The Quest for a New Socialist Paradigm as The Dark Side of Globalization is now Exposed.

The Quest for a New Socialist Paradigm as The Dark Side of Globalization is now Exposed.

Abstract: The Davos 2011 conference is populated with the far left and advocate more spending, government control of nearly everything and some form of world government. They summarily reject old-world recipes, a cheap shot at capitalism, and call for international controls and regulations on international flows, whatever that might mean. We just witnessed several years of failed attempts in such government in the EU that is crashing in terminal debt. The US is being spent in oblivion and follows the EU in a swooping downward path toward bankruptcy or default or both. The quest for more and more money from any source is now paramount and the only remedy that can save their phony jobs in government and academia. They have reached the point of stark panic.

It is the most precious moment when the seers stand up and tell us that what we have been doing is wrong or fraught with intractable difficulties and that we need a new paradigm or its equivalent to save us from perdition or worse. At Davos, the winter playground for the financial industry, pundits and certain academics, the stage is now lighted and open for theater and the trumpeting of the opinions of great world leaders in government and high finance gather to tackle the problems of the Depression of 2008 [that actually started in 2006 with a bursting housing bubble]. As usual, they have some advice for us. Can we spend our way out of debt? Of course!

Below are a series of comments by the DAVOS founder and some other people in academia and some others in government. What they are saying is that our current system is not working and that we need some new form of world government with control over financial transactions and to allocate natural resources in some fair manner. We should note that many of these are the same people that advocated QE [the irresponsible and treacherous printing of money] and other psychotic measures that worsened this recession and threatens to push it headlong into a full-blown depression. Nevertheless, it seems that printing monies and admonishing the austerian approach to budgets and limiting debt has again been found to be unsound, summarily rejected, and what remains, paraphrasing Sherlock Holmes are spending and more spending.

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[I offer extensive quotes in this blog so that the reader can view the exact language and can be confident that nothing was taken out of context or that nobody was misquoted. The easiest way to take in the salient points is to read the emphatic points in the quotes and then peruse my comments. Comments on my comments are always welcome: ryckki@gmail.com.] [Emphasis is mine in all quotes.]

In the paragraphs that follow, I use red in bold to emphasize major points and, in general, my responses or reactions to these are in blue. Other colors highlight words or themes that are unclear to me.

It begins:

Klaus Schwab at Davos

“We should not look to old-world recipes, since unfettered capitalism and state-directed collectivism[1] have both been bankrupted as guiding ideologies,” he sais[sic] in a recent media briefing. “Our only way out is the stakeholder concept. The pursuit of our own interests can only be substantially realized by incorporating the interests of all those with whom we have a mutually dependent relationship.”[2]-- CNBC's Davos 2011: Downside of Globalization Tests Economic Cooperation WEF founder Klaus Schwab at Davos [Emphasis is mine in all quotes.]

This says nothing. We have never had unfettered capitalism even dating back to Egyptian and Roman times. If we had some of this, it would have manifested itself in a strict control over the few government leaders allowed and the conduct of wars would have only been for profit.

“Over the past 50 years, the global exchange of information, goods, services, capital, technology, ideas and people has fostered a rise in standards of living throughout much of the world.

Fluff.

“Yet, as the editors of a new book, "The Dark Side of Globalization," point out, “The growth in transnational flows has not been matched by an equivalent growth in global governance mechanisms to regulate them.”

This implies—no—fully endorses--and noisily whines for world government.

“Jorge Heine[3] & Ramesh Thakur, two political science professors from the University of Waterloo, Ontario, write, “The notion that endless liberalization, deregulation and relaxation of capital and all border controls (except labor)[4] will assure perpetual self-sustaining growth and prosperity has proven to be delusional."-- CNBC's Davos 2011

““The bond crises we’ve seen in Greece and Ireland may not be unique to them,” says Metzl, a National Security Council staffer in the Clinton Administration. “If the U.S. continues to amass debt like we have, we’ll have a bond crisis here. It may not be the same, but it won’t be entirely different.””— CNBC's Davos 2011

This debt is caused by excessive spending. This comment by Metzl appears to conflict with the ideological chants of Heine and Thakur.

“Earlier this month, banking regulators representing 27 of the world’s largest economies agreed to raise worldwide capital requirements whenever a country declares its economy is overheated.

Members of The Basel Committee on Banking Supervision voted to require banks within the country to hold extra capital to protect against potential losses, and other countries with exposure to the “bubble country” would follow suit.”— CNBC's Davos 2011

Where does this extra capital come from? Banks get into financial troubles when their debtors default on loans. Why not control the problem from the credit side?

“The G-20 adopted a proposal from President Obama that outlined a process for economic cooperation to help ensure that worldwide recovery is sustained. It’s the first time such a large number of countries agreed to work together on each others’ economies, regulatory reforms and future growth.”— CNBC's Davos 2011

This failed.

““Korea showed that the G20 goal of strong, sustainable and balanced growth is nothing but a mantra with few follow-through policies,” says Gezici. “The underlying problem is that it is impossible to force nations to agree when they have irreconcilable differences over their global economics analysis and policy prescriptions.””— CNBC's Davos 2011

So, use force? When have the majority of nations agreed on anything? What were our World Wars for if not to vent disagreement on certain matters?

“Davos founder Schwab said this year, “the G20 will have to demonstrate that it can address not only the necessary financial reforms but also questions of global governance, the reform of the global monetary system and the scarcity and fair distribution of natural resources.””— CNBC's Davos 2011

Global government is urged here.

““We are entering uncharted waters,” says Metzl. “American debt is a big challenge, as is the overheating of the Chinese economy and the growing debt crisis in the European Union. We have lived in a U.S.-led, rules-based economy for some seven decades, and something new is now emerging. In a post-American world, no one knows yet what the rules are or appreciates the dangers.””— CNBC's Davos 2011

They don’t like the American system, but do like our money while it lasts. If we dump the Americans then what shall we replace it with? The EU system? That is leading through all its numerous rusty holes and sinking in terminal debt with massive government bailing water into the boat—not out of it.

Some Analysis of this:

Well, that is a bunch to think about. We can look at the academic pedigrees of some of these speakers and note that, probably without question, they are somewhere in the left wing of the political spectrum and some are far left. The oratory we cite above is singularly lacking certain forms of economics.

We can start off our criticism on what this Davos prattle really means with a quote from the French President “As French President Nicolas Sarkozy observed: "We can't share the same currency and have different economic strategies." Well, the original objection to the EU was based upon this very point. How can you have disparate economies in various stages of economic progress all being tied down to a single currency without the ability to address these problems with tailored currency adjustments?? 

Here is a result of this mismatch:

“Greece, Portugal, Spain, and Ireland will stay trapped in structural depression through this year, and well into next, rotating from a liquidity crisis to a chronic political and social crisis that exposes the inability of elected governments to counter 1930s job wastage. Unemployment is 28pc in Andalucia, and 30pc in Cadiz."[5]—Telegraph Ambrose Evans-Pritchard, International Business Editor 8:30PM GMT 16 Jan 2011

We can dwell for a while, a long while, upon this problem and note that such structural differences among nations in Europe were extant long before, at the brink of the creation of the EU, persisted during the troubled existence of this ‘union’, have become grave and passed critical mass and have no hope of resolution other than by outright gifts to those who underperformed and face bankruptcy. The leaders of the PIIGS do this little dance by asserting that [1] they don’t need help, [2] announcing that their banks are failing, [3] mumbling about EU loans, [4] crying about high interest rates as their credit ratings crash and [5] agreeing to a bailout. This intermezzo does little to relieve the structural problems. The structural fix cannot be factored in with the kind of socialist government and Nanny State Mentality of the left in Europe. Nanny State politics and government is the structural problem.

Look at the construction of the EU and its aftermath:

What is new here? All members of the EU are running deficits and there is little hope of any meaningful cuts in spending in socialist countries. The debt is picked up and moved to a different hole similar to the 3M Bookshelf Series game Oh-Wah-Ree[6] with the novel exception that none of the little pebbles are harvested. The rocks just move from hole to hole and pile up in heaps.

Now we were plied with grand songs and exotic theatre on the initiation of the Common Market and the European Union and the wonderfulness intrinsic to this progression. Consider the Greek problem: With only 5 million people in the workforce and a 300 bln euro debt this works out to just a tad under $80,000 per Greek worker. This may be compared to the US where only 60 million pay taxes [upper 53%] on what now exceeds 14.1 trillion dollar debt or an average higher than $210,000 per taxpayer. Argentina has just grabbed some private pension funds as part of their ‘solution to this problem.’ What other companies will grope for wealth to pay for their excesses? Will the US attach our 401(k)s?

The problem is debt:

"Out of the world's 75 largest economies, the United States has the 20th largest as debt-to-GDP ratio, standing at 94.3%, with a gross external debt of $13.454 trillion and an annual GDP $14.26 trillion. In fact, out of the largest 75 economies, this number is just above the worldwide average of 90.8% Western-European and North American countries dominate the upper end of the spectrum, with Switzerland (422%) and the United Kingdom (408%) at the #2 and #3 spots, respectively, and Ireland representing the most drastic debt-to-GDP ratio. According to the most recent World Bank data, Ireland's number stands at a staggering 1,267%" [from 2009] [7]

Things are getting worse. So, what do we hear from those who were instrumental in implementing this Nanny State Fiasco and those theoreticians who celebrated the formation of the EU: Well, we need some global government and some reallocation of resources. What they mean is that that they need debt relief and in a hurry. We hear the same yelps for alms from the NYT.[8]

Look at California:

The Quest for Financial Solvency and Fiscal Prudence in the US, UK and EU and the Probable Outcomes.[9]

Abstract: The United Kingdom is testing the dike that holds back the flood of socialist waters and other more menacing political fluids. They are going insolvent as are most of the nations in the West who were bitten by the rabid socialist bat. They face a monumental hurdle where they must slash spending, raise taxes in some areas, quench certain government programs and cut welfare. The US is in the same hopeless mess. The battle for a capitalist society to survive over some far leftist perfidious concoction of a command economy is now underway. The rabid left think they can tax and spend in perpetuity and if any economy crashes they can always blame capitalism and call for a revolution ‘for the people.’ The poor can always be enlisted to die for some Marxist cause with the promise of ‘land reform’ and other lies. The US is in the same situation as the UK and EU and face the same stubborn neo-Marxists as now haunt California.

Then recommendations from the Nobel Laureates:

Here is the Stiglitz comment:

“Thanks to the IMF, multiple experiments have been conducted – for instance, in east Asia in 1997-98 and a little later in Argentina – and almost all come to the same conclusion: the Keynesian prescription works. Austerity converts downturns into recessions, recessions into depressions. The confidence fairy that the austerity advocates claim will appear never does, partly perhaps because the downturns mean that the deficit reductions are always smaller than was hoped.”[10]--To choose austerity is to bet it all on the confidence fairy The mystical belief is that a smaller deficit will lead to an investment boom. What Britain really needs now is another stimulus By Joseph Stiglitz guardian.co.uk, Tuesday 19 October 2010 22.00 BST [Emphasis is mine in all quotes.]

No, this is backward. 

The Keynesian prescription NEVER works and the current state of the US, UK and EU are solid proof of that. But the quest for government spending soars on unabated and flying in the face of reason and financial reality:

This Stiglitz view can be contrasted with the Rogoff position:

In an open letter to Joseph Stiglitz of June 2002[11] we read about the use of deficits and debt to ease the growth of countries in dire debt: “The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better.”[12]-- An Open Letter By Kenneth Rogoff, [Emphasis is mine in all quotes.]

The matter of debt has been resolved by Paul Krugman:

“Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.”--Appeasing the Bond Gods By Paul Krugman

They pulled the plug on the US in 1979 and will do it again. Theirs is an 80 trillion dollar market.

“Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.”[13]-- 1938 in 2010 By Paul Krugman

This greedy and frantic quest for what little world capital we have left in now in full launch mode in Davos 2011. Using this mentality to ‘solve problems’ with unlimited spending and erection of asset bubbles[14][15][16] like windmills or solar panels that raise the cost of energy 5-7X will result in financial ruin and another depression. But, that is what several of the far left actually want in my view. They can neither exist not tolerate capitalism[17] and will do anything to change this system. Their current plan is to spend us into terminal debt and then declare “Capitalism has failed!.”

rycK

Comments to: ryckki@gmail.com

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[1] I wonder if any of this conforms to his usage here: Collectivism has been widely used to refer to a number of different political and economic philosophies, ranging from communalism and democracy tototalitarian nationalism. http://en.wikipedia.org/wiki/Collectivism

[2] CNBC's Davos 2011: Downside of Globalization Tests Economic Cooperation WEF founder Klaus Schwab at Davos http://www.cnbc.com/id/40794881 [Emphasis is mine in all quotes.]

[3] http://www.wlu.ca/homepage.php?grp_id=2293&ct_id=1977&f_id=35 holds the Chair in Global Governance at the Balsillie School of International Affairs http://www.balsillieschool.ca/people/jorge-heine

[4] I don’t know what this means in this context.

[5] Telegraph Ambrose Evans-Pritchard, International Business Editor 8:30PM GMT 16 Jan 2011

[6] http://boardgamegeek.com/boardgame/1970/oh-wah-ree

[7] http://www.cnbc.com/id/33506526/Countries_Overloaded_With_Debt

[8] The NYT Mumbles about Poverty and Recovery: The Solution? More

Government Programs http://ryckki.blogspot.com/2011/01/nyt-mumbles-about-poverty-and-recovery.html

“In 2008, the first year of the Great Recession, the number of Americans living in poverty rose by 1.7 million to nearly 47.5 million. While hugely painful, that rise wasn’t surprising given the unraveling economy. What is surprising is that recent census data show that those poverty numbers held steady in 2009, even though job loss worsened significantly that year.”[8]--Poverty and Recovery EDITORIAL Published: January 18, 2011 [Emphasis is mine in all quotes.]

[9] The Quest for Financial Solvency and Fiscal Prudence in the US, UK and EU and the Probable Outcomes.

http://ryckki.blogspot.com/2010/10/quest-for-financial-solvency-and-fiscal.html

[10] To choose austerity is to bet it all on the confidence fairy The mystical belief is that a smaller deficit will lead to an investment boom. What Britain really needs now is another stimulus By Joseph Stiglitz guardian.co.uk, Tuesday 19 October 2010 22.00 BST http://www.guardian.co.uk/commentisfree/cifamerica/2010/oct/19/no-confidence-fairy-for-austerity-britain [Emphasis is mine in all quotes.]

[11] To Joseph Stiglitz,

Author of Globalization and Its Discontents

(New York: W.W. Norton & Company, June 2002)

“The Stiglitzian prescription is to raise the profile of fiscal deficits, that is, to issue more debt and to print more money. You seem to believe that if a distressed government issues more currency, its citizens will suddenly think it more valuable. You seem to believe that when investors are no longer willing to hold a government's debt, all that needs to be done is to increase the supply and it will sell like hot cakes. We at the IMF—no, make that we on the Planet Earth—have considerable experience suggesting otherwise. We earthlings have found that when a country in fiscal distress tries to escape by printing more money, inflation rises, often uncontrollably. Uncontrolled inflation strangles growth, hurting the entire populace but, especially the indigent. The laws of economics may be different in your part of the gamma quadrant, but around here we find that when an almost bankrupt government fails to credibly constrain the time profile of its fiscal deficits, things generally get worse instead of better.”-- An Open Letter By Kenneth Rogoff, Economic Counsellor and Director of Research, International Monetary Fund http://www.imf.org/external/np/vc/2002/070202.HTM

[12] An Open Letter By Kenneth Rogoff, http://www.imf.org/external/np/vc/2002/070202.HTM [Emphasis is mine in all quotes.]

[13] 1938 in 2010 By Paul Krugman [Emphasis is mine in all quotes.] Published: September 5, 2010

http://www.nytimes.com/2010/09/06/opinion/06krugman.html?src=me&ref=general

Krugman Offers Us Canned Circular Revisionism: We Can Repeat the War Time Successes of FDR.

http://ryckki.blogspot.com/2010/09/krugman-offers-us-canned-circular.html

[14] Spain’s Solar Energy Bubble Bursts. California is Next. The First of a Series of GanGreen Asset Bubbles Bursting.

http://rycksrationalizations.blogtownhall.com/2010/03/10/spain%e2%80%99s_solar_energy_bubble_bursts_california_is_next_the_first_of_a_series_of_gangreen_asset_bubbles_bursting.thtml

http://tinyurl.com/ylcujeq

[15] The Bursting of the GanGreen Bubble II A Prediction coming True in Gooey Green

http://rycksrationalizations.blogtownhall.com/2010/03/09/the_bursting_of_the_gangreen_bubble_ii_a_prediction_coming_true_in_gooey_green.thtml

[16] The Bursting of the GanGreen Bubble.

http://rycksrationalizations.blogtownhall.com/2010/01/18/the_bursting_of_the_gangreen_bubble.thtml

http://tinyurl.com/yfptu54

[17] The Pyramidal Theory of Capitalism Explained in Simple Terms.http://rycksrationalizations.blogtownhall.com/2010/01/07/the_pyramidal_theory_of_capitalism_explained_in_simple_terms.thtml http://tiny.cc/6z1jy