…in the Face of a Global Pandemic
A day of reckoning is coming for the economists, pundits, CEOs, and politicians who celebrated globalization’s outsourcing of production as a one way road to prosperity.
While executives of American multinational corporations and banks became rich by asset stripping and outsourcing our means of production to countries with low wage workers unable to unionize, in return, Americans were promised cheap consumer goods and superior service jobs in the knowledge economy.
Alas, U.S. manufacturing employment has declined from around 28% in 1960 to 8% in 2017.
The precipitous drop in manufacturing corresponds with falling American wages. In 1980, the American standard of living was the highest among the industrial countries. Today, most indicators do not even rank the U.S. in the top ten based on quality of life, living standards, and general work conditions. As the U.S. trade imbalance continues to grow along with consumer debt to finance the ever sinking standard of living, Americans have woken up from a long slumber to find a country leading in all the wrong economic indicators. The U.S. has become a low wage economy and American workers are victims in the global race to the bottom.
Now with the Covid-19 global pandemic at our door, we must demand accountability from the globalization proponents who outsourced U.S. production to make China the factory of the world.
America’s national security has been weakened by transnational corporations listed on Wall Street stock exchanges that moved production and global supply chains from the U.S. to China to make short term profit at the expense of long term national survival.
These treacherous policies have placed the fate of America outside of America. Now we can no longer obtain life saving pharmaceuticals, key electrical components, and even basic face masks to protect you from the flu.
Meanwhile, production in the U.S. languishes and key infrastructure from hospitals, to electrical grids and advanced manufacturing continues a steep decline.
We must question the experts who have led us to this day of reckoning. And we must look to the history of political economy to determine how we can wrestle control of our economy to support the American working class away from Wall Street executives and the Chinese authoritarian leadership.
Dear Friends, the Centerpiece of Economics is Production
“When most people think of economics, they think of the stock market, currency, banking, money flows, balance sheets; and this is fundamentally misguided and alienating. The centerpiece of economics is production! Production! The great need of the world, production! We live in an impoverished world of scarcity, immiseration and underproduction of all the basic things you need. And when you go through one of these studies and they don’t talk about production, throw it away.” via AmericanSystem.TV
The following five concepts are at best poorly understood. Economists are not taught the following ideas and few, if any, of the economics classes students take at university will ever come across these ideas.
Yet if we want to turn around the past forty years of stagnation, we need to relearn the lessons of our forebears and return to promoting production, so that future generations avoid the perils we face today.
1. American System of Political Economy
The idea of the American System gained some attention in 2017 for all the wrong reasons. Steve Bannon invoked the American System of Political Economy to support his anti-immigrant, white nationalist, i.e. fascist agenda. Bannon is a buffoon because there is nothing more ahistorical and anti-American than being anti-immigrant.
The American System is an economic philosophy rooted in the founding of this country.
Beginning with the genius of Alexander Hamilton’s Reports to Congress on Public Credit, a National Bank, and On Manufacturers, the foundation of the U.S. political economy is based on the creation of a national bank to finance industry and production, subsidies for infrastructure like roads and canals, and tariffs to protect domestic industry from anti-competitive practices of foreign competitors.
During previous existential crises where the survival of the U.S. hung in the balance, the American System policies were invoked. From the War of 1812, to Lincoln’s fight against the British backed Confederate traitors, to Franklin D. Roosevelt’s New Deal and the Lend-Lease program to defeat the Nazis, these policies saved the republic. And once again, we need to relearn this history in these trying times.
2. Full Set Economy
The concept of the Full Set Economy basically boils down to economic self-sufficiency. Right wingers are good at framing that the sole goal of government is to protect its citizens. Yet they (and almost the entire political establishment) is incompetent when discussing industrial policies for economic protection.
Countries need to produce what is needed during times of war and times of crisis. This includes basic commodities like food, mining rare earth minerals, and manufacturing advanced medical technology and pharmaceuticals during a pandemic. Constant outsourcing of the means of production means the U.S. is now unable to protect its citizens. The Wall Street Journal’s abbreviated headline today says it all: Can Supply Chains Survive the Coronavirus?
3. Production and Surplus Value
After forcing policy discussions to promote production as the foundation of economics, and policy makers are educated on how the American System provides the framework to create a full set advanced industrial economy, we must discuss the theory of surplus value.
Surplus value is created through the sale of the product minus the cost of the materials, plants, and labor power needed to produce that product.
True surplus value or profit, cannot be found in activities like Wall Street's high frequency trading. This is merely a private tax given to Wall Street insiders. Such activities create no real value but instead steal value away from the system like a vampire drawing blood from its victim.
If a private equity firm moves a company’s assembly lines abroad to low wage labor to sell products below the cost of maintaining a labor force that cannot pay for adequate housing, education, food, healthcare, leisure with the family, time to think and relax, etc., then the firm is looting the surplus, not creating one.
Despite value theory being a concept within classical economics from Adam Smith to David Ricardo, Karl Marx is often cited as the founder. Yet Marxist economics focuses on primitive accumulation of capital as the great original sin of capitalism through looting, slavery, and empire. Primitive accumulation is real and must be dealt with through just redistribution. But
taxing billionaires is not enough to bring everyone out of poverty and rebuild the economy.
Industrial capitalism, when properly regulated, creates real surplus through ever higher levels of productivity based on investing in the labor force, research and development in advanced technology and manufacturing, and building infrastructure that generates energy dense power and moves goods and people at ever higher levels of efficiency. We must pit industrial capital against its inherent enemy, the finance capital, and play these interests against each other for the good of the country to re-industrialize in support of a pro-labor, worker centered economy.
4. National Banking
National Banking is the main component of the American System and thus deserves its own heading as one of the five key concepts.
Ever since the 2008 Wall Street crash and Wall Street bailout, I am still disgusted when considering how Wall Street created the crisis through toxic derivatives rated AAA based on collusion with the S&P, Fitch, and Moody’s credit rating agencies.
The American people were then forced to bail out Wall Street while the political class grovels in front of Wall Street begging these same banks to loan us our money back to us but with interest going to the banks that were just bailed out.
Most of these banks should have been put through an orderly bankruptcy reorganization and many of the executives should have gone to jail for fraud like they did under the 1987 Reagan crash.
But I digress…
The American Society of Civil Engineers 2017 infrastructure report card gave the U.S. infrastructure a D+ and estimated a $4.59 trillion dollar price tag to rehabilitate America’s public works.
Are we going to go to Wall Street hat in hand begging for a 5% loan with a 20 year maturity while selling off public assets to be managed under a public private partnership?
The cost of capital and maintenance would be much lower if we simply used the greatest credit creation machine in the history of the world known as the U.S. Federal Reserve.
Instead of bailing out Wall Street Banks, we must demand the Federal Reserve issue credit in the form of trillion dollar tranches at near zero-percent interest with 100 year maturities. This will help us rebuild the entire economy and bring us to the horizon technologies of the 21st century.
Some will argue this policy is hyper inflationary. But these loans will eventually be paid off while receiving a huge return on investment. Think about NASA’s Apollo program’s return on investment that range from $7 for every $1 spent on the Apollo Program to $40 for every $1 spent on space development today.
China has a plan to dominate the following industries by 2025: information technology, robotics, aerospace, ocean engineering, railway equipment, power equipment, new materials, medical technology, and agricultural machinery.
Since we are so strategically behind in the United States because of the malfeasance and incompetence of both political parties, it is time to launch America 2030. And we will need the Federal Reserve to serve as a national bank to rebuild U.S. infrastructure and invest in high tech production in manufacturing and agriculture. This will also put tens of millions of Americans to work in high paying, union wage jobs.
5. Indicative planning
Indicative planning is simply coming up with a list of key projects that will advance the prosperity of the American people and are necessary for national security. And then we just roll up our sleeves and start building. The ASME Report Card has a good list of projects to start building. And Made in China 2025 also provides another list of key industries to develop.
This will not require the nationalization of industry. It simply requires using the Federal Reserve to direct public credit to regions, states, and municipalities who hire private American firms to build what is required.
Of course Wall Street banks and their frontmen will freak out because the monetary fire hose subsidizing Wall Street profits will be redirected toward the rest of the country's physical infrastructure similar to the Public Works Administration under FDR, which administered the construction of more than 34,000 projects including airports, large electricity-generating stations, roads, and bridges, as well as 70% of the new schools and one-third of the hospitals built between 1933–1939.
And when critics call this radical remind them that Indicative Planning is not new. The New Deal is the best example in the past. Lincoln also used a form of it during the civil war. France called it dirigisme.
And China’s unprecedented economic growth also relies on these policies. Will we be able to force the politicians to buck Wall Street and untie the hands of American industry while creating tens of millions of high paying jobs?
Future history is judging us today
As globalization’s supply chains begin to fray, we have an opportunity to re-chart our course for the next forty years. By honestly assessing how deep of a hole we are in, by understanding the policies available to us, by learning the history of past crises, we can begin digging out through collective struggle.
The alternative is to be buried in poverty and immiseration with only our ignorance, hate, and faulty beliefs to give us nightmarish comfort as the American experiment comes to an ignoble end.