The Equanimist

REWRITE: This is a private drive. No trespassing. (Update 3)

Posted in Economy, Political Economy, Public Policy, Socioeconomy by equanimist on April 7, 2009

Originally published here, at the Equanimist, 17 Sept 2008. Rewritten and reposted in response to continued deterioration of the US labor market (another 600+k jobs lost in March) and other recent news, including (but in no way limited to) this debacle covered by the Christian Science Monitor related to ‘contaminated’ Chinese drywall.

Developed economies will be made solvent or reposition on the broad socioeconomic continuum. History makes the latter almost unthinkable.

Continued bailouts will only put “recovery” off. Systemic injury must be sustained. Loss ought, therefore, be distributed among financially responsible parties to stop “bleeding” the real economy.

Here, I would like to refer you back to a paper buried in a link within my first post below (December 2007) and to elaborate on certain of its conclusions.

Illiquidity (resulting in catastrophic losses) in the financial markets is only symptomatic. Typically, people don’t pay their debts when they don’t have money with which to do so. More than bad banking practices, four decades of increasing income inequality and overdependence upon the US lie behind the extraordinary decline in the value of such products as mortgage backed securities and collateralized debt obligations. US citizens have gone broke making rich despotic foreigners and domestic stewards (who fail utterly to recognize themselves as such) capitalizing on low foreign socioeconomic status.

If developed democracies are to “recover” then bad actors (viz., Chinese, Indian, Mexican, middle-eastern and Russian stewards, who have over-relied upon developed democracies to care for their large populations) must take responsibility for their own people or now learn to play by the rules (i.e., take bold and immediate steps to raise their domestic living standards).

In the meantime, developed democracies’ middle classes must be furnished real money with which to make real “domestic” purchases – more money in countries like the US, where the middle class has been trampled under foot by a flood of cheap labor far in excess of that inherent in legal immigration, and less in countries, esp. certain European countries, where the adverse effects of income inequality are largely corrected by social programs.

Is it time for closer ties between special, aligned democracies such as Australia, Canada, Europe, Japan and the US?

Through new cooperation and closer ties forged between same – beyond cooperative financial regulation to include “special” trading status through cooperative regulation of products and industries and similarly high commitment to national security – we might band together and so defend ourselves from the scourge of high income inequality and low living standards that once seemed a thing of the past. We will not lift “them” up (bad actors) who will not act for themselves.

Outsourcing to and insourcing from bad actors (e.g., China, India, Mexico, the middle-east and Russia) must be dissuaded. Though there may be myriad ways to do so, ensuring the reliability of shipments and adherence to strict migration policies seem the most reasonable methods. Broadly, check every “foreign” container and the actual contents thereof to ascertain with certainty whether or not those contents conform with strict regulations, which (as evidenced by ongoing troubles) is not done “abroad”; shore up porous borders; and describe means by which to repatriate as many illegal aliens as practicable.

This plan neither bars “foreign” investment in developed democracies nor unfairly taxes anybody in order to socialize profits (something extremely distasteful in the mouths of the US “right”) but provides an adequate framework within the spirit of our shared traditions to protect developed democracy from detractors. Simultaneously, this should create strong incentives to produce goods “domestically” (e.g. within the developed democratic world) – ergo, increase the number of “domestic” jobs out of all proportion to the worker pool – a step that should then increase wages and restore socioeconomic status from the bottom up. Moreover, this might provide strong incentive to “foreign” stewards to act in ways that will bring them closer to us so that they might participate in our economy and enjoy our high standards of living.

It would be nice if we could save everyone – but the global will does not seem to exist. Responsible “foreign” parties refuse to take an interest in their own well-being. No minority “domestic” group of nations will effect higher living standards by force. This race to the bottom helps no one. Let us lead by example.

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