Signs of the Economic Apocalypse, 5-8-06

From Signs of the Times, 5-8-06:

Gold closed at 685.20 dollars an ounce on Friday, up 5.2% from $651.60 at the end of the previous week. The dollar closed at 0.7854 euros on Friday, down 0.8% from 0.7915 euros for the week. The euro, in turn, closed at 1.2732 dollars compared to $1.2634 at the end of the week before. Gold in euros would be 538.17 euros an ounce, up 2.4% from 525.75 for the week. Oil closed at 70.01 dollars a barrel Friday, down 2.7% from $71.88 at the previous week’s close. Oil in euros would be 54.99 euros a barrel, down 3.5% from 56.89 for the week. The gold/oil ratio closed at 9.79, up 0.9% from 9.07 the week before. In the U.S. stock market the Dow closed at 11,577.74 on Friday, up 1.9% from 11,367.14 at the close of the previous Friday. The NASDAQ closed at 2,342.57 on Friday, up 0.9% from 2,322.57 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury Note closed at 5.10%, up five basis points from 5.05 the week before.

Interesting week. Gold continues to skyrocket, rising 14% over the last three weeks. Oil is holding firm at the $70 dollar range. The dollar sunk lower. The Bush gang continues to struggle, mired in several overlapping criminal scandals, throwing second-tier players overboard, facing horrible poll numbers, and with their “vision” in complete collapse (all except the enrich-friends, concentrate-wealth, and destroy-the-Constitution-agenda—that’s going great). And, last week saw the first real worker’s May Day in the United States in a long time, with the one-day boycott by supporters of undocumented workers following weeks of the largest labor protests in U.S. history.

But the market optimists are focussing on the stock market, which, in the United States, is near all-time highs (in dollar terms, anyways). A better reason for true optimism might be the rebirth of the labor movement in the United States, thanks to the undocumented workers. Wages even increased last month. The world-wide rejection of neoliberalism is also cause for hope. The danger is that neoliberalism may be replaced by neo-imperial competition among big powers with Chinese imperial fascism competing against Russian and American imperial fascism. Orwell has proven to be quite a prophet.

As we mentioned last week, John Kenneth Galbraith may have picked a good time to die as a look at his life and ideas reminds us of what the United States has lost in the last thirty-five years or so. Here is Brad DeLong in a review of a 2005 biography of Galbraith by Richard Parker:

A Man For All Seasons

That Galbraith's career has been dazzling nobody can dispute. Professors of post-World War II American history can still do no better than to assign his books The Affluent Society and The New Industrial State to teach students how the midcentury U.S. economy came to dominate the world (and what should have been done to make it work better). Anyone wanting to learn about the beginning of the Great Depression should start with The Great Crash; there is no other history of the stock-market crash of 1929 that is as short and even half as worthwhile. During World War II, Galbraith helped run the Office of Price Administration, working to square the growth-inflation circle by pushing production far above economists' measures of potential output without sparking runaway price increases that would threaten the economic mobilization. And after the war, his work on the Defense Department's "United States Strategic Bombing Survey" made Washington rethink the efficacy of its standard war-fighting policy -- staying high in the sky and dropping lots of explosives on all kinds of people far below -- although perhaps the rethinking did not go far enough.

Lots of ideas in the background of contemporary U.S. political and economic thought are Galbraith's. His work as an economist was a scattered but comprehensive attempt to think through the consequences of the transition from a nation of small farms and workshops to one of large factories and superstores. In doing so, he took on many of the questions most central to the new U.S. economic landscape: How much can advertising shape demand? In a world of passive shareholders, autonomous managers and engineers, and firm decisions that emerge out of internal bureaucratic contests, just what are the objectives that drive big firms? How does competition work when its principal dimensions are quality and marketing rather than price? And critically, how do the limits of polite discourse allow the system to hold itself together while constraining its flexibility?

For decades, Galbraith's influence in politics was unmatched by any other economist. The pieces of his advice best remembered are those that went against the "conventional wisdom" (a now ubiquitous phrase that Galbraith coined): strategic bombing did not win World War II; Vietnam was a strategically unimportant quagmire where the United States would do more harm than good; macroeconomic "fine tuning" is likely to blow up in the face of policymakers; the businessman's capacity for self-delusion is nearly infinite. Galbraith sees the United States as a would-be social democracy that has lost its way, assuming that if only the self-serving declarations of the right could be wiped away, the benefits of a bigger, more activist government would become obvious to everyone. The right-wing claim that the most efficient economy is one in which the gales of perfect competition scour the land is, in Galbraith's view, nonsense. Modern industrial and post-industrial production is a large-scale process, large-scale processes require planning, and planning requires stability -- which means that the gales of the market must be calmed.

This political vision, however, has been in retreat since the early 1980s. Nobody wants to hear about the importance of Big Government, Big Bureaucracy, or Big Labor (which hardly even exists). Galbraith's economic views have undergone an even more distressing eclipse. Among economists (excluding economic historians), the 70-year-olds have read Galbraith and think he is very important; the 50-year-olds have read Galbraith and know that the 70-year-olds think he is important but are not sure why; and the 30-year-olds have not even read him.

Parker has an explanation -- a relatively convincing one -- for the retreat of Galbraith's politics. The story behind it is the Democratic establishment's loss of nerve. Too many party intellectuals and politicians drink cocktails on Martha's Vineyard, in Parker's view, and too few spend time on the shop floor learning what issues are important to those sweeping up or manning an assembly line or tending the convenience-store cash register from midnight to six a.m. Thus, the mass base of the Democratic Party has withered, and without a mass base Democratic politicians listen too much to their rich contributors and turn into Eisenhower Republicans -- people who are interested above all in balancing the budget. Galbraith, a committed social democrat, has wielded his pen and his tongue in an effort to halt this decades-long rightward drift. But he has failed: his allies are too few, and the loss of nerve among the party elite is too complete.

Parker also has an explanation -- also a relatively convincing one -- for the eclipse of Galbraith's economic thought. The story here is of the blindness of an academic establishment steeped in Paul Samuelson's Foundations of Economic Analysis. Economists, Parker believes, have sold their birthright for a tasteless pottage of mathematical models. As a result, they can say much about theory but little about reality. And they ignore Galbraith because he is a guilt-inducing reminder of how much broader and more relevant economics can be.

What Would Galbraith Do?

This explanation, however, is far from complete. Late-twentieth-century American economics centers on the use of mathematical models to reach one of two conclusions: that the market is already doing a good job, or that some imperfection is causing "market failure" and correcting or counterbalancing the imperfection will make everything okay.

Thus there are New Classical macroeconomists, who believe that the market works fine and that even depressions are necessary and inevitable; Monetarists, who believe that recessions result from failures in the banking system, which can be corrected by ensuring stable growth of the money supply; and New Keynesians, who are indistinguishable from Monetarists save for their identification of market failures in the labor market or in the investment decisions of firms. In all these cases, it is clear what an economist must do to belong to a particular school: start underneath the lamppost, take a few steps in one direction by describing a market failure, and then start searching for lost keys. New Classicals master the solutions of "dynamic stochastic general-equilibrium representative-agent models." Monetarists analyze the details of the financial system in an effort to define a "neutral monetary policy." New Keynesians trace the implications of subtle differences in labor- and capital-market failures.

Just what a "Galbraithian" economist would do, however, is not clear. For Galbraith, there is no single market failure, no single serpent in the Eden of perfect competition. He starts from the ground and works up: What are the major forces and institutions in a given economy, and how do they interact? A graduate student cannot be taught to follow in Galbraith's footsteps. The only advice: Be supremely witty. Write very well. Read very widely. And master a terrifying amount of institutional detail.

Harry Johnson, in his superb but not entirely fair critique of Milton Friedman's Monetarists, said that in order to carry out an intellectual revolution in economics, one must propound a doctrine that has three qualities: it can be summarized in a single sentence, it provides the young with an excuse for ignoring the work of their elders, and it tells the young what they can do to further the revolution. John Maynard Keynes and Friedman both offered such doctrines. They said, respectively, that "aggregate demand determines supply" and that "inflation is always and everywhere a monetary phenomenon"; they dismissed their predecessors as obsolete; and they set hundreds of young to the task of estimating consumption, investment, and money-demand functions.

Galbraith propounded no such easily summarized doctrine. The closest we can get is: "the world is complicated, and both right-wing ideology and the conventional wisdom that is this age's self-image are terribly wrong." He offered critiques that required you to read and understand old theories, not new theories that allowed you to dismiss everything prior as irrelevant.

The result? Nearly all economists today are Paul Samuelson's children. Many are Keynes' children. Friedman, Robert Lucas, Robert Solow, and James Tobin all have plenty of descendants. But there are few Galbraithians on the ground. Would economics as a discipline be stronger if the 50-year-old and 30-year-old economists had a better appreciation of Galbraith? Almost surely. Will the winds of economic fashion shift and cause economists to appreciate Galbraith once again? For that to happen, an astute young economist would have to devote himself to "mathing up" chapters of The Affluent Society and The New Industrial State and publishing them in journals -- not a likely prospect in today's risk-adverse academic environment.

Here is Paul Craig Roberts on Galbraith:

Markets, Politics and the Public Interest
John Kenneth Galbraith, a Great America
May 3, 2006

By Paul Craig Roberts
A great American has passed away--John Kenneth Galbraith. He was 97 years old and still involved with the issues of our time.

Galbraith's most famous book is The Affluent Society (1958). In this book Galbraith argued that Americans were good at making money, but neglectful of the wider public interest.

Alas, the same is true today. The environment always suffers from the greed of developers and a number of other well organized interest groups that pull political strings. I have seen enough in my life to know that Galbraith was right that the "free market" is not always the answer. All too often, the "free market" is merely organized interests pulling political strings behind ideological cover.

…Galbraith could puncture the inanities that pass for "free market economics" better than anyone. Don't read me wrongly. There is a tremendous case for market economics. The fallibility of government is a well documented story. I am saying that there are a large number of special interests that disguise themselves with free market claims, and that these special interests, not true free market economics, determine US policy.

Today we need Galbraith more than we did in his own time. American economists have made themselves irrelevant. They don't address real issues. Lost in abstractions and ideology, the economy collapses around them while they give assurances that all is well.

America owes its former economic greatness to World War I and World War II, which destroyed Europe and Japan and left the US as the only manufacturer. As part of its cold war strategy, America gave itself away and has today a hollowed out economy based on consumer debt.

Under the Bush regime, the price of gold has sky-rocketed from $240 an ounce to $660 per ounce. That tells us something about the confidence the world has in the dollar as reserve currency.

John Kenneth Galbraith said "the total alteration in underlying circumstances has not been squarely faced. As a result, we are guided, in part, by ideas that are relevant to another world."

His words are more true today than when he wrote them.

A few minutes spent watching MSNBC is enough to convince a person that Roberts hit the nail on the head when he wrote that economists “don't address real issues. Lost in abstractions and ideology, the economy collapses around them while they give assurances that all is well.”

The protests in support of undocumented workers across the United States may represent a watershed. In part for the reason mentioned above, the rebirth, from the lowest levels, of the U.S. labor movement, going at the corporate rulers and anti-immigrant populists at the most basic level by declaring that they are fully human, fully equal human beings worthy of respect and rights regardless of their legal status. The protests were also significant when seen in a hemispheric context:

Mesoamerica comes to North America: The Dialectics of the Migrant Workers’ Movement

By James Petras

May 3, 2006

Between March 25 and May 1, 2006 close to 5 million migrant workers and their supporters marched through nearly 100 cities of the United States. This is the biggest and most sustained workers’ demonstration in the history of the US. In all of its 50-year history, the US trade union confederation, the AFL-CIO has never been capable of mobilizing even a fraction of the workers convoked by the migrant workers movement.

The rise and growth of the movement is rooted in the historical experience of the migrant workers (overwhelmingly from Mexico, Central America and the Caribbean), the exploitative and racist experience they confront today in the US and the future in which they face imprisonment, expulsion and dispossession.

An Independent Political Struggle

The migrant workers movement is engaged in an independent political struggle, directed against local, state and particularly the national government. The movement’s immediate objective is to defeat congressional legislation designed to criminalize employed migrant workers and a “compromise” designed to divide recently arrived workers from older workers. The key demand of the migrant workers is the legalization of all workers, new and old. The choice of direct action methods is a response to the ineffectiveness of the legalistic and lobbying activities of established middle class controlled Latino organizations and the total failure of the labor confederation and its affiliates to organize migrant workers in trade unions or even build solidarity organizations.

To understand the dynamic growth of migrant labor movement in the US and its militancy, it is necessary to analyze the profound structural changes of the 1980’s and 1990’s in Mexico and Central America.

NAFTA, Proxy Wars and Free Markets.

The Economic Determinants

"Free Trade" and Unemployment: Beginning in the 1980’s, the US via the IMF, and its client presidents in Mexico (Salinas, Zedillo and Fox) promoted a “free trade” policy codified in the North American Free Trade Area. This policy opened the door to the massive inflow of heavily subsidized US agricultural commodities undermining local small and medium size farmers. Large-scale foreign investments in retail enterprises, banking and finance led to the bankruptcy of millions of small business people. The growth of free trade industrial zones (maquiladoras) led to the decline of protective social and labor legislation. Foreign debt payments, corrupt privatizations and large-scale growth of precarious employment led to an absolute decline of wage levels, even as the number of Mexican billionaires multiplied. Huge profits and interest payments accruing to US corporations and banks flowed back to the US, as did billions of dollars from corrupt politicians, money laundered by US banks like CITI Corporation.

Displaced and impoverished rural and urban workers soon followed the outward flows of profits and interest. The reasoning according to the “free markets” was that free flows of US capital to Mexico should be accompanied by the free flow of labor, of Mexican workers to the US. But the US did not practice the “free market” doctrine: it pursued a policy of unrestricted entry of capital into Mexico and a restricted policy on labor migration.

The free market policies created a vast reserve army of unemployed and underemployed Mexican labor while the legal restraints on free migration forced the workers to migrate without legal documents.

The huge influx of labor was not simply a result of Mexican or Central American workers seeking higher wages, it was a result of the adverse structural conditions imposed by NAFTA which expelled workers from their workplace. The Mexican free market structure was an ‘empire-centered model of accumulation’, and because it was empire-centered, it became a magnet attracting labor in pursuit of employment in the Empire.

The US Imperial Wars of the 80s: The second major structural feature determining massive migrant worker movements from Central America was the US imperial wars of the 1980’s: the massive US military intervention via proxy armies in Nicaragua, El Salvador, Guatemala, and Honduras destroyed the possibility of social reform and viable economies throughout Central America. By financing death squads and promoting “scorched earth” counter-insurgency activity the US drove millions of Central Americans out of the countryside into the squalor of urban slums and overseas to Mexico, the US, Canada and Europe. The US “success” in imposing corrupt right-wing rulers throughout Central America, closed off all options for collective or self-improvement in the domestic economy. The implementation of neo-liberal measures led to even greater unemployment and a sharp decline in social services, forcing many to seek employment in the empire: the source of their misery.

Legacy of Struggle: Migrant Labor Militancy

The first wave of immigrants in the 1980’s in the aftermath of the neo-liberal shock and the military terror sought anonymously any kind of work even under the worst conditions; many hid their militant past but did not forget it. As the flow of migrant workers gained momentum, great concentrations of Latino workers settled in major cities of California, Texas, Arizona and New Mexico. This led to the creation of a dense network of social, cultural and sports clubs and informal organizations based on previous family, neighborhood and regional ties. New small businesses flourished, consumer power increased, children attended school with clear Latino majorities and numerous radio station were directed to the migrant workers in their own language. Quickly the sense of solidarity grew from the strength of numbers, the facility of communication, the proximity of fellow workers, and above all from the common experience of unregulated and unmitigated exploitation at the hardest jobs and the lowest pay, accompanied by racist attitudes from employers, white workers, police and other public authorities.

The decision by the Congress to add the further threat of imprisonment and mass expulsions occurred at the same time in which the social networks and solidarity within the Latino communities was deepening and expanding. The earlier militancy carried over from the mass popular resistance to the death squads in El Salvador, the taste of freedom and dignity during the Sandinista period in Nicaragua, the multiple militant peasant movements in Mexico came out of the closet and found a new social expression in the mass migrant workers movement.

The convergence of submerged or latent militancy and the demands for labor rights and legal recognition in the new exploitative/repressive context created the impetus for social solidarity of entire communities. Participation included whole families, entire neighborhoods and crossed generational boundaries: high school students joined construction workers, gardeners, garment workers and domestics to fill the streets of Dallas, Texas and Los Angeles, California, with hundreds of thousands of demonstrators, much to the surprise of non-Latino observers ignorant of their historical legacy, their powerful social networks and their decision to draw the line now between social existence and massive expulsion.

In summary we cannot understand the massive labor migration from Mexico without examining the massive flow of US capital to Mexico, its destructive impact on the socio-economic relations and the unregulated outflow or remittance of profits and interests back to the US. Likewise we cannot explain the massive long-term flows of labor migrants from Central America to the US without taking into account the massive flow of US arms to the ruling classes of the region, the large-scale destruction of small scale agriculture, the restoration to power of the kleptocratic oligarchies and the reversal of social reforms, especially in Nicaragua.

The Counter-Revolution: Central American and Mexican labor migration is a direct result of the victory of the US-led counter-revolution in the region. The emergence of the mass movement of labor migrants, in a sense, is the replay of the earlier struggles between US capital and Mexican and Central American labor on the new terrain of US state politics and with a new set of issues. The continuity of the struggles, in Central America and Mexico and now in the US is found in the common demands for “self-determination” and the common methods of struggle, direct action. This is reflected in the strong working class or ‘popular’ composition of the struggle, and the historical memory of class solidarity.

Meanwhile, on another continent, the resistance to neoliberalism gains confidence from victory. According to the World Socialist Web Site:

It is no accident that the huge demonstrations in America follow by only weeks the outbreak of mass protests in France that brought together students, workers and immigrant youth against the attempts by the Chirac government to attack the rights of younger workers and make the working class as a whole pay for the crisis of French capitalism.

The conditions for a powerful and united offensive of the international working class against global capitalism are emerging. Globalization has not only rendered the old national reformist orientation of the trade unions impotent, it has also dramatically increased the number of workers on a world scale, while imposing upon working people in every country ever-more similar conditions.

William Pfaff, writing in the New York Review of Books, explains the French student revolt to a U.S. audience, shattering many of the misconceptions:

The French, of course, have been against capitalisme sauvage ever since that rough beast loomed amid the satanic mills of Britain in the nineteenth century, subsequently making its transatlantic journey to establish its new lair. The usual foreign description of the French problem is that the nation and its political and economic elites are failing to confront the demands of the globalized economy, taking refuge in the unrealistic notion of a French "social model" that has no place in the modern world. Hence, any effort to make the employment market more flexible meets with popular rejection, with consequent high French unemployment.

In fact, the rate of French youth unemployment is not what it usually is made out to be, since free baccalaureate- and university-level education keeps young people off the job market much longer than in most countries. As a result, as London's Financial Times reported in its March 25–26 issue, the official figures are misleading. The newspaper calculates that 7.8 percent of French people under twenty-five are actually out of work, as compared with 7.4 percent in Britain and 6.5 percent in Germany. Accurate comparison with the United States is almost impossible because US unemployment figures do not include the imprisoned and those not actively seeking work.

The level of youth unemployment nonetheless is unacceptably high and France's employment structure is much more inflexible than elsewhere —particularly in Scandinavia, where heavy state intervention in support of individuals out of work backs up highly flexible hiring and firing. But France also has higher productivity than most of its neighbors as well as a more highly qualified and educated workforce, higher investment from abroad (including from the US), and a much higher savings rate. The French savings rate in recent years has fluctuated between 14 and 16 percent. The rate of household debt is roughly half that of the US, Britain, Denmark, and the Netherlands. From the economists' point of view this is far too prudent for a modern consumer society, but it is very good for state finance, which has access to French private savings, placed mostly in life insurance, where the profits also generate tax payments.

The savings rate is further indication that the French worry more about the future than their neighbors. They are concerned about pensions, employment security, and the size of the national debt, now more than a trillion euros. This is unimpressive by American standards but troubles the French.

… According to the current myth, France's existing welfare system can't be reformed. But it can. Last year the underrated predecessor to Prime Minister Villepin, the undramatic and common-sensical Jean-Pierre Raffarin, successfully made important changes both in the retirement system for public employees and in health care. But he observed that these changes required an entire year of talks with the "social partners"—unions, insurance groups, and the public administrations —aimed at edging the reforms forward until they could be quietly adopted; last-minute protesters could then be easily disregarded.

Villepin, in contrast, announced his new youth employment proposal without preliminary consultations. He did not bring the social partners into his confidence, and in parliament he overrode the minority left's opposition (which took the form of multiple frivolous amendments) by applying a constitutional provision allowing the government to cut off delays by posing an implicit vote of confidence. This naturally fed the left's appetite for conflict.

Villepin made no adequate rebuttal to the charge that his measure increased employment insecurity, or to the perception—probably true—that he wanted eventually to extend his reform to apply not only to first jobs but to others as well. French students already are so intimidated by the job market, and so keen on secure employment, that 76 percent of those between fifteen and thirty want to become state employees who can never be fired. The impulse of union officials as well as the young is to defend every advantage they have acquired— whether in securing university places and jobs (or unemployment payments), or in maintaining the thirty-five-hour week, as well as pensions and long vacations. They do so because for the first time since the 1970s, the public is experiencing wide and steady pressure on wages and the threat of unemployment.

…Many of the French have now adopted the view that the nation itself is in decline. "Declineism" has become the subject of much public and press analysis, although sometimes the discussion simply reflects the foreign accusation that France's problems come from its refusal to adopt the Anglo-American model of market capitalism. Other commentators articulate a widely described sense of powerlessness, whether to break a sterile quasi stalemate between left and right in domestic politics, or to formulate a riposte to hostile economic forces from abroad—despite the fact that France actually is a highly successful competitor in world markets and a global leader in high technology.

I would suggest a larger explanation for the prevailing anxiety: that, as throughout modern history, France functions as the coal miner's canary of modern society, reacting to political and social forces before anyone else. France's refusal to approve the European Union constitutional treaty two years ago caused an international shock because the voters rejected the view, all but universally held among European elites, that continuing expansion and market liberalization are essential to the EU, indeed inevitable. The reaction of the European public elsewhere to the French vote seems, on the whole, to have been one of relief.

Similarly, the current unrest in France can be interpreted as a signal of wider popular resistance in Europe to the most important element in the new model of market economics, its undermining of the place of the employee in the corporate order, deliberately rendering the lives of employees precarious. The usual criticism of government intervention in the French economy is that it is protectionist and tends to block managers from downsizing and outsourcing jobs, in order to add "value" to the corporation. The head of the Paris Enterprise Institute, financed by business to sponsor economic internships for French schoolteachers, Jean-Pierre Boisivon, told the International Herald Tribune in April that "in France we are still stuck in 1970s Keynesian-style economics— we live in the world of thirty years ago. In our schools we fabricate a vision of society that is very different from the one that exists in other countries."

Between the 1970s and the present two fundamental changes have been made in the leading—American— model of capitalism. The first is that the "stakeholder" version of reformed capitalism that prevailed during the period following World War II was replaced by a new model of corporate purpose and responsibility. The new capitalism's most important characteristic in the United States has been to transfer wealth to stockholders and managers, and (through corporate tax cuts) away from spending for public purposes and on employees (through depressing wages and eliminating employee benefits). A recent headline read: "AT&T–BellSouth Deal Gets Wall St. Applause. Merger Would Lead to 10,000 Job Cuts."

The earlier postwar model, influenced by the New Deal as well as by reform unionism, European social democracy, and Christian social doctrine, held that corporations had a duty to ensure the well-being of their employees and an obligation to the community, chiefly but not exclusively fulfilled through corporate tax payments.

That model was replaced by one in which corporation managers are held responsible only for creating short-term "value" for owners, as measured by market performance and dividends. The practical result is constant pressure to limit or reduce wages and worker benefits (leading in some cases to theft of pensions and other crimes), as well as political lobbying and public campaigns to lower corporate tax contributions to the government and the public interest. In short, the business system in the advanced market economies has been rejigged since the 1970s to take wealth from workers, and from the funding of government, and transfer it to stockholders and corporate executives.

…I once called the current system "CEO capitalism," since corporate chiefs today effectively control their boards of directors and are also the principal benefactors of the system, subject to critical attention chiefly from investment fund managers, themselves interested in maximized and steadily increasing dividends. The well-known American fund manager John C. Bogle—founder and former CEO of the Vanguard Group, Inc.—has taken up this argument and develops it in his recent book, The Battle for the Soul of Capitalism.

This change in corporate capitalism has been defended with the now-familiar argument that capitalism devoted to increasing short-term value would produce such prosperity that all would benefit, including the non-shareholding stakeholders. However, while much wealth has been generated, not much of it has ended with them.

The second change that has taken place is, of course, globalization. The crucial effect of this for society in the advanced countries is that it puts labor into competition with the poorest countries on earth. The Nobel laureate Joseph Stiglitz is one of many arguing that trade liberalization puts downward pressure on skilled as well as unskilled wages. The deficiencies of the "Washington consensus" model for economic development have been acknowledged for some years, with many recognizing the argument that economic development, historically, has tended to fare better behind protectionism (as in Japan and South Korea) than under Washington consensus methods, while free trade often proves predatory in backward societies, destroying functioning institutions and failing to replace them. One remedy, which Stiglitz supports, is that free trade be emphasized within blocs of economies at comparable stages of development, instead of the universal deregulation advocated until now.

We need to note the classical economist David Ricardo's neglected "iron law of wages," which says that in conditions of wage competition and unlimited labor supply, wages will fall to just above subsistence level. This "law" in the past seemed irrelevant since there never before has been unlimited access to labor. Thanks to globalization, that is now in prospect. The consequences have only begun to be felt.

In this perspective, what in France seems a sterile popular defense of an obsolete social and economic order might instead be understood as a premonitory appeal for a humane successor to an economic model that considers labor a commodity and extends price competition for that commodity to the entire world. The apparently reactionary or even Luddite position inspired by French reactions might prove prophetic.

…Neither political party, as a party, has made other than an equivocal or reactionary challenge to the social and economic model of market liberalism that much of France rejects. As elsewhere in Europe—notably in the European Commission under its current president—French elites seem unaware of the degree to which the global model they are being pressed to adopt is already under attack from within. Instead, the French, who consider pessimism evidence of intelligence, are telling themselves that the nation suffers some profound crisis.

They remain under the spell of the idea of France in Decline, which the events of recent weeks seem to them to have confirmed. A French critic of declinism, Philippe Grasset, objects to the widely heard plea that it is essential that France cease to set itself off by its taste for what is passé, its conservatism, its old-fashionedness, and that it adapt to new conditions. This necessarily presupposes that globalism is the unique route to follow, simultaneously irresistible, triumphant, and benevolent.

Grasset continues:

Yet one sees perfectly well that the opposite is true: globalism is less and less the only way to go; it is not at all irresistible, never ceases to run into difficulties, and is more and more unpredictable. We no longer need to question whether these doubts about it are valid; it is increasingly apparent that they are true, and that their truth soon will be irresistible.

In that case, it may one day be said that the children were the first to notice.

To counter the threat posed by anti-neoliberal workers movements throughout the world, government and media elites in the United States have done what they have always done in such circumstances: divide workers by race or religion. Again the World Socialist Web Site:

This is what lies behind the orchestrated “backlash” against the immigrants’ actions. The most reactionary, hypocritical and politically dangerous expression of this phenomenon has come from the Bush White House itself, with the seemingly absurd whipping up of a controversy over a Spanish-language version of the National Anthem produced by a number of Latino recording stars.

Never mind that Bush himself reportedly participated on a regular basis in campaign rallies where Spanish versions of the “Star Spangled Banner” were featured, with no apparent concern. The issue was manufactured and pumped up by Republican political operatives with the aim of appealing to the right-wing xenophobic layer within the Republican Party that constitutes the administration’s bedrock political base.

The stupidity and irresponsibility of such an appeal is breathtaking. The promotion by the US president of the concept of making English an official language—something that exists nowhere in the US Constitution—carries with it the threat of provoking the kind of intense social conflicts that, in some countries, have led to civil war.

Parallel with such backward nationalist appeals is the right-wing populist agitation conducted by disparate elements ranging from CNN commentator Lou Dobbs, who has been turned into a national political figure, to the fascistic Minutemen vigilantes and sections of the trade union bureaucracy. They all pretend that their hostility to immigrants is motivated by concern for the American working class, whose jobs are allegedly being taken away and wages depressed by the presence in America of 12 million undocumented workers.

This is a reactionary lie. The attacks on jobs, living standards and social benefits are the fault not of the immigrants, but of a global crisis of the capitalist system—an economic system that is defended by all those who are trying to turn the undocumented workers into scapegoats.

There is no way to defend any rights or past gains of the working class in America or any other country by supporting the walling off of the national economy against immigrants. The futility of such an approach is amply demonstrated by the abject failure of the official trade union movement in the US, which for decades tried to convince workers that they had a common interest with big business in defending “American jobs” against foreign companies and workers alike. The result was the shutdown of factory after factory and the destruction of hundreds of thousands of jobs, as US-based transnational corporations shifted production to Mexico, China and elsewhere, seeking ever-lower labor costs.

It may be that neoconservatism and neoliberalism are incompatible. Neoliberalism was surging ahead in the Clinton years with the so-called “Washington Consensus.” But the brutish foreign policy and rhetoric of the neoconservatives has helped sour the world on the neoliberal agenda. There is no “consensus” now. Neoliberal globalism depended for public support on the idea that everyone was going to benefit. But the neocon creation of a neo-feudal aristocracy to rule the world makes that belief no longer sustainable. The neocons knew that, which is why they put police state measures in place right from the start. The neocon agenda is at least self-consistent. The rejection of international law and norms of behavior by the United States and Israel has isolated those countries and that isolation, to a certain mind-set, confirms the fact that you cannot trust or work with the rest of the world. The saber rattling against Iran has helped boost oil prices which has helped consolidate wealth in a few hands, hands beholden to the neocon imperialists. The Iraq War, while bankrupting the United States, has enriched the few well-connected who own large blocks of the various defense and super-construction firms. Al Martin has some numbers:

This regime has craftily done everything it possibly can to A) increase the price of a barrel of crude oil and, B) increase the profit margins of oil companies. Why has it done so? Because NO single factor consolidates wealth like higher oil prices. First of all, you have to bear in mind that the top 20% of the nation owns 74% of all of the outstanding shares of the nation’s 50 largest publicly traded oil companies, including hydrocarbon derivative companies. So we have the top 20% of the nation owning 74% of all the stock.Now, look at the top 1% of the nation, the very core of the Bushonian constituency. The top 1% of the nation owns 24% of all of the outstanding shares in the nation’s publicly traded oil and gas companies and/or, let’s say, major oil and gas companies and major hydrocarbon derivative publicly traded corporations.When this Regime came to power, said top 1% of the population owned 61.9% of all of the private wealth in the nation. Today the same top 1% (because there’s very little turnover, it’s essentially the same top 1%, essentially the same people), now own 70.2% of all of the private wealth in the nation.In other words, wealth has increased by 8.3% within the top 1%. There’s been a further consolidation: 8.3% of all of the private wealth into the nation has flowed into the hands of the top 1% of the people under this regime.Of said 8.3%, fully one quarter of that money came from oil stock, from the ownership of publicly traded oil and gas stocks and/or refiners, drillers, explorers, what’s called “downstream” hydrocarbon energy stocks and/or interest in other oil-related securities. One quarter of the increase in wealth in the top 1% and, indeed, more than one third of the increase in the wealth of the top 20% has come from holdings of oil and oil-related publicly traded corporations.

So far there has been little public resistance in the United States to the massive transfer of wealth upward, because, by and large, the U.S. public has been economically comfortable. But with rising gasoline prices, which can easily be tied directly to obscene profits by oil companies, grumbling has increased. When housing prices crash, however, watch out.