[This is such an extraordinary week. So many economic writers are focussing on a very narrow range of financial crises. However, the structural problems that created this catastrophe need also to be addressed quickly.]
** The provision of essential goods and services has been left to ‘market’ demand.
Today’s news: Chesapeake Energy CEO Aubrey McClendon said Tuesday he would not be surprised if US drillers dropped hundreds of rigs in the next couple of quarters due to lower natural gas prices.[1]
** Inflation has been inappropriately treated as a monetary phenomenon with policy implementation resulting in world-wide recessions.
[Inflation] “became a problem which had to be treated, but by means other than those recommended by Dr Friedman and his colleagues. So they decided, because they thought it was a monetary phenomenon, which it wasn't, that the way to cure it was to crack down on the monetary system to tighten money and raise interest rates. And they had a little go at it in 1974-75, and they brought on a little recession, at least in our part of the world. And then in 1980-81, Paul Volker, who was at that time the Chairman of the Federal Reserve Board in Washington, and who had become a disciple of Dr Friedman, said, 'We will put this to the test'. And so he brought on a horrendous recession which was virtually world-wide…”[2]
** The functioning of critical domestic institutions is dependent on the inflow of foreign capital.
“…The fact is that Henry Paulson and this economic team and this failed administration in terms of economic policy, they have to say whatever they can about this money because without that foreign capital we have institution after institution that is simply insolvent.”[3]
** Finance capital is monopolized.
“No bank in the world will loan to a country blacklisted by the World Bank. To obtain funding from any bank, developing world governments must adjust their policies (called structural adjustments) to the dictates of the IMF/World Bank/NAFTA/ GATT/WTO/MAI/GATS/FTAA/military colossus. It is specifically under the imposed structural adjustment rules of that colossus that protections for the fast developing nations were withdrawn. Not only is the developing world locked within the parameters of the decisions of international capital, if any developed world government veers from the prescribed path, enough capital will flee to turn the economy downward, the politicians (not the subtle finance monopolists) will be blamed and—to maintain themselves within the good graces of the voters—the politicians will bend to the wishes of capital, even if it is to the detriment of the nation of their birth or of the world.”[4]
[1] Tuesday, September 23, 2008
Credit Crunch Hitting the Oil Patch
http://www.nakedcapitalism.com/2008/09/credit-crunch-hitting-oil-patch.html
[2] Paul Hellyer, former Deputy Prime Minister of Canada, talking at a conference, 'Reclaiming Democracy', in Sydney
[3] Lou Dobbs 2/4/08 "America being sold to foreign governments"
Submitted by Kim Berry on Mon, 02/04/2008 - 21:31
http://www.economicpopulist.org/?q=content/lou-dobbs-2408-america-being-sold-foreign-governments
[4] Chapter 11. Emerging Corporate Imperialism, from the book, Economic Democracy; The Political Struggle for the 21st Century.
http://www.ied.info/books/economic-democracy/corporatemercantilism
5 comments:
I don't wish to downplay the need for the global economy to lessen its dependence on oil. This needs to be done quickly. However, the price of oil in times of a very sharp economic downturn should not be the sole determinant of production levels.
Why have governments failed to implement urgent programs to apply safe and cheap alternatives to fossil fuels? I saw an interesting passive solar technology being employed in the construction of a modern house to lessen the dependence on heating. Well, the ways-and-means are out there after all.
"So they decided, because they thought it was a monetary phenomenon, which it wasn't,"
But it was a monetary phenomenon and Volcker's policy DID succesfully bring inflation down. And people were aware that there was going to be a cost in terms of a recession though some (basically the RaTex folks) underestimated the extent of it. But the fact that a tightening of the money supply produced a recession in no way disproves the fact that inflation was a monetary phenomenon. Hell, even Friedman believed money was non-neutral (i.e. had effects on output) in the short run and for him the short run could be as long as ten years.
And I really wish you wouldn't quote the quasi-racist and certainly xenophobic Lou Dobbs.
YNS, these points have been raised quickly and not explored in depth because I felt that timing was everything this week.
The public, in America and other nations, is being asked to decide on whether gigantic monetary bailouts will proceed; they are not being given much time to think.
My hope is that by raising the issues it will prompt some thinking on a wider perspective. So, thanks for doing so and responding.
All of these issues are topics in themselves. Inflation, when considered as a loss of REAL value, is not a monetary phenomenon in its essence. There are many reasons why people are forced to pay or work more and more for the same amount of goods and services - resource depletion, breakdown of regulatory institutions, inbuilt obsolescence, greed, destruction through wars and other means including natural disasters...
Volker's raising of interest rates was a catastrophic event for many 'developing' nations. I'm not at all sure that the word 'recession' is appropriate here.
Just to ask the inconvient truth:
If we had an economy based on cost+ pricing (also known as Just Wage and Fair Price) instead of the more modern "supply and demand" guessing, would we still have inflation?
Cost+pricing has been (and may still be) the basis in the US for the payment of private contractors in Iraq. Presumably this has happened in Afghanistan and in other war zones.
What is, in general, the modern version of 'supply-demand', anonymous? I can see that over time such a dynamic has been less and less in evidence.
It just may be too difficult a task to try to list a lot of the issues that are raised around the globe at this incredible time. It's so easy for aspects and language to be miscontrued.
Personally, I would like to see more markets (free of domination from power-elites). Along with a whole range of different strategies to address the extraordinary circumstances that have evolved around the world. I don't have recipes and the whole situation is incredibly complex. It would be a mistake to assume a high degree of comrehensibility on anyone's behalf.
The answers can't come from governments alone. I think everyone is going to have to work on a solution of some kind. I hope their voices will be heard in forums that matter.
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