Friday, February 13, 2004

Offshoring Backlash

If you read my posts over the last couple of days, you will see it just isn't America with a jobless recovery. Europe is being hit just as hard by the massive structural problems capitalism is exhibiting in recent years. In my opinion, these structural problems have been ever increasing since the `73 breakdown of the Bretton Woods System. I don't know how we can ever get people to listen and take seriously, the true Keynesian economists like Paul Davidson who actually offer real solutions, instead of most being seduced by the abstract rhetoric of the classical schools of wrongheadedness. Even Stephen Roach, who I admire below, is ill influenced by the free trade dreamland of such a monetary system's end-game wasteland. With the massive ppp and curency imbalances in the world, it is glaringly obvious to me that we have a serious structural problem - one that can not be solved by classical model tools and solutions. The Bretton Woods System has been ever more in conflict with our constitutional democracy since Nixon dismantled its more proper workings in `71 and `73. The Bretton Woods System has actually taken on the dire semi-reality of becoming, through international corporate legal intrigue and national inattention, our 2nd quasi-constitution - dereging and annulling our national and state laws - through the related secretly negotiated GATT, NAFTA, WTO, FTAA, CAFTA and GATS agreements, etc. Thus, since `73 we have been suffering ever increasing consequences. Something must change.

I am well aware of the shortcomings of the then Bretton Woods System, but there was still no excuse for not updating its workability at that time. Many people, myself included, are offering much updated Keynesian systems, or actually the full Keynes' system that never was instituted in 1946, yet updated to today's financial realities. These systems are listed a couple posts below. Please, let us all consider Keynes' seminal work to solve the world's massive problems.

Stephen Roach

It’s economics versus politics. The free-trade theory of globalization embraces the cross-border transfer of jobs. Political systems do not — especially as election cycles heat up. That heat is now being turned up in Washington, as incumbent politicians in both parties come face to face with the angst of America’s jobless recovery. Jobs could well be the “hot button” in Campaign 2004. And offshoring — the transfer of high-wage US jobs to the low-wage developing world — could quite conceivably be the most contentious aspect of this debate and one of greatest risk factors for ever-complacent financial markets.

Like most economists, I worship at the high altar of free-market competition and the trade liberalization that drives it. But that doesn’t mean putting a positive spin on the painful dislocations that trade competition can spawn. Unfortunately, that was the mistake made recently by the Bush administration’s chief economist, Gregory Mankiw, in his dismissive assessment of white-collar job losses due to offshoring. Like most economic theories, the optimal outcomes cited by Mankiw pertain to that ever-elusive long run. Over that timeframe, the basic conclusion of the theory of free trade is inarguable: International competition lowers costs and prices, thereby boosting the purchasing power and standard of living of consumers around the world. The practical problem in this case — as it is with most theories — is the concept of the long run. Sure, over a long enough timeframe, things will eventually work out according to this theoretical script. But the key word here is “eventually” — the stumbling block in presuming that academic theories map neatly into the shorter time horizons of financial markets and politics. Lord Keynes put it best in his 1923 Tract on Monetary Reform, cautioning, “In the long run, we’re all dead.” ...Link

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