Why studying the past three decades is crucial…
There are four types of people, those who:
- see things before they happen
- recognize things as they happen
- realize what happened
- have no clue what happened
I posit it is of existential importance that Millennials fully grasp what happened in the past three decades in order to preserve the American way of life, — one with individual freedom as the foundation, — as the Founding Fathers conceived it.
For three decades now, the U.S. had led the West in a Neo-Liberalism movement of more markets/less government; economic incentives over cultural norms; and private entrepreneurship over collective action. The movement was kicked off by the Reagan-Thatcher era of union busting and de-industrialization, and continued by four succeeding administrations (up till Trump) of both political parties. Its ideology is rooted in Classical Liberalism that dates back to the 19th century, with the core beliefs of protecting property rights in a free economy with minimal government interference. This all sounds good, but produced disastrous results that are by now obvious to most. Let’s explore the how and why in lay talk, dispensing with the complex technical underpinnings.
Two features dominated the Neo-Liberalism movement: Financialization and Globalization. A third feature, of “supporting actor” role, was Privatization. The three were designed to work in unison toward a single goal: (Global) growth (fueled by debt, — or money printing).
Financialization requires all monetary transactions to be intermediated by the financial industry, — banks, brokers, insurance companies, real estate companies, etc. This movement started with the explosion of the credit card industry in the Reagan years, but accelerated with Clinton’s deregulation of the financial industry (by his repeal of the Glass-Steagall Act). Unbridled financialization ultimately culminated in the 2008 Global Credit Crisis and in the still-lingering eurozone debacle.
At the center of its ecosystem is the central bank, — in our case the Federal Reserve Bank, — which can create money at will out of thin air. This ecosystem is responsible for systemic and systematic transfer of wealth from ordinary citizens to the financial elite over three decades, — not only because the financial industry “takes a cut” of every little guy’s transaction, but also that it is the “custodian” of the little guy’s savings or investment. It pays the little guy no interest these days, but actually lends out this money, generating returns for itself. As well, it “fabricates” an endless stream of “wealth management” paper “products” that sucks in the little guy’s capital. This process is pure and simple “blowing (financial) bubbles”. The financial “industry”’s mission in life is to blow (financial) bubbles. Bubbles last only when confidence stays intact. 2008 demonstrated global bubble burst in spades, when confidence was lost and investors bailed out of financial “products” in mass. (It was “You lose but we win, — because we already made money with your money; AND we get bailed out by government via future taxpayers but you don’t”.)
This wealth transfer significantly accelerated in the last 12 years due to massive money printing “justified” by two crises: The 2008 Global Credit Crisis, and Covid in 2020. All in all, the past three decades whittled down the middle-class buffer and created a huge 1%-99% divide. The 99% is increasingly impoverished by inflation (because the purchasing power of what little currency they have is severely debased by over-printing), whereas the 1% massively benefited from inflation because its vast asset holdings appreciated greatly.
Globalization pushes efficient resource allocation, — particularly capital flow, — between households, enterprises, and governments beyond national borders. This global movement was importantly responsible for the rise of China. While initially stimulative to global growth, this sowed the seeds of conflict between national interest and enterprise interest. Enterprises made money by outsourcing labor content of their products to places with cheap labor and channeling capital flow to places with low taxation. National interest, however, is compromised because the lost industrial base can never be recaptured and the national treasury does not proportionally share the profit from efficient enterprise management through taxation because enterprises are so smart in keeping their money in subsidiaries abroad. The net effect is long term elevation of the standard of living in some places (such as China) at the expense of the same in other places (such as the U.S.). The same can be said about national security: Globalization undeniably made China vastly stronger and the U.S. weaker, compared to three decades ago.
Privatization consigns essential services to enterprises, ostensibly because they can be operated more efficiently for profit. Obvious examples include transportation, correction facilities, utilities including waste collection and disposal, and healthcare. As a citizen, I would say the net result is mixed. Economic efficiency is often at odds with the Nation’s overall social well being and security.
So what’s the takeaway after three decades of Neo-Liberalism movement? That there are distinct big winners and big losers, — for households, enterprises, and nations alike. On the national level, China is a winner and the U.S. a loser.
Why is China a winner? Is it solely because it came from a low base and had nowhere to go but up once globalization took off? No, I think we have to give China credit for cleverly “localizing” Western economic practices with unorthodox institutional tinkering. Rather than following the western Western model of privatization (China lacks a developed legal structure to support that), it promoted joint ventures between entrepreneurs and local governments. This spearheaded China’s economic growth in open markets, but still retained control by Beijing via local government ownership and an umbrella political Party structure. The interests of government, enterprise, and household are more aligned than the Western “always more markets, always less government” practice. China also shielded many industry sectors from global competition. It selectively opened markets by establishing special economic zones where foreign firms could operate with different rules than in the rest of the economy. This attracted investment and technology which it then forced the West to transfer by strong-arm tactics. Meanwhile, China heavily subsidized its exporters, price cutting foreign made products.
By clever adaptation of higher-order economic principles (which they diligently learned by inviting Western, — especially American, — scholars over, all through the three decades), but making up its own rules along the way, — most of which clearly violating WTO rules, — and running businesses through unfamiliar institutional arrangements, China made the West pay for its past century of humiliation, with interest.
So in leading the West on a three decade long Neo-Liberalism movement, the U.S. as a country got weaker, despite its 1% getting a lot richer. How did an idea that sounded so good produce such disastrous result? Simple: Policy makers three decades ago did not anticipate, as they should have from history, financiers and multinational corporations hijacking the idea for their own benefits. These benefits would have been kept within the Nation, per Adam Smith’s Invisible Hand, had the Nation’s economy been a closed system. But in a global economy, the benefits leaked abroad, — mostly wholesale to China. This happened not only to the U.S., but to the West at large. This process not only redistributed wealth but also power and control, globally. The policies and future of America are now largely influenced by China, via its incestuous interaction with America’s enterprises, academia, and policy makers. The same can be said about the West at large. China is doing what’s best for China; its “job” is not to do what’s best for the U.S. Problem is, American enterprises and policy makers are aiding and abetting China at the expense of what’s best for the U.S. This is the problem. Again, the West at large faces the same problem (e.g. Germany is a huge exporting nation. Its exporters, — notably the automakers, — and ergo some politicians are at odds with the populace on China policies).
Worse, policy makers might have fully anticipated and actually desired the “disastrous” results as a necessary step, along with crises along the way, to speed up the process toward One World Government.
Either way, it‘s no wonder that as a backlash to insecurity/inequality and loss of political values/ideals caused by Neo-Liberalism, ordinary citizens around the world that don’t want to lose their national sovereignty precipitated a populist movement. In the U.S., that translated to support for Trump and Make America Great Again. Similar populist movements were fervent all over Europe, — remember BREXIT, Five Star Movement, Gilets Jaunes, et al?
Then Covid came and halted all such movements in one fell swoop, taking 5M lives along the way and legitimized governments all over the world to impose lock down at will.
Well, Trump is gone now and Biden is taking the U.S. back on the path of One World Government, despite rhetoric otherwise. The U.S.’s continued weakening and China’s continued strengthening are a necessary part of this process. Make no mistake, the U.S. further weakened as the result of Biden’s inexplicable, hurried exist from Afghanistan, leaving behind not just a power void in central Asia but a staggering arsenal for the Taliban. China is the biggest beneficiary of this exit, filling the power void, ensuring its Belt Road Initiative and free flow of oil from Iran, strengthening its ties with (pro Taliban) Pakistan thus its position against India, and gaining access to Afghanistan’s rich rare-earth metal deposits.
The “left-leaning” who look to Big Government to administer fairness and justice, particularly in light of rampant enterprise malfeasance in the past three decades (Enron, Worldcom, Madoff, Lehman, AIG, et al) may deem One World Government not that bad. “More markets, less government” Neo-Liberalism clearly ran amok and caused severe wealth disparity and social instability; so it’s time to reverse direction. Enterprises clearly do not self-police through good governance and need to be beaten over the head; so let Big Government do the beating (witness China’s recent crackdown of its FinTech and other industries).
Well, these proponents need to bear in mind that China, — and not the U.S., — will be the blueprint for that One World Government. This means all citizens will be surveilled, tracked and scored. It is easy to imagine contact tracing being extended beyond the Covid context. It is also easy to imagine implementation of China-style movement restriction. All these practices go fundamentally against Constitutional rights held sacrosanct by Americans.
If we are to reject the One World Government concept, is there a way of strengthening our own government as a watchdog over enterprise malfeasance, while preserving our beloved liberty? Clearly not if our elected officials are all paid for and owned by the very enterprises, as proven the case in the past three decades. Not a single person went to jail from the 2008 Global Credit Crisis which wiped out half of most pension/retirement plans. Honest regulators like Sheila Baird of the FDIC got intimidated and forced out. Other regulatory bodies like SEC got de-fanged via drastic budget and staffing cuts. Meanwhile, three decades of Neo-Liberalism promoted by policy-makers enormously benefited the 1% at the expense of the 99%.
What we need is the return of honest politicians who put the Nation’s interest above personal financial interest. Only then can they properly regulate and redesign capitalism for the 21st century by formulating “beyond technocratic” economic policies with equality, social inclusion, democratic deliberation and justice in mind. In other words, we badly need return of patriotism, not to be confused with the Patriot’s Act which belies its name. The latter, born out of the 9/11 crisis, merely played on citizens’ fear to obtain their unquestioning acquiescence to government surveillance, body scans, frisk searches, SWAT team raids, even asset forfeiture in exchange for promise of safety and security.
Some may remember the movie Wall Street which depicts the “greed is good” culture “legitimized” three decades ago. This perverted Boomer “value system” has so permeated all levels of government, enterprise, even households since then that the few who don’t abide by it can’t fight the “system” anymore. In other words, the last honest CEO and patriotic politician left town a long time ago. The lobbyists on K Street actually run the government, via influence over virtually all the Boomer politicians in government today. We’re living Gilded Age 2.0.
The response to Gilded Age 1.0 was a farmer-organized populist movement to push back against the railroad industry, followed by Teddy Roosevelt’s “Square Deal” domestic policies, breaking trusts, regulating railroads, and protecting the average citizen in multiple ways, including pure food and drugs.
Today’s populist movements may have been halted but they are not dead. We will see a resurgence after lock downs lift. In tandem, true patriots among Millennials must replace the current crop of Boomer career politicians and petty bureaucrats wholesale in order to resurrect individual liberty around the free world. Here in the U.S., that means the money-controlled election process must first change. To do that, social media must be wrested from the control of their corporate masters (Facebook, Twitter et al) and supplant corporate “fake news” media (CNN, CBS, NBC et al). Only when information flow is that of truth instead of propaganda sound-bites can citizens meaningfully vote for the right candidates.
