The horizon is not so far as we can see, but as far as we can imagine

Where the Economy Stands and Where It’s Going

Much as I like Elizabeth Warren, I’m not going along with this:

“Even so,” the panel concluded, “there is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis.”

It added, “Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.”

Why?  Well, because…

The panel’s 134-page report noted that after 14 months of the program, problems remain. Banks resist making loans, toxic mortgage-related assets still clog big banks’ balance sheets and smaller banks are vulnerable to troubles in the commercial real estate sector.

Here’s what happened, not just with TARP but with the overall bailout, of which TARP was only one part.

Because banks were not forced to recognize bad loans and assets, but have been allowed to keep them on the books it did not restart lending.  Instead the money given, loaned and guaranteed has been used to allow banks to not take their losses, and they have used that money in addition to increase leveraged financial plays and for buyouts of other financial firms which are even more distressed.

We’re going to hear a lot of triumphalism over the next year, because the economy is probably going to “recover” more strongly than many expect, not primarily because of the stimulus, but because of increased military spending.  Military Keynesianism is the only type of Keynesianism both parties agree with, and it should be no surprise that Obama escalating in Afghanistan, because that’s spending he can get through Congress and it directly creates jobs.  It’s not the best possible stimulus, not even close, but it’s far better than tax cuts, or tax cuts in drag, which is what much of the stimulus spending actually was, since it allowed States to avoid raising taxes on the rich.  (And yes, Virginia, I’m here to tell you that right now raising taxes on the rich and spending it to create broad based demand and jobs would be very stimulative.)

Japanification has occurred.  To be specific, Japanification is when a society’s banks are unable to lend adequately because they have huge numbers of bad loans on the books which have not been recognized, and which they have to pay down over many years.  The IMF forecast last year, which did not include a stimulus bill, assumed that the economy would have about the level of unemployment it has now.  The IMF is one of the few organizations which saw the crisis coming and which was screaming warnings from the rooftop, so they are not Pollyanas.

The US economy has shifted down a step.  The new “normal” is going to be higher unemployment and lower relative wages than was considered acceptable even under Bush, let alone under Clinton.

Meanwhile, the “decoupling” fools were talking about happening last year, is happening this year.  Most Asian economies are recovering much much more strongly than Europe and the US.  Why?  Because they are creditor nations with surpluses.  Their businesses and consumers can get credit, and their governments can run stimuluses much more effectively than the US can.  They are also production societies which actually still concentrate on making real things, not on leveraged financial plays and suburban expansion of worthless communities without a real economic base to support them.

Meanwhile the US is trying to get the financial economy and the housing bubble going again.  As long as the US is willing to keep shipping real productive capacity and the remaining few areas where the US has a technological advantage to Asia, and particularly to China, those nations will let the US try its financialization game again, but don’t expect them to be enthusiastic about it.

And once they’ve got what they need, it’ll be time to cut the US off.  When the US makes nothing anyone else wants, why should the rest of the world play?

Can you say dollar/Yuan parity?  Sure you can.  Within 20 years.

Enjoy the next year, it’s going to be better than you expect, though unemployment will not recover all that much.  But don’t expect the OK times to last, because they won’t.  Nations which make less and less  the rest of the world wants, don’t do well in the long run.  The game of liquidating America’s advantages has been going on for over 30 years now, and the long run is now the medium run.

Soon it will be the short run.

When even the smart, competent people aren’t willing to face the reality of what’s happening in their own country, that country has nowhere to go but down.  This will be a one step forward, to steps back decline, and triumphalists will scream about how wonderful each step forward is, but the trend is clear and there is no reason to expect it to change anytime in the next 10 to 15 years.


George Bush’s 3rd Term


Stirling Newberry and Ian Welsh On Virtually Speaking 9pm EST Thursday December 10th


  1. BUT…BUT…comparative advantages!

  2. Ian, you write:

    The game of liquidating America’s advantages has been going on for over 30 years now, and the long run is now the medium run.

    If you were King… What policies would reverse this? Or does it matter — in terms of “happiness”?

    (I’d argue yes, in that peasants in feudal societies tend not to be happy…)

  3. Ian Welsh


    that’s too long for a comment. I’ve listed some in the past.

    A very partial list (removed ones that are no longer applicable due to passage of time, added some)

    2) you need to get energy onto a capital basis

    4) We need to ease out of the triangular trade and bring an end to Asian mercantalism industrializing on us at this pace.

    6) we need to reform the tax code to strong progressivity with few loopholes.
    7) we need to bring money control back under control of the fed, and make the fed control it
    8) we need to bring capital movement back under control
    9) We need to make it so that you get rich by building things, inventing things and working in the real economy, not in the financial economy
    10) We need to spread money out more evenly, and destroy the great concentration.
    11) We need to rewrite IP laws.
    12) we need to break up the great oligopolies and monopolies
    13) we need single payor health care to free up 6% of GDP
    14) We need to open up free spectrum to everyone and force access to high speed lines
    15) we need to revamp regulations to mandate outcomes not methods and thus reduce barriers of entry
    16) Campaign finance reform
    17) Rewrite tax code to emphasize long term capital gains and reduce trading
    18) drop leverage by anyone down to 10/1
    19) reinstitute something close to Glass Steagall
    20) Criminal penalties for officers of corporations which engage in criminal activies, most especially including fraud
    21) change the basis for primary/secondary education funding so it isn’t based on housing values
    22) break suburban zoning regulations so that light industrial and commerical is allowed (just make any loan to any suburb without required zoning non-compliant for Freddie and Fannie)
    23) real expected returns need to go back to to 5 to 8% max, with anything more than that being taxed away as clearly overly risky and probably fraudulent
    24) Force recognition of bad loans, force the losses onto the bondholders. Transfer the lending activity to credit unions, small banks and if necessary, the Fed itself.
    25) set interest rates for loans based on what the activity is (refurbishing your house for energy efficiency – prime +1%, buying an energy efficient care prime +2%, buying an SUV commerical rates)
    26) Refund universities and push tuition rates back down for a basic science, engineering or liberal arts education. Let people pay full freight for an MBA since MBAs are an active detriment to the economy.
    27) reform immigration laws to let more people into the country, since immigrants bring more value than they cost.
    28) rewrite bankruptcy laws to be much more lenient
    29) make it illegal to use credit scores for anything but credit
    30) A general cram down of housing and real-estate prices combined with an increase in social security

  4. Jim

    31) We need capitalism to stop being capitalism.

  5. Ian Welsh

    No, we need capitalism to go back to being capitalism and we need some actual free markets. And we need to go back to policies that worked and stop policies that don’t work and stop expecting the capitalism fairy to save us when it’s spent the last 35 years pissing on us.

    So very very tiresome, but I don’t have time to explain such things since I need to engage in some capitalism and write for people who pay, which doesn’t include anyone who reads this blog.

  6. Thanks, Ian. That’s a great list to have all in one place and there are very few people who could have put it together. Me, not in a million years. Now, go pay the bills 😉

  7. Karl Denniger has a good post related to this today.

    Insanity: Doing The Same Thing (Obama)

    Good list, Ian. I would only reiterate that nothing is material going to get done without comprehensive campaign finance reform, that is, public financing alone, together with closing the revolving door and ending the double standard of privilege vs. the rest of us. That’s the top priority and sine qua non for reform. As a matter of fact, we don’t even need a lot of new laws and regulations. Those already on the books aren’t being enforced against the influential, who are instead writing their own checks on the Treasury and thumbing their noses at the country.

    I am still harping on Modern Monetary Theory (MMT) aka Neo-Chartalism, which is based on national accounting principles and stock-flow consistent macro models. With this approach, the memes of “sound money” and “fiscal responsibility” would essentially be banished from public debate, along with the fear-mongering about the growing deficit, national debt, and unfunded future obligations.

    Why is this important? Because reform is not possible without provisioning for it, and as long as conservatives dominate the universe of discourse with their mistaken ideas of how the government operates, it will be impossible to fund a progressive agenda without increasing the deficit and raising taxes substantially, both of which are politically impossible under the current misunderstanding of how the economy actually works.

    This is needless. There is no problem with a sovereign government as monopoly provider of its nonconvertible flexible-rate currency of issue funding education, universal healthcare, basic research, infrastructure including energy, and also providing a job guarantee as employer of last resort. There is no reason from the financial standpoint that a full-blown progressive agenda cannot be funded under present circumstances simply by recognizing how a contemporary monetary system actually works and taking advantage of it.

    This has no relation to domestic debt, however. The government as currency issuer is different from currency users. Currency users are revenue-constrained, and private debt that cannot be sustained by income cannot ultimately be serviced without liquidating assets. The financialization of the economy has resulted in rent-seeking replacing production to too great a degree. In addition to hollowing out the real economy, the result has also been that private debt has become unsustainable and needs to be resolved before the recovery process can go forward. Instead, the government is siding with influence to impose draconian bankruptcy on debtors, and prevent cram downs. The government is protecting creditors by attempting to reflate asset prices, but the likelihood of this working in the long run is low, so stand by for another round of crisis before long. Can Obama push this out past 2012? Maybe, but I wouldn’t give odds on it.

  8. S Brennan

    Ian gets it.

    Even a this late stage it could be turned around…but the people that could make the play won’t be allowed to take the field.

    Well, that’s elitism for you.

  9. Jim

    Timothy Treadwell (really Timothy Dexter) of Long Island, New York spent thirteen years living with Grizzly Bears in Alaska. He loved Grizzly Bears and he truly tried to understand and study them. He named them, lived among them.

    He treated Grizzlies in an idealistic manner: he did not understand or adhere to the rules of safe behavior for observers of Grizzlies that had been explained by others who had studied the Grizzly long before. He did not store his food properly, did not carry pepper spray, did not give the bears a wide berth, did not use any electric fence around his camp because for thirteen years he thought he was the Grizzly whisperer. He thought the Grizzly was his friend because all the scientific data about Grizzly behavior had not proven true for him. For him, there was no science in zoology; it was to be understood simply by observations from his own point of view. He thought if you treated them with respect and kindness and with a new policy they would behave in a very predictable manner, and for thirteen years it seemed to work. Timothy thought the bear had been transformed and all the others who had studied bear behavior before him were wrong. Timothy thought that the objective nature of this bear formed by years of evolution–its true predatory nature–could be changed, because he had not yet been attacked by the bears.

    Timothy had a stake in these unscientific views; he was gaining recognition from his videos.

    On October 5, 2003, Timothy and his girlfriend were killed and eaten by Grizzly bears. Very sad.

    He had repeatedly been told that he could not subjectively change the true nature of the Grizzly: it is a predator and it would kill him.

  10. Jim


    I can agree with all your 30 points and I am sure you have more.

    I would love to see these reforms enacted but I just don’t think it is in the cards.


  11. Ian, when are you going to write about the health care ‘compromise’ in the senate?

  12. Ian Welsh

    Sean Paul Kelley – haven’t I already? Urgh. I hate reading or writing about it anymore. I’ll take a look.

  13. Lex

    The list as a party platform would be enough to actually make me donate, advertise, knock on doors etc. (That’s saying a lot.)

    Unfortunately, i think that trying to enact even just one of the items in the 21st Century U.S. would be enough to make Sisyphus give up. But i’m a pessimist and a cynic who figures that the end is now unstoppable: only the timing and details of the collapse remain to be determined.

    So an alternate list might include some acreage with a good, south slope; a few greenhouses; a flock of chickens and sundry other livestock; diesel powered vehicles (because you can make diesel); a steam generator; a few windmills; and a small armory. If a miracle occurs and things get better, you’re still free of trips to the grocery store, the gas station and utility bills.

    Yes, i know that my list doesn’t work for urban people…but i’m 6 hours drive from the nearest urban center. I also realize that it sounds like a right-wing militia fantasy (but only to city dwellers). Around these parts such a life is non-partisan.

  14. Lex

    It’s been discussed elsewhere (and IIRC, Ian and i are in rough agreement on it), but i foresee a situation similar to the Soviet collapse. The difference being that various factors of Soviet life — specifically the local and individual adaptations necessary to get on with life in the USSR — inadvertently prepared Russians for the collapse.

    That’s not true of the US, and that’s what scares me: Americans are not at all prepared to deal with serious difficulty. I would argue that the very negative, and frightening, possibilities did not arise in Russia because Russians were (inadvertently) prepared; on the other hand, those same possibilities look very realistic in the case of the US.

  15. Formerly T-Bear

    IIRC the Russians had humor to help as well, the piece that comes to mind went: “We pretend to work; they (government) pretend to pay us”

    At least the Russians were fully aware of the product of their Pravda. Not so the US of their Pravdas – On the Hudson (NYT) and On the Potomac (WaPo) spewing propaganda and other political pollution.

    Only a relatively small percent of Russians were involved nationalistically: the nationalistic mentality in the US overwhelms all other considerations, facts, knowledge, etc.; god forbid you are caught (accused of) not worshipping the flag, deifying that rag.

    The Russian population was much closer basic survival levels; the population of the US for the most part are no longer acquainted with reality, incapable of independent thought, hiding in ignorance, mindless belief and following wherever the herd leads.

    This will not end well.

  16. i on the ball patriot

    Good overview and some great remedial fantasies, but that is all they will remain until you realize the catch 22 of your key fantasy, # 16, “Campaign finance reform”.

    The system has been hijacked because it is flawed. It is the electoral process itself that must be reformed. We need a constitutional jubilee (along with an equitable debt jubilee that will reward the prudent as well as the imprudent) and a rewrite of the constitution to open up the electoral process to all and to create a more responsive to the will of the people form of government.

    The current scamerican government has been captured by the wealthy global ruling elite. They will never provide you with campaign finance reform.

    Deception is the strongest political force on the planet.

  17. Lex

    Formerly T Bear,

    Exactly. I find myself saying “There’s no truth in the news and no news in the truth” all the damned time.

    “The Russian population was much closer basic survival levels; the population of the US for the most part are no longer acquainted with reality, incapable of independent thought, hiding in ignorance, mindless belief and following wherever the herd leads.”

    Yep, food production is a big one. The Soviet system had basically failed the population long before the system fell apart. People relied on themselves and friends/family. That helped tremendously.

    One other difference is that even in the very worst of post-Soviet times, Russians weren’t kicked out of their homes or having their utilities turned off for non-payment. (Sometimes utilities were sporadic, but it was that way for everyone.)

    No, it will not end well…mostly because Americans are going to go crazy and start shooting each other.

  18. b.

    ” Japanification is when a society’s banks are unable to lend adequately because they have huge numbers of bad loans on the books which have not been recognized, and which they have to pay down over many years.”

    That’s not happening in the US. Here, the banks now have huge amounts of Fed cash on hand in exchange for their toxic waste, and they do not lend because they can use the cash to generate fees and bonuses by buying up competitors that are not too big to fail, or failed too fast, or were not part of the favored Goldman network. This, in turn, increases the likelihood and the eventual damage from the next – Fed bubble – burst. The doom loop has positive feedback. Japan took the slow route to preserve the oligarchs, only in the US would the parasite see this as another opportunity to “raise the stakes”.

  19. spectator

    Good article. The 30+ item list, however, is not the path to a solution.

    Sound money alone would fix most of the problems listed soon enough. Monetary debasement has a way of corrupting and destroying a society. An example is Spain’s decay after the arrival of new world gold.

    The Fed is the source of all evil. Without the Fed blank check, many of the current day robber barons would be brought down before they do too much damage. And all the misguided handouts and bailouts would be severely capped.

  20. Ian Welsh


    having that backup sounds like a good idea to me. Just not available to many of us city boys. (But I grew up around that world, so I know what you mean.)

  21. Lex


    I know, and i’m not speaking from a position of possessing that plan myself. (I wish i was.) What makes the Russian example so fascinating for me is that an urban society managed to pull it off. They did so because of factors specific to the USSR/Russia and the situation, but still a neat trick.

    My friends are working towards completing my above list, but i’m most interested in how to address the question of feeding people in an urban setting. It tempts me sometimes to give up the relative safety and idyllic splendor of here for the big shitty and urban agriculture. (And as a native Detroiter, i could go home to the perfect place for urban agriculture development.) Staying here is, i suppose, the selfish choice.

  22. Ian Welsh

    If I were an American, I’d seriously consider moving to Detroit. Lots of problems, but everything is so cheap.

    A city that really impressed me, that I didn’t expect to, was Pittsburgh.

    Urban gardening is on my list of “ought to figure it out”.

  23. IGU

    If it was only the rich elite that we had to worry about, I’d have some hope.

    Just posted this over at naked capitalism:

    “I live in a blue state, surrounded by gainfully employed state-level workers, factory level wages (before all the union busting), gold plated health care and tax free pension plans @ 60-70% of FAS.

    In the next demographic, we have a group of retirees enjoying the same gold plated benefits plus drawing down $20K in SS and nearly free health care.

    And 90% still believe the gov’t is ALWAYS the problem, never the solution — (fill in free market wish fullfillment meme here.)

    They are against health care, against higher tax rates on the rich, against regulation of wall street, have no problem with wealth disparity, poor people are the problem, etc., etc., etc.

    They cannot connect the dots. Can-not-do-it.

  24. djmm

    Interesting post. Ian and Lex: Perhaps you will find this helpful:


  25. marku

    It sounds like you guys don’t know about Dimitri Orlov’s “Reinventing Collapse”.
    Dimitri was a Russian who lived through the collapse of the USSR, and writes about how he thinks a similar collapse (which he foresees) will play out in the US. A lot of very surprising insights….some good for the US, most not very much so.

    Some of the advantages the Russians had was a high reliance on kitchen gardens, mass transit, and state owned housing (no foreclosure evictions).

    One of the US advantages is a more social society (hard to believe, I know)

  26. @Ian, apologies, I should have been more clear in my request: do you have any thoughts on the most recent health care ‘compromise’ or are your thoughts still largely the same? I’ll take it by your previous comment that your thoughts are still pretty much the same.

    @Marku: I know a little bit about Russia and agree “ the Russians had was a high reliance on kitchen gardens, mass transit, and state owned housing.” I would also add the communal nature of Russian society–a very largely family oriented society, and large family and friend networks played a very large part in Russians being able to endure the collapse. And that is something that the ‘societal nature’ of American society does not have. We are, in the end, a nation of individuals. Even now, when young people are staying at home for longer periods there is a serious stigma to it. And when our economy takes a header, it will be even worse. Guilt and shame of not being able to ‘support yourself’ will take their toll. I’m with Lex: Americans will just get fucking violent and project perceived personal failures onto others.

  27. BDBlue

    I’m not sure we’re a nation of individuals everywhere. I have family in the rural midwest and they very much act like a community, both with each other and through their churches. I got to see it first hand when a relative died recently – her brother’s church group provided the food for us after the reception and the church a place to gather. My relatives do the same for others in the community. A lot of my cousins live around their parents, many on the same farm or on neighboring farms. Some of my family earn their income entirely from farming, some supplement their farming through other work others live and work in nearby cities, but everyone knows everyone or at least they always portray a feeling that they are part of a community.

    Same thing, only more so, with my rural Southern relatives. Most of the kids never left (no real economic or educational structure to do that) and so they all live around their parents and cousins. They all know everybody.

    I think there’s a real divide not only between rural and or small town with urban in terms of community, but also class. If you drive through some of the poorer neighborhoods in and around D.C., you’ll see a lot of people out on their front porches and in their front yards. Go to the wealthier suburbs and you can go days without seeing anyone. My grandmother, who lived in a working class midwestern neighborhood, used to hate visiting my parents in the suburbs here because when they’d go to work, she’d feel isolated – she said when she looked out the winder, she never saw anyone.

  28. Lex

    I haven’t read Orlov’s book, but i have read his essays.

    Ian, you might be the first person i’ve ever heard suggest moving to Detroit. And i have a question about #4: is that putting an end to mercantilism and import substitution as an economic development system or simply ending the current relationship between (esp.) the U.S. and Asia that exists as it does today?

    Sean Paul, i agree and that’s one of the reasons i’ve chosen to live where i do (that and plenty of water). It conforms more to what BDBlue says than the fear that you and i share.

  29. Jim

    My personal experiences from earthquakes in San Francisco to forest fires in the rural northwest is that, when these disasters hit, people helped people. I am not saying that all people pitch in but certainly a large number do. Many, many volunteers pitched in during the man-made disaster Katrina, and most recently many many people are volunteering to help at the free health clinics. People will and do bond together and help one another during times of need.

    The conditioned response (“law of the jungle”) that pits individuals against one another has been used throughout history to divide and conquer. As more people become dispossessed, the conditioned response will be to dehumanize these individuals so they may be easily attacked. I can see it coming–fear of the working class as they are forced to fight back to survive. It will be very important in the coming period to understand who are your allies.

    Check out this clip from The Daily show .

  30. Lex


    I don’t disagree. The difference i see is that in natural disasters the need to band together is temporary and provoked by some sudden, cataclysmic event. The American example of the depression mostly fits your statement, so it’s certainly possible that the “no end in sight” hardship of severe economic calamity could provoke a similar response in modern America. On the other hand, American society is far less prepared to deal with the details of such a situation than it was then.

    Unloading trucks of food to distribute is a far cry from producing food and sharing it so that no one goes too hungry. I’d have more optimism if i saw mechanisms that could be quickly implemented to deal with the myriad challenges that we’re likely to face.

  31. BDBlue writes:

    think there’s a real divide not only between rural and or small town with urban in terms of community, but also class. If you drive through some of the poorer neighborhoods in and around D.C., you’ll see a lot of people out on their front porches and in their front yards. Go to the wealthier suburbs and you can go days without seeing anyone.

    I agree both on urban/small town and on class. I remember being trapped out in a wealthy Boston burb back in the day, and the silence was just overwhelming.

  32. Lex #4: currencies have to be based on actual TRADE flows (not finance flows, but trade flows. Money should not fly back and forth at hundreds of times multiple of actual trade.). That alone would have a huge effect on modern mercantalism. Unfortunately, that implies the Yuan rising a lot, the dollar dropping a lot, and a decline in current standard of living in exchange for better future standards of living. Said drop would mean more expensive oil (yes, it isn’t prices in Yuan, but if that happened it would be) and a shift of oil to the Chinese. It cannot be done without making significant moves, first to reduce dependence on oil.

    Detroit: well, that’s because my income is not dependent on where I live. For other people for whom that’s the case, the very very low costs are attractive. Of course, there are other reasons not to want to go, but it’s financially attractive.

  33. anonymous

    Actually, I don’t think you can do any of those things on your list until you do campaign finance reform first, and I think you’d need complete revamping of the constitution to go along with that (like getting rid of the Senate, and making the House of Representatives more, you know, representative). But as long as the status quo is profitable to those with power, they won’t let go. So I expect we have to hit bottom before things get fixed.

  34. Lex

    Ian, thanks for the explanation. I probably misled myself by thinking of mercantilism less in terms of finance than in terms of making and trading actual things. In that respect i think mercantilism has some positives as a development tool…or at least more positives than thinking that neo-liberal trade regimes will lead to economic development. Or, at least it worked for Japan and Korea. But my rough understanding leads me to think that it needs to be opened up at some point too.

    Understood on the City of Boom, and don’t get me wrong, i love the place…though reports suggest that it’s returning to the levels of violence i remember from the early 90’s.

  35. Ian Welsh

    Mercantalism is trade based. Traditionally you used tariffs or subsidies or both In the modern world China and Japan have done it through currency manipulation. Keep your currency artificially low against those of your consumers and you have what amounts to both a tariff and a subsidy. The WTO essentially outlaws tariffs and subsidies for most, but not all, goods. But currency manipulation is a tariff in drag.

  36. Lex

    Thanks, Ian.

    If i understand the history correctly, great economic powers have generally gotten to greatness by practicing mercantilism and only become proponents of “free trade” late in their development. And even the promotion of free trade practiced later comes with significant caveats, like the US continuing to subsidize agriculture.

    The barriers of mercantilism are what make small loom makers like the Toyoda Corporation, or produce companies like Samsung, able to become industrial powerhouses. And, theoretically, those barriers should fall when the protected companies are able to compete. They clearly don’t. IIRC, the tax on a foreign automobile in Korea is something like 100%.

    I understand the currency manipulation angle: how it works and why countries use it to get around WTO rules. But does the manipulation benefit only, say, the Chinese? When a US company sets up shop in China (or contracts production to a Chinese firm), does it benefit from the currency manipulation too?

    I ask because if US corporations do benefit, then i see a situation that is unlikely to change so long as the people hurt most by the situation are the voiceless little people of the world.

    Part of me has a difficult time rousing anger against the East Asians and their practice of mercantilism. The developing nations that have signed on to the “Washington Consensus” of development through free trade all seem to lose ground rather than gain it.

  37. Ian Welsh

    Mercantalism is fine up to a point. But if they’re going to do it, the West should protect against it as well.

    US corporations do benefit, yes, up to a point. The more they are a multinational (aka: if the US goes down, who cares) the more they benefit, but even if they will take a huge hit if the US has an economic crisis, it’s dead stupid easy money to get right now. Think of it as currency and labor arbitrage–anyone who can play the game, does, because it’s very close to free money.

  38. Lex

    Thanks for engaging me on this subject, Ian. One of the thin books i’ve read is Bad Samaritans by Chang Ha-Joon, and his Korean take on Mercantilism has probably affected my view of it.

    I wonder if we all practiced mild Mercantilism, could we reach an equilibrium where trade was free and mostly fair? Yesterday i was reading about Chile — the end of the Pinochet regime and the economic successes that came in administrations after Pinochet. One of the quoted economists likened economic policy to driving a car: somebody needs to steer or the car will end up in a ditch or wrapped around a tree.

    I guess that i have a philosophical problem with rational-utilitarianism that requires an irrational belief in the “invisible hand” to make things work. Or, more pointedly, i get the feeling that the invisible hand is overly apt to apply a choke hold.

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