More Nonsense About Social Security Going Broke

If Stephen Ohlemacher doesn’t know any better than this, maybe he should refrain on writing on this topic:

The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration. It's time to start cashing them in. For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year. Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more. Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors.

Let’s do some simple arithmetic. If the Social Security Trust Fund has $2.5 trillion in government bonds – at the current interest rate of 4.5% it receives around $112 billion in interest income. So if benefits exceed payroll contributions by only $29 billion, wouldn’t the Trust Fund assets grow by $83 billion? Of course, Mr. Ohlemacher seems to be of the belief that these Trust Fund assets are supposed to cover those General Fund deficits. Ahem!

The Art of Political Lying

In 1712, John Arbuthnot, chiefly known as a satirist, considered second only to Jonathan Swift, was also the Queen Anne's doctor and a Fellow of the Royal Society, proposed the publication of a book with two volumes, titled, The Art of Political Lying. Sadly, the book never appeared although it would be more relevant than ever today. Arbuthnot praised, "the noble and useful art of political lying, which in this last age having been enriched with several new discoveries" (p. 8) Obviously, he did not have the Internet in mind, but perhaps something similar had recently happened in England.


The loosening of government restrictions opened the country up to a flood of pamphlets. A recent critic noted that "greater freedom to print is more deviously related to the prevalence of accusations of lying" (Condren 1997, p. 125). Arbuthnot, himself, pointed to the role of "the great fondness of the malicious and miraculous: the tendency of the soul towards the malicious, springs from self-love, or a pleasure to find mankind more wicked, base, or unfortunate than ourselves."

Arbuthnot also promised to explore whether political lying should be the exclusive right of the government.

Not being erudite enough to follow through with Dr. Arbuthnot's project, I appeal to you to complete his work.

Arbuthnot, John. 1712. Proposals for Printing a Very Curious Discourse, In Two Volumes in Quarto, Intitled, Psuedologia Politike, or, A Treatise of the Art of Political Lying: With an Abstract of the First Volume of the Said Treatise (London: Printed for John Morphew, near Stationers-Hall).


Also see the proposal at

http://books.google.com/books?id=z2K2ljV5PI8C&pg=PA291&dq=Arbuthnot+%22Art+of+Political+Lying%22&client=firefox-a&cd=3#v=onepage&q=Arbuthnot%20%22Art%20of%20Political%20Lying%22&f=false

Two Conceits, Planning and Finance

It’s time to step back and think about the larger implications of the economic meltdown—what it says about our times and the ideas that have ruled them. I want to draw a parallel between 2008 and 1989, the failure of finance and the failure of planning.



The starting point should be the insight of Hayek and his Austrian colleagues that most economically valuable knowledge is local and tacit. Only those directly involved in the production and consumption of goods and services can really know about quality, difficulty, uncertainty and other not-fully-quantifiable or codifiable dimensions of economic life. This is why organization and control has to be decentralized.

The Austrian prediction of the downfall of central planning was finally validated in 1989—even sooner, for those who were following the internal debates about prices and planning taking place in the Communist world. By the fall of the Berlin wall there were no defenders left for the notion, or “conceit”, that a single, all-powerful bureau could intelligently manage a complex modern economy.

In very general terms, planning failed on two counts, both related to the ubiquity of local and tacit knowledge. First, because crucial economic information could not be codified, relations between the center and the enterprises had to be based on trust. One way the planners could convince themselves that their underlings were reporting correctly was, to put it bluntly, terror: the threat that misreporting or failure to follow orders would be punished as an “economic crime”, with horrible personal consequences. We still see the reflection of this approach in China. Yet sufficient trust could not be established even in the most autocratic regimes, and as political systems liberalized, the scope for these principal-agent conflicts grew ever larger. One universal post-1989 discovery is that the official statistics were rubbish, and there were dark practices in every corner.

The second problem is simply the complexity of modern economic life and its resistance to being encapsulated into the statistics that planners depend on. Plans were “wrong”, not just for errors in judgment or poorly chosen models, but because they were inherently unable to supply the answers to the questions that were most pressing on the ground. They could not make use of the non-quantifiable information that producers and users of goods possessed, nor could they interact constructively with the decision-making that is unavoidable at a local level. The great dream of computerization, for instance, that advocates thought would revolutionize central planning, never panned out. This was the purest, most direct vindication for the Austrian critique of centralized socialism.

The fundamental contradiction of Austrian thought, however, is between its awareness of the person-, activity-, and placed-based nature of knowledge and its assumption, never really defended, that markets can succeed in assembling this knowledge and guiding local decision-making. In saying this, I am not claiming that markets should have no role or cannot accomplish any informational or allocative function—only that they do not solve the problem posed by the centrality of local and tacit knowledge. But don’t take my word for it; see how this conceit collapsed in the financial meltdown of the past two years.

The “financialization” revolution of the post-1980 period was based on the assumption that market valuation of assets was rational and correct, and that owners of these assets would, in the process of maximizing their wealth, provide the best possible guidance for the dispersed producers whose work created the revenue flows which the assets capitalized. Control of enterprises would be transferred to the financial markets, which would decide which producers would be supported or shut down, and which would choose managers and evaluate their performance.

Alas, the same two faults we witnessed with central planning were reproduced in “central markets”, dishonesty and decision failure. In modern economies, for instance, intangible factors play perhaps the largest role in wealth creation, and this defeats any attempt to base valuation solely on accounting algorithms. Unscrupulous actors, interested only in their own personal gain, used this opportunity to deceive regulators and counterparties, to the extent that trillions of dollars were transferred to insiders while the rest of us were stuck with claims on fictitious assets. Whole companies were brought down, for instance, by equity funds that quietly stripped them of their financial value, leaving them too indebted to survive, and leaving gullible buyers of this debt with shredded balance sheets. No doubt a large part of this fraud could have been avoided had the insiders not gamed the political system and eviscerated regulation, but it would be a mistake to simply assume that regulation alone would be enough. The problem of the regulator is not so different from that of the central planner: how do you know whether an instrument or deal is value-destroying if you cannot independently ascertain what the actual value is?

Similarly, even well-motivated “abstract investors”, owners of funds who shuffle claims on a wide variety of enterprises and rely only on accounting data, and not the local and tacit knowledge of those on the scene, cannot really know what actions will make production more efficient at using resources and meeting social needs. The problem is the inability of accounting data to encompass the dispersed and non-codifiable information that workers, buyers, and managers generate and rely on. The “market for corporate control”, for instance, simply assumes that the information available to financial markets is sufficient to determine which managers are doing their jobs well and which need to be sacked. There are some success stories, in which entrenched managers, demonstrably failing in their obligations, were flushed out by external investors, but also many horror stories in which hard-earned craft and wisdom were expunged, and viable enterprises were destroyed. The inability of financial markets to assume the role of global economic management should not be laid at the feet of any particular individuals; it is intrinsic and is due to the same factors that caused central planners to fail.

Perhaps the main difference between 1989 and 2008 is that we had a ready narrative for the collapse of state-managed economies: for decades the failure of Communism had been predicted and explained for us, and the message was transmitted through the mass media for all to hear. The message regarding the shortcomings of financial markets is not as well-developed, however, nor is it being disseminated with the same ideological fervor. Yet experiences do not teach lessons all by themselves; they need to be narrated and understood. If we are to benefit from the upheaval we are still going through and find our way to a more stable and socially rational system of economic organization, we will need to clarify the story and find words to tell it.

Barkley Rosser Alert

The Wall Street Journal today quotes someone posing as Barkley Rosser.

The Peripatetic Peter Chang Goes Soft And Cools It Down

For something a bit different for this blog, I am going to comment on the recent frenzy over award-winning and mysteriously peripatetic Szechuan Chinese chef, Peter Chang, who has had articles about him by Calvin Trillin in the New Yorker, (abstract free, but full version gated, title "Where's Chang?") and by Todd Kliman Oxford American, ungated, (title, "Todd Kliman chases the perfect chef"). After cooking at the Chinese embassy in Washington, Chang began cooking at China Star in Fairfax, now a favorite hangout of Tyler Cowen of George Mason who is the author of the useful Washington Ethnic Dining Guide, along with many of his colleagues. Chang moved on to two other restaurants in Northern Virginia, then one in Marietta, Georgia, then one in Knoxville, Tennessee, and now is at Taste of China in Charlottesville, VA. I have eaten at China Star, where the current chef preserves some of Chang's recipes, and last night ate at Taste of China. Chang's food is tastier, but he has gone soft and cooled it down. Where Todd Kliman praises the "numbing" quality of his food, last night it did not numb, in contrast to what one finds now at his original venue, China Star in Fairfax. [more below the fold, hopefully]

I began going to China Star a few years ago after learning of it through Cowen's dining guide and after my daughter, Sasha, enrolled at George Mason University. China Star has become her favorite restaurant in the area, so we have now eaten there numerous times and know many of their dishes well. So, it was not surprising that with these articles out and Sasha home for spring break, we would be tempted to try Taste of China only an hour's drive away from Harrisonburg in Charlottesville. We got there about 5:30 and had to wait about 45 minutes for a seat (no reservations; the frenzy is intense). We ordered some dishes that are also served at China Star, such as spicy beef and tripe and also Szechwan chili chicken on the bone ("Qung Qing chili chicken" at Taste of China). Chang's current stuff is more subtle that the versions at China Star, and indeed astoundingly tasty. But it lacks a certain bite, certainly compared to China Star.

I suspect that what has happened is that Chang's long sojourn in places like Knoxville has Americanized him a bit, and perhaps he has accepted his celebrity as well. So, there is no separate menu for the hard core stuff, although the menu is separated into Chinese and "Chinese American" (conventional Chinese) sections. He seems to have toned down a bit, now that he is in effect appealing to masses waiting in long lines, not that I begrudge him his success (he was long rumored to keep moving because he "feared success"). In any case, his food is still extremely good.

I do recognize that we ate there only once, so it is possible that it was unuusally mild. It is also probably the case that one could ask for it to be spicier and he would deliver. I am a bit put off by the mob scene there, but if I do eat there again, I shall ask for them to give me the real punch and not the wimpy style.

Why a National Institute of Finance Will Fall Short

It seems like a good idea. Create a separate federal agency to monitor systemic risk exposure in financial markets. Require the major players to report trading data to this agency that they withhold from the public, so that a better picture can be drawn. Require this agency, the National Institute of Finance, to issue periodic reports, alerting the rest of us to developments that pose a risk of widespread disruption.

Certainly it’s better than nothing, which happens to be the status quo. (In theory the Fed should be doing this already, but in practice they have no interest.) If we had had such an Institute five years ago, perhaps they would have added their voice to those in the economics and finance professions who said leverage was careening out of control.

Perhaps.

But the approach embodied in the bill currently gestating in the Senate Banking Committee is built on a compromise that puts sound risk management, well, at risk. It goes like this:



As we have come to realize, a large part of the instability of global finance resulted from the pyramiding of increasingly complex financial instruments. There was an arms race between quants to develop evermore devious contracts, whose terms would be triggered by intricate combinations of market outcomes. Firms invested heavily in these strategies, and algorithms and instruments were jealously guarded as intellectual property. Trades were conducted in private, with no central registry, much less a public reporting of their terms. The terrible truth we learned in 2008 is that no one could possibly know how the system as a whole would respond to the seismic shocks of bubble-bursting, illiquidity and default. We waited breathlessly, week after week, to see how the unraveling would take place: real-time, real-life enactment was the only way the structural properties would be revealed.

Would an Institute of Finance be able to figure out the stability and dynamics of the system before it collapses? It depends on the information they are able to get. If they have access only to the data that are already publicly available, they’ll be in the same boat that independent analysts are in already. And true enough, many of us were able to see aspects of this crisis in advance, and we sounded the alarms. It is also true, however, that no one saw the entire process (we saw chunks of it), and our voices were drowned out by those who thought our fears were overblown. If the Finance Institute becomes one more such voice in the wilderness, will it make a difference?

But the discussions under way have broached the possibility that Institute staff would receive more reporting data than is currently made public, under a guarantee of confidentiality. This could make their pronouncements more credible and influential. Yet there are two shortcomings. First, it can be assumed that the Institute will not get all the trading details, only some. There will be negotiations with the banks, equity funds and other players, and deals will be cut. Even so, you can be sure that the details of some trades, perhaps the most essential for those who want to analyze the health of the system, will be withheld precisely because they are both profitable and risky, and participants want to milk them to the end. Second, it is the unfathomable complexity of interacting algorithms that is at issue. The players can’t figure it out, and, even with piles of trading data, it is likely that civil servants will be stumped too.

There is a much simpler, more effective solution. Require all contracts to be traded on exchanges, and all their terms to be reported publicly. (Perhaps the identity of the parties could be confidential; this is all.) There would be no intellectual property in financial instruments, and no incentive to devise ultra-complex variations. Algorithms used internally by investors to decide what positions to take would still be proprietary, of course, but these pose few systemic challenges. Contracts would standardize in convenient ways, and the public as a whole would be in a position to assess where the system is heading. You could be your own Institute of Finance.

What is the downside? Less profit opportunity in finance, a more routine, predictable, boring role for the financial sector, and fewer job openings for math jocks on Wall St. That’s probably enough to kill the idea politically, but from a public point of view, this down is all up, up, up.

VA Governor McDonnell Sees The Light (Sort Of)

"Discrimination against any class of people without a rational basis is forbidden" under the Equal Protection Clause of the U.S. Constitution says an Executive Directive issued yesterday by Virgnia Governor Robert McDonnell. The directive goes on to mention specifically "sexual orientation and parental status" as categories for which there is no such rational basis for discriminating in employment. I welcome this directive, although it must be noted that it is merely a "directive" rather than an "order," the status of his earlier statement that excluded GLBT (plus) people from protection against employment discrimination in the state government of Virginia, with orders having the force of law whereas a directive is merely an advisory opinion.

This has been issued openly due to a massive political backlash against the advisory letter to state colleges and universities from Attorney General Kenneth Cuccinelli telling them that they could not forbid discrimination against gays in employment. Even campus Republican groups have objected, with fully universal condemnation coming out of campuses at all levels, as well as from business elites in Northern Virginia worried about the impact on the reputation of the Virginia system of higher education, and also gay activist groups descending en masse on Richmond to protest. Unsurprisingly Cuccinelli still has his defenders, including the wacko Delegate Robert Marshall who recently blamed disabled children on abortion and is now claiming that Cuccinelli's critics are motivated by "anti-Catholic" bias. Gag.

Rush Job

All you self-styled progressives who think - to stretch a term - that HCR is worse than nothing or that things must get worse before they get better or whatever - I bring you a fresh reason for calling your Congress-person to urge a yes vote in the House: Rush Limbaugh has promised to move to Costa Rica if it passes. MOVE ON. RUSH!

Almost All of the Financial Crisis in One Picture

For a summary lecture in my class "Understanding the Financial Crisis", I've prepared a graphic of the big picture. There wasn't enough space for every item, and the arrows need a lot of explanation, but here it is:



Note: Black indicates "economic" factors, green "cultural" and red (or plum) "political". These are loose distinctions, of course. Most of the boxes are self-explanatory, except for the following:

"From ISI to ELI" refers to the collapse of import-substituting industrialization and its replacement with export-led industrialization.

"Deproductivization" describes the erosion of productivist motives in US institutions and policies, including education, infrastructure, regional and industrial policy.

The "Finance Perspective" signifies both financialization as a conceptual framework and the ascendancy of financial interests in the political sphere.

There simply wasn't space for a box for trade liberalization, which is influenced by the IT revolution, US geopolitics and the finance perspective, and which encouraged the shift to ELI, while acquiring its distinctive characteristics in conjunction with (how do we show this?) deproductivization. It played a significant role, directly and indirectly, in the emergence of global imbalances.

Global financial integration was influenced by geopolitics and the finance perspective, took on its particular form as a result of the failure of risk management, facilitated domestic US financial excesses (and excesses in other deficit countries), and was a central conduit for the propagation of the crisis.

I need at least one more dimension to show all this.

Enough Already: Venting Over Four Decades of Right-Wing Activism

Today, Richard Nixon would be considered a flaming liberal. In Nixon's day, Barack Obama would have passed as a typical conservative; except, if you remove considerations of civil rights from consideration, he might even be a fairly hard line conservative.

The Bill of Rights is pretty well shredded. Freedom of speech is fast becoming the special privilege of corporations. Economic pressures, fueled by greedy shareholders, have eviscerated the press, leaving freedom the press virtually meaningless.

The most important part of the Fifth Amendment is probably the takings clause, which is interpreted to restrict the right of the government to regulate property.

Perhaps, the Second Amendment is the most important amendment, giving people the right to arm themselves with anything short of a nuclear weapon.

All this right-wing nonsense might be somewhat understandable if it were necessary to provide for a good life; however, the economy is becoming as dysfunctional as the ridiculous political system.

Watching people rebel politically or in the streets in Iceland and Greece, while people in the United States express their frustrations with the tea party, makes me noxious. My problem with the tea party movement is one of political jealousy. Many of the participants share my frustration at the class bias of the system, but they seem confused, mistaking late capitalism or socialism. Sure, the tax system is rigged against ordinary people, but it works in favor of the same people who are running the tea party movement.

Unfortunately, the left (if there is such a thing) seems unable to articulate a strong call to action. Instead, our anger bubbles up periodically -- today, over the evisceration of education; tomorrow, over an escalation or extension of the war; or maybe even the promotion of a protest candidate, but a systematic program is nowhere to be found in the public dialogue.

What is to be done (but vent)? I hope not.

VA Attorney General Ken Cuccinelli Is A Bigger Homophobic Bigot Than Governor McDonnell

While Virginia Governor Robert McDonnell recently undid a previously in place gubernatorial mandate to forbid discrmination in state employment against gays, his successor as Attorney General, Ken Cuccinelli, has done something he did not do as AG or since. He has written a letter to all the governing bodies of state universities and colleges informing that as the law does not prevent discrimination against gays in hiring, they should not be passing rules (as most have) to forbid such discrimination against gays in hiring. I have no comment on this other than to say that if there is a hell, Cuccinelli will be going there, much as he would claim just the opposite for this action.

Lobbyists and Crises

Is anyone familiar with this study?

"The International Monetary Fund recently found that banks that spent more to influence policy over the last decade were more likely to take more securitization risks, have larger loan defaults and experience sharper stock falls during crucial points of the crisis."

Cyran, Robert and James Pethokoukis. 2010. "Formidable Lobbyists." New York Times (3 March): p. B 2.

We’re crying out here that there's something in our water

But it may already be in a place near you.

"DR MARCUS SCAMMELL, MARINE ECOLOGIST: Every time we took a water sample test in that catchment the water came back toxic."

..."St Marys is surrounded by natural forest. And we’ve found no evidence of toxicity in the St Marys catchment. However in the St Helens catchment directly below this monoculture of plantation trees, we had permanently present toxin."

...."DR MARCUS SCAMMELL, MARINE ECOLOGIST: The timber companies themselves refer to these as genetically improved. They don’t say how they’re improved."

..."DR CHRIS HICKEY, NATIONAL INSTITUTE OF WATER AND ATMOSPHERIC RESEARCH,NZ: The Tasmanian trees generated a lot more foam and this foam was a lot more stable than the Victorian leaves. The significance of this is that... in that the toxin is carried in the foams - this is the mode by which the toxin can be transferred within the catchment and moved down the river system and into an estuarine environment."

...."DR CHRIS HICKEY, NATIONAL INSTITUTE OF WATER AND ATMOSPHERIC RESEARCH,NZ: We wouldn't see this necessarily in the laboratory or even expect to sort of look for this sort of effect. You're only going to see it once you get things on a very large scale monoculture. It's a classic case of potential unintended circumstances, unintended effects from something that’s on a large scale like plantation forestry. ..."

"....DR CHRIS HICKEY, NATIONAL INSTITUTE OF WATER AND ATMOSPHERIC RESEARCH,NZ: Since our original experiments we designed a second series of experiments whereby we would chemically analyse both leaf material from eucalyptus nitens and foam material, and then follow that up with bioassays with both our fresh water cladocerans and our blue mussels. So this is some sort of forensic toxicology work that we’re doing. What we’ve been able to do is come very close to showing that there’s a common chemical fraction in both the eucalyptus nitens leaves and in the toxicity in the foams. So from that we really feel we’re very close to being able to confirm that the eucalyptus nitens is the primary source of toxicity in the foams. We just haven’t been able to actually get down to the final fingerprinting and molecular weight determinations which will give us our final linkage to the eucalyptus nitens..."[1]

In June 2009 the World rainforest reported that a large global corporation called 'ArborGen' was planning to release genetically engineered tree products in the US and Brazil.

"This is a major step toward the unregulated commercial release of large-scale plantations of GE eucalyptus trees.[2]"

However, from the comments made by Dr Chris Hickey above, it looks like this disastrous genie is already out of the bag - whether the trees are genetically improved/engineered or not. Giant Eucalyptus (and other) monocultures have been planted across immeasurably huge land areas, particularly across the southern hemisphere. This has been organised and carried out by global 'forest' companies, in league with governments, over the last 15 years in particular.

The scale of these monocultures, is sufficient in itself, to generate unnatural buildup of toxins in the drinking water catchments where they have been planted.

Let me tell you why you are here. You are here because you know... that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. [ ... ] The Matrix is a system, Neo. That system is our enemy.

(Morpheus, in Wachowski and Wachowski 1999)

REFERENCES
[1] Something In The Water Part 2 - Transcript
PROGRAM TRANSCRIPT: Monday, 22 February , 2010
http://www.abc.net.au/austory/content/2007/s2827178.htm

[2] Arborgen Seeks to Legalize GE Eucalyptus Trees in U.S. -Brazil is Not Far Behind
“Eucalyptus is the perfect neoliberal tree. It grows quickly, turns a quick profit in the global market and destroys the earth.”—Jaime Aviles, La Jornada
http://www.wrm.org.uy/bulletin/143/GE_Eucalyptus.html

Mr. Mankiw Meets The Post Keynesians

Greg Mankiw gave a presidential address at the Eastern Economic Association meetings in Philadelphia over the weekend on distribution effects of tax policy, pushing his height story. But that was less interesting than another session chaired by Mark Setterfield of Trinity College where Mankiw, author of the most widely used textbooks in undergrad macroeconomics, was in the audience for "Macroeconomic Theory and Macroeconomic Pedagogy: Rethinking Undergraduate Macroeconomics Instruction." Mark has coedited a volume with Giuseppe Fontana of the same title as the opening part of the session title, recently out from Routledge. While not everybody in the book is of the persuasion, most of the presenters were Post Keynesians, including Malcolm Sawyer of Leeds University and John Smithin of York University in Ontario, as well as several in the audience such as Tom Palley, who engaged in vigorous discussion.

Much of the book and the discussion focused on the so-called "new concensus" three equation model, which are an IS curve giving aggregate demand, a Phillips curve, and than a policy curve essentially implying a Taylor rule with the central bank setting nominal interest rates. This implies endogenous money, a concept much liked by many Post Keynesian economists, although many argue it holds more broadly than just when central banks exogenously set interest rates. Sawyer pursued the endogenous money argument further, and Smithin offered an alternative three equation model with the Phillips curve and the Taylor rule replaced by short and long run supplies of inflation equations. It was over whether the Post Keynesians had any alternatives to the new consensus model and also could explain hyperinflation where Mankiw stepped in to question. Smithin replied with his three equation model, although the equivalent of the IS curve seemed much more complicated than the usual variety, too much so for a Principles text anyway, if not perhaps a higher level one. Mankiw did not seem convinced.

A sub-text was that it is unclear if these Post Keynesian models did much better in explaining recent events than the now silly looking standard model. Most observers would say that the big winner in all this has been Hyman Minsky, generally labeled a Post Keynesian, although he did not particularly like the label (and Paul Davidson claims he was not one, or a proper one). A couple of the chapters in the book, if not the session, attempt to bring Minsky in, but it is unclear that all this has been resolved clearly. In another session at the conference, another author from the book, Marc Lavoie, agreed that in a world where central banks lose control of actual interest rates as they fall below corridor levels, the standard endogenous money model may be out the window along with the more conventional model. It is too bad that Minsky is no longer with us when we need him (and he used to be a regular attender of the EEA meetings, sigh... ).

1990: There is no such thing as a US economy anymore

“For the first time the world is functioning as a single economy…there is no such thing as a US economy.”

Those are the words written by John Naisbitt and Patricia Aburdene in their 1990 book entitled ‘Megatrends 2000 – The next ten years…major changes in your life and world.” [ 1]

The authors were attempting to explain why the then current hysteria being beat up by Wall Streeters about the US trade and budget deficit was a sham.

“It was said that these twin monsters would surely bring the most powerful economy to its knees, perhaps even lower, if something were not done.” [ 2]

However, the way in which the official national statistics were calculated ensured that the US twin deficits were largely a mirage.

Looking at the trade deficit Naisbitt and Aburdene write “the only things that are counted are what customs officals check off on their clipboards at ports of entry, the goods and tangibles of the industrial period. Non-tangibles such as book rights, royalties and fees were simply not counted. Further, the products of US companies who operated in foreign nations also didn’t count.

“In 1986 foreign branches of American companies sold $720 billion worth of goods overseas, seven times the so-called trade deficit for that year. Almost 20 percent of the merchandise imported into the United States is manufactured by foreign branches of American companies. The United States’ biggest import item by far is money. Its largest exports by far are bonds, stocks, and other financial instruments.” [ 3]

The authors rightly question why “commentators in the media and elsewhere …assess the health of the overall US economy by examining a single incomplete statistic.”

“There is a need for new concepts and new data if we are to understand the new global economy. Because they are using old concepts (eg, a collection of nation-states trading concrete goods) and old data, alarmists shout about perceived trade deficits and yell for protectionist measures borrowed from the old era. Much is made of the United States now being ‘the world’s largest debtor nation’. To begin with, half that so-called debt is in stock in US companies. In a truly global economy, does it really matter that ten shares of AT&T stock are now owned by an Englishman in Manchester rather than a banker in Wichita?” [ 4]

As if anticipating US citizen concern about foreign ownership of US corporations, the authors point out that

only 5 percent of the assets of the US economy are owned by foreigners

. Readers are reassured that the truth is that America and Britain were buying up the world:

“So what if foreigners own 5 percent of American assets? Many of the purchasing corporations are owned by American and other people from all over the world. What’s foreign?” [ 5]

“The right course for a sophisticated country is to invest the money it earns in the most profitable way. That is what ‘deficit-ridden’ American and ‘deficit-ridden’ Britain have both done….The United States is buying more businesses overseas - $309 billion worth in 1987 – than all other countries together are buying in the United States. Furthermore, US assets abroad are grossly understated because Americans have been on the buying side for a long time, and the worth of those assets is carried at the original cost rather than current market value.” [ 6]

Megatrends 2000 quickly flips over the negative reports of rainforest depletion, increasing poverty, environmental pollution, corruption and exploitation. The book celebrates the passing of the year 1984, a year Naisbitt and Aburdene assert passed without the dehumanization of modern society prophesied by George Orwell.

Looking to the new millennium it is observed that:

“Wealth has not led to increased greed, as conventional cynicism would have us believe.” [ 7]

On the contrary

“Wealth is a great peacemaker” say the writers. [ 8]

This is a book that, on the one hand, takes great care to examine the fallibilities of the monetary accounting of a nation as well as the fast pace of change in the world’s economic system. But on the other hand the authors carelessly disregard the economic and social history of humanity in their declarations of simple truths.

The world has changed dramatically, indeed. The logic of the US and the UK funding their phantom ‘trade deficits’ by exploiting the wealth of other nations somehow eluded analysis. A mere ten years into our grand new Millennium the actions of the ‘leaders’ of the industrialized nations continue to be vastly destructive to the future of life on the planet. Despite the incredible financial wealth accumulated through stepped up global exploitation by these ‘successful’ corporations our ‘leaders’ are now implementing brutal austerity measures like gutting the already half-funded healthcare and aged pensions to bail them out. Yet again, and again.

REFERENCES:
[1] John Naisbitt and Patricia Aburdene. ‘Megatrends 2000 – The next ten years…major changes in your life and world.” Sidgwick and Jackson Limited London. 1990. ISBN 0 283 06016 6. Page 26.
[2] Ibid. Page 24.
[3] Ibid. Page 26.
[4] Ibid. Page 27.
[5] Ibid Page 29.
[6] Ibid. Page 28.
[7] Ibid. Page 288
[8] Ibid. Page 289