Dix Sandbeck
By the end of the Second World War America had emerged as undisputed leader of the Western capitalist states. The defining moment came when the Bretton Woods’ economic conference in 1944 rejected Keynes’ proposal for a post-war reserve system based on a new supra-national currency.
Alongside the exhausted European allies, the Americans called the shots at Bretton Woods. Roosevelt, a novice in hard-hitting international geopolitics, had at first supported Keynes’ plan, but eventually some of his advisers convinced him that the plan by the wily Brit was about to rob the United States of the greatest possible spoil of the war: the dollar’s ascendancy to a position of undisputed international reserve currency. A reserve currency serves the same basic functions on an international scale as normal currencies do nationally: A, as a medium of exchange in trade between nations; B, as a safe medium of liquidity preference; and, C, as a transnational store of wealth. These functions all create seigniorage for the country issuing the reserve currency. With gold reduced to a symbolic role (and even that came to an end in the early 1970s), this created a critical advantage for the United States. Furthermore, this advantage has grown sharply in recent decades mainly due to a rising demand for dollar reserves held as a store of wealth in the tax-havens.
The Keynesian Years
While Keynes’ plan for an international reserve currency lost out at Bretton Woods, many of his general ideas were widely accepted in the post-war period. Governments, left and right, all called themselves Keynesian and implemented his ideas about economic policies where public expenditures played an important role by automatically counterbalancing market-driven instability.
An integral part of these policies was to redistribute incomes through progressive income taxation and public social programs. This heightens the aggregate propensity to consume, a key measure in the Keynesian system, where it is a main determinant for the force of automatic stabilizing levers.
Many have considered the “closing of the gold window,” the right other central banks had to exchange dollars holdings for gold (which often in practice meant the a pile of gold bars was rolled from one corner of a vault in Fort Knox considered “United States,” to another corner considered, say, “the Netherlands”) and the subsequent collapse of the system of fixed exchange rates as the end of Bretton Woods. These changes, in fact, only meant that a restrictive contradiction within the system was cleared out. Bretton Woods’ main outcome, elevating the US dollar to the role of the primary international reserve currency, not only remained in place, but in fact acquired much new force in an environment of floating currencies and policies of financial deregulation.
The Neoliberal Surge
Under the changed conditions, a new international doctrine, later to be known as the Washington Consensus, arose claiming international economic conditions also should be governed by the neoliberal laissez-faire principles. The best way to foster general growth, and assisting true progress in the developing world, was to get government out of economic activities and fully unleash free market forces. But many governments in the 1970s continued to follow the Keynesian policies. These had to be pushed aside and replaced by governments embracing the neoliberal principles, which happened when Reagan became president in 1980. His economic policies were based on neoliberal doctrine, including reversing the Keynesian- period policies of income redistribution. Instead, taxes were cut with most of the cuts going to the rich, and income inequalities were allowed to soar once again.
For the American multi-national corporations and the elites control- ling them, these policy shifts were good news. First of all, they made it much easier to take advantage of investments opportunities on a global scale, and draw in raw materials and products produced by cheap labour in the developing countries. All this was done on exchange terms very favorable to the American corporations, partly because of the dollars strong position and partly because the growing globalization saw their ability to control economic and other social conditions rise to new heights of asymmetry. Furthermore, the corporate elite’s opportunities for maximizing disposable incomes and wealth holdings were also enhanced. That even included down-sizing oversight authorities such as the IRS, making tax evasion a much easier and almost risk-free sport. To this was, of course, added the many new possibilities for rerouting surpluses to offshore tax havens.
Unfalsifiable Fundamentalist Views
Neoliberal populist economics has been called market fundamentalism, since like other forms of fundamentalism, it rejects evolutionary explanations. Especially, it appears to consider the central economic institution of the market to have descended to the world-creationist style – in full and perfect form. In common with all fundamentalist movements, it is unable to grasp the simple epistemological fact that a belief in creation is founded on individual existential experience. As such, it is not in opposition, but complementary to an evolutionary interpretation of the phenomena that we can observe and gain common knowledge about.
Evolutionary claims and theories, if they are properly conceived, can be subjected to Popperian falsification tests. Fundamentalists happily avoid such stringent requirements with their absolutist postulates about the existence of perfect markets, red swans and other mythical creatures. Even though nobody has ever seen any of these, the unqualified form of the postulates makes it impossible to get rid of them by scientific argument. In line with this, neoliberals view current conditions to be an absolute arbiter of economic efficiency. For example, neoliberal logic considers it efficient to export toxic waste to LDCs (Less Developed Countries), because when it kills a person there the productivity loss is smaller than if it had killed a person in the industrialized country that exported the waste.
Essentially, this claims that if we can ascertain current differentials adjusted for eventual transaction costs to be positive when expressed in money values, we have an absolute reason for endorsing it. Even considered on its own premises the logic is faulty. The deciding factor can never be to compare persons earnings in static wage costs alone, but must include the rate of marginal productivity growth that their labour resources create. Thus, while an engineer in a less developed country probably has a considerable lower wage than, say, a minimum-wage unskilled Wal-Mart “associate” in the United States, the engineer’s specialized labour re- source, which is extremely scarce in a LDC, has high rate of marginal productivity growth for the economy of which he is a member. Therefore, the comparison must first ensure that the respective persons, between which the toxic exposure is transferred, has comparable rates of marginal productivity growth. However, seen from the view of evolutionary, situational economics a more serious question is raised by the fact that efficiency can only be measured against prior established reference points, to which they stand in a path-dependent relation.This refutes the neoliberal assumption that any current path-dependent economic condition, by its own very existence, automatically is a proper reference point for efficiency judgments. Neoliberalism abdicates all responsibilities for, and even interest in, how the current conditions are the outcomes of past political and economic developments. That, for example, the developing world has low incomes and the industrialized countries high ones is, at least in part, an outcome of the Western worlds’ colonial expansion based upon superior weaponry. Similarly, the United States’s economic dominance owes a lot to the dollars’ role to as a reserve currency. All these facts are, in the neoliberal view, irrelevant. What counts is that, today, my life is worth more than yours, simply because God, firearms and capitalism enables me to make more money.
A Predatory InterpretationThe basic mistake is, of course, that economic reasoning can only prove that if we take A for initially given, then B might be a possible efficiency outcome. But it cannot prove why A should be considered a reasonable initial assumption. To answer this questions other factors must be brought into the picture, including an understanding of how previous political and economic developments have shaped present distributions of wealth and power. When the neoliberals ignore the path-dependency of current conditions, it is not only a non-scientific approach, but also a morally bankrupt one, which sacrifices the possibility for a balanced development in the name of a predatory interpretation of economics and politics.
I-make-more-money-so-I-am-more- worthy-than-you attitudes, justified by the false neoliberal paradigm, proliferate today. A standard eco- nomics textbook, for example, thinks that the following is what students ought to learn: “It is sensible for the retiree, living on a modest pension and having ample time, to spend many hours shopping for bargains.” Well, welcome to the modern version of class society, where hunting for bargains in the drab world of look- alike discount stores offering a diminishing variety of look-alike products is what the neoliberal economic models deem ordinary people to be worth! Whether they are retirees, or workers whose job have been outourced to third world workers squeezed from the other side, or simply average families still dreaming of giving the two kids an education that, however, slowly is slipping out of reach as it becomes impossible to square the circle between falling real incomes and rising education costs.Meanwhile, it still all looks very nice up in the sky for the new elite, zipping past in private “cost savings” jets (the cost saving accruing from the fact that their time is so much more worth, even when they play golf). As they move around between lavish houses on the Riviera, in the Caribbean, or in the Malibu Canyons, their main problem is to figure out how keep up spending the enormous windfalls that the new corporate economy has thrown to them.
Seigniorage is defined as the differential between the cost of creating money and the purchasing power it commands when issued. In the case of modern monies with no intrinsic value, the seigniorage is essentially equal to the full face value.The example is not fictitious but taken from a 1991 internal World Bank memo, the main part of which reads: “...a given amount of health- impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.” A recent recapitulation of this conviction occurred on March 13, 2001, in the Boston Globe: “Harvard Students Rip New President Lawrence Summers on Toxic Waste Memo.”
Dix Sandbeck
— from Economic Reform, June 2004