Categorized | economy

Globalized capitalism, globalized New Deal

The American Prospect announces a global New Deal in its cover story. Money quote:

Barack Obama may well seek a new New Deal to right a profoundly dysfunctional American economy. But he faces one constraint that Franklin Roosevelt didn’t have to confront in the 1930s: The economy that Roosevelt saved was fundamentally a national economy that could be altered by national policies. The economy that Obama must fix, by contrast, has national dimensions that can be altered by national policies, but in matters ranging from corporate conduct to consumer safety to Americans’ incomes, not to mention global warming, purely national solutions no longer suffice. To fix America today requires fixing global systems. The next New Deal won’t work if it’s only American.

I read international news avidly (I know 25 languages). There’s no question that countries are going gangbusters on using national resources to stimulate their respective economies (who’s lending them all that money?) In this blog, for instance, I made mention of China’s recent “sequel” to their original economic stimulus package, a sequel targetted primarily at auto manufacturers and steel companies (in the same way that the second sequel to our government’s original bailout plan is going to auto manufacturers).

The problem I see is there’s no rational attempt to coordinate among nations.

Take the whole credit derivative mess that drove AIG to the brink and Lehman over the brink and, I’m not totally sure this is true, drove our economy into a ditch. American banks gained most of their exposure to credit derivatives on European exchanges which were even less regulated than our own. In fact, the hogpile of credit derivative contracts that punched a hole in AIG’s balance sheet were acquired by their London branches, not their American ones. If Washington and London, Paris and Bonn clamp an iron fist down hard on the credit derivative markets, what’s to stop globalized corporations, banks, and investors from trading them in Hong Kong, Tokyo, or Bangkok?

Here’s the problem: who gets to deny emerging markets the right to export financial products or their labor (in the form of cheap goods)? If Thailand decides to become the center of credit derivatives and does so by letting the markets do whatever they want, who is Europe or America or China to deny them that? If Indonesia wants to export its labor (in the form of inexpensively manufactured goods) at a much lower price (and a much lower value placed on human life, health, and dignity), who is America with its 140 cable channels and an SUV in every driveway to say no?

Whatever will happen, in four years we will see a nascent global regulatory system in finance, export, labor, and environment. That’s part of economic growth, as well, if by “growth” you also mean maturing.

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