John Ward – The Saturday Essay : The Inevitable Consequences Of A Global Rush From Reality – 25 May 2013

John WardWhy the globalist neocon wet dream is too ideal to survive harsh reality

I could give you a hundred reasons why globalised mercantilism is fatally flawed, but it’s more detail than anyone needs. This essay isn’t an attempt to offer The Explanation of Everything, but rather a clearly evidenced summary of the fundamental “page one” reasons why globalism per se is:

* Based on a silly idea

* Executed using a discredited model

* Run by those with no thought for the consequences

* Far too big to control

* Incapable of evoking global responses

A silly idea

Ted Levitt was a highly intelligent man who posited the idea that Homo sapiens was about to grow beyond cultural influence and become One Species. He came to this conclusion because he spent far too much time flying around in the company of multinational executives with the same deluded idea as him. He also did so because he was a Harvard Professor teaching economics who knew nothing about cultural psychology or social anthropology.

“Gone are accustomed differences in national or regional preferences,” he said on launching his Big Idea in 1983, soon afterwards coining the term ‘Global Village’. In the thirty years since then, we have had the pc-to-mobile-information-internet revolution, but there is still no such thing as a global village. What there was and is comprises roughly 8,000 marketing directors, investment bankers, conference organisers and politicians thinking of the world in that way, in order to provide a personal rationale for the largely pointless – and ultimately dangerous – job they do.

Since his death in 2006, we have seen the emergence of what Jim O’Neill termed ‘The Brics’ – new tiger economies emerging in previously sleepy economic regions of the globe. And still there is no global village. There isn’t even a global city. Globalism’s basic precept is complete bunk, for the same reason that multiculturalism doesn’t work. Multi-ethnic societies can gain enormous stimulus on many levels from inward migration, but once several sizeable cultures in one State start to clash, there is chaos and violence. The Indian sub-continent, several African States, Ireland – and even now the UK – offer ample evidence to support that conclusion: but the biggest one of all is the European Union.

In a recent post here at The Slog, I argued that the EU is in fact simply another failure of multiculturalism. I pointed out, ‘what we are seeing now is the British multicultural disaster on a grand scale. Greeks, Italians and Spaniards do not want to be Dutch, English or German. French Trade Unionists detest l’Anglo-Saxonisme, German bankers are grumpy on the subject of French State largesse, and the British think all foreigners are intrinsically funny….’

The bottom line is that a thing –  a sort of Brics-in-reverse – has emerged called ClubMed. The Nordeuropean inability to either understand or tolerate the way southern Europe works will, within a few years, result in a reconfigured and scaled down EU operating at various speeds….and without a single currency.

The important thing here – a recurring theme in this essay – is that daft and wishful ideas have disastrous consequences. We are – all of us in the West – today living with the consequences of what I call the Wishful Unthinking Tendency, or Wuttism. Throughout his life, Ted Levitt was a prize Wut. From the first moment of its existence, the euro was pure Wuttism based on the unreality of one European culture and no emergency exit.

A discredited economic model

Having decided to globalise the economy in their own image, the anti-regulation neocon fanatics who hyped up the rationale for One World Economy were hardly likely to produce something based on a cooperative model of commerce….although that too would’ve been an expensive failure. I make this point partly to head off those readers who already have me down as an unreconstructed Commie, but chiefly to establish one thing above all: that Wuttism is a form of opiate. That is to say, the progression works like this:

Myopia >>> Utopia >>> Dystopia

An ideological opiate alters the brain in such a way as to make it unable to perceive the downside of a given objective clearly: the Utopian goal is set – and then as it fails, the Dystopian solution is applied. It would be hard not to see this process very clearly in the rapid decline of the EU from being a controlling and protectionist social democracy to a nihilistic monetarist nightmare.

The discredited model I refer to is one usually shortened here to the ‘neocon’ economic outlook. There are many different terms for it, and those who practice the ideas of Milton Friedman – which is what I’m really talking about – use these as a clever means of presenting a moving target. “Oh no,” they aver, “That’s monetarism, that’s quite different” or some such: Dan Hannan is the master of this technique. So I will try to define very sharply what this model is as follows:

Markets must decide, wealth will trickle down, high taxes are always bad, all regulation is wrong, Monetarism is best

Another way of describing this would be Reaganism, an economic ‘idea’ that produced the biggest deficit in American history. But however one describes oneself, I put it to you that the above definition comes with the Morecambesque “gerrout of that” observation. The reason why tying neocons down to their beliefs is like lassoing ether reflects one irrefutable fact: when observed in close up and with the benefit of results, the philosophy is shown – like globalism itself – to be inaccurate to the point of being unfit for purpose.

Markets are nothing more than collections of people. If those people lack ethics, snort too much coke, have short-term targets to meet or have a frontal-lobe behavioural problem, then markets will make bad decisions. There is no ‘must’ that is in any way valid in relation to markets. And when they make atrocious mistakes, they do not ‘self-correct’: taxpayers dig deep to clear up the mess.

Wealth has not trickled down in any instance where Friedmanite economics have been applied – wealth has gushed vertically upwards, leaving the very poor slightly better off, and the vast majority of law-abiding middle around 30% worse off….a remarkably consistent figure, by the way. Anyone with any kind of cultural perspective who believes this to be a sound way to produce stability in society needs help, and lots of it very urgently.

High taxation for all is usually a bad idea that slows growth. High taxation purely for the very rich produced the best growth-rates in history when it was almost universally applied during the 1950 – 1965 era. Flat rate ‘low’ direct taxation for all contributes to two serious problems: poor levels of infrastructural investment, and wider disparities of wealth. The megarich 3-5%, when called upon alone to reboot consumption, can’t manage it…and/or choose not to, because it isn’t affecting them. It is the worst of all possibilities….but it is the one favoured by neocons of all shades.

Regulation has become a Friedmanite mantra-word that might as well be “ooohm” for all the linguistic meaning it has today. It has become the economic conservative’s version of ‘fascist’ among self-styled social progressives. The deliberately obtuse unwillingness to analyse its meaning again betrays a cultural flaw: without strong ethics, regulation is inevitable. ‘Regulation’ is just another word for ‘rules’ or ‘laws’: if people won’t obey them, they must be punished. But no: the financial services end of laissez-faire economics clings to the ridiculous idea that their sector can only possibly work if it is the Wild West. It is a risible defence, and one of the more dangerous forms of Wuttism.

Last but not least, the idea that all Keynesian ideas are without foundation and only control of the money supply can deliver the right ‘result’ would be fine if there were no politicians, no crooked central bankers, and dramatically cut taxes. When previous administrations have destroyed the public finances, however, severe monetarism simply turns an unpleasant cycle into a vicious whirlpool – the inevitable end-result of which is socio-economic destruction and abject poverty with no discernible improvement on any dimension. Public finances are destroyed by overspending on bureaucracy, poor budgetary control of social programmes, and bailouts. For anyone to suggest that only one of these causes is present in the West today is simply a denial of the empirical data to hand. The overwhelming majority of neocons do, however, believe this: they see public health as a cause, but bank bailouts as an investment. Yes, fine – I know: Milt didn’t think that. But Milt got us to here folks, so Miltites needs to come up with an answer. Pointing crucifixes at the NHS and Pension budgets does not constitute an answer.

To Hell with the consequences

A month ago, George Soros remarked during a keynote EU speech:

“The fiscal and structural reforms undertaken by the Schroeder government worked in 2006; why shouldn’t they work for the eurozone a few years later? The answer is that austerity works by increasing exports and reducing imports. When everybody is doing the same thing it simply doesn’t work.”

Very true. The consequences of non-cooperative mercantilist competition being applied to a globalised economy are myriad, but there are three above any others.

The first one – as Soros notes so succinctly above – is the zero sum game that results from uncooperative retaliation. I posted earlier this week about the madness of what Japan is trying to do with its QE-to-currency war on its neighbours. It is a classic example of what George Soros means. The problems with it in a globalised economy are the inevitability of retaliation, and the lack of any sensible alternative.

The second is the direct result of globally applying an economic model whose under-achievement in the area of mass employment is blindingly obvious.

A global tour of youth joblessness suggests that what’s gone up won’t come down in the next five years. The youth unemployment rate among the ClubMeds is appalling, but even in the richest countries it’s projected to flat-line at best until 2018. As a result, the global Millennial generation could be uniquely scarred by the economic downturn. Research by Lisa Kahn has showed that people graduating into a recession have typically faced a lifetime of lower wages. The analyst Ritchie King from Quartz in turn observes that it’s now “harder for a teenager or young adult to find a job in developed economies than in Sub-Saharan Africa.”

In terms of social stability, there is only one thing worse than the rise of unemployment among the young, and that is long-term youth unemployment. Long-term unemployment isn’t just a difference in length; it’s a difference in kind, because the more time you spend out of a company, the less likely you are to be hired back into one. In many European countries, particularly Spain, the increase in unemployment has come almost exclusively from people being out of work longer than two-years. In Athens – go there, see it for yourself – political extremism is being not just fed but also manned by unemployed youth.

The experience over three decades in both the US and the UK is that bottom-line fixated Friedmanite laissez faire economics simply cannot employ enough home citizens, because its emphasis on shareholder returns based on low-cost production  inevitably moves jobs offshore. To obfuscate this clear reality, Republican observers in the States began three years ago to peddle the term ‘jobless recovery’ – quite the most oxymoronic term of all time, if one enjoys even the most rudimentary comprehension of the point of commerce in the end. In the EU, it has led ECB boss Mario Draghi to advocate even lower wages as the only alternative to mass unemployment and uncontrolled welfare payments that lead to even worse trade deficits as the circle of Asian emergence tightens to a vicious intensity.

The third is its propensity for the One Size Fits All mentality in the context of purely market-driven food production.

When grain prices spiked in 2007-2008, bread riots blighted some 30 States across the developing world, from Haiti to Bangladesh.The Russian drought of 2010 forced suspension of Russian grain exports that year. The prime catalyst for the idiotically-dubbed Arab Spring was not the intrinsic desire of citizens for liberty and democracy, it was food prices. Global price rises exacerbated by Bourse speculation produced  the price rises of 2007-2010. Egypt’s Mubarak government (which had traditionally used massive food subsidies) found the new pricing scales way beyond its Treasury. Cheap bread vanished from the stores. Discontent gathered. In the August 18 issue of The Spectator, John R. Bradley, an Arabic-speaking journalist long resident in Egypt, described what happened next:

“The conversations of tiny groups of Cairo’s English-speaking elites, and their Western drinking companions, were a world apart from talk among the Egyptian masses. … The main hope of those who poured into Tahrir Square was shared by the revolutionaries in Tunisia: that sudden and radical change would miraculously mean affordable food.”

Here too I have posted recently on the subject of manipulated, global food pricing. If food prices soar again, then China – and it is especially vulnerable to food cost inflation – could get very edgy indeed. In just one month, July 2011, the cost of living there jumped 6.5%. The Chinese authorities didn’t enjoy the social reaction very much: Beijing will face some tough choices next time, because the country’s export growth is running out of steam.

China now finds itself staring down the barrel of the G7 trying to inflate away the debt they owe it, Japan trying to replace her as lowest-cost Asian exporter, and Western bourses plus agribusiness whacking up the price of wheat. The ultimate consequence of global mercantilism could very easily become a nuclear response if the Beijing regime faces massive social unrest….and the younger military hotheads decide that both response and distraction is required if they are to retain their power.

What Friedmanite-Levittist neocons tend to do is ignore yet another massive flaw in globalism: its assumption that economic imbalance between various States and regions will always balance out. My response to that crazy notion is an eclectic one, but briefly it is, “Don’t be an idiot – why on Earth (or indeed any other planet) should thirteen climatic regions, 278 political Parties and over 120 cultures obey such an Ivory Tower, typically Ivy League academic assertion?”

Too Big to control

‘Too big to fail’ itself comes directly from the ultimate potty notion – globalised dominoes called investment banks – but Too Big to control is (as the parting paragraph above suggests) the can that has more self-destructing worms in it than most. The bigger the can, the harder it is to kick it down the road, and the fewer the recycling centres that can deal with it. Globalism is ultimately modern Man’s Tower of Babel: too many tongues and too little mutual understanding mean not too big to fail, but something infinitely worse: too big to survive.

Very much (I suspect) with Japan in mind, the World Economic Forum had this to say recently:

‘…countries and their communities are on the frontline when it comes to systemic shocks and catastrophic events. In an increasingly interdependent and hyperconnected world, one nation’s failure to address a global risk can have a ripple effect on others. Global risks are expressed at the national level. No country alone can prevent their occurrence….’

Very well put, in my view: the problem is, we’ve built this global behemoth, but the instant it isn’t working for one major member, local needs take precedence. (In the EU context, for example, we are going to see this come to fruition bigtime later this year in the (basket) case of France). The flaws are globalist, but the responses are local. That’s a deadly combination of ineffective reaction in any crisis.

Lack of global response.

The first step towards a cure is recognising you have a problem. I see very little sign at all among the mainstream media, governments, major players and banking communities of even the remotest acceptance that what we have will continue to make things worse….until such time as we have a new, fresh idea that leads to something more inclusive, more efficient, and altogether more based on fact rather than hugely rationalised greed and clapped-out ideology.

There is an American response, but it is not one China likes. There is a Brussels response, but it is not one the citizens like. There is a Japanese response, and while the G7 pretends to accept it, in truth it has no choice. There is a Berlin response, and it is hated in Paris. And so on ad nauseam: there can never be a global response when the whole idea underpinning globalism – the mercantile balance – is a childish fairy tale.

This can and will lead to disastrous outcomes on any number of levels, as the Too Big complexity is met by the Too Little to matter response. But as a taster, here are two real and present ones to be thinking about.

One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives sector. It ticks all the boxes outlined above: complex, unregulated, and massive: its notional value is 20 times the size of the world economy. It’s supposed to be hedged and netted out. It obviously isn’t. You might, for example, be able to hedge the risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you’d need to find a counterparty who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one. Today we have Zirp. How do you hedge then?

For a derivatives market to function properly, one needs a diverse set of  long and short positions, of rates, of economic circumstances, and of likely possibilities. With Zirp and QE plus a race to the bottom on currency values, diversity is the one thing we do not have. This is a recipe for meltdown on an unprecedented scale.

The danger is being exacerbated because recent moves by banking lobbyists to ‘de-reform’ the derivatives market look increasingly as if they will be successful: so there won’t even be a local response to this unstable isotope – let alone a global one.

Think that’s bad enough already? Well then, you clearly don’t know enough about the rampant, brainless technology of High Frequency Trading, or HFT.  It seems to me that the original idea (as put forward, ho-ho) of HFT was profit maximization: HFT characteristics include high-speed execution, high volumes of subsecond orders and cancellations, co-location of servers to exchanges, and avoidance of overnight risk. There’s simply a better margin to be had. But there can be little doubt that HFT traders are preying on slower traders. Co-locating their servers near exchanges decreases the latency of the high-frequency trader’s electronic signals. Front runners watch for large institutions that are using volume-weighted average price algorithms to execute large orders and then step in front of large trades. Other equally predatory and anti-social methods of speed trading include stuffing, smoking, and spoofing. These techniques are used to manipulate the order book and can cause order congestion, increased short-term volatility, and decreased liquidity.

In short, HFT makes it easy to cheat and rig. Things can be further obscured via dark liquidity pools…to the extent that something is not only irresistibly awful for the victim – it is untraceable by the authorities…and inexplicable enough to very, very easily cause a panic. Not only is this unthinking application of technol0gy a licence to destabilise and destroy, it is by definition impossible to control via regulatory response – global or otherwise.

It’s all bollocks and that’s Official

Globalism is a building designed to ignore the cultural diversity of the planet, rising a hundred and forty storeys above an economic foundation fashioned from anthropological ignorance and commercial myth.

This colossal folly’s four walls are constructed from 24-carat bollocks, and have roughly the same load-bearing capacity. We have a global economy without global response because globalist neocon mercantilism is complete tosh: nationality and culture are more important….and must come first.

Friedmanite Levittism believes the appetite of the horse for oats is more important than the community chest in the cart. It will never work because – just like Marxism – it deals in distribution, exchange, and production alone. It does not and never will understand real people.

It is doomed: and if we don’t divert its fanatical disciples and useful idiots from insisting on yet more fundamentalism, we will wind up being invited to this insane cult’s mass suicide party. / link to original  article

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