Tuesday, October 28, 2014

Globalization = Permanent Instability

Globalization continually creates imbalances that fuel a perpetual instability that gradually impoverishes every sector other than global capital.


Globalization has two guaranteed consequences: permanent instability and endless boom-and-bust cycles. As noted in Forget "Free Trade"--Focus on Capital Flows, the key engine of globalization is mobile capital: capital that can borrow money for next to nothing in one nation and then move that capital to other nations where yields are higher and opportunities for exploitation riper.

This mobility of capital is an enormous benefit to the owners of the capital, but it creates extraordinary instability for those who are not as mobile. When mobile capital encounters anything that reduces profits--higher taxes and rising labor costs, competition or restrictive regulations--it closes factories and fires its workers in that locale and shifts to another locale with greater opportunities for high returns.

The workers left behind have limited means to replace the lost wages, and the local government often has few resources to repair any damage left by the exploitation of resources. The advantage of mobility is reserved for capital, and to the relatively limited cohort of workers who can immigrate to other nations to find work.

This illustrates two key ontological characteristics of financialized globalization: perpetual instability and a never-ending cycle of boom and bust as capital sparks rapid development in one locale and then moves elsewhere once profits decline.

The scale of global capital is difficult to grasp; trillions of central bank-issued dollars, euros, yen and renminbi are sloshing around the global economy, seeking low-risk profits.

Capital has no loyalty to anything but its own expansion, and the damage it leaves in its wake is of no concern to the owners of capital.

There are even less visible consequences to the globalization of markets, capital and labor. Once goods and services are priced globally, local supply and demand no longer set the local price. As my colleague Mark G. has observed, consumer prices can rise even if there are deflationary surpluses in the local economy because price is set by global supply and demand. As a result, measuring inflation and deflation locally is meaningless in a globalized economy.

This financialized globalization of goods, services, credit and currencies continually creates imbalances that fuel a perpetual instability that gradually impoverishes every sector other than global capital, which being mobile, can exploit the imbalances for its own profit.

Correspondent Mark G. recommended a recent article by China-based economist Michael Pettis, How to link Australian iron with Marine le Pen:

"In a 'globalized' world, no country, not even the US, can protect itself from the consequences of imbalances elsewhere. The global economy is a system in which certain types of imbalances are impossible. I especially focus on the requirement that global savings and global investment always balance, but there are others. Because an imbalance at the global level is impossible. if there are imbalances in one country or region, there necessarily must be the opposite imbalances in another, and the more open an economy, the more likely it is to respond to imbalances elsewhere.

It is impossible, in other words, to understand any non-autarchic economy in the world except in the context of global imbalances.

As I say in my book, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy, in a globalized world anything that affects the relationship between savings and investment in one country--and nearly everything affects that relationship -- must have the opposite effect on the rest of the world. There is no way of escaping the fact that imbalances generated in one country become a problem for everyone."

Here is Mark's commentary:

The logically following converse of Pettis' point is that only economies enjoying autarchy in any category of economic activity can ever hope to reach reasonable price stability in those activities, and then only if these activities are also made non-tradable by local practice. Restated, "free trade" between large central states is a prescription for perpetual instability at all levels.

Ricardo's theory of comparative advantage is only advantageous if you enjoy an advantage in a particular field. Otherwise it is merely a road map to rapid impoverishment. The only localized response--even at continental level--is to embark on a series of successive financial bubbles. This is pretty much what we've seen everywhere in the world for the last three decades.

Thank you, Mark, for summarizing the consequence of central bank-funded mobile capital and the imbalances and boom-bust cycles this free money for financiers generates globally.

Of related interest: A Thought Experiment in American Autarky (January 17, 2014)



Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)
go to Kindle editionAre you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.


And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.
You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube) 



NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Peter E. ($5/month), for your astonishingly generous re-subscription to this site-- I am greatly honored by your steadfast support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP