Friday, January 22, 2016

Trump, Not Keynes, Holds the Key to Economic Recovery in the West

Tony Blair: laughing all the way to the bank 
since leaving office.*
This article, by Mike Whitney in the Unz Review, explains how US (and by extension European) monetary and fiscal policies* saved criminally reckless Western financial institutions from bankruptcy. The method was to provide the bankers with virtually limitless amounts of cash at negative real interest rates, which enabled them to blow a huge stock market bubble that financed their return to solvency. At the same time, Whitney argues, governments were careful to limit the magnitude of monetary stimulus so as to insure no substantial growth in aggregate demand or, therefore, in employment or wages.

On the latter point, Whitney offers the correct Keynesian analysis. But Keynes addressed the problems of a different age, when the US economy was largely self-contained, with external trade amounting to less than 5% of GDP.

Globalization with input factor mobility, i.e., free movement of labor from the Third World to the First World, free movement of capital and technology from the First World to the Third World, and free movement of the products of sweatshop labor from the Third World to the First World means lower wages and higher unemployment in the First World, which in turn shrink aggregate demand resulting in even lower wages and higher unemployment.

The Keynesian solution to shrinking demand and rising unemployment was deficit spending to raise aggregate demand and hence employment and wages. But today, in an era of globalization to the max, the effect of deficit spending is primarily to suck in more cheap Chinese shoes and shirts, computers and car parts, all of which Americans and others in the First World used to make for one another. Add in the effects of computerization, automation, robotization and insane student debt and the outlook for employment and wages for ordinary folks becomes, as is now apparent, bleak indeed.

There are two measures to improve the welfare of the proletariat. One is massive infrastructure spending, since this generates work that cannot be off-shored and is still largely beyond the scope of automation and robotization. The other is a return to free trade without input factor mobility, which as David Ricardo explained in his 1817 classic, “On the Principles of Political Economy and Taxation” yields the benefit of “Comparative Cost”, or “Comparative Advantage” as it is now known, i.e., the benefit of increased total output and lower costs than if each nation tried to produce in isolation.

These,  as I explained here, in a post that was rejected for publication in the Unz Review, are the economic policies espoused by Donald Trump, i.e., restoration of the border to limit influx of labor from the Third World, and the imposition of tariffs to restrict influx of products of foreign sweatshops financed with First World capital and technology, thereby achieving the benefits of comparative advantage through international trade, and last but not least a massive infrastructure renewal project.

* Said policies are administered by governments largely owned by said criminally reckless financial institutions, for example, the great American banking firm of J.P. Morgan, which took former UK Prime Minister Tony Blair on as an "adviser" for a fee of two million pounds per year. This is in accordance with the Western tradition of political bribery, which as explained by Thomas Macaulay (The History of England (1848)), involves payments made after the bribed individual leaves office, an arrangement that is entirely legal, and one that no politician would ever think of changing.

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