Free market follies

What with all the silly little essays I've been writing for grad school apps and all, I've been thinking more about some of the paradoxes I saw when I was in China. In general terms, the biggest one is the incredible divide between the relatively stong concern for economic justice, at least in political discourse if not in actual policy, as juxtiposed against the very bad record on social justice type concerns. Many Chinese reformers are scheptical about democracy as a means of acheiving social justice. This is a position that I tend to agree with, consider that many democratic countries in the world have poor records of social and economic justice, consider as well that our policy of imposing democracy on formerly authoritarian regimes seems to lead almost universally to instability, terrorism or demogogery. Marx thought that socialism must first pass through a borgeouis phase, Kang Youwei thought that states need to pass through phases of authoritarianism and limited democracy before they will be able to function as a full democracy. Outside of the developed world, democracies tend to be very unstable, even in the developed world, democracy often gives way to demagoges and perpetuates economic injustice. On balance, I tend to think that economic justice is more important than social justice, although idealy you want both and stuff like this is just silly.

Anyway, here's another big paradox. Apparently, despite experiancing 9% annual growth recenlty, China would actually be loosing manufacturing jobs if not for jobs gained from the West, due largely to a 17% annual increase in productivity. And this is a continuing increase. This is just echoing changes around the world. There is much talk these days about the outsourcing of American jobs. This problem is in fact getting much and much worse, we are not only outsourcing manufacturing and other blue-collar jobs but high-tech jobs as well. My Macintosh laptop says on the back that it was designed in America and made in China. Twenty years ago, it's pretty likely it would have been made in America as well. Ten years from now, it will have been designed in China. But the really paradoxical thing is that the exporting of American jobs to places like China and India does not seem to be doing much to improve the job markets there.

So who exactly is being helped by the free markets that are billed as the solution to all our ills. Pretty much only the financeers in rich countries (especially the US), and to a lesser degree, a compradore class in the developing world. Historically, the damage from free markets has been creeping up the economic pyramid from the lowest-level producers to the highest level. First the farmers, miners and other first-order factors of production were hurt by the opening of global grain markets in the decades following the first world war. Disposessed farmers were a major source of Nazi recruiting in the 20s and 30s, falling rice prices lead to tax problems and unrest in French Indochina while French farmers were loosing out at home due to the falling price of wheat. The booming 20s in America was a time of great investment gains for city-dwellers due in part to newly opened markets, but American farmers were already getting hurt a decade before the stock market crash and the great depression

Starting after the second world war, manufacturing began to move overseas and "made in Japan" became the first "made in China" which is now becoming "made in Bangladesh" and the like. In Japan, this started with cheap consumer goods and then moved to cheap electronics and cars. Electronics have barely been produced in America for the past decade, and US Automakers are going the same way. Korea is following in Japan's footsteps, with their electronics (especially mobile phones and other handhelds) beginning to overtake even the Japanese, and their cars catching up. Are Chinese cars next? Maybe not for another decade, but you'd better believe they're coming.

And we're beginning to see service jobs move overseas as well. Sure, it's starting with telephone helplines and the like, but Indian businesses are beginning to take over more and more sophisticated service jobs (India has a big advantage over China in this regard because it has a major English-speaking population). Soon, engineering, marketing and other glamour service jobs will be based largely overseas, leaving only non-movable service jobs (like house cleaning and sales) in America. How is this happening? Basically, the US has become more important as a consumer than as a producer. Look for this to start to happen to the rest of the world as well as we become more and more efficient at making things with fewer human factors of production.

According to these two sources, this tendency originates from Nixon ending the gold standard in 1971, as well as two misconceptualizations: that we live in a state of scarcity and that free markets will lead to gains through comparative advantage. Here is how these combine to form the strange leviathan that is our current state of globalization:

Scarcity
-The belief in scarcity leads us to seek to maximize production, largely through improving efficiency. If goods are scarce, it is reasonable to believe that increased production will find a captive market.
-But we don't live in a state of scarcity, rather one of overproduction. This means that producers must find or make markets for their goods. An increasing percentage of the workforce is employed in trying to find or make these markets as less and less of the workforce needs to be employed in actually producing it.
-Think about it this way: how many people do you know involved in producing a real good? Now how many people do you know involved in sales, marketing, distribution, packaging, patenting, protecting patents, etc. I bet for most people, the second group is much bigger. And I bet that fifty years ago, the first group would have been bigger.
-Or let's put it another way. Think about people you know. Do you think they are more important as a producer or as a consumer. You can even include goods and services in this, but don't consider the price, consider the time. I bet most people in America consume an order of magnitude more than they produce in terms of person-hours of services and person-hours poot into production and delivery of goods.
-That's right! Americans are more important as consumers than as producers. We can see this in many other ways but especially in the fact that most are employed in finding consumers for excess production, most consume more hours of work than they produce and even the fact that most are fat.

Free trade and comparative advantage
-Ok, so we already know that we are hyper-efficient at production to the point where most people are employed in finding markets for excess goods (if they are employed at all). So we don't really need more production gains through comparative advantage.
-Also, comparative advantage only works under the assumption of total employment. If there is not total employment, the open market will replace a worker with a lower-paid one rather than one who is nessisarily better-suited to the job.
-The world does not have anywhere near total employment. In fact, vast agricultural surplusses are causing a whole lot of un- or underemployed agricultural workers to seek other employment because they cannot find a market for their goods.
-So free trade agreements only serves to send jobs to countries with low labor costs. But it doesn't even help those countries because the dumping of the outside word's agricultural surplusses destroys local agriculture, creating...that's right...more unemployment everywhere!!
-We do gain lower prices. So I guess that's a good thing.
-Except that opening the markets drives down wages, so many wage-laborers actually have reduced purchasing power, even under falling prices (and things might be worse outside consumer goods markets in the US, see below). This is kinda like the opposite of Fordism
-So someone has to be making a profit, right? You can't have higher production and less jobs and lower labor costs without profits going up.
-That's right! Financeers are making the money off the back of workers. Henry Liu (second source above) estimates that every new millionare in China requires the loss of 100,000 Chinese manufacturing jobs. Wow.

The gold standard
-When the US came off the gold standard, it meant that the American dollar was no longer based on any hard exchange. Instead, it is now based in some sense of trust in the American government.
-Because the world currency system is based on the American dollar, it means that the American government can essentially disregard debt. All it needs to do is print more money. Printing money is essentially the US Government extending credit to itself.
-This dollar is then used to spur investment and consumption worldwide. Essentially the US is able to obtain capital based on some sense of trust in the dollar.
-Other economies are forever seeking dollars because dollars can reliably be exchanged for other currency or good like oil.
-The basis of the dollar now basically depends on the US ability to enforce it, i.e. the American military.

We are left with a situation where real jobs of pretty much any kind are being washed out by market forces pretty much everywhere. Is there a solution to this? Protectionism or totally closing off a market basically just leaves it to stagnate where it is for lack of investment dollars and other means of trying to skew the market in one country's favor (subsidies, currency control) tend to just send resources elsewhere (in the case of weak economies) or contribute to destroying weak economies while simultaneously costing jobs (in the case of strong economies). Are there other options? I need to read more. I'm still confused by this gold standard stuff in particular.

Finally, this video of a cellist playing a whole bunch of different parts is kinda cool.