Following the meeting of the EU’s European Council (heads of state) last night, EU President Donald Tusk confirmed that “there will be no negotiations of any kind until the UK formally notifies its intention to withdraw.” He was referring to Article 50 of the Treaty of Lisbon, which London has indicated will not be invoked until October when a new Prime Minister comes in to replace David Cameron. Article 50 is supposed to regulate negotiation for withdrawal. Continue reading
Economic Vs. Political Globalization
The following was published in the current issue (Spring 2016) of the journal The International Economy as my response to a symposium of views on the question Brexit: The Unintended Consequences:
The Brexit referendum will test the veracity of the claim that international economic integration is impossible without supranational governance. This is what the opponents of Brexit claim, while the Brexit proponents argue that international economic integration will be better served with a reassertion of national sovereignty over supranational governance.
Indeed, the EU insists that if a country wants to have access to its markets it must accept the entire body of acquis communautaire, i.e., the entire body of EU legal acts, court rulings and bureaucratic regulations that have nothing to do with free trade and touch on matters ranging from sports team uniform designs and barmaids’ cleavage regulation to speech code, cultural/ education policy and immigration, and politically correct law enforcement. Most if not all of this acquis communautaire serves no purpose other than the assertion of supranational governance and subversion of traditional national sovereignty.
If Britain votes to exit the EU, it will be voting to get rid of the 13,000-plus acts, rules and regulation of the acquis communautaire, but otherwise to continue Britain’s economic relations with the Continent.
One unintended consequence will show up in the reaction of the European Union leadership to a probable British vote to exit the EU. A lengthy period of UK-EU negotiations will follow Brexit, whose purpose will be to redefine UK-EU relations. The European negotiators will have a choice between preserving the mutually beneficial economic relations (the EU maintains a healthy trade surplus with the UK) even after Britain has rejected the rest of the acquis communautaire, or terminating/curtailing those economic relations in order to punish Britain for its rejection of the EU’s oppressive legal scaffolding.
If the European leadership chooses to preserve UK-EU economic relations, they will be signaling to the other members of the EU that it is not necessary to accept the comprehensive supranational overlordship of Brussels in order to enjoy the benefits of international economic integration and free trade. But if, in order to whip into line the remaining EU members, the leadership decides to destroy the hitherto beneficial UK-EU economic relations, the EU leaders will be signaling that their true institutional interest is not international economic integration but the political power of supranational governance arrayed against national sovereignty and the democratic institutions that underlie that sovereignty.
In opposing Brexit, the ideologues of political Europeanism argued to the British public that their Europeanism is motivated by their solicitous concern to preserve the benefits of international economic integration. If Brexit wins the referendum, these ideologues must either accept that international economic integration can also be served by strengthened national sovereignty without supranational governance, or they must resort to the unintended consequence of demolishing economic integration in order to preserve supranational rule.
Myths of free trade and protectionism
In October 1913, the United States broke with a solid 124-year-old protectionist tradition and enacted the Underwood-Simmons Tariff Reduction Act, lowering import tariffs by an average 5.1 percentage points. Eight months later, in June 1914, World War One was triggered; but nobody ever thought of blaming America’s flirtation with “free trade” for the Great War.
In June 1930, the United States enacted the Smoot-Hawley Act that raised import tariffs by an average 3.6 percentage points. The stock market had already crashed eight months earlier, in October 1929, triggering the Great Depression. Yet there are people who to this day blame the Great Depression on the “protectionism” of the supposedly protectionist Smoot-Hawley Act that took effect long after the Great Depression had begun.
Raising tariffs does not cause depressions, any more than lowering tariffs causes war. Continue reading
Debt, Trade and the Trump Insurgency
May 4, 2016
Donald Trump was propelled to the GOP nomination by the soaring tide of voter opposition to our national bipartisan policies on trade and immigration. Most likely he will be propelled to the presidency of the United States by the same relentless, popular (both Republican and Democratic) opposition to those same policies.
These bipartisan policies, in force without interruption since the 1989 inauguration of President George H.W. Bush, unleashed unilateral free access to US markets for foreign goods, services and workers, while simultaneously permitting our trading partners to preserve and augment their protectionism against US goods and services and to engage in wholesale theft of intellectual property and industrial espionage. Continue reading
Debt and Civilization – Part 1 (An Overview)
“There is simply too much debt in the world today.”
Jaime Caruana, General Manager, Bank for International Settlements
June 27, 2014
One year ago, when total global debt had reached its highest level in human history both in absolute terms ($199 trillion) and as percent of global output (286%), the Bank for International Settlements (BIS – the global economy’s central bank of central banks) concluded that “there is simply too much debt in the world today,” warning that the global economy is more vulnerable to collapse now than it was prior to the 2008 failure of Lehman Brothers.
Remarkably, the BIS had also warned as early as 2003 that the global debt of financial institutions and households was becoming “too much”, predicting that if not curbed it would lead to financial crisis. When BIS warnings went unheeded and the predicted crisis finally arrived in 2008, a complete meltdown of the global economy was barely avoided through massive new debt issuance when governments borrowed trillions to bail out private financial institutions.
The result has been that the original debt crisis of 2008 has grown to be a much greater menace to the world economy today. The size of the crisis has reduced the world’s private financial industry to an impotent dependent on government subsidies, as these taxpayer-funded subsidies to private financial institutions resulted in an explosion of government debt from $33 trillion in the beginning of 2008 to nearly $60 trillion today.
The world responded to the private debt crisis of 2008 with a tsunami of government indebtedness that has nearly doubled global sovereign debt, leaving governments enfeebled by over- indebtedness and weakened revenue raising capacity, unable to generate effective policies, and running out of time, money and legitimacy.
The colossal size of global debt makes today’s debt crisis a crisis of civilization. It is a crisis that can neither be understood nor addressed effectively without a comprehensive inquiry into the links between debt and civilization as these have unfolded from the dawn of history. Continue reading
Does Europe Need Debt Relief?
In response to a question posed at a forum by The International Economy magazine in its Spring 2015 issue:
Debt relief per se will do nothing to solve Europe’s problems, and could exacerbate them. Under current political circumstances, debt relief would penalize pensioners and other fixed-income groups, reward the incumbent governments’ fiscal profligacy, and do nothing to stimulate growth while failing to make the total debt burden sustainable.
Will America Soon Have an Inflation Problem?
In response to a question posed at a forum by The International Economy magazine in its Spring 2015 issue:
Not a chance. Fed policy since 2008 has been to tilt against powerful deflationary forces that have yet to abate. How powerful are those forces? Consider this: from September 2008 to date, the monetary base has increased by 336%, from $0.94 trillion to $4.1 trillion, yet the annual CPI growth declined from 5% in September 2008 to a negative -0.1% in February 2015. So, we are talking about quite powerful underlying deflationary forces that will not go away.
Western Civilization as Perennial Tension
Civilization is described in many different ways involving language, history, religion, culture and self-identity that human groupings may share, but it can only be defined as a comprehensive, self-sustaining, meaning-conferring mode of existence of such groupings in history. For a collective subject such as a civilization to confer meaning to its constituent members it must imbue them with or propose to them, explicitly or implicitly, a grand purpose or aim – a final cause – around which life is organized.
Western Civilization is an entity far more encompassing than the European Enlightenment, even though most people tend to identify Western Civilization with the Enlightenment culture that emerged in Western Europe in the late 16th and early 17th centuries.
The Impact of Physics on Character Formation
The following is a reflection on a 2003 lecture On Aristotelian, Classical and Quantum Physics by Dr. Richard F. Hassing, an Associate Professor and my former teacher at the School of Philosophy of the Catholic University of America in Washington, D.C.
- Character, according to Aristotle, is shaped by choices, or at least entails choices[i].
- Choice differs from desire in that the objects of choice are achievable and possible but the objects of desire also include the untenable and impossible[ii].
- In other words, the limits of our powers — i.e., what is possible for us as a society and, hence, as individuals — determine the gap between desire and choice. The smaller our powers, the greater the gap between what we desire and what we choose; and when our powers are perceived as limitless, the gap between what we desire and what we choose evaporates — the very operation of choice is cancelled.
- Different theories of physical science entail different subjective understandings of what is possible for society as a whole and for the individuals in it.
- Different physical theories therefore shape different worldviews that are communicated beyond the science community to society as a whole. These generally shared worldviews, in turn, entail different schemes for individuals’ choices and thus different procedures of individual persons’ character formation.
- If a physical theory (i.e., superstring theory) professes that the existence of nearly infinite (10500) universes (multiverses) is a necessary corollary of its mathematics, and if this theory becomes hegemonic in the scientific community, then the conception of infinite possibilities (“everything is possible”) will eventually spread to the broader society, thereby eliminating the distinction between choice and desire.
- Whereas the technological advances of the present period construct and propose near-infinite choices, events in the domain of theoretical physics that endeavor to underpin and perpetuate these technological advances ironically undermine the very function of choice. The theoretical worldview that purports to be the foundation of our practical technology cancels the function of choice which our technology is intended to serve and replaces this function of choice with chaotic, incontinent desire.
- Without the habitual, repetitive exercise of choices, the formation of any type of habit or virtue and of any type of character is unattainable. Without character there is no individual human subject.
- This raises the question: is a collective human subject — a human society of any type — possible without the existence of individual human subject?
[i] “The virtues are choices or involve choices”, Aristotle Nicomachean Ethics II 11106a4
[ii] “Those who say that desire or passion or wish or opinion are the same do not think right; for choice is not found in irrational creatures …choice is not about impossible things … but desire is about impossible things”, Op. cit. III 1111b3-8
Time for the Big Questions
The following was my final report to clients in the financial industry dated December 22, 2014 when I retired and shut down my economic research firm, Leto Research, LLC in order to pursue broader questions arising from the global debt crisis. It summarizes the reasoning that prompted the explorations reflected in the occasional posting of this website, suitably named Leto Postscripts to denote a continuity of concerns from my previous professional life as an economic researcher:
On November 5, 2008, two months after the eruption of the financial crisis, Queen Elizabeth II asked the director of research at the London School of Economics “Why did nobody notice it?” Continue reading
Leto Postscripts 