productivity in a wide variety of economic activities. This in turn reduces costs while increasing economic output. It is obvious that this will result in large economic growth and yet does not imply corresponding growth in the consumption of physical resources. In other words, tying economic growth to growth in consumption of physical resources is a fallacy. Since Richard Heinberg’s analysis is ultimately based on this fallacy, it follows that his analysis is wrong, and therefore his predictions are very likely to be wrong as well.

re: Economics: Heinberg’s “Temporary Recession or End of Growth?” (David Gress, Denmark)

David Gress comments on the Richard Heinberg essay forwarded by Alain de Benoist on 2 November:

First impression: diagnosis correct, assumptions false. Because if the US, just for one, allowed full drilling in all discovered fields, particularly off the West Coast, in Alaska, and in the huge shale oil areas of the High Plains, the notion of peak oil would disappear. The Earth is a very large place even now, and there is lots, lots of oil to be had, if the politicians will allow.

But those in power don’t want all that oil, because that would diminish their control over our behavior. This is the reason that no drilling permits are granted.

I remember the arguments of the 1970s about finite resources. These arguments were made by people who simply did not understand the enormous size of the Earth, if you really want to extract resources from it. We have coal, iron, oil for millennia or more if we want to get them. The point is, our rulers don’t want us to get them, because that would reduce their power over us.

re: Economics: Heinberg’s “Temporary Recession or End of Growth?” (Jordi Molins i Coronado, Catalonia)

Jordi Molins i Coronado comments on the Richard Heinberg essay forwarded by Alain de Benoist on 2 November:

I do not see the causal link that led the “peak oil” hypothesis to create the subprime crisis. One could imagine that higher oil prices would overstretch the pockets of poor Americans (those which overwhelmingly represent the subprime mortgages). However, Western economies have been decoupled more and more from oil, and currently we need less oil to produce the same, compared to the 1970s-’80s.

Additionally, if “peak oil” were true, oil would now be worth, say $300 or $1,000. I do not see why, apart from a short-term spike to $160, in a “peak oil” environment, oil should trade constantly below $100.

My answer to the current financial crisis is much more simple, and it provides an obvious causal link: big financial institutions were able to leverage themselves massively (Bear Stearns routinely had a 1 to 30 leverage before its demise). Regulators are guilty of having allowed financial institutions, which now we have discovered are “too big to fail,” to leverage themselves to crazy levels. An individual can leverage himself 1 to 2 for stock investments, and very often investors do not leverage themselves at all. The maximum leverage a family can get is when they buy a home: possibly 1 to 5, or even 1 to 10.

Is it surprising that the sectors where leverage was allowed (banking sector and housing) were the sectors most crudely hit by the financial crisis?

Peak oil will not represent the demise of our civilization. Other sources of energy will substitute it when oil becomes too expensive. Or maybe we will be so advanced that we will not need much energy in the future. But entrepreneurship for sure will find ways to overcome the lack of oil: price signals are always strong signals.

Economics: Heinberg’s “Temporary Recession or End of Growth?” (Alain de Benoist, France)

Alain de Benoist writes:

I have read with interest, and sympathy, Richard Heinberg’s essay in the document linked below. I suspect, however, that some other well-informed WAISers would disagree with him. This could open a useful discussion.

JE comments: Indeed it will. I am certain the decriers of WAISly “gloom and doom” will have a good deal to say in response. Heinberg’s essay can be accessed at:

http://heinberg.wordpress.com/2009/08/06/208-the-end-of-growth/

re: Capitalism, Democracy, and the Pay Czar (Gene Franklin, US)

JE commented on 25 October (see Bienvenido Macario’s post from that date):

Having lost my well-publicized (if underfunded) campaign for Car Czar, might I have a shot at someday becoming Pay Czar? What is the Pay Czar’s salary, anyway?

Gene Franklin responds:

His pay is $0.00. Sorry, John.

JE comments: Hmm. That’s not much more than the WAIS E-i-C salary…

re: Capitalism and Democracy; Goldman Sachs and Executive Pay (Bienvenido Macario, Philippines/US)

Gene Franklin wrote on 20 October:

The [financial] bailout will be a success only when there is real reform of the financial system. In my amateur opinion, this must include:

1. Split commercial banks from investment banks again. Banks should not be allowed to take risks (gamble) with guaranteed money.

2. “Too big to fail” is taken by regulators to be the same as “too big to exist.” For example, no bank should again be allowed to get as large as Lehman Brothers. Those now larger than that should be broken up.

3. A real consumers protection agency to be sure banks and borrowers each understand the risks they are taking.

Bienvenido Macario responds:

On 23 October Ben Bernanke commented on the need for the reform of the financial system:

Bernanke urges Congress to act now on overhaul

Bernanke prods Congress to enact financial overhaul to prevent future crises

By Jeannine Aversa, AP Economics Writer

Friday October 23, 2009

http://finance.yahoo.com/news/Bernanke-urges-Congress-to-apf-3222386032.html;_ylt=Au1ZhE4kNVbMF7.SbOnH3ty7YWsA;_ylu=X3oDMTE1cjdsZmM3BHBvcwM0BHNlYwN0b3BTdG9yaWVzBHNsawNiZXJuYW5rZXVyZ2U-?x=0&sec=topStories&pos=2&asset=&ccode =

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke prodded Congress Friday to enact legislation overhauling the nation’s financial regulatory system to prevent a repeat of the banking and credit debacles that had thrust the country into crisis.

“With the financial turmoil abating, now is the time for policymakers to take action to reduce the probability and severity of any future crises,” Bernanke said in remarks to a Fed conference in Chatham, Mass.

For its part, the Fed has been taking steps to strengthen oversight of banks, sharpen consumer protections and on Thursday unveiled a sweeping proposal to police banks’ pay policies to make sure they don’t encourage top executives and other employees to take reckless gambles.

But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to do, Bernanke said.

Bienvenido Macario continues:

Splitting commercial banks from investments bank could only be effected through Congress. Gene Franklin was right on the money in his recommendations on the bailout and real reform of the financial system per this statement from Ben Bernanke. I think Bernanke is saying that the time to fix the roof is when the sun is out. And it won’t be sunny for long. There is a small window of opportunity to start making real reforms. Congress should act ASAP before the Thanksgiving holiday shopping season starts, if we are going to have such season this year. Perhaps reforms should be in place before January 2010.

In the meantime seven corporations who availed of TARP / Bailout money from the government have been ordered by the Pay Czar to reduce executives’ pay. These corporations should have sought government sponsored status (GSE) like Freddie Mac in which the government injected $51 billion of taxpayers money. Freddie Mac is 80% owned by the US government.

JE comments: Having lost my well-publicized (if underfunded) campaign for Car Czar, might I have a shot at someday becoming Pay Czar? What is the Pay Czar’s salary, anyway?

US: on Expired Credit Cards (Charles Ridley, US)

Charles Ridley writes:

When I bought a couple of books at the WAIS ‘09 Conference, I inadvertently used a credit card that had expired two years ago. When I called the credit card company to activate my new card, I checked and found that the transactions had been paid in spite of the fact that the card had expired. I usually cut up expired cards into several pieces and then throw them out. It is clear that an expired card falling into the wrong hands might still be used. (I learned that my old card had expired when I tried to pay for a restaurant meal with it.) A word to those far wiser WAISers than I who probably do not need it.

JE comments: Many thanks to Charles Ridley for this WAIS Public Service Announcement. I wouldn’t be surprised if our card-issuing friends assessed Dear Charles with a hefty “convenience fee”–they’re always glad to do so. I’ve received a couple of “update to your credit agreement” letters in recent weeks, and am struck by how overdraft and late fees have increased. $39 for even the tiniest infraction is the new norm. Another innovative feature (presumably mandated by new Federal laws): card statements must now indicate how long it will take the user to pay off his/her balance if only the minimum fee is paid each month. The figure, if one ponies up the 2% minimum, will probably sound like a medium-term jail sentence of several years. In these times of “vacas flacas” (skinny cows, a great Spanish expression for hardship), I suspect that a large percentage of Americans are stuck in minimum-payment Purgatory.

re: Economics: on Malthusian Thought (Robert Whealey, US)

Robert Whealey writes:

Alain de Benoist (23 May) is basically right. The free market no longer exists in basic industries–banking, oil, steel production, automobile manufacturing and railroads. There is a free market around the edges–perhaps in 10-15% of the jobs. There is a free market for strawberries and used cars.

Markets in new industries like wind power and solar power are now free. But like railroads, airlines, and automobile manufacturing the big companies will inevitably and gradually swallow the small producers and then become stagnant.

Cameron Sawyer (25 May) puts too much faith in pure logic and makes few observations about the operations of real markets. Adam Smith’s version of supply and demand collapsed in 1929. Ronald Reagan pretended that the 1920s rules still governed Wall Street in the 1980s. But that imaginary “free” market collapsed again in September 2008.

JE comments: This year we are growing our own strawberries in the back yard, which reminds me of a new trend we’re seeing in Detroit–urban farming. Concomitantly with our endless suburban sprawl, the inner city is now becoming a neo-agricultural zone, with blighted empty lots being returned to food production–shades of the 19th century. I’ve driven around the city, and there is a lot of feral space available to grow food. As “made in Detroit” no longer applies to cars and such, we may soon be buying vegetables with a “grown in Detroit” label! I haven’t seen any livestock yet, but “Detroit-Smoked Urban ‘Country’ Ham” may indeed by the next Big Thing.

http://www.urbanfarming.org/

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For information about the World Association of International Studies (WAIS), and its online publication, the World Affairs Report, read its homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Economics: The Crisis and Jobs Loss (Alain de Benoist, France)

Alain de Benoist writes:

The numbers change every day, but I have read that more than 2 million jobs have been lost since the beginning of year 2008 in the United States, where the rate of unemployment has now reached the level of 8.9% (12.5 million people without any job, the highest level since December 1983). In France, the number of jobs lost in 2009 is already higher than the number of jobs created in 2008. The rate of unemployment is now at 6.2% in Britain, 8.3% in France, 9% in Ireland, and 13.9% in Spain. In Spain, it will probably reach 17.1% at the end of 2009 and 19.4% in 2010. It could reach 6% in Japan in 2010. There are now 5.8 million jobless people in Russia. In the whole Euro zone, the rate of unemployment reached 8.2% in last January, the highest level since September 2006. According to the organization Business Europe, around 4.5 million Europeans will lose their jobs in the coming months. According to the OECD, the rate of unemployment in the 30 countries of the OECD zone will reach 10% before the end of 2010. For the 27 countries of the European Union, it could reach 11.5% in 2010. And so son, and so on.

Social and political turmoils are to be expected in all western countries. In France, some weeks ago, three million people were demonstrating in the streets. Several enterprise bosses have been sequestrated (held as “hostages” for 24 or 48 hours). Companies which continue to make profits are still dismissing workers and relocating their production. Everywhere, jobs are destroyed in the name of globalization or as a consequence of the American and now world financial crisis. The divide of added value is everywhere more and more beneficial for capital and less and less beneficial for the working people. Workers are the victims, not the guilty ones. Here in France, many people have already committed suicide. More and more people live in fear of losing their jobs. What about those responsible for the crisis? Somebody like Bernard Madoff has probably stolen more money than all the robbers who are today in jail in the US. He will certainly not be submitted to “waterboarding”! For the time being, I can say that more and more people here are torn between anger and disgust.

JE comments: Sobering statistics. I’ve said it before, but I am reminded again and again how fortunate I am to have a tenured academic job.

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For information about the World Association of International Studies (WAIS), and its online publication, the World Affairs Report, read its homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Malthusian Thought (Cameron Sawyer, Russia)

Alain de Benoist wrote on 23 May:

Free-exchange is based on the idea of “free markets,” which have been frequently praised on WAIS. The problem is that, except for stock exchanges, free markets do not exist, because they are always affected by power interferences and phenomena.

Cameron Sawyer responds:

I find this statement lacking in logic, uncharacteristic of Alain’s usually highly disciplined thought. Certainly, markets–including stock exchanges!–do not work perfectly, and far from it. Their functioning is distorted by all kinds of things, and their failures are well known. But that fact, which I think is uncontroversial, does not prove anything. It does not prove that non-market systems of organizing economic life are better than imperfectly functioning markets. And it avoids altogether a really important point which I was trying to make–that markets are necessary not just because, imperfect or not, they are more efficient than any other economic system, but because the freedom to engage in economic activity is an essential human right, it is indeed the cornerstone of human liberty. So these are two separate arguments in favor of economic liberalism which do not necessarily depend on one another–first of all, that the overall wealth of human society is desirable and should be increased, and that markets, imperfect or not, provide that increase more efficiently than any other system; and secondly, that economic liberty is a good in and of itself, independent of liberal economies’ efficiency at creating wealth.

By the way, many libertarians take a total or purist approach to these questions; that is, they believe that economic freedom must be total in order to be worthwhile. I do not follow this path; I am against all kinds of fanaticism on principle. That is the conservative in me, which rejects any idea of the possibility of any perfect society, even a libertarian one. I think that economic liberty is a very precious value, and I believe that that inhibiting or compromising it is very costly both in terms of human liberty and in terms of the desirable overall wealth of society. But I am not a fanatic or a purist–I think that the U.S. and French and even the Swedish models of balancing a certain amount of economic liberty with a certain amount of socialism, that is, with certain other values, to be perfectly legitimate, and I think that it is very healthy that different countries try different approaches. The whole world can learn something–what, I can’t say, but surely something–from the undoubted achievements of socialism as it is practiced in the U.S., France and Sweden. Besides that, it might very well be that different systems work better or worse for countries in different stages of development. That was the position of Egor Gaidar, the first Prime Minister of Russia after its liberation from Communism, whom I knew in the early 1990s. Gaidar was a socialist (at least, in those days), who greatly admired the Swedish system. But he believed that socialism was a luxury for rich countries. Russia, in 1992, was basically bankrupt after the failure of Communism, and desperately needed to create wealth at any cost. The best way to achieve this, Gaidar thought, was with an extremely pure market-oriented economy. After rejoining the ranks of developed, rich countries, then Russia would have a choice whether to implement some socialism, or not. Maybe he was right. I don’t particularly like socialism, for a whole host of reasons besides efficiency, but maybe it’s a legitimate choice, which can work, at least for rich countries. Probably it is pure poison for poor countries, but that’s a different conversation.

Alain wrote that the Meadows Report: Limitations on Growth (the official abstract is here: http://www.clubofrome.org/ docs/limits.rtf ; see also the superb summary on Wikipedia: http://en.wikipedia.org/wiki/ The_Limits_to_Growth ) , is basically different in the structure of its argument from Erlich’s The Population Bomb, and that the Meadows Report is not “Malthusian.” I suppose people may differ on what it means to be ”Malthusian,” but I for one cannot see why the Meadows Report is not Malthusian, and I assert that these two works are very much the same in what they say, and based on what argument. Malthus said, basically, that human population expands exponentially over time, absent some kind of limitation imposed by disasters, and that food supplies can be increased only in a linear fashion, and that therefore we are doomed to collapse in what can be called a “Malthusian Catastrophe” (see: http://en.wikipedia.org/wiki/ Malthusian_catastrophe ). It is a very straightforward (not to say incredibly simplistic) mathematical approach, which was taken up by Ehrlich in The Population Bomb, which is a pretty straightforward popularization (not to say, sensationalization) and repetition of Malthus with some expansion of the application of idea from food to all natural resources.

The Meadows Report is not primarily concerned with the population-food crisis which was the subject of The Population Bomb, but applies exactly the same argument with exactly the same structure and mathematical model to a supposed economic growth-resources crisis. It applies Malthus’s mathematical model–which looks at population growth as if it were compound interest (see: http://en.wikipedia.org/wiki/ Malthusian_growth_model ), and at food production as a simple linear function–to the relationship between economic growth and the consumption of natural resources. The running out of natural resources described in the Meadows Report is a classical Malthusian Catastrophe, argued on strictly Malthusian principles–that is, a simple mathematical model of exponential growth of consumption against a linear model of supply, which assumes that the same natural resources are needed as economic inputs over time. The report does consider some variations in a straight line scenario of resources running out–it analyzes the influence of technology, like development of nuclear energy, increased use of birth control, and reduction of pollution per unit of economic growth, by using fixed factors. But this is just a sensitivity analysis using static factors of deviation, as if the factors imposed are some wildly and obviously optimistic variations to the assumed as a baseline Malthusian progression of mankind to disaster. None of the mathematical relationships have been borne out by economic history since publication of the Meadows Report. There have been some attempts to correct or “update” the arguments of the Meadows Report, but I assert that these are entirely futile, as the argument is based on entirely false assumptions and premises.

We’ve discussed a lot on WAIS the nature of wealth and of economic growth, and I don’t really want to repeat what has been said over and over again. Economic growth as we know it is a quite recent phenomenon; the world has a whole has experienced noticeable overall economic growth only since the 19th century (it has been estimated, crudely of course, that worldwide GDP /capita per capita increased from $130/capita to only $250/capita during the whole period of human history from 5000 BC to 1800 AD–see: http://econ161.berkeley.edu/ macro_online/ms/ch5/Chapter_5. pdf ). Then it took off in a spectacular way to reach $8,175/capita in only 200 years from 1800 to 2000 (all figures in 2000 dollars). Alain allows as how there may be non-material goods (“virtual” or “immaterial”) which have value, which create some variation in a model of economic growth based purely on the consumption of resources, but he believes this to be a peripheral issue; he is talking about material value. But all value is non-material, virtual, and immaterial; you cannot separate “virtual” goods from “material” ones. The content of raw materials–and emission of pollutants–in the total value of goods and services in the economy is minor factor, which is completely evanescent. The number of grams of silk in a scarf has almost nothing to do with its value; otherwise an Hermes scarf would cost the same as one from K-Mart. The number of kilos of steel in a car has a rather indirect effect on its value; furthermore it is not a law of nature that cars made out of steel are the only mode of transport we will ever have in human history (they’ve been in widespread use for less than a century, and will surely be gone another century from now at the latest!). A 19th-century middle-class Londoner consumed as many, probably more tons of physical goods a year, than a 21st century middle-class Londoner; yet the 21st-century Londoner is undoubtedly wealthier by orders of magnitude. You can no more measure value by the quantity of natural resources consumed than you can measure wealth by the tons of physical goods consumed–there is almost no relationship. And indeed, 200 years ago, a blink of an eye in the context of all of human history, the raw materials component of economic goods was completely different from what it is today–lighting came almost exclusively from whale oil, transport from horseflesh fed by straw and oats, buildings from bricks and wood, very little steel was used (mostly for cold weapons and precision instruments), ocean transport was powered by sails made from flax in ships caulked with pitch, industry was fired by coal, and so forth. Overall global wealth has increased 32-fold (and in developed countries much more than that), but we do not consume 32x the amount–per capita!–of whale oil, straw, oats, bricks, flax, pitch, or coal. There is simply no simple relationship between economic growth since 1800 and the consumption of those resources (it went up for a few decades, then drastically down), or the emission of pollutants. So you simply cannot predict anything whatsoever about the future with a simple mathematical relationship between economic growth and the consumption of those particular resources which happen to be in demand today. Only one thing is more or less certain–that those resources which we use today, will be obsolete tomorrow, as much as whale oil. And that there is no limit on economic growth, other than human imagination and human ingenuity.

Simon’s point in his wager against Ehrlich was just as valid against the premises of the Meadows Report–that we never run out of any natural resource. The global economy uses resources opportunistically–they are useful only to the extent that they are abundant and cheap. When any particular resource starts to become scarce and expensive, it gets substituted by something else (whale oil and kerosene), or is rendered obsolete anyway by new technology or changing demand. The fundamentally wrong assumption by all these–yes, Malthusians–is that the economy is something static. It is, on the contrary, incredibly dynamic, and has almost nothing to do with the physical inputs into it–all value is immaterial.

As to Alain’s non-economic arguments–concerning the moral hazard of “illimitation” or “hybris” and the “never-ending process of wanting more”–this is a different kettle of fish altogether, and I agree with Alain that this is a very real and very grave problem of mankind. I don’t think, however, that this problem can be solved by making mankind poorer. Greed, envy, murder, and robbery have been with us since before history, and will always be with us. Some optimists think that if we can only eliminate poverty in the world–something which, n.b., will take a vast increase in the overall wealth and state of development of mankind–these problems will disappear. I consider this view to be naïve. Where the human heart is concerned, I am not so optimistic as I am concerning mankind’s economic life.

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For information about the World Association of International Studies (WAIS), and its online publication, the World Affairs Report, read its homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Thailand: on “Sufficiency Economy” (Steve Torok, Thailand)

Steve Torok writes:

I should use the occasion of Alain de Benoist’s thoughtful essay of 23 May to answer JE’s question about “Sufficiency Economy.” The references are UNDP reports about Thailand from 2007 and 2008 that I used as basis of lecture material. Originally, the idea was to avoid vulnerability to economic ups and downs by a diversification strategy, very familiar as “good business practice” thought, based on portfolio theory in business schools, but applied to the poor Thai farmer, who wants to protect his farm by crop rotation, green farming methods, never concentrating on only mono-cultures for exports, digging two fish ponds instead of one at diverse enough locations so that if one dries out because of drought conditions the other would still yield some fish. There is also the “store of value” in handmade silk produced by women, while taking care of children under the shady stilt-houses of teakwood, while their husbands are farming. The grandparents would help in feeding the silkworms with mulberry leaves while with the boiling of silk cocoons, spinning the yarn, etc, the children help once back from school. The multi-colored traditional patterns of silk “pasin” or wrap-around skirts may take several months to produce through an elaborate process of tie-dying with traditional colors. Once ready, they don’t rush to market, but keep it neatly folded for emergencies, such as a university school bill for one of the children, weddings, important guests, etc. By keeping it off the market for, maybe, a hundred years, it is a store of family wealth produced in “spare time” as long as traditional tastes and appreciation of quality remains, as it has remained in Thailand and also in Japan for their kimonos.

Thaksin, who came from a silk trading family in Northern Thailand, added international “value added” marketing skills to this mix so that, when needed, the farmer can make use of this accumulated wealth. Industrial methods of production had to be resisted, also price competition. One could argue that quality Thai silk is a “Giffen Good” for high fashion in Paris: the more expensive, the more in demand. So, the answer to Alain is portfolio theory where maximization of financial return is still required for security, and for avoiding “bubbles” in non-material wealth creation: the essence of “Thaksinomics” (Kriengsak Chaeonwongsak, The Pre-death Phase of Thaksinomics — perspectives on economics, politics and society on Thaksin’s regime, Success Media Co. Ltd, 2006. info@succesmedia.com).

JE comments: A very interesting point on Thai methods of storing family wealth. I’d like to know if there are similar examples in other nations. One might say that in Michigan, where beverage containers command a highest-in-the-nation 10-cent deposit, many of us keep a rainy-day fund in beer bottles and aluminum cans in the basement!

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Malthusian Thought (Alain de Benoist, France)

Istvan Simon wrote on 18 May:

There are a number of mistakes in Alain de Benoists’s reliance on Malthusians. For example, he does not take into consideration technology and technological change, and its effects on growth.

Alain de Benoist responds:

Most of the authors Istvan is talking about are not Malthusians. And I am not a Malthusian either.

I agree with Cameron Sawyer (16 May) that the books I quoted can be seen as “quite controversial” and that the “the debate continues.” Of course, it does–as almost all books are “controversial”! I also agree with the fact that “value has little to do with the quantity of resources consumed in the production of a thing […] any more than the economic value of things or services is determined by the labour inputs involved, as Marx falsely believes.” We all know what marginalism is. The question of “value” is a very complex one. Marx partly corrected himself in some of his later books.

Cameron also wrote that the famous book written by Paul Ehrlich in the 1970s, The Population Bomb, was “based on the same kinds of ideas upon which The Limits to Growth is based.” Here I disagree. The Meadows Report is certainly a bit outdated today, and it is certainly not the best critique of growth which has been published. However the method used in this work is not “Malthusian.” Malthus used a methodology which was very mechanical, which I consider false. The problem of limits to growth is not the same as the problem of overpopulation. Nicholas Georgescu-Roegen, for instance, referred to the laws of thermodynamics. Paul Ehrlich, to the contrary, was a Malthusian (and Cameron was right to recall the famous Simon-Ehrlich Wager). That’s why I did not quote Ehrlich among the authors I cited.

When I wrote that “infinite material growth is impossible in a finite world,” the key word was “material.” It is clear that the “virtual” or “immaterial” part of the economy (which includes the number of transistors used on a computer chip quoted by Istvan Simon) does not have the same limitations. The problem however is that no economy can be fully “immaterial.” Most parts of an economy have an ecological footprint. Should the whole world have the level of life of Californians, we would need several additional planets to accommodate everyone. On the notion of “ecological footprint,” see William E. Rees and Mathis Wackenagel, “Ecological Footprints and Appropriated Carrying Capacity: Measuring the Natural Capital Requirements of the Human Economy,” in AnnMari Jansson (ed.), Investing in Natural Capital. The Ecological Economics of the Human Economy, Washington: Island Press, 1994, pp. 362-390.

Free-exchange is based on the idea of “free markets,” which have been frequently praised on WAIS. The problem is that, except for stock exchanges, free markets do not exist, because they are always affected by power interferences and phenomena. This has been extensively studied by two of the best French economists, the late François Perroux (1903-1987; see Pouvoir et économie, 1973, and Critique de la raison économique, 1975), and the still living (he was born in 1911!) Maurice Allais, who received in 1988 the Nobel Prize for Economics for his contributions to the theory of markets (see his latest book, La mondialisation, la destruction des emplois et de la croissance, 2007).

The problem of fighting against economic illimitation (“hybris”) is also, perhaps mainly, a philosophical and sociological problem. To criticize material growth has nothing to do with Malthusianism, nor with an appeal to the “end of history” or to a backwards return to the “good old days of the past.” It’s a way to find a way to live and work other than by a never-ending process of wanting more. The “more” vs. “better” problematic can be usefully compared with other classical oppositions, for instance quantity vs. quality, individualism vs. holism, civilization vs. culture, or society vs. community.

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For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism and Exponential Functions (Jody Brennan, US)

Jody Brennan writes:

I agree with Istvan Simon (18 May) et al. The central fault with 1960s “neo” Malthusian scaremongering is that it does not account for technical advances that furthers growth in resources (including food), which is well-known fallacy.

There is an excellent article in The Economist (May 17th 2008, p. 94), “Mathus, the False Prophet.” The author does a good job explaining how technology itself made Malthus’s theories fail and the neo-Malthusians as well (who now claim wrongly that there is not enough meat to feed the newly affluent Chinese). The post- industrial world (advent of technology) experience disproves it all, day after day.

Also important is the role of governments, not just technology, which can make matters better or worse when they muddle the markets. Good: free trade agreements, which expands trade and increases resources. Or events such as the abolition of Corn Laws in Britain in 1846, which began the importation of cheaper foods. Bad: Export bans and imposing government subsidies instead of dealing with market demand, creating false scarcity.

I would further argue that there is more a problem of waste today, rather than scarcity, due to technology and government intervention. The fact that milk producers (OK cows, really, who have via technology become bottomless milk cartons) all around the world make so much product, that their owners (corporations) have to throw away thousands of gallons of a vital human commodity every day, is a bigger problem in my opinion. To redirect their ire, the neo-Malthusians might start by addressing overproduction and government waste of vital commodities.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism and Exponential Functions (Istvan Simon, US)

Istvan Simon responds to the recent posts of Alain de Benoist, A. J. Cave, Cameron Sawyer, Alan Levine and Steve Torok:

I have been following this discussion with keen interest. With regards to Alain de Benoist’s contention that my thinking on this issue has been “refuted” by several authors I have this to say: color television sets were developed in the United States just about the same time when someone “refuted” the possibility of their development in an article. It is quite evident that the one that “refuted” the possibility of making color television sets was wrong, and so are all the Malthusians that Alain de Benoist cited in his reply to me. I agree with Cameron Sawyer, Alan Levine and Steve Torok on this issue.

There are a number of mistakes in Alain de Benoist’s reliance on Malthusians. For example, he does not take into consideration technology and technological change, and its effects on growth. Take computers as an example. The number of transistors on a chip has been growing exponentially for 40 years. As a result computers have become extremely fast and extremely cheap as we all know. The computer that I first used in 1965 had 10 KB of main memory and cost $120,000. The computer that I just bought a few months ago has 4GB of main memory and cost $2,000. That is a factor of 400000 in terms of increased memory and a simultaneous reduction in cost by a factor of 60. Actually the reduction in cost is much larger than a factor of 60, because of inflation from 1965 to 2009. This example illustrates the point of why what the Malthusians said is simply mistaken.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism and Exponential Functions (Steve Torok, Thailand)

Steve Torok responds to Cameron Sawyer’s post of 15 May:

As usual, I again agree with Cameron on this, the more so since these issues have engaged me since the 1970s and I had to arrive at my own conclusions, both at Shell International and at the United Nations, where I edited an Energy/Environment Newsletter (ESCAP ENERGY NEWS) for some seventeen years, writing also book reviews on UNU publications in the field.

My current answer is that the “good business practices” taught to us at the Columbia University Graduate School of Business have largely anticipated these issues and that the King of Thailand’s Sufficiency Economy Principle (that, by the way, only Thaksin Shinowatra, the former Prime Minister of Thailand understood properly and not his critics) re-state these for our time, though, in fact, the principles are 2000 years old and form the essence of the Chinese “middle way.” I have a survey methodology to take the “temperature” of discourse communities on this and I might use it at WAIS 2009 for our benefit.

JE comments: A general question for Steve Torok: could you summarize in a paragraph or two the core tenets of the King’s Sufficiency Economy Principle? Many of us WAISers would like to understand it better.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Exponential Functions and the Origin of Chess (A. J. Cave, US; ex-Iran)

On May 15, Cameron Sawyer wrote: 
 
[I am reminded of the] famous legend of the old Chinese man who claimed a modest-sounding reward from the Emperor for some service performed. He asked for a single grain of rice on one square of a chessboard, double that amount on the next square, and so on. The emperor laughed, thinking the old man a fool, and the reward trivial. Until his people did a little calculating and understood that 2 to the 63rd power grains of rice is more than all the rice in the world (in fact, more than 1000 years of current global rice production). See: http://www.dedoimedo.com/life/rice.html; where this lesson is very well summed up thus: “People have a really hard time understanding how mighty the exponent is. This mathematical little bugger is more than just a fancy superscript. It’s one of the most powerful things in the Universe.”

 A.J. Cave responds:

A minor quibble with Cameron Sawyer (rice vs. wheat).  Actually this famous “Chinese” legend is based on an “Iranian” legend from 10th century from Ferdowsi’s Shah Nameh [Book of Kings] about the Game of Asha, which seems to be unknown in the West:

http://www.avesta.org/other/ashagame.htm

…and the reason why the King’s promise to the Prophet was never fulfilled:

http://www.avesta.org/other/ashagame.htm

Here is the full text:

The Game of Asha

As retold by Paul Jordan-Smith

It is told in the old legends how, one day, when King Vishtaspa was returning from a victorious campaign, he came upon a circle of men sitting beneath a tree and listening with rapt attention to a venerable old man who sat in their midst. The king, who was then a young man, was curious to know who the old man was, and so dispatched a servant to find out. Upon his approach the circle of men gave way to the servant, who discovered that the old man was the great teacher Zarathushtra, and that the circle of men who listened to him were his disciples. All this was duly reported to King Vishtaspa, who it is said, demanded that the sage be brought before him.

“I am told that your name is Zarathushtra,” said the king when the Teacher was before him, “and I am also told that you are the wisest man in the world. If that is so, I demand as your king that you immediately instruct me and explain to me the laws of nature and the universe. But please do not be long-winded, for I am in a hurry to return to my palace, where there are many important matters of state awaiting me.”

Zarathushtra looked thoughtfully at the king for a moment and then, bending down, he picked up from the ground a grain of wheat. Holding it respectfully between thumb and forefinger, he bowed low before King Vishtaspa and offered him the grain. The king took it in his hand and the Great Sage explained:

“Your Majesty, all the laws that govern heaven and earth may be read in that which you now hold in your hand. The forces of good and of evil are there, and all that you have asked may be answered by conferring with this grain of wheat. I offer you this book, which you may take with you and read at your leisure.”

But King Vishtaspa, seeing the smiles on the faces of the sage’s disciples, decided that Zarathushtra was mocking him. He threw the grain of wheat to the ground and rose proudly in his saddle.

“I came respectfully and I asked for your guidance because I was told that you were the wisest man in the world. I can see now that you are nothing more than a country bumpkin who has not learned good manners. You cloak your ignorance behind exaggerated ways; I was foolish to have wasted my time here.” So said the king. Then, wheeling around on his stallion, he rode away.

As the king and his retinue departed, Zarathushtra knelt and retrieved the grain of wheat. “I shall keep this grain,” he said to himself, “for one day the king will need it, and it will be his teacher.”

Many years passed, and the fame of Zarathushtra grew with every year. Nor did the fame of King Vishtaspa lessen: always victorious in battle, becoming ever richer with every new alliance, he spent his days in luxury and abundance. But his nights became ever more sleepless with every increase of his fame and wealth. “I live in luxury,” he thought to himself, “yet who has decreed that it shall be always so? One year the farmer’s harvest is rich, and the next year hailstorms are his ruin. Shall I be always so blest with victory? Will my downfall be the greater as my fame and fortune increase? Surely the laws which govern the poor govern also the rich–and who is He who made these laws? How shall I learn the will of God, so that I may measure my fame proportionately, and know the number of my days?”

Night after night these and other questions perplexed the brain of King Vishtaspa and troubled his sleep. At last, pondering his encounter with the Great Sage years earlier, he decided once more to beg instruction, this time in terms quite unlike those he had set as a young man on horseback.

“Great Teacher, I humble myself before you,” he wrote to Zarathushtra. “I regret thoroughly the pride and thoughtlessness of my youth, and see now how foolish it was to have asked for answers to imponderable questions in so short a space of time. Please accept my regrets and humble me with a visit, that I may learn from you, or at least send one of your disciples to teach me.” Then he wrapped the letter, together with a gem of great value, in a fine linen cloth and dispatched it to the Teacher.

In a few days, the messenger returned from Zarathushtra, bringing his answer to the king: “Your Majesty is very kind, but a gardener has no use for jewels, so I am returning the gem. The cloth I shall keep, for it will be useful in protecting certain of my plants against the cold of winter.” Together with this letter, wrapped in a leaf, was the grain of wheat. “I am too old to journey far from my garden,” the sage continued in his letter, “but the king is too noble to receive one of my disciples in my place. Therefore, I am sending, not a disciple but my own teacher, one who has taught me all that I know about the universe.”

It was not long afterward that among those sitting in a circle in the garden of Zarathushtra was one who had lately been accustomed to what men usually regard as more royal circumstances: but he was content now to watch an old man draw figures in the sand, and to move about on these figures various common pebbles, such as those with which children through the ages have played.

On one such figure was depicted the Unity of All: the seasons and the energies of the stars, the sun, the earth and man, the points of the compass and the elements. In all, seven vertical lines were drawn, intersected by another seven at right angles to the first. Around the whole was drawn that most stable of figures, the square, so that the figure was composed of a large square containing sixty-four smaller squares, eight to a side. Now the Great Sage demonstrated how the universe is permeated by the forces of good and evil, just as time may be divided into night and day. So every other square was as dark as night, and the dark and light squares alternated over the whole figure.

And now the Great Sage chose with care various pebbles of strange shape, some of them dark, others light. In all, thirty-two pebbles were chosen, some tall and others small, as if representing greater and lesser powers in the universe. Sixteen of the pebbles were dark, sixteen were light in color. Eight of each group of sixteen were almost identical in size and shape, and the other eight seemed almost to form four pairs of identical figures; and yet in truth, each of the sixteen pebbles was unique. Now, he began to give them names, and with each name he showed how each represented a force or an agent in the universe, each force or agent of light balanced by one of darkness. The forces and agents of light he called Ahuras and Fravashis, the latter being represented by the eight smaller, almost identical pebbles. Counterbalancing these, among the forces of darkness, were the Daevas and Khrafstras. Of each group of sixteen, one Ahura and one Daeva was lord of the other fifteen. Among the lighter forces, this was Ahura Mazda and among the darker, Ahriman.

Each of the figures moved in the universe in its own peculiar and unique fashion. The Fravashis and the Khrafstras, for example, always moved forward, one square at a time, except for their initial movement, when they were allowed to move two squares forward, or when, upon encountering an alien force diagonally ahead of them, they were allowed to capture that force by displacing themselves one square forward and one square to the side. Although these eight agents looked alike, each had its own name. Among the Fravashis were, for instance, the Sun, Water, Air, Food, Man, Earth, Health, and Joy. Counterbalancing these among the Khrafstras were Darkness, Impure Water, Impure Air, Impure Food, Inferior Man, Barrenness, Disease, and Sadness.

Of the Ahuras and Daevas, Power and Peace, and their dark opponents, Weakness and Violence, moved only in straight lines vertically or horizontally. Love and Work, and also Hatred and Idleness, moved in a manner quite distinct from all the others, namely one square in any direction and one square obliquely. Wisdom and Eternal Life, Ignorance and Death moved only in straight lines, but always obliquely, one of each pair always on dark squares, one always on the light. Among the Ahuras, the Preserver, and among the Daevas, the Spoiler, moved with great power and flexibility–in straight lines always, but in any direction, to the eight points of the compass. Of Ahura Mazda, the Creator, and of Ahriman, the Destroyer, we have already spoken; each could move in any direction, but always one square at a time, in accordance with the will of that power himself. For the wise king will always send to battle his agents, so that he may better plan his defenses and attacks.

Day after day in that garden, the Great Sage demonstrated with his pebbles the laws of the universe and the great struggle between the forces of light and darkness. And King Vishtaspa was delighted to learn a method of wherein he might discern not only the forces which govern the universe, but perhaps, one day, even the will of God.

It is said that to reward Zarathushtra for teaching him the Royal Game, the Game of Asha, King Vishtaspa promised Zarathushtra anything he desired. Zarathushtra replied that he wished only to be paid in kind: let a single grain of wheat be placed on the first square of the board of sixty-four squares and two on the second. On the third let there be placed four, and on the fourth, eight, and so on, simply doubling on each square the number of grains on the preceding square. Charmed by this modest request, King Vishtaspa ordered his servants to fulfill the promise.

Why was the promise never fulfilled?

The game is, or course, chess. The reason the promise was never fulfilled is that it would have required over 18 quintillion (18,000,000,000,000,000,000) grains of wheat. Try multiplying it out for yourself. That much wheat would weigh, conservatively, 500 billion tons, far more than our planet has yielded in its entire existence.

JE comments:  Also sprach Zarathustra.  This is a very poetic legend on the origin of chess.  I am one of the most impulsive and mediocre chess players in existence–perhaps it’s because I’ve always insisted on calling the knight the “horsey.”  I was once beaten, fair and square, by my (at the time) five year-old nephew.

–
For information about the World Association of International Studies (WAIS), and its online publication, the World Affairs Report, read its homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism and Economic Functions (Alan Levine, US)

Alan Levine responds to Cameron Sawyer’s post of 15 May:

I am really pleased to see Cameron Sawyer’s discussion of the Simon-Ehrlich wager. I did not know Julian Simon, who passed away some years ago, but I am good friends with his wife and I have heard her accounts of the wager many times.

For the WAIS category of intellectuals never changing their minds, I recently heard Ehrlich on our local PBS radio station peddling his new book, which is another version of the thesis he admitted was wrong so many years ago. La plus ca change… Most intellectuals just seem constitutionally unable of changing even when they admit they’ve been refuted.

The key issue in the debate about the finitude of resources is how to factor in the human mind. The limited resources school essentially only thinks of resources as materialistic/physical and ignores mind. Capitalism’s hopes rest on the illimitable creativity of the human mind. As long as the mind can make new innovations, invent new needs and the means to satisfy them, and utilize previously worthless things (black, sticky, gooey stuff was once not even a neutral good but a negative one–until the human mind conceived burning it for heat and power), then innovation is possible and humans need not fear running out of resources.

Alain de Benoist regularly decries a solely materialist view of the world and insists on the value of, I’m not sure how exactly to phrase it–mind, thought, spirituality–so it might seem surprising that in this debate he is not more attracted to the view that most emphasizes the human mind. But he is also on record against the endless expansion of desires, so I guess he is not attracted to this view because he sees it as mind only in service of the appetites or materialistic things. He will, of course, speak for himself.

I am grateful for Cameron’s thoughtful analysis of the limits of the world-is-limited viewpoint.

JE comments:  Stanford’s e-mail is not working this morning, so once again, I’ve brought out our Gmail “backup generator.”

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For information about the World Association of International Studies (WAIS), and its online publication, the World Affairs Report, read its homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism and Exponential Functions (Cameron Sawyer, Russia)

Cameron Sawyer responds to Alain de Benoist’s post of 14 May:

With all due respect to Alain, I don’t think that these big questions of economics have been “refuted.” These are big questions which are not particularly susceptible to conclusive proofs. On the contrary, most of the works cited by Alain, of which probably the most influential was the Meadows Report, are quite controversial, and have been widely criticized since this point of view passed out of fashion in the early 1980s.

I want to be clear that by saying this I have not disproved the theses of these works. “Fashion” is not proof; unfashionable ideas sometimes turn out to be right. I am merely trying to demonstrate that the idea of the illimitability of economic growth as not been “refuted,” and is not widely considered to be refuted. The debate continues. It may be that in the post-crisis world these ideas come back in fashion.

Let’s talk about The Limits to Growth, which I know best of the works cited by Alain. It’s an interesting book, based on mathematical analysis of limitations on economic growth; specifically, limitations imposed by the availability of natural resources. It’s very much in the spirit of the times–which produced a similar book called The Population Bomb, which presented a mathematical analysis of the imminent collapse of civilization because of overpopulation. I am always in favor of understanding the mathematics of such a question; one’s intuition is never good enough, and exponential functions in real life can be really surprising, contradicting common sense*.

The math in The Limits to Growth may or may not be sound, but the Malthusian assumption of the whole exercise is false. In my humble opinion, which I know is not shared by everyone–obviously false. The assumption is that a unit of economic output requires a fixed amount of natural resources. This is demonstrably false because value has little to do with the quantity of resources consumed in the production of a thing (and much less with the quantity of services produced), any more than the economic value of things or services is determined by the labour inputs involved, as Marx falsely believed. A great example (we’ve been talking about cars and motorbikes lately) is the value of a Ferrari 355GTI compared to the value of a Chevy Nova. Both cars weigh about the same (the Ferrari is actually a little lighter) and contain about the same amount of metal, and required about the same amount energy to produce. Somewhat more labor went into production of the Ferrari. But the Ferrari costs–and therefore is worth–20x more than the Chevy. The value doesn’t come from the amount of metal or rubber, or labor inside the product. It comes from the intellectual component–the design–including especially the design of the production process, which is very different from GM’s production processes. There are, of course, greater inputs by value into the Ferrari–the profit margin is not 20x higher. But these are again differing value inputs, not differing inputs of kilos of metal or kilowatts of power consumed. The analytic framework of The Limits to Growth contradicts this obvious fact.

And I think that this is really the key to understand economic growth–it does not require ever greater consumption of resources. Indeed, advanced economies start to consume fewer amounts of power and fewer quantities of resources as a greater and greater proportion of economic production shifts into services, and as manufacturing becomes higher and higher value added–more and more valuable goods based on more and more intellectual inputs and fewer resources inputs.

Some kind, at least, proof of this, and a good argument against The Limits to Growth and other works of that ilk, is that all of the predictions about constant increases in the cost of commodities, and disasters from running out of them did not come to pass. Another passionate proponent of these Malthusian arguments which Alain likes was Paul Ehrlich, who was a big celebrity in the late 1970s. He was the author of the above-mentioned The Population Bomb, which predicted a total meltdown of the world based on a population explosion and exhaustion of natural resources, based on the same kinds of ideas upon which the The Limits to Growth is based. These ideas were, even when they were in fashion in the 197’s, very controversial, and many respected economists categorically disagreed with them, so I really can’t agree with Alain that they refuted anything at all in any widely accepted way. This controversy gave rise to the famous Simon-Ehrlich Wager, where Ehrlich accepted a longstanding bet from Julian Simon that because of the very factors I have mentioned above, that we will never run out of any commodity, as the relationship between the consumption of commodities and economic growth is not linear, and at some points can be even negative, and that projected economic growth in the 1980s would not result in skyrocketing commodities prices. The two scholars agreed on a method of measuring these predictions, and made the bet. Ehrlich lost decisively, and mailed a check to Julian on the appointed day. See: http://en.wikipedia.org/wiki/Simon-Ehrlich_wager

An excellent comment from the Wikipedia article, which supports some of my arguments above:

“It’s not clear if Ehrlich consulted with economists. If he had, the flaw in using commodity prices as the best way to understand biophysical limits might have become obvious. Many economists understand the principle of substitution and the dynamic influence of technology with respect to commodity prices. For example, in the absence of any new technologies, copper prices would indeed be expected to increase as growing economies demanded more copper to meet the needs of expanding communications networks and plumbing infrastructure. Technological changes mitigated much of this expected demand as fiber optics replaced copper wire networks and various plastics replaced the once ubiquitous copper pipes throughout the construction industry.” (Ibid)

This is a microcosm of the whole controversy–even looking at a narrow slice of the manufacturing sector, the expansion of telecommunications networks is not limited by the availability of copper, a scarce metal. Technology–which is only one of the several intellectual or informatical components of value, which are the most dynamic and powerful components of value, whereas labor and commodities are dead, static components–found a breakthrough substitute, fiber optics, which carry orders of magnitude more information for a given amount of cable, and which are made of glass, a material which is cheap and essentially unlimited in availability (silicon being the most common element in the earth), unlike copper. Now the next wave of technological progress in telecommunications is going on–hard-wired media of telecommunications are being subsituted by over-the-air media, so we are already moving gradually beyond fiber optics. So telecommunications become cheaper and cheaper and cheaper, more and more widely available, which makes the world wealthier and wealthier. And which directly affects the material quality of life of the poorest and most downtrodden of the world. If we continue talking about telecommunications–billions of people who previously lived without any kind of telephone now can communicate with each other, because of mobile telephones, which now serve billions of people where there are no hard-wired telephone networks. This is a tiny example, but this is exactly the way in which worldwide economic growth, driven by technology and other intellectual components of value, not in any way limited by the availability of commodities, improves the lives of everyone, especially the poorest people in the world, and why rather than saying “enough,” as Alain proposes, we should on the contrary be doing everything to promote continued and indeed accelerated economic development, if we care about those less fortunate than ourselves.

The economy is such a very much more dynamic thing, than those gloomy Malthusians Alain likes so much.

In case any WAISer is unfamiliar with the idea of the Malthusian Catastrophe, here is a great introduction, with links to better sources: http://en.wikipedia.org/wiki/Malthusian_catastrophe

* The best example of this is the famous legend of the old Chinese man who claimed a modest-sounding reward from the Emperor for some service performed. He asked for a single grain of rice on one square of a chessboard, double that amount on the next square, and so on. The emperor laughed, thinking the old man a fool, and the reward trivial. Until his people did a little calculating and understood that 2 to the 63rd power grains of rice is more than all the rice in the world (in fact, more than 1000 years of current global rice production). See: http://www.dedoimedo.com/life/rice.html; where this lesson is very well summed up thus: “People have a really hard time understanding how mighty the exponent is. This mathematical little bugger is more than just a fancy superscript. It’s one of the most powerful things in the Universe.”

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For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Tor Guimaraes, US)

JE wrote on 13 May:

Of Tor Guimaraes’s five trenchant points, I am especially struck by #3. A followup: might the decline of US unions since the 1970s, but especially post-’89, have to do with the disappearance of the Socialist Bloc as an alternative economic model?

Tor Guimaraes replies:

I believe it might be exceedingly difficult to show causality between one specific event such as “the decline of US unions since the 1970s, but especially post-’89″ to such a deep background event, albeit huge, such as “the disappearance of the Socialist Bloc.” Nevertheless, two no-brainers (corporate managers/owners would like very much to make unions disappear, and once the “commies” were out of the way the US establishment could do what it wanted) are hard to argue against.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Alain de Benoist, France)

Alain de Benoist writes:

The argument raised by Istvan Simon (13 May), that “the corollary of limiting growth is mass murder, and generalized poverty,” has long since been successively refuted by Nicholas Georgescu-Roegen (The Entropy Law and the Economic Process, 1971; Energy and Economic Myths, 1975; Demain la décroissance, 1979), the Meadows Report (The Limits to Growth, 1972), Serge Latouche (Faut-il refuser le développement?, 1986), Edward Goldsmith (The Way: An Ecological World View, 1992), AnnMari Jansson (Investing in Natural Capital, 1994), and Wolfgang Sachs (Planet Dialectics, 1999). See also Marshall Sahlins, The Original Affluent Society (1972).

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For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Steve Torok, Thailand)

Steve Torok writes:

I have enjoyed Alain and Cameron’s recent exchange on capitalism. My
position is closer to Cameron’s, since normally I teach MBAs! In Thailand
and Hungary, however, I have been teaching the King of Thailand’s
Sufficiency Economy philosophy these last two years. That is closer to
Alain’s position as well as my sister’s here in Hungary, with whom I’ve had
splendid arguments, reaching a compromise last night where she agreed with
me that the property tax to be introduced by the Government here in July
that passed parliament yesterday by the minority socialist “reform”
Government is a bad idea because of double taxation, punitive effects on
elderly and retired people (more than 25 percent of the electorate in Hungary
because of demographic changes!), and will result in no economic stimulus,
but an additional 200,000 unemployed, a counter-productive measure in the World Economic crisis where
the emphasis should be on stimulus. A change of Government, with a two-year
debt moratorium to the IMF and EU would be needed, with a strong job
-creating stimulus package to bring Hungary back from the brink. The now
unemployed Thai former Prime Minister Thaksin Shinowatra could very well
manage it, if hired as a “Podesta” (in 13th-Century Venetian style as often
done by Italian City States). Am I dreaming?

JE comments: A very interesting proposal. Could a Thai-Hungarian “Axis” be far in the offing? All the best to Steve Torok. I would like to be a fly on the wall during Steve’s conversations on economics with his sister, but I unfortunately (with my non-existent Hungarian) I wouldn’t understand a word!

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Richard Hancock, US)

Richard Hancock writes:

Capitalism is the instrument of progress and Socialism is the force for the status quo. Personally I prefer progress to the status quo. Under a socialist government, we would probably still have buggy-whip manufacturers. That is not to say that government doesn’t have its place. Proper government regulation could have ameliorated the effects of the current recession, but government can’t eliminate the cycles of growth alternating with periods of relative stagnation. The strongest drive that humans possess is that of self-preservation, and Capitalism is a manifestation of this drive.

Our everyday experiences bear witness to the value of capitalism. Yesterday the spring in our garage-door opener broke. I called the garage door company immediately and this morning they sent a young man to replace the springs. This is not a do-it-yourself project. The home owner could seriously injure himself if he personally tried to install these powerful springs. This young man was a marvel of efficiency. He installed these springs in 20 minutes without one wasted motion. He quickly responded to my questions about garage-door openers. I wondered why this able young person could be satisfied with such a mundane task such as installing garage doors. When I looked at the bill, I found the answer. He earned $95 for his 20 minutes of effort.

If I had received this garage-door service from a government agency, I would have been obliged to have scheduled it a month in advance and probably would have seen the 20-minute task extended into a job of several hours’ duration. Of course, it would probably been a “free service,” so any complaints that I might make would have no effect because the installer’s pay would not be based on productivity and/or customer satisfaction.

I can give hundreds of examples similar to my experience of today. That is not to say that some service providers would not take advantage of the client. Capitalism is a Darwinian system and we should all follow the adage of “buyer beware.” The idea that socialism will prevent all such abuses is unrealistic. Human selfishness continues to exist under socialism just as under Capitalism. The great American philosopher, John Wayne, is reported to have said, “Life is tough and especially tough if you are stupid.”

JE comments: Come to think of it, this is the first time John Wayne has been mentioned on WAIS since I’ve assumed the editorship.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Tor Guimaraes, Brazil/US)

Tor Guimaraes responds to Alain de Benoist’s post of 13 May:

Philosophically I find it extremely difficult to argue against Alain’s points on Capitalism. But, like Cameron Sawyer, in practice over the years I have reached a few conclusions:

1. People’s actions are behind every “ism,” thus any blanket statement that capitalism is evil is as wrong as a blanket statement
that we need no market rules and regulations to limit potential abuse. Properly harnessed, capitalist greed can be a wonderful force as integral part of creating new goods and services which improve people’s lives. Without a doubt, a free market is the most beneficial and critical aspect of capitalism which must be constantly protected by all parties. Nevertheless, in practice free markets are at every opportunity being undermined by capitalists themselves for an unfair advantage.

2. A major problem with capitalism in practice stems from its very success. As corporations grow into huge global companies, their socio/political/economic power grows much larger than the governments of most societies they can manipulate. For example, having these giant global companies making multi billions in profit while families go under financially is not good for anyone in the long run. We need a little socialism to balance things out and make the economic system sustainable.

3. The struggle between capitalists and labor has been going on since Adam and Eve. Since 1945 what kept capitalists from running over labor and the middle class was the Soviet Evil Empire and the threat of Communism looking more appealing than Capitalism. Since Communism has gone to oblivion, Capitalists can now quickly forget their dogmas and really get creative; including using social funds for bailing themselves out of their self-created disasters and refill their own pockets at taxpayers expenses. The reality is that capitalists with the big money to invest, the controlling power, and the knowledge to position themselves properly, need major dislocations in the markets to really gain great payoffs. That is why periodically we have bubbles and bursts; stable markets are boring to real capitalists.

4. The greed which drives capitalism is an extremely powerful human force. Capitalists don’t have enough wisdom to voluntarily give capital back to the people except as charitable donations. Otherwise, it is a one-way street. Capitalism is like a game–relentless, creative, and difficult to resist. As people become relatively more ignorant, stressed out, and complacent, capitalists take over the financial system and the information systems. Once they have these two systems as they do now, how long before they have the government? Do we really control our government? Is there any way to turn this tide back? I doubt it. Just as with any other “ism,” without strong democracy and proper controls, rampant capitalism will accumulate wealth in the hands of the few and to the detriment of the people.

5. I have one final rhetorical question for the highest leaders of the capitalist religion: what will capitalists do after they own everything? My answer: Unfortunately there will be no winners; poorer people will afford less, thus business will spend less and produce less. In turn, government will have lower funding sources, weaker military, etc. Concepts like free markets, competitiveness, shareholder value are critical for a healthy economy, but are no panacea. Lenin has been proven wrong but, if we capitalists aren’t harnessed like nuclear fission, Karl Marx might eventually be proven right in many ways.
JE comments: Of Tor’s five trenchant points, I am especially struck by #3. A followup: might the decline of US unions since the 1970s, but especially post-’89, have to do with the disappearance of the Socialist Bloc as an alternative economic model?

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Istvan Simon, US)

Istvan Simon responds to Alain de Benoist’s post of 10 May:

I agree with Cameron Sawyer (11 May) that Alain’s criticism of Capitalism are mostly valid. But in fact there are also severe faults in his critique.

First, Alain said that there cannot be more more more in a finite world. This is false. There cannot be unlimited growth, that is true, but there very much can be growth, because materials can be recycled.

Second, the corollary of limiting growth is mass murder, and generalized poverty. Alain and I are amongst the haves in the world, and the haves are usually willing to limit growth, but that excludes the have-nots. So Alain’s prescription is disaster, and an unjust world.

Third, as long as the world population increases, we must have growth, or the consequence is generalized poverty and/or mass murder. This is just consequence of elementary logic. If there are more people but not more goods, it is obvious that less must be divided by more, and that means less and less for people. Hence generalized poverty. Hence mass murder–see Darfur.

I wonder how much of their income have WAISers donated to the people of Darfur? To pontificate is easy. What is difficult is to solve problems in the real world.

–

For information about the World Association of International Studies
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homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism (Alain de Benoist, France)

Alain de Benoist writes:

Commenting what I have written about capitalism, Cameron Sawyer (11 May ) answered that “illimitation and hubris come from the human soul, and not from the economic systems.” He added that “virtue of ‘measure’ cannot be imposed and has to come from within.” I agree with that. What Cameron forgets, however, is that all political or economical systems have an anthropological dimension and are built on values they promote spontaneously. Human nature is certainly not “perfectible” in the sense the Enlightenment understood this word. Human beings are not naturally bad (St Augustine) or naturally good (Rousseau). They are able of the best and of the worst. But the values a society promotes shape the behaviors, giving more opportunity to some fault or virtue to express itself, or legitimizing a conduct while condemning another.

Egoism, for instance, certainly comes from the “human soul,” but there is a big difference between a society, or an economic and political system, where egoism is condemned and a society, or an economic and political system, where it is accepted and even promoted. All traditional societies and religions have condemned egoism. This condemnation did not “force people being good,” but diminished the occurrence of egoistic behaviors. The model to follow was the contrary of egoism. Capitalism is build on an anthropological view which sees egoism, not only as a quite normal behavior, but as something positive. In this anthropological view, human beings are perceived, not only as producers and consumers, but as individual selves anterior to their own ends, who always seek to maximize their best material interest. Adam Smith explained that our egoistic actions end magically in an harmonious result: egoism serves the general interest. Mandeville said the same in his famous “Fable of the Bees.” Apology of egoism is the very basis of Ayn Rand’s philosophy. Therefore, it is not possible to say that “illimitation and hubris come from the human soul, and not from the economic systems.” They certainly come from the human soul, but some economic systems discourage these tendencies, while others encourage them.

Creating wealth is always paid by a loss of something. The present West is the wealthiest civilization which existed on Earth, but it is also the society where the spiritual level is the lowest, where nihilism is rising, where natural organic solidarities disappear, where the relation to things takes over the relations between human beings (the “Verdinglichung,” reification of social relationship, so well described by the young Marx). To believe that to say “it’s enough” is some kind of luxury of the rich is a great mistake. What the people of the Third World need the most is to relocalize their production, and to break with the Western model of “development” and with the international division of labor and production (the so-called Ricardo theorem) by giving priorities to their inner needs. Here it is very interesting to see that it was ancient societies, which were very poor comparatively to our own, which condemned the most the desire of wealth. This condemnation can been seen in the Greek myth of Midas, or in the Germanic myth of Gullweig. In Greece, Theognis wrote that wealth (“ta chrémata”) becomes among men madness (“aphrosunè”). For Aristotle, “pleonexia,” the desire to have more than the others, is typical “koros,” “hubris.” People who have wealth always want to have more, and finally wealth has no more object than wealth itself; it becomes its own end. The bursting out of the impulse of accumulation destroys everything which cannot be calculated or monetized. This is a profound characteristic of capitalism, which tend to reduce all values to the exchange commercial value.

Cameron wrote that “commercialism” is a “natural human activity.” I do not think so. All traditional societies are societies where giving and returning are the main feature of exchanges, with of course an agonal dimension of these exchanges (the classical “gift society” analyzed by Marcel Mauss). In the (Proto-) Indo-European language, there is even no word to designate “commerce” (see Emile Benveniste). During the largest part of human history, economy was embedded in social relationships. The autonomization of the economy happened very lately, together with the rise of an individualistic bourgeoisie. The modern market is not a natural form of exchange. It began to generalize at the end of Middle Age out of the will of the State to tax some exchanges which were previously not monetarized. In England, the much later system of “enclosures” was also decisive (see Karl Polanyi, The Great Transformation). Cameron talk about the evils of “forbidding selling and buying.” I do not want, of course, to forbid that. A society with markets is quite different from a market society.

Finally, Cameron said that “economic freedom is the most basic kind of human freedom.” This is an article of faith which comes from Locke. For the Greeks, human freedom could be reached only by the participation of the citizens in political and public affairs. The very concept of liberty was seen as foreign to the economic realm, which was by essence the realm of necessity. This is the big difference between the “liberty of the Ancients” and the “liberty of the Moderns” (Benjamin Constant). The change of meaning of the word “liberty” is a by-product of the long battle which, for at least 2,000 years, opposes the dialectics of Having to the community of Being.

–

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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on Capitalism; Response to Alain de Benoist (Cameron Sawyer, Russia)

Alain de Benoist wrote on 10 May, defending his opposition to capitalism:

I have written several thousand of pages on that topic, and frankly I do not have the courage to try to resume them in a post which is already much too long. I think it would be boring for most WAISers. I just would say that capitalism is for me a synonym of commercial life, power of money, autonomization of economy, and above all generalized illimitation. Illimitation is lack of measure, what the Greeks called “hybris.” The motto of capitalism is: “Always more” (more profits, more consumption, more objects, more fields of life submitted to commercial relations, more dehumanization, more devastation of the Earth, more Western nihilism). “More” is not a synonym of “better.” Sometimes one needs to say: “That’s enough.” An infinite material growth is impossible in a finite world. Giving and sharing are for me more important than selling and buying.

Cameron Sawyer responds:

I think that anyone who believes in capitalism, as I do, has to take this criticism very, very seriously, because it is a piercing criticism, and it is mostly right. In two words, I would say that a proper defense of capitalism would have to be based on the proposition that commercialism–that is, buying and selling besides also giving and sharing–are natural human activities, which would have to be suppressed in order to have some economic system other than a market one. “Capitalism”–I never liked the word, because it is not capital which is central to it–is nothing other than economic freedom, which is the most basic kind of human freedom.

Illimitation and hubris come from the human soul, and not from economic systems. Notwithstanding what Lenin thought, we cannot engineer the human soul–it is an individual question. So by forbidding selling and buying, as the Bolsheviks did or attempted to do (except to a limited extent during NEP and again during Perestroika), one does not cure the human soul from illimitation and hubris; one merely drives it underground (not just the illimitation and hubris, but the selling and buying itself–which people will always and everywhere do whether or not it is forbidden). That virtue of “measure” which Alain talks about, the lack of which is “illimitation,” cannot be imposed and have any morally valuable effect–it has to come from within. Thus the struggle between capitalism and non-capitalist systems goes right back to the main philosophical fault line in politics–is human nature perfectible; can we force people into being good? From this follows the idea that moral problems reflect faults in the political system; if people stubbornly insist on being bad, then the state has simply not provided all the necessary conditions for being good, or (historically more common) we have to punish them still more harshly. Or is human nature inherently flawed? So that people will always do bad things to some extent, no matter how well-constructed is the political system.

To be richer is relatively better than to be poorer, all other things being equal. This is especially true for the great mass of mankind which suffers from severe material want. Most of the world’s problems require money to solve, including protecting the environment. So the market economy’s capability of creating wealth is another powerful argument in favor of it as a system. The world is very far from being in a position to say “that’s enough.” Only a very tiny part of the world’s population lives at the level of material comfort at which lives Alain, or I, and most people are dehumanized by poverty, not by capitalism. It is an extreme act of arrogance on our part to say on their behalf “that’s enough,” to call their desire to improve the material standard of their lives illegitimate, and to attempt to forbid free economic activity by imposing a non-capitalist system on them.

By the way, a minor quibble–infinite material growth is possible in a finite world (a mathematician would protest–approaching infinite, not infinite). That is because value is not measured by inputs of resources, or of labor (pace, Marx).

–

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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: A Quote from Jefferson (Henry Levin, US)

Henry Levin responds to Alain de Benoist’s post of 9 May:

If people want to discuss the Jeffersonian warning, they ought to first read about Jacksonian Democracy and Jackson’s opposition to both national banks and to banks.

JE comments: Jackson would not have been pleased that his face is on the most iconic of US banknotes, the $20 bill.

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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Economics: A Quote from Jefferson (Alain de Benoist, France)

Alain de Benoist writes:

I am not especially fond of the American Founding Fathers, but I think this quotation is not too bad:

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

–Thomas Jefferson, Letter to the Secretary of Treasury Albert Gallatin, 1802.

JE comments: I’ll have to disagree with Alain, as I’m very fond of the US Founding Fathers. They were the most visionary generation in US history, and probably the bravest. Jefferson (the only “Hispanist” among the FF) is one of my favorites, notwithstanding his indefensible acceptance of slavery. Jefferson is also the only US President I’ve written about; those interested can Google the Spring 2006 issue of the Muslim Public Affairs Journal (edited by WAISer Muqtedar Khan) for a PDF version of my modest article. It’s rather out of date, as I totally failed to predict the 2008 global crisis or the rise of Obama. I do make some interesting observations on the US nickel, however–numismatists take note!

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For information about the World Association of International Studies
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: China and the Global Financial Crisis (Tor Guimaraes, Brazil/US)

Tor Guimaraes responds to George Zhibin Gu’s post of 25 April:

I think the evidence supports the main points made by George Zhibin
Gu. He clearly knows what he is talking about: Chinese/global
socio/economics. Thus, I hope he can help me with one question: China
has developed a substantial manufacturing base and is a huge market.
If the Chinese middle class can be cultivated into a consumer society,
China would be able to cushion future global crises. In broad
strokes, what would you advise the Chinese government to do to
accomplish this?

JE comments: “To be rich is glorious,” Deng Xiaoping said,
gloriously. Isn’t the economic might of the Chinese middle class
starting to show itself? They already buy a lot of Buicks. A
follow-up question to Tor Guimaraes’s: would it serve the interests
of the Chinese government to encourage its citizens to save less and
spend more–i.e., to act more like Americans?

–
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on International Interest Rates and Riskiness (David Westbrook, US)

David Westbrook responds to Jordi Molins Coronado’s post of 17 April:

Many of these markets simply stopped functioning–no trades!
Unwillingness to trade = no efficiency. And the CDS market only exists
because we’ve kept its core institutions alive. The distinction between
counterparty and default risk is purely analytic, interesting in the
back office and for a few professors, but the economic question for the
investor, always, is payment. Non payment, like death, might result
from a thousand things, but it’s still non payment. And I just don’t
think you can say a CDS world that doubled down time and time again on
AIG, Citi, others, i.e., took on unhedged counterparty risk while buying
insurance against default risk (which is of course nonsense; some 80% of
CDS deals were naked), and knows what it is doing, much less has much
credible to say about the medium-term future. You yourself have argued,
from personal experience, that major financial institutions operate on
the basis of many principles other than objective and independent
judgment about the probable risk/return of investments . . .

Exchange trading–more precisely, the clearing and settlement
functions–has its attractions, and I generally speaking agree with
you and everyone else that more OTC business ought to be moved to
exchanges, and more importantly cleared/settled every day. Although,
exchange-traded instruments, because fungible, are inherently less
informationally precise. I don’t care about this, but if we are using
markets as oracles, the point matters. I’m also very curious about the
extent to which the vast sea of liquidity created by modern
capitalization techniques can be transferred to an exchange. That is,
exchanges are devices for raising capital; think wells in the desert.
Suppose our problem is not finding water, in Saudi Arabia, but coping with
it, in Holland?

A question: Harry Papsotiriou’s point was that lots of folks, at the end of the day,
trust the US government, a point which he supported by quoting relative
borrowing rates. Jordi’s counter was that the CDS market provided a better
guide. Sure, I’ll go along with that, but I want heavy salt with that
tequila (that’s for you, JE). But then you simply reiterate Harry’s
point, I think, by asserting that the US Treasuries are
“countercyclical.” I think you need to say what “countercyclical” adds,
if anything, to Harry’s claim.

Another question, or perhaps the beginnings of an answer to the first.
Re CAPM–one usually speaks of return on a portfolio’s investment
above the risk-free rate, for which US treasuries are usually the proxy,
with more return required to compensate for volatility, as you point
out. Now you’re suggesting, rather intriguingly, that because they are
countercyclical (which seems to have been the case both in the present
crisis and in ‘98, which is how Long Term Capital Management went down),
US Treasuries are not merely risk free, they have additional value. I
think this is probably true, but I don’t think there is any basis here
other than a sort of global fetishization of a particular commodity, a
far cry from the informational efficiency that you still seem to be
claiming we can find in financial markets. (As a theoretical matter,
recall that CAPM and ECMH stand in opposition to one another.)

More seriously and generally, it’s time to rethink which parts of “the
entire edifice” as Greenspan had it, are still standing. I’m several
weeks behind on a manuscript, “Out of Crisis: Rethinking Our Financial
Markets,” but simply rehearsing the Chicago school mantra isn’t going to
get us very far.

JE comments: No salt or tequila tonight, but one of my many hats is that of translator: CAPM stands for Capital Asset Pricing Model, and ECMH stands, according to Google, for El Campo Memorial Hospital. But wait! This cannot be! How about “Efficient Capital Market Hypothesis”? As a layperson who also happens to be American, I am intrigued that the United States is the capital market of default in Times of Trouble (capital letters seem somehow appropriate here). We are in debt up to our eyeballs, and the US apparently started this global financial mess. Although I am somehow comforted that we are still the destination of choice for the world’s nervous money, I am forced to ask…why?

–

For information about the World Association of International Studies
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on International Interest Rates and Riskiness (Tor Guimaraes, US)

Tor Guimaraes responds to Jordi Molins Coronado’s post of 17 April:

I have always had difficulty understanding how some traders get their cues for market direction from futures contracts. Every morning the stock market follows the direction of the futures market for about five minutes and then proceeds to trade based on the psychology du jour. Even longer term, many times the futures show heavy bets that in the future the price for commodity A (or any investment vehicle) is going to crash; however this large bear position may only be a hedge for an even larger position betting that the price for commodity A will go up. Thus, unless you have the total picture, depending where you look you will get the wrong clue about market direction for commodity A.

JE comments: Greetings from Carlisle, Pennsylvania. As I mentioned this morning, I will have only intermittent Internet access until Sunday night.

–

For information about the World Association of International Studies
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on International Interest Rates and Riskiness (David Westbrook, US)

David Westbrook responds to Jordi Molins Coronado’s post of 15 April:

Jordi’s point about short term/long term interest rates is well taken, although monopolistically is a bit much (neither the discount window nor open market operations set rates that directly–indeed, the effectiveness of the Feds techniques, at least in recent years, is something of a puzzle). But my question is this: given the dominance of insolvent players in the CDS market, why is it a good gauge of long term sovereign default risk? Had we let AIG and Citi and others blow up, I am pretty sure the CDS market would have gone the way of auction rate securities and the like, and the worthless CDS obligations would have proven nothing, but certainly suggested the ineptitude of the participants in the market. A bunch of guys who cannot think their way through immediate counterparty risk are hardly likely to have much to say about political developments (some decisions to default are
taken for quite modest reasons of local politics, vide Russia) in ensuing decades. Or am I missing something?

JE comments: For WAISers less financially literate than Jordi Molins Coronado and David Westbrook, a CDS is a Credit Default Swap. Wikipedia explains it thus:

http://en.wikipedia.org/wiki/Credit_default_swap

As I understand it (thanks, Wikipedia!), the purchaser of a CDS is betting on the financial failure of the reference entity: I purchase a CDS from company X holding the debt of company [nation] Y. I make regular payments to X, rather like an insurance policy. If Y defaults/collapses/implodes, I receive a lump payment from X. In short, I profit from Y’s pain and suffering. But what if X is insolvent as well at the “moment of truth”? More to the point, how much US federal bailout money has been used to make good on CDS contracts?

–

For information about the World Association of International Studies
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: on International Interest Rates and Riskiness (Jordi Molins Coronado, Spain)

Harry Papasotiriou wrote on 15 April:

Germany, which is the “soundest” economy in Europe, borrows money at 2% above the US government. My country, Greece, borrows money at about 2.5% above Germany, being considered in the international markets that much more risky than Germany. This international behavior demonstrates international investors’ belief, that the US government would be the last to default in the world.

Jordi Molins Coronado responds:

Long-term interest rates are not the tool to gauge default riskiness for a country, even though sometimes they are used as a proxy. Short-term interest rates are fixed monopolistically by a central bank and, as a consequence, they are not a measure of any market opinion. Long-term interest rates are bounded partially by short-term interest rates and its expectations: a dealer could lend long-term (say 10 years), borrow short-term (say 3 months) and roll over the borrowing during 39 3-month periods at his future expected short-term interest rate, and lock in a profit. This arbitrage is not perfect because the future expected short-term interest rates do not necessarily happen. In fact, oftentimes there is a interest rate premium for long-term interest rates in order to cover this risk (which involves inflation risk, country default risk, and uncertainty in future actions from the central bank). This is the explanation why the interest rate is most of the times upward sloping.

A better measure for the riskiness of a country defaulting is credit default swaps. In 2009, credit default swaps in the US implied default rates for the next 10 years have been in the single digits: it was about 6% in January, the last time I checked.

–

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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Education: Liberal Arts Colleges and Economics PhDs (Jordi Molins Coronado, Spain)

Jordi Molins Coronado writes:

In relation to the discussion about liberal arts institutions in America, the paper “The Undergraduate Origins of PH.D. Economists” (it can be found at http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu06-w11.pdf) states in the abstract:

(…) Currently, 18 of the 25 American undergraduate institutions that send the largest percentage of their graduating classes on to earn a PhD in economics are liberal arts colleges. Graduates of liberal arts colleges also have shorter time-to-degree and higher verbal GRE scores than other economics PhD students.

It seems the support from several WAISers to liberal arts colleges is justified empirically.

–

For information about the World Association of International Studies
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Japan: on Obesity and the Economy (Charles Ridley, US)

Charles Ridley writes:

Having recently returned from a two-week visit to Japan, I have a few observations on the state of the country. (In the light of recent “metaWAIS” postings, it may be deemed that my remarks are not suitable for presentation in this august Forum on international affairs.) [Sorry Charlie...I've posted your remarks as received--JE.]

One of my goals on this trip was to compare relative obesity in the United States and Japan. With the exception of sumo wrestlers on TV, I was hard-pressed to find any Japanese who were not trim and clearly robust. There may have been a few folk who were grossly overweight, but I did not see any of them. This state of affairs is probably a mixed result of diet and the existence of a mass transit system that ultimately requires a lot of walking.

Let me proffer a clearly unscientifc opinion on the state of the economy. While the newspapers tell us that the unemployment rate has risen to an extremely high level slightly above 4%, it was difficult for the casual observer to detect signs of economic hard times. Our domestic flight from Tokyo to the Osaka region was fully booked, and most of the passengers seemed to be shoppers returning home loaded with the fruits of shopping sprees.

On the southern island of Kyushu, trains were full, restaurants were well populated and the streets and department stores thronged with shoppers. Again, our return flight to Tokyo was fully booked. It should be noted that the price of a ticket on a domestic flight is extremely high by comparison to the prices on routes of similar distances in the USA.

The restaurant in our hotel in Kyoto was filled with representatives of the younger set in the evenings. And when we wanted to book reserved train seats on a Sunday afternoon, all reserved seats on the train were booked and we had to revert to the cars with “free” (unreserved) seats as they are called and could not sit together.

Our first few days in Kyoto, I attended a gathering for which the cost outlay for each individual was close to the equivalent of $600. There were about 1700 people (all Japanese with three exceptions) in attendance.

Of course, these findings are entirely unscientific and anecdotal. And it must be borne in mind that my grade in college economics was a C verging on a D.

Since the Japanese economy is certainly in distress, I would certainly appreciate any clarification a kindly scholar might provide without an “ad hominem” attack on my incompetence in this sphere.

JE comments: What kind of Kyoto “gathering” costs 600 bucks? I’m at least one-quarter Scottish, and avoid gatherings like that. WAIS ‘09 (registration fee) promises to cost about 1/12 that amount. Stay tuned for details…

–

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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Economics: Innovative New Tax for California? (David Crow, US)

David Crow writes:

File this one under “Kooky Californians.” Here’s an LA Times article
from April 1 about a novel way of closing our $41 billion
budget shortfall:

http://home.pacbell.net/jonlcrow//public_html/LATimes/news/Budget-Shortfalls-Cause-Shorts-To-Fall.html

JE comments: In brief, surtaxing underwear is a brilliant way to bolster the financial underpinnings of a state budget. In short: I’m in favor of sockin’ it to shorts! (The article concludes with the statement, “the tax will go into effect briefly”…I think we’ve been “punked”/April Fooled.) Anyhow, here’s an interesting Wikipedia entry on the custom of “going commando.” The article notes that in Chile (where I lived from 1981-82), the tradition is known as “andar a lo gringo” (to go “Gringo”-style). As a Gringo in the beautiful land of Condorito, it was taken for granted by all that I practiced the ways of my compatriotas:

http://en.wikipedia.org/wiki/Going_commando

–

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re: Economics: G-20 Summit in London; on the “Super Currency”(Tor Guimaraes, US)

On 26 March, Jon Kofas wrote many points about the global economic/financial situation, including:

As the largest dollar holder in the world, the Chinese government recently proposed a single world reserve currency above the dollar, euro, yen, pound sterling, etc. Russia agreed with the Chinese proposal, but Obama promptly rejected it and naturally supported the dollar. Can the Russian-backed Chinese proposal engender monetary stability and thus prevent future mini-depressions as the one we are currently experiencing, or are the Chinese regretting investing in dollars out of necessity? Can a single world reserve currency provide the kind of stability all countries are seeking, or is it a band-aid solution that will shield reserve-currency creditors from losing in transactions, while the impact on the world economy will be minimal?

Tor Guimaraes responds:

Whether or not the creation of a super currency will be better for the global economic/financial system will probably be debated for many years, perhaps into oblivion. The main reason why China and other countries would like a basket of currencies or a super currency is purely for selfish reasons: they hold some serious reserves of dollars whose value will be severely tested by all the currency abuse the US government has been engaged in for quite some time. These countries are now economically/financially in the proverbial bed with the US government. With a super currency separate from the US dollar they would have freedom to act against the dollar or at least be immune to the devaluation of their converted reserves. Without their support, US dollar devaluation/inflation would go into high gear. Of course, our brilliant economists know this, and the US government desperately wants the whole world to remain together on its dollar standard.

–

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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Economics: G-20 Summit in London (Jon Kofas, Greece)

Jon Kofas writes:

During the Great Depression, governments eliminated the gold standard that was indeed an obstacle to growth and development amid economic dislocation and Keynesian policies based on deficit-financing strategies. The dollar and eventually other reserve currencies have not served the credit economy much better than gold as the current crisis proved. As the largest dollar holder in the world, the Chinese government recently proposed a single world reserve currency above the dollar, euro, yen, sterling pound, etc. Russia agreed with the Chinese proposal, but Obama promptly rejected it and naturally supported the dollar. Can the Russian-backed Chinese proposal engender monetary stability and thus prevent future mini-depressions as the one we are currently experiencing, or are the Chinese regretting investing in dollars out of necessity? Can a single world reserve currency provide the kind of stability all countries are seeking, or is it a band-aid solution that will shield reserve-currency creditors from losing in transactions, while the impact on the world economy will be minimal?

As we read/listen to economists and politicians that the world economy may not be in “real growth mode” until a decade from now because it is structurally weak, we must ask if indeed the Chinese and Russians are far from a practical solution that will assuage cyclical crises. If the single super-reserve currency is not the solution, is there a need as the Europeans and others claim, for a new Bretton Woods system? Some economists and social scientists have suggested that the world needs a Green Bretton Woods (the cyber-eco-bourgeois version of a 21st-century Bretton Woods), one that is totally rooted in new eco-friendly science and technology of self-sufficiency, especially in the energy sector, if the world is to avoid economic dislocations like the one we are currently experiencing. The gradual power shift in the world economy from the Atlantic to the Pacific, along with calls for a new Bretton Woods or a “New Deal” that Gordon Brown is asking, and the Chinese proposal for a single reserve world currency places immense pressure on the US at the G-20 meeting in London on 2 April 2009.

Given that the EU and Japan together account for 38.1% of IMF contributions, and given that Gordon Brown has repeatedly asked the Arab countries to make a multi-billion contribution to strengthen the IMF, the question arises about the US role in that organization headquartered in Washington and essentially run as a US bureaucracy since Bretton Woods. In my visits to the IMF and World Bank throughout the 1990s, I raised this issue with some of the American staff at the two institutions. They contended that the Japanese were not interested in a leadership role and that the Europeans were too divided to agree on how to run the sister IFIs though there is policy cooperation with the EU central bank and European Investment Bank. The rest of the countries borrowing from the IFIs wanted more favorable loan agreements and de-linking IMF stabilization from World Bank development loans.

The question is whether it really matters who runs the IFIs now that the dollar as a reserve currency is so weak and unlikely to become stronger; whether new Arab oil money is injected into the IMF will make much difference; and if a single super-reserve world currency will engender stability or simply protect the Chinese as America’s largest creditors in the world from losing money by holding dollars. Europeans and other governments are not exactly thrilled about Moody’s and Standard & Poor’s having such inordinate influence in rating both public and private sectors of the rest of the world, and thus reflecting the old Bretton Woods system when the dollar was the supreme reserve currency and the US the undeniable giant of the world economy “influencing policy for all the rest.” This too is more of a political issue indicative that the rest of the world looks at any US-based institution (IFI or private) as biased, intent on perpetuating the dollar as a strong reserve currency and thus artificially keeping the US economy dominant.

In reality, however, the US is not as weak as many economists previously thought and continue to think, precisely because there is lack of world leadership outside the US at this point in history. The strong US public sector, not its world-famous private sector, is the key reason for holding on to its global leadership role. So far, the cost to the public sector to save the banks as a percentage of GDP has ranged from 0.7% in the case of Australia to 19.8% in the case of Britain, with the US and most EU countries spending about 6% of GDP. Japan is currently suffering a 50% drop in exports and 43% drop in imports, making it much more vulnerable than the US or the EU, and an unlikely candidate for early recovery. The US economy shows signs of resiliency, but the public money that that has gone to save the “free enterprise system” will not work unless other countries, especially the richest of the G-20, provide comparable stimulus packages. Because all G-20 heads of state are driven by a common fear and political ambitions, they will emerge from the London meeting with a commonly agreed agenda to present to the world so they can calm markets, engender confidence currently lacking among investors and consumers alike, soothe the concerns of workers and the middle class by promising jobs-stimulus programs, and above all they will appear statesman-like to constituents that expect light at the end of the recession tunnel.

The fundamental problems, however, that include restructuring the anachronistic Bretton Woods system, re-examining reserve currencies, dealing with growing public debt and the symbiotic relationship of the state with finance capital, regulating stock markets, hedge funds, and banks to avoid future disasters, and dealing with the World Trade Organization so it facilitates world trade will take a long time. If the US emerges from the current crisis first and strongest among the G-20, as it probably will, the structural changes the G-20 want will not take place. But even if there are some changes along the lines that the EU, China, or Brazil are proposing, cyclical economic dislocations are built into the capitalist system and will not be avoided. On the contrary, the public sector flooding financial institutions with liquidity means that the credit-based economy is here to stay along with all its symptoms of overproduction, credit overextension, inevitable market saturation, monetary disequilibrium, and capital concentration.

A few days before the first G-20 meeting on 15 November 2008 , I wrote that the leaders of the 20 nations “have the opportunity this week to make serious structural adjustments that truly reflect the state is not merely the tool of finance capital, but of the rest of humanity that produces capital through its labor…unless the 20 leaders decide the state must absorb capital from the sources that have it instead of spending future earnings of workers and the middle class, we can expect a repeat of the current crisis and chronic social and geographic inequality.” Not much happened at the last G-20 meeting, largely because Bush was on his way to the ranch and Obama did not participate. Given that the US wants the world to follow its lead and it seems likely that the US economy is well positioned for recovery, the London summit will not go much beyond what the finance ministers have already agreed, namely, that the G-20 will announce the ultimate goal will be to generate jobs. In short, this is not a case of the state using the fiscal structure to redistribute wealth from the bottom up, but a case of trying to generate and preserve jobs and middle class living standards. Beyond that point, I expect there will be agreement to coordinate banking and money market regulation, raising IMF funding, keeping avenues for global trade open and dividing the world economic pie based on GDP percentages and contributions to IFIs. Despite its relative weakness, the US will dominate the summit and it will continue to exert the greatest economic, political, and military leverage in the world.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: WAIS: Another Blackberry Conversation: The Afterlife (Paul Pitlick, US)

Paul Pitlick responds to A. J. Cave’s now-famous questions on the Afterlife (first posted on 19 March):

1). Do you believe in Heaven and Hell? Why? Why not?

PP: I don’t think about this much. Nineteen years of Catholic education, where I was encouraged to believe in things which made no logical sense, drove these ideas out of my head.

2). Where do you think you’ll end up after this life?

PP: Either buried or cremated. If cremated, I’d like my ashes scattered in Yosemite. What I think more about is where my mind will go if it leaves my body while my heart is still beating. My wife’s father developed Alzheimer’s, and seemed to be in a placid space. Eventually, he needed to be cared for in a nursing home, and some of those folks were not in such a benevolent place. In some of my dreams, I go backpacking to in the mountains to a place I don’t recognize, but it’s a nice place.

3). Why?

PP: Yosemite is one of the most scenic spots on earth, and it’s not far from home.

4). Where do you want to end up if you had a choice?

PP: To that place in my dreams, if I can’t actually go to Yosemite.

5). Why?

PP: See 3.

6). If you could take 10 songs with you to listen to wherever you think you’ll end up, what would they be?

PP: I like many rock groups, some obscure (how many other WAISers like the Leningrad Cowboys?), and let’s include “Misirlou” by Dick Dale. But more than the actual songs, a few phrases remain etched in my mind from many years ago:

The Who - from “Won’t Get Fooled Again.”
“And the men who spurred us on
Sit in judgment of all wrong”

Isn’t this true–i.e. the phonies in Congress beating up on the financial sector. A pox on both their houses!

Bob Dylan - from “It’s Alright, Ma (I’m Only Bleeding)”
“That he not busy being born
Is busy dying.”

But hopefully, the continual reinvention will exclude derivatives in the future.

The Rolling Stones - from “You Can’t Always Get What You Want”
“You can’t always get what you want
But if you try sometime you find
You get what you need”

Let’s hope so!

Finally, why are we considering only music here? What about books, movies, and, for our E-I-C, automobiles (or would that be pickup trucks)?

JE comments: Can one drive in the Afterlife? I’ve often said I’d like to be buried in my 1997 Mazda Miata. It’s economical, fast, simple, and at 123,000 miles, indestructible. A fun, open-air chariot for the roads of eternity.

I forget the title, but my college macroeconomics textbook began with the Rolling Stones quote, “You can’t always get what you want.” There’s no better founding principle of economics than this. Didn’t Mick Jagger study at the London School of Economics? Perhaps Paul Preston can comment.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

Economics/Political Science: Policy Formation and Consent Theory after the Crisis (Jon Kofas, Greece)

Jon Kofas writes:

Classical Liberal (Lockean) political theory maintains that individual consent ought to determine politics and policies. “Wherever, therefore, any number of men so unite into one society as to quit every one his executive power of the law of Nature, and to resign it to the public, there and there only is a political or civil society.” John Locke, Second Treatise on Civil Government. However, the reality is that T. Hobbes’s Leviathan that Locke rejected lives inside competing interest groups among the elites (including the 17th century, when Locke represented mercantile interests) that have played a catalytic role in shaping policy in modern pluralistic societies governed by varieties of Liberal-type constitutions. Though policy-formation is the presumed domain of competing interest groups whether politically organized like the Whig faction in Locke’s time, or modern-day corporate lobbies, consent-theory is more easily justified and implemented during times of national emergencies or crises than during “normal times.”

Having built a national consensus during the Great Depression for economic reasons, the US continued to expand the consensus to include the entire Western Hemisphere under bilateral and multilateral agreements. These culminated in redefining the Pan-American system during the war, and then globalized during the Cold War when besides NATO, OAS and SEATO, IFIs were also established to complete the triumph of Pax Americana. The dynamics of the Cold War necessarily resulted in domestic national consensus not only in pluralistic societies like the US at the helm of the world-capitalist system, but also in Communist nations and in the non-aligned bloc. Therefore, the Cold War as the point of origin for policy-formation and consent-theory entailed that the state forged consensus among competing interest groups under a neo-corporatist model that would presumably serve not only the political and financial elites, but the military establishment, intelligentsia, farmers, and labor unions whose cooperation was crucial for policy-formation against the “common external enemy.”

Nor is this to be confused with the military-industrial complex that was only one byproduct of conformist policy-formation. After the Communist bloc collapsed and China became thoroughly integrated into the world capitalist system, the institutionalized co-optation of the disparate interest groups needed to remain intact. This is not because there was a “common external enemy”–of course one had to be created as catalyst to interest-group co-optation–but because consent-theory assumptions were obviated by the changing structure of the political economies around the world and the neo-liberal globalization trend. The interdependent world economic structure as the basis of consent-theory and as a reality cannot change systemically as Russia, China, Brazil, India, and even some EU leaders wish. However, economic nationalism–from the political left and to the ideological right–and varieties of Socialism will challenge and try to replace classical Liberalism and the American-centered world system as the ideological foundation on which political economy and international security rest. This means new international division of labor, redefinition of the terms of trade and investment that do not disadvantage the Third World and new “North-South” hemisphere relationship that allows for a more equitable redistribution of wealth–all of it used as leverage by those wishing to further dilute Pax Americana.

Depending on its severity, the current economic dislocation will force political and financial elites along with the intelligentsia to re-examine the “consent-theory” paradigm with the US as the leader. They must seek alternatives that would ensure policy-formation does not drift toward the lower classes or to the Third World whose conformity and co-optation must be guaranteed to prevent any change either in the social order or the international order. The unfolding civil disobedience combined with labor and middle class protests throughout the world will continue to challenge consent-theory that the political and financial elites are interested in preserving. Assuming that the forthcoming G-20 meeting (April 2009) will result in consensus and assuming the Chinese prediction about national recovery by June 2009 is correct, it may be possible that by early-to-mid-2010 the US will be coming out of recession as the FED is now predicting. The EU will realize real growth much later than previously expected (the latest IMF report is very pessimistic about Europe) and gradually Japan and the rest of the world will follow the EU. Such scenario depends largely on what policies the G-20 will adopt to better-regulate the crippled economy for the duration. The middle class and workers will lag far behind in the recovery process, as will the Third World–regrettably, there are no AIG-type bonuses for the middle class and workers whose consent must be manipulated back toward support of the elites.

In short, the lower the social strata the slower the recovery; similarly the less the country is developed the slower and more painfully it will emerge from this crisis. The crisis will exacerbate societal polarization that manifests itself in increased social protests, xenophobia, ethnocentrism, racism, chauvinism, etc. Whether it is to the extreme right or left, going to the roots of society in times of crisis will be a normal response on the part of the masses; that is where a large segment of the population feels a sense of belonging and safety, not in institutions that failed them. The current crisis will intensify the “revolutionary” impulse to alter the social and political structure as well as a minority counter-revolutionary impulse to retain the social structure by an authoritarian movement, regime, or authoritarian policies adopted by otherwise liberal-bourgeois regimes. The dialectic between the two impulses will entail the biggest challenge to the political elites in pluralistic societies since the Great Depression. If as Jean-Jacques Rousseau has argued the repressive conditions imposed by a minority over the majority necessitate force morally and socially justified, then we can expect in the upcoming months and years more voices of leftist dissent and reactionary outcries to maintain the status quo by force.

The current crisis has diluted if not obviated policy-formation and consent-theory, as we knew it under Pax Americana throughout the Cold War and in the post-Cold era of the global anti-terrorism campaign on which foreign policy of many states are based; with all its intended and incidental domestic policy-formation consequences. To counter the inevitable challenge that pluralistic societies will be facing, the political and financial elites will have to deliver on the promise that after the crisis there will continue to be “ever-rising living standards” within the existing stratified social and international order. Such promises of what Kenneth Boulding, Beyond Economics (1968) called “cowboy economics” rooted in arrogance of financial power buttressed and protected by the political elites will not be sufficient to convince people who lost homes and businesses, jobs and careers, savings and retirement nest eggs, and their lifestyle turned upside down. Given that the political and financial elites have always manufactured consent, consent-theory is their domain to define and implement to preserve and advance their privileged position. Crises, however, bring out in otherwise docile-conformist citizens tendencies that range from reactionary to revolutionary, from cynicism to “apocalyptic nihilism,” which is what most people act on and understand by the term (as opposed to anarchist or existential). Besides resorting to more austere laws to “contain” dissidence as it arises with greater socioeconomic problems, the state along with the media, think tanks, and anyone with access and influence to public opinion will have to argue that any alternative to systemic transformation of the social and political order nationally and internationally will entail the demise of civilization as we know it.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: France: The New Right (Alain de Benoist, France)

Alain de Benoist writes:

I am pleased to hear that Michael Veck, the newest WAISer, has read my book Critiques–Théoriques (2003). This book, full of theoretical and philosophical considerations, is certainly not the easiest-to-read book I have written!

In his post of 1 March, Michael Veck asked me some questions: “I would like to know whether he [AdB] sees in the various currents of French Rightist thought (or parties or movements) a precursor to the New Right? What is the New Right’s ideological pedigree in France? Is there a political/ideological movement in France’s past that Mr. de Benoist could call–more or less–home?”

I am afraid I have to answer rather negatively. The so-called French New Right (I dislike this label, because it is much too narrow and much too political, and also because of a possible confusion with the American “New Right,” with which I disagree completely) has no special “ideological pedigree.” The three main French rightist currents of thought are the counter-revolutionary one, too religious for me, the “Bonapartist” one, too authoritarian for me, and the bourgeois liberal-conservative one, too much obsessed by economics and money for me. As for myself, I have as much interest in reading Tocqueville, Taine, Renan or Joseph de Maistre as in reading Proudhon, Sorel, Pierre Leroux or Benoit Malon (to limit myself to known theoreticians of the 19th century).

Michael Veck added: “Personally, I find it impossible to situate or classify Alain de Benoist politically, as his views and opinions are too eclectic.” Good. I do not like to be classified. I suppose I could be considered either as a rightist of the left or as a leftist of the right… But I hate advertising, and this includes also self-promotion. One can always have a look at my Website: .

On March 8, Michael Veck sent also a post about freedom of speech. This is of course a very important topic. It is clear and probably known that freedom of speech about many subjects has now been legally suppressed in many European countries. The topics involved are often linked to sensitive ones, like race, religion, history, and so on. But now, it has extended to a lot of topics seen in a “politically correct” view which comes directly from the US. The only difference is that, in Europe, we do not have anything like the First Amendment. I will give just two recent examples. Some months ago, a known member of Parliament was put on trial because he said that, if everybody were gay, this would mean the end of mankind. He was twice found guilty, and finally acquitted. Still more recently, a famous film actor was put on trial (and found guilty) just because, in an interview, he said: “After a good meal, I like to smoke a good cigar.” This was taken as unhealthy propaganda in favor of smoking. Hundred of of examples of that kind could be given.

Another problem, particularly in France, is the enacting of “memory [mémoriel] laws” which decide what can or cannot be said about some historical events–not only the WWII ones, but also slavery, the Armenian genocide, etc. These law have infuriated most of the French historians: more than 1000 of them signed in 2005 an appeal launched by the association Liberté pour l’histoire (Freedom for History), founded by Pierre Nora and Françoise Chandernagor. These historians stressed the fact that such laws judge the past in an anachronical way, by applying quasi-religiously moral and legal criteria of today to the events of the past. They stressed also that “memory” is not the same, but rather the opposite of history. Memory is always emotional and subjective, while history requires distance and objectivity. Too much memory is not better than complete amnesia. The role of legislators is not to write history. “Memory laws” are only an encouragement for victimological concurrence between lobbies.

Like Michael Veck, I am in favor of a complete freedom of speech. This does not mean, of course, that I approve automatically the opinions which are forbidden today (often under the vicious pretext that they are not opinions, but “crimes”). Freedom of speech is not made for fashionable or consensual opinions, nor for the ones we like. It is made often for the opinions which we find false and even disgusting. But that is the rule: freedom of opinion “except for this and that” means that freedom is gone. To take an example, I think that the people who published the drawings against Muhammad were free to do it, but I think also that these drawings were highly offensive and I understand very well the reactions of the Muslims–reactions which were all the more justified because Muslims had the feeling that the law was not equal for all (the fact is that the author of a book against the Jews can be sent immediately to jail in France, while French bookshops are nowadays full of books against Arabs and Islam). This means that defending freedom of speech is not that easy. People must be completely free to express their opinions, likes or dislikes, then we will be also completely free to judge these opinions, and to condemn them if necessary. Bad opinions must not be forbidden, but refuted (but to refute is sometimes more difficult than to forbid!).

JE comments: Many thanks to Alain de Benoist for his response. This post is something of a departure for Alain, as he is usually too modest to talk about himself on the Forum. I’ve always viewed Alain as a very original thinker, not only due to his wide erudition but because he defies the ideological categories we know in the US. It is an honor for me to count him as one of the most active correspondents in WAISdom.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: Twlight of the “Credit Middle Class”? Hungary Update (Steve Torok, Thailand)

Writing from Budapest, Steve Torok responds to Jon Kofas’s post of 7 March:

The normal state of the economy is stagnation, and a very
sophisticated economic/financial management problem does exist worldwide
to get out of the current “liquidity trap.” The ideological
superstructure does not have to change, but the boundary conditions
need to be suitably adjusted technically. Two responses to the crisis
I’ve observed first hand: in Turkey, where a friend works for Nortel
Networks, the effects of the crisis seem to be that jobs move from
Canada (where Nortel went bankrupt and is effectively nationalized) to
Turkey. In Hungary another friend, a crack systems development
engineer, was just made redundant the day I arrived here on the
10th of March. He had thus time to try to help me with my computer where
I could not get on the Internet: I am using my sister’s machine now.

While in Turkey it is springtime with colorful election banners for
the late March elections, plum blossoms blooming, and people confident, in
Hungary there is gloom: the winter seems to be coming back, people are
discouraged, crime rates are rising (four break-ins in Budapest by the
same two gunmen yesterday, staring in the morning with a grocery store,
at noon at a restaurant and the evening at two nightclubs). The
Government is paralyzed but borrows more money while trying to raise
taxes. The last chance for bringing forward elections would be
dissolving Parliament by the 26th of March. According to the Opposition
this could stave off an economic collapse and an ungovernable
situation. I am happy I will be back in Thailand on April 1st!

JE comments: Greetings halfway across the world to Steve Torok, from Costa Rica to Hungary. (Now that I think about it, greetings to Steve Torok are always sent halfway around the world…)

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

WAISers: Death of Carlos Lopez (William Ratliff, US)

WAIS President, William Ratliff, writes:

I deeply regret having to report the death of our beloved member, Carlos Lopez, a close friend of almost 40 years and one of the most gracious gentlemen I have ever known.

Here is the notice from the website of the Menlo College, where he taught and officiated for many decades.

***************

In Memoriam - Dr. Carlos López

Menlo College mourns the loss of Dr. Carlos López, President Emeritus of Menlo College who passed away March 5 at his home due to complications from cancer. Carlos, age 76, the seventh president of Menlo College from 2004 through 2006 was from Concepción, Chile and was a long time resident of Menlo Park. He is the great great-grandson of Faxon Atherton, the namesake of Atherton, California. He worked as a professor at the College from 1962 to 2009, having served as Chairman of the Humanities Department, faculty member, Director of Athletics and soccer coach.

Professor López played a leadership role throughout his tenure at Menlo College. Often referred to as “Señor” by his former students, Carlos was asked to assume the presidency at Menlo College during a transition period. “Carlos stepped up to the plate at a time when the campus needed stability” stated President G. Timothy Haight. “We are all saddened by the loss of Carlos, but we are also inspired by his devotion to our students and the Menlo Community.”

Carlos influenced students and alumni in many meaningful ways throughout his tenure at the College. As a professor, his charismatic and engaging teaching style brought history and the humanities to life for students. He provided invaluable mentorship to countless Menlo College students as they forged their dreams and struggled with personal challenges. During his educational career at the College, he led study programs abroad to Europe and South America. He was instrumental in developing educational exchange programs with universities in Chile and Mexico.

Aside from being a dedicated teacher, López was author, lecturer and community leader. He published many books about California and Chilean history including El Real Ejercito de California, a book about the Royal Spanish Army in California.

He was an athletic advocate whose success on and off the soccer field earned him a place in Menlo College’s Hall of Fame. “Carlos could be found watching the men’s and women’s soccer games at Carton Field cheering the Oaks on.” President Haight recalled, “He remained highly enthusiastic and would critique the play of our athletes. Carlos loved the game.”

Carlos earned his bachelor’s degree in Economics from Santa Clara University, a master’s degree from UC Berkeley, and a Doctor of Letters from Inter-American University in Mexico. Two of his three children are Menlo College graduates.

Dr. Carlos López, a dear friend and integral part of the College will be missed and not forgotten. Our thoughts and prayers are with his family, his wide circle of friends, students, and colleagues and loved ones. At this time of reflection, we recall his presidential salutation in the Summer 2004 issue of Menlo College magazine in which he quoted Winston Churchill, “let us go forward together”!

In addition to his children Andrea, Elena and Larry he is survived by his wife Eveleen. Services will be held next week on Thursday, March 12 at 10 am at Nativity Church in Menlo Park. A reception at Menlo College will be held in the Russell Center Great Room following the funeral. Ashes will be scattered at sea in Chile.

The family asks that at this time in lieu of sending flowers, tributes may be sent to Menlo College. Contributions will go towards the Carlos López Endowed Scholarship Fund.

****************

JE comments: I am deeply saddened by this news. I first met Carlos Lopez at the WAIS ‘06 Conference. Over the last two and a half years, Carlos and I often exchanged e-mails, and he was generous with his warm wishes and wise advice. He was so full of life and energy, that despite our frequent correspondence I had no idea he was ill. All WAISdom will miss Carlos, a brilliant scholar and wonderful human being.

I’d like to close by reprinting Carlos’s last posting to WAIS, dated 27 January 2009:

**************

Carlos Lopez writes:

Being that I am probably the only WAISer who knew Neruda personally, I feel obligated to contribute to this discussion.

I was a child when I first met Neruda. He was married then to Delia del Carril, la Hormiguita, who was a good friend of my parents. She was an avowed Communist. He was a very nice person. He and my mother discussed poetry one time in a house he had on the coast. It was a beauty overlooking the ocean. Pablo sold it years later.

Years later, during the election of Gabriel Gonzalez, Neruda took an active part in the political campaign. He wrote a great poem, “El pueblo lo llama Gabriel” which is nowhere to be found today. It was also the time when he wrote his second love song to Stalingrad. I loved it as he read in our house one night. He was elected senator and his speeches in congress were a disaster. He denounced this and that and never said anything positive. They can be read in the Chilean Congressional Record. I believe that this will confirm that he was a political cretin.

His supposed exile from Chile is to a great degree, a fake. He stayed in Chile for a while. Everybody knew where he was. No effort was made to apprehend him. The Communist Party decided to paint the walls around Santiago with Neruda in red letters. The government answered by adding the word “traidor” after his name. Campaign defeated.

When he finally left, he stayed in Buenos Aires and Paris in the house of my aunt Carmen Lopez. I saw him one more time in Chile upon his return, when he came to Parral, our home town, to give a speech.

There are two instances in which he showed me very little intellectual capacity. The first was at the house of Fernando Alegria in Berkeley. He wanted to learn more about Joaquin Murrieta. He refused all documentary proof. Murrieta was a Chilean. That was what he wanted and that was they way is was going to be. But he did listen to Fernando, who insisted that rather than a poem it needed to be a drama. Thus the Cantata was born.

The last time I saw him was at the Chilean Embassy in Paris in 1972. I told him about my mother’s troubles with the expropition of her ranch. He said he was sorry but that this were changes needed to change society. He discussed a possible kinship between my mother and Matilde Urrutia. She somehow admitted that she decendend from some of our Urrutias. He told me that my father was an aristocrat but with very advanced ideas. And as far a Murrieta was concerned: he was more stubborn than a burro: “he was a young man from Quillota; I have seen the proof.”

That was that. He was a Stalinist, a great poet and a very stubborn man.

JE comments: I am in awe and extremely grateful to Carlos Lopez for this WAIS exclusive. Newer WAISers may not know that Carlos has recently retired as President of Menlo College in Menlo Park, California. The day after WAIS ‘06, I spent a fascinating hour with him in the presidential office, discussing Chilean history. Carlos: I hope you are well; when you get the chance, I’d love to hear what you’ve been up to lately.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: Social Security and Ponzi Schemes (Jody Brennan, US)

On Social Security, Jody Brennan writes:

As a member of Generation X (in US), I can admit that we have been primed by education and news to not expect any government pay-back when we retire, despite paying dearly into the “fund.” We do not realistically think any of our lifetime of payments will be seen again. I see the money go. For example, the maximum that one can pay to Social Security, the one year maximum (which the US government keeps raising), I personally have already paid by the month of February 2009. This number is doubled since my (any) employer is required to pay (match) the same amount. This means that by February of each year my company and I have paid two (2) Social Security earners (average earners) their full wage benefits for the entire year. So as these retired earners have only received two monthly checks by February, the government has 10 months clear payment upfront for those two earners, which Washington DC may reinvest for a return or, more likely, will waste.

–

For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: Social Security and Ponzi Schemes (Massoud Malek,

On 7 March, when commenting Massoud Malek’s post, JE wrote:

Massoud Malek likens Social Security to a Ponzi scheme, which I suppose it is. But everyone more or less knows what the rules of Social Security are. No fraud involved. My question for the floor: what type of crisis would we have on our hands now if Social Security privatization had occurred during the early Bush years?

Massoud Malek responds:

In 1920, Charles Ponzi went to several of his friends in Boston and promised that he would double their investment in 90 days. By collecting money from his new investors, he delivered as promised, paying back $750 interest on initial investments of $1,250 in one month. By the time the scheme collapsed (in August 1920), he was making $250,000 (approximately $2,700,000 in 2009 dollars) a day.

Madoff’s annual returns for 17 years were “unusually consistent,” around 10%. Before December 10, 2008, not a single investor in Madoff’s fund suspected that he was using a Ponzi scheme. What happened to the $50 billion that those investors lost?

Before 2000, nobody had any idea about the Social Security privatization scheme, proposed by the Bush administration. Although it was killed by the Congress, it opened new doors to new future schemes. For eight years this great democracy was governed by a bunch of incompetent people. Most of our retirement funds were vaporized by credit-default swaps and toxic assets sold by AIG and other banks and insurance companies. We should thank the almighty God for allowing the Social Security Trust Fund navigate safely without the help of private companies and their CEOs.

The so-called Social Security reserve fund is no reserve at all, because the fund will contain nothing but the government’s promise to pay. Will the demographics of the population remain stable in order to sustain the pay-as-you-go pipeline? Will the Social Security remain solvent 10, 20, or 30 years from now?

According to CNN and Money Magazine:

http://money.cnn.com/2008/03/18/news/economy/sloan_socialsecurity.fortune/index.htm

The real problem starts only a decade or so from now, when Social Security begins to take in less cash than it spends. The system’s cash flow was about positive $92 billion in 2008. But by 2020 its negative will be $96 billion, rising to about negative $280 billion in 2025, half a trillion in 2030.

Ponzi scheme lasted a few months; Madoff fooled his investors for over 17 years; and soon, the Social Security system will end up like AIG, the largest bank and insurance company.

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For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: Twilight of the “Credit Middle Class” and Proletariazation (Robert Whealey, US)

Robert Whealey writes:

I sympathize with Charles Ridley’s (8 March) position on the
class question. Professors are probably harder workers than the
proletariat. In 1970, I had a sabbatical in Madrid to do research. I lived
in the famous La Residencia on Pinar 21, near the ANH on Calle Serrano. I
had dinner many times with a professor of psychology. He was a vague
sympathizer with the old Falange, which at that time, was anti-Franco. One
day he told me that he was a member of the working class despite his title.

I, as a left-wing Democrat whose father was an 8th-grade drop out, smiled
with sympathy at his comment.

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For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA

re: Economics: Twilight of the “Credit Middle Class” and Proletariazation (Charles Ridley, US)

Charles Ridley writes:

I think Jon Kofas (7 March) has hit his head on the nail, so to speak. I have long held that, regardless of my income from work and the imputed class status therefrom, I remain a member of the proletariat because my illusory elevated status depends on a source of money that could be withdrawn at any time. This is to say that I have consistently maintained a proletarian class consciousness.

With the decrease in my earned income associated in part with the depressed economy and in part with the retirement of a major provider of work, I am now technically a proletarian once again.

JE comments: Proletarians of WAISworld, unite!

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For information about the World Association of International Studies
(WAIS), and its online publication, the World Affairs Report, read its
homepage by simply double-clicking on: http://wais.stanford.edu/

John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA