RE: A. G. Frank on the Current Situation

["Devine, James" <jdevine@xxxxxxx>]

Andre Gunder Frank writes: >... the also same 8 year long PROSPERITY OF THE
UNITED STATES WAS ENTIRELY BUILT ON THE BACKS OF THE TERRIBLE DEPRESSION,
DEFLATION AND THUS GENERATED MARKED INCREASE IN POVERTY IN THE REST OF THE
WORLD [during this one decade, life expectancy in Russia DECLINED BY 10 -
TEN - years, infant mortality, drunkenness, crime and suicide increased as
never before in peacetime. Since 1997, income in Indonesia DECLINED BY HALF
and generated itds ongoing political crisis].<

I think this is an exaggeration. One thing is that I don't see is that the
US benefited economically from the disasters in Russia and Indonesia. The US
clearly has benefited politically  and militarily from the former's demise,
but the US simply doesn't buy that much from Russia. Sure, the US benefits
from low oil prices (to which Russia has contributed), but that fall is not
the main cause of the societal disaster in Russia (though it has
contributed). Also, Indonesia is not a major US trading partner. Maybe it
could be considered a major site for US-based investment, but that activity
actually hurts a lot of people in the US (by taking away US jobs and giving
them to people who are paid much less). This helps the corporate elite, of
course, but we have to be clear here.

It's true that the US bubble economy of the late 1990s benefited from the
fact that the rest of the world allows us to run a big trade deficit, so
that our spending as a country could exceed our income. This indeed meant
that the rest of the world had to spend significantly less than their
income. But the US trade deficit also provide macro-stimulus to the world
(the US as the "consumer of last resort"), partly counter-acting the
negative aggregate-demand effects of the "race to the bottom" (the
competition to cut wages relative to productivity). (The macro-stimulus
raises world export volume, even if the US share of this total fell.)

Further, I'm not prepared to _totally_ dismiss the US domestic sources of
prosperity. It's quite possible that there was something truly going on in
the high-tech sectors (maybe promoting labor productivity growth
overall).[*] That it led to over-investment in the tech sector -- and the
subsequent crash -- simply shows once again that capitalism almost always
tends to drive any good thing into the ground by over-doing it.

[*] Unfortunately, we won't know if there really was a "new economy" surge
in productivity growth  (rather than a standard cyclical effect) for many
years. The late 1920s "new era" surge only was shown to be a permanent break
(vis-a-vis the pre-1919 trend)when it turned out that productivity was
increasing faster after the Depression ended (than before 1919).

>... The subsequent and present bear market decline in stock prices
nonethless is a still a profit boon for enterprises who issued and sold
their stocks at bull market high and rising stock prices and are now BUYING
back their OWN stocks at what for them are bargain basement low prices,
which represent an enormous profit for them at the expense of small stock
holders who are now selling these stocks at low and declining prices.<

Contrary to this, a lot of companies were _buying_ their stock when "the
Market" was going up. In fact, that's one reason the stock market rose was
that companies were buying up their stock (by going into debt), at least
until the bubble psychology took over.

>Another major consequence is that the US - and world! - economy is now in a
bind from which it most probably can NOT extricate itself by resorting to
Keynesian pump priming and much less to full scale macro-economic [policy]
and suypport of the Us and Western/Jpanese economy, as the Carter and Reagan
administrations did.  Miltary Keynesianism,  disguised as Friedman/Volker
Montarism and Laffer Curve Supply-Sideism, was begun by Carter in 1977 and
put into high gear in 1979, when Carter the Fed was run by Carter appointee
Paul Volker, who in October 1979 switched
Fed minetary policy from high money creation / low interest price thereof to
attempted low money creation / high interest [ to 20 percent monetary! ] to
rescue the dollar from its 1970s tumble and attract foreign capital to the
poor US. In that he then succeded. <

this is confusing. Friedman & Volcker have nothing to do with military
Keynesianism (MKism), since they were talking about or doing monetary
policy. MKism refers to fiscal policy, while F&V monetary policy often
worked at cross-purposes with Carter & Reagan fiscal policy, at least in
terms of aggregate-demand stimulus. (They worked together to push interest
rates up, at least in the short run.)

>... the dollar pillar [of the new world order] is now threatening to
crumble,as it already did after the Vitnam War but has so far remained
standing through three decades of remedial patch work. But as we have seen,
the US is now running out of further economic remedies to maintain the
dollar pillar upright. It's only protection would be to generate serious
inflation in the short run by printing still more US dollars to service its
debt, which would then undermine its strength and crack the dollar pillar
and weaken the support it affords still more.

>That would leave only the US military pillar to support US political
economy and society. But it and reliance on it also entails dangers of its
own. Visibly, that is the case for such as Iraq, Yugoslavia, and Afghanistan
and of course all others who are thereby deliberately put on notice to play
ball by US rules in its new world order on pain of eliciting the same fate
for themselves. But the political blackmail to participate in the new world
order on US terms also extends to US - especially NATO - allies and Japan.
It was so excercised in the Gulf War [other states paid US expenses so that
the US made a net profit from that war], the US war against Yugoslavia in
which NATO and its member states were cajoled to participate, and now by the
War against Afghanistan as part of President Bush's policy PRO-nouncement
[using the early Cold WAR terminolgy of John Foster Dulles] that ''You Are
Either With Us Or Against Us"]. But US reliance on this, the then only
remaining, strategy of military political blackmail can also lead the US to
bankruptcy as the failing dollar pillar fails to support it as well; and it
can come also  to entail US ''OVERSTREETCH'' in Paul Kennedy terms and
''BLOWBACK''  in CIA and Chalmers Johnson terms. <

I'm not convinced. It's possible that the US can use a military victory --
which is possible, though I wouldn't say likely -- to shore up its monetary
system (the dollar as the main reserve currency). Just as fiat money's basis
is in the power of the state on a national level, world fiat money's
existence is based on the power of the hegemon.

Also, with all of the deflationary tendencies afoot, the US might be able to
stimulate the world without undermining the value of the dollar too much
(causing a crisis of confidence).

>... The second pillar is now in use to prop up the new order the world
over. Most importantly perhaps is the now proposed US/Russia entente against
China instead of [or to achieve?] a US defense against a Russia/China[and
India?] entente [the NATO War against Yugoslavia generated moves toward the
latter, and the US War against Afghanistan promotes the former]. God/Allah
forbid that any of these nor their Holy War against Islam blow us all up or
provoke others to do so. However that may be,  US IMPERIAL POLITCAL MILTARY
BLACKMAIL may still BLOWBACK ON THE UNITED STATES ALSO, thus NOT OUT OF
STRENGTH BUT OUT OF WEAKNESS.<

it's also possible that the US might create a world government in its own
image, unifying the powerful and rich capitalist nations -- with the US as
the senior partner -- against the weak and  poor communities. A permanent
war economy could prop up this brave new world, while perpetuating relations
of exploitation. Not a happy picture, but we can't assume that the US elite
will lose (just like we couldn't assume that the Taliban would win).